All right, we will go ahead and kick it off at today's afternoon session with Tyler Technologies. Delighted to have Brian Miller, EVP and CFO, on stage with me. Thank you for your time. Yeah, you bet. Thanks for having me. I'm Gabriela Borges, and my colleague, Callie Valenti, stage left. Brian, I wanted to start with a little bit of the demand environment that you're seeing, because it's been remarkably resilient, especially relative to the rest of software. So give us a little bit of color on what you're seeing in the government vertical, federal, state, and local, and why you think that the demand for it has held up so nicely for you year to date? Yeah. As you know, we work exclusively with the public sector, but broadly across different levels of the public sector, but a big focus on local governments, and there are a lot of characteristics about the public sector that are really different than the enterprise market or the private sector market, and right now, most of the things are pretty positive. We're seeing a really strong demand environment, and we've and that's been very consistent for the last three or four quarters. Our commentary has been very consistent around that, about a robust demand environment, the number of RFPs we're seeing, the number of demos we're doing, the pace of deals are all very stable at a really elevated level. So definitely back to pre-COVID levels and in many cases beyond that. I think there are several things driving that. Generally, the budget environment for governments is pretty strong, especially local governments, where property taxes are a big part of the revenue stream and property values are relatively high, and property taxes aren't under a lot of pressure. But you know, relatively full employment, sales taxes are at high levels because of inflation. Well, for a lot of reasons, but inflation contributes to that. So the backdrop's really good. I'd say it's supplemented by the sort of underlying support from the ARPA funds and the federal stimulus that still has some time to play out with that. But there are also some more secular trends around just the real need for and drive for digital modernization of governments. Governments generally are lagged behind in terms of adoption of the new technology, and there's this constant need to do more with less, so constrained workforces and really trying to deliver these essential services and with fewer resources and technology, what they turn to to make that happen. And then there's the shift to the cloud, and government, again, has been slower than the private sector in embracing the cloud. But that's changed more rapidly in recent years, even just in the last couple of years. And so as they look to move more systems to the cloud, that creates more opportunities where the existing vendor or the existing solution doesn't have an ability to move to the cloud, and so they're looking to someone like Tyler to help them move there. I'll pick up on your comments on cloud, because we were just chatting about it in the back of the room. Mm. How we're about a year on from the Investor Day targets that you provided, and during that time, the cloud transition at Tyler has really picked up momentum. Yeah. So walk us through a little bit on the progress you've made so far with converting existing customers from on-premise to SaaS, and how do we think about the number of conversions that you still have to do to get to your 80% converted target? Yeah. So just for context, historically, Tyler was an on-prem license and maintenance model, and then had a very long, sort of slow initial transition, where we offered a hybrid model and sold products either on-prem with a license or in the cloud, which for us was mostly a private cloud or a hosted model, under a subscription agreement arrangement. And then, starting in 2019, we really shifted and said, "We're cloud first. We're really all in on the cloud and need to lead our customer base there," and did a number of things to start to drive that cloud transition. But it is, it has really accelerated in the last couple of years and this year in particular. So we've made a lot of progress with all of those, those initiatives around accelerating the cloud transition. 2023 was a pretty pivotal year around the cloud for us. It was the year where our cloud revenues crossed over and now exceed our on-prem revenues. We're now at around 90% of our new business coming from the cloud. Only have a very small handful of products that we even still sell an on-prem version of, and that's shrinking steadily. In terms of... But we have this huge customer base that was on-prem, that you know decades worth of customers with systems deployed on-prem. At Investor Day, a year ago, we said at that point, about 15% of our on-prem customer base had migrated to the cloud, and our targets were to get to 80%-85% of that customer base by 2030. There's a number of initiatives around getting there. Today, I'd say if you look at our whole customer base, those that have come to us originally in the cloud and those that have migrated, about 40% of our customers are in the cloud, and about 60% are still on-prem. There are a couple of gating items that we need to make progress on before we really start to accelerate the migration of on-prem customers. One of those being version consolidation, moving customers that were on older or multiple versions of a product to the current version, the cloud version, the one version that'll be