Tyler Technologies, Inc. Discusses Cloud Transition and Growth Strategy at Baird Global Consumer, Technology & Services Conference 2025

Key Takeaways

TL;DR: Tyler Tech is accelerating its cloud transition into Phase 2, driving a 1.7-1.8x rev. uplift on moving from on-prem to SaaS. The co. is leveraging its broad public sector portfolio to boost cross-sell oppt'ys and is targeting significant margin and rev. growth toward 2030—all while maintaining resilient demand amid stable gov't funding and exploring AI integrations across its product suite.

• Cloud Transition & Biz Model Transformation
  • Phase 2 Initiation: Tyler is entering Phase 2 of its cloud transition, building on its 2019 shift from on-prem to a cloud-first model via an AWS partnership.
  • Rev. Uplift: Converting an on-prem maintenance contract (e.g., $100K) to SaaS has historically yielded a 1.7-1.8x uplift to roughly $175K, before hosting costs.
  • Conversion Targets: Roughly 50% of its legacy customer base is on the cloud today, w/ a target of converting 85% by 2030.
  • Cross-Sell Potential: The cloud transition is expected to create oppt'ys for cross-selling additional products to a customer base that, on avg, currently uses 2 of Tyler’s solutions, w/ potential expansion to 8-10.
• Financial & Growth Outlook
  • Recurring Rev. & SaaS Growth: Since 2019, Tyler’s recurring rev. has grown at a 20% CAGR, w/ SaaS rev. growing at 25%, incl. 17 consecutive Qs above 20% growth.
  • 2030 Targets: The vision includes a 10-12% recurring rev. CAGR (organic plus M&A), rev. expansion into the $3.6B-$3.8B range, OP margins expanding from 23% (2023) to over 30%, and FCF margins approaching 30% w/ a target of $1B FCF.
  • Market Fragmentation: Despite its leadership as the largest software provider exclusively serving the public sector, Tyler operates in a fragmented market w/ sub-10% market share but benefits from high win rates and 98%+ customer retention.
• Product Portfolio & Market Segments
  • Vertical Breadth: Tyler serves multiple segments incl. ERP/public admin (≈33% of biz), platform tech (≈30%), courts/justice (15%), public safety, K-12 admin svcs, property tax, and civic svcs.
  • Integrated Solutions Advantage: The integration between disparate products—like a common payment engine across sectors—creates a competitive edge by streamlining ops and enhancing cross-sell oppt'ys.
• Competitive Landscape
  • Segmented Competitors:
    • ERP space: Competes w/ large horizontals (Oracle, SAP, Workday, Infor) and niche public sector ERP vendors (e.g., OpenGov).
    • Public Safety: Contends w/ Motorola MSI, Hexagon, Axon, and CentralSquare.
    • Courts and Justice: Faces smaller, private-regionally focused legacy providers.
    • Payment Solutions: Differentiated through a fully integrated payments platform complemented by the NIC acquisition.
• Gov't Funding & Demand Drivers
  • Resilient Spending: Tyler’s rev. exposure is predominantly local (≈75%) and state (20-25%) w/ minimal (less than 5%) federal involvement, ensuring stable, non-discretionary demand.
  • Budget Environment: Despite timing variations linked to ARPA-driven spend and occasional ramp downs in Q1 bookings, Tyler expects consistent demand driven by replacing 20-30-year-old legacy systems.
  • Enduring Value Proposition: Gov't challenges—including aging IT infrastructure, cybersecurity vulnerabilities, and workforce retirements—bolster the imperative to move to more efficient, cloud-based systems.
• AI Integration Initiatives
  • Three Key Areas:
    • Service Delivery: Deploying chatbots and AI-driven resident engagement portals (e.g., Indiana’s resident engagement system) to streamline citizen interactions.
    • Decision-Making: Enhancing budgeting tools w/ AI to help large gov'ts (e.g., Los Angeles County) optimize expenses.
    • Operational Efficiency: Automating tasks such as report writing in public safety; for instance, potentially reclaiming 2 hours per day per police officer by reducing manual data entry.
  • Market Positioning in AI: While gov'ts typically lag in early adoption, Tyler’s trusted partner status is positioning it to lead customers in integrating AI solutions across its established product suite.

Overall, Tyler’s strategic pivot to cloud and layered investments in AI and integrated software solutions reinforce its competitive moat while driving margin expansion and long-term rev. growth—a compelling narrative for investors amid stable public sector spending.

Call Q&A

• Robert Oliver: What phase are we in the cloud transition now?
  • Brian Miller: We're entering Phase 2, but Phase 1 and Phase 2 overlap. Phase 1 involved shifting to a cloud-first approach, partnering w/ AWS, and optimizing products for the cloud. Phase 2 focuses on realizing benefits for both us and our customers of having our customers in the cloud.
• Robert Oliver: What sort of apples-to-apples compare are you seeing on that cloud conversion?
  • Brian Miller: It's still early, but we are seeing more upsell. When a client moves from on-prem to the cloud, it creates an oppt'y to discuss other Tyler products. We've seen some successes, but it's early for numbers.
• Robert Oliver: What is the uplift when moving an on-prem customer to the cloud?
  • Brian Miller: It's around a 1.7 or 1.8x uplift in rev. $100,000 of maintenance becomes $175,000 of SaaS. We expect 85% of the customer base to migrate to the cloud by 2030.
• Robert Oliver: How should we think about the trajectory of that flip number?
  • Brian Miller: Both the number of flips and the avg size should trend upward through '27, '28. It's not linear, and there can be lumpiness, esp. w/ larger ones moving.
• Robert Oliver: Who are your competitors in the different core areas?
  • Brian Miller: In ERP, we compete w/ Oracle, SAP, Workday, Infor, and smaller private companies. In public safety, we compete w/ Motorola MSI, Hexagon, Axon, and CentralSquare. In courts and justice, competitors include Journal Technologies and others.