Tyler Technologies at JPMorgan Conference: Cloud Strategy and AI Focus

On Thursday, 15 May 2025, Tyler Technologies (NYSE:TYL) presented at the 53rd Annual JPMorgan Global Technology, Media and Communications Conference. The discussion highlighted Tyler’s strategic shift towards cloud-based solutions and AI integration, alongside robust financial performance. While the company faces elongated sales cycles, it remains optimistic about future growth and market opportunities.

Key Takeaways

• Tyler Technologies is prioritizing a cloud-first strategy, aiming to migrate 85% of on-premise customers to the cloud by 2030.
• AI integration is a major focus, enhancing decision-making and citizen engagement for public sector clients.
• Financial results for Q1 exceeded expectations, leading to increased revenue and earnings guidance for the year.
• The appointment of a Chief Client Officer aims to boost client satisfaction and cross-selling opportunities.
• The company anticipates low double-digit growth, driven by organic expansion and strategic acquisitions.

Financial Results

• Q1 earnings surpassed both consensus and internal forecasts, prompting an upward revision of annual revenue and earnings guidance.
• 96% of new software contract value is now cloud-based, with a significant revenue uplift expected from cloud migrations.
• Tyler Technologies targets $3.6 to $3.8 billion in revenue by 2030, with approximately 52% of current revenue still on-premise.

Operational Updates

• The Tyler Connect user conference saw participation from 5,600 customers and 1,000 employees, emphasizing AI and customer experience improvements.
• Data center closures and a transition to AWS are expected to enhance gross margins and reduce costs.
• The company is developing cloud-optimized product versions, aiming for a unified cloud platform for all customers.

Future Outlook

• Tyler anticipates the peak of customer migration to the cloud between 2027 and 2028.
• Growth strategies include cross-selling, new client acquisitions, and upselling existing customers.
• The public sector market’s stability and non-discretionary nature offer significant opportunities for Tyler Technologies.

Q&A Highlights

• Sales cycles are lengthened by consultant involvement and market volatility, adding approximately 60 days to the process.
• Tyler Technologies is gaining market share in the public safety sector, competing effectively against major players like Motorola and Hexagon.
• The company emphasizes the integration of public safety interfaces with court systems, a unique offering in its portfolio.

Readers are encouraged to refer to the full transcript for more detailed insights.

Full transcript - 53rd Annual JPMorgan Global Technology, Media and Communications Conference:

Alexey Gogilev, Host: Good morning, everyone. My name is Alexey Gogilev. And today, I’m delighted to welcome at our Boston TMC event, Tyler, CFO, Brian Miller. Thank you for being with us today. Brian, great to see you, especially considering that we just met at this wonderful event at San Antonio, your customer conference.

It’s been a busy week. It has been a great week. Maybe we could start with some feedback from the conference. Can you share with us what are the main takeaways? What surprised you the most at the conference?

And maybe what is top of mind for your clients?

Brian Miller, CFO, Tyler Technologies: Sure. We had our annual user conference this week. Tyler Connect was, if not the best attended ever, we’re very close to it. So about, I think, 5,600 customers, close to 1,000 Tyler employees. So very energetic, well attended event.

I don’t know that there were big surprises. I’d I’d say the themes from Tyler that were were most common were around quite a bit around AI. So our customers have a growing interest and curiosity around AI. As with most things in the public sector, they’re not typically looking to be the first to adopt almost anything. But there is a strong and growing interest in AI and how it can affect their operations.

And especially with this growing theme around government of a focus on efficiency. And AI is certainly one of the tools that we think can help them achieve some of those goals. So we’ve got a lot of initiatives. I’m sure we’ll talk a little bit more about them, but a lot of initiatives around AI both from Tyler’s internal use, but especially in our products. So that was a common theme.

And then we talked a lot about customer experience and improving our the way that customers experience Tyler, especially as more and more of our customers have multiple products from Tyler. And as Tyler has grown both organically and through acquisition, it’s created over time a little bit of friction in how customers deal with us when they have multiple products. And so we’ve got a lot of effort around smoothing that out a bit and helping pave the way for more customers to buy more products from us. So we have a new role of Chief Client Officer and a new person in that role. And so he was kind of front and center and spent a lot of time talking to customers around that.

