Okay, we're good to go? Excellent. Well, hey, good afternoon, everyone. Welcome to day two of the Barclays Tech Conference. My name is Saket Kalia. I cover software here. I'm honored to have the team with us from Tyler. We've got Brian Miller, Chief Financial Officer. We've got about 30 minutes together. Let's take the first 20 or 25 minutes to go through some fireside chatting here with Brian, which I know is going to be fun. And then we'd love to make it interactive. So if anyone's got any questions, just pop up your hand. We'll get a mic out to you for the benefit of the webcast. So with that, Brian, thanks so much for being with us here today. Sure, happy to be here. Yeah, absolutely. Brian, maybe just to start out, just to make sure everybody's on the same page, I think we're all familiar with Tyler, but can you just maybe recap some points from last quarter that you were particularly proud of, just to kind of keep us all on the same page? Sure. Well, we raised guidance again for the second quarter. That's something to be proud of, absolutely. Third straight quarter, actually, I guess, so largely on track to achieve or exceed the objectives we had at the beginning of the year, as well as continuing to show progress towards those long-term objectives. As you know, at our Investor day in 2023, we set out some targets for 2025 and some targets for 2030. First time we'd ever set targets that far out, and so our results this year have continued to support, in general, the 2025 targets we've achieved or exceeded them, and we're well on track to achieve all the stuff we laid out for 2030 and continue to make progress there, so after a little bit of a slow start to the beginning of the year with some of the noise around DOJ and federal government, it largely worked itself out, and we've been showing good bookings growth and certainly good financial performance. Yeah, absolutely, and I agree there. You know, I think one of the highlights from last quarter was we got an early look at SaaS revenue growth in 2026, which I think you said we expect to be in the 20% range. I was wondering, right, because that was what we got the most questions on afterwards. Could you maybe break that down and give us a sense for how much of that growth maybe comes from flips to SaaS, right, which of course are going to be increasing, versus renewals? You've got a huge renewal base versus new business, which I don't think is as big of a part of the formula, but I'm curious how you sort of segment that 20% growth into next year. Yeah, the way we broke it out, and we thought it was kind of important given we have a tough bookings comp this year relative to last year. And so I think that optics had created some concerns around how bookings this year were going to translate into revenue growth next year on the SaaS side. And so we talked about this 20%, this early look at next year's SaaS revenues of about a 20% growth. Of that, about 12% of our growth, or 12% growth, comes from things that will already be signed by the end of this year. So sort of backlog, maybe think of it that way. So deals that we signed even in the last half of 2024 that didn't have a full year impact on this year's revenues, but will next year. Deals we signed this year that have had a partial year impact, or in the case of deals that we might sign in the fourth quarter, might have very little impact on 2025, but impact next year, as well as our price increases, so typically, our SaaS, generally, we get around a 5% annual increase, mostly that's built into existing agreements. And then as we have annual renewals after that, we generally look to get that 5% increase so that pricing increases well, so kind of things we already have signed. About 5% growth comes from things that we'll sign next year, so next year's bookings. And again, a partial year impact from those deals given that there's typically a lag from when we sign it to when we start recognizing revenues. And then about 3% growth comes from flips, so migrating on-prem customers to the cloud. We continue to have an experience where we're seeing a typical uplift of about 1.7x, 1.8x the maintenance revenues as they move into SaaS. We said that the trend in general is upward and to the right in terms of the number of flips and the average size of flips. Our on-prem customer base still is fairly heavily weighted towards large customers, so that can be kind of lumpy, but as they move, it has more impact. We've said that the peak of the flip curve is probably still two or three years out. But in general, maybe not every single quarter, but in general, the trend is that the size and the number of flips is increasing. So that 3% you would expect would be a higher contribution the year after and the year after. But that kind of breaks down how we get to that 20-ish% growth next year. Yeah, 12, five, and three, right? I think, right? And so that must give you so much more confidence, right? Because the majority of that is coming from stuff that you've really already signed. And flips, I think, companies have done a great job in terms of flipping customers just with the additional value that they get from SaaS. So that's a really helpful breakdown. You know, as we think about that growing SaaS revenue base, maybe one of the questions that I think about is, what do you view as the best forward-looking metric for the business? You know, I think some of us tend to look at either total SaaS bookings, that's what I use in our model, or I think we also get ARR from new SaaS deals and conversions. That's something that some investors look at. Maybe the question, Brian, is what are some of the puts and takes for investors to consider when looking at these