泰勒科技 (TYL) 2025 Q4 法說會逐字稿

Ladies and gentlemen, hello, and welcome to today's Tyler Technologies fourth-quarter 2025 conference call. Your host for today's call is Lynn Moore, President and CEO of Tyler Technologies. (Operator Instructions). As a reminder, this conference is being recorded today, February 12, 2026.

I would like to turn the call over to Hala Elsherbini, Tyler's Senior Director of Investor Relations. Please go ahead.

Thank you, Abbie. And welcome to our call. With me today is Lynn Moore, our President and Chief Executive Officer; and Brian Miller, our Chief Financial Officer. After I gave the Safe Harbor statement, Lynn will have some initial comments on our quarter and then Brian will review the details of our results and our annual guidance for 2026. Lynn will end with some additional comments, and then we'll take your questions.

During this 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-K and other SEC filings for more information on those risks.

Also, in 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 have also posted on the Investor Relations section of our website under the Financials tab and judgment to the financial information, including information about our quarterly recurring revenue and bookings.

On the Events & Presentations tab, we posted an earnings (inaudible) slide deck to supplement our prepared remarks. 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, Hala. Our fourth-quarter results provided a solid finish to 2025. And a year that demonstrated the resilience of our business and end markets. Throughout 2025, we demonstrated what decades of disciplined execution look like, navigating shifting macro sentiment while advancing our strategic priorities and delivering on key performance metrics. Recurring revenue growth and free cash flow are two key metrics, both surpassed expectations in the fourth quarter.

Recurring revenues grew 11%, led by SaaS revenue growth of just over 20% and transaction-based revenue growth of 12%. Free cash flow was a fourth-quarter record, up nearly 10%, with our free cash flow margin expanding to an exceptional 41%. Public sector market fundamentals and the demand environment remains strong.

Generally healthy budgets are supporting an active pipeline and RFP and sales demo activity remain at elevated levels as agencies prioritize modernization of aging mission-critical systems, essential to their digital transformation, workforce optimization, and efficiency initiatives.

Our sales organization delivered solid execution in the fourth quarter as total SaaS bookings grew 9.6%. In particular, we saw strong momentum from flips of on-premises clients to the cloud. Both the number and the value of Flips signed during the quarter represented new quarterly highs. Annual contract value from flip signed this quarter rose 64.5% over last year and 54.8% sequentially.

We are well positioned to capitalize on the significant opportunities ahead, supported by a proven business model and clear competitive advantages. Our four key growth pillars guide our execution, completing our cloud transition, leveraging our large client base, growing our transactions business, and expanding into new markets. Our transaction-based business continues to be a significant growth driver, and I want to highlight the progress we made during 2025.

We consolidated our payments operations across Tyler under our new industry-proven leader, Ryan O'Connor, executing a unified payment strategy that positions us to capture greater value and drive operational efficiencies.

We are focused on value-added transaction services that are deeply embedded in our software solutions across multiple use cases like utility billing, municipal courts, licensing and permitting, property taxes, and parks and recreation. This full end-to-end integration provides significant value for our clients by streamlining operations and improving citizen experiences, while also creating a differentiated competitive position for Tyler.

Now I'd like to highlight a few fourth-quarter wins that illustrate progress against our growth objectives with a broader list of key deals included in our quarterly earnings deck. We expanded our relationship with one of our major state enterprise clients, signing contracts for digital motor vehicle titling, which will be transaction funded and SaaS contracts for a state-wide cash steering solution as well as our recreation dynamics and Data & Insights solutions.

In Alabama, we signed SaaS contracts for our enterprise ERP solution with two of the state's largest school districts, Jefferson County Schools and the Huntsville City schools. We also signed a SaaS agreement for our Enterprise GL solution with Riverside County, California, an existing court software client. I mentioned earlier, it was one of our biggest quarters ever for flips. Contracts signed in Q4 for flips of on-premises clients included L.A. County, California, flipping their enterprise permitting licensing system while also adding our fire prevention mobile solution in the cloud as well as payments.

Enterprise public safety flips with the cities of White Plains, New York and Beverly Hills, California, our first public safety flip in California, two of the six largest counties in Texas Travis County and Collin County signed a contract to flip their enterprise Justice solutions. Contra Costa County, California, also is flipping their enterprise justice solution, while adding traffic court, including payments to their portfolio of Tyler solutions. And enterprise ERP flips with Marin County, California and Madison, Wisconsin.

We also continue to see sales success in transactions with key wins and an active pipeline of opportunities that reinforce the strength of our unified payment strategy. Key fourth-quarter wins included a payment contract with Multnomah County, Oregon, an existing appraisal and tax software client. We also signed a contract with the State of Maryland Administrative Office of the Courts, an existing enterprise justice software client for payments and disbursements.

Finally, our state sales team is building early momentum, opening new doors and advancing strategic statewide opportunities. Through strong internal alignment and collaboration, we signed a statewide contract this quarter with a New Mexico Department of Corrections for our inmate services financial suite and warehouse management administration suite.

Now I'd like Brian to provide more detail on the results for the quarter and our annual guidance for 2026.

