We can go ahead and get started. Thank you all for coming today. Today, I have the pleasure of hosting Tyler Technologies CFO, Brian Miller. Brian, thank you for joining me. You bet. It's great to be here. We're going to touch on some near-term dynamics, but first, I'd like to start with a little bit more on your longer-term view of the business. At your Investor Day in June, you laid out a more durable and cash-generative model through 2030. What part of that transformation do you think investors are still underappreciating? I think it's really the impact of the next phase of our cloud transition, which we refer to as Cloud Living. There are a lot of impacts from that. It impacts margin expansion, it impacts our client experience, and ultimately our ability to cross-sell and upsell more effectively. I think that's probably one of the biggest ones. Of course, it's the opportunity from AI. I still think this broad narrative around AI applies to a lot of software companies, and there are a lot of reasons why we view AI as an opportunity more than a risk. I think that's probably still underappreciated. Yeah, we're definitely going to touch on Cloud Living and AI as well. When you think about your 2030 target model, which component of the 10%-12% organic recurring revenue growth framework that you laid out, in your view, carries the most execution risk? Well, there are several components of that 10%-12% growth. There's pricing, there's new business or new logos, there's expansion with existing customers, cloud migrations and the uplift from that, and then our growth in transactions revenue. We're highly confident in how all of those contribute to that 10%-12% CAGR. That's in line with our recent growth that I think if you're looking for what might have the most risk, it's probably around the new logos, which is more subject to the broader market conditions. Within that, AI and M&A sit outside that framework, how should investors think about potential upside that those two could contribute to that? Well, they both should clearly be upside to revenue. We've certainly demonstrated a long history of successfully executing M&A. Our CEO likes to say M&A is in our DNA. I've been at the company for 29 years. We've done, I think, about 65 acquisitions over that time period. So it's something we think we do very well and we'll continue to do. I guess if you look at an average over that time period, we've probably added low single-digit growth on top of our organic growth. There have been a handful of larger acquisitions, a couple that were 20% of Tyler's size. So I think you should certainly expect to see us continue to drive additional growth from M&A. AI, we laid out a lot of reasons at our Investor Day in June about why we think that we'll be a winner with AI and why it's incremental to our revenue growth. At this point, we don't think we can credibly say 2030 revenues from AI are going to be X. But we certainly believe there's upside from that, and we've got a high degree of confidence in our ability to drive that. I think we're clearly seeing, with some of the early examples, uplifts from their core software revenues of anywhere from 20% to north of 100%, as we add AI-enabled applications on top of the core systems of record. To your point, 65 acquisitions is a lot. You're a very acquisitive company. Can you tell us a little bit more about your mindset when it comes to acquiring versus building something or partnering and what it is that you look for? Yeah. The majority of the acquisitions we do, I guess you would categorize as tuck-ins or things that fill in a gap in our product portfolio, expand our TAM. It could be something related to an existing suite of products. Occasionally, it adds a whole new sub-vertical within the public sector space, everything in the public sector space. Sometimes there's a technology acquisition. But most of them are the tuck-ins that add new capabilities. We've done, as I said, quite a few of those over time. We look for a number of things. Generally, we're looking for acquisitions that we would expect to grow significantly higher rate than our core growth rate. I think we had an example at our Investor Day, the acquisitions we've done over the last three years, that their current and projected growth over the five years following acquisition is mid-20% CAGR. So about 2x our core growth rate. We can do that by leveraging our sales organization, by leveraging our customer base, selling them back into our installed base, selling them to, or bundling them with new sales. Often, we are looking at a buy versus build as we look to fill in those gaps. We look for a good cultural fit, a reasonable valuation, which has been something that's been challenging in recent years. Increasingly, we also look for, is there a payments opportunity or a transaction-based opportunity? Because we now have a very robust payments platform that complements our core software. If there's an opportunity to layer payments on top of a software solution, that's a plus for us. And now increasingly, we look at is there an AI opportunity or is there an AI risk? But is there an opportunity? Do they either bring us AI capabilities or is there an opportunity to enhance that product with new AI capabilities? Yeah. So I actually want to go back to one of your answers to one of my earlier questions, just around the dynamics of the 10%-12% growth and sort of what carries the most execution risk there. You had said new logos. Can you talk a little bit about what are the main constraints to that leg of growth, and are there pieces of that that are out of your control and things like the public sector funding environment? Yeah. And the funding environment isn't as big an issue as just the way the public sector buys. The public sector has a number of characteristics that if you're in it, are pretty attractive. If you're not in the market, it might make it less attractive. Our customers don't compete with each other. They're risk averse. No surprise, they move kind of slowly. They're not profit motivated or ROI driven, although that's kind of changing as there's more of a focus on