Hey, good afternoon, everyone. Welcome to the 29th Annual Oppenheimer Technology Conference. Super happy to have with us Tyler Technologies. Representing Tyler will be EVP, CFO Brian Miller. Brian, welcome. Thanks. Good to be here. For everyone in the audience, this is a fireside format. I will run through a series of questions with Brian, but we also have the option for some audience participation. Please feel free to dump some questions that you might have into the conference portal, and I will get to those on the back half of this presentation. With that, Brian, look, I think everyone generally knows Tyler in this room, but perhaps just a quick background on Tyler and the products capabilities that you guys offer to customers. 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% 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. All right. Fantastic. Really appreciate that backdrop. Maybe taking a wider lens to the Tyler business first. You guys just had your Investor Day a couple of months back. You laid out some new financial targets, specifically bumping up your recurring revenue ranges. Also, a 15% increase to your free cash flow targets. Would love to just get your view on what was the primary drivers for that increased confidence. What are some of the factors that are underpinning that growth rate, those margins? 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. Understood. Maybe diving into one of the areas that you guys are progressing on. It's been out there for a while. You guys are at the turning point for the cloud migration. Would just love an update on how you're thinking about the path to the peaks. How does that underpin your confidence in that 20%+ SaaS revenue growth? Again, I know there's a lot of back and forth on SaaS bookings and whatnot, but I feel like at the end of the day, as you guys progress with that cloud migration, that's probably the most important piece to getting to some of those 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. That it's not an open-ended, forever on-prem opportunity, and that we'll be working out those pathways. We'll understand what their concerns are, what their needs are, if they need help. We're hearing from a lot of customers that they want to move, but they need help selling it internally. Whether it's a CFO trying to work with the CIO to get that move prioritized, or they need to get more budget and understand the internal savings that'll offset the cost of moving to the cloud. So working with customers on that. But also those conversations involve what are the disincentives, and those are mainly that at some point, if they remain on premise, their maintenance will increase significantly, which reflects our higher costs of supporting a smaller and smaller number of on-prem customers. And that ultimately there will be a point at which there will be end of life for support for on-prem products. All that is supporting this 85% moving by 2030. There is a lot of activity going on around that and a more proactive role as we continue to evolve into this next phase of our cloud transition. Understood. That does seem to set at least a relatively high floor in terms of that SaaS revenue growth. The other piece of the equation is just the new SaaS bookings. You did see a rebound in the first half of the year compared to last year. How should we think about that pipeline? What kind of visibility do you have in terms of being able to execute and close on some of those transactions to keep that 20% SaaS number? Or I guess to the extent that it does not impact that 20% number that much, it would be great to get a sense of. Yeah. What that allocation is. Many part of it. Part of the SaaS growth, it comes kind of from three places. It is new clients, and that can be both in our SaaS bookings, it is both brand new logos, and it is significant amount of add-on sales to existing customers. We have a big customer base. Our average customer has two to three products from Tyler. They could, in most cases, have 8 to 10 products from Tyler. Yep. There is cross-sell opportunities within a suite of products, so a customer that has our court system adding a probation system. Then there is a cross new suite, so somebody that has our court system selling them an ERP system. There are a lot of cross-sell and upsell opportunities. We have done a lot of things internally with our sales staff around sales compensation and commissions, around how we manage quotas to incentivize more cross-sells, how we are adding sales reps that are focused on that. So there is new sales, there is upsales to existing customers, there is certainly pricing on renewals. Then there is the incremental revenue from flips, and typically we are seeing about a 1.7x uplift from maintenance to SaaS as we move those customers. All that adds up to that 20% CAGR target. In terms of the new sales, what we have said over the last several quarters, I think our commentary has been really pretty consistent, that it is an active market. There is certainly a lot of differences across, whether you are talking about the state of California or whether you are talking about a city in Texas, different budget situations. But generally, budgets are reasonably stable, underpinned by really solid property tax revenues, which form a big part of the base. So we have said in terms of market activity, leading indicators like RFPs, sales demos, we are seeing a lot of stability there at fairly active levels. So feel good about the pipeline, the activity in the market. What we have seen over, if you look back really like a year and a half, some volatility in the sales cycles. The second half of 2024 was extraordinarily strong, and we saw really outsized bookings growth. That was driven by some large deals, which can be lumpy, and there just sort of were a number of those in the second half of 2024. Also, there was a pull forward of bookings from early 2025 because there was a deadline for the ARPA stimulus funds. So that in turn had a negative impact in the first part of 2025, because some of that business had been pulled forward. Then there was noise around the new administration, around DOGE and tariffs and all the noise that