Tyler Technologies, Inc.

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. As a reminder, this conference is being recorded today, July 31st, 2025. I would like to turn the call over to Hala El-Sherbini, Tyler's Senior Director of Investor Relations. Please go ahead.

Thank you, Abby, 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 State Harbor Statement, Lynn will have some initial comments on our quarter, and then Brian will review the details of our results and updates on 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 relief, 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 relief. We have also posted on the Investor Relations section of our website, under the Financials tab, a schedule with supplemental information, including information about our quarterly recurring revenues and bookings. On the Events and Presentations tab, We posted an earnings summary result 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, Hollis. Our second quarter results again exceeded expectations and reflect continued momentum with double-digit total revenue growth, strong profitability, and exceptional free cash flow. Our performance continues to be supported by stable market demand and strong execution as we advance our cloud-first strategy. SAS revenues grew 21.5%, marking our 18th consecutive quarter of SAS growth of 20% or more. Transaction-based revenue growth was especially robust and ahead of plan of 21.3%, as quarterly transaction revenue surpassed $200 million for the first time. Our non-GAAP operating margin expanded 200 basis points to 26.5%. In addition, free cash flow grew 80.9% to $88 million, significantly exceeding expectations. As we discussed on prior calls, we operate in a market defined by inherently long sales cycles, particularly for larger deals, which can create quarterly variability, but ultimately support long-term growth. While we still are seeing some scattered delays or cancellations of procurement processes related to the macro environment and noise around federal funding, they are not material. Many of the sales processes that were delayed in Q1 were signed in Q2, and we saw a solid sequential improvement in SAS bookings in Q2. We're seeing no fundamental change in public sector demand or purchasing behavior, and our sales pipeline remains strong, supported by generally stable and healthy budgets, with funding priorities increasingly aligned to technology investments that drive long-term efficiencies through digital modernization. In addition, client conversations at our recent Connect conference reinforced that the vast majority of Tyler clients do not expect federal funding, Doge, or other macro factors to impact their spend with Tyler. Our cloud-first strategy is the foundation of our success and is anchored by unifying principles that drive toward a single release stream to better scale, innovate, and deliver improved time to value for our clients. By closely aligning our cloud strategy and client success efforts with our deliberate AI approach, we're unlocking the full potential of the cloud while creating deeper client connections through a unified experience that we believe will enhance cross-sell and up-sell opportunities. Our team continues to execute at a high level against our strategic roadmap, reinforcing our leadership position in the public sector and advancing our four key growth pillars. completing our cloud transition, leveraging our large client base, growing our payments business, and expanding into new markets. I'd like to highlight a few second quarter wins that illustrate progress against our growth objectives, with a broader list of key deals included in our quarterly earnings deck. Our largest SaaS deal of the quarter was an $11 million contract that expands our relationship with the Arizona Supreme Court for our enterprise supervision solution. We signed a contract for full enterprise justice on premises to cloud migration with the Superior Court in Santa Clara County, California, the sixth most populous county in the state. This is our first California court flip and represents more than $1 million in SAS ARR. It was another strong sales quarter in public safety, including a multi-jurisdictional, multi-product, competitive SAS win with the West Suburban Consolidated Dispatch in the Chicago area. and a full public safety suite SASWIN in Anoka County, Minnesota, worth more than $1 million in ARR. The City of Dallas, Texas expanded its contract for our priority-based budgeting solution. The city desired an accelerated deployment to leverage our AI-powered application to identify and prioritize the highest value budget initiatives for the city and its constituents. The State of Alabama Department of Revenue selected our AI-driven resident assistance solution This wind builds on our resident assistant projects currently in deployment in four other states, including Hawaii, Indiana, Mississippi, and South Carolina. We see a strong pipeline behind these winds as we build upon these successes. We were recently recognized as a leader and visionary in the first ever Gartner Magic Quadrant for cloud-based ERP for U.S. local government. We believe this represents a clear testament to the strength of our competitive position, innovation, and the differentiated value of our uniquely integrated suite of public sector solutions. Before I turn the call over to Brian, I'd like to highlight the acquisition of Emergency Networking earlier this week. Emergency Networking, a Tyler partner since 2023, is a leading provider of cloud native software for fire departments and emergency medical services agencies, including fire records management and patient care reporting with advanced analytics. The addition of emergency networking solutions expands our TAM and adds an important piece to Tyler's public safety portfolio, solidifying our position as a market leader in compliant fire and EMS records management, including the National Emergency Response Information System, or NIRISS. We believe Tyler now has the most comprehensive suite of solutions for public safety agencies, from law enforcement to first responders to EMS agencies. Now I'd like for Brian to provide more detail on results for the quarter and our updated annual guidance for 2025.