offered in the cloud. And so that effort, we've made a lot of progress in the last couple of years, especially around a couple of our bigger project products. And then releasing our cloud-optimized versions of our products to run more efficiently in the cloud. Most of those were released last year, we've got a number of those releases this year, and so we're now kind of in a position where we have more efficient products with lower hosting costs to start to accelerate that migration of on-prem customers. How do you think about, from a go-to-market standpoint or even from a customer incentive standpoint, the nuance between carrots versus sticks? Yeah. Yeah, today we're mostly carrots. I mean, our customers clearly understand that we're a cloud company, now we are. That we're, that's where our future is, that's where we sell our products today. For a long time, it's been an educational process to our customers about not just why the cloud is better for Tyler, but why the cloud is a better place for them to be. Provides them with a better customer experience, you know, more seamless, less disruptive upgrades because they're getting that constantly. They're staying on the current version of the software, better security, you know, a whole lot of reasons why it's better for them. And now I think our customer base really understands that really well, and it's not so much about why we should go to the cloud, but when do we go to the cloud and how? So that's been a big change. I guess the biggest carrot we use right now is that while we'll support on-prem products for an extended period of time, increasingly new features and functionality will only be available in the cloud versions. So the product will still work on-prem, but it'll get a lot better, and there'll be things they'll want that'll be in the cloud. As we get further down the road, then... We're kind of working with those that are more resistant or just slower to change, and then the sticks that are available to us are pricing, so increasing maintenance costs at a greater rate than our typical kind of 5% a year, and then ultimately, we can discontinue support of on-prem versions of products, but I think we're quite a ways away from that. We've got a lot of clients that want to move to the cloud that we're not really having to use a lot of incentives around that right now. Let me ask you one more on the cloud transition before turning it over to Callie on the product cycle environment. You mentioned the back-end infrastructure that you have. So the Dallas data center has already been exited. You have a second data center, and then you have the collaboration with AWS. Talk to us about how these pieces fit together, and how should we be thinking about the cost profile of the business after you exit the second data center, I believe, it's at the end of 2025? Yeah. We've talked about, generally, this margin improvement that we're expecting to get over the next several years and, you know, set this target of going from a 23% non-GAAP operating margin in 2023 to a 30% plus margin in, by 2030. So roughly 100 basis points a year, although not necessarily linear. Most of that is coming from cloud operations broadly. One of the big pieces of that is around the data center. So historically, we hosted our cloud customers in our private data centers, two of those. And when we, in 2019, when we entered into the relationship with AWS, we said: We don't want to keep building out data centers. We don't want to be in that business. We can't really scale it. So AWS became our primary provider in the public cloud. So all of our new customers have gone there, and we've had this process of moving our customers out of our data centers and into AWS. We closed the first of those two data centers on schedule at the end of the second quarter, and the second one is scheduled to close at the end of 2025. Until we get those data centers closed, there are a bunch of duplicate costs that we have a lot of fixed costs around running our data centers that don't really go away as we start moving customers out until we actually close it, and at the same time, we start paying AWS to host clients, so we have these bubble costs. And we'll get some relief from that, you know, starting in the second half of this year. But from the second data center, those bubble costs continue to grow as we move those customers out. So there'll be another sort of stairstep in 2026 in terms of the margin improvement from that. But really, it's cheaper in AWS than it was in our private cloud. It's all sort of volume-based. So with this new agreement that we entered into it with AWS this year, our pricing got better. We're committing to a lot more capacity because we're further down the road, so our unit costs continue to get lower as we scale. And generally, we're seeing that a little bit ahead of where we thought we'd be. So that's part of the outperformance this year in terms of our margins, but that'll continue to... As we continue to migrate all those on-premise customers and put more new customers in there, our unit costs continue to get better, and AWS provides us with a lot of assistance. There's a whole lot of credits they give us for around customers moving, a lot of support with the transition of customers. They've been a really good partner for us. So at Connect this year, you talked about seeing some pronounced interest in AI, which is kind of new- Yeah. - for what we see in the local government space, and