came with the new administration that caused a lot of sales cycles to slow as governments tried to figure out what kind of impact all of that might have on them. Ultimately, they figured out that it did not have a big impact on them, and that things sort of normalized as we got into the second half of last year. So we are seeing the benefit of a more, I guess, normalized market, more consistent market right now, consistent sales cycles. So bookings growth was really good in the first two quarters of this year. Comps get a little bit harder in the second half of the year, but they are kind of more normal. From a long-term perspective, if we are going to grow SaaS revenues at around 20%, our SaaS bookings need to grow around 20%. They were a little north of that in Q2. But I would expect over the next few quarters, we would kind of, absent any new external factors, that we would probably kind of settle in more around that 20% bookings growth that would be more in line with our long-term revenue growth expectations. Understood. That's super helpful in terms of how you laid that out. Maybe shifting gears to the topic du jour for the last couple of years, the AI side of the equation. I realize Tyler is not embedding any uplift, which makes a lot of sense given a lot of new products waiting for adoption. You mentioned earlier you feel Tyler has the right to win, at least in the government space. Could you maybe lay out some of the rationale there? What are some of the data points you're seeing from customers that might support your thinking that Tyler is going to be their vendor of choice when they do make those final decisions? Yeah. So, like with a lot of things in the public sector, to start with government has a much slower adoption curve than you're going to see in the private sector. We saw that with SaaS. We've seen it with other technology evolutions. That might not mean it's a decade, but public sector is going to be much more cautious about embracing AI, about how they use it, and who they get it from than you'll see in the private sector. What we hear from our clients is certainly they hear a lot about AI. They're very curious about it. They're interested in how it can help them solve real problems. A lot of their real problems stem from staffing shortages. Governments are always having to do more with fewer resources and particularly fewer people. Governments already are very often short-staffed, sometimes because of budget issues, but often just because they have a hard time attracting and retaining staff. They're facing a big wave of retirements, and it's really hard to attract a lot of different roles, but especially technical roles. It's hard to pay market salaries. Staffing shortages are a big problem with government, which leads to things like long delays in getting a building permit application approved, or backlogs in the courts, or not enough police officers, all those sorts of things. So they're interested in how AI can help solve those problems, and that's where we're focusing our investments and where we're showing them those roadmaps of where Tyler's bringing AI to them around their core systems of record, around the public safety system they have from Tyler, around the licensing and permitting system they already have from Tyler. What we're hearing from our customers is trust is a big factor. They're typically distrustful of startups and new entrants. They want to see references. They want to know it works somewhere else like them. They're very concerned about their data. Public sector data can be very sensitive. You think about courts data, public safety data. It's a highly regulated environment. So they're really concerned about how their data might be used, who might use it, where it might go. They're obviously very concerned about accuracy, that these things need to be right. So we believe we have the trust of the clients. We have often decades-long relationships with them. We have a huge amount of domain expertise. So we built the system of record, which manages very complex workflows. So we understand how these things should work for government. We're not learning on their time. And we have a well-developed sales channel already along with these relationships. All of those things we think give us advantages in bringing clients AI. We are hearing from clients, they don't want AI that someone bolts onto their system of record. They want AI that's embedded with it, and that's where our investments are going. We have some products that are fully AI enabled, that are standalone products that use AI at the core. Some of those we've had for two or three, four years. Things like Document Automation, which automates data entry in the courts, and limits the number of clerks they need to do that work. Priority Based Budgeting is a solution that uses AI to assist with the budget development, which is probably the most important thing a government does every year from an administrative standpoint. Figuring out how to best allocate budget to higher priority initiatives. In areas where we've got a large number of users already, where we've proven the ROI and the kinds of savings they can get, we're seeing really meaningful uplifts in our revenue as the customers add that. A couple of the examples we talked about at our Investor Day, Tarrant County, Fort Worth, Texas, when they added Document Automation to automate data entry, it was a 43% uplift from they were paying us $900,000 a year for the core court management system, added 43% to that annual fee to add Document Automation. But they're saving a couple million dollars a year in labor costs. Placer County, California, added our supervision assistant to their probation system, 177% uplift from our SaaS fee. We're seeing a good uptake from this. But again, we're in the very early days. We're starting to roll out agents and release agents to the market around each of our core products. By the end of this year all of our flagship products will have agentic AI capabilities that are in what we call a private preview stage. It's basically with a handful of pilot customers that are testing it, giving us feedback, collecting references and use cases, and then