Tyler Technologies, Inc.

Hello and welcome to today's Tyler Technologies third quarter 2024 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 question per person. You may get back into the queue for a follow up. And as a reminder, this conference is being recorded today, October 24, 2024. I would like to turn the call over to Hala El-Shabini, Tyler's Senior Director of Investor Relations. Please go ahead.

Thank you, Rob, 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 2024. Lynn will end with some additional comments and then we'll take your questions. During this conference 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. A reconciliation of gap to non-gap 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 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 corresponding period of last year unless we specify otherwise. Len?

Thanks, Holla. We carried our momentum from the first half of the year into the third quarter and delivered remarkably strong results. The quarter was highlighted by strong top and bottom line performance, even as we saw a more pronounced shift towards SAS in our new software contract mix, particularly in public safety where expected on-premise license deals shifted to SaaS contracts in the quarter, resulting in license revenues that were below plan. SaaS and transaction revenues fueled our growth, and both exceeded our expectations. Our non-GAAP operating margin expanded to 25.4%, benefiting from our cloud efficiency initiatives and improved professional services margins, and free cash flow reached a new quarterly high. As we've discussed in the past, Our progress towards our 2025 and 2030 targets will not be linear, but our results through the first nine months of this year bolster our confidence in achieving those targets. We are beginning to see benefits from our cloud operations initiatives with efficiencies reflected in our results somewhat ahead of plan. Recurring revenues grew 12.1% and comprised 85% of our total revenues. Our SAS revenues growth of 20.3% represents our 15th consecutive quarter of SAS revenue growth of 20% or more, consistent with our target of a 20% CAGR in SAS revenues through 2025. The public sector market remains robust, supported by healthy budgets and an increased focus on modernizing aging mission-critical systems through cloud adoption. The strong market activity we've discussed for the past few quarters, along with excellent execution by our sales teams, is reflected in our new software bookings this quarter, with our new SaaS contract value of approximately $105.6 million, up 78% over last year. Our leading market position, anchored by our deep domain expertise and large installed base, forms the foundation of our long-term strategic focus on four key growth drivers. Executing our cloud-first strategy, leveraging our unmatched installed base, expanding into new markets and growing our payments business. Our cloud first strategy is a pivotal driver of our success and continues to shape our future and our cloud living culture. We are leading with cloud across our product portfolio as the public sector market continues to embrace digital modernization and choose Tyler's next generation cloud solutions. Additionally, we've made substantial progress with our cloud optimization efforts, driving efficiencies and scalability while also making solid progress on version consolidation to further accelerate on-premise client migrations and enable clients to easily expand their mission-critical applications in the cloud. The pendulum is continuing to shift to the cloud with both new and existing clients, and we are seeing a growing trend of client-driven SaaS adoption. This is especially apparent in areas that have previously lagged the rest of our market in terms of cloud adoption, most notably the public safety market along with the state and federal market with our application platform. Overall, SAS arrangements comprised 97% of our new software contract value in the third quarter. For the second consecutive quarter, 100% of our public safety new contract value was SAS, compared to only 28% a year ago. It was also a great quarter for flip signings, as we signed a total of 108 flips of on-premises clients. The total contract value from FLPS was more than triple that of last year's third quarter, and the average ARR of FLPS rose 37.2%. Our courts and justice business was very active in the third quarter. Our largest deal of the quarter was a contract with the Kentucky Court of Justice for our enterprise justice suite, including case manager, e-filing, and court analytics, in addition to payments. The initial six-year term represents $35 million in total contract value, although only $10.6 million was recorded in bookings and backlog this quarter due to contract provisions. ARR starts at approximately $2.5 million and grows to $6.5 million in year six, in addition to payments processing under a gross revenue model. Of note, the first six years of SAS fees totaling $29 million was prepaid in October using ARPA funds. Other successful Tyler Court clients, and in particular, the North Carolina Administrative Office of the Courts, served as strong references in this competitive sales process that spanned more than 12 years. Kentucky is our 17th statewide courts client and our third statewide enterprise justice solution deployed in the cloud. We also signed a three-year $9.6 million SAS contract for our enterprise justice suite with the Phoenix, Arizona Municipal Court. That agreement includes a cooperative master purchase agreement provision that enabled the Arizona Supreme Court to designate Tyler as a preferred software provider for all 170 courts in the state, including Superior, Justice, and Municipal courts, with the alternative option being the state's Aging Legacy System. We're excited about the opportunity to expand our partnership across Arizona courts with significant potential ARR. Other notable third quarter SAS deals included a $12 million five-year contract with the city of St. Petersburg, Florida, the fifth largest in the state, for enterprise permitting and licensing and enterprise ERP utility billing solutions, along with payments. We signed six SAS contracts for our enterprise public safety solution, including two of the fastest growing cities in the U.S., the city of Frisco, Texas Police Department for $750,000 in ARR, and the City of Round Rock, Texas Police for $730,000 in ARR. Central to our growth is leveraging our unmatched installed base and expanding our addressable market through strategic cross-sell and up-sell activity that unlocks significant expansion opportunities with both new and existing clients. A key cross-sell win this quarter was a multi-year strategic contract with the Texas Office of Courts Administration for our Texas Connected Justice Data Cloud. This includes Alliance Exchange, Enterprise Data Platform, Open Data Platform, and our Digital Solutions Division's Engagement Builder Platform. This integrated solution captures real-time online data across every jurisdiction in the state. This multi-year engagement exemplifies our connected community's vision by creating a digital infrastructure for data sharing and decision-useful business intelligence and reporting. The contract adds 1.5 million in ARR and is the first of its kind in a large population state, paving the way for additional add-on opportunities. Another significant cross-sell win was a contract for the modernization of 18 different boards with the Illinois Department of Financial and Professional Regulation for our state regulatory application platform suite, which also brings in augmented field operations, formerly AR Inspect. The three-year contract leveraged our Illinois State Enterprise Agreement and represents $9.2 million in total contract value, with a seven-year option that adds $12.5 million in total contract value. We're pleased to see an increasing number of our clients modernizing their enterprise solutions using our application platform. Driving payments adoptions through our differentiated payments business is another key element in our growth strategy. In the third quarter, we signed 268 new payment deals across Tyler Software clients, representing approximately 8.6 million in projected ARR. Riverside County, an existing property recording software client, is our first enterprise payments win in California. This collaborative effort expanded from initial property recording payments contract to processing payments for more than 10 agencies across the county, which is the fourth most populated county in California. In our enterprise portal business, We secured extensions for our digital government and payment processing services in five states, which includes winning competitive rebids for state enterprise portals in New Jersey and Indiana. We also expanded our scope with the state of Indiana to include resident engagement identity proofing for approximately $1 million in additional ARR. This builds on Tyler's chatbot front end technology recently deployed, representing the first AI project for Indiana and its residents. This solution was provided through a joint effort with our AI Task Force and our Indiana State Enterprise team in collaboration with the Indiana Office of Technology. Now I'd like Brian to provide more detail on the results for the quarter and our updated annual guidance for 2024. Thanks, Lynn.