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Hello, and welcome to today's Tyler Technologies Third Quarter 2025 Conference Call. Your host for today's call is Lynn Moore, President and CEO of Tyler Technologies. [Operator Instructions] And as a reminder, this conference is being recorded today, October 30, 2025. I would like to turn the call over to Hala Elsherbini, Tyler's Senior Director of Investor Relations. Please go ahead.

Thank you, and welcome to our call. With me today is Lynn Moore, our President and Chief Executive Officer; and Brian Miller, our Chief Financial Officer. After I give the safe harbor statement, Lynn will have some initial comments on our quarter, and then Brian will review the details of our results and update our annual guidance for 2025. Lynn will end with some additional comments, and then we'll take your questions. During this call, management may make statements that provide information other than historical information and may include projections concerning the company's future prospects, revenues, expenses and profits. Such statements are considered forward-looking statements under the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties, which could cause actual results to differ materially from these projections. We would refer you to our Form 10-K and other SEC filings for more information on those risks. Also in our earnings release, we have included non-GAAP measures that we believe facilitate understanding of our results and comparisons with peers in the software industry. A reconciliation of GAAP to non-GAAP measures is provided in our earnings release. We have also posted on the Investor Relations section of our website under the Financials tab, a schedule with supplemental information, including information about quarterly recurring revenues and bookings. On the Events and Presentations tab, we posted an earnings summary slide deck to supplement our prepared remarks. Please note that all growth comparisons we make on the call today will relate to the corresponding period of last year unless we specify otherwise. Lynn?

Thanks, Hala. Third quarter results once again exceeded expectations across our key revenue and profitability measures, continuing the momentum we saw in the first half of the year. Total revenues grew by almost 10%, led by 20% SaaS revenue growth and 11.5% transaction revenue growth. We're also pleased to report solid bookings in Q3 as total SaaS bookings grew 5% sequentially and rose 5.8% year-over-year to reach a new all-time high. Our results reflect a high level of execution across our team as we advance our cloud strategy to lead the public sector's digital transformation. Our leading sales indicators, including RFP and demo activity remained steady, reflecting a healthy new business pipeline. Throughout the year, we have not seen any fundamental change in public sector demand nor have we seen any material impact on demand from DOGE or related initiatives or more recently, the federal government shutdown. As we've discussed previously, we view efficiency mandates as a long-term tailwind for our software and services across a large replacement market of aging mission-critical systems. We continue to operate in a resilient budget environment with allocations increasingly directed towards technology investments as a key lever for maximizing efficiency and productivity. We are executing our strategic priorities from a position of strength, grounded in durable fundamentals that reinforce our leadership position and competitive differentiators. Our 4 key growth pillars remain central to this strategy: Completing our cloud transition, leveraging our large client base, growing our payments business and expanding into new markets. Operationalizing our cloud-first strategy is fully embedded as the cornerstone of how we deliver, innovate and scale. Our cloud living approach will bring together technology and talent to drive agility and continuous improvement, ensuring consistency across releases and improve time to value for clients. Building on this foundation, our purpose-built AI innovation is amplifying the power of the cloud, creating more seamless connected client experiences, deepening relationships and expanding cross-sell and upsell opportunities across our portfolio. I'd like to highlight a few third quarter wins that illustrate progress against our growth objectives with a broader list of key deals included in our quarterly earnings deck. We continue to gain traction with our AI-driven solutions. Significant deals this quarter include the contract with Hillsborough County, Florida, the state's third largest county for document automation, adding $953,000 in ARR and a contract with the State of Arizona for our priority-based budgeting solution. We also signed a contract with the South Carolina Department of Administration for our resident engagement solution, adding to our growing roster of state clients, unlocking streamlined government services access through our AI-powered resident assistant. We continue to build momentum in the public safety market with competitive wins that demonstrate the breadth of our integrated offering and market strength. Public safety deals this quarter included contracts with Coweta County, Georgia in the metropolitan area of Atlanta for our full enterprise public safety suite and a cross-sell win with the City of Columbia, Missouri, an existing enterprise ERP client. We're also pleased to see market success from our recent acquisition, Emergency Networking, with the first statewide win for our National Emergency Response Information System with the state of Pennsylvania, serving more than 2,000 fire agencies across the state. Finally, we signed a statewide contract with the Colorado Department of Corrections for our Inmate Services Financial suite, which is expected to generate approximately $2 million in transaction-based ARR. Now I'd like Brian to provide more detail on the results for the quarter and our updated annual guidance for '25.