metrics? And what do you think is the most important when kind of gauging the health of the SaaS business? Yeah, it's really how much new ARR we're adding regardless of what source it comes from, because it may be different in different quarters and different years. So whether it's coming from renewals, which is still the biggest piece of it, our existing customer base renewing and getting those increases, as well as add-on sales to existing customers. And that is a large, but also growing part of our new sales. And a big part of emphasis going forward is leveraging the big customer base we have to sell them more and more things, coming from the flips, as well as coming from just new logo sales. So regardless of where it comes from, how much new ARR are we adding? And we have historically given a lot of metrics around bookings. Some are total contract value metrics, which have a term component, which changes from time to time. Some are subsets of that total number, and I think as it has evolved, as our business has evolved, it's gotten really complicated and sometimes hard to figure out what is the most important thing. We really focus on just how much new ARR are we adding, because that's really what ultimately, even though there may be a quarter or two lag from adding it to seeing it in the income statement, that's really the biggest driver, and so I think as we look over time to simplify and focus on kind of what's important, I think you'll see us focus more on a forward-looking kind of run rate of ARR at the end of the quarter, which might be something you're more used to seeing with other companies, as opposed to annualizing a backwards number or giving various components of total bookings. I think really ARR at the end of each quarter, what's on the books now, and how that will, you know, what that run rate is. And how that's growing year over year, right? Which is, I imagine, it's going to be much more steady growth. So that's great to hear. We'll definitely look forward to something like that. Maybe given the metrics that we've got, one of the questions that I had gotten from investors was around trying to bridge, you know, the growth in bookings, in SaaS bookings specifically, right? Which is maybe kind of more in the single-digit range year to date. You know, they think they looked at the decline in ARR from new SaaS deals. And then they kind of compared that to 20% growth in SaaS revenue expected for next year. And again, you mentioned some of them, right? Duration could always be a driver, but what are some of the dynamics that might be impacting the relationship between, you know, I consider SaaS bookings very much of a forward-looking metric, but what might be impacting, you know, the relationship between those forward-looking metrics and the resulting revenue that you expect to have next year? Yeah, I think some of the things like the term or duration. So when you look at some of the total bookings numbers, that can vary. I mean, last year we had a really strong bookings year, especially in the last half of the year, and especially around big deals. And some of those big deals had multi-year terms, whereas our typical SaaS deal, three years, is sort of our standard. But we had some that were longer than that. So that impacted, you know, gave us a bigger number for total SaaS bookings that has created a tough comp, even though the ARR look at it might not have produced that same look. And I think the other thing that kind of fits in with the 12% of our growth that's coming from things that are already signed is the lag from the time we sign something to when those revenues hit. So the fact that we still get revenue growth in 2026 from deals we signed in 2024, whether it's because there wasn't a full year impact, because there's a lag of a quarter or two between the time we sign it and the time revenues start, or sometimes they're phased revenues. It might be an implementation of a statewide court system that will start at a certain amount of ARR and grow as it's implemented across the state. So we don't get the full run rate in year one. And so there's contribution in future years from prior year bookings. And I think that's part of the puzzle that people miss. Got it. That's really interesting that the ARR might be really different from kind of what the bookings are showing. And then one other thing I'll mention in that context, and it also impacts our transaction revenue bookings. We have seen the number of deals in the last couple of years where we've sold a software system, but it's being paid for with transaction-based revenues. And so it's showing up in transaction revenues. It's not in SaaS bookings. It's not in SaaS revenues, but it's coming in transaction revenues. So an example of that was actually the biggest deal from a total contract value that Tyler's ever signed. We signed it in, I guess we went live with it in summer of 2024 in California here, the California State Parks deal. So we provided a complete suite of outdoor recreation solutions that is a core product of Tyler's to manage all the aspects of the California State Parks. And so we replaced multiple software vendors as well as the payments vendor. So we're also processing all of the payments associated with revenues through the parks and providing some other services. But rather than California have to appropriate money out of their budget to pay for SaaS fees, we're getting paid by transaction fees that are levied on charges that people incur with the state parks. If you reserve a campground, you pay a fee. There's also a convenience fee that goes to Tyler. Tour of the Hearst Castle, you buy a $20 ticket, there's an add-on fee to Tyler. Rent a kayak, all