Tyler Technologies, Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, and welcome to our call.

With me today is Lynn Moore, Executive Chair, President, and CEO, and Brian Miller, our CFO. Also joining us today on today's call is Chief AI Officer Franklin Williams. Franklin will participate during portions of the discussion to provide additional context on our AI strategy, commercialization efforts, and adoption trends across the business. While we expect Franklin to periodically join future earnings calls when relevant, he will not be a regular participant each quarter. In an effort to streamline our earnings communications and provide timely context around our quarterly earnings release, we published our prepared remarks yesterday shortly after posting our full quarterly results release to the news section of our investor relations website.

We have also posted on the investor relations section of our website, under the Financials tab, a schedule with supplemental information and an earnings summary deck to supplement our prepared remarks. After I give the safe harbor statement, Lynn will have some opening remarks, and we will move directly to our Q&A session. During this conference 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 refer you to our Form 10-K and other SEC filings for more information on those risks.

Lynn? Thanks, Hala. Our third quarter results reflect continued strong execution across the business.

We delivered 11% recurring revenue growth, including SaaS revenue growth of 21.2%, expanded operating margins by 150 basis points, and generated record quarterly free cash flow of $277 million. Public sector demand remains healthy, supported by ongoing modernization priorities, strong client engagement, and an active pipeline. Budgets remain supportive of continued investment in mission-critical technology, and AI is increasingly being evaluated as an extension of broader modernization initiatives. Total SaaS bookings increased 14%, reflecting continued momentum in cloud adoption and digital transformation efforts across government. We made meaningful progress on several of our strategic growth initiatives during the quarter. Cloud migration remains one of the most significant drivers of long-term value, and momentum continues to build.

Following our July outreach to on-premises enterprise clients highlighting the value, incentives, and urgency of moving to the cloud, we have seen strong engagement across our client base and increasing activity among large clients advancing their transition plans. We also reached a key milestone with our first implementation of our multi-tenant solution for an existing enterprise ERP client, representative of our complete Cloud Living commitment. This is an important step toward a common code stream that enables continuous innovation, automated quarterly release upgrades, and more efficient delivery. With broader Cloud Living rollouts on track for early 2027, we are well-positioned for an accelerating pace of migrations beginning in 2027. We also advanced our AI strategy with growing deployments, expanded agentic capabilities, and continued validation of our commercialization approach. Client adoption continues to grow, with approximately 300 deals containing AI across the portfolio.

We also continue to execute our disciplined capital allocation strategy through the acquisition of CODY Systems and significant share repurchases. Year to date, we have repurchased approximately 8.5% of our shares outstanding, with almost $1.4 billion remaining in our authorization. We enter the fourth quarter well-positioned to deliver a strong finish to 2026 and confident in the long-term growth initiatives that underpin our Tyler 2030 objectives. With that, let's open the call to questions.

Thanks. Yeah, sure, Matt. I do not think there is anything really seasonal to the flips.

I think if you look at the way we have approached things over the last several years, our approach has changed. I think if you look back 4 or 5 years, we took a little more deliberate approach for a couple of reasons. One, I do not think the market was quite ready, and two, I am not sure Tyler was quite ready. What we have done in the last few years around version consolidation, and yes, now with our Cloud Living initiatives, I think we are at the point where now we can be much more proactive, and we are starting to take those steps. We talked about in the July call about the fact that I had sent out a letter to all of our local enterprise clients.

Each of those clients then received a touch point, a direct contact from their reps, and we are putting together now pricing strategies to help people make that move. We are also in a position now where we are starting to do things, I think, more on the, what we traditionally call disincentives or sticks, which is our first flagship product this past quarter actually started to announce with its client base end of life for support, as well as the last version release with new product upgrades on the on-prem version. We are going to continue to do those things in the coming quarters, which will, I think, continue to accelerate our flip to the cloud. I will say that the receptiveness from our clients with this new, more proactive approach has been really strong. They welcome it. We talked about this before.

We talked about it at Connect and our client advisory board. Some of our clients need that little push. They need that help selling the flips inside their own departments. And we are putting together strategies to help accelerate that. So we feel confident about where we are today in our overall 2030 flip plan.