supportive of some of the acquisitions that you did last year as well. So can you talk a little bit more about what AI technologies are exciting to local governments and just how this interest is informing your future acquisition roadmap or roadmap or future product development roadmap? Yeah, so it's coming from both. We've done some acquisitions, like you said, last year, that have brought us some pretty strong AI capabilities, and we're building out some things internally as well. Most of the client interest in AI is driven. They're driven by their workforce challenges. So, governments face a lot of retirements of the aging workforce. They lost a lot of people during COVID and post-COVID in a tight job market. So generally, their staffing is down, and the things they have to do are essential functions, and they're trying to do more with fewer people, and AI is one of the things they're interested in helping them do that. So things around mostly automating sort of repetitive, routine tasks, and providing more options for citizen self-service and to kind of get the government employees off the phone and back to more productive work. So those are the kinds of things broadly that we're looking to use AI for. But government is interested in AI, just like around a lot of things, generally, they're not at the leading edge of it. They're curious, they hear a lot about it. They understand that it can help them, but they don't wanna be the first, and so they want somebody like Tyler to help guide them through that. So at our user conference this year, there was a lot of interest around AI. We had a lot of sessions around it, but we're being very thoughtful about where we make those investments, where we can get the biggest impact, where we can provide the most impact and value for our customers, and what we can best monetize, so you think about things like processing license applications, where, you know, a clerk needs to review a document and make a decision about it, and data entry, those kinds of things that are pretty routine, but we think there can be some real value to our customers, and so we're looking at all of these. We've got a long list of places that we think we can use AI in our products, and we're prioritizing those, and we've got a number of activities around them. Yeah, and I wanted to pick up on some of the budget comments that you made earlier. Can you talk about some of the differences you're potentially seeing between state, local, federal budgets? And then, understanding federal is a pretty small part of the business today, but it's growing, and you've talked about seeing some momentum there. Yeah. So how do you think about potentially being tied more to federal budgets or, election cycles and things like that? Yeah, federal is less than 5% of our revenues today. States and roughly 20%-25%, and but a lot of that is around transactions and payments, and roughly 70% local government. So local governments, there's tens of thousands of them, so it's a very broad and diverse customer base, and lots of different kinds of budget situations. But generally, like I said earlier, the budget backdrop is pretty strong. Some states are more challenged. California, for example, has a lot of challenges. But generally, you know, at the core, everything we provide is sort of an essential application or service, so we tend to do very well, even in tight budget times. We're close to 85% recurring revenues, which are very, very sticky and very repeatable. Elections don't really affect us very much. You know, again, the products are not sort of politically driven projects. They're running things like 911 systems or property taxes or courts or financials. What we have seen in the federal business is, when there's a change in administrations, that sometimes there are delays in either implementations or in new buying decisions, not because there's a change in demand, but because agencies get new heads, and there's just processes slow down until there's a new person there to sign off on things. But that's really pretty minor. I've been at Tyler for 27 years, and I don't think we've ever, on an earnings call or in an MD&A, ever mentioned elections as a factor, positive or negative. It's just kind of surprising, but it's not really a factor for us. Yeah, no, that makes sense. So ARPA funds, spoke a little bit. Yeah ... about that before. Those must be obligated by the end of 2024 and kind of spent by 2026. There's some time, but how do you think about separating some of the demand you've seen between some of the more structural factors and then the cyclical budgetary factors? Yeah, I think the stimulus and the ARPA funds, which provided, you know, I think it's $36 billion of direct aid to state and local governments, everybody got something. I think it's been a factor in the active market. I don't think it's been the biggest factor or, you know, it's not solely what's driving an active market. I think in many cases, it was more. It provided, obviously, a lot of extra money, but it provided an extra measure of confidence in their budgets when they were concerned about recessions or concerned about post-COVID, what was going to happen to revenues or expenses, so it enabled the market to stay pretty stable when it might have been a little shakier, but I think the fundamental strength is really mostly what's driving the market. As you said, they've got until the end of 2026 to spend the money, so I think it'll continue to be a