Thanks, Lynn. Total revenues for the quarter were $595.9 million, up 9.7%. Subscriptions revenue increased 15.5%. Within subscription, SaaS revenues grew 20% to $199.8 million. As we've discussed previously, there is often a lag from the signing of a new SaaS deal or flip to the start of revenue recognition that can vary from 1 to several quarters. Because of this as well as the timing of SaaS renewals and related price increases, SaaS revenue growth and SaaS bookings, both year-over-year and sequentially may fluctuate from quarter-to-quarter. Transaction revenues grew 11.5% to $201.3 million, driven by higher transaction volumes from both new and existing clients, increased adoption and deployment of new transaction-based services and higher revenues from third-party payment processing partners. Total bookings for Q3 were up 2.6% year-over-year. Total SaaS bookings, including new SaaS deals, flips of on-premises clients, expansions and renewals reached a new quarterly high, up 5% sequentially from Q2 and up 5.8% year-over-year. This bookings growth was driven by higher flips as well as expansions and renewals from our installed base. Total ARR from new SaaS deals and flips signed this quarter was approximately $30.8 million, up 8.5% sequentially from Q2 and down 3.3% from last year. ARR from flips rose 64%, while new SaaS ARR declined 39% against a difficult comparison from the exceptional number of large deals last year. As a reminder, the lumpiness of large deal timing was also evident in last year's fourth quarter new SaaS bookings, which also included several large deals. Our total annualized recurring revenue was approximately $2.05 billion, up 10.7%. Our non-GAAP operating margin expanded to 26.6%, up 120 basis points from last year, reflecting a continued positive shift in revenue mix towards higher-margin SaaS and transaction revenues and efficiency gains across our cloud operations. Cash flows from operations and free cash flow were solid at $255.2 million and $247.6 million, respectively, down slightly year-over-year, mainly due to the timing of working capital changes. We ended the quarter with $600 million of convertible debt outstanding and cash and investments of approximately $973 million. Our annual guidance for 2025 is as follows: we expect total revenues will be between $2.335 billion and $2.360 billion, the midpoint of our guidance implies growth of approximately 10%. We expect GAAP diluted EPS will be between $7.28 and $7.48 and may vary significantly due to the impact of discrete tax items on the GAAP effective tax rate. We expect non-GAAP diluted EPS will be between $11.30 and $11.50. Our estimated non-GAAP tax rate for 2025 is expected to be 22.5%. We expect our free cash flow margin will be between 25% and 27%. We expect research and development expense will be in the range of $202 million to $205 million. Other details of our guidance are included in our earnings release and in the Q3 earnings deck posted on our website. In addition, while we are currently in the middle of our 2026 planning process, I want to share an early view of our revenue outlook for next year, while we continue to evaluate our investment priorities. For 2026, we currently expect SaaS revenues to grow approximately 20%, and we anticipate total recurring revenue growth will be within our long-term target range of 10% to 12%, excluding the impact of the wind down of the Texas payments contract. Our 2025 guidance and 2026 revenue outlook reflects solid progress towards our 2030 goals, although long-term growth and margin expansion will not be linear. Now I'd like to turn the call back to Lynn.

Thanks, Brian. We're pleased that our third quarter performance again surpassed expectations, and I remain confident in our ability to deliver sustained growth through our unique competitive strengths that position us to lead our clients' digital transformation through enhanced cloud capabilities, improved client experience and the next wave of AI modernization. We remain on track to achieve our 2030 targets, executing well and delivering across all key priorities. Importantly, our 2030 plan did not contemplate potential additive growth from M&A or AI, but we expect upside potential from both of those growth opportunities. Our balance sheet remains healthy, and we currently have more than $1 billion in cash and short-term investments. Our $600 million convertible debt matures in March of '26. Based on our internal modeling and interest rate movement since we issued the convert, it has proven to be an efficient component of the financing of the NIC acquisition. As we grow free cash flow, our historical capital allocation priorities remain unchanged and include internal investments, M&A and opportunistic share repurchases. We repurchased approximately 300,000 shares in Q3 in part to offset potential dilution from our convertible debt. Following our repurchases, the stock saw further weakness to levels we believe represent an attractive long-term value proposition, but most of the decline took place after our blackout period commenced. On the M&A front, we have closed 2 acquisitions this year, MyGov and Emergency Networking, and our M&A pipeline is active. We continue to follow our proven playbook, adding competitive products or functionality that are adjacent to or complementary with our existing core business. We expect to leverage our established sales channels and client base to grow acquired businesses faster than Tyler's overall growth rate. Looking ahead to 2026 and beyond, you'll see us take a more proactive intentional approach to M&A within our general guidelines while staying disciplined on valuation. Over recent years, we've discussed a higher bar for M&A. Yet since the NIC acquisition, we've closed 11 transactions of varying sizes for a total purchase price of nearly $400 million. The higher bar reflected both management bandwidth and balance sheet considerations. Going forward, we'll continue our disciplined valuation approach and consider management bandwidth, but I'd expect to use our significant free cash flow and if circumstances warrant reasonable levels of debt to drive future growth through M&A and when appropriate, fund opportunistic share repurchases. Now I'd like to make a few comments addressing some of the market noise around AI. For more than 25 years, Tyler has successfully navigated the public sector through successive waves of technological transformation from the emergence of web browsers in the dot-com revolution, to mobile computing, cloud migration and now artificial intelligence. Each shift brought similar promises. New entrants with new technology would disrupt established players. And each time, we learn the same fundamental lesson, technology alone never wins. In the public sector, durable outcomes come from deep domain expertise, trusted client partnerships and disciplined execution. That's been our edge, and it still is. Today, we are building on those same principles and expect to guide the public sector into the next era, one that's driven by AI. And we are confident that no company is better positioned than Tyler to lead this transformation. AI's effectiveness depends on quality data. Our 15,000-plus clients generate vast amounts of data daily through our systems, and they trust us to govern it responsibly. Through well-structured data partnerships and governance frameworks, we can leverage this client data with appropriate permissions and safeguards to build AI solutions that truly understand government operations and complex workflows. Our clients are ready, and they're seeing results. Early deployments of products like document automation and priority-based budgeting are delivering 10% to 30% productivity gains and 2 to 3x ROI on targeted processes while maintaining the level of reliability and trust that our clients demand. Looking ahead, I view our AI opportunities in 3 categories. First, internal efficiencies where we'll invest and set specific ROI targets. For example, we're currently scaling our investments in AI tooling for all 2,000 of our product development team members, rolling out the tooling, training and enablement required to innovate and deliver at the speed of AI. Second, competitive differentiation with existing products to win more business and provide more meaningful upsell opportunities. And finally, new products through M&A or internal development that drive revenue growth. Agentic AI, operating as a digital extension of the workforce has a natural path to monetization because it delivers clear, obvious and measurable outcomes, such as hours saved, backlogs reduced or revenue recovered. When that value is proven, we believe Tyler can capture a fair share of the ROI by simply as a predictable annual SaaS fee tied to the value. It's also interesting to note that some of our forward-thinking clients are starting to blend their software and labor budgets, allocating more of the latter towards their digital workforce. As digital labor shows impact, agencies can reallocate portions of labor spend to software. If this trend continues, we believe it will further expand Tyler's opportunity. In summary, and in my opinion, some of the noise around AI and vertical software has been a bit overblown. I've quipped that AI itself is fueling displacement fears and there's still significant hype, reminiscent of the dot-com era. With every technology cycle or transformation, there are shifts to redefine markets and leadership positions, and yet Tyler continues to endure, thrive and lead. To me, the question people should ask is, who is best positioned to lead the public sector through this next transformative cycle? I contend it's Tyler. Now we'd like to open the line for Q&A.