we move on into the next stage, which will be public preview. That's where we get a broader range of customers, and these really form that whole cohort of referenceable customers that new sales prospects can talk to and see, yes, it's doing what we said it would do. It's providing the ROI we expected. The price is justified, and the economics work for us, and then it moves into general release. We said that by the time we get through all that process, given the pace at which governments move, we're probably looking at the second half of next year before we see more meaningful contribution from this incremental AI opportunities. As we talked about at Investor Day, all of that is incremental to these targets that we've already set for 2030. Understood. Super helpful. You touched on a point where you are addressing some labor issues, Tarrant County saving millions on some of the labor costs. When you think about Tyler, historically, we look at it as you are kind of fighting for IT budget. Are your customers now maybe shifting labor dollars or what they would have spent for employees over to, I guess, the tech budget, if you will? What are you seeing there? Absolutely they are, and that is one of the really interesting things we highlighted that at Investor Day about how we really think this lets us access something way beyond just the IT budget, but their labor budget. Because they are viewing it as. It is not the case that they are looking to lay off or fire a lot of employees, as they do not have enough already to do the things they need to do. For example, in public safety, one there is automating report writing. The average police officer spends two to three hours a day writing reports. There are obviously a lot of places there are not enough police officers. To the extent that they can automate that through a trusted, reliable AI solution that is embedded with the product, then that frees up time for, multiplies their force. We are seeing places, Tarrant County is actually one of those that specifically said, "We are paying for this out of our labor budget and not out of our IT budget." So it is not taking away from other projects. In the case of this product, Tarrant County actually gave it an employee name and an employee ID number because they said, "We really want to emphasize that this is how we view this technology, as supplementing our staff and letting us get things done that we can't otherwise get done." So we think it opens up kind of a whole new budget. We are having those kind of conversations with our customers around how they should be looking at it. Again, as we move through these preview customers that we are collecting the data around the ROI and the case studies that can show people with confidence how the price can be justified. It was great to see that you guys raised the long-term free cash flow margin to the mid-30s%. But as you can imagine, I think the other half of the AI debate is there's just naturally an additional layer of costs, right? Whether it's the inferencing on top of the hosting, whether it's, I guess in the headlines you see all this token maxing. Yeah. What are you seeing there on the AI cost? How are you guys offsetting whatever potential headwinds could hit gross margins to your OpEx line internally, or finding other sources of efficiencies? Yeah. So within the products, there's kind of three different potential pricing approaches. One is kind of the freemium pricing where some things will ultimately just be embedded in products and not separately billed. That's not really part of the current products. There will be others that just are a SaaS uplift. Then there's a third that's more kind of what we talked about earlier, more outcome-based pricing, that this should save you $2 billion a year in labor costs, and so we'll charge you $900,000 or $1 million. Generally, the volumes are fairly predictable around how many documents are being processed by the courts, how many calls an office typically answers. The tax office answers questions from citizens that can be diverted or deflected with AI. So the numbers are not typically terribly volatile right now. As you might see with as opposed to a company that's developers are using AI like crazy and their token costs are going through the roof. So within the products, we believe it's fairly predictable, but we have caps on usage so that the pricing needs to reset so that we're not exposed, or not highly exposed on the token cost. On internal usage, we're managing it in a fairly disciplined manner. So we're rolling out, we've highlighted kind of three major areas where we see benefits. Development is probably the one that's furthest along. All of our developers are using AI to increase their productivity. We have various tools in place to monitor and manage the usage, and also define, make sure we're using the appropriate models and not the ones that are appropriate for the task we're doing, and trying to manage the cost that way. We, at this point, are really putting the savings or the additional capacity back into more output. We've not reduced our development staff, we're just using that increased efficiency to do more development work. A lot of that is around AI. I think over time, we would expect that our development team would grow at a much slower rate than our revenues grow. Same thing with our implementation and support on professional services. We've had some early initial success in using AI around data conversions and reducing the hours around a new product implementation, and also success and support in deflecting calls. Over time, we would expect that those would reduce our support costs. But taking sort of a measured disciplined approach to it, and doing a lot of monitoring along the way as we roll this out to make sure that the costs are not outweighing the benefits. Got it. So it stands to reason, maybe at least in the near term, less of that leverage from AI, but as we get deeper towards that 2030 timeframe, some of that should flow through, hit the bottom line. Yeah. We talked about four to five points of margin improvement. I think three, four points roughly of margin improvement over the next five years. That feels