Thanks, Lynn. Total revenues for the quarter were $596.1 million, up 10.2%. Subscriptions revenue increased 21.4%. Within subscriptions, SAS revenues grew 21.5% to $189.6 million. As we've discussed previously, there's often a lag from the signing of a new SAS deal or a flip, to the start of revenue recognition that can vary from one to several quarters. Because of this, as well as the timing of SAS renewals and related price increases, SAS revenue growth and SAS booking, both year-over-year and sequentially, may fluctuate from quarter to quarter. Transaction revenues grew 21.3% to $215.5 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. As a reminder, Q2 is typically our highest volume quarter for transaction revenues, encompassing peak outdoor seasons along with tax filing deadlines. Professional services revenues declined 18.5% to $58.6 million. due to both an intentional focus on deemphasizing low margin services, as well as the impact of reserves related to projects that were in the implementation phase with agencies in two states. Total bookings for Q2 were 28.8% up sequentially from Q1, and up 5.1% year over year, as some delayed Q1 decisions signed during Q2. SAS bookings in total for Q2, including new SAS deals, expansions, renewals, and flips, were solid, up 47.7% sequentially from Q1 and up 8.2% year-over-year. During the quarter, we added 172 new SAS arrangements and signed 118 SAS flips of existing on-premises clients, with a total contract value of approximately $91 million. up 35.2% sequentially from Q1, but down 28.4% year over year against a difficult comparison, reflecting the lumpiness of large deals. Total ARR from new SAS deals was approximately $15 million, which more than doubled sequentially from Q1, but was down 7% year over year. The average ARR from new SAS contracts was approximately $87,000, up 65.1% sequentially from Q1, and up 9.8% over last year. The number of SAS flips grew modestly over last year to 118. Total ARR from SAS flips was approximately $13.3 million, up 10.9% sequentially from Q1, but down 9.2% year over year. Our total annualized recurring revenue was approximately $2.07 billion, up 15.2%. Our non-GAAP operating margin expanded to 26.5%, up 200 basis points from last year. The margin expansion reflects a positive shift in revenue mix towards higher margin SaaS and transaction revenues, efficiency gains across our cloud operations, and favorable operating expense trends, including leverage in sales and marketing and G&A expenses. As we discussed on previous calls, merchant and interchange fees from our payments business under the gross revenue model have a meaningful impact on our overall margins, as they are included in both revenues and cost of revenues. We incurred merchant fees of approximately $53 million in Q2 compared to $45 million last year. Cash flows from operations and free cash flow were robust at $98.3 million and $88 million, respectively, driven by higher margins and working capital improvements. The recent passage of the One Big Beautiful Bill Act provided a permanent repeal of Section 174, which required capitalization of R&D expenditures for tax purposes, along with favorable changes in the treatment of tax bonus depreciation. As a result, we currently expect that our cash tax payments in the second half of 2025 will be approximately $55 million lower than previously expected, adding approximately 200 basis points to our free cash flow margin for the year. Similarly, we expect that our cash tax payments in 2026 will be minimal. We ended the quarter with $600 million of convertible debt outstanding and cash and investments of approximately $895 million and net leverage of zero. In light of our strong second quarter results and our positive outlook for the balance of the year, we have revised our annual guidance for 2025 as follows. We expect total revenues will be between $2.33 billion and $2.36 billion. The midpoint of our guidance implies growth of approximately 10%. We expect GAAP diluted EPS will be between $7.40 and $7.70 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 $11.20 and $11.50. Our estimated non-GAAP tax rate for 2025 is expected to be 22.5%. We're currently evaluating potential impacts of the new tax bill on our tax rate going forward. 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 Q2 earnings deck posted on our website. I'd also like to add some additional color around our revenue guidance. Subscription revenues in total are expected to grow between 17% and 19%. Within subscriptions, SAS revenue is expected to grow between 21% and 23%. Transaction revenues are expected to grow between 14% and 16%, with merchant fees up 7% to 9%. We now expect the majority of payment services under the Texas contract to continue through the end of 2025 or early 2026 with full year revenues of approximately $41 million. Maintenance revenue is expected to decline 4 to 6 percent. Professional services revenue is expected to decline 3 to 6 percent. License revenues are expected to decline 16 to 18 percent. Hardware and other revenue is expected to grow between 3% and 5%. Now I'd like to turn the call back over to Lynn.

