Tyler Technologies, Inc. ($TYL)

Okay. Good morning, everyone. I'm Hala Elsherbini, Senior Director of Investor Relations, and it's my pleasure to welcome you to Tyler's 2026 Investor Day. It's so great to see so many of you here in person today. We appreciate you coming out, and thank you to those on the webcast tuning in. We have a full agenda, and Lynn will kick us off in just a moment. So let's cover a few housekeeping items. First, our forward-looking statements. Today's presentation may include forward-looking statements regarding our expectations of future results and our financial performance. These statements are based on our current assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. So please refer to our SEC filings for more information on these risks and other factors. Our statement here regarding are of non-GAAP measures, Note that all financial measures in today's presentation represented here are on a non-GAAP basis, and we do have a reconciliation of non-GAAP to GAAP in the appendix of the presentation. Let's take a look at the agenda and just the flow of the day here. So we have the first 3 presentations. We'll focus on our key initiatives and our growth strategies. We'll follow that with a Q&A session in about 25 minutes. We'll take a short break, and then we'll dive into our AI strategy, our capital allocation. And Brian will bring us up to date on our financials and take us through our 2030 outlook. We'll have another Q&A before Lynn comes up and give his closing remarks. So given our large audience in person today, we will not be able to take questions from the webcast. We'll be taking questions here from the in-person audience. But anybody that has a question from the live webcast, please do send those to me, and we'll follow up later this week. We'll end today with lunch -- and then it will be in the 4 year and then Seating will be here. So lastly, the presentations will be available later today on our IR page on the Events and Presentations page. Now please join me in welcoming Lynn Moore, Executive Chair, President and CEO.