like a not terribly aggressive target but w e are targeting that within those three primary areas. But we're using it elsewhere. Obviously, finance is using it, marketing's using it, sales. There are a lot of good examples, but it's being managed. We're trying not to have it be the Wild West and have everybody in a free-for-all. We're trying to prove up that, and that's the hard part is proving up what are the efficiencies you're getting versus what the costs are. Got it. Maybe shifting gears a little bit here. You guys have been pretty aggressive buying back stock recently, then you recently got a convert offering that just was announced, I think, end of Q1. May. Yeah. End May. Okay. Yeah. Sorry. Middle of Q2. How should we think about where your capital allocation priorities lie now? Have you done the buyback stuff and now it's onto other things? What's the right thinking, at least as we stand today? Yeah. With the current valuation at a, I don't know, 15-year low, and certainly well below the average valuation we've seen from a cash flow multiple or revenue multiple, we primarily look at cash flow. It's a very compelling opportunity for us. Lynn talked about this on our last call. Historically, if you go back over the last 25 years, I think we've had three other times where we've seen these very compelling buyback opportunities when we said the valuation just is not at all aligned with how we see the next three to five-year outlook for the company, and we've been very aggressive about buybacks at those times. Yeah, we've always maintained a really conservative balance sheet, and tried to keep a lot of flexibility around capital allocation and our three priorities, which can shift around from time to time, in terms of where they are, but internal investments in innovation, primarily R&D, which we have continued to increase over the last few years. M&A, which we've been very active with over the last 25 years. And thirdly, stock buybacks. I guess there was a fourth priority, going back over the last three years or so, was repaying debt. Typically, we've had little or no debt. We did a big acquisition of NIC in 2021, had not an unreasonable amount of debt, but we delevered pretty rapidly, paid that debt off well ahead of schedule, and then the last piece of that was the convert that we paid off in the first quarter. We ended the first quarter, we had no debt. We had a strong amount of cash on the balance sheet, and then cash flow going forward. We had an opportunity to do a new convert in May. Very attractive terms. Half a point of interest. With the capped call, it's not dilutive until we get well beyond our all-time high in the mid-600s. Super attractive terms. And unlike the last one, when we had a quarter point of interest and interest rates were close to zero, this time we've got a half point of interest, but we're earning north of 3.5% on those funds while they're sitting on our balance sheet. We had put in place a $1 billion share repurchase authorization in February. Through the end of June, we had completed a little north of $750 million of that. We are currently very active with that, so we're finishing out that first $1 billion repurchase. We bought back 5.5% of our stock through June. We then put in place in June, or I guess in July, a new $1.5 billion authorization on top of that initial $1 billion. We expect to continue to be active through this year, if the valuation remains where it is today. That is our first priority. We still have done acquisitions. We did a little north of a $200 million acquisition earlier this year with For The Record, and then, just a couple of weeks ago, we did a $30 million acquisition. So, we still will have the flexibility to do acquisitions that we find compelling. But I think as we look at the acquisition landscape, it's not too likely that we would do a very large acquisition in the near term. Part of that doing with valuations and seller expectations, especially private equity owned assets. I think we are continuing to be active with the buyback, and I expect that will be the case throughout this year. Got it. I have a couple of questions from the audience, both regarding the SaaS revenue growth, so maybe I will try to lump them in so we can kind of knock it out in these last few minutes. I think the first is, what is the SaaS growth contribution, excluding flips? Then any directional trends to highlight there. The second one on that 20% SaaS growth in 2027, how much of that is coming from flips versus new versus add-on versus pricing? Yeah, kind of similar-ish questions. Yeah. We have said that flips will continue to be a bigger part of our. That flips should continue to accelerate over the next three or four years. We have talked a lot about the incentives and disincentives that we are using to get to that 85% target of our install base moving. Flips will continue to be a bigger piece of that revenue growth. Our SaaS revenue growth was a little north of 21% this last quarter. We have set a 20% average over the next five years. I think over the next three years or so, until we get to that peak, wherever that peak is, flips will continue to be a bigger piece of it. I think we have talked about mid-teens growth excluding flips. Flips, on average, if you look at that 20%, breaking it down, it is probably somewhere around 4% or 5% from flips. The balance from those things you mentioned, pricing, which is kind of on average 4% or 5% a year. So you have got that from the installed base. We have very low turnover, so very little attrition, so there is not a lot on the downside from that. New and expansion sales, both new logos and that cross-sell to the existing base, make up the other part, which maybe that is 10% growth. We do expect that cross-sells and up-sells will continue to be a bigger and bigger piece of that SaaS growth opportunity. Got it. That's perfect. I got through all of my questions, got all the audience questions, and we are right up on time. Brian, as always, thank you for all of your insights. To the audience, thank you for joining, and thank you for participating in the Q&A. With that, have a good day. Great. Good to be here. Thank you. Thank you, Brian.