government efficiency, and around things like AI. They're looking at ROI, kind of looking at it through a different lens than they have historically. But generally, governments, all the products we provide, the applications, all manage mission-critical, essential functions of government. So they're all essential things, public safety, 911, courts, property taxes, utility bills, payroll. They're essential functions, but government historically kind of uses their old systems until they're about to die. So replacement cycles tend to be much, much longer than in the private sector. And so when they get to the point where the old system is at end of life, either because it runs on old hardware that's no longer viable, it's a homegrown system, in some cases written in COBOL 40 years ago, and there aren't COBOL programmers anymore, it's from a vendor who is no longer competitive and hasn't invested in new technology. For whatever reason, when they get to that point, it's a fairly non-discretionary decision to replace it. So it's less affected by funding. It's very high in the budget priority. But it's hard to accelerate that demand. What we are seeing more recently, and it follows on with this greater emphasis on government efficiency, is in some cases, governments are starting to look at it a little bit differently and understand that even though the existing court system may have another 10 years left in it, there's a clear ROI to replacing that today, going paperless, providing citizen self-service, electronic filing, things that will make them more efficient and help them do more within the constraints that they have. We see a sort of a subtle change in the market. But generally, it's just that pace at which government moves is very different than the pace at which the private sector moves. Yeah. Let's turn to some more recent performance. You exited the second quarter of this year, record bookings, but your ARR growth is still in the high single digits, around 8%. When should investors expect that demand strength to become more visible in your growth rate? Sure. ARR growth right now is being impacted on the transaction revenue side by the runoff of our Texas payments contract. This was something that's been in the mill for quite a while. We've talked about it over the last two or three years. But we had a contract with the state of Texas where we did payment processing for the state. It was very different from the rest of our transaction-based agreements in that it was just sort of a commoditized payments-only contract, and it was a legacy contract that NIC had well before we acquired them. So that contract was low margin. It was around $45 million in revenues, but 8% margin. So very different than the rest of our business. When it came up for rebid a couple of years ago, we were not aggressive about rebidding on it, and so it went to another kind of horizontal payments provider. So that rolled off at the end of last year, and so we're still seeing the impact of that in our comps. It's been a positive for our margins, but a headwind to ARR growth. If you take the impact of that out, we grew about 11% on our ARR last quarter, which was more in line with our targets. And that, again, will roll off at the end of this year and won't cause an impact anymore. I think one of the other things in the short term impacting it is, and we'll probably talk about this a little bit more, but where we have sold software systems under a transaction-funded model. Rather than a client paying us, and these are state clients, paying us SaaS rev, SaaS fees, we are getting paid through transaction fees that are charged to the users. Outdoor recreation, motor vehicle titling, rather than the state paying us a SaaS fee, we get a fee that is tacked on to a car registration. Those show up in transaction revenues rather than SaaS revenues, and do not show up in SaaS bookings, but they have SaaS margins. There is a longer lag. We do not start recognizing revenues during the implementation. We start recognizing revenues when the transactions flow. Our largest deals in the last two quarters have both been those kinds of deals. Start to see the revenues second half of next year rather than second half of this year. But great deals. It is a great model for state governments. But it impacts in the short term. You got to kind of keep that in mind as you look at our ARR growth in the near term. Yeah, that makes perfect sense. It actually leads right into my next couple questions here because I want to talk a little more about that transaction-funded structure. For starters, what ultimately determines whether an opportunity is priced as a SaaS opportunity, transaction funded, or sort of a hybrid? Some of it's just the nature of the product. It has to be a software solution that has this sort of consumer facing or business facing, something that there are revenues associated with it that they can add a convenience fee or a charge on to fund that. The primary areas, as I said, where we've utilized that model or where we've had customers choose that model are in outdoor recreation. The largest deal we've ever done in our history, actually, in total value, about a $200 million total value deal, with the state of California a couple of years ago for an outdoor recreation system for the state park. We have a very robust suite of outdoor recreation software that manages all the aspects of the parks, from campground reservations to kayak rentals and parking. That is funded by fees that are levied on a campground reservation fee or a tour of the Hearst Castle. We've done that in a number of other outdoor recreation opportunities. But some clients choose just to pay SaaS fees. California obviously has some pretty significant budget pressures, and so the idea of being able to fund new software but not have to appropriate budget funds, not have to pay for it out of the budget, is very attractive to them. More recently, we've seen a lot of activity with digital motor vehicle titling systems for state governments. There's a fee that's added on to your car registration when you buy a new car. Now the titling system is