those sorts of things. So it's sort of self-funding. They don't have to appropriate budget for it. We still get our SaaS, at least the equivalent of revenues that we would have gotten under a SaaS arrangement. They're not totally pro-rata, so they can be seasonal. We still get the same margins that we would have gotten, but it just shows up in a different place on our income statement, and we're somewhat uniquely positioned to be able to offer that model because we have the payments capabilities. We've done that in other instances, so we're comfortable with it, and it provides us with a competitive advantage. I wouldn't say it's the primary way we sell software, but there are situations. We've done some digital motor vehicle titling systems for states, so when you pay a titling fee when you buy a new car, they can add on a convenience fee to Tyler and pay for that solution that way, so it sort of artificially, I guess, reduces SaaS revenues and SaaS bookings and increases transactional revenues, but the underlying business is really the same as. Could also mess with the comps too, I imagine, right? Like yeah, yeah, interesting. Hadn't thought about that. I want to talk about sort of one of the points that you made just on the difficult comparison that we've seen this year on, you know, ARR from new SaaS deals or on total SaaS bookings, right? Because to your point, there was some really healthy big deal activity in 2024. I don't know if there's a way that you've talked about how to quantify that tough comp, like in terms of 2025 growth versus a more normalized 2024. But really, maybe the more important question is, do those comparisons ease in 2026? And while we're talking about the subject, I mean, how does the big deal pipeline look currently? Yeah. A necdotally. We have commented that the, well, for one, even going back to when we were a license-based business, licenses, new deals, especially big deals, have always been kind of lumpy in the public sector. The timing of, we have really long sales cycles and the timing of when things just get across the line can be somewhat unpredictable, and especially on big deals can be lumpy, and that's the case in the SaaS world as well. It doesn't affect revenues. Revenues aren't as lumpy as licenses were, but the bookings can be. Last year, just especially the second half of the year, happened to be a year where there was a lot of, we had an extraordinary number of large deals that kind of got to that point at a similar timeframe. We had a statewide court deal, State of Kentucky, that signed in Q3. That was the first statewide court deal that has been in the market in like three years. Just happened to happen in that quarter. There are a couple of those in the pipeline. Hard to tell exact, sometimes these are multi-year sales processes, but there are some of those in the pipeline. We had, I think, four deals last year in Q3, just SaaS deals that were more than $10 million of total contract value. This year in Q3, we had one. One would be more normal, but four would be extremely strong. And so not really a particular reason you can point to. So this year has been a good bookings year. It just is against a tough comp. So we would expect that next year the comp would be certainly easier. But also we've commented that the pipeline has a normal mix of large deals and mid-sized deals. And so I would expect that next year as it sort of evens out towards the mean, that our view is there are probably more larger deals in there. Got it. Got it. Very helpful. Maybe just one last question just on kind of this 20% SaaS revenue growth for 2026. Apologies, you were nice enough to give it to us in Q3, and of course we're all going to scrutinize it, but should we kind of think about that 20% or around 20% as a floor? I mean, one of the questions that I had gotten, you know, coming out of that was, wow, Saket, that's a really healthy guide. Has Brian changed his guidance philosophy? And I don't think you have, but I want to make sure the question's asked. No, our guidance philosophy is very consistent, other than we don't typically give guidance for next year in Q3, but we thought it was important given the questions we were consistently given to try to clarify where our expectations were. The, I'm sorry, what was the first part of it was around. Whether the guidance approach has kind of changed or whether we should think about that 20% as a floor? Yeah. We have said, again, we give that guidance or the targets through 2030. We said we expected from 2023 to 2030 to have high-teens SaaS growth CAGR over that period. Not in a nice linear fashion. And the flips or the incremental revenue from the migrations of on-prem customers really creates that above just the core growth rate is really that incremental growth, which is what's had it kind of in that 20% range for the last several quarters. There can be periods where it's above that 20% as we move more towards the peak of the flips. And then I think as we get on the downhill side of the flip curve, that incremental revenue from the flips will start to narrow and we'll move back towards, you know, maybe a low-teens number. And so 20% isn't like the standard forever. It's where it is right now, but still within the context of that kind of mid- to high-teens growth over a five- to seven-year period. Yep, absolutely. Since you brought up kind of the concept of flips, I mean, that really, to your point, that's kind of the incremental delta for what the business is growing versus kind of the 20% that we've talked about, right? Or the high teens, right? You know, kind of looking forward. You've talked about sort of a bell curve around flips, right? I mean, can you just