So those are probably the two biggest themes around the conference.

Alexey Gogilev, Host: That’s a good segue to my question about your new solutions, some of which were announced at the event. How does AI inform development of those new products? And could we see some of the AI features embedded in your existing products as well as what is the potential monetization path of those existing products?

Brian Miller, CFO, Tyler Technologies: Yeah, sure. There’s a lot there. So there already are some AI features in our products and some products, especially some that we’ve acquired more recently that are really sort of fully AI based. We did three acquisitions in the second half of twenty twenty three that were all products that were really driven by AI, one in the priority based budgeting space. So sort of redoing how governments look at budgeting, they can use AI as a tool to determine priorities and help them allocate their funds to best align with where their priorities are.

One in the sort of the document management data entry space in our court solution. And then one around sort of inspections and helping determine how they do field field augmentation. So three products that are fully AI based, but there are lot of AI features that we’ve said that every major product, every flagship product has an AI roadmap. And really by the end of this year, we’ll have either already embedded AI features or features under production. Really kind of three areas, one around decision making, so helping clients have the data to make better decisions through the use of AI.

The second around productivity. So probably the more common area around things like automating data entry. And then the third around citizen engagement. So making it easier for citizens to interact with government with things like agents and chatbots. As I said, we’ve already got some of those in production.

We, for example, recently went live with the citizen engagement portal for the state of Indiana that uses AI to help citizens navigate looking for information or conducting a transaction with the state. So some of those things are already in production, more to come. In terms of monetization, there’s a couple of different sort of approaches. But primarily, we’re looking at sort of a SaaS based model, but with pricing based on the value that’s provided. So that it’s in many cases pretty easy to tie it to efficiencies, cost savings, revenue increases.

And so I’m really looking to sort of have a value based pricing model, but with a recurring revenue stream.

Alexey Gogilev, Host: Great. Thank you. At the conference, I found it interesting that both Lynn, Jeff and Russell, all the top management, have been discussing data center closures multiple times. So I was hoping maybe you can tell us a bit more how you think you could contribute to the gross margin from greater volumes on the public cloud that you are experiencing right now.

Brian Miller, CFO, Tyler Technologies: Sure. Yeah, back in 2019 when we really kind of made the transition from or made the decision to fully transition from sort of a hybrid model with both on prem solutions and cloud solutions to kind of cloud first and fully in the cloud. One of the key decisions at that time was that we didn’t want to be in the data center business anymore. So we had traditionally hosted our cloud customers in a private cloud in primarily in two data centers that Tyler operated, one in Dallas and one in Maine. So clearly that wasn’t a model that really could scale well.

Was the public cloud was much more cost effective and certainly a competitive market. So we entered into our first partnership with AWS to be our primary public cloud provider and started the process of both putting all of our new customers into AWS, but then the process of shifting our private data center customers over to AWS and set out a timeline for doing that, which we have stuck to. So the plan was always to close the first data center, the Dallas data center in mid-twenty twenty three I’m sorry, mid-twenty twenty four, which we did last year and so exited all the customers out there. The second data center is on track to close at the end of twenty twenty five. As we’ve worked through this migration of those customers, we’ve been able to reduce our CapEx.

There’s certainly a lot of a big part of our CapEx has been historically around those data centers. But also, we’ve had what we call bubble costs or duplicate costs because as we start moving those customers over to AWS, we start paying AWS to host those customers. But we have a lot of fixed costs around the data center that don’t go away until it fully closes. So we saw some margin improvement. Some of the margin improvement we’ve seen this year is related to the first data center closure.

But there still are growing bubble costs around the second data center. So we’ll really see that impact next year. As we continue to scale at AWS, our unit costs get lower. And we also have a last year entered into a new agreement with them that further recognize the scale that we’re doing with them and that we will be going forward. So unit costs getting lower, greater efficiencies.