[Operator Instructions] Your first question comes from the line of Alex

Maybe just the first -- I'll go with a tactical question first around some of the numbers and then maybe a high-level one. So maybe, Brian, for you, just understanding and helping us bridge the decline in kind of net new annual SaaS bookings year-to-date in the quarter on tough comps from last year, but the confidence in SaaS revenue growth for next year at 20%. Maybe just help -- give us a little bit of context for when the implementations, when those conversions need to happen from that prior booked business to hit that number? Like how much visibility do you have on that relative to previous years? And maybe some guardrails on those estimates for next year? And then why pull some of the segmented guidance for this year? Maybe just help on those 2 points, and I've got a big picture one.

Yes. As we look -- and as we said, this is a preliminary look at 2026 as we're building out our plans, but we expect that SaaS revenues growth will be in that 20% range. It's really built up from all of the factors and our visibility into those that drive SaaS revenue growth. Part of that is new SaaS bookings, both those that will happen next year and those that have already happened. And as we've talked about, there can be a lag from 1 to multiple quarters. Sometimes these deals are phased in as they hit revenue. So some of that growth is coming out of the bookings that we saw this year and the bookings that -- some of them even that we saw last year as those are phased in. So effectively out of our backlog. There's also the impact of flips. We've talked about the trajectory of flips continuing to be on the uphill side. So those are still growing both in terms of number and in terms of size. So our expectations around flips next year are layered into that. And then there's our -- the renewals, the price -- the sales to new customers, which actually reflect the majority of new SaaS bookings are coming from add-on sales to existing customers, not the new name deals that we also disclosed. And then there's the pricing impact of our annual increases that we see on renewals. So as we look at all those -- how we build up all of those, those -- we have, I'd say, at least as good a visibility as we have in any normal year. And that is what drives that confidence around that 20% range for growth next year.

And on your question about segmented guidance, I assume you're asking about the breaking out revenue guidance by line item. We've given that early in the year to help with modeling in general. But now that we're down to the fourth quarter, we really don't have any significant changes around what we've given in the past. So we've tried to simplify things a bit and just go with the overall revenue guidance.

Got it. And then, Lynn, maybe for you, maybe you talked about not really seeing an impact from budgets and budget cycles in DOGE, which makes a lot of sense. When -- I guess it felt like the commentary around M&A was maybe a little bit more pointed. So maybe I'll just ask the question around -- how much should we anticipate from an organic -- from a total top line contribution maybe for fiscal '26 and beyond? Is this a change in terms of the point or so from M&A that we've kind of come to expect? Are you thinking maybe more can come because the opportunity set is so much broader than it's been before because of AI? Or what's the signal that you want us to take away from that comment?

I think really the signal is, one, we've done 2 deals this year. They were relatively small. We do have an active pipeline. They're not necessarily large deals. I wouldn't expect '26 to have a meaningful impact more than that sort of 1%-ish range, assuming other deals may or may not go. Really, the comment is based around the fact that, hey, the last several years, we've talked about the need to strengthen our balance sheet, and we've talked about management bandwidth, not just because of M&A deals, but also we have a lot of strategic initiatives going on. And throughout this year, as you know, we've gotten to the point where we have the cash on the balance sheet to pay off the convert. We are getting past some major hurdles on some of these internal investments and strategic initiatives even as more are spinning up. And I just feel like we're more in a place now where we can actually be a little more proactive, whereas over the last few years, I think we've been a little more reactive, more responding to brokers instead of other types of deals. Now to be fair, the Emergency Networking deal that we did this year, that was something we proactively went after. They were a partner of ours. That's a proven model for us. We get to know them out in the market. Our ability to close on deals when we knock on doors or we establish a relationship versus a broker bringing it to us is much higher. And I think we're just in a position where I feel like we have the more of the ability, both, again, from a balance sheet perspective and a management perspective, everything to sort of go back to more of our traditional approach pre-NIC.