tailwind for the next couple of years. But I don't think there's a big drop-off that happens when the ARPA funds are all expended. It's been really hard to like accurately quantify how much the impact has been. We occasionally see deals that are where we sell something, and it's funded with ARPA funds, but it doesn't necessarily mean that that wouldn't have taken place without the ARPA funds. It's just what bucket it came out of. And in other cases, ARPA funds pay for something else, which frees up money for potentially an incremental sale from Tyler. But I think it's more the... the core drivers that are responsible for the market today than the stimulus funds. Yeah, and then I'll finish on a two-part question, and I'll turn it back to Gabriela. So what internal initiatives have been most successful in increasing cross-sell? And is there any part of the business where you see an opportunity to increase the number of products per customer more than kind of the rest? And then second part would be NIC. You spoke a little bit about California, and you've done some pretty interesting contract structures with NIC as part of the organization. Can you talk a little bit about, is there any limit to what Tyler's SaaS products can be deployed in some of these more creative contract structures, and just what you're seeing with that? Yeah. So, around the cross-sell. Cross-sell is clearly one of the major pillars of growth for Tyler. We have, by far, the biggest customer base of anyone serving the public sector, and we've got, by far, the biggest product offering and portfolio of products. Our average customer has two to three products from us, and could have eight to 10, and potentially more, as we continue to make more acquisitions and build more applications. So, there's a huge cross-sell opportunity. In some aspects, it's somewhat hard to accelerate that because some of it, you have to wait until a product, the product they're using today kind of gets to end of life, and they feel a need to replace it. But as I said earlier, more and more, some of these are being replaced sooner because of either a desire to move to the cloud or just features that aren't in the existing product, like supporting remote work or providing citizen self-service, that have become much more important. So huge opportunity for us, given the customer base it's taken us decades to build. We've done a lot structurally around the company in the last year or two to help facilitate that cross-sell, whether it's realigning organizations within the company to align those that have the best cross-sell opportunities in the same business unit, changing compensation structures, commission structures, making sure everybody's properly incented from a commission standpoint. And that's starting to have a bigger impact on how we do it. At the same time, on the back end, we've done a lot of work around improving client satisfaction. I think we generally have pretty happy customers. We tend to score better than our competitors, but we recognize that in order to sell those customers a lot more products, they need to be really happy, and so we're doing a lot of things with back-end systems that drive, you know, better customer support outcomes, a more consistent experience across all Tyler products, client executives who have overall responsibility for customers, especially larger customers, so a lot of structural things we've done to help facilitate that. And then around the cross-sell of payments, which is sort of a big subset of our cross-sell opportunities, so driving the sale of payments and transaction revenues to supplement our software revenues, where we've integrated our payments platform that came from the NIC acquisition with our various software products that process payments, things like utility billing or licensing, permitting, or traffic tickets. We've done a lot of work around the integration of those products from a technology standpoint, to create more value around our payments offering. And we're starting to see some really good traction around that in recent quarters, and that's growing ahead of what our plan was. So from that perspective, we've done a lot of stuff in the last couple of years. The NIC specific cross-sell... So one of the big premises of the acquisition of NIC was the ability to... Well, two kinds of cross-sell. Sell payments from their platform into our customer base, but to sell Tyler software products through into state governments, where we didn't really have as big a presence. But NIC has or had and has these very broad, deep contracts at the enterprise level with state governments that provide an ability to sell software products through those contracts, often without a competitive process, without a long contracting process. And we have a lot of Tyler products, and we've discovered a lot more opportunities than we envisioned when we first did the acquisition. So we're starting to see traction around that. I'd say, our pipeline there is ahead of what we anticipated when we or what we had targeted when we did the sale. You asked about the contract vehicles. So we did a big deal with the California State Parks last year in Q4, that actually was the largest single contract by estimated value for Tyler in its history, providing software solutions as well as payment solutions for all of the California state parks. So we have a really robust outdoor recreation software platform, and we have robust payment processing capabilities, so