And then also part of that margin expansion has been and will continue to be around the release of cloud optimized versions of our product. So we have a lot of products that were originally built to be deployed on prem and haven’t been optimized or super efficient in the cloud. So we’ve had projects underway to modify the architecture to take advantage of the cloud and particularly AWS features. And as we’ve released those, we’ve seen really better than expected efficiencies and lower operating costs. So that continues to be part of the margin expansion story as we continue with that effort.

Alexey Gogilev, Host: And another important theme at the conference was cloud living. Can you elaborate a bit more on that, the phase two of your cloud transformation? And what were the other features of phase one which is about to be completed?

Brian Miller, CFO, Tyler Technologies: Yeah. So phase one, which is still ongoing, but really kind of what started back in 2019 of the transition to the cloud and moving from cloud agnostic to cloud first really was around several things, exiting the data centers and fully moving customers into the AWS environment. The development and release of cloud optimized products that I just talked about. And third, the third big effort there was really around version consolidation. So Tyler has a lot of products.

That’s one of our greatest strengths is that we have the broadest product offering for the public sector of any software provider across almost every sort of essential functional area of state, local and a little bit at the federal level. So that’s a big strength of Tyler. It creates big cross sell opportunities. It makes each of our products more valuable because we have this breadth of products and domain expertise. But it also complicates things that we have a lot of products and we’ve also historically supported multiple versions of a lot of products.

So a tremendous amount of our development resources and our support resources have historically been devoted to supporting products that are not the current version of products. And as we move to the cloud, our goal is to have one cloud version that everyone’s on, everyone upgrades at the same time. So we’ve had an effort around version consolidation. So sunsetting those older versions of products, moving those customers to the current versions of products either before or when they migrate to the cloud and sort of furthering that effort. And we’ve had a lot of progress with that over the last couple of years.

There’s still more work to be done. So that’s more of the sort of phase one that continues on. But those have really been the big efforts around the first phase the cloud transition, which is really kind of about where the customers are hosted and what efficiencies we get from that. Phase two, or what we refer to internally as cloud living, is really about sort of maximizing the benefit to our customers and to Tyler of having ultimately the entire customer base in the cloud. So it’s really that process of getting everyone on one single stream of code, everyone on the same version, everyone upgrades at the same time, everyone is on always on the current version and doesn’t fall behind in terms of of the version that they’re on and the features that they’re using.

It makes it easier for people who have multiple products for those products to work seamlessly together because they’re all the current version. And then it really kind of taking advantage of the cloud and that process to just make the process easier for customers. So continuous upgrades, continuous release of new features and functionality rather than big bang upgrades on an annual basis. So enabling customers to again have a better experience with Tyler and really get the benefits of being in the cloud.

Alexey Gogilev, Host: And switching gears slightly, you’ve earlier talked about the appointment of Andrew Call as Chief Client Officer. Can you talk about how Tyler is balancing the need for client satisfaction with pushing further the cross sell?

Brian Miller, CFO, Tyler Technologies: Sure. Yeah, again with the strength of Tyler, one of the strengths being the breadth of products that we have. We’ve said that our average customer has two to three products from Tyler and could have eight to 10 or potentially more. Certainly as we make more acquisitions and build more products that number continues to grow. So we’ve talked quite a bit about how important cross sell is to us as an opportunity to grow.

So we’ve got this very loyal, very sticky customer base and we should have what we like to think of as an unfair advantage in selling them more and more products either within a suite of products. So if someone that has a court system, a case management system from us, selling them a probation system or a prosecutor system or a jury system or new suites of products. So a lot of cross sell opportunities, things like leveraging the customer base to sell them payment services or data and analytics platforms. So a lot of opportunities there. And so that’s really one of the key pillars of our growth strategy.

But in order to sell people more products you need to have happy customers that want to buy more products and want to add things like payments from Tyler. So we’ve got really a heightened focus on client satisfaction and improving the client experience. And as I said, we’ve grown both organically but a lot through acquisitions as well. So a lot of our products came to us through acquisitions. And so because of the way Tyler has sort of grown over the years, we have moved from in the past where clients generally experienced Tyler with one product or a narrow set of products and so had sort of a siloed relationship.