Thanks, Lynn. Total revenues for the quarter were $575.2 million, up 6.3%, during the quarter, we recorded a onetime noncash loss reserve related to a contract dispute with a state government client. In early 2022, we received a notice of termination for convenience under a software license contract with that client.

Upon receipt of the termination notice, we ceased performing services and sought payment of contractually owed fees in connection with the termination for convenience. This type of dispute is very unusual for us, and we have disclosed its existence in our financial statements since 2022. Since then, we have attempted to resolve the dispute and filed a lawsuit to enforce our rights and remedies under the contract.

Although we believe our products and services were delivered in accordance with the terms of our contract and that we are entitled to payment in connection with the termination for convenience, at this time, the matter remains unresolved. While we are continuing to pursue our claims, we have no remaining balance sheet exposure.

The reserve resulted in the reversal in the fourth quarter of approximately $8.8 million of license revenues and $900,000 of professional services revenues. There is no impact on recurring revenues or cash. Excluding the impact of this reserve, revenue growth in the quarter would have been 8.1%, and our operating margin would be 120 basis points higher and EPS would be $0.17 higher.

Subscriptions revenue continued to exhibit strength and increased 16.1%. Within subscription, SaaS revenues grew 20.2% and eclipsed $200 million in a quarter for the first time. As we've discussed previously, there is often a lag of one to several quarters from the signing of a new SaaS dealer flip to the start of revenue recognition. Because of this, as well as the timing of SaaS renewals and related price increases, SaaS revenue growth in SaaS bookings, both year over year and sequentially, may fluctuate from quarter to quarter.

Transaction revenues grew 12.1% to $196.7 million, driven by higher transaction volumes for both new and existing clients, increased adoption and deployment of new transaction-based services and higher revenues from third-party payment processing partners. As previously discussed, revenues under the Texas payments contract ended in Q4.

Actual revenues from the contract in the fourth quarter were approximately $3 million which is almost $4 million less than we anticipated going into the quarter. Total bookings in Q4 were solid at $601 million, essentially flat with last year's fourth quarter against a very difficult comparison. For the full year, total bookings grew 1.4%. Total SaaS bookings, including new SaaS deals flips of on-premises clients, expansions, and renewals grew 9.6% year over year.

As we've discussed previously, last year's fourth-quarter bookings included an unusually high number of large deals, including a $25 million eight-year agreement with the state of Maine as well as some pull forward of deals because of deadlines for the commitment of federal ARPA funds.

Bookings growth this quarter was driven by strength in flips, expansions, and renewals coupled with solid new client activity. Total SaaS bookings for the full year grew 4%. Annual contract value from flips signed this quarter was $28.1 million, up 54.5% over last year and up 54.8% sequentially from Q3. Our total annualized recurring revenue was approximately $2.06 billion, up 10.9%. Our non-GAAP operating margin was 24.1%, down 30 basis points from last year.

For the full year, our non-GAAP operating margin was 26%, up 150 basis points from last year, reflecting a continued positive shift in revenue mix towards higher-margin SaaS and transaction revenues and efficiency gains across our cloud operations. Cash flows from operations and free cash flow were both robust and reached new highs for a fourth quarter at $243.9 million and $236.9 million, respectively.

For the full year, free cash flow was $620.8 million with a free cash flow margin of 26.6%. We ended the quarter with cash and investments of approximately $1.16 billion and $600 million of convertible debt outstanding, which we expect to repay when it matures in March.

Our annual guidance for 2026 is as follows: We expect total revenues will be between $2.5 billion and $2.55 billion. The midpoint of our guidance implies growth of approximately 8.3%. We expect GAAP diluted EPS will be between $8.36 and $8.61 and may vary significantly due to the impact of discrete tax items on the GAAP effective tax rate.

We expect non-GAAP diluted EPS will be between $12.40 and $12.65. Our estimated non-GAAP tax rate for 2026 is expected to be 23.0%, up 0.5% from 2025. We expect our free cash flow margin will be between 26% and 28%. We expect research and development expense will be in the range of $242 million to $247 million. Other details of our guidance are included in our earnings release and in the Q4 earnings deck posted on our website.

I'd like to add some additional color around our revenue guidance. We're pleased that our SaaS and transaction revenues are growing in line with or ahead of our 2030 objectives and that lower margin revenues like services and hardware are growing at a slower rate. Subscription revenues in total are expected to grow between 12% and 15%. Within subscription, SaaS revenues are expected to grow between 20.5% and 22.5%. Transaction revenues are expected to grow between 5% and 7%.

As we've discussed for some time, our payments contract with the State of Texas ended in the fourth quarter of 2025. Transaction revenues from that contract totaled approximately $36 million in 2025. Excluding the impact of the Texas contract, our expected transaction revenue growth in 2026 would be between 10% and 12%, and our expected total revenue growth would be between 9% and 11%.

Maintenance revenues are expected to decline 5% to 7%. Professional services revenues are expected to grow 3% to 5%. License revenues are expected to grow 15% to 17%. Excluding the impact of the contract loss reserve recorded in the fourth quarter of 2025, license revenues would be expected to decline 30% to 32%.