completely electronic, so no more paper car titles. The last two quarters, we had a deal last quarter with the State of Connecticut for about $10 million of ARR, and in the first quarter with the State of New Jersey for about $20 million of ARR. But again, those won't start to hit transactional revenues until they go live next year. To your point, these statewide digital motor vehicle titling deals have been two of your larger deals that you've announced this year. As these large deals use transaction-funded structures more commonly, do you think that traditional SaaS metrics are becoming less complete measures of Tyler's momentum as a business? Yeah, a little bit less complete, I guess I'd say. They're still very meaningful. I don't want to give the impression that we expect to shift our whole model to transactions-funded software. It really only applies in certain instances. It doesn't apply to a payroll system or a property tax system. I think it's somewhat limited application, but it provides us with a competitive advantage to be able to provide software under that model. We have, through the former NIC business, these deep relationships with 28 state governments with state enterprise contracts, where we provide a wide range of services, and that enables us to be more effective at cross-selling new software into those relationships, often without going through a competitive bid process. I don't think it's going to be a total shift, but you do need to keep that in mind as you look at our SaaS bookings growth and our SaaS revenue growth, that there's an impact on some of that's coming in through the transaction side, and we certainly highlight those deals as we announce them. And then you, as these deals sort of become a larger mix of the total transactions business that you're doing? How should the durability in margin profile of that transaction principal? Yeah, it's positive. These are very sticky systems, just like pretty much everything we provide to government, but they're also high margin. Compared to the more traditional margins in our transaction business around payments, these have software margins. They will continue to drive our transaction margins higher over time as those layer in on top of the payments and other transaction-based business. Let's talk a little bit more about Cloud Living. You unveiled the next leg in your cloud journey, Cloud Living, which is expected to improve retention, help drive cross-sell, improve win rates, and also help you expand margins. When you look at those four different levers, which benefit should become measurable first? Probably the margin side. There are a lot of benefits of our ongoing cloud transition that have an impact on margins. Probably the biggest is version consolidation. Historically, we have a lot of products and historically, we have supported multiple versions of products, whether on-prem or in the cloud. That's really expensive from a development standpoint and a support standpoint. A significant amount of our development resources and support resources are consumed by clients that are using older versions of our software. As we move towards Cloud Living with one version of each product in the cloud, optimized for the cloud, that has a significant margin impact. We've seen some of that over the last couple of years as we have made progress with version consolidation and sunset older versions of software and gotten down, in some cases, from supporting eight versions of a product to two. But we still have another leg of that to go. But that's probably what we'd see the soonest. A more efficient release process, the ability to deploy software faster with fewer professional services, which are not profitable for us, and the ability to reduce our support effort also will impact that margin. But I think margin is probably what you see first. Then as clients see the benefits and see an enhanced client experience, we think that will contribute to improving our cross-sell and up-sell opportunities and drive more on the revenue side. To your point on the margin expansion, how much of Cloud Living's value over time do you think is going to come from lowering the cost to serve your customers versus that added revenue opportunity that you just talked about? Well, both of those are important. I think a lot of the value comes from the cost side and really us operating more like a true SaaS business, as opposed to the hybrid we've had over years of moving from on-prem to the cloud. But the revenue opportunity is really important. We talk a lot about probably our most important asset is our client base. We have 50,000 installations of our products across 16,000 different jurisdictions, cities, counties, school districts, states. That took decades to accumulate, given the pace at which the market moves. That's unmatched in our space. But it's still a relatively small share of the overall market, and we talk about our average customer having two to three products from us and being able to go to 8- 10 products. Cloud Living is one of those things that makes that easier for us and helps us accelerate that incremental growth with our existing customer base. Let's talk about cloud conversions. You have said that you expect the peak of that conversion activity to be somewhere in the timeframe of 2027- 2029. As we get closer to that, what operational evidence are you seeing that tells you Tyler is ready to support that peak conversion activity? Yeah. So we've seen consistent growth in the number of migrations or flips, as we call them, from on-prem to the cloud. For years, we were an on-prem software business, and we have decades of clients that were on-prem. Then we moved to more of a hybrid model, where we offered our products either in the cloud in a hosted model, originally in our data centers, now at AWS. Then, really around 2019 or so, shifted to a cloud-first model, where we really only sell primarily new software in the cloud and started to be more active about moving our on-prem customers to the cloud. As with most things in the public sector, it's kind of a slow process. There's early adopters that are really