We can go ahead and get started. My name is Clarke Jeffries. I am part of the technology research practice here at Piper Sandler. I am very pleased to have Brian Miller, EVP and CFO of Tyler Technologies. Thank you for joining us.
Thanks for having me.
Yeah. Welcome to Nashville. Those of you who might not be familiar with Tyler, maybe we can give us a little intro on where the business is at in 2026.
Yeah. Sure. If you are not familiar with Tyler, we are the leading provider of software for the public sector. We focus exclusively on the public sector. We have by far the widest set of solutions for public sector entities across federal is really small, but federal, state, and local governments. We also have by far the biggest customer base of anyone in the public sector. So we have about 50,000 installations of our products across about 16,000 different government entities. And about a third of our revenues today are also transaction-based. So we have a growing transaction business with payments that are embedded across our software solutions and other transaction-based offerings.
Just had an Investor Day in June, laid out new, updated, and raised targets for our 2030 Tyler vision, where we're talking about roughly a 20% SaaS CAGR through 2030, a 10%-12% transaction growth CAGR, and operating margins going from the mid-20s to the mid-30s over that time period. So laid out a lot of recent information about our plans there, and we're excited about the opportunities for us over the next few years.
Yeah. We'll absolutely get into the model transition and some specific levers within transaction and SaaS. But I think one of the big things we had talked about coming out of the pandemic were the new challenges for state and local governments. They're dealing with increasing incursion from cyber threats. They're working with a more distributed work policy than before. Just what are the main frictions and considerations that you see in your customers today? AI is a new wrinkle in all of this, and so what's new? What's the same about this market? We always get a question around budgetary-
Yeah
...cycles, but maybe you can just talk about the market in general.
Yeah. The market doesn't change a lot, and it's got a lot of characteristics that if you're in the government market, it's very attractive. But if you're not in it might be viewed as less attractive. I think the constant is the governments always need to do more with less. They never have enough budget, even in a really good economy, and when things are booming, there's never enough money or enough resources. So that's always a factor. Today, there's an awful lot of pressure around staffing challenges. They're going to get worse because governments are really facing a big wave of retirements over the next five years, the silver tsunami, they're calling it. But they really just don't have enough people to do the things they need to get done.
Part of the reason behind that is that often they have old technology. That they have inefficient processes that are governed by old technology. They do not have online access for citizen self-service. They struggle with remote work because of some of their systems, which also then leads to them struggling to hire people. A lot of this stuff is interrelated, but at the core, a lot of it has to do with staffing challenges and this general sort of theme or drive to improve government efficiency. DOGE obviously was a big talking point. But beyond DOGE at the federal level, there is a general goal of improving government efficiency, and technology is really the way they are going to do that, and that is good for us.
We are seeing people start to, in some cases, replace old technology sooner than when it absolutely has to be replaced when it is dying, but recognizing that there is an ROI and there are efficiency gains by updating their technology. AI will over time be one of those things.
Well, let us dive into sort of drivers of the business. One of the biggest pillars of the story over recent years has been that SaaS transition. You mentioned the Analyst Day that happened this year. One of the standouts, I guess in my mind, was the SaaS CAGR. We went from a high teens target to 20%. What specific items gave you the confidence in raising those targets? What are the inputs that went from 2023 to 2026, where we got to a 20% CAGR?
Some of it is the progress we have made from 2023 to 2025, and that we are sort of ahead of schedule. Some of it are the acquisitions we have made over that timeframe, and we kind of laid out in our capital allocation presentation how our acquisitions over the last five years have a CAGR that is about twice Tyler's core growth rate. The acquisitions we have made in recent years are growing at a 24% CAGR. As we continue to make acquisitions and along with the ones we have already made, they are contributing to higher growth. But when you look at kind of what builds up to that 20% SaaS CAGR, it is sort of a low teens growth from our new logo SaaS sales and expansions with our existing customers, including kind of the regular pricing we get. We also have very low attrition.
We typically over a very long period of time only have gross retention of 98%-99%. Our customers don't get acquired, and they don't go out of business. They are very sticky. We start out with a good starting point there. Low teens growth from new SaaS and expansion, and then mid-single-digit contribution from our on-premise customers flipping or moving to SaaS. We typically get a 1.7x uplift from maintenance to SaaS, so that's contributing mid-single digits on top of that. We expect that contribution to continue to increase over the next four to five years as we continue to make progress with migrating our on-prem customers. We've had 22 straight quarters of more than 20% SaaS growth, so we've got a pretty good base that we're working on.