Thanks, Brian. We closed the second quarter with strong performance and solid execution, positioning us well for the second half of the year. Our results reflect the competitive strength of our diversified business, delivering the broadest, most integrated portfolio of public sector solutions to lead our clients' digitally empowered future. In May, Nearly 7,000 clients, sponsors, and team members came together at Tyler Connect 2025 in San Antonio. At the conference, we previewed our AI strategic roadmap with resounding client interest and indications of elevated adoption readiness. Our AI strategy, rooted in three core pillars, productivity, decision-making, and service delivery, will include the introduction of new AI features for multiple products by year-end. We've also worked to standardize our monetization strategy, focusing on a value-based SaaS model that provides the predictability that our clients need. We also highlighted our increased focus on and investments in improving the client experience, including presentations by our new Chief Client Officer, Andrew Call. You may have seen our Form 8-K filed last week, announcing John Maher's intention to end his service on Tyler's Board of Directors, effective after the company's annual meeting of shareholders in May of 26. John joined Tyler through the acquisition of Munis, ultimately rising to President and CEO of Tyler. He joined the Board of Directors in 2002 and has chaired the Board since 2017. John's impact on the company is immeasurable, and we look forward to celebrating him and his leadership next year. In the meantime, we extend both our profound thanks and our sincere congratulations to We're also grateful that he made this decision months before his actual board service ends so that we have time to execute a thoughtful and responsible board transition. To that end, the independent directors of the board discussed and unanimously agreed that their current intention is to nominate me as the company's next board chair. The independent directors also unanimously agreed that they would continue to appoint a lead independent director for so long as the board chair is not independent. On a personal level, I want to thank John for the remarkable ride we've had together since 1999. I'm deeply grateful for his leadership of the company and the board, but also in my own career at Tyler. I remain fully committed to executing our mission, building momentum on the initiatives we have launched, and delivering value to our shareholders, clients, and Tyler team members. It's been a privilege to do that with John, and I'm as inspired as ever to continue writing more chapters in the incredible story that John helped write. Additionally, I'm pleased to announce the recent appointment of Ryan O'Connor as our Senior Vice President of Payment Strategy and Operations, a newly created executive role to support strategic objectives and further expand our payments market opportunities. Ryan brings more than 30 years of experience in the payments industry and a proven track record of driving innovation and operational excellence. He'll be responsible for Tyler's overall payment strategy, technology, third-party payments partnerships, and day-to-day payments operations. Ryan's Strategic Council will be key in this next phase of our growth as we realize the full potential of Tyler's Payments business. Now we'd like to open the line for Q&A.

Thank you. And we'll now begin the question and answer session. To ask a question, please press star 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset and then press star 1. If you would like to withdraw your request, press star one a second time. As a reminder, please limit your question to one question so that we may stay within the allotted time. And we'll pause just momentarily to assemble our roster. And our first question comes from the line of Terry Tillman with Truist Securities. Your line is open.

Yeah, thanks. Good morning. And first, I guess I want to say congrats to John and all the best going forward. Hey, Lynn, Brian, and Hala. My one question, I'm going to focus on bookings, the SAS bookings. I think there was some commentary in the prepared remarks about maybe some benefit from stuff from 1Q to 2Q actually materializing. But if I just look at the SAS bookings, the 148 to 218, that is a substantial uplift sequentially and is higher than any bookings last year, including some quarters where there were some big deals. So just anything you could share more on that bookings Because I know part of the definition of the SAS bookings is not just new deals, but also extensions and renewals. So maybe unpack a little bit more about around that SAS bookings. Thank you. Yeah, Terry.

The real strength in the SAS bookings this quarter, although the new deals, the new logo, new name deals, did improve pretty significantly from Q1 sequentially. And that did include the impact of some of the deals that that we talked about in Q1 that were delayed. But really, the strength there was around inside sales, which would be expansions, additional sales to existing customers, and renewals. It was a very strong renewal period. Some of that is just timing of when some of the SaaS deals, especially multi-year deals, deals that we signed last year in a very strong bookings year, have renewed. So that's really what drove most of that strength. But there's really four components there, as you mentioned. New names, additional sales to existing customers, renewals, and flips. And the latter three were all pretty strong this quarter.

Thank you.

And our next question comes from the line of Alexey Gogolev with JP Morgan. Your line is open.