talk about sort of how you think about the pace and size of flips over the coming years and really as part of that path to Tyler 2030? Yeah. The whole subject of flips obviously gets a lot of attention. It's a significant part of our growth there. There's not a terrible amount of precision around how we see that progressing. What we are very confident in is that the $450-ish million of maintenance revenue we have will turn into over the next several years, 1.7x or 1.8x that in SaaS revenues. Because while we've said that we expect 80%-85% of our on-prem customer base to move to the cloud by 2030, we ultimately expect 100%, just like almost 100% of our new business is SaaS now, that over time we do expect to get to 100%. That's one thing that has progressed nicely in the last few years is the conversations with our customers have moved from why they should move to the cloud, why our future is there, why it's good for them. And in government, it took a lot longer than in the private sector for people to embrace the cloud. But that has moved much more rapidly in the last couple of years. And we've been able to move to where we're in the high 90s in terms of new business in the cloud and accelerating the pace of the migrations. There are some things around the pace of the migrations that, so I'd say that at this point with virtually all of our clients, it's not are they going to move to the cloud or do we need to convince them to. It's more about when and how they do it. There have been some gating items, one of those being the need for clients who aren't on the current version of the software to upgrade to the current version when or before they move to the cloud. Because our goal is to have one cloud-optimized version of every product in the cloud. That's what we refer to as Cloud Living when everybody just isn't hosted in the cloud, but everyone is on one version, upgrades at the same time, gets all the benefits of being in the cloud. But so we have made a lot of progress with version consolidation and sunsetting old versions, getting customers in a position to move to the cloud through that upgrade process. Still have some work to do there, but we've made a lot of progress in the last couple of years. Some of the things, sometimes just how does it fit into a client's overall IT plans? Sometimes it's when does their hardware need to be refreshed? If in 2028 they need to, they're looking at replacing servers in their data center, that's probably the point where they're saying that'll be the catalyst to move to the cloud. We're going to run our stuff until we fully depreciate those assets. Sometimes it's just how does it fit in with other IT priorities? And then on the flip side, sometimes a cybersecurity event or a ransomware attack can accelerate that process. They might be thinking they're going to do it two years from now and they or a neighbor of theirs has a ransomware attack and they say, "I'm a little more concerned about the security of my own data center." So there are a lot of different puts and takes, but we're very confident about the ability to move those clients and have some various carrots and sticks that we can use and will increasingly use as we move down that curve. But today we see it as sort of a bell-shaped curve with the peak really being out two or three years from now. Yeah, absolutely. Very helpful. I want to move away from the SaaS line. I know we've talked about it a bunch. And I really want to shift to another part of the story that I'd love to see, which is the profitability, right? And I think that you've talked about being ahead of plan on operating margins, again, as we think back to Tyler 2030 targets. But you've also said that that path to the 30%+ margins in 2030 won't necessarily be linear. And so maybe the question is, how do you think about some of the moving parts of the puts and takes to that path from here? Particularly because one of the things I'm excited about in 2026 is that second data center closing. So how do you kind of think about the path from here to 30%+? Yeah. The targets that we set for a 30%+ operating margin by 2030 really implied or was about 100 basis points a year on average from 2023 to 2030. We've gotten more than that in the first couple of years, and a fair amount of that is kind of the OpEx line. Most of what's left to come is more at the gross margin line, and a lot of that is broadly around the cloud transition and cloud operations, so it's the version consolidation and eliminating the expenses associated with supporting multiple versions of multiple products. It's product optimization, so releasing cloud-optimized versions of our solutions to run more efficiently in the cloud. Some of it's scale, so our AWS costs go down as we buy more capacity and move more customers into the cloud, so all of those are kind of factors. The improved profitability of customers as they flip and we get that revenue increase. It's not all margin, but there is higher margin as customers move from on-prem into the cloud. And so there are a number of things around the cloud transition and closing our data centers. So we formerly had proprietary data centers. We're now 100% of our customers are in AWS. We've now closed the second data center, which was scheduled to happen before the end of the year. And the benefits of closing the data center really kind of play out over 12 months or so. It's not January 1st. There's a switch that gets flipped that cuts off a lot of costs. There's some things that run on out. Some of the vendors, some of the equipment, some of the people actually will move into other roles, but that'll be over a little bit of time. So that benefit is part of that. So as we look at