Tyler Technologies, Inc.

conference call. Your host for today's call is Lynn Moore, President and CEO of Tyler Technologies. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. In order to address your questions and stay within the allotted time, please limit your question to one and one follow-up question per person. And as a reminder, this conference is being recorded today, February 15, 2024. I would like to turn the call over to Hala, El Sabini, Kyla's Senior Director of Investor Relations. Please go ahead.

Thank you, Babesh, 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 provide our annual guidance for 2024. 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 those 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. Every conciliation 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 schedules with supplemental information including information about quarterly bookings, backlog, and recurring revenues. 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, Holla. Our fourth quarter results reflected a strong finish to a pivotal year in our cloud transition and return to year-over-year operating margin expansion. We achieved our key objectives for the year, and earnings and cash flow surpassed our expectations, with free cash flow representing a new high for a fourth quarter. Recurring revenues grew 8% and comprised 84% of our total revenues. Our SAS mix continued to accelerate and comprised 89% of Q4 new software contract value. The quarter was also highlighted by SAS revenue growth of 21.7% and represented our 12th consecutive quarter of SAS revenue growth of 20% or more, exceeding our near-term growth expectations of a 20% CAGR in SAS revenues through 2025. Transaction-based revenues were impacted by seasonal trends and contractual changes in one of our state enterprise agreements that included a change from a gross to a net revenue model for payments. I want to remind you of the significance of pass-through merchant fees in our payments business and how they impact both revenue growth and margins. The majority of our payment processing arrangements are accounted for under a gross model, where we charge a fixed percentage of the transaction and are responsible for the merchant and interchange fees. Under this model, merchant fees are reflected in both revenues and expenses, with a resulting drag on margins. In a smaller number of arrangements, the client is responsible for paying merchant fees directly, and we record revenues on a net basis. We do not control which model the client chooses, although we expect that the majority of payment processing contracts will continue to be under the gross model. Throughout the year and during the fourth quarter, we continue to make solid progress with key initiatives around our cloud transition. We started to realize the benefits of our cloud optimization efforts as we released cloud efficient versions of many of our products and began to experience hosting cost improvements as we scaled our deployments at AWS. These efficiencies related to our cloud operations contributed significantly to our year-over-year operating margin expansion in the fourth quarter. Cloud adoption with both new and existing on-premises clients continued at an accelerated pace across our product portfolio. In the fourth quarter, the number of on-premises migrations or flips signed was a new fourth quarter high at 92. The increased SaaS adoption in 2023 was particularly notable in the public safety market, where we've seen a significant increase in SaaS adoption with new clients, as well as signing our first flips. We also signed an expanded multi-year strategic collaboration agreement with Amazon Web Services to further enable the growing demand for our clients and public sector agencies to move to the cloud. Under the expanded agreement, we will jointly expand our framework and share programs to streamline migrations from on-premises solutions to our next generation cloud applications. This is another major step forward in making the cloud accessible for our clients, further improving business continuity, continuous delivery, and enhanced security. It also supports our Tyler 2030 vision to complete our transition to the cloud. The public sector market remains very healthy. as evidenced by our elevated levels of RFPs and sales demo activity. Our pipeline reflects the benefits of a heightened level of sales collaboration across our division, driving strong upsell, cross-sell, and multi-suite deal momentum. Additionally, we continue to build sales synergies across Tyler with our integrated payments team as we execute our unified payment strategy. I'd like to highlight some of our significant fourth quarter wins. Our new transaction-based contracts included a landmark win with the California Department of Parks and Recreation for our integrated outdoor recreation platform. This transaction-based eight-year contract is the largest transaction-based arrangement in Tyler's history. This self-funded contract, which is provided at no cost to California taxpayers, is valued at an estimated $175 million and includes two one-year renewal options. It extends our existing relationship under our 2016 agreement, formerly as USC Direct, with enhanced functionality to add Tyler's end-to-end payment solution, enabling everything from reservations booking to payment processing. We're honored to be chosen to have such a key role in managing the nation's largest state park system. We also added to our growing footprint in outdoor recreation with a multi-year transaction-based contract with the Wyoming State Parks, and a SAS arrangement with the city of Miami, Florida. We continue to execute on cross-sell opportunities through our digital solutions, formerly NIC, state enterprise agreements that enable enhanced resident engagement across multiple public sector services. We signed two contracts under our state enterprise agreement in Mississippi as part of our newly launched resident engagement platform using Tyler's MyCivic platform. Working with the Mississippi Attorney General, we launched the Mississippi Access to Maternal Assistance mobile app, which includes the program's website and MyCivic platform to bridge access to public and private services across the state. We also signed an agreement with the Mississippi Department of Mental Health to develop a mobile application on our MyCivic platform that will allow the agency to provide useful mental health information to Mississippians affected by mental illness. We continue to build momentum in the public safety market with strong fourth quarter contract activity. Significant contracts included several competitive wins against key competitors, making 2023 our most successful new business year in public safety since we acquired New World Systems in 2015. We also experienced a significant increase in SAS adoption of our public safety solutions, with SAS comprising 46% of our fourth quarter public safety deals. Existing on-premises public safety clients are also showing heightened interest in moving to the cloud, and three public safety clients signed contracts in the fourth quarter to flip to the cloud. The City of Clematis Falls, Oregon embraced a cloud-first strategy, signing a contract for a SAS deployment for an integrated enterprise public safety suite, which includes the full suite of our public safety solutions, including enterprise records management, jail manager, fire, electronic patient care reporting, civil process, e-citations, and analytics. Our recent contract signed in Q2 with the Oregon State Patrol served as a strong reference for this competitive win. Other notable public safety deals included a SAS contract with Santa Rosa County, Florida, and on-premises contracts with Rensselaer County and Wayne County, both in New York. We also had a significant cross-sell win under our state enterprise agreement in Arkansas. for a public safety solution for Pulaski County, Arkansas. In the court space, we signed our first SAS flip of a statewide court system with the Idaho Supreme Court. This five-year agreement includes migrating the court's 44 counties and 200 courtrooms from on-premises deployments to our SAS offering. Our largest new SAS deal of the quarter was with the state of North Carolina, where we extended the term of our existing court SAS agreement for five years. and expanded the agreement to add our solution for appellate courts. We also achieved key operational milestones in courts and justice during the quarter, including the successful go-live of our enterprise justice solution with the LA County Criminal Courts. This completed the countywide rollout across 35 court locations in the nation's largest court. With our application platform, we secured a key SAS win with the Virginia Department of Education to upgrade its enterprise state regulatory system and modernize its citizen portal. The system will support the management of Virginia's child day care programs, which are transitioning from the Department of Social Services to the DOE. During the fourth quarter, we also signed 172 new payments deals, bringing the total to 600 for the year. We also signed a new state enterprise contract in Maryland, following a competitive rebid of our expiring contract. as well as an extension of our Oklahoma Enterprise Agreement. Finally, as noted on our last call, we completed the acquisitions of AR Inspect and ResourceX in October for a combined purchase price of approximately $37 million in cash and stock. We're pleased to see multiple early wins for our application platform, leveraging field operations and inspection capabilities that came to us through AR Inspect. Now I'd like Brian to provide more detail on the results for the quarter and our annual guidance for 2024.