Your next question comes from the line of Terry Tillman of Truist Securities.

It's good to see this flag in the ground on the 20% SaaS growth. I had a bunch of questions, but I'll keep it to one. And there's a maniacal focus on your supplemental information on your IR section of the website, and it is often on that new SaaS and flips SaaS bookings. I love how you brought up the idea of add-on sales. Could you maybe double-click on kind of approaches you have been taking to be much more programmatic to drive those add-on sales and expansions? And just where are you in kind of getting the benefits of that focused effort?

Yes, Terry, it's been a focus of ours for some time. Our inside sales teams have been outperforming generally against their quotas for the last couple of years. But we're still, I would say, in the very early stages. I think at the 2030 targets, we talked about having at that time, 2 to 3 products per client. And our goal is to get to 10 to 12 or even more, particularly we do more M&A, it's more opportunity. We're still pretty early in that, but it is a big factor of what we -- of how we approach the business. I think the other thing I want to talk about going back to Alex's question about the markets is what we're seeing now is we've said for the last several quarters, RFP activity is steady, demo activity is steady to up. But for whatever reason, and we've talked with our sales guys in Q1 and Q2, for whatever reason, some procurements were put on pause, and we're starting to see that be released. And we feel good about our Q4 sales outlook. For example, in our enterprise ERP solutions. Q2 and Q3 had the highest number of RFPs that we've seen in the last 2 years. That demand, just like historically doesn't go away. We're there to capture it. I think that was -- for whatever reason, it was a post-ARPA hangover. It was a short blip. But we've seen that before in larger cases, whether it was post 9/11, Great Recession, COVID, whenever there was, for whatever reason, a pause, we were there. Now this obviously was never nothing to that extent, but it's part of our confidence as we move forward.

Your next question comes from the line of Joshua Reilly of Needham.

Can you just remind us the moving parts of how the Texas payments contract winding down is going to impact transaction revenue for the balance of the year? And then offsetting that is the ramping of the California State Parks deal. Is that at a full run rate now? And are there any other notable payments deals ramping in transactions disrupting the normal seasonality for decline into Q4?

Yes. The Texas contract continues to move towards wind down. I think we currently expect revenues from Texas for the full year to be kind of in the $39 million to $40 million range, which is maybe down just a tick from, I think last quarter, we said $41 million. So as we get more clarity as it transitions out, that's the level we expect to be. There's probably a little bit that carries over into next year, maybe $4 million or $5 million. So that delta between the $39 million to $40 million this year and $4 million or $5 million next year is what will come out of next year. With the California parks, which was a big basically software and services, but mostly software paid for as transactions. That contract started last August. So we lapped it during this quarter. So going forward, although that -- the revenues from that contract will continue to grow, I'd say it's not fully ramped, but most of that growth or most of the incremental revenues from that are now built into our base. I don't think there's anything that fundamentally changes the seasonality. We did call out -- Lynn mentioned one large transaction-based deal we signed this quarter with the State of Colorado for our inmate services Financial suite. So again, that's software that's being provided under a transaction-based arrangement that will add a couple of million dollars a year of revenue, but no individual deal that's on the scale of something like California.

Yes, Josh, we also -- in this quarter, we signed a payments deal with Chesterfield County, Virginia that fully ramped up. We think it will be about $1.5 million deal. There are some other payments transactions that are in the queue right now that, as you know, we don't announce awards or where we sit. But we like the trajectory right now of our payments transaction business.

Your next question comes from the line of Saket Kalia of Barclays.

Great to hear the 20% SaaS growth for next year as well. Maybe for my one question, Lynn, it's really for you. Really appreciated your points on AI in your prepared comments. And I want to marry that with kind of Tyler's move to SaaS. As more of the base moves to SaaS, what do you -- and without getting too specific, what do you sort of see on Tyler's road map that's going to maybe grow that revenue opportunity in terms of AI in the public sector? And maybe relatedly, have you seen any changes from competitors as perhaps AI becomes more of an offering in public sector? That's been a question that I've gotten as well. Curious if you could comment.

Yes. I think I haven't seen anything material out of competitors. I do think your analogy with SaaS is a good one. It's one I've used internally, which was, as you recall, we historically had an on-premise license business. We had a SaaS offering. We were cloud agnostic. And then in 2019, we made the strategic shift and we said, look, we're the leader in this space. We're going to lead the public sector to the cloud. We're not just going to be reactive. And that's the mindset that we have right now internally is we're going to lead the public sector through this next cycle of transformation, which is AI. And we're best positioned to do it. I mentioned some of those things on the -- in my prepared remarks, our access to data, our deep domain expertise, our know-how, both internal resources. We've got partnerships with AWS, OpenAI, Anthropic. But a big one also is trust. Our clients trust us. This is a journey that they're ready to take, but they really want someone a trusted partner to be moving forward with them. And that was a big theme at our Connect conference last year, and it's something that really resonates with our clients. So it's really capitalizing on our position. We're making investments in AI. We've got products right now that are clearly AI-driven. We've got plans for next year to ramp up more investments on AI. But one thing I want to be clear is I'm not going to jump on the AI hype train. We've got those products. It's part of our strategy. I'm not going to go out and put out big numbers that a lot of people are doing. We're going to continue to be like we've always been. We're going to tell you what we're going to do and then we're going to go do it. And that's going to be our approach. But we are excited about where we are. We're excited that our clients are ready. But again, it's -- this stuff doesn't happen overnight. As you know, it's going to take time.