that average of 100 basis points a year, we've done better than that in the first couple of years. Still, we've said we're very much on track to achieve those targets. But 2026 is likely to be a year, again, it's not linear, but 2026 is a year that we've said you won't see the kind of margin improvement that we've seen this year. Some of those cloud things really kick in a little bit further down the road. Also, we have a sort of a heightened level of investments. We're making investments in AI technology, certainly in our products and some in internal use, but a heightened level of investment around that, around some competitive initiatives in our products, as well as investments we're making that we've talked quite a bit about around the client experience and creating a more consistent, unified, better client experience, and that involves systems, people, processes, so those things here we're making investments in that still in the context of achieving that 30%+ margin, but this is the year or the year coming up is the year when there won't be quite that same bump and then more of that will come at the gross margin line further down the road. That's helpful. I appreciate that. I want to shift to free cash flow. I mean, you've talked about several drivers there with the shift to SaaS and the transaction business along with kind of the margin expansion that you have seen so far, which we've talked about. And now we've got the reversal of Section 174 playing a role here as well. Remind me, what have you said around your expectations for free cash flow, free cash flow, free cash flow margin expansion, however you want to talk about it here in 2025, and anything on sort of what that looks like as part of that path to 2030? Yeah. That also is not linear. And that is one area where we've clearly outperformed certainly the 2025 targets and well are on track for the 2030 target, which was high 20s, 30%-ish kind of free cash flow margin. So we've been able to achieve a lot of that. Some of that just through that goes hand in hand with the improvement in the operating margins, some of it through working capital improvements, especially around receivables. As we continue to move towards more either transaction-based revenues or SaaS revenues where they're paid in advance or paid at the time of the transaction, the cash flow characteristics are better, so less receivables and more cash flow. So all those things have contributed to us really being well on track or ahead of track to achieve those targets. We will see some short-term improvement. It won't really change the whole 2030 target, but in the short term, we're getting the benefit of the change back on Section 174 and being able to expense R&D for tax purposes rather than having to spread it over multiple years. So we get that benefit partially in 2025 and partially in 2026. So yeah, the headline is just we're well on track and feel really good about the cash flow. We've talked about creating $1 billion of free cash flow annually by 2030. And then what do we do with all that cash? Which is a great segue to the last question. So just around capital allocation, I think Tyler was an active buyer of the stock, right, this past quarter. I think we've got a convert coming due in the next couple of quarters. And M&A has always been an important part of Tyler's strategy or story as well. So maybe the question is, how are you thinking about kind of prioritization or pecking order, right, in capital allocation around debt repayment, M&A, share repurchase going forward? Yeah. For the last couple of years, debt repayment. And historically, Tyler hasn't had a lot of debt, but we did a large acquisition of NIC in 2021 and had term debt and the convert. The term debt we paid off. Cash flow was very strong. We paid off well ahead of schedule and completed that early last year. So got that out of the way. The convert is due in March, and our plan is to repay that. It's $600 million. We have about $1.1 billion in cash on the balance sheet today. We also have a $700 million undrawn revolver. So plenty of liquidity. And we'll generate certainly more free cash flow between now and then. So having deleveraged and having the debt out of the way, then that moves M&A up in priority. And we've said that over the last couple of years, the bar has been kind of high on M&A, partially because of focus on repaying debt, but more so because of management bandwidth capacity. As we've had a lot of these big initiatives around the cloud and around payments and around client experience, things that required a lot of management attention that we didn't want to jeopardize achieving those things with a lot of acquisitions on top of that. So we've done some acquisitions, mostly small tuck-in things. But we're kind of at a point now where we're sort of through that and we're more open for more M&A and certainly have the capital and the balance sheet capacity for it. So I think you should expect us still with the same criteria, strong criteria around strategic fit, around cultural fit, and discipline around valuations. But I expect that we'll be more active over the next couple of years. And then buybacks, we've always been opportunistic about. We were more active in Q3 than we have been in some time. And so on dips that we think don't reflect the long-term value of the company, we've tended to be more active to the extent that that fits in along with our M&A priorities and other priorities. So I think you'll see both of those going forward. Donna, very helpful. I think that's about all the time that we've got left. Brian, thanks so much for being with us here today. You betcha. Really enjoyed it. Thanks. Is that okay? Yeah. Perfect.