Hardware and other revenues are expected to decline 17% to 19% as 2025 included revenues associated with deliveries of hardware under two large contracts for our student transportation and enforcement mobile solutions. Also note that our guidance does not include the impact of any potential acquisitions in 2026, including the recently announced pending acquisition of For The Record. While we expect that transaction to close late in the first quarter, it is subject to regulatory approval, and the timing is therefore uncertain.

Now I'd like to call -- turn the call back to Lynn.

Thanks, Brian. I'm pleased with our fourth-quarter performance, closing the year of solid performance that exceeded our expectations. I remain confident in our ability to deliver sustained growth through our unique competitive strengths that position us to lead our clients' digital transformation through enhanced cloud capabilities and elevated client experience at every touch point and the next wave of AI modernization.

I'd like to provide a few brief updates on AI. As we discussed during our third-quarter call, there's a lot of noise in the market. But in the public sector, technology alone doesn't win. For more than 25 years, Tyler has guided clients through successive ways of transformation and our approach remains the same: deep domain expertise, trusted client partnerships, and disciplined execution. We're seeing that approach translate into real adoption.

Over the past year, the Tyler resident AI assistant has gone live in six states: Alabama, Hawaii, Indiana, Mississippi, Nebraska, and South Carolina, strengthening our broader resident engagement portfolio and making digital government more accessible and responsive. Indiana continues to be a strong proof point, with approximately 17,000 residents using the assistant each month, generating nearly 50,000 questions directed to government services.

That level of sustained usage helps agencies manage a high volume of routine questions through self-service, reducing the need for manual responses and freeing staff time for higher-value work. We also saw continued commercial momentum with our AI-enabled solutions in Q4. Highlights included contracts for priority-based budgeting with the Alabama Department of Corrections in the city of Plano, Texas. We also signed a contract with Fairfax County, Virginia for our AI Resident Assistance solution, our first resident assistant win at the county level.

On the product side, we are transitioning agentic AI from concept to disciplined deployment. In Q1, we will initiate early access with select customers, integrating agentic capabilities directly into our enterprise permitting licensing and supervision platforms. By embedding AI into the operational workflows that drive daily decision-making, we expect to unlock significant efficiency and service improvements.

Following validated performance with early adopters, we plan a phased expansion through 2026 and beyond. Importantly, we're building this road map together with clients. Our enterprise ERP AI Client Advisory Board held its initial meeting last month, reinforcing feedback we've also heard in forums like last year's Tyler Connect, our Course and Justice Executive Forum and our state Connected forum.

Clients don't want bolt-on tools that add complexity. They want practical AI that is deeply integrated to the systems they already run, governed appropriately, and have solve real-world problems in a dependable, trusted way. That's exactly where Tyler's deep domain expertise, trusted partnership, and disciplined execution differentiates us and why we believe no one is better positioned to deliver it.

As we grow free cash flow, we remain highly focused on our disciplined capital allocation and being responsible stewards of Tyler's capital to drive long-term shareholder value. We continue to balance investments across multiple areas by making targeted investments in product development and R&D with particular focus on improving cloud operations and scaling AI solutions that demonstrate clear ROI for clients.

We're also building enhanced feature sets that advanced product differentiation and reinforce our market leadership while maintaining disciplined spend that drives both innovation and internal efficiency. During 2025, we completed four strategic acquisitions that deepen our capabilities and expand our addressable market.

We recently signed a definitive agreement to acquire For The Record, a digital court recording pioneer with over 30 years of experience as a trusted category innovator. We've had a minority investment in For The Record since 2015, a natural extension and significant addition to our Courts & Justice portfolio. Courts & Justice elevates agencies with an advanced platform, including AI-powered multilingual transcription technology that perfectly complements our own court room technologies, solving a critical need for a court reporting industry that faces growing challenges.

Its proprietary cloud-enabled software is specifically designed for the complexities of today's courtrooms and will help create a seamless courtroom ecosystem, expanding efficiencies for judges, clerks, and attorneys.

By bridging the data courtrooms generate every day with the digital case file and accelerating task that data can inform through AI, these solutions offer a new category of judicial intelligence to our offerings. We look forward to welcoming the team after closing and to working together to drive our shared mission of improving access to justice through transformative technology and deliver a truly comprehensive solutions that benefits the industry.

Last week, we announced our Board's authorization of a new share repurchase program of up to $1 billion, replacing our previous repurchase authorization. This announcement underscores our confidence in the trajectory of our business and reflects our view that Tyler shares represent an attractive value at current levels. Our reliable cash flow generation and extremely strong balance sheet enable us to opportunistically return capital to shareholders while continuing to invest for sustained growth.

Each year, we become foundationally stronger and better positioned to execute on our long-term growth strategy, and we remain on target to achieve our 2030 goals. We look forward to updating our progress toward our 2030 objectives and providing additional insight into our purpose-built AI strategy and broader strategic initiatives during our upcoming Investor Day scheduled for June 9 in Frisco, Texas. We hope to see you there.

Now we'd like to open up the lines for Q&A.

(Operator Instructions) Matt VanVliet, Cantor.

Thank you for taking the questions. I guess kind of a multipart question on SaaS flips. I guess, how should we think about the level this quarter on a go-forward basis? Is this kind of a new baseline, given the success you've had and the ability to help do those flips quickly and efficiently for customers?