Thanks, Hala, and good morning, everyone. Welcome to Tyler's Investor Day. I appreciate everyone taking the time to be here today and those on the webcast and also really appreciate everyone's interest in Tyler. So our last Investor Day was 3 years ago, and a lot's happened since then. There's been a lot of execution on a number of strategic initiatives, and we're really excited today to share with you what we've been doing over the past 3 years. So let's go ahead and get started. So I'm going to kick things off today by covering 3 things: first, our performance since the last Investor Day, call that commitments made, commitments delivered. Second, I'm going to spend a little time talking about why the public sector is such a unique market and what separates Tyler from its competitors within that market. And then finally, I'm going to give you an update on some of our 2030 targets, not the whole targets. Brian is going to have those later. I know some of you all were asking earlier, you have to wait for some until the end. Okay. Let's start with the basics. Tyler is the largest company that's solely focused on providing software solutions to the public sector. We are by far and away the market leader. Last year, we did about $2.3 billion in revenues, 87% of which was recurring. Now the public sector is a market that's built on reputation and trust, and we have a long track record of successful implementations and delivering trust to our clients. And it's why our gross retention rate is 98%. In fact, I think in the 28 years I've been at Tyler, our gross retention rate has been about 98%. As you can see on the right side of the screen, -- we have all -- we have solutions that meet all the mission-critical needs of the public sector, whether it's financials, courts, public safety, tax, state and federal, Whatever they need, we provide. So 3 years ago, at our last Investor Day, we outlined a clear strategy that would guide us to 2030. I'd like to spend a little time updating you on how we've been doing on that strategy. I'd say at a high level, I'm really pleased with our progress. Today, we either at or ahead of my expectations that we set 3 years ago. Our cloud transition has been progressing well through product optimization, version consolidation, exiting our data centers. We talked about an inflection point in our financials and that happened in the fall of 2023 just as we expected. We've done 8 acquisitions since the last Investor Day, expanding our offerings, including things like AI capabilities. You've heard us talk about document automation -- document automation, excuse me. In addition, over the last 3 years, we have developed and refined what I call a smart AI strategy. You're going to hear more about that today from Franklin Williams, our new Chief AI Officer. So let's take a couple of moments and take a closer look at where we are in our cloud transition. So I think the takeaway here is, again, I couldn't be happier with where we are today and where we're going. Now many of you have heard me say over the years that Tyler is not going through a single cloud transition. We're actually going through multiple cloud transitions. And why do I say that? Well, I just showed you the breadth of products we have. So we have a big product suite that's going through this different starting points, different ending points, different technologies, different client bases, different number of versions out in the field, very complicated process we've been going through. And when we talk about our cloud foundation internally, we've been talking about in 2 phases. The first phase is what we've outlined at the last Investor Day, and it's really more of a foundational phase. Again, it's around the things we talked about, selecting AWS as our public cloud provider. It was optimizing our products to run in AWS. It was version consolidation, closing our data centers, proving out our SaaS flips and the metrics around those. That continues today. And again, we are on track with those initiatives. Second phase is something that we've been working on internally for almost 2 years now, and we call that Cloud Living. So what is Cloud Living. Well, Cloud Living to me at the highest level is, it's really operationalizing the cloud. It's really operating like a true cloud provider with continuous improvement, continuous delivery, small regular releases that are coordinated across our entire client base, providing a more seamless experience for all of our clients. Now Russell Gainford, our CTO, is going to get up in a few minutes. He's going to go in a little more detail, but it's a really exciting next phase of Tyler. It's something that I'm really looking forward to. So from a strategic standpoint, as I just said, we've even been on track or ahead of track from where we thought we would be 3 years ago. So what about the numbers? Well, we're also either at or ahead of all the interim financial targets that we set out 3 years ago. Now if you remember, I called this section commitments made, commitments delivered. And to me, that's a hallmark of Tyler. If we say we're going to do something, we're going to do everything in our power to do it. But importantly, we're not even going to say that we're going to do something unless we believe we have a reasonable credible path to get there. And so I'm really satisfied and gratified by these numbers. And particularly, I think when you look at our free cash flow margin, it's up 8 to 10 points from where we thought we'd be 3 years ago, and we've generated a lot of cash. That's probably the thing that stands out to me on this page the most. So let's switch gears a minute and just talk generally about the state and local government market and what separates Tyler from the rest of our competitors. So state and local government market, it's a large market. Gartner estimates that it's about a $4 billion market today, but it's also a market with a long history of consistent growth. As you can see from 2023 through today, it's been growing at about a 10% CAGR, and we expect that to continue through the rest of the decade. So what is it about this market that fuels this consistent, steady growth? Well, to me, it's a different market. It's structurally different than what happens in the private sector, and it's different in meaningful ways. So on the left side of the chart, you see some of those differentiators. The public sector market is still really absorbed with old antiquated systems, homegrown systems that are reaching end of life, systems where other vendors are no longer supporting them. There's an ongoing workforce shortage in the public sector. Labor is shrinking, retirements are happening, and it's not being replaced with younger workers. Expectations of citizens continue to rise. People expect to interact with their government, the way they interact with technology in every other parts of their lives. It's putting more and more pressure on local government to keep up. Obviously, cyber security, regulatory mandates, AI, all of these things contribute to 1 thing. At the end of the day, the governments must modernize. They have no choice. So what does that mean for our prospects for future growth? Well, today, Tyler has over 50,000 systems located across more than 16,000 client locations. So the answer there is we still have a very long runway ahead. From a system standpoint, we have about 11% market share; again, a really long runway ahead. So let's talk about why Tyler has been so successful. What differentiates us in this market? Why will we continue to capture an increasing share of this growing market? Well, there's 5 unique things that separates Tyler from all our competitors. And importantly, there's no other company out there that can list all 5 of these strengths. So let's take a look at each one. First is our portfolio of products. We have the broadest, most integrated set of public sector solutions in the market. As I mentioned earlier, we touch all the mission-critical needs of the public sector, whether it's in public admit or schools or courts, public safety, state and federal. Now there may be competitors who compete in one of these lanes, but more likely just a piece of one of these lanes. -- but no one has the broad set of solutions that covers the entire mission-critical needs of the public sector. In addition, we can play at any level. We can play from the largest cities, largest counties to the smallest. We can play from state agencies to local agencies, from school districts to special districts, again, whatever the public sector needs, Tyler has a solution. And that takes me to our second differentiator. Our singular focus and deep domain expertise. The public sector is all we do, and we've been doing it for decades. We understand this market. About 45% of our team members have worked in the public sector. What you see here on this slide are things that differentiate us from our competitors, whether they're local, regional niche players, someone who may have a single product or someone who just plays in a certain geography or a more large multi-focused national player, someone who plays in the public sector, but also in the private sector. Only Tyler can provide the full end-to-end suite of integrated products that are purposely built for the public sector. Our third strength is our large client base. We have the largest client base of any vendor out there. Again, more than 50,000 installations, over 16,000 client locations. Nobody can match that, and many of you in this room have heard me say that our client base is our greatest asset. And why do I say that? Because in this market, a client base like that doesn't take years to develop. It takes decades to develop. And only Tyler has decades of proven results and trust within the public sector. And what that does is it creates a significant opportunity. You can see here on this slide that our average client has about 3 Tyler products. Yet we believe with our current portfolio that can grow to 8% to 10%. And that actually can grow even more as we continue to do more and more innovative R&D and more and more M&A. So speaking of R&D, that's our fourth differentiator. We have a long history of innovation that's tailor-made for the public sector. Again, 45% of our people have worked in the public sector. We know what they need to -- we have over 2,800 engineers who wake up every day come to work, focused on creating new products or increasing the competitiveness of our existing products and doing things like AI to do those. As you can see on the right side, our R&D has increased about 3.5x over the last 8 years, and all of it is for the purpose of 2 things: growing our revenue and increasing our moat. Our fifth differentiator is M&A. We've been an active strategic acquirer in the public sector since the beginning. Three years ago at the last Investor Day, I used the phrase, I think, for the first time that M&A is part of our DNA, and it is. We've done over 60 acquisitions in the last 28 years that I've been at Tyler. What are the things we look for in an acquisition. If you look on the right side of the slide, we look for voids or gaps in our offerings, new capabilities, new technologies, things like AI. We look to expand our TAM. We look to add clients to our base so we can do more cross-sells, more upsells. And one of the things that we really focus on is can we bring something in leverage the Tyler machine and get it to grow at a rate that's faster than Tyler's overall growth rate. Okay. So pulling all this together, Tyler is dominant in this market because we have 5 strengths that are difficult to replicate. They can't be created overnight. They can't be spun up in a lab. The public sector is a business that's grounded in trust and reputation, something that takes decades to establish. It's what makes Tyler unique and what makes us well positioned to continue to capture an increasing share of a large and growing market. Okay. So I talked about our 2025 commitments. I talked about the public sector market, why it grows, why it's unique, why Tyler is uniquely positioned. So let's turn and say, what does this mean as we look ahead? What's our go-forward strategy and what results do we expect. So when I think of Tyler, I think of 1 word, consistency, consistency in strategy, consistency in values, consistency in execution. Yet at the same time, we're also nimble and agile enough to adjust to changing market conditions, changing technologies like AI. So what you see here is our 4-pillar growth strategy that we outlined at the last Investor Day, leveraging our installed base, expanding our TAM, completing our cloud transition, driving transactions growth. Same strategy. But you also see we've made some adjustments. We've woven AI into each of these growth pillars. And we're going to do a deep dive later on AI and how it does affect those growth pillars. As for our goals, those also remain the same. We're going to continue to grow ARR, continue to improve margins to drive expanded free cash flow. So 3 years ago, we outlined a strategic vision with what I think were really bold 7-year financial targets, including $1 billion in free cash flow. I remember standing on say, $1 billion in free cash flow. That was incredible to me for someone who's been around when the company did $25 million in revenues to think about $1 billion in free cash flow. Over the last 3 years, we've been building a more and more valuable company. Quarter after quarter, year after year, our AR continues to grow and our free cash flow continues to grow. We've been executing on our strategy, and we've been laying the foundation for a more scalable growth. You're going to hear about some of that today. Based on that, we're raising 2 key 2030 targets, ARR and free cash flow. So in 2023, we projected our 2030 ARR would be $3.2 billion to $3.4 billion. Today, we're forecasting the high end of that range between $3.3 billion and $3.4 billion. Also in 2023, we projected free cash flow to be $1 billion. Today, we expect it to be $1.1 billion to $1.2 billion, likely at the higher end of that range or 15% to 20% higher than what we said 3 years ago. So how are we going to measure success going forward? Well, it's the path to reaching those 2 goals. We get there by growing ARR at 10% to 12% a year and increasing free cash flow margin to the low 30s. These are our anchors. These are what you should look to when determining our progress towards our goals. So in summary, Tyler today is stronger than what it was 3 years ago. We have clear long-term strategic initiatives. We have alignment across our executive team. We've been executing on those initiatives. And today, I can stand here and say that we are at or ahead of what my expectations were 3 years ago. Because of that, and this is something I say all the time inside of Tyler, I can stand up here and say, I've never been more confident in Tyler's future than I am today. Okay. Let's talk about the rest of the day. Hala covered this a little bit. Russell Gainford, our Chief Technology Officer, is going to come up and talk about where we are in our cloud transition, going a little bit deeper into cloud living, again, initiative that I'm really excited about. Liz Thomas, President of our Federal group is going to come up and talk about transactions, how they're differentiated. I think it's part of our business that's still not fully understood by investors, and I think you're going to get a lot of clarity on that today. Franklin Williams, our newly minted Chief AI Officer, is going to come up and talk about AI and why we believe it makes Tyler a stronger company in the future. I'm going to jump back up and talk about capital allocation. I know you all have a lot of questions for me over the years over capital allocation, Bruce is smiling. And we're going to wrap it up. Brian Miller is going to come up with a financial update. He's going to give a more in-depth look at our 2030 outlook. So with that, I'm going to turn it over to Russell Gainford, our Chief Technology Officer.