But now as more customers have more products from us, there’s been we’ve created some friction in that relationship because they have multiple interactions with Tyler. So different support units which might be using different back end systems to manage those processes. So really a lot of it is around creating consistency around the processes, around the tools we use. We talk a lot about one door to Tyler, so they shouldn’t have to figure out which door to come through, that any door will get them to the right place. So really a lot of it is around processes, tools and making that experience more seamless and just an easier process for our clients.

And so Chief Client Officer is a new role to Tyler. I’ve hired a really experienced strong individual. And Andrew Call, who’s now will really be responsible for all of that across Tyler, which really includes our professional services operations as well as our support organizations. And this is not just a totally new initiative. We’ve certainly had a focus on this for a while, but clearly a very heightened focus, a lot of effort going into it.

We already have made progress in standardizing some of the tools and systems we use on the back end. I think what we’ve heard from clients this year at Connect, I think some of the feedback we’ve gotten from you and some of the other analysts that spent time with clients at Connect this year, the feedback is positive around that. And so we’re excited about the opportunity we have to continue to drive an improving relationship with clients.

Alexey Gogilev, Host: Sounds like there could be some savings on the back end based on some of those initiatives.

Brian Miller, CFO, Tyler Technologies: Yeah. Not only is it makes our business more complex, this ongoing standardization, another internal phrase is one Tyler. So having the same systems in place to manage something like support across the entire company does result in the savings. It makes business less complicated. We’re standardizing on common solutions and it does help us on from a cost perspective as well to get everybody on consistent processes.

And it ultimately enables us to cross utilize people better and reduce costs while providing better service. And AI is a part of that as well from an internal use. Support is one of those areas where we’re investing in AI tools to help answer routine questions and help our customers support people find answers easier. And so there’s that support and professional services are two of the areas where we’re making AI investments internally.

Alexey Gogilev, Host: Makes sense. And when we talk about the cloud transition for your customers, you have mentioned you’re still on the left side of the so called bell curve in terms of getting customers to flip to the cloud. What percentage of customers and I guess dollars are currently on the cloud? And what are your key targets here?

Brian Miller, CFO, Tyler Technologies: Yeah. So in the new business space, again since 2019 when we really made that switch to cloud first and really signaled that we were moving towards not selling anything on prem anymore and sort of gradually have phased that out. So that’s been that move has been very successful. So last quarter I think it was 96% of our new software contract value was in the cloud and only 4% on prem. And most of that is sales back to current on prem customers.

We’ve also been migrating the thousands of customers that already have solutions on prem to the cloud for a number of years. But that also accelerated starting in 2019. When we again look back at 2019, we were about 50% of the new business was in the cloud and 50% was still on prem. So with the new business that’s almost entirely switched to the cloud. And we’ve started to accelerate the migration of those on prem customers to the cloud.

A couple of gating items around that, one of them being version consolidation. So customers generally need to upgrade to the current version of the product either before or when they move to the cloud. So the efforts we’ve had around version consolidation have helped facilitate the acceleration of that move. So we’ve gotten more customers in a position to be able to move to the cloud. And sticks and carrots seem to have been the theme of the phrase that came up a lot at our investor session at Connect.

We’ve generally used carrots at this point. So we have signaled to customers that increasingly new features and functionality, including things like AI functionality, will only be available in the cloud version. So while we’ll support their on prem systems for extended periods of time, the new features and functionality that they’ll want will only be available in the cloud. So we’ve continued to accelerate the migration of on prem customers. We talked about a target of by 02/1930 of having more than say 85% or more of our customer base, our on prem customer base migrated to the cloud.

It is we view it as sort of a bell shaped curve of the pace of those migrations and that the peak of that curve would be, say, in the 2027, ’20 ’20 ’8 timeframe, especially with respect to some of our bigger customers that are more complex. One of the sort of, I guess, other factors that’s increasingly a factor in customers’ desire to move to the cloud, sometimes to move to the cloud very rapidly, is cyber security and the growing incidence of ransomware attacks in the public sector. And so often a client that either suffers a ransomware attack or with their on prem systems or sees a peer or neighbor jurisdiction have a ransomware attack becomes motivated to move to the cloud very, very rapidly. And we’ve seen some of those where customers flip to the cloud almost over a weekend. And unfortunately that continues to be a growing factor.

