• Total Revenue: $541.1 million, up 12.5% year-over-year.
• Recurring Revenue Growth: Nearly 15%, driven by SaaS revenue growth of 23%.
• Transaction Revenue: Grew nearly 21% to $175.4 million.
• Non-GAAP Operating Margin: Expanded to 24.4%.
• Free Cash Flow: $216 million, a new high for a fourth quarter.
• New SaaS Contract Value: Approximately $141 million, up 37% over last year.
• Total Annualized Recurring Revenue: Approximately $1.86 billion, up 14.9%.
• New SaaS Arrangements: 150 new arrangements and 106 flips of existing clients.
• Average ARR from New SaaS Contracts: Increased 63% over last year.
• Cash and Investments: Approximately $779 million.
• Convertible Debt Outstanding: $600 million.
• 2025 Revenue Guidance: Between $2.30 billion and $2.34 billion.
• 2025 Non-GAAP EPS Guidance: Between $10.90 and $11.15.
• 2025 Free Cash Flow Margin Guidance: Between 24% and 26%.
• 2025 Subscription Revenue Growth Expectation: 15% to 18%.
• 2025 SaaS Revenue Growth Expectation: 21% to 24%.
• 2025 Transaction Revenue Growth Expectation: 10% to 12%.

• Warning! GuruFocus has detected 8 Warning Signs with TYL.

Release Date: February 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Tyler Technologies Inc (NYSE:TYL) reported a strong fourth quarter with recurring revenue growth of nearly 15%, driven by SaaS revenue growth of 23%.
• The company achieved its 16th consecutive quarter of SaaS revenue growth of 20% or more, with 97% of new software contract value in the cloud.
• Transaction revenue set a new quarterly high, growing nearly 21%, and the non-GAAP operating margin expanded to 24.4%.
• Free cash flow significantly exceeded expectations, reaching $216 million, marking a new high for a fourth quarter.
• The company continues to lead in cloud adoption, with notable multi-product SaaS contracts and increased momentum in public safety solutions.

Negative Points

• The wind down of the Texas payments processing contract, which expires in August 2025, is expected to impact transaction revenue growth.
• Maintenance revenue is expected to decline by 4% to 6% due to the ongoing shift to SaaS and acceleration of client flips.
• Professional services revenue is projected to be flat or down by 3%, reflecting efficiencies in cloud transition implementations.
• License revenues are expected to decline by 18% to 20%, with very few new license sales anticipated.
• Research and development expenses are expected to grow significantly, driven by redeployment of resources and incremental funding of AI initiatives.

Q & A Highlights

Q: Could you elaborate on the expansion of the payments partnership with Fiserv and its implications for Tyler's margin outlook? A: H. Lynn Moore, President and CEO, explained that Tyler's strategy is to avoid commoditized payments, focusing instead on differentiated offerings that integrate with back-office systems to drive higher margins. The partnership with Fiserv allows Tyler to leverage advanced technology, enhancing capabilities like fraud protection, which ultimately supports higher margins.

Q: How are you investing in AI, and what role does AWS play in these investments? A: H. Lynn Moore noted that Tyler is partnering with AWS for AI roadmaps and cloud initiatives. The company is investing in AI through new and repurposed headcount, with plans to integrate AI features across all major applications, which will be showcased at the Tyler Connect conference.

Q: Can you provide insight into the visibility on client migrations to the cloud and the impact on maintenance revenue? A: Brian Miller, CFO, stated that migrations are broad-based across product lines, with public safety seeing a rapid increase. The company expects peak migrations in 2027-2028, with decent visibility into the process, driven by factors like cybersecurity concerns and hardware replacement needs.

Q: How should we view the impact of strong cash flow in 2024 on future years, and when will cash flow growth ramp up again? A: Brian Miller explained that 2024's cash flow was boosted by unusual items like a prepayment from Kentucky and timing of client funds. Excluding these, the normalized cash flow margin was 24.3%. The company expects continued margin expansion in 2025, progressing towards long-term targets.

Q: What is the impact of the Federal Department of Government Efficiency (DOGE) on Tyler's business, and how does federal funding affect state and local budgets? A: H. Lynn Moore views DOGE as an opportunity rather than a risk, as it aligns with Tyler's focus on government efficiency. Brian Miller added that federal funding has minimal impact on local budgets, which are primarily supported by local taxes and state funding.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.