Tyler Technologies Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Alexei Gogolev - JPMorgan - Analyst : Congratulations with the meeting results. Lynn, could I first start with your payment comments and the comments that Brian made, it clearly appears that you are prioritizing profitability within payments. Your -- as you mentioned, you're moving away from commoditized products. Could you perhaps elaborate on the announcement made by Fiserv at their recent earnings call around the expansion of their payments partnership with Tyler. What does that imply longer term for your partnerships with other third parties? And do you think that expansion of the Fiserv partnership could benefit your margin outlook?

Question: Alexei Gogolev - JPMorgan - Analyst : Appreciate it, Lynn. And speaking about increases in investments based on what Brian suggested, and what you said, you're clearly investing in AI. So of that portion that is incremental this year and looking forward to seeing those products at the May conference. How much of that is coming from AWS, which I'm assuming is from your main partner that you're collaborating with? And are there any joint investments that you're doing or joint products that you're hoping to introduce?

Question: Alexei Gogolev - JPMorgan - Analyst : Appreciate it, Lynn. Thank you.

Question: Joshua Reilly - Needham & Company - Analyst : Thank you for taking my question. If we look at the guidance of down 4% to 6% on maintenance revenue, clearly, you have some line of sight around migrations to kind of provide this revenue guidance that's down a little bit more this year. Can you help us understand the level of visibility you have right now on migrations for the year to provide that guidance? And are these migrations broad-based? Or is there a particular product line that's accelerating the migrations?

Question: Joshua Reilly - Needham & Company - Analyst : Awesome. Thank you. I'll leave it to one question.

Question: Ken Wong - Oppenheimer - Analyst : Thank you for taking my question. Brian, I wanted to ask about cash flows, recognizing that this was a particularly strong cash flow year, which kind of creates the tougher comp into '25. But as we kind of map out our models going forward, should we assume that some of the strength this year is going to be a drag into future out years? Or just trying to get a sense for kind of how we should kind of when we should start to kind of ramp up the cash flow growth again.

Question: Ken Wong - Oppenheimer - Analyst : Got it. Thanks, Brian.

Question: Saket Kalia - Barclays - Analyst : Thank you for taking my question here. Okay. Great. Lynn, maybe for you, I just wanted to flush out the question on DOGE, just a little bit more. Federal is clearly a small part of Tyler's business. I mean I think you said it's probably 5% or less, right? But I was wondering if you could speak to just roughly how much of an average state or local government budget comes from federal funding versus other sources like real estate taxes. And I know you spend a lot of time with customers. As you speak to customers, what are they saying about DOGE, if anything, as they think about investing in tools like Tyler?

Question: Saket Kalia - Barclays - Analyst : That makes a lot of sense. Thanks, guys.

Question: Alex Zukin - Wolfe Research - Analyst : Congrats on another great quarter. Maybe Lynn, just first for you. Can you just maybe -- you touched on this in the prepared remarks, but maybe go a little bit deeper on just the quality of the demand environment, the pipeline going into this year? Because it seems like, again, specifically on the SaaS line, it continues to outperform your expectation. I think you're even now guiding to an acceleration for next year. So what's been driving this like faster than expected or faster than you anticipated conversion story? And how does AI play into this mix of maybe in addition to the cyber threats that have accelerated some of these migrations, actually, also layering on top of that as a driver for the increased velocity of those conversions.

Question: Alex Zukin - Wolfe Research - Analyst : Excellent. And then, Brian, maybe on the R&D investment side, I mean ever since I started covering the company, I think I've been waiting for that to come out of the cost of goods line and make its way on to the R&D line. Maybe just -- maybe dive a little deeper on the trajectory that you see as the maintenance stream continues to kind of -- as those conversions pick up, how should we think about that R&D line even maybe beyond just this year taking on a different shape over the course of the next few years?

Question: Alex Zukin - Wolfe Research - Analyst : Perfect.

Question: Michael Turrin - Wells Fargo - Analyst : Appreciate you taking the question. The commentary throughout the call, the 4Q results show an uptick and SaaS momentum, some of the growth metrics. The initial '25 guide for overall growth, Brian, of 8.5%, doesn't at least appear to fully capture some of that momentum. So maybe just speak a bit more to the mix of what you're seeing across segments, how that impacts total growth. And is there any change to the guidance approach you're embedding for '25 here at all?

Question: Michael Turrin - Wells Fargo - Analyst : That's all very helpful. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 3:00PM, TYL.N - Q4 2024 Tyler Technologies Inc Earnings Call

Question: Clarke Jeffries - Piper Sandler - Analyst : Thank you for taking the question. Brian and Lynn, I'm reflecting on the initial free cash flow guide you had for 2025 at the Analyst Day. That was a midpoint of 18%. And I think sitting here less than two years later, we're over 700 basis points higher than that original estimate. And so I guess I wanted to ask the question, reflecting on that what has been the most significant outperformance? And with some of these items that still seem like margin tailwinds that are pretty controllable here over the next few years, reduction of commodity payments, maybe scaling some of those R&D costs that might be accelerating in 2025 and then the data center closure, why aren't long-term margins going higher in your mind as we get to the later part of those long-term targets for 2030? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 3:00PM, TYL.N - Q4 2024 Tyler Technologies Inc Earnings Call

Question: Robert Oliver - Baird - Analyst : Great. My question is around the cloud products. I appreciate that you guys have been very methodical about laying out milestones for the street and hitting those milestones and a lot is going on behind the scenes. I was wondering if you could update us -- on -- you mentioned you've made progress in '24. If you could update us on where we are with the cloud optimization of your products? And what sort of milestones we should be looking for as the investment community over the next couple of years to get fully on -- cloud optimized?

Question: Robert Oliver - Baird - Analyst : Great. Thank you, Lynn. Appreciate it.

Question: Jonathan Ho - William Blair & Company - Analyst : Congrats on the strong results. Is there a way for us to think about the impact that ARPA funding has had? And going forward, is there potentially any impact to agency spending confidence if this starts to wind down?

Question: Terrell Tillman - Truist Securities - Analyst : It is a single question, but it's got a little bit of multiple tentacles to it. All this narrative around DOGE. What about some of that actually trickling down to some of these states that we're hearing about maybe then thinking about efficiency incrementally and digitizing things. Are you hearing about anabolism increased conversations because of maybe this trickling down? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 3:00PM, TYL.N - Q4 2024 Tyler Technologies Inc Earnings Call And then the second part of this is, when you look at '25 and just based on what you're seeing in terms of the pipeline, do you see any meaningful shift between just the composition of your business from local government versus state level?

Question: Terrell Tillman - Truist Securities - Analyst : Thanks, Lynn.

Question: Mark Schappel - Loop Capital Markets - Analyst : Thank you for taking my question. Lynn, I just wanted to ask about your priority-based budgeting solution. which appears to be off to a really strong start given the wins in the quarter. I was wondering if you could just provide an example or to some public sector use cases that you're seeing the customers adopt around Resource X.

Question: Gabriela Borges - Goldman Sachs - Analyst : I wanted to ask the Texas payments question in a slightly different way. Lynn and Brian, when you look at your revenue mix holistically, what percentage of business looks like the Texas payments business, meaning it's more commodity, it's low margin, it's business that either you can focus on up-leveling or perhaps at the time you might consider working away from. Give us a sense of what sort of -- what the size of that quantum of business could look like today and where that could go longer term?

Question: Gabriela Borges - Goldman Sachs - Analyst : Nice one. Thank you.