Hello, everyone. Lynn, yesterday we've heard Tenable call out improving federal spending environment. How have Tyler's sales cycle evolved since Q1, and what specific improvements are you observing in the pipeline as macro begins to improve?

Yeah, Alexei, that's a good question, and you're right. I think, you know, if you step back and look at the broader economy. You go back just three months ago, there was kind of a lot of noise going on on a lot of things, whether it was Doge or whether it was tariffs. And things seem to be stabilizing on a more broader level. I think reports recently, inflation's down. GDP, I think, was around 3% this past quarter, reflecting, I think, both a change in import exports. I think for Q1, there was a lot of pre-tariff imports coming in. Wages are up. You know, there's an expectation of rate cuts coming. So I think some of that market uncertainty is starting to loosen on the broader environment. You know, what we're seeing is there was a little bit of uncertainty, I think, coming out of Q4, really into Q1 around that broader environment. But, you know, in our business, those deals don't go away. So when we talk about our pipeline remains strong, it does remain strong. And even when there's been a little bit of a delay in some decisions, We're still delivering mission-critical systems to our clients. They have to have them. That demand doesn't go away. And I think you're starting to see that. And we're seeing that in market activity. An anecdote, for example, in our ERP space, RFPs are up, I think, 25% since Q1. So, you know, as I said, the demand doesn't go away. The pipeline is still there and robust. And we are starting to see decisions. And I think as we continue throughout the year sequentially, we'll be seeing those increase in those decisions more back to what we were accustomed to the last several years.

Thank you, Len.

And our next question comes from the line of Ken Wong with Oppenheimer. Your line is open.

Great. Thank you for taking my question. I realize that everyone's still digesting all the potential OBVA impacts. Any thoughts on You know, as more responsibility is pushed down to states, specifically around things like Medicaid, they're already stretched thin. Any concerns this could potentially influence buying behavior in the near term?

Yeah, Ken, that's not something that we're hearing, and particularly when you talk about things being pushed down to the states. What we see is pretty normal budgets. I think NASBO recently came out with a report that state budgets are relatively flat over the past couple years, and those budgets the last few years have been elevated. And just as a reminder, even in our state business, our DSD business, I think less than 15% of our deals are actually coming from state-funded expenditures as opposed to transaction-based funding. That's a small percentage of our business, but what I would say is we're not seeing any real change due to that, due to the One Big Beautiful Bill Act.

Fantastic. Thanks for the color.

And our next question comes from the line of Michael Turin with Wells Fargo Securities. Your line is open.

Hey, great. Thanks. Good morning. I appreciate you taking the question. Brian, I was hoping we could just go back to some of the free cash flow commentary. and unpack it a bit more. I guess with Q2 specifically, I'm wondering if anything in terms of transactional performance at all impacts seasonality of free cash flow or anything we should be mindful of. And then the commentary on the bill impacts, was that 200 basis points for the full year? Just given the change in the second half assumptions, anything additional you can add just there and in terms of seasonality as we're updating our forecast and just trying to get a bit more calibration around some of the changes that are helpful.

Thank you. Yeah, the 200 basis points is the impact of that $55 million lower cash tax payments for the full year. So that is the impact on the full year margin. In terms of seasonality, it wasn't really strong. Seasonally, the second quarter is the strongest quarter for transaction revenues. Um, but this quarter was especially strong and exceeded the expectations around the cashflow from those transaction revenues, um, with higher volumes and, um, some of the newer, um, contracts that we've signed in, in recent quarters coming online. Um, the third quarter is still our biggest free cashflow quarter by, by a wide margin. And that continues to be the expectation, um, especially because we still have a lot of maintenance that, uh, the majority of which renews in the third quarter or that we can't collect the cash for in the third quarter. So the really big change to the second half assumption is around the lower cash taxes. So we really expect that we won't pay any meaningful federal cash taxes for the next year and a half almost.

Thanks very much.

And our next question comes from the line of Matt VanVleet with Kantor. Your line is open.

Yeah, good morning. Thanks for taking the question. I guess when you look at the pipeline for cloud flips, I'm curious on how that was trending into your Connect User Conference, how the conference helped support that, and then as you look towards the back half of the year, how should we think about the progress of cloud flips and the magnitude of the ARR flipped over?