Your next question comes from the line of Kirk Materne of Evercore ISI.

And Lynn, interesting to hear about how some clients are starting to marry their software and labor budgets together. My question is pretty similar or at least a follow-on to what Saket asked on the AI front, which is how are you -- I guess I realize it's early, but how are you envisioning discussing sort of pricing for AI functionality with your clients? I mean you guys have had a long partnership with your clients where I think there's been some sort of value exchange between you and your customers. Does that change at all in an AI world? Meaning is it -- or is it just sort of we're delivering more, we can take price as a result? Do you price per agent? I was trying to get a sense, and I realize it's early, but I was thinking more specifically around some -- as you bring in more AI functionality into the ERP suite, some of your core offerings.

Yes. Thanks for the question, Kirk. I guess on the first part, yes, we've had a small -- a very small sampling of clients who actually have moved and took money out of the labor budget to help fund that. I mentioned Hillsborough County, Florida. And I think what that does is it actually produces another way for us to approach it. And your comment about Agentic AI and replacing the digital workforce is something where we can show a proven ROI return, and I think it's something that you can price. I also spoke about there will be areas of AI that I think are really going to be about improving our competitiveness and perhaps elevating a bundle or suite of products as opposed to maybe necessarily a separate module. But you're right, having to meeting our ability to sell the value on the ROI is what's going to be critical in terms of a separate monetization lane.

Your next question comes from the line of Rob Oliver of Baird.

My question is on the customer conversions or pace of flips. 2-part question. One, Lynn, have the drivers of flips changed at all? I know you guys have cited security and certain customers being ready to modernize in the past. And are there additional factors that could offset that like AI readiness or concern on AI? And then for Brian, just around the conversion math, if you could just remind us how that's looking today? And any color around cross-sell on top of that would be helpful.

Yes, Rob, I think actually, security has historically been a foundational selling point. I think it's shifting now to the value that you're getting in the cloud. and the value of the enhancements, the upgrades. We have not yet -- we are in the process of formulating a consistent one Tyler approach to how we're going to -- to our clients as to our messaging around the cloud. We're still doing more of a carrot versus stick approach, but that's evolving. And -- but the carrot is the value prop that you're going to get by being in the cloud versus not being in the cloud. And that will include, to your comment, AI features and functionality.

And I'll also add that one sort of gating item around the pace of flips and the readiness of clients to flip is -- goes hand-in-hand with our version consolidation. And as we've continued to eliminate older versions of products and move more and more customers onto the current version of products, that puts them in a position to be able to migrate to the cloud where we ultimately have one cloud version of each product. And we've made a lot of progress with that, especially with our core key products over the last couple of years, and we continue to do work on that. But that has put more and more customers in a position, which also supports an increase in the pace of flips over these next couple of years. The math around the flip still sort of on a like-for-like basis, still holding pretty steady at that 1.7 to 1.8x uplift from their maintenance revenues. It's a bit anecdotal at this point, but I think we are seeing an increase in add-on sales, upsells, whether it's additional services or additional modules or products. as customers move to the cloud that provides that opportunity to have a conversation with them about other products that they could get from Tyler and deploy in the cloud at the same time. And I think we're more intentional about that today than we may have been in the past.

Your next question comes from Matt VanVliet of Cantor.

I guess when you look at the number of sort of subverticals that you play in, it sounds like some of the Courts & Justice and then the ERP financial side have been particularly strong. the last few quarters. Curious if there have been any areas where you've seen some weakness and maybe any reasons you've identified there, maybe any areas that have shown a little bit more of that ARPA hangover even on the K-12 side, maybe the ESSER funds in addition to ARPA. Just help us understand kind of where in the business is seeing some positives, maybe where some negatives are.

Yes. I would say, Matt, generally, in the first quarter or 2, we talked about decisions being delayed, not canceled, but just sort of being delayed, and we attribute a lot of that to Post ARPA. That filtered across product suites. It filtered across our ERP enterprise ERP suite. It did filter across some of our justice solutions. Public safety is having a really great sales year, seeing our Courts & Justice solutions. I think there -- the softness that they saw in the first half really caused by sort of delay of deals that's starting to ramp back up. And as I mentioned, that's the case also with our enterprise ERP. Federal, obviously, has been impacted by a lot of the noise that's out there. But as a reminder, it's a pretty immaterial part of our business.

Your next question comes from the line of Ken Wong of Oppenheimer.

Brian, I wanted to maybe dig in a little deeper on Alex's question about '26 SaaS revenue. You touched on some of the components, the stuff coming off backlog, stuff coming in from new. At this stage in the planning cycle, any sense whether or not '26 might have a larger backlog component that gives you guys the confidence? Like how should we think about that relative to '25 or past years?