All right. Good morning, everyone. So my name is Russell Gainford. I serve as Chief Technology Officer here at Tyler. I've been with the organization for 8 years. Prior to that, in total, I've been in the gov tech industry about 26 years, helping those who serve the public. So today, we're going to talk a little bit about reiterating our strategy, what we talked about in 2023, what are our ultimate goals. Then we're going to go into how are we actually delivering on that strategy. What is the progress that we've made, then I'm going to talk about our path to 2030, what you should expect from us from an execution perspective the next 5 years. Then ultimately, the final piece of this is we're going to touch on the end state of our SaaS transformation, something that we call internally Cloud Living, and we're all really excited about. So as a reminder, SaaS is a huge growth driver for our organization. It represents approximately $780 million or 33% of Tyler's 2025 revenue. We've seen a 21% CAGR over the last 3 years. Maintenance, which is largely on-premise licenses, represents another 19% of revenue. So we have dozens of flagship products. We have hundreds of product SKUs. So for the sake of simplicity for the first phase of our cloud transformation, we broke down our execution into 3 key pillars that are important. The first was new clients shifting our go-to-market to be SaaS first and ultimately, SaaS only. The second was our existing hosted clients we manage for years and getting out of the private data center business. And our third pillar was our existing on-prem clients and partnering with them aggressively to move them to a SaaS arrangement. So how have we done on these 3 pillars since we last met. So for net new clients and leading the public sector market to a better destination. In 2019 about 50% of our total contract value was signed in a SaaS arrangement. In 2023, that number increased to 86%. And today, over 95% of our total contract value is signed in a SaaS arrangement, and those clients now go straight into AWS. We still have some small modules, an occasional on-prem deal that takes place, but you'll see those continue to diminish. So that's our first pillar, new clients. Our second pillar was the existing clients that we had and ultimately moving to a point where we are moving out of the private data center business. We've historically had 2 primary data centers an organization. One was in Dallas, Texas and one was in Yarmouth Maine. And the goal of this project was to move 5,000 live customers out into AWS and ultimately realize the lower capital and operating costs associated with those locations. This chart shows you here where those customers were located, how many of each when we started the project in 2021 and where they are today. And we're proud to announce that we completed both of those projects on time, on budget with the last of our customers and our main data center moving out at the end of last year, and we're already seeing margin uplift as a result of this. So now let's turn to the final pillar. The final pillar is migrating or a term you'll hear me use a lot flips of existing customers from on-prem into the cloud. When we started and went cloud first about $500 million of maintenance is what we had to convert. And flipping a client involves multiple steps, partnership, ready assessments, signing a new SaaS agreement, working with their IT team and moving the data and their business processes over to the cloud. Today, we retired about 30% of the maintenance revenue that we began with. And we're on track to hit our target of converting 85% of that by the end of the decade. I'll show you in more detail what we expect that to look like shortly. So in summary, we are on track with all 3 pillars of our cloud execution. We're almost all new deals are in SaaS arrangements, we closed our data centers on time and on budget, and we're happy with the conversion progress and the foundation we've made to date, and you'll see us introduce additional incentives to entice more customers that are on-prem to move to the cloud shortly. So those are the results. However, I want to touch for a moment, as we went through and execute on those results, we built a foundation of operational efficiency, scale, muscle that is allowing us to drive towards our 2030 goals proactively. So I want to talk about the trends we've seen and what we've actually done because I think it reaffirms our strategy and drives additional optimism in where we're going. So you've heard Tyler talk many times about version consolidation. So I want to spend a moment on why that isn't so important to us. In a legacy historical on-prem environment, where you're supporting thousands of customer environments across many, many software versions, it becomes incredibly complex and expensive to run. Our clients don't always get the full value of our investments as fast as we'd like them to. They can voluntarily skip individual updates they may have constraint on IT staff. So the value we're delivering can be delayed months. And in some cases, it's delivered years later. Our teams have been very hard at work on using the capabilities of the cloud to consolidate many of these legacy software versions. Ultimately, partnering with our clients to drive them on a current version that provides more simplicity, our ability to keep them current and generates additional CSAT with all the capabilities that we've invested in. Now you've actually asked us about version consolidation many times on what the progress of that is, and data matters, so I want to show you 2 actual quantitative examples from 2 of our flagship products in our portfolio. When you look at the flagship product to the left, this is a project that started just over 3 years ago. They've been partnering with clients, the number of customers that were not on current versions or prior versions before and 3 years later, only 7% of their clients are off a current version. Our flagship product 2 on the right, had significantly more installations, went through a similar project and now only 12% of their clients are off current versions. Why are we showing these? Why is this so important? When we move a customer onto the current version, then when we're ready to flip them to the cloud and sign an agreement, it is significantly simpler. We've removed the consumption gap of all the capabilities that weren't being used and now it becomes a small technical exercise. And also, when we get them in the cloud with the foundation we've created, we are keeping them current, driving a higher CSAT and driving more cross-sell opportunities. So what? So we've consolidated versions. We've executed today, what are the outcomes that we're actually seeing. But the outcomes we're seeing is that clients that are now running in the AWS cloud versus prior locations are significantly happier and view us as more of a strategic long-term partner. It drives higher retention rates and ultimately, it's driving additional cross-sell opportunities. So rather than just hear from me, let's hear from one of our actual clients who signed a Software as a Service agreement, what were the drivers and when they signed to move to the cloud? And what did they see on the other side? [Presentation]