If you step back and actually look at our entire customer base from a revenue perspective, so on average when customer moves from on prem to the cloud, it’s about a say 1.7, one point eight times uplift in revenue going from maintenance to SaaS. So if you convert our existing maintenance revenues to a cloud equivalent, so multiply it by 1.75 and compare that to our current SaaS revenues, we’re almost fifty-fifty. So it’s like 52% still on prem and 48% in the cloud. And that again, that will continue to shift the number of both the number of flips and the average ARR from flips, we think will continue to grow through the ’twenty seven, ’twenty eight timeframe. And then we’ll be more on the downside.

At some point, more of the sticks will come in, which would primarily be pricing for maintenance with larger increases around that to drive customers or maybe some of the laggard customers to the cloud. But I think we’re still a little bit of ways from that.

Alexey Gogilev, Host: And despite this very encouraging commentary about the flips and migrations, There was one comment during the conference call recently around elongation of sales cycles. And you specifically highlighted some of your customers utilizing consultants in their decision process. Can you maybe elaborate a bit more if you’ve had any additional conversations in that sense? And how do you see this evolving?

Brian Miller, CFO, Tyler Technologies: Excuse me. Yes. We mentioned the use of consultants by clients in purchasing processes as a factor, really a pretty minor factor, but one of the factors around a little bit longer sales cycles that we saw in Q1. So on average, it’s less than 10% of our processes are led by a consultant from the client’s perspective. So this is using a consultant to help them manage the RFP process, the evaluating vendors and sometimes even negotiating contracts.

Tends to be larger contracts. On average, I’d say it adds maybe sixty days to a sales process, which are long in our space anyhow. Governments move slowly. A typical sales process for a mid sized ERP product might already be, say, call it twelve months, but twelve to eighteen months. So typically when there’s a consultant involved it adds a couple of months to the process.

It doesn’t really change the outcomes. In some cases we’re not really a lot of difference in win rates. In some cases we’re more successful when consultants are involved. But as I said, it’s less than 10% of the deals, but marginally we’ve seen a little bit more, which probably really reflects there’s more bigger deals in our pipeline because it tends to be larger opportunities that are using consultants. So a relatively small factor.

I think the bigger factor that contributed to a little bit longer sales processes in Q1 was just the general noise in the environment. While a lot of these external factors that really caused turmoil in general in the first quarter, things like tariffs and all the back and forth on tariffs or geopolitical events, largely those don’t really affect customers in our space, especially local governments. And I think that also was confirmed by some of the notes I’ve seen from Connect from people talking customers who pretty much unanimously said they’re not seeing any impact and don’t expect to see it affect their buying. But we did see clients that had processes underway pause a little bit and say, need to one, there’s just a lot of noise here, a lot of distraction, and I need to make sure that it doesn’t really affect me. And so I think it just generally kind of broader noise and turmoil that slowed things down.

But ultimately our outlook for sales for the year isn’t any different than we started the year. We haven’t seen deals lost to competitors or deals fall out of the pipeline. Just a little bit of slowing of timing, but again, largely timing.

Alexey Gogilev, Host: You’re actually one of the few companies that raised guidance for the year. Can you talk about some of the components that drove that increase?

Brian Miller, CFO, Tyler Technologies: Sure. Mostly we just had a really strong first quarter. So earnings were not only above consensus, but above our internal plan, both revenues and earnings. So we raised revenue guidance and earnings as well for the year, which is fairly unusual for us for a first quarter. A lot of the outperformance was on the transaction side of our business where we saw higher volumes around a wide range of transaction services that we provide.