eager. There's sort of the middle section, and then there's some that are laggards on the tail end. At this point, if you look at our overall customer base on a revenue basis or revenue equivalent basis, about 55% of our revenue base is in the cloud today, and about 45% is still on-prem. We laid out at our Investor Day in 2023, we said if you took the on-prem customers at that point, we expected 75%-80% of them to convert to the cloud by 2030. At our Investor Day in June, we updated that we expect 85% of them to move to the cloud. That's partially based on the progress we've made to date. As we're moving into this next phase of using incentives and disincentives or carrots and sticks, if you want to use that term, we're increasingly communicating to clients that new features and functionality will only be available in the cloud, even though their on-prem product will continue to be supported. Some of those are things like new AI features that we think will be very attractive and have a high return for them. That's having an impact on the pace of those conversions. Cybersecurity is a big issue with clients and the vulnerability around their on-prem networks. That continues to be a big problem in the public sector and another motivating factor. Then just the general struggles they have increasingly with operating their in-house networks, particularly around people facing a big wave of retirements, especially on their technical staff. A lot of difficulty attracting, paying market rates, retaining skilled people they need to run their networks. The cloud does become more attractive to them, and they understand those benefits. I think the biggest change in the recent quarter is that we sent out communication from our CEO to every on-prem client this last quarter, letting them know that we're going to be sitting down with them in the coming months and having a conversation to start to map out and formalize their path to move to the cloud. That it's not an indefinite, open-ended opportunity to stay on-prem. There are a number of factors that drive an individual client's decision around when the timing is to move, but we want to have a clear understanding with each client of what those factors are and help them with what they need to start to execute the move to the cloud, whether it's support in analyzing the budget and what costs will go away when they move to the cloud that offsets the higher cost to Tyler, and a lot of planning that goes into it. That's actively underway now. So we're confident that the volume of flips will continue to increase in terms of revenue, probably over the next three years. There's not going to be a clear, it's probably more of a continuous increase than a steep bell curve, but we're very confident about our ability to get to that 85% by 2030. Great. I have a few questions that I want to ask you on margins. When we look at the entirety of your 2030 target model, you have 3-4 points of expansion baked in from version consolidation, 3-4 points from AI, and 1-2 points from your transactions business. When you look at those three levers, where is the greatest risk of overlap across cloud, AI, and operating leverage components of your margin bridge? I don't think there is a lot of overlap across those components that build up to that margin expansion framework. We did, again, the new targets that we laid out at our recent Investor Day were significantly higher than the targets we had previously laid out. We had previously talked about around a 30% operating margin by 2030, and now our target is mid-30s. The 3-4 points is really more than just version consolidation, it is really from the cloud transition overall. Version consolidation is certainly an important piece of that, but it also includes the scale, and particularly the scale with AWS. As we continue to move more clients into AWS and move our on-prem clients there, our unit costs go down as we continue to buy more capacity from them. The economics around scaling are a significant part of it. The optimization of our products. As we release newer cloud-optimized versions of our solutions that run more efficiently in the cloud, and particularly take advantage of features at AWS, then that also continues to provide a positive margin impact. The biggest part comes from the cloud. We have talked about 3-4 points coming from AI, primarily our internal use of AI. Operating leverage across SG&A, some with R&D, and AI has an impact on that as well. In G&A, a lot of that, just as we scale from a $2.5 billion company to a $3 billion and $4 billion company, there is a lot of scale or leverage in the OpEx. You have said that the margin expansion will be consistent, but it might not be linear through 2030. What are some of the factors that might cause that to be a little bit more back-end weighted? Yeah, probably just how the cloud transition continues to play out, and how we get those benefits of kind of the true Cloud Living operations. That probably is a little bit more back-end loaded compared to some of the other aspects of the margin expansion story. Okay, you talked about AI a little bit in the beginning, and I definitely want to talk about that a little bit more. You mentioned some of the ARR uplift that you're seeing from some of these early deals. To that point, what have some of these early AI deals taught you about the repeatability of willingness to pay for some of these products across your install base? Yeah, I think what we're seeing is that our clients really recognize the benefits and are looking at it through an ROI lens, and are confident that they're going to realize savings and efficiencies from implementing AI. I think in general, when we talk about AI in our customer base, like with most things in the public sector, the adoption curve is going to be much slower than you see in the private sector. Similar, we draw a lot of parallels to how we saw the cloud transition in the public sector market compared to the private sector. I'd say right now our customers are, sort of to characterize it as cautiously curious about AI. In most cases, there are always a few sort of eager adopters, but most