I think structurally, there's not a big difference. Probably -- again, given the number of big deals we did last year that are still filtering in, there's probably a little bit more that comes from that backlog just because like you saw quarters last year where SaaS ARR bookings growth was 60% and 50%. Obviously, our revenues didn't grow by that level. So that -- those bookings, some of those still have not fully hit revenues. And then there's just this continued increase in sales to our customer base, which is where the vast majority of those new -- of those SaaS revenue growth comes from. It's both pricing and it's add-on sales and selling other modules or other suites of products to existing customers. And those -- as Lynn pointed out, as we make more acquisitions and as we invest in more product development, we have more things to sell to those customers. We've made structural changes around our sales organizations, for example, adding the new state sales organization that are also helping position us to drive more of those sales into the existing customer base. So -- and then we talked about the trajectory of flips. So probably a minor more amount coming from backlog, but also just our general outlook around cross-sells, upsells, new sales next year, how we gauge the pipeline. So we've talked about for several quarters, the market activity, the number of RFPs, the number of demos we're doing, being kind of steady at this sort of historically elevated levels. So a very robust pipeline of business, but we have long sales cycles that can typically be a year, 18 months in large deals, sometimes well even longer than that. So that pipeline activity continues to support a really solid sales outlook as well.

Ken, just to jump on that a little bit. 2024 was a record sales year. And we experienced a little bit of softness in Q1 that carried over a little bit to Q2. But as we said at the time, this was not something systemic. This was not a sustained issue. And what we've seen is what we expected is that as the year has gone on, our sales continue to ramp up, and we expect it to continue to ramp up in Q4. And it was just -- it was a temporary blip, but it was no fundamental change in either the markets or our offerings or our competitiveness. And we've seen it before in bigger situations. But from my perspective, there's nothing that's fundamentally changed about our trajectory and our 2030 targets.

Your next question comes from the line of Jonathan Ho of William Blair.

Can you hear me okay?

Yes.

Sorry. So I just wanted to understand, when it comes to some of your newer products like emergency response and prison transactions, can you help us understand the growth opportunity here and potential cross-sell synergies with some of your other systems?

Yes. Those -- both of those product lines are resident our correction resident services has a big TAM. I don't have it in front of me. I remember when we did the acquisition, I believe we thought it was north of $100 million. And it actually represented a cross-sell opportunity. We utilized the relationships in Colorado from the NIC acquisition, married with our salespeople on the Justice side to create that opportunity. So that's pretty big. The emergency networking acquisition, a small acquisition, but an important one because they had their fire incident reporting system is one that is current and meets '26 compliance. And that's a big deal. So it's going to drive growth. They're smaller deals. But it's something that we're excited about. It's something that we can take and leverage. Pennsylvania, when we got the statewide, it's the state with the highest number of fire agencies in the country. And for us to win that deal and actually, the initial deal was kind of small, but it has expansion opportunities, which we're already seeing and get that success and then take that and transport it across the country will also help drive our public safety sales.

That's really a key characteristic that we look at in a lot of the acquisitions we do, these tuck-in types that even if they're relatively small at the time we acquire them, we expect them to grow at a rate that's significantly in excess of Tyler's core growth rate as we leverage our sales organization, put that product in the bags of many more sales reps than that business had on its own and sell it both existing Tyler customers in related products and bundle it in new sales, which is what we're doing with emergency networking. And we've seen that playbook work extremely well over the years. A lot of examples like our Enterprise Supervision product that have proven up that. So that really is a common characteristic of a lot of our acquisitions.

Your next question comes from the line of Gabriela Borges of Goldman Sachs.

Lynn, I wanted to follow up on your comments on AI because there's been some frustration in the software ecosystem this year on just how long it's taking to see real productivity gains in knowledge workers and at the application layer. So my question for you is, there is this perception that government typically moves slower than enterprise. Based on your conversations, what are you seeing in terms of the guys customers being willing to engage? Are there some products that they're more willing to engage than others for AI use cases specifically? And to the extent there are limiting factors, what are you as a company doing to address those limiting factors directly?

Yes. Thanks, Gabriela. I mean, clearly, our sector typically moves slower than the private sector. That probably was part of our approach when we used to talk about it probably about a year ago that we were taking a disciplined approach. We're seeing clients being more receptive today than others. A lot of it has to do with things around their workforce. As their workforce continues to age and reach retirement and they're not replacing it, they're starting to see the need and the demand for that. That's the whole Agentic AI and the digital worker. We've seen places in our business where I think it's been -- it's more receptive today than other places in our business. Certainly, in the court space, I talked about the document automation, which was our CSI acquisition a year ago. We're seeing a little more receptiveness in our ERP space for things like our priority-based budgeting and some other modules, AP automation and things like that. So it's not -- I wouldn't say that it's the dam has been broken, so to speak, but there is receptiveness to it. We will continue to push it because we will lay out that ROI value to our clients.

And I think some of that receptiveness is tied to the trust they have with Tyler. They -- we have these deep long-term, often decades-long relationships where we've brought them through different stages of technology, and they trust us to do that with AI as well and to show them the way and show them the value proposition, protect their data, provide the transparency where they may be less trusting of a point solution or a start-up that just comes in with an AI solution on top of other products. So they really -- they trust us to understand their needs and to marry that with the way we manage their complex workflows. So that trust factor is important in their receptiveness to AI.