So I just want to point out there, that's not the exception use case. That's the pattern we're seeing as customers get more current, they move to the cloud. These are the types of responses. And unlike the private sector, in our market, every 1 of these peers talk to each other. They share stories and they tell them what their experiences were. So now let's turn to our path to 2030 and how to think about our delivery and what we'll be delivering on over the next 5 years. So with that foundation that we've created, the client conversion progress and success that we've seen, we see a meaningful growth opportunity and a visible ARR tailwind that will take us through 2030. When you look at our 2025 recurring software revenue mix, on-prem ARR or maintenance in our balance sheet, is about 22% of the total SaaS is about 78%. We still have about $400 million in maintenance left to convert. Now note that, that maintenance balance changes over time, both in positives and rising and negatives. We have yearly rate increases. Customers add additional modules that are on-prem today, the rare on-prem deal. But ultimately, you'll see that continuing to come down as we go through flips. Now when you ask us about progress, I do want to call out that the metric that we use is the percent of maintenance dollars converted that we've done to date because we have so many products and portfolios and suites and we have some customers that pay us a few thousand in maintenance and some that pay us millions. So measuring by maintenance dollars converted makes the most sense for us as an organization. Now when we convert flip and migrate a customer to the cloud. On average, the ARR revenue from the maintenance move to a SaaS agreement increases about 1.7x. Now this is a consistent model. We've reiterated it, and we continue to see it across our portfolio of solutions. This does not include any other cross-sells that go along with that, modules, department expansion that they're on a current version, payments and transactions. That's just the uplift rate from on-prem maintenance to the SaaS agreement. And we expect to have 85% of that maintenance converted by 2030. Over the next 5 years, you should expect us to introduce quite a few more incentives for our on-prem clients to move to the cloud. The existing incentives still remain, and we still see a lot of traction, performance, reliability, the CSAT response from your peers. I'm also noticing and I'm talking about cloud living shortly and the benefits that that's going to provide. That will be a huge incentive. We're also introducing new features and capabilities, including AI that will only be available in the cloud version. So as we continue to see the pool of on-prem customers shrink, you also expect to see disincentives from us for customers to remain in that world. So with the progress that we've made, the incentives we just talked about, we see a meaningful growth in our flips from where we are today in 2026 through 2029 ultimate leading to us hitting our 85% maintenance conversion by the end of the decade. Brian Miller will be up shortly, and he'll talk to you about what that looks like in our 2030 financials. Okay. So now let's talk about unlocking the full value of the SaaS model because this is what really matters. I want you to think about our cloud transformation into 3 distinct states, where Tyler came from our initial state, expensive, complex, many software versions, often characterized by undifferentiated heavy lifting. The last 3 years, we've been moving to this intermediate state, optimizing products for AWS, converting our customers and creating automation, moving customers off of legacy software versions. We've built the foundation with that to take us to 2030. But more importantly, it now allows us to focus on the investments for the end state and what the future is. So in parallel to building that foundation, we were working as a leadership team with our staff across the company and saying, what is the best end state for Tyler in SaaS across our organization? What provides the most value to Tyler, our clients and our shareholders? We call this initiative Cloud Living, and it's a bold vision for the future. We began rallying our organization around this at the end of 2024. We've been executing on it now since then, and we will have our initial rollouts with pilot customers coming in 2027. So let me drill in a little more to cloud living and the heartbeat of value that it will provide to our clients in the market. Cloud link centers when you break down the term into 4 key priorities that are critical to our success. Every growth product at Tyler today and every operational team that works on those products, is investing in all 4 of these priorities for delivery because they will deliver the most long-term value. When we complete all 4 of these priorities, we expect additional new revenue and opportunities, more operational efficiency, and ultimately increase profits. So I'm going to go through each of these quickly in detail. Our #1 and most foundational priority to Cloud Living is finishing our version consolidation journey. It will ultimately improve our scale and lower our cost to serve. We are cutting the cord with cloud living of our history of multiple version support, and moving to 1 SaaS version for all. All customers on 1 cloud platform. All Cloud Living clients will receive a single continuously updated biweekly set of features and capabilities on a unified cloud platform. This is incredibly transformative for us. It's going to dramatically reduce our operating costs, complexity supporting our clients and our innovation is going to be delivered so much faster than in this prior model. Our second priority is moving to a standardized SaaS model. that will enable our most critical operations. This right here is all about how much value can we provide to our clients how quickly, time to value. In addition, this model will provide a consistent seamless client experience, whether a Tyler customer has 3 products or whether they had 10 products. Historically, every Tyler business unit and product made their own release schedules and maintenance windows and manage them what was best for that individual deployment schedule, which worked well -- but as clients buy more products, it creates a point of friction. All of that is removed in cloud living. Every solution will operate on the same schedule. There will be an automated delivery framework. In practical terms, I want you to think of a Tyler agency client. Their staff will leave on a Wednesday and they will come back on a Thursday morning with every Tyler solution they own updated with the latest capabilities, performance enhancements, maintenance updates and security capabilities, all seamless to them, all nondisruptive. We've already been piloting this. We started rolling out with some customers to say, what does this model provide compared to the prior model. And you can see the results on the right. Customers using this automated model are now receiving value 15x faster than the prior model. We're already seeing the proof. Our third key priority of the 4 is that with the stronger partnership and value that we're delivering, we will drive additional cross-sell and higher retention rates. As clients get greater value on the platform, they will expand into other departments, and they are happy to give Tyler percentage of that value. This is an example from an actual customer use case. This customer was on-prem for many years and paid us $950,000 in ARR. As we took them to the cloud and the current version, they saw new capabilities and started expanding the department use that they had, rallying internally of how this could streamline their data processes, improve the way that they operate. Ultimately, without expansion, they then decided to do another purchase of cross-sell product to improve their inspections maturity. This client got significantly more value from the platform and Tyler got 142% ARR increase as part of it. So when Lynn shows you the slide of our opportunity of going 3 to 10 products, this is the priority that gets us there. Our final priority is using the strong SaaS platform that we've created to increase our win rates. As we build and deliver more value as we get this expansion, we will generate the engine of the most powerful asset that you can have in public sector technology, customer advocacy. This leads to increased client references, department expansion and additional net new revenue opportunities. Lynn will review that slide on our TAM, 11% penetration. This is the driver that makes that roadway wider and allows us to fill up more of it, more penetration in the market. So, as we deliver on these 4 key priorities, the outcome is clear with our Cloud Living investments. Tyler will provide the most broadest and deepest integrated and seamless SaaS suite of software solutions for the public sector. As an analogy, I want you to think about the Apple ecosystem that many of you use today or Microsoft 365. Every new product and capability added to the platform provides more value and it expands the moat. The only difference here is that Tyler is the only vendor with a deep focus on the public sector industry and the breadth of portfolio and capabilities to make this vision and ecosystem a reality. So in summary, our cloud transformation progress is becoming a powerful growth engine for our organization. We remain on track with all of our conversion targets, and it's positioning our organization for higher recurring revenue as we look forward. And Cloud Living, which is ultimately our end state is already targeted to begin early pilot launches in 2027, and it's going to provide greater operational efficiency and long-term shareholder value for the organization. So thank you. And I'm now going to hand it off to Liz Thomas, who's going to talk about our transaction business.

All right. Thank you. As Russell mentioned, my name is Liz Thomas, and I am the President of Tyler State and Federal and I've been serving these important markets for the last 15 years. I could not be more excited to be up here on the stage today to talk to you about transactions because not only are they an engine that drives the state and federal markets, but I am passionate about growing Tyler transactions across all of our divisions with my friend, Ryan O'Connor, our new Chief Transaction Officer. Unfortunately, Ryan was not able to be here with us today as he had a last-minute illness that we look forward to introducing you to him in the future. To set the stage, Tyler transaction represent over 1/3 of Tyler total revenue and growing. Tyler transactions will continue to -- meaningfully contribute Tyler's diversified revenue portfolio as well as those free cash flow targets you just heard about. But as Lynn mentioned, as important as this revenue stream is, it is also often 1 of our most misunderstood revenue streams because we use terms like payments and transactions interchangeably. Today, I'm going to spend some time level setting with you what we mean when we say transactions to set that foundation. And then we're going to pivot to the key growth drivers that will take us to our 2030 targets. So let's start with that foundation. There is power in Tyler's diverse transaction portfolio that goes well beyond monetizing payments. We think of this portfolio in 3 parts: the first being transaction-funded software solutions. An illustration of this is our California State Parks reservation solution that also happens to be the largest single contract in Tyler history. At the heart, this is just a SaaS software solution to provide reservations that we can flexibly fund through transactions or a fixed subscription fee or a combination of both. In the California example, it's 100% funded by users of the system and not state appropriated dollars. Another feature is you won't see these transaction contracts and our bookings targets, as the implementation cycles can be lengthy and often both the volume and the timing of revenue are subject to variability, but they represent meaningful growth. The margin profile also mirrors that of any other SaaS solution, but with upside as adoption increases. The next bucket is our premium payment solutions, an example of which is our enterprise payment portal that we delivered to Riverside County. These are solutions that really wrap around our payment ecosystem, that transaction that comes in or out of government, they facilitate the transaction and add value to our clients. In the case of Riverside County, we're delivering the city or the county a centralized revenue management system. And then, of course, finally, we offer that secure modern payment platform that's fully embedded with our software products that allows us to create a seamless payment into or government or from government to the constituents. So if you take away one thing for today, I hope that you take away the Tyler transactions is a powerful diverse portfolio that goes well beyond monetizing payment authorization. We set goals for transactions in 2030. And just like all of the goals Lynn talked about, we have met or exceeded every 1 of them. Our transaction growth has grown double digits and this growth has been diversified across higher transaction volumes, higher attach rates and expansion of that transaction-funded portfolio. So let me give you some examples of that portfolio expansion. We've developed multiple new solutions over the last 5 years, each 1 with a focus on innovation and better outcomes for our clients. As you can see from the metrics on this slide, every 1 of these solutions carries its own unique value proposition for our clients, but they have 1 common theme. And that's a direct correlation between product adoption, Tyler revenue growth and client satisfaction and return. Tyler's demonstrated ability to deliver software solutions for the public sector market, combined with that demand Lynn talked about for solutions that improve efficiency and enhance that resident experience are what is going to continue to power this portfolio expansion. Not only is our product portfolio diverse, it's difficult to replicate. We have competitors that can offer 1 or a few similar capabilities but only Tyler is offers that full transaction ecosystem, allowing for a deeply embedded end-to-end interaction with government that creates both a competitive advantage for new sales as well as stickiness within our existing customer base. So let me give you an example of the power of the Tyler portfolio in action, allowing us to create a classic land-and-expand strategy within a large state enterprise client. We started this journey back in 2009 with our front-end portal solutions. We built relationships and became a trusted partner for the state. Over the next 4 years, we've not only expanded those payment offerings, but we were able to add new Tyler products. each 1 of them generating incremental transaction or SaaS revenue, doubling the client ARR. Nearly all of these solutions also have additional upside as adoption increases, without us adding a single new product to this portfolio. That's the power of Tyler transactions, and this is just an example. This opportunity exists across multiple clients and markets. But just as Russell said, we don't want you to only hear about this from us. We want you to hear directly from our clients the value they find in the Tyler transaction ecosystem and the deep integration that we've created. [Presentation]