We do expect the flip contribution to continue to increase over the next few years.
Yeah. Maybe we can talk about that in terms of another part of the targets that moved up was it used to be 75%-85% conversion, and now it's 85%+. What's the cadence of expected conversion now? I mean, top part of that bell curve or S curve. Specifically, I think we talk about this within the realm of there might be some, the largest customers, either the statewide court systems, that might be the last movers. But dollar-wise, how concentrated is it? Is that pretty much one of the bigger swing factors in when the timing will come through?
Yeah, that's certainly a factor in that pace of flips, moving from on-prem to the cloud. We do expect it to grow the volume and basically the dollar amount of maintenance that's converting to the cloud each year over the next three or four years. I think at one point, we viewed it as more of a bell-shaped curve progression, and now we view it more of a steady progression. It won't necessarily be a straight line, and the lumpiness of when the big customers, people who have multimillion-dollar annual maintenance agreements move, will make it a little bit lumpy. But we do expect there continue, over the next three to four years, a year-over-year increase in each of those years. It won't necessarily be linear. If you look at our current on-prem base, it is more heavily weighted to large customers.
We have, for example, 17 statewide court systems. Two of those were deployed in the cloud from the start, but of the 15 that were on-premise, only one of those has moved to the cloud so far. We have big customers like New York City's property tax system and Cook County, Chicago's courts and tax systems that are still on-prem. We do expect they will all move to the cloud, but they are more complex and have different considerations. We do see those more over the next tree to four years, and how they fall may make that progression a little bit lumpy.
Did any of those larger contracts have a longer duration as part of their consideration or flips? Or they are all at this point just maintenance?
Not really. Everybody is pretty much on annual maintenance agreements, so there is not really contractual considerations. There are a lot of different things that go into when somebody decides to flip. It could be hardware. It could be that they know that in 2028, they are going to have to replace a lot of hardware and their servers in their data center, and they do not want to do that, but that is when they are going to make the change. It could be just how it fits in their overall IT roadmap. The L.A. County, for example, largest county in the country, is a client for multiple Tyler products. They flipped their licensing and permitting system last year to the cloud, but their court system is much further down the road, just as they stage all of the things.
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that they have to manage. Sometimes, cybersecurity going the other way, accelerating a flip. Sometimes, cybersecurity is a big event. Somebody has a ransomware attack, and they want to move to the cloud, unfortunately afterwards. But also people that see their neighbors or the town next door suffering a ransomware attack and because their on-prem network is vulnerable, and then they want to move to the cloud. There are a lot of different considerations around each of them. I think the biggest thing in the near term, we have talked a lot about carrots and sticks or incentives and disincentives, which are increasingly being communicated to clients.
But just last quarter, we had a communication with every on-prem client, letting them know that over the next few months, we're going to be sitting down with each of them and starting to really map out a more concrete plan for their move to the cloud. That it's not an indefinite open-ended option to stay on-prem, and talking about what those incentives and disincentives are and what impact those will have. But really starting to more formalize that process, and not just let the inertia that can set in in public sector sometimes take place.
Yeah. Well, the other biggest component here is obviously that low teens you mentioned around new logo. Counterintuitively, governments aren't being created every day. There's very little change in terms of the composure of counties and systems. So what you're really talking about is penetration of logos.
I think from my vantage point, that just seems, it's so incredibly evergreen. We've seen that be the biggest portion of the SaaS growth for a very long time.
Yeah.
And so anything internal that you would say has been most meaningful about getting these customers from one or two products to some of the biggest consumers up to high single digits or low double digits? How can you continue to grow the SaaS base at low double digits off of basically upselling-
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logo penetration?
Yeah. There is a big opportunity, and if you looked at all of the governments across the country, every city, county, school district, all the state agencies, and looked at all the systems they're using to run all their back office functions, I think you'd find that probably half of those, maybe more than half of those, are legacy systems. They're systems that are either homegrown systems, some of these systems written in COBOL in the '70s. They are systems from vendors, on-prem systems from vendors who, if not out of business, are not competitive today. They don't have a cloud offering. At some point, they didn't invest in technology, so they don't have a product anybody would buy today. But they're still supporting a big part of the systems that are being used.