Yes, I'd be remiss to not also mention our products in the state space, resident assistant, resident engagement, automated field ops. And we did a deal this quarter with the South Carolina Department of Administration for our resident engagement product, and that was about $1 million in ARR. But the solutions that we're able to provide to help citizens navigate the complex web of government operations to find their needs and to meet -- find what they're looking for and meet their needs is also somewhat compelling.

Your next question comes from the line of Mark Schappel of Loop Capital Markets.

It sounds like it was a strong quarter for your public safety business. Q4 also tends to be a strong period for public safety. I was wondering if you could just provide some additional color on maybe your public sector -- excuse me, public safety pipeline and the setup for Q4, if you could.

Yes, Mark, you're right. We had a good quarter in sales in public safety. We've got a lot of momentum in public safety, and I'm expecting some good sales in Q4 as well. We closed a few good deals. We don't talk necessarily about the competitors we beat, but I'm certainly happy with some of the wins that we had and because of the competitive people that we beat. And it's -- there's momentum there, and it's something that's got excitement up in our [ Tyler ] division. we're still the leader in the public safety space as it relates to cloud. I think this quarter, we're -- through this year, we're about 93% year-over-year ahead in subscription versus last year. And so that's -- it's a good place to be. Now we're not going to sit on our laurels. There's going to be more competitive investments we're going to make just like we do across the board, but I like our position there.

Great. And then, Brian, just building on an earlier question around flips. I believe flips were growing about 25% this year. Just wondering if you could just comment on growth expectations for flips next year. And also, if you could maybe just provide an update on maybe what percent of the installed base has moved to SaaS.

Yes. We don't guide actually to a flip number, but we have said that the trajectory both into next year and really for the next 2 or 3 years, we've talked about a peak in the '27, '28 time frame. So that trajectory, both in terms of the number of flips and the size of flips. So the average size of flips is increasing. If you look at the cohort of customers that are still on-prem, it's more heavily weighted towards large customers, statewide court systems, large counties. So there is more revenue in that base that's still on-prem. So we do expect that trend to continue to be upward and to the right, but are not giving a specific number for how we expect that to grow. Just like with new sales, there's lumpiness around large flips. And those are a little less predictable about exactly what quarter or even what year they're going to fall in, although we're certainly in conversations with virtually every customer about their long-term plans to move to the cloud. The so that's kind of where we stand on that. The second part of your question, what was that?

It was around the growth expectations, I think, for flips next year -- I'm sorry, what percentage of the installed base has moved to SaaS?

From a revenue standpoint, so if you take the maintenance revenue that we have today and multiply it by 1.75 to make a SaaS equivalent and compare that to our SaaS revenues. So from an equivalent revenue basis, it's about 50-50 right now. So about half of our customer base by revenue is still on-prem and about half is in the cloud.

Your next question comes from the line of Michael Turrin of Wells Fargo.

This is [ Ron ] [indiscernible] on for Michael. Just wanted to ask about the cross-sell opportunity. You talked about that 8 to 10 product goal for a few months now. So just wanted to know like what are the key drivers to bridge that gap from the current 2 to 3 products that customers kind of have right now? And is this going to require some M&A or new product development?

Yes, Michael. There's a number of factors that drive that. One factor is we're still in the process of getting all our products to a single cloud version, which will help that. Our approach to sales, we're taking a hard look right now at our overall approach to sales holistically and not really in a position to go into details on that right now. But suffice to say that's a significant a as to how we look at -- how we view a client, how we look at territories, how we view their bag of products. There's other things about it, too. These other initiatives that we've got going on, I talked about getting down to a cloud. That's our cloud living initiative. Our client SA initiative, making sure all our clients are extremely happy is a huge component of cross-sells and upsells. As I say, our clients aren't happy, they're not going to buy more of our products. And we've unleashed a lot of it. As you know, we hired Andrew Call, our new Chief Client Officer. We've started some One Tyler initiatives around client experience, standing up and getting a better One Tyler approach to client success and things like that. So there's a lot of motions in the background. It's not one specific thing, and some of these are bigger motions than others. But it still remains to be a significant opportunity for us over the next 5, 10 years.

Your next question comes from the line of Pete Heckmann of D.A. Davidson.

A lot of my questions have been answered, but just a couple of follow-ups. Remind me, this was a big year for R&D catch-up. What are we thinking as -- I think in the longer term, framework that you had provided, you were thinking that R&D would approximate maybe 5% of revenue in 2030. But it looks to me like it's certainly above that now. And so should we expect it to plateau and then come down as a percentage as revenue grows? Or would we expect it to continue to maybe grow at an accelerated rate in 2026?

I think in general, as we look at long term over multiple years, we expect R&D would grow in line with or slightly below our overall revenue growth that -- so as a percentage of revenue, it would be stable or come down. As we've talked about in the past, this year and on into the next couple of years, there's an impact on R&D from sort of a geography change. So as we continue to evolve in our cloud transition that resources that were formerly classified in cost of sales are being redeployed in R&D. And so there is a move of expense that's part of the reason for that growth. But as we look at this year and on into next year, I'd say we are expecting an elevated level of R&D. So we're seeing actual increases above our revenue increase as we invest in various initiatives, some of which Lynn talked about, including incremental investments around AI.