What you just heard, that's the Tyler difference. So we've talked about those differentiators. I want to pivot now to how we're going to turn that opportunity into revenue. But before we do, just 1 quick second to remind you, I was talking to someone this morning about how significant this market opportunity is. With over $10 billion in serviceable market just for our existing transaction portfolio, including significant remaining room to attach payments within our installed base, we have meaningful runway for growth. In 2023, we set those targets for double-digit growth. And we have 3 clear growth drivers in motion to achieve those targets. The first of those growth drivers is increasing the attach rate from the mid-20s to over 40% by the end of the decade. Why are we confident in our ability to do that because of the demonstrated results we've seen from our inside sales team over the past 3 years and of course, that significant remaining opportunity I just showed you. Let me give you a real-life example of how attach rates allowed us to double a client ARR for a large California county. So you can see on the left, we started with just 2 Tyler products, 1 of them that had attached payments, as Tyler's transaction portfolio grew and product portfolio, we were able to not only add embedded payments, but bring in that enterprise payment portal that I mentioned doubling our client ARR, but also creating significant value for the county through this single unified payments layer that brought together revenue reconciliation and management for not just Tyler products but non-Tyler products as well. Our second growth driver is continuing to expand that portfolio of transaction products so that we can expand the TAM. The success of this expansion is really best demonstrated by the 20% growth rate we've seen from the new products we've introduced or scaled since 2023, that's grown nearly twice the rate of our core portfolio. At Tyler, we are uniquely positioned to deliver this innovation because, as Lynn said, we wake up every day thinking about how to solve the specific problems of the public sector. And we're also able to often introduce this innovation through the -- in the form of products or modules that sit adjacent to or expand the functionality of an offering that we already have. As is the case of earned wage access, which sits as a module that attaches to our ERP payroll offering or our AI-powered resident assistant that can be delivered as an amplifier to nearly any Tyler product. These new products are in the early innings, but they all solve a problem for our clients, have a clear trajectory for growth, and they carry that common theme of a transaction-funded product which is the direct correlation between product adoption, Tyler revenue growth and increased client satisfaction. So let's talk about adoption, our third growth driver. You've heard me say it now repeatedly, adoption is a unique factor of a transaction-funded solution. It also happens to be a specific discipline within Tyler. As we partner with our clients and their constituents to increase the usage of our solutions, we've seen per client revenue grow 10% or more in many cases. These adoption strategies come in many forms. Some you might think of education and awareness, but also in the form of the implementation of our AI-powered resident assistant that better connects constituents to online services. An example in action of that AI power is the workflows that we're enabling in our outdoor reservation solution that presents all the adjacent offerings within a park to a user as they're making a reservation. This not only expands our value, it expands value to the agency as well. So with adoption, not only does Tyler's revenue grow, but clients see measurable benefits in the terms of reduced manual workflow, backlog, wait time and that superior resident experience that drives clients at and retention. So to summarize, it's these 3 clear growth drivers, attachment, portfolio expansion and adoption that make us so confident in our ability to achieve the 2030 revenue goals. Take away from my presentation that the Tyler transaction portfolio is a powerful mix of transaction-funded software and payment solutions that continues to grow. And that there is no one else like Tyler that can offer that deeply embedded seamless constituent experience that goes all the way from the user to the agency system of record to the flow of funds to and from government. And that's only going to get better as we harness the power of AI within these solutions. That's the Tyler difference. And with that, I'm going to transition to Hala as we open up our first Q&A session.

Great. Thank you, everybody. Okay. I'm going to invite Lynn and Russell back to the stage and also ask our COO, Jeff Puckett; and Brian Miller, our CFO, to join us as well for this Q&A session.

[Operator Instructions] Okay. I saw Jonathan, and then we'll go to Matt after Jonathan.

Jonathan Ho from William Blair. Thank you so much for the presentation today. This has been really help. One thing I wanted to understand a little bit better, Lynn, is when we think about sort of this cloud transition and the ability to kind of convert your customers more, how do you think about the decision to apply more of the carrot based approach versus the stick-based approach when it comes to your sort of encouraging the slips to take place? .

Yes, John, that's a good question. I think over the last several years, we've been really applying carrot approach. And part of the reason for that is we've been needing to build the foundation and do the things that Russell talked about, version -- getting our clients on the more current versions, so that we can get to a position where we can do that more seamlessly. As we look forward, I think you're going to see more and more of the stick approach. We talked about AI features only being enabled in the cloud version. Internally, we are going to be setting standards for our clients to where by a certain date in the near future, we're going to ask them to have a plan in place to move to the cloud. That plan -- the date for that plan to be placed is likely early '28 with the actual plan to be executed through 2030 with some exceptions for a couple of years later. One last thing. When we were at Connect this past year, we had a client advisory board, and we talked a lot about flips. And what I'm hearing more and more from clients is interesting is they actually are looking for us in a lot of instances to start providing those sticks. They need to be able to sell it to their internal stakeholders as to why they need to make these investments and move forward as their IT staffs are starting to shrink and things like that. So I think we've gotten to the point where we've built the momentum and now it's time to press the accelerator, so to speak.

All right. Matt VanVliet from Cantor. I guess when you look at the 11% market share and about 3 products per customer, you said -- the aim is to get to 8 to 10 products per customer. But what additional level of, call that, 89% market share is really target customers are going after today that are of the right size, maybe sophistication? How much of that grows over time. But what's the catalyst for both, I guess, getting new logos, but also getting more products in those customers today? So like how much of that TAM is you're going after today?