And then the second part with that, how should we think about any upcoming renewal cohorts. Anything to call out from a size or quantity there that might influence a greater success on the flip side? And how tight has that been so far?

Yeah, Matt, on the first part, we don't guide to a flip number. We have said that we expect flips to continue to grow from the level they're at now. They certainly can vary from quarter to quarter. And we've said that we still expect the peak, especially with respect to large clients to be in the 2027 through 2029 timeframe. But I guess it would be accurate to say that this is the base that we expect to continue to grow from.

I don't think there's anything particular to call out around renewable cohorts. We obviously have very high renewal rates. The timing of renewals varies across the year. We are having continued success and Lynn mentioned a couple of those flips that had add-on components to them. So we are having continued success with selling additional products and services to existing clients as they flip to the cloud, and we expect to continue to expand that opportunity.

All right. Great. Thank you.

Joshua Reilly, Needham.

All right. Great. Thanks for taking my question. As we think about the ACV from new SaaS deals, can you remind us the comp issues for Q4. It seems like that was a good number adjusting for the large deal activity a year ago. And I know you don't guide to it, but should we expect growth of that $53 million figure that you did in 2025 and 2026.

Yeah. We don't guide to specific bookings numbers, but we do expect bookings to grow -- SaaS bookings to grow in 2026. And we've given some commentary on the market conditions that support that expectation. And Q4 was a really good solid sales number. Last year's fourth quarter as a reminder, had a number of large deals, especially deals that were multimillion-dollar SaaS deals.

The biggest was a $25 million eight-year deal with the State of Maine for resident engagement portal. We had an $11 million deal with Kenosha, Wisconsin for ERP and three other deals that were over $4 million. Also, those deals last year had a longer duration. This year, the average duration of a SaaS -- the new SaaS deals was closer to -- are sort of standard at 2.3 years. Last year, it was 3.7 years.

So there was a duration component to last year's bookings as well as just an unusually large number or a high number of large deals. This year, the mix of deals, the number of large deals was, I'd say, more normal.

I'd say too, Josh, the individual factors that still go into a client's decision to still exist. But I do think one of the factors, one of the things I talk about, whether it's flips or other things around Tyler is momentum builds momentum and the more success that clients see their neighbors and peers having helps with that decision. But there's still sometimes budget concern budget issues or technology issues or version issues that we're still dealing with. But clearly, the more success we have, it will continue to build and create more success in the future.

Thank you.

Terry Tillman, Truist.

It's a two-part question. I saw on one of the slides on some of the deal activity. It was the state sales team in New Mexico did a corrections deal. I know you've all been working on building out some of the kind of state-focused sales teams more to get more out of the opportunities you have there. So maybe if we could double-click into that?

And the second part of the question, somewhat unrelated is -- when we look at the SaaS revenue, you gave the guide for '26. Is there any way to think about sequencing each quarter? I mean, could there be quarters where it's sub-20, some quarters where it's well above 20%? Just anything more you could share on kind of the flow.

Yeah. Sure, Terry. I'll start. Brian, I'll let you take the second one. Yeah, our state sales team, this was an initiative we really started a little over a year ago. It's taken some time to sort of build out, and we're still in the early stages of it. But we're pretty excited with the results that we've seen so far. The collaboration across Tyler, the ability for that state sales team to leverage their relationships to get Tyler products in through those connections.

It's one of the reasons we acquired NIC to begin with. That deal in New Mexico is a deal that doesn't happen without that state sales team and its collaboration across them and a couple of other divisions. But the state sales team also had really good sales success in Q4. We don't often talk about -- we don't really actually don't (inaudible).

We don't talk about awards. We only talk about bookings. But generally speaking, the success of that sales team had in Q4 was really encouraging, particularly with some larger deals, over $1 million in ARR. Some that take time to ramp up, some that can expand over time.

But we're excited about where it is, but we're early innings with that. And -- but it's something that I think we're going to continue to leverage over the upcoming years.

And yeah, the midpoint of our guidance for SaaS growth is 21.5%. I don't think there's anything in particular that stands out with respect to any single quarter being varying a lot from that 20%-plus range. It can vary with timing of that lag from when we sign something to when the revenues actually hit as well as the timing of flips. But generally, I think growth would be expected to be fairly consistent across the year.

Great. Thanks.

Alexei Gogolev, JPMorgan.

Can you talk a bit more about the partnerships that you have with various ad players? You mentioned topic last quarter. Maybe you can elaborate on the recent evolution of those partnerships.

With the partners we use in conjunction with our AI development activities. We do work with Anthropic and AWS and with Microsoft and OpenAI. We have active relationships with all of those major players in connection with the development work we're doing to bring AI into our products.

Ken Wong, Oppenheimer.

Fantastic. Thanks for taking my question. You guys called out the tough comp through most of 25% due to the ARPA pull forward. As you guys look to '26 how comfortable are you that that ARPA dynamic was kind of limited to just that 12-month timeframe. Any potential that there are some deals in the pipeline that came out of '26 and beyond?

Ken, yeah, I don't -- it's obviously early in '26. I think what I would say generally, when I look at the market and the leading indicators. The market looks really healthy right now. Our win rates continue to be strong. We talked earlier last year, particularly in the first half of the year, where there was a little bit lighter bookings. And at the time, we were saying there really wasn't a change in the market.