As those systems get to end of life and need to be replaced, they won't be replaced by the current vendor. That creates an opportunity. Now, on one hand, that's kind of hard to accelerate that, but it also creates this very steady, constant flow that is, like I said, at least half of the market that still will be replaced at some point in the not too distant future. So it creates that steady but never explosive growth. We continue to have strong win rates, very strong competitive position across the major functional areas of government. So we kind of win more than our share as those turn over, and we continue to gain share. But increasingly, as we go from that, so that's how we capture new logos.
But as we go from this two or three products per customer to eight to 10 products or suites of products, we have this opportunity by having the largest customer base out there of being able to really have an advantage when it comes time for them to buy that next product or the next product, and also to cross-sell within a suite of products. Someone that has our court system, selling them a jail system, a jury system, a probation system. There are a whole lot of structural reasons why we should have that advantage. The products are integrated. It creates an easier workflow for our customers. We have common elements like security and sign-on and dashboards and data and analytics layers, that make it easier to have more products from Tyler.
We've made some structural changes over the last couple of years to make sure that we're eliminating barriers to cross-sell. We've made modifications to our commission structures, our quota structures, go-to-market approaches to try to be in a better position to take advantage of the cross-sell and upsell opportunity. Also, as we make acquisitions or as we build things through internal R&D, it gives us more products to sell and cross-sell. I think over time, you'll see more and more of our growth coming from the existing customer base while we still kind of have that sort of constant opportunity to capture new logos, but more and more of an opportunity to expand within the existing customers.
Yeah. Let's turn to AI as sort of a monetization opportunity or a new application category for you. What are the top sort of commercialized AI products for you today, ones that can kind of create incremental revenue, and where's the highest adoption in terms of where in the customer base?
For starters, I'm impressed that we went 15 minutes without talking about AI. I kind of bucket our AI products in a couple of categories. One would be sort of our more mature ones, those that we've had for, in some cases, three or four years, that came from acquisitions, for the most part, that are generating more than $20 million a year of revenues today. These are things like, we have a product called Document Automation, which was the company we acquired that partnered with our courts group that basically automates data entry into the court system. We have a product called Priority Based Budgeting that uses AI to dig deeply into an entity's spending and help them better allocate budget funds to things that are higher priority and identify areas where they're spending money that doesn't meet their priorities.
Things that have high ROIs, kind of clearly demonstrate a lot of value, that customers are willing to pay for, and that are generally priced based on some sort of outcome-based pricing that reflects the kind of savings that they'll get. Then we have new opportunities, things that we're developing today that are more agentic solutions. We've talked about, at our Investor Day, we talked about a roadmap where by the end of the year, we should have around 25 new agentic solutions across our product portfolio. These are things that solve, again, product problems that our clients have every day, most of which are related to not enough people to do the work they have to do.
So things like an agent in our licensing and permitting system to review building permit applications, rather than waiting for a clerk who might have a six-month backlog of those applications sitting on their desk. Using AI to do something in minutes that would take a clerk days to do. It is not necessarily that they are going to go fire a bunch of clerks, it is that they do not have enough to start with, that they are short-staffed, and so there are these backlogs. These backlogs of cases waiting to be entered into the court system. Things like report writing for police officers in our public safety system using AI, but government-grade AI. Not ChatGPT, but something that they are comfortable with the data, how it is used, how it is protected, and the accuracy and the Trustworthy around very sensitive things like police reports.
Those are the kinds of things that we are rolling out. We have said that we will have these agents across our products at least in sort of the early pilots by the end of the year. Those will then progress to a broader pilot group that will serve as the initial references. In our space, they want to know it works somewhere else. They are very curious about AI, they are interested. They have a lot of concerns, but they also want those references. They want early adopters to say, "Yes, it works," to prove up the ROI case, the efficiency gains, and the reliability. We think we will be there by the middle of next year with a broader group of products, and so we are really talking about second half of next year before we start to see more meaningful revenues.
But making really good progress around it, and we are comfortable that we are going to be a winner with AI and that our customers want that from us.
Yeah. Well, I just have a follow-up, and then I would love to ask any questions that there might be for the room. I think this is the big discussion around this space, and obviously we as a market of investors and analysts and companies, we are trying to fully assess when shipping software went from scarcity to maybe getting accelerated and becoming not quite commoditized, but much lower hurdle. Does not that naturally mean that there will be companies that come out of the woodwork and aggressively throw an AI solution into verticals that may have not been attractive in markets before for a normal commercial go-to-market? So what do you see on the ground in terms of aggressive AI companies or these government customers trying to maybe feel the temptation to use ChatGPT rather than a government-grade solution? What is fact? What is fiction?