I don't know -- do we have that number, Brian of the 500,000 that are addressable are currently addressable with our current...

No, we don't really break that out. I mean, we -- as we said, we addressed virtual segments of the market from very small agencies to very large state and federal governments. There is a segment at the very low end that's probably to small for Tyler for some of our solutions and not all solutions fit at the very high end, but we would have products that address we would be going after the vast majority of that TAM.

So I think the drivers when you talk about going from 3 products to 10 just within our existing client base, it's the things we've been talking about here that on and things we're going to talk about after the break around AI, their improved cloud experience, understanding more how we can bring transaction value and unify those solutions within those jurisdictions. It's our great sales team that continues to cross-sell and upsell. And when I talked about 8% to 10%, don't forget, I actually think that number is going to be higher. As we continue to innovate, we continue to do more M&A just within our existing client base, but we will also continue to get new logos, new flags along the way.

Another way to think about it is the opportunity is both horizontal and vertical. So as we add more products and we do a good job for those customers, a lot of the processes that they undertake actually span multiple offices and multiple products, so you have the opportunity to land in 1 area and then stay in the same process zone and expand to other solutions. But then there's also a vertical expansion on top of that once you have this core solutions in place, you can layer transactions on top of that. You can layer AI on top of that. So it's a really -- it's a much broader expansion opportunity than just adding additional solutions. And just 1 more point on that. When we talk about the going from 3 to 8 to 10, that's really kind of talking about a suite of products or think of it as an office or an agency within a city or a county but their multiple cross-sell and upsell opportunities within each of those 3 products that we already have, selling more modules, as Jeff said, selling more horizontal things on top of them. So their cross-sell and upsell opportunities within that existing base and then include expanding into other offices.

Della -- and then we can go to Rob. Bella Kaman Alexi, Coles team at JPMorgan. Thank you so much for the presentation today. So as you think about really getting to those 8 to 10 products per customer, would you say the adoption would require significant sales step-up or any increased sales investment and really breaking that down by customer segment or customer type, which do you know are most receptive to cross-sell versus others?

You asked a lot of questions there. Let me see if I can replay them all. I would say it doesn't necessarily apply to a particular segment of our business. is active across all segments. As it relates to sales staff, sales investments, our inside sales has been a strong growth engine for us for many years. At the same time, as we look out over the next few years, 1 of the things we've been talking about significantly inside of Tyler is revamping how we look at sales generally, how we go to market, adding new salespeople changing territories, changing comp plans. We're taking a hard look at that in 2026, so that we can also help to continue to drive this revenue growth in our 2030 goals. .

Rob Oliver with Baird. Thanks so much for hosting us today. I appreciate it. My question is for Liz. on the transaction funded software solution opportunity, which is clearly a really big opportunity for you guys and 1 that you guys brought to Tyler. It is growing, and obviously, very large contracts. And I appreciate some of the clarity because I think it's a little bit misunderstood by some investors in terms of how it flows through the financials and stuff. But when you look at those transaction-funded opportunities, Give us a sense for what's still out there. I think we know some of the ones that you guys have today, but what's still available to you guys out there to get it's transaction funded? I think we understand parts, we understand DMV, but what's still available for you within that TAM?

Yes. You touched on some big ones. But then when you think about our regulatory market, too, and I sometimes joke regulatory is the entire business of government, right? So we provide regulatory solutions, and that might be someone applying for an occasional licensing or going through a real estate board those solutions, that's a suite of products that we have that we actually see often flexibly funded. Some states choose to apply transaction fees and some of our larger transaction contracts come from that regulatory market. where they might have a hybrid of both where there is a -- depending on whether we believe the volume will be there for that particular board. We have the flexibility to have a minimum SaaS amount plus transaction-funded arrangement beyond that. So I think that's where we see opportunity. But really most of the things that you do for government, you're actually -- it's typically some type of transaction and payment coming into government. So we see a lot of opportunity to fund those solutions through transaction fees. It really just depends sometimes on state preference or whether that solution or that market is familiar with a transaction-funded approach.

I might add, Rob, I know it's intuitive. But we get a lot of questions about the macro environment and budgets. And when you think about a transaction-funded software solution, it takes it right out. Our largest contract ever was in the state of California parks example, and we all know what the budget issues are in California, yet it's our largest contract ever, and it's funded through transactions. .

Yes. I think we have -- is that Alan over here, and then we'll go to Keith over here.

Allan Verkhovski with BTIG. It's great to see the 2030 targets moving higher, and I think your market leadership is clear. But I want to ask about anthropic and others, which are now actively marketing clot code. -- and similar agent coating tools directly to state and local governments with documented productivity claims. How do you think about how your installed base is positioned against the government IT team that can increasingly build and maintain custom applications without a vendor in the context of wanting to drive more cross-selling? And how is AI generally been impacting your sales cycles?

So I think we're going to cover some of this after the break. Franklin is going to go into that in some of our differentiators. Just not to leave the question hanging for 30 minutes. I think when I think about the conversations we have with our clients, you heard me talk earlier about trust. That's something that's really important to them. When you talk about the data, the data is running through our systems, even you saw 1 of those videos, you talk about the importance of the data and the type of the data. And what our clients are telling us is they're not going to let outside third parties get access to that data. We also talked about how the market moves slower in the public sector. And one of our advantages we have there is distribution. So when we are able to spin up things quickly, we can get it out in the hands a lot quicker. Again, Franklin is going to go in a little bit more after this break, but I would say that's a quick 50,000-foot view.

Keith Housum from North Coast Research. Once again, economy Talking in terms of the adoption of products in your customer base and acquisitions. -- very acquisitive over the past 2 decades, whatever it is. Maybe just taking it down a little bit more level of detail in terms of talking about specific acquisitions in terms of how you guys have been able to tolerize them and maybe a part of the overall portfolio, and expand the amount of customers that you've been able to apply to their products they've brought in. We always speak of this 30,000-foot level, but maybe to the extent you can bring it down to the 10,000-foot level and give specific examples of how you guys have taken these acquisitions and really made on part of the Tyler Group and expanded your presence within their customer base?

It's a good question, and I hate to keep deferring, but actually have a specific slide on that when we get to capital allocation. I'm going to have an example of what we've done in the last 3 years. I'll give you another example. We talked about it at the 2023 Investor Day, our caseload Pro, which is our enterprise supervision product. That's a company that we brought in. And today, it's i-- I think the revenue is 7x what it was when we brought it in today in late 20s, '18. But we'll cover that in the capital allocation section. It's a good question and what a lot of people here have asked. .

IN the corner.

Alek Zukin. I think last year, we were talking about how there were some internal changes and focus is on dealing some of the sales force and go-to-market functions that we were talking about last year. So I guess, first, how has traction been there? How has that trended? And then as a second part, when we're looking at the targets for that flip ARR, that conversion ARR is increasing after this year, how much of that increased confidence in that level of conversion ARR is coming from more confidence in your internal sales force and a better go-to-market function versus a better path for that version consolidation on cloud products that you guys have kind of been planning out as well?