There was just more of a delay. We talked about an ARPA hangover. We also talked to for whatever reason, some decisions just weren't being made. When you step back and you look at these leading indicators, for example, in our public administration group, 2025 saw the highest number of RFPs that we've seen in five years.

Now RFPs take a long time to work their way through, to work through an award, to work through a contract, to work through revenue, but that's a pretty good leading indicator. Our sales, like I mentioned earlier, we don't like to talk about awards, but sales activity improved sequentially throughout 2025 and into Q4 of 2025.

We mentioned some things going on with the state sales team. So -- and also really, really strong sales at our public admin group. Our Justice group tends to be a little bit lumpier. Public safety has got a lot of momentum. So what we're seeing in the market is a good, healthy demand. We're not seeing anything at this point of delays on deals, and it gives us confidence in the plan that we've put out.

Fantastic. Thank you for the color.

Michael Turrin, Wells Fargo Securities.

I wanted to just go back to the SaaS revenue line there. Given the initial guidance looks for a bit of a reacceleration in the coming years. So Brian, I wanted to just understand the context of that a bit better. You've mentioned flips, how big a factor are those and how much visibility do you have into that line given current bookings trends into the coming year?

Yeah. I think at the end of Q3, when we gave our sort of initial look into 2026 SaaS revenues and talked at that point about confidence that that growth would be above 20%, and now our actual guidance is in that 20.5% to 22.5% range. We talked about the factors that build up to that revenue growth. The majority of that I think around 13% of the growth comes from -- or 13% growth comes from things that are already booked at the end of the year. And some of those are things that we signed even going back into the second half of 2024.

So whether it's the revenues from those deals actually starting and -- or those that we had a partial year of revenues for in 2025, now having a full year of revenues in 2026. So a sizable portion of that growth comes from things that are already in hand. And as we've talked about, the bookings grew sequentially fast bookings throughout the year. And so that -- we have a high degree of confidence and there's still some movement around the timing, but those would be pretty well in hand.

About 3% to 4% will come from flips. We have a pretty good view of those flips based on either things are already in the works with clients or conversations we're having with clients around the timing of those flips. So fairly good confidence around the flip number. and then the balance comes from -- a much smaller part actually comes from new bookings that are in our pipeline that we'll sign in 2026 and have [partial] of your revenues from.

So I'd say our visibility is similar to what we've had in prior years. But with the majority of that coming from things that are already booked, we have pretty high confidence around that growth.

Yeah, Michael. I mean, we take a bottoms-up approach, as Brian said, and you take your existing run rate, you've got the uplift from that. You've got full value run rate. We had some flips last year that got pushed that were in our plan that we're expecting to happen this year. And then obviously, new clients will contribute somewhat this year and then more meaningfully in 2017.

Thank you very much.

Saket Kalia, Barclays.

Okay. Great. Thanks for taking my questions here. Brian, I actually thought the duration point that you made on SaaS bookings was really important. And I think that was a new disclosure or maybe just emphasize more. And the reason why I say that is a lot of us look at SaaS bookings, which, to your point, were up 4% for '25, but I think by my calculations, duration actually went down by nearly 40%.

And so maybe the question is, is there a way that you think about the annualized value of SaaS bookings because I think the view is that 20% -- I mean, we just heard in prior questions, the view is that 20% SaaS revenue growth is going to be tough to do given mid-single-digit bookings growth, but it feels like duration is a significant headwind. So can you just talk through that dynamic a little bit?

Yeah. I mean, in terms of total SaaS bookings, the duration especially in the last two quarters of this year was a significant headwind given not only just the number of large deals with a number of deals that had sort of longer than our standard term, we generally lead with three years on new SaaS deals, and we've had some of those in last year, especially the main deal, the largest deal had an eight-year term to it. So that has been a factor in the total SaaS growth.

In Q4, actually, if you look at the annual contract value from new deals and flips that grew 12% year over year. And so when you take out the duration factor, the growth was higher than the total SaaS growth. So you're correct in your observation and we would expect that duration sort of normalizes more towards that three-year standard, but it is -- it does mask a bit of the strength in the last quarter's bookings.

Very helpful. Thank you.

Alex Zukin, Wolfe Research.

Thanks for taking the question. I guess maybe two for me. The first one around maybe just bookings growth expectations on an annualized basis for fiscal 2016, as you kind of sit here today, can you just give us a sense for the -- you've mentioned the buying environment improving, but are you seeing any accelerating sales cycles driven by either increased want for AI adoption or increased fear around other factors driving a faster time to SaaS conversion.

And to the extent that, again, we're not used to the SaaS revenue guidance yet relative to the many years prior being moved up this quickly. How should we think about the linearity and seasonality of the SaaS business? And is this a metric you would expect to kind of update higher every quarter or as we move closer through the year, kind of should we rein in our expectations on that front.

On -- well, we don't guide to a bookings number for next year. We -- other than the statement we said we expect SaaS bookings to grow in '26 over 2025. And as we've talked about the market conditions, the activity in RFPs, the strength in our pipeline, all give us confidence around that.