Okay. That's helpful and a good reminder on the reallocation. And then just in terms of with the Texas payments deal deconversion, really the majority of that happening for next year, that creates a bit of a drag. And -- and if we're thinking of SaaS growth at 20%, I guess what's the underlying growth rate of payments that we should be thinking about to get to kind of thinking about where subscriptions growth ends up next year in terms of thinking about like is the right way to think about transaction revenue growth ex the Texas payments, something in the mid- to high teens?

I'd say, yes, ex the impact of Texas, low double digit.

Okay. Low double digit. Okay. So certainly, on a combined basis, then just because of Texas, we will see subscription revenue growth fall kind of more towards the mid-teens next year versus what looks like it's going to be 18% this year. Is that the right way to think about it?

I think that's generally the way to frame it. But again, the only guidance or directional guidance we've talked about today is really around the total SaaS growth and that subscription growth in the recurring revenue growth in the 10% to 12% range. So the recurring revenue growth being the SaaS, maintenance and transactions combined. So you can kind of back into the -- what that leaves for transactions if you take -- apply the 20% to the SaaS. And that recurring revenue growth excludes the impact of the Texas transition.

Your next question comes from the line of Trevor Walsh of Citizens.

Brian, maybe for you, but Lynn, feel free to weigh in as well. I appreciate all the color around kind of 2026 and kind of top line type of outlook. But can you maybe just give us a sense of how -- from a profitability standpoint, kind of where are some of the levers you think going into '26 that might be pulled? And also on that front, could you give us an update on the data center closure? I think there was one targeted for the end of this year. And if my memory serves, that was going to have locations kind of in the early part of next year. So maybe if we could just get an update on that process just as part of your answer, that would be terrific.

Sure. The Margins, we've said -- we're not giving guidance on margins for next year. We have said that, that progression of margins will not be linear over the next several years. It's been at a bit of an elevated level for the last couple of years. We're a little bit ahead of plan as we've seen ahead of our long-term trajectory as we've seen some of the benefits of the cloud transition earlier. We've also seen more OpEx benefits earlier. So I would expect that margin expansion next year will not reach the same level of margin expansion that we're seeing this year, but certainly on track to achieve or exceed the targets that we've already established for 2030.

Yes. I'd say, Trevor, that's right. We're too early in the process to talk about margins. I will say we have approved and greenlighted some investments that were not in this year's budget that are coming online now, investments in our products, investment in both competitive and AI investments. And I would expect some of that additional elevated investment next year. On the data center closure, you're right. We have exited the Army data center, a huge milestone. Huge congratulations to our teams. We did that a little bit a couple of months early. And we talked about this in '23 about exiting the Dallas data center on time, and now we've done it with the Army data center. One thing I want to caution about that exit is that does not necessarily equate to immediate cost savings. There are some transitional headwind costs that are short term. I'm not prepared to give you a window of that. But clearly, over the long term, it's a tailwind to margins.

Your next question comes from the line of Clarke Jeffries of Piper Sandler.

I just wanted to do a follow-up on some of the commentary on flips. I just -- and Brian, how much is version consolidation still a limiting factor across the product base? I think it was framed at the beginning of the year, you were ahead of schedule with ERP at a 95% level, Justice at 75%. I just want to wonder -- I just wanted to ask about 2026 going into next year, where are you at in that version consolidation? What limiting factors really are left just to frame the ability to really have capacity for greater flips next year?

Yes. So there's -- take ERP, for example, there's 2 motions that are going on. One is we had multiple versions out in the field, which you consolidate those. And then we also have our cloud version of the software, which we will flip to that. And those are 2 different functions that are going on. You need one to get to the other, and we've made significant progress there.

And your last question comes from the line of Charles Strauzer of CJS Securities.

Just on the conversation, just looking at the time it takes a customer to go live in the cloud kind of once they've signed on to flip, are you seeing noticeable improved efficiencies allowing you to convert the customers at a faster clip?

I think in general, our experience has been pretty good. I'd say we've probably gotten better at it. It varies from client to client. There's typically a lot of planning done well in advance, often months in some cases, multiple quarters before they actually signed to flip. But we've seen pretty good experience in terms of the time from when they sign to when they actually go live in the cloud. Stay, the Idaho court system, for example, I think, was in a matter of just a few months. We've seen -- so I'd say our experience probably is really good there. It's more around the client doing a lot of planning in advance and working it into their overall IT road map. We've certainly seen situations where often because of a ransomware attack, the decisions are made very quickly, and we're able to bring customers up in the cloud sometimes in a matter of days. So that doesn't have to be a really long lead time, but it varies from client to client.

Each client has got different levels of complexity, and we have been able to do things pretty quickly, maybe not full functionality. But I would say that as we get -- as we continue to move forward, yes, I think we're getting better and more efficient. I couldn't quantify what that is at this point.

With no further questions, I'd like to turn the call back over to Lynn Moore for closing remarks.

Thanks, Dale, and thanks, everybody, for joining us today. If you have any further questions, please feel free to contact Brian Miller or myself. Thanks again, and have a great day.