Yeah. A lot of that is fiction in the public sector, and some of that really goes back to the structural differences. Our customers are very risk averse. The technology adoption curve for anything, or the adoption curve for any kind of technology in our space, we have seen it with SaaS, is much lower than they will see in the private sector. Our customers are curious. We had a lot of talk about it at our user conferences last May. The sessions on AI, kind of introductions to AI, were packed. But they are really cautious about it. We are not seeing traction from new entrants in our space. We are seeing our customers say, "Yeah, we are hearing from people, but they are telling us we want it integrated with the system of record. We do not want it bolted on.
We do not want to have to manage that." Our customers do not have dev teams. They do not have people that are doing this work internally. They want it from someone they trust, and that trust is not only somebody that really has the domain expertise about these very complex workflows, whether it is how police officers do their job, how building permits are issued, how property taxes run. That deep domain expertise we have, they are very concerned about how their data is managed and protected, and where it might be used or where it might go if somebody else is in it. They are comfortable that we are going to do that. And obviously, we have got a sales channel and deep relationships, and we built a system of records.
All those things, not only do we think, but we are hearing from our customers that they would rather get that from Tyler. That lines up with the solutions we are bringing to market and how we see that playing out. There are some early adopters that are kind of leading edge people, but generally, they are not wanting to be the first to do anything.
Yeah.
They are waiting for Tyler to help lead them through that process, just as we kind of led them to the cloud and continue to do that.
Yeah. Any questions from the room? We'll continue on. Those production agents, I know it's early, and you're talking about later half of 2027 where it would be contributory to the revenue, but any use cases you think that could ascend to the level of the Document Automation or Priority Based Budgeting or resident engagement, things that have proven to be-
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kind of, call it eight-ish figure kind of ARR businesses for you.
Yeah. I think eventually, just because of the size of the customer base, we have thousands of ERP systems installed, so some of these things are not real sexy or not super exciting, but things like automating accounts payable, data entry of invoices into the accounts payable system. It'll be a SaaS uplift, but when you start to multiply that across hundreds or thousands of customers, they start to get more meaningful. We have hundreds of customers using our licensing and permitting systems, hundreds of public safety agencies using the police. Individually, these SKUs all we would expect to be uplifts to their SaaS fee, but collectively, we talk a lot about really this kind of opens up a whole new TAM for us, and that's the labor budget.
We've typically focused on their IT spend and their IT TAM, but we're seeing real situations where our clients are paying for the AI solution out of their labor budget. Fort Worth, Texas, Tarrant County, with Document Automation, said, "We are taking this out of the labor budget. We have dollars in the labor budget for these roles, we just can't hire enough people, attract enough people, or keep them. So we'll take some of that budget and pay for the AI solution." They went as far as to give it an employee name and ID number to further emphasize that. There are some other places that are unionized where they're facing other hurdles because even though they may have the same problems, there's more pushback on something that could potentially replace people.
Seeing different approaches there, but if you look at the total labor TAM just with our existing customers, it's a multi-billion dollar TAM for those kinds of solutions that could be replaced. That's over a long period of time, but we think that's a really big opportunity.
Perfect. Last one to take us out. I think a lot of the time from 2023 to the most recent Analyst Day was getting groundwork laid, exiting data centers, conversion consolidation. We've talked about cloud living as something you're trying to embody going forward. But what are you most excited about in 2027? Is it things we've already talked about in agentic? Is it getting to that point of cloud living? What kind of rises to the top for you?
Yeah, I think it's continued progress on all those drivers of margin that we've talked about. I think progress with AI particularly, and I think we're looking forward to starting to demonstrate some of the proof points along the way that'll help continue to make the point that we're going to be a winner with AI, and it's an opportunity for us as opposed to a risk, and that we can continue to try to dispel that kind of overriding concern about AI being a threat to SaaS companies. Then I think the last thing that we're excited about that we control is our capital allocation, and we've been very aggressive about buying stock over the course of this year and are continuing to. We had a billion-dollar authorization in February that we've now completed and now have a new $1.5 billion authorization that we're active with.
It's one of those opportunities for us that we've seen similar opportunities in the past at times where we've been able to be very aggressive about buying stock back with great results, and this is one of those times.
All right. Brian, really appreciate you coming out to Nashville.
Yeah. Thank you.