I think we expect the growth to be fairly consistent across the year. And that does -- each quarter, there's really solid sequential growth in SaaS revenues. And other than that, I don't think there's much more to add. I don't know yet that we'll modify guidance throughout the year as we always do based on conditions. But the other thing as we pointed out in the prepared remarks, the FTR acquisition is not included in our current guidance.

We'll revise our guidance after that closes and the timing of that is uncertain, although we expect that to be towards the end of the first quarter, but it is subject to regulatory approval. So that as well as any other potential acquisitions are not included in that guidance number.

Yeah. So Alex, we --

Got it.

I mean, not a surprise, but we obviously have internal sales numbers, internal bookings numbers, not just for '26, but actually multiyear. The further out you get, the harder it is. But -- we have all that internally that we drive towards. But again, we don't publish that. So we don't generally publish awards.

As your question around an accelerated sales cycle, I don't think we're seeing anything that's either slowing cycles down or accelerating them at this point, I would say, in that respect, it's more of a back to normal, whereas earlier last year that might not have been the case. But I think sitting here today, it's kind of business as usual in that regard.

Yeah. I think in the current year, we're not seeing any meaningful impact of AI, either driving accelerated growth or slowing growth public sector certainly has a high interest in AI, but typically are not the first adopters. So we think more of the impact on sales comes further down the road.

Got it. And then maybe just one on the free cash flow and capital allocation. On free cash flow, just maybe contextualize the free cash flow margin guide. I think there's still a cash tailwind from no incremental cash tax payments tied to the R&D impact that you lapped. But what's driving the starting guide?

Is that conservatism? And then on capital allocation, look, the buyback is one of the biggest you've ever done, certainly in the last few years. Is that also a statement in any way around tempering M&A enthusiasm or kind of how are you looking to balance that going forward?

You want to start off the first one?

Yeah, I'll start with the free cash flow. We certainly expect free cash flow in absolute dollars to grow. We expect the margin to expand as well -- so the range of free cash flow growth is from a margin perspective, is 1 point higher than the range last year. There are a lot of different puts and takes around it. Growth in earnings are the primary driver of that. So that's the primary starting point.

Cash taxes, there's some movement around that. I think we expect state taxes and some of the federal tax benefits to -- from a cash perspective, to be a little lower than we had previously anticipated. The cash tax is a little bit higher, I guess, is the way I should say it, but generally, the earnings growth is the biggest driver there.

And Alex, on capital allocation, buyback, I would say one of the things I'm actually most excited about right now is our balance sheet. Our balance sheet and free cash flow at the strongest point they've ever been that I've been at Tyler -- and that leads to two things.

Clearly, it leads to M&A opportunities, which we're closing on a deal that I think we announced the purchase price was north of $200 million. At the same time, announcing a significant share repurchase authorization. We closed four deals last year. That gets me excited. Our 2030 goal is to get to $1 billion in free cash flow.

And when you think about the free cash flow we're going to generate over the next four to five years and the opportunity that creates Tyler, in our unique leadership position to invest in the things that we're doing, whether it's additional AI or product R&D or it's through M&A that's bringing new competitive stuff in or the share repurchase, it puts us in a really good position, particularly in a market right now where there's noise.

There's noise in the software market, and I view that as an opportunity. It's an opportunity for us to continue to show our strength. It's an opportunity to continue to differentiate us from a lot of our competitors, including some that have been PE owned and others that might have pay really high multiples and then have and may have some high debt and maybe wondering what's happening to the multiples right now.

So it gives us a really good spot. On the share repurchase, specifically, yes, it's the largest that we've sort of ever authorized in terms of dollars, but I think it's warranted given our balance sheet, our outlook, not just this year, but really looking out three, four, five years. And currently, where the stock sits, it's something that I think you'll see us take advantage of.

Charlie Strauzer, CJS Securities.

Picking up on the capital allocation question that was just answered. Lynn, when you look at the M&A opportunities that are out there that maybe a quarter or two ago weren't there because of -- because the valuations have basically contracted severely, are you seeing potential opportunities there that may be more intriguing in the near term versus buybacks?

I would say in a general sense, yes, Charlie, I've had that discussions -- that specific discussion with some of the executive team, there's been no question that not just in the last year, but going back five, six, seven years, there have been deals that we have looked at where the valuations were just getting sort of, I think, ridiculous. And it would be my sense that people have to readjust.

This is a little different than about three, four years ago when we went through a rotation of capital out of software, when we're in a period of high interest rates and higher inflation. We didn't really see valuations change. And I think this environment should lead to that. The other difference is four years ago, our balance sheet was in the position it was. So those are the things that get me excited about the future.

We're going to continue to look at M&A just because we have real good visibility on multiyear free cash flow. We're not going to be reckless. We're going to continue our disciplined approach. We're going to look for the right deals at the right time. But yeah, it's something that that again, it makes me excited about the future.

And I'm really glad that we're in the position we're in today, given where the market is and given where things sit externally.

Allan Verkhovski, BTIG.