we were able to bring this together. But in a kind of a unique contract vehicle, because California has budget issues and didn't want to have a line item for the SaaS costs of the software. So we're able to fund all of that by transaction fees. So if you make a campground reservation or park entrance fees, or you tour the Hearst Castle and pay the fee for that, there's a convenience fee that's tacked onto that, that goes to Tyler, that pays for the software. And so that is sort of a self-funded model.... And there, we believe it's not our primary way of selling software, but it can be very powerful in some situations, and we're really comfortable with the transaction model. The one area where we've started to use it more as well is around digital motor vehicle titling. So we've got an application there that's digitizing what used to be paper car titles and liens, and streamlining that process. I think we've got four states now that we've sold that to. That also can be in a self-funded model, where the fees that you pay to register your car, there's a convenience fee that goes to Tyler that pays for the software. I don't think it's gonna be the primary way we sell software. It's It's got to have a sort of a citizen-facing convenience fee opportunity. Wouldn't work with a payroll system, for example. It shows that we can be creative and utilize those capabilities we have, both on the payment side and the software side, to work out a solution that makes sense for the customer. And Brian, presumably, that ultimately lowers your barrier to entry or the time it would take for you to negotiate a deal. Is that fair? I'm sorry? Is that fair, that, the self-funded contracts make it easier for you to grow your customer? Yeah, it is easier. It's faster to, you know, especially when they're, they're in an NIC state where we've already got a contract vehicle in place. And it does take away, you know, the funding concern and the budget issue. It's, it's a great model for, for the government because, they can, you know, where they can pass that fee on to what generally is a captive market. The, the thing is they don't have competition, so, you don't really have a choice where you title your car, or where you pay your traffic ticket, or if you want to go to the state park, where you pay that entrance fee. So, they, they have the ability to pass those things on within reason and, and, deal with budget challenges that way. Absolutely. Let me pause for a moment. Any questions from the audience? So, please, yes. Can you talk a little bit about, across your entire product portfolio, which products tend to be more of a push and which products tend to be more of a pull from organizations, to get a sense of the demand profile across your solutions? The question was: Which products tend to be push versus pull across the portfolio? I think the ones that are pushed tend to be more, not just core, essential, basic products like ERP and courts and 911. They're often we're replacing an aging legacy system, and the demand is already there, and we're responding to it. The ones that are pushing are more things like that are maybe a little bit more innovative, so things like our data and analytics platform, which sits across our products and provides transparency of data to the public, but also gives kind of a business intelligence platform, gives government better access to information that often sits in these silos, within different departments to make better decisions. So that's something we've gone out and that's a sort of a new sale and that's more of a push. I think a lot of our transaction-based revenue streams are more of a push as well, so where we're selling payments, integrated with the software system or selling electronic filing integrated with a court system, those tend to be more of a push as well. And then, just as a follow-up: Is there an analogy to the undercurrents of modernization that's happening at enterprises today that's similar in local and state governments that is... And if there is a lag or if it's kind of similarly penetrated, and how we can kinda think about that? Yeah. I'd say governments, as with a lot of things, are. There's a big lag. So things that are very common in the private sector, especially around the citizen experience, just aren't there in the public sector. So, a lot of that is because, not because governments don't care or, you know, don't want to provide better service, but because they have limited resources and they have a lot of inertia, and they don't have to, again, because they don't have competition. So, they're, I think, increasingly elected officials are responding to citizen demand to have a better, a more, maybe a more consumer-like experience with government. So, you know, nobody wants to go down to the DMV and stand in line to do anything. So, you know, why can't I do that online? And COVID helped push some of that stuff along when the offices were closed, and they had to get. In order to keep operating, they had to do some of those things. But a lot of times, the systems just weren't there to support that. So, for example, we have a court system. We're the largest provider of court case management systems in the country. We provide jury systems. Our systems had the capability to actually run a trial remotely, and one of our customers was the first county to run a fully remote criminal trial during COVID. We have a jury system that allows juries to be selected through an online