Yeah, Matt, I think I'll start, Brian. You may want to jump in with some specifics, but I think generally speaking, as every quarter goes by and as more clients successfully flip to the cloud, it creates more momentum. I've got a phrase I've used around Tyler, momentum creates momentum, and we're seeing that. I think the SAS flip that we did in California is a good example, I think, I can't remember exactly when it was, maybe a year and a half ago, two years ago when we did our first statewide court flip in Idaho. And we talked about how that reference would create more momentum and we're seeing that. I think the other thing is it's one of the things that I think also drives the elevated interest in AI is just some of the unique factors that are going on in the public sector. One being the changing workforce and really the reductions in workforce, which also is going to be driving as people continue to retire and they're having more difficulty hiring than, say, in the public sector. I think that's also going to continue to fuel momentum in our cloud flip business.

And with respect to the flips this year, it is a little bit more back-end weighted towards the second half of the year. I think our assumption around flips this year really hasn't changed from where we started out the year. We expect the number of flips to grow around 25% year-over-year. I would say that our client base, our on-prem client base, is still more heavily weighted towards large customers. As Lynn said, we've only flipped, at this point, one of our state courts customers. We have a big presence in California with counties that we just flipped the first county there. So the timing of the bigger flips really impacts that ARR, and it can be somewhat unpredictable. We still see the sort of the peak of the flips, especially around the bigger customers, somewhere in that 2027, 2028 timeframe, and we're working with customers all across our on-prem base to develop timelines for when they'll flip. I think with virtually every customer now, it's a matter of when and not whether they'll flip, but we still see that peak a couple of years down the road. Great. Thank you.

And our next question comes from the line of Socket Kalia with Barclays. Your line is open.

Hey, great. Hey, guys. Thanks for taking my question here. Great to see some of the stabilization. Brian, maybe for you, again, it was really good to see the SAS bookings this quarter and that sequential growth. You know, I noticed that you narrowed the SAS revenue growth for the year just a little bit. It's really not that material, but I was just wondering if you could just talk us through what were some of the puts and takes that you considered when doing that? And then just broader, remind us what you said about the long-term model here with SAS growth at Analyst Day. You know, if I remember correctly, it was kind of a two-stage sort of model. Wanted to see if you could just remind us about what that two stages sort of said there. about SAS growth? Thanks.

Yeah, sure. Yeah, as we look at the, you know, just as we get further in the year, now halfway through the year, we just have more clarity and are able to narrow that range. I think the biggest variables around the SAS growth in the current year is not as much the current year bookings. As you get into the second half of the year, they don't have much impact on the current year revenues. But really, fully understanding the timing around the the start of revenues around those bookings in the first half of the year, more information around the timing of flips and when those revenue shifts from maintenance to SaaS will occur. So those are the biggest factors that enabled us to kind of narrow that range down a little bit, but really no fundamental changes there. In terms of the investor day target, Um, we talked about, um, um, you know, long-term between, um, 20, uh, the time of the investor day in 2030, um, recurring revenues, um, in total growing 10 to 12% CAGR, um, with SAS in the high teens, um, kind of a 20% CAGR through 2025. Um, as you've seen, we're, we're ahead of pace on that. Um, but, uh, As we get through that peak of the flips, it starts to move more towards that high teens over that total period, but kind of low 20s up through the peak of the flips and then slowing down as we get on the downside of the flip chart.

Makes a ton of sense. Thank you.

And our next question comes from the line of Joshua Riley with Needham. Your line is open.

Yeah, thanks for taking my question. As we enter the second half of the year here, how should we think about the pipeline for big deals? I know specifically there's two states with RFPs for statewide court management contracts. Any update on how these are progressing and just the overall pipeline for big deals? Thank you.

I think, Josh, As we said, just generally, our pipeline is solid. I'm aware generally, I probably can assume which dealers you're talking about. We always have a good pipeline in the court space. Those bigger deals in courts tend to be lumpy. We expect some large RFPs to be coming out over the next several quarters. We expect to be extremely competitive in those deals. The timing of those is always a little bit uncertain, but even if RFPs were to be announced In the next quarter, say it would take some time to get through the process and get those signed.

I'd say the high level, the mix of large deals in our pipeline is pretty consistent with what we've seen over a long period of time. But as one said, it's really hard to. It's harder on the bigger deals to predict the timing until they actually get down to an award. Oftentimes they're there. Even when they have published timelines for procurements, they don't stick to them too religiously. So I'd say that broadly the mix of large deals in our pipeline is consistent with kind of our historical norms. Thank you.

And our next question comes from the line of Rob Oliver with Baird. Your line is open.