Thank you for taking the question. Brian, I just want to double click on the SaaS net new ARR growth of 12% here in Q4, which I think is great on a very tough comp. Would love to get some color on where you thought that would have been when you gave the preliminary guide last quarter for 20% SaaS revenue growth in 2026. And maybe just how much of your incremental confidence is being driven between the new bookings you're seeing from new SaaS deals versus conversions?

Yeah. I mean, we've said a lot of the strength in the bookings. It's come not just from conversions and a really solid pipeline of sort of new name deals, but also around renewals and expansions with existing customers. So a lot of add-on sales to existing customers. Some of those coinciding with the flip of an on-prem customers and good growth around renewals and pricing on those renewals.

So I'd say fourth-quarter bookings that inform our guidance for this year were pretty much in line with what we expected when we gave that early look at 2026 growth. We even said back at the beginning of the year in '25 when bookings were a bit slow that we expected to see strong growth sequentially through the year, and we did, in fact, see that. So the underlying market conditions continue to support that. And I'd say, generally, the quarter played out as we expected.

Clarke Jefferies, Piper Sandler.

Thank you for taking the question. I wanted to confirm if the Texas contract kind of rolled off mid-quarter or at the end of the quarter. And just generally, within the guide for transaction revenue next year, what are your rough expectations for merchant fees?

Yeah. Texas didn't just end it in a single -- on a cliff, it wound down throughout the year, really starting early in the year as some of the services migrated away. And originally, the contract was -- by terms ended in August.

We extended that as the new provider wasn't fully ready to take over all of the services. And so there was some uncertainty throughout the second half of the year about exactly what the revenues would be -- at the end of Q3, we expected that Texas revenues for the full year would be around $40 million and that for the fourth quarter, they ended up being about almost $4 million below that expectation.

We ended up with revenues from Texas being around $36 million that it was a very low margin contract, so it didn't have as meaningful an impact on operating margin, but it did part of our sort of shortfall in revenues in Q4 was related to that contract producing a little bit less revenues than we expected for the year.

Merchant fees for the full year will be up more of a -- I don't think we've guided to emergency number, but we do expect those to grow as we've talked about, most of the growth in our payments business is in the gross model.

So we continue to expand the sale of payment services to -- embedded with our software. Those are generally provided under a gross model. We've also mentioned that we continue to expand services and grow volumes under our existing arrangements and are tending to move away from some of the third-party arrangements that have been on a net model. So more of our payments business will be on gross model, and that will drive more growth in merchant fees.

Thank you very much.

Andrew Sherman, TD Cowen.

Lynn, given the state of investor concerns on AI disruption to software these days, it would be great if you could talk about your barriers to entry, why it would be hard to create your apps and platform with AI?

Yeah, that's a good question, Andrew. At the end of the day, AI is only as good as the data it's on and the access it's got. And the data resides through our systems. It's -- we have the unique domain expertise regarding workflows. And I think we're just -- in our relationships with our clients and our trusted relationships, they're turning to us to be their AI partner.

We've outlined a number of our AI initiatives, things that we're doing currently. We've embedded AI into all our flagship products, doing things like automating repetitive workflows and things that consume a lot of time that create measurable savings for the clients. We're doing things with both with R&D and through M&A. And we have examples like AP automation, report writing assistant, [geo] reconciliation.

These are all things that are deeply embedded with our systems of record that others don't have that access to. And again, the trust that our clients have, I think, is also a significant barrier. We're going to detail a little bit more of sort of how Tyler looks in a cloud living world utilizing AI at our Investor Day. And you will see our strategy unfold a little bit more there.

Sometimes I'm a little hesitant to talk too much about specific strategic things just for competitive reasons, but we will be providing a little more higher level at that Investor Day.

Jonathan Ho, William Blair.

I wanted to maybe dig in a little bit more into embedding transaction capabilities into your products. Can you give us a sense of where we are in terms of penetrating your large base of installed customers. And with this broader rollout of payments capabilities, how do we think about the cadence of adoption over time?

Yeah. I think, Jonathan, it's going to depend on the product and it's going to depend on what we're doing with the product. For example, disbursements. AP automation that I just mentioned is really at its early stages and doesn't have much penetration. When you look at different product lines, our utility billing client base is going to have a different penetration than maybe our ERP base.

And so it kind of varies by product, and it varies by what we're trying to do with that product. We continue to introduce new products and continue to embed more things with our products. So I think right now, it's kind of hard to give a broad brush look at it other than to say the opportunity still is extremely meaningful to us.

Adam Hotchkiss, Goldman Sachs.

Thanks so much for taking the question. R&D expense, I think the guide was a bit higher than our expectations. You mentioned products in AI on the call, but maybe any more detail on specific areas driving that and then how we should think about what peak R&D intensity looks like for this business over the medium term?

Yeah. R&D as a percentage of revenue is -- will be about 8.8% -- approximately 8% to 9% of revenue, up from about 5.5% in 2024. There's -- that was the change in 2025. It rose. As we've talked about, we have an ongoing sort of migration of some development expense that is currently reported in our cost of sales.

And as we continue to move our business model more towards cloud and more of our development is taking place around cloud native products, that development expense is moving from cost of sales to R&D. And there's about $20 million of that in 2026, in the guide. The remainder of the growth is really around investments across Tyler, some of which is AI, a significant amount of AI.