I'll start, Russell, you can jump in. I would say, in my opinion, the second question it's more the latter, it's more of what we've done internally. When you talk generally about the sales organization and breaking down silos, as I just mentioned, we're continuing to look at that across all. But many of you have heard me use the phrase for a couple of years now, One Tyler. And what does One Tyler mean? One Tyler spans all different types of operations across Tyler and up and down Tyler. And I think probably one of the best examples of One Tyler in action is what we're about to do with Cloud Living to where all of our clients regardless of which product they have and which business unit services that product is going to get the same experience, the same releases and a regular cadence regardless, and that's something that's never happened before at Tyler. Russel, I don't know if you have any more.

Yes. I mean I'd add another level of confidence is you can sell something, but the scale of our customers being ready for it. So when I talk about the foundation, we're ready for the uptick flips that we expect to have. We've gone from a much longer flip process that was much more customer touch engagement now that we've moved them to most current release. We can automate most of it. So one is the sales side, the carrots and the disincentives we talked a little bit about the other side is are we operationally prepared to execute on it, and that drives our confidence.

I'll just make 1 final comment. As you look at Tyler's growth over the years, and there's a lot of factors, but I believe we have the best sales engine in the business, the coverage we have. I think there's areas to improve. But I think it's been a big part of our success. And just like a lot of Tyler executives and really up and down Tyler, the tenure at Tyler is so long. Our tenure in our sales organizations, they know this market so well. They know our product portfolio. as we grow where there's tweaks we need to be making, and we're looking at all that. But hats off to our sales organization. They do a great job.

And I would add 1 other thing that's underpinning that is the investments we're making and the effort we're putting forth around improving our client experience with our new Chief Client Officer, Andrew Call, a number of significant initiatives there to improve our overall client experience, especially as our clients have more and more products from us. and to break down some of that friction that comes with that. And that makes customers more willing to move to the cloud with us, more willing to buy more products from us and is really a key factor in that transition.

Connor Passarella from Truist Securities. Russell, just sticking with the flips and tracking towards the 85% cloud penetration target in 2030. As we think about the evolution of cloud adoption within the base at this stage, I think the Tyler had done a really good job with educating the base -- the benefits of cloud over the past several years. That said, as you look at the current bottlenecks, how impactful are things like implementation time lines as well as the general complexity of large customers and systems that still have to flip?

That is a great question. When we started this the last 3 years, if you asked me the first 18 months, we would find some bottlenecks, processes that were built over 10 years of an on-prem system that had created an ecosystem between tooling and our capabilities to move through that has significantly reduced the bottlenecks. Some of the bottlenecks that exist today is more about seeing the incentives that we're offering, the value that's going to provide. I think there's a great point of some of our customers have even said to us we need to understand what's the past so we can get through this as a priority in our budgeting. So it comes down to going through with the customer and addressing their individual bottlenecks, we do readiness assessments with them and then prepare them for the flip process. But operationally, what used to be very complex now has a pattern for execution on each flip we go through.

Different clients need different kinds of help as we approach them to undertake a flip -- if they have more products, that's going to create more complexity, they need our help to map out that transition. They meet our help to model a financial arrangement that takes into account the fact that they just purchased a bunch of hardware for a data center way and needs to take into account those bubble costs. So every single customer is different. And our engagement with them is really what drives that adoption rate. It becomes more personalized on the value statement for that individual agency. Yes. .

We'll go to Adam and then Parker.

Great Adam Hotchkiss with Goldman Sachs. A lot has been made recently about AI's impact on cybersecurity and even more so lately with some of the news flow around the most recent anthropic models. -- how, if at all, does that impact customer decision-making at this point? And then how are your posturing your product and innovation priorities in the context of some of the unknowns in the security space. .

So we are diligently on top of it. We're in partnership with the partners that we have with the model generating frontier model companies. It's something we think about all the time. And the way we look at it is the work that we're doing, this continuous update and delivery and inspection process or environments is what the future needs to be. What this is also driving in the industry is it creates greater concern for the on-premise environments that exist. And that's been a driver for years. I mean I can tell you stories right now of mission-critical systems that have experienced an issue and us as a partner who's been able to move them to the cloud in under 72 hours. And that's not a onetime thing that's occurred, that's a common pattern. What we're seeing with AI is the increase of concern on that. And the cost to keep up with the risk and these unpressed environments are increasing. And so we see it just driving additional adoption for our service offerings.

Parker over here.

Parker Lane at Stifel. Russell sorry. The virgin consolidation, you gave some really nice examples of the flagship products and success you've seen of getting customers current there. If you take a step back and look at the entirety of the platform, how would you assess the progress on the product level. What do you think that journey looks like on the course to your 2030 targets?

So just in summary, I think we've made significant progress pretty much across all the major products, and I'll address them on our like product -- I'll address them on our product maturity stage if they're in a growth stage or some products that we have, they're more in a maintain stage. All our major growth products have made significant progress in version consolidation. The way that this is going to roll out is when we start piloting clients in cloud living, that's on 1 SaaS software version, -- we're building customer advocacy as we go through those pilots and then we're consolidating everyone else into the cloud living operating model over the next few years. . So you're going to see whether some of those products still have 2 product versions or they are 4, all of those are going to consolidate into the Cloud Living SaaS version.

Matt. Andrew is back there.

Matt again from Cantor. So you kind of previewed the raised free cash flow target for 2030. So I'll take an opportunity question here and maybe Brian will give us more later, but you raised that. I think since you set those targets, there was an IRS deal that you thought you had that kind of fell through the Texas payments contract has gone away. So there's a fair amount of revenue that's been sort of lost. But you made some acquisitions. There's been some federal tax legislation that has maybe improved on the free cash flow side. So how much of those, I guess, sort of onetime-ish or outside of your control type of things have changed that number versus internal productivity, better free cash flow conversion, maybe faster migrations than you originally projected. So -- what are kind of the puts and takes there to raise that number significantly?

Yes. And I will talk about that a little bit more later. But I think at the core, the key driver of that is higher margins. So operating margins, driving most of that. you're right, there have been a number of puts and takes. I mean, when you think about the recurring revenue growth, that 10% to 12% target is still what we talked about from 2030 from 2023 to 2030, but we did have in that original model $100 million of transaction revenues between Texas and the IRS that albeit at much lower margins have gone away, so that's been a margin positive but a whole that we have more than filled with some of the other growth initiatives. The taxes does have some impact on it, but it's mostly operating margin. .

Go to Andrew.

Andrew Sherman with TD Securities. The 11% market share, this industry is obviously very highly fragmented. How has the competition evolved over the last few years? Have you seen the point solutions subside a bit, just given what's happening in software overall? Are the big ERP players getting any more or less aggressive? And just talk about your ability to become the standard across different product categories within these big counties?

I'll start. Jeff, you can jump in. I would say, generally, over the last couple of years, I wouldn't say that I've seen a meaningful change in the competitive landscape. We remain extremely competitive across all our core offerings. No real changes. We compete very well. Every deal we fight for is hard fought even with our flagship products that we dominate. We never take this business for granted. -- but we're able to leverage those strengths that I talked about before to continue to win business and continue to grow our market share. Some competitors have cycles, they come and go in terms of their competitiveness and that happens across our entire portfolio.