Some of it was a little bit faster implementations of some of our cloud conversions as well. So timing a little bit sooner in the year. But really that we raised our guidance to take into account and reflect that outperformance in the first quarter. I’d say in some cases around some of the pricing, like pricing with some of the transaction based revenues, We know that that will carry through the year and we took that into account. But in terms of elevated volumes, we really didn’t raise expectations for the rest of the year, but we just recognized the results from Q1.

So really strong first quarter, didn’t really change our outlook for the rest of the year in a significant way, but did reflect that in the full year guide.

Alexey Gogilev, Host: And I think at the Consumer Conference, Lynn mentioned that competitive positioning, as you just suggested, hasn’t really changed apart from I think you mentioned that public safety is the space where you’ve gained some market share. Can you talk a little bit about who you’re displacing? And what does your competitive space looks like? Who are you typically seeing at RFPs? Specifically in public safety or

broader

Brian Miller, CFO, Tyler Technologies: have different competitors in each of our sort of sub verticals or product areas. So the people we compete with in the ERP space are largely different than the competitors in the public safety space, and those are different than the people we compete with in the court space, And those are different than the ones in the property tax space. So we have a wide range of competitors. For the most part they’re kind of point solutions or niche companies that have a narrow product focus. Sometimes very narrow and sometimes a narrow geographic focus.

Public admin or ERP is really the one area that we see significant competition from horizontal players like Workday or Oracle or SAP or In for. Although those bigger horizontal companies we tend to see more in larger opportunities. They tend not to scale down as far as we do. But public safety particularly is an area that we’ve done really well in competitively. We’ve made a lot of investments in our product there.

There’s two parts to public safety. There’s computer aided dispatch, which is nine eleven systems, and then police, fire and ambulance records management. We’ve done a number of sort of tuck in acquisitions that have added features and functionality around our core products. We’ve invested in those products to scale them up into the upper tiers of the market. We primarily compete there with Motorola, Hexagon, a private equity owned company called Central Square that just has public sector, public admin and public safety, as well as some smaller cloud companies.

We have invested a lot in our cloud solution there. Sort of before the market in public safety, which is kind of in the last segment of our space to embrace the cloud. But they really have in a big way in the last year or two. So we feel like we’re really kind of a leader in terms of having a cloud solution in the public safety space. And so we’ve been really successful in continuing to gain market share, especially more towards the upper end of the market.

So I think last year we won four or five state police agencies. So these are tier one kinds of deals where we’re competing head to head with those bigger competitors. So a lot of success going on there. One of our strengths in public safety is that we’re the leading provider of court systems. So the interface and the integration of those two solutions is something that’s unique to Tyler and provides a lot of value to our customers.

So largely we’re not seeing a big change, as you landscape. Not a ton of new entrants. I think our space in general, the public sector space, it’s a great space if you’re in it. It’s got a lot of characteristics that are really attractive. It’s very sticky.

It’s very stable. There’s a huge universe of customers or prospects that are using twenty and thirty year old solutions that will need to be replaced. And largely those are nondiscretionary decisions to replace those. So it’s a very, very steady market. But it’s also a slow moving market.

It’s a little bit hard to create demand or accelerate that process. So it tends to be a market that is harder to enter, but a great market once you’re in it. And so again that leads to what we talked about in terms of tremendous cross sell opportunity. And given the presence we have in the space, the opportunity ahead of us to continue to grow with our customer base and continue to add new logos at the same time.

Alexey Gogilev, Host: Thank you, Brian. And in the last few seconds that we have, can you maybe mention the key growth algorithms for your top line going forward? How much should we expect from cross sell, new logos, upsell?

Brian Miller, CFO, Tyler Technologies: Yeah. We haven’t specifically kind of broken it out by those two pieces. We do expect the cross sells and existing customer base as we go from two or three to eight to 10 products a customer will be a growing part of that. But we continue to still have a huge opportunity with new logos. We’ve talked about basically low double digit growth expectations through our 02/1930 plan on an organic basis.

And we clearly will supplement that with acquisitions to get to, I think 3,600,000,000.0 to $3,800,000,000 is our target from an organic perspective by 02/1930.

Alexey Gogilev, Host: Thank you very much, Brian. Thank you for coming. Appreciate your time.

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