We haven't broken out our actual how much of our increases AI, but there is a growing investment in AI as well as investments across product innovation widely across Tyler. So I think we expect to settle in more around the percentage of revenue that we'll see in 2026 as closer to sort of a long-term level of R&D investment.

Kirk Materne, Evercore ISI.

Maybe just two quick ones. Lynn, you mentioned you had your ERP AI sort of group together. I was curious, what are your customers asking for or thinking about in terms of monetization around AI, how do they want to see AI sort of deliver to them in terms of how they pay for it. There's obviously a lot of discussion about seats versus consumption. I would love to hear feedback you guys have gotten so far, realizing it's early.

And then, Brian, I think last quarter, you gave us a little bit of a buildup on SaaS growth. You might have said earlier, but I think it was something like 12% was coming from book, there's some coming from soon to be booked and then some flips. So I was wondering if you still have that sort of breakdown for the updated guidance.

Yeah, Kirk. I think our clients are looking for efficiencies and ROI. We don't currently plan to and don't have current plans to do seat-based AI pricing. It's more on a SaaS-type model. So what they're looking for is really -- is driving that ROI, and those are the discussions we're having. How do we make their lives better, how do we free up those resources and they're willing to pay for those.

Yeah. And Kirk, on the deconstructed SaaS growth, about 13% of -- you say using 21.5% midpoint of our guidance, about 13% comes from prior bookings, some of which would be 24 bookings and 25 bookings. About 5% comes from bookings in 2026. That includes new logos, cross-sell and upsell and a lot of that is sales back into the existing customer base. Most of those things would be in our pipeline somewhere today and about 3% comes from Flip.

Pete Heckmann, D.A. Davidson.

Just had a quick question here. In terms of the amount of acquired revenue in your guidance from the four deals closed last year, is about $14 million, $15 million for the full year, a good assumption. And then in terms of for the record for annualized revenue, should we think about being close to maybe $45 million or $50 million?

Yeah. That would be the ballpark for the record, somewhere in that range. We will update our guidance for the year to incorporate that once that closes. And yeah, you're in the ballpark, it would be somewhere a little north of $10 million for the revenues from the businesses we acquired during 2025.

I would caution -- I agree. We're not in a position today to make any sort of guidance on for the record, whatever ballpark that we're talking about. Keep in mind that For The Record has been going through a transformative SaaS cloud shift with their product offering.

And so that will be ongoing. And so whatever ballpark we have, it will be a mix of SaaS and less profitable type of revenue, but that will continue to grow and replace just like a cloud transition that we went through.

Parker Lane, Stifel.

This is Matthew Kikkert on for Parker. Thank you for taking my question. You mentioned 10% to 12% underlying growth for the payments and transaction segment next year. Is that something you view as a run rate coming out of 2026? And just more broadly, what would be some of the levers for midterm growth on that segment.

Yeah. That range is exactly in line with, I think, that 10% to 13% we talked about as our sort of midterm growth rate for transaction business going back to our 2023 Investor Day. So that is right in the range that we expect to be kind of the run rate going forward. That's driven by our strategy of expanding the transaction business within our existing software customer base by integrating selling integrated payments to those software customers, both new customers and existing customers.

It's higher volumes' driving greater adoption of online services and driving higher volumes through the existing customer base. Longer term, there'll be more and more contribution from adding disbursements to the portfolio. And then we do have instances where we're providing software products to clients but getting paid under a transaction-based arrangement.

So rather than that showing up in SaaS bookings and SaaS revenues, it's showing in transaction revenues. One of the deals Lynn called out this quarter, a deal for motor vehicle -- digital motor vehicle titling solution for one of our state enterprise customers is under that kind of arrangement. So that also contributes to the low-double-digit SaaS growth or transaction growth.

Keith Housum, Northcoast Research.

Just trying to unpack the bookings number a little bit. I know we've been talking about the SaaS bookings primarily. But if I look at your services and other bookings year over year, it's down about 2%, down significantly in the fourth quarter. Can you perhaps just unpack why that is for the year-over-year decline, how to think about that going forward?

Sure. Probably the biggest factor there is the contract reserve, the $10 million contract reserve we took in Q4 impacted bookings. So it created basically negative license revenues. Most of that was a reversal of license revenues, so that also effectively comes out of bookings, that's the biggest factor there.

And that was, I think, $8.8 million of licenses and a little less than around $1 million of professional services. In general, professional services, which we have talked about for a long time as being very low margin or negative margin business for us, while we have a number of initiatives to improve our efficiency and profitability around the pro services business, we also don't want to grow that segment of our business at the same rate the rest of our business grows.

So we're having success in delivering software more efficiently with fewer services really actively trying to limit the amount of custom development work we do that falls in professional services. So part of that is by design that we don't want to grow services at low margins at the same rate, similar to hardware. So that positive change in the revenue mix is reflected in lower bookings in those categories. So really focused on the higher growth in the more valuable revenue lines in SaaS and transactions.

And that concludes our question-and-answer session. I will now turn the call back over to Lynn Moore for closing remarks.

Thanks, Abby, and thanks, everybody, for joining us today. If you have any further questions, please feel free to contact Brian Miller and myself. Thanks again and have a great day.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.