of them want to learn a lot more about it, are very interested in how it can solve real problems they have. Particularly problems that stem from staffing shortages, and that's probably one of the biggest problems or challenges facing government at all levels, but particularly state and local government. They just don't have enough people to do the basic things they need to do. They lost a lot of workforce during COVID, a lot of that hasn't come back. They face a significant wave of retirements over the next five years. It is not that they want to get rid of a lot of people, it is that they do not have enough people to get things done, like reviewing a building permit application that might take you six months to get approved a lot of places, or entering data into the court system. There is a backlog of court cases because they are not caught up on getting cases into the system. Those are the kinds of things where we are focusing our initial development efforts and our initial product releases around AI. Our early returns have been really good with products like Document Automation, which automates data entry in the court system, where we are seeing clients pay, in some cases, the uplift is equal to what they are paying for the core software system that runs the courts. A client that is paying us $1 million of annual revenue for the court system is paying $1 million for the AI add-on to automate the data entry, but they are saving $2 million of labor expense that they have budget for, but not people. It is a really strong ROI for them. We are actually seeing clients that are paying for that out of a labor budget rather than an IT budget. It is not taking away from something else they would do on the IT side, but they are recognizing it. We talk about it as enabling us to potentially access a whole new TAM, that being the labor TAM, as opposed to just the IT TAM. Yeah, so that is a really good point, especially as you mentioned, you start to shift from just being able to target IT budgets to being able to target a little bit more of the labor budget. You are seeing some of these things happen already. How does that change or potentially change your go-to-market motion when you think about selling some of these products? Yeah. We are not going to have a separate AI sales force. This will be sold by, and is being sold by, the product salespeople. Our clients clearly are telling us that they want AI that is embedded in or integrated with their core systems of record and not bolted onto it, and they want it from someone they trust. Trust is a big factor in the public sector. References, seeing it work somewhere else before they make the leap, whether it is buying a new ERP system or adding AI onto it. They are very concerned about their data. A lot of public sector data is very sensitive, whether you are talking about criminal justice data or public safety data or tax data. They are very concerned about how that data could be used and where it could go. They trust us with that, and conversely, we have a lot of data and access to a lot of data to build models with and to create very accurate AI products. All of those things make us confident that our clients want AI from us around their core systems, and that where we're focusing our development efforts and the products that we're bringing to market over the next few months. A lot of these are currently in what we call private preview, but kind of early pilot projects. As those early clients become references and can attest to the return and the efficiency gains, then we'll expect to see more broader go-to-market activities. It'll be kind of sold through our existing product teams, through our inside sales organizations, and certainly bundled with new software sales. We've talked about really kind of the second half of next year before we would expect those revenues to even start to be meaningful, given sort of that progression that we need to go through to get to where clients are broadly comfortable with starting to implement some of these solutions. All right. As we come up on time, I'd like to finish with a high-level question. In your view, what is the hardest part of the Tyler investment case for you to explain to investors today? Well, I think explaining it is okay, but having it resonate is probably the hardest part right now, is the whole AI narrative. It's very hard to sort of dispel this thesis that has been sort of broadly applied across a wide range of software companies, other than through actually executing and proving that AI is an opportunity for Tyler. We draw a lot of parallels to the way we talked about the cloud transition. Years ago, there was a narrative that as cloud-native software development took hold, there would be a whole flood of new entrants that were cloud-native companies that could develop software faster, and we would have a whole new cohort of competitors that would take market share from us. It sort of ignored the obvious, that we could move to the cloud, which we did, and develop software in the cloud. But we had the strengths of a really large customer base, a deep sales organization, the references and trust in the marketplace, which is super important, and again, the very deep domain expertise. So we were able to be the company that takes our clients and takes the public sector to the cloud. Not that there weren't other competitors, and some of those have been companies that we've acquired to fill in gaps in our product portfolio. So we see some parallels around that and the AI world. We think we're the company that will bring not every possible AI application to our clients, but around Tyler solutions, that we'll be the company that AI will create an enhanced opportunity for us. But I think we just have to prove it out over time. Obviously Tyler has a very, very long history of executing at a very high level, consistent growth, consistent margin improvement, and has built a very strong position in the space, and I think that provides us with an incredible platform to continue to build on. Great. We are at time. Brian, thank you so much for joining me today. You bet. Thank you.