Every single 1 of our product lines, our divisions would be able to rate their top 3 competitors I think the thing that's interesting is that none of the competitors across those product lines is the same. It is very fragmented. And so at least in my -- I've been at Tyler for almost 35 years. And what you've seen is just a churn of those competitors over time. The big horizontals will play in the market, especially when the broader economy is soft. But when it's hotter in a different industry, they'll go run over there. The small outfits will get acquired, they go out of business. We may acquire them. And so there's a constant churn in the competitive playing field in each of those different sub verticals, but there's no consistency. We don't have any competitors that span across that entire...

Yes. And just to add to that, in any of our markets where there's public safety years ago, some of these native cloud startups or you can talk about a horizontal player that comes in. There's a lot of times when someone comes in and makes a quick splash and all of a sudden is able to get a lot of contracts. . What they have a hard time doing, no matter it's the very largest companies that are coming in our space or some of the start-ups is executing on the business. And that's where they tend to fall in just because you may read some headlines that they want half a dozen contracts, check in with those clients 6 months later, 9 months later, they're not able to do it. And a lot of times, we end up getting that business again. I'm going to go back to what I talked about at the beginning, reputation and trust decades to earn, and that's what separates us. And we're always going to have competitive cycles, but we're up to the fight.

We're going to take 1 more question from Trevor and then we'll close the first session.

Trevor Walsh from Citizens. Russell, maybe for you, just more clarification just based on both what you had in your briefing and then some of the responses to questions. When you're talking about cloud Living, you said there was going to be a release in 2027 or launch of some sort. Just trying to understand, is that a platform that single version kind of prepared kind of technical piece, and if so, does that mean we should then assume that the updates to versions are going to be completed by that 2027 launch time? Or am I kind of conflating these 2 things, just a little bit more color or explanation would be help>

Yes, please don't assume that, that is like the way that we're going through that for 2027 is what our release process, there will be updates that are going to go out to our customers every biweekly cadence as I mentioned. And you'll see from Tyler introduced what's called 4 quarterly seasonal releases across all of our products. So we will -- when we talk to our customers, we will be talking about what's coming in the spring, the summer, the fall and the winter release across all the products that they have. . So what we're doing in '27 is each of these products is working with early adopter clients to go into that release model on the platform where they're delivering more frequently and quarterly, they are activating the features for our clients. So it's nondisruptive and we can activate features for them without ever having to actually deploy anything new. It's just -- it's already there sitting behind flags. So that's the process we're going through in '27. Our goal is get these initial clients rolled out with it. They are champions. They're talking about it at Connect and then ultimately, that drives additional adoption because due to the historical pattern, we're now making this more of a seamless update process, but we have built up over years it being more of a project process. So we're taking that out of the equation.

An important part of it is the technology to facilitate everything Russell just said, but more important than the line technology is a shared methodology across all our product lines and basically giving customers the exact same experience in receiving those updates regardless of which product or products they may be using.

Okay. We're done with our first Q&A. We'll take about a 10-minute 10-, 15-minute break, and we'll get back on schedule with Franklin Williams, our Chief AI Officer for AI strategy. [Break]

If everybody can take a seat, we'll get started with the second half of our presentations. Okay. Well, it's my pleasure to bring up Franklin Williams, our Chief AI Officer.

Thank you, Hala. Good morning. I'm thrilled to be with you here today to talk about how AI ultimately makes Tyler a stronger company. My name is Franklin Williams, I've been working in the govtech space is about 2014. First, as a startup focused on selling data and insights into the public sector before I had the opportunity to join Tyler in 2018 as part of the Socrata acquisition. . Since 2019, I've been leading the Data & Insights division. And then for the last 2 years, I've been working on Tyler's AI strategy, both in terms of how we use it to transform our own products and how we use it to transform the work that our clients do but then also how we use it to transform our own work internally within Tyler. And I use that word intentionally, transform. We truly believe this to be a transformative technology on the same par as mobile and SaaS and other transformations that we've been through as an organization. And so to clearly does the market. However, we think that there are a couple of things that the market misunderstands about Tyler. And the biggest misunderstanding is the impact that Tyler that AI is going to have on Tyler's valuation. Let me be clear. AI is going to make Tyler a more valuable company than it is today. And let me repeat that. AI is going to make Tyler more valuable. And it's going to do it in 2 key ways. The first thing that it's going to do is it's going to strengthen our existing business. So the $2 billion that you see on the right, the growth rates that you've heard about us talk about all the way up to 2030, AI is going to make that business stronger. But then there's another thing that it's going to do I think this is something that people miss and something maybe people don't appreciate about the position that we're in. AI is going to unlock a whole new TAM that is right for Tyler's taking and that Tyler is uniquely positioned to win. And so over the next 20 minutes, we're going to talk about each of these. We're going to talk about how AI strengthens our existing moat. How AI opens up a new TAM that Tyler is uniquely positioned to win. And then ultimately, we're going to close with exactly explicitly how we do that. So let's start with how AI is strengthening our business. Now you heard Lynn talk about this a little bit earlier today. You heard Lynn talk about how the public sector market is structurally different than the private sector. And that holds with AI as well. What that means with AI is that the pace of adoption for AI in the public sector is going to follow a different path than it does for the private sector. At some level, the market and our position within it is a key element of our moat. Public sector buyers are notoriously risk averse, and risk-adverse buyers choose trusted incumbents. And nobody has more trust in this space than Tyler Technologies. Our earned position, what we've earned over the last 2 decades means that there's nobody better positioned to bring this technology and nobody better positioned to lead this transformation than Tyler Technologies. And Tyler Technologies is bringing a number of key advantages that we believe are going to strengthen the business. I want to talk about 2 of those right now. The first one I want to talk about is data. And the first thing that I would highlight is we think about data is that the systems that Tyler sells these systems of record are critical infrastructure for the government. They are producing critical data every single day that any piece of AI that's trying to improve the public sector is going to need access to. Now the second thing that I would highlight is that our clients are fiercely, fiercely protective of this data, almost paranoid about the data. Now you had asked a question earlier today about, hey, how do we think about Anthropic and how do we think about people maybe vibe coding and replacing the systems of record, these ERPs. And truthfully, like we don't really see it. like we don't see that risk. And the reason why you don't see it is because of some of the things that you see on this slide, like our clients are fiercely protective of that data. And if you think about what's in these systems, it's critical, critical information. Social security numbers, payments, bank info, criminal records, all sorts of stuff that our clients, one, they don't have the staff to really do this; and two, they're not going to accept the risk of disclosing that data and disclosing that information by kind of by coding their own. Now one thing we do think they'll do though, and one thing that we think is ultimately going to make these systems much, much more valuable is we do see them using AI to build integrations on top of these systems of record. And when they do that, we think that's going to make these systems a record much, much more valuable. Because these systems of records to access this data, again, remember our clients are pretty paranoid about it. So to access this data, they're going to have to go through a trusted layer that's owned, audited and governed by Tyler or they're going to have to use AI agents that are owned, audited and delivered by Tyler. In either of those situations, you're going to get more and more integrations on top of these systems that are going to increase the stickiness, increase the value of those systems. Just walk with me a little bit through a thought exercise. Imagine you're a CIO and you're supporting the staff of hundreds, if