Tyler Technologies, Inc. Oppenheimer 29th Annual Technology, Internet & Communications Conference

Yeah, you bet. For starters, we serve exclusively the public sector, so focused on governments, primarily domestic governments. We are about 98% domestic in the U.S. Most of the 2% is Canada. We provide a very broad range of software applications that really power the mission-critical functions of government. We are about 75-ish percent local governments, so cities, county, school districts, local agencies. Roughly a little over 20% state governments, and most of that is through a transaction-funded model, providing access to back-end systems through portals and building those interfaces to enable citizens to conduct business with state governments. We also have state government software applications as well. Then, less than 5% with the federal government. But we have by far the broadest set of solutions for the public sector, and the biggest customer base.

We have about, I think, around 16,000 distinct government entities that are our customers, and roughly 50,000 systems installed across those customers. We also have a transaction business with embedded payments and software, including software provided under a transaction-funded model, that complements the core software business as well.

Yeah, sure. At our previous investor day in 2023, we had laid out targets for 2030, which was certainly something new for us to go out seven years with targets. There was a lot going on in the company around that time. We had done the acquisition of NIC, our largest acquisition ever. We had this new transactions business. We were sort of at the inflection point in our cloud transition at that point, both around revenues and margins. We had a lot of things going on then, and we had laid out these 2030 targets as well as some interim targets for 2025. At our investor day in June, we certainly outlined how we had done versus those 2025 targets, and in every case, we had either met or exceeded the 2025 targets.

We recalibrated the 2030 targets, and again, in every case, either they were unchanged, but in almost all cases they were raised. Part of the revisions and the increases to our 2030 targets was based on our outperformance through 2025. The fact that we were ahead of track in terms of our margin expansion, we were ahead of track by a wide range on our cash flow target there. We were making the kind of progress we expected around flips of our on-prem customers to the cloud. A lot of the higher assumptions are based on what we've already accomplished through 2025, as well as some new opportunities. Our transaction-based business is more mature now. We have had success in our go-to market with embedding payments with our software solutions. We had more visibility around that.

We've made significant progress on our cloud transition, around things like version consolidation, eliminating multiple versions of products, exiting our proprietary data centers, and moving exclusively into the AWS world. Those things all kind of colored how we look at the next five years going forward. The targets for SaaS revenue growth, we previously targeted high teens CAGR through 2030. Now for the last five years, we're targeting around a 20% CAGR, 10% growth in transactions. We framed all of this as exclusive of M&A and incremental AI contributions. Laid out a lot of reasons why we think AI wasn't part of the conversation in 2023. It certainly is now. We laid out in great detail the reasons why we think Tyler is a winner in AI in our space.

But at this point, being too early to really put dollars on how much incremental revenues over the next five years. That should be incremental, and we also have historically been consistently active with acquisitions. Any further contribution from future acquisitions is also not included in those growth targets.

Yeah. Broadly, the cloud transition is the biggest margin contributor. We've talked about adding almost 1,000 basis points of operating margin between now, we were at 26% last year, to a target in the mid-30s by 2030. The cloud operations, cloud transition is probably the biggest contributor to that. There are a number of different vectors around that. One of those is version consolidation. Where with many of our products, especially in the on-prem world, we have historically supported multiple versions of those products, which has become very expensive from a support and development standpoint. We've made a lot of progress in consolidation and in sunsetting older versions, getting more and more customers on the current version, which in turn puts them in a position to move to the cloud.

We still have some work to do around that, but we've seen some margin improvement from that, and there's more to come. We now are at mid to high 90s in terms of the percentage of our new business that's cloud. We only, in a couple of products, sell a very limited number of new licenses. Public safety is one where we still sell some licenses, but that even has moved pretty rapidly towards embracing the cloud. So in the new business market, we're pretty much there in terms of almost being all cloud. The biggest thing is the progress we've made and what's left to come around flipping or migrating our on-prem customers to the cloud. So today, we still have a big base, more than $400 million of annual maintenance revenues from on-prem customers.

We had previously set a target of 75%-80% of those on-prem clients in 2023 moving to the cloud by 2030. We have upped that now to a target of about 85% flipping by 2030. We have various incentives and disincentives, or carrots and sticks, if you will, that support our effort to move those customers. As you get further down the curve, you get into where there are more customers who just are subject to inertia, which is fairly common in government, that they need a little bit of a push. They're not resisting moving to the cloud. They understand the benefits of being in the cloud. Easier to stay on current versions of the software, a better client experience from easier upgrades and new releases.

Don't have to worry about all the headaches that they face with internal systems, whether it's staffing technical roles, buying hardware, managing cybersecurity. So they understand all of that, but there's still a lot of places that just go, "Well, I'm going to move at some point, but I don't have a firm deadline." So we have increasingly told customers that new features and functionality will only be available to customers in the cloud, so they'll still be supported on-prem, but there'll be new features and functionality, including a lot of things involving AI, that they will want, but only be available in the cloud. We've also told customers, just this past quarter, our CEO sent a letter to every on-prem customer, telling them that over the coming months, we'll be sitting down with them and mapping out a strategy, a pathway to the cloud.