process rather than coming down and sitting in a room full of a couple hundred people all day while they go through that process, and in the past, you know, that wasn't something that they were just anxious to change to, but because, you know, world changed, they are much more open to those kinds of things now, and that's helping. That whole concept of digital modernization is starting to catch up in government, and so I think that's driving incremental business beyond just, "Our old system is dying, and we've got to replace it," but now there's a little bit more ROI analysis and a little bit more, you know... How can we provide better service and actually provide more citizen self-service, which takes away from people sitting in offices and clerks having to take care of these transactions? So definitely it's something that lags the private sector, but it's something that's becoming more and more top of mind with government. Let me ask a little about the success that you've had with M&A. You mentioned NIC in the last few minutes, and certainly, Tyler has a long history of M&A, going well before NIC. When you look at the roadmap and you plot out your competitive positioning versus the broader world of software that sells into the government, how do you think about where you want to focus time and energy? And are there areas in the roadmap that stand out to you, either from an organic development standpoint or from an M&A standpoint, that are particularly interesting? Sure. Yeah, we've done, I think, 60 acquisitions over the time I've been at Tyler, and we expect to continue to use a significant amount of our capital to do acquisitions. It's how we've broadened our TAM and how we've broadened our product portfolio. We constantly. We have an ongoing white space analysis, and we look at where there are gaps that could be around an existing product, so maybe peripheral products around a core product where we have a lot of strength. It could be whole new sort of sub-vertical markets. There's not a lot of those right now for us. We cover, especially at the local level, we pretty much have some application in all of the major things. Public safety was probably the last big hole we have. I guess things like health and human services could be an area where we have some gaps as well, but generally, we cover those basic things, so as we've expanded into state governments and sort of dipped our toe into federal governments, I think those are areas certainly where products that are more specific to those markets continue to be opportunities for us. Sometimes it's adding new technologies, like a couple of AI sort of base companies that we acquired last year, payments capabilities from the NIC acquisition, but we constantly look at the white space and analyze whether it's a buy or a build opportunity. Some of it depends on just what's out there. Usually it's faster to buy, and some of it depends on valuations, because we've been through periods when valuations didn't make sense to us, and financially, it made more sense to build things than to buy them. So we spend a lot of time looking at all those things. It lends itself a little bit to a question on the innovation that you're seeing on the private side. Callie and I spend time in a number of different sub-sectors of software, and we tend to see a lot of competition, a lot of fragmentation. It's a little bit of a two-sided question. On the one hand, the barrier to entry is incredibly high. On the other hand, does that mean that there is less interesting things happening on the private side, for Tyler to get excited about? How do you think about the puts and takes? Yeah, in our space, the barriers to entry, I guess, are more around how the market works. So, you know, it's a slow-moving- Yeah ... market. It's a market that is very risk-averse, and they think about references and reputation are a big deal, so they're not really. They don't wanna take a chance on somebody that's not kind of proven. So, given our size and scale and breadth, it gives us a really significant competitive advantage, and it's one of the reasons why often companies like to join us through an acquisition. Because they can have access to our customer base and our sales force, and it just lets them grow a lot faster than they could have done on their own. It also... So we have long sales cycles. You know, you can have long development cycles. Maybe that's faster in the cloud. But then if for the private companies, then comes the challenge of, we've built a product and maybe the depth of the functionality isn't as robust as something like Tyler might have, but now we've got to sell it and we've sold it, but now we've got to implement it, and we've got to get customers live, and that's hard. Our market's tough. I mean, we have customers that often aren't super sophisticated, that haven't gone... You know, haven't replaced their software in 20 years. So these can be difficult implementations with lots of challenges. We're really good at that. But that's where a lot of issues arise sometimes with some of the smaller private companies, and then it's difficult for them to have referenceability. It's just a long, slow process, and that tends to be kind of one of the biggest barriers to entry, I think, even though there's nothing structural about it. Yeah, very interesting. Well, I think we're out of time. Please join me in thanking Brian for his time this afternoon. Brian, thank you. Yeah, thank you. Appreciate it.