Great. Thank you. Good morning. My question is on cross-sell. Brian, I think you mentioned from the SAS revenue in the quarter, there was a good contribution from entire sales and cross-sell. So, Lynn, my question for you is, and particularly coming out of Connect, you know, you've done a lot to kind of change the culture internally at Tyler and to drive cross-sell. So, you know, two areas of focus. One, where are you seeing kind of the bulk of the cross-sell today? And, you know, I guess within product sets. And then how are you seeing the evolution of kind of the one Tyler where you're, you know, creating a pipeline of ability to cross-sell, say,

public safety into into munis and uh and you know odyssey into into munis and and and vice versa um thanks very much yeah sure rob i think um that last point is pretty important the the one tyler initiative uh which really encompasses a lot of things and will become foundational uh for future cross sell and upsell um and it's more than just things we're doing around our sales teams and how we're now quoting people. And even when we talked recently about building out a state sales team, which is still in the early stages, but it extends into things like how we're approaching the cloud, how we're approaching cloud living, how we're approaching client experience, trying to give all of our clients a single unified experience, both from sales to support to implementation. That's what's going to continue to drive more and more cross-sell and up-sell. We're seeing those opportunities really, I'd say, just kind of consistently across the board. I'd say we're still early in the process of capitalizing on the cross-sell, up-sell opportunities as we continue to build out that sort of one Tyler foundation that makes that, for lack of a better term, sort of helps grease the skids for those types of sales. So I continue to see that as one of our long-term growth drivers as we can continue to get more and more of our Tyler products into each of the client's hands.

Great. Thank you.

And our next question comes from the line of Jonathan Ho with William Blair. Your line is open.

Hi. Good morning, and let me echo my congratulations as well. In terms of the transaction-based revenue, what maybe drove the strong performance this quarter? Can you just unpack that for us a little bit more? And what maybe causes us to drop back down to more normalized levels over the balance of the year? Thank you.

Well, there's a couple of things. Our Tyler payments revenues, as we've talked about, we have a focus on, it's a cross-sell focus really into bundling payments in an integrated manner with new Tyler software sales as well as back into our installed base. And we've had a lot of success with that really over the last year and continue to to work with existing customers to add payments to their software solutions. So we've seen good growth in that. We've also seen growth in the revenues that we get from third-party payment relationships with some of our customers, and we've seen nice growth there. And then in new payment relationships, Some of which are really what I kind of like to refer to as SAS as a transaction where we're providing software but getting paid for it with transaction revenues. So, for example, the California Parks contract that we talked about last year went live last August. So that's still providing growth for us that wasn't in there last year. Some of our digital titling solutions that are paid for with transaction revenues, we've went live, for example, in the state of New Jersey with that. The Florida payments contract continues to grow. As we went live, actually, last July with SunPass, the toll roads in Florida. So that's new revenue on a year-over-year basis. And then Texas, which is going away at some point, continues to – have higher volumes as well. So we saw some increase there. So it's really volumes, new customers, and some of those new customers being cross-sells. I guess the things that would, some of the volumes can be seasonal somewhat. And over time, I think, as we continue to mine the existing customer base, At some point, we'll sort of reach a peak there and have fewer opportunities or work through most of those opportunities. I think we're still some time away from having fully penetrated our customer base, but eventually we'll get there.

I think to add to that, Jonathan, just two things, and I think you may have covered it, Brian, but we're getting better at accelerating onboarding of our payment streams. And we also have some initiatives around trying to help increase adoption within our client base. So all the things that Brian mentioned plus those two factors as well.

Thank you.

And our next question comes from the line of Alex Zukin with Wolf Research. Your line is open.

Hey, guys. Thanks for taking the question. I'd rather congrats. I guess maybe just two quick ones for me. First, around the kind of macro timing impacts, is there kind of maybe gauge the level of conservatism still embedded in the outlook for those events, just given the kind of maybe lower macro impacts that we've seen thus far? That's just the first one, and then I have a quick follow-up.

Yeah, I mean, as I mentioned earlier, I think there has been a little bit of a macro Cloud may be the wrong word, but hanging around. What's going on in the general economy, I think, should free up some of that maybe uncertainty we experienced earlier. But it's short-lived. As I said earlier, the demand hasn't gone away. The pipeline hasn't gone away. In terms of conservatism and the remaining outlook for the year, given the timing of even if we start seeing more deals and the timing of them getting online, I wouldn't think that There's really any conservatism right now in our approach for the rest of 2025.

Got it. And then, Brian, maybe just on the free cash flow raise, I guess you have 200 basis points add from the bill. You increased it by 100. Maybe what's that delta tied to? And then given that's a half-year number, should we kind of I know we're not guiding to it yet, but as we kind of tune our models for next year, should we assume kind of a 400 to 500 basis point impact from that for next year on top of what we may have been modeling previously?

Yeah, no, I wouldn't do that. I think that would probably be overly aggressive. I think the difference is really around just the impact of higher margins and higher earnings. So that's flowing through the cash, especially on the transaction side, because the the cash flow characteristics of the transaction revenues are really strong. We get the cash when the transaction takes place. So those are the biggest factors, the tax change and just the higher earnings and particularly transaction revenues. So I think your starting point is going to be probably somewhere around where we are this year. And then the impact of basically no federal cash taxes next year, which would have been probably in the $100 million range, but that impact on next year.

Got it. Thank you, guys.

And our next question comes from the line of Charlie Strausser with CJS Securities. Your line is open.

Hi, good morning. Just a personal thanks to John for the 23 plus years we've known each other. And thanks to him and you, Brian, especially, you know, introducing us to the Tyler story at the very early days. And really, that's all I had for you guys. And just thank you. Thank you, Charlie.

Appreciate that.

And our next question comes from the line of Gabriella Borges with Goldman Sachs. Your line is open.

Hi, good morning. Thank you. I wanted to follow up on the prior commentary on the potential for flips to grow around 25% year-over-year. Give us a little bit of a sense of how this progresses from here. I think in the past, you've talked about peak flips being in 2027, 2028. So do you think that 25% can accelerate, or are we talking number of flips versus percentage growth? Maybe just a little color on where we go from here on the flip.

Yeah, the 25% is number of flips, and really the dollar value of the flips or the size of the flips they are from those is the bigger factor. It's a little bit hard to predict, but likely, you know, 26 is probably something like another 25% on top of, where we are in 25 and then acceleration from that to peak in 27 and 28. So we're probably looking at something like a 25% increase year over year in ballpark over the next couple of years. And with larger and larger, with a continuous increase in the number, in the average dollar value of those flips as well. Certainly can bounce around quarter to quarter. But we're still probably on that kind of trajectory over the next couple of years till we get to the peak.

I got you. And so even if the number of flips percentage growth is steady to improving, the dollar value associated with that flips will be going up.

That's correct. That's the trend we expect over the next couple of years, the dollar value increasing more than probably the number of flips. Yeah. Especially as you get to the large core flips, some of those statewide courts the large counties are multi-million dollar annual maintenance revenue streams and we're continuing to see a pretty consistent around that 1.7x uplift from maintenance to sas very helpful thank you and our next question comes from the line of mark chapelle with loop capital markets your line is open

Thank you for taking my question, and nice job on the quarter. Leland, I was wondering if you could just provide some additional details around emergency networking, the acquisition just announced. Looks like a nice little pickup, but maybe just some additional information, such as maybe number of employees or customers. Were they a regional player, and were they profitable?

Yes. Thanks, Mark. That's a good question. So as we said, the primary solution is really in fire records and patient care reporting for EMS. Fire records has always been part of our public safety suite, but something that we actually have not been investing in significantly as we focus more on our CAD and our police records. They've got a cloud-native multi-tenant offering. We've been partners with them for probably two years to help fill that gap. And part of this is it's what we've called internally a partner to acquire model. So we kind of tested them out. We've got to know them as people, got to know the culture, got to experience whether or not that product is portable and can move up market the way we expected that it could. And then it's proved that. There's some new compliance standards in this space. This space has seen a lot of consolidation recently. Um, there's there, we talked about it being compliant with nearest the national emergency, uh, response information system. Um, that's where people, uh, all these agencies are, most of them are on what's called. And if IRS and they ha they're required to move in the beginning of 26, they've got that solution compliant. Um, it's one of the things that we find really exciting about it shortly before, after LOI, but shortly before, um, closing, uh, they had just closed on a statewide Pennsylvania deal. which has garnered a lot of interest. So we think we've got the best solution out there in the market. We're excited about it. It is a small company, you know, several million in revenues, a little more than a round break even. But we believe that we can take this now and do what we've done traditionally with some of these tuck-in acquisitions. It rounds out our portfolio. It makes us even more competitive. And with the sort of urgency around this regulatory compliance change, and what we've seen with success in the market. We're really pretty excited about it.

Thank you. Sounds like a nice pickup.

Okay, next question. I'll add on the impact from emergency networking, although it's relatively immaterial, is included in our guidance for the year.

And our next question comes from the line of Trevor Walsh with Citizens. Your line is open.

Great. Thanks, Kate, for taking the question. Lynn, I appreciated all the color around kind of Doge maybe taking a bit of a backseat or at least the noise around that diminishing and that kind of being a good, I guess, confirmation of stronger budgets at the state level. But Have you seen anything, I guess, within the confines of your federal business? I know it's small, but just has that pressure released there? Maybe just get in that broader question. Just give us an update on kind of where the opportunities might lie as you go more towards that part of the customer base. Thanks.

Yeah, Trevor, and you're right. Our federal business is a pretty small piece of our business, less than 5%. What we're seeing right now is that projects haven't been taken away. As you know, Q3 is the biggest quarter for that, so it's still a little TBD. But I think generally speaking, I don't see a material change in our outlook. There will be pockets in federal, but as we mentioned in our opening remarks, while there has been some scattered stuff across our diversified portfolio, we don't view any of it as material.

And our next question comes from the line of Kirk Matern with Evercore ISI. Your line is open.

Hi, this is Bill on for Kirk, and thanks for taking my question. How should we think about trailing 12-month bookings numbers? Is it still a bit too lumpy? Should we look at it more over a trailing two-year basis?

Well, the lumpiness probably does sort of point you towards looking at it over a longer basis to get a more accurate trend. We've pointed out in the past, and we'll remind people, that last year was a record year for SAS bookings. We had a number of very large deals, particularly in the third and fourth quarters. So we do face difficult comps with that just really strong, just a lot of it based on timing, but a lot of those came together in the third and fourth quarters of last year. large SAS deals in courts in Arizona. We had a large resident portal deal in Maine. These were 15, $20 million kinds of deals. So I think the longer, a little bit longer look back probably gives you a more accurate trend that eliminates a little bit more of that lumpiness. But as we said, the pipeline, we really, happy with the pipeline and the outlook is for bookings in the second half of the year is solid, but it is up against a really tough comp from the last two quarters or last year's last two quarters. So just keep that in mind.

Great. Thanks for taking my question.

And our next question comes from the line of Keith Housem with North Coast Research. Your line is open.

Good morning, guys. Hey, question for you on bookings. As I look at the bookings here, you know, obviously it's not quite, you know, what you guys are growing in terms of revenue. But in terms of your revenue, what do you guys recognize as perhaps not recording your bookings? Is there a gap there in terms of payments or whatever not might you see in revenue but not in bookings?

Well, payments doesn't show up in bookings at all. Well, it shows up in bookings when the revenue is recognized. So if we sign a new payments deal or other transaction-based deal, you won't see that show up in current quarter bookings because even though the revenue stream may be very predictable and a lot of comfort around that, It is dependent on the transaction, so it doesn't go into the bookings number. So new transaction deals, and as I mentioned, we're regularly doing deals where we're delivering software, but it's being paid for through transaction revenues. And so those won't show up in that bookings number, but they will show up in revenue growth. So there's kind of this hybrid model we have in many cases, which provides us with a strong competitive advantage. of being able to deliver software and get paid under a transaction model, especially at the state level. But that does have the impact of really kind of understating bookings, especially around the software.

Yeah, Keith, like a good example, our ERP suite signed this past quarter a deal in Florida I think with the city of Apopka. I don't know how to pronounce it. Apopka, I think Florida. Yeah, that was a $370,000 annual ARR for SAS. But we expect $330,000 in transactions a year. So it's about a $700,000 a year ARR. But, of course, most of that transaction doesn't show up in bookings.

Just another example, we signed a deal with the state of Oklahoma for our cashiering product. There is a small SAS fee associated with it, $140,000 a year. But with transaction revenues associated with it, it's $1 million of ARR. But all that showed up in the bookings was $144,000. So that's why we've... have sort of de-emphasized backlog and bookings in favor of total ARR.

And ladies and gentlemen, that concludes our question and answer session. I will now turn the call back over to Mr. Lin-Moore for closing remarks.

Great. Thanks, Abby. And thanks, everybody, for joining us today. If you have any further questions, please feel free to reach out to Brian Miller or myself. Thanks, everybody. Have a great day.

And this concludes today's call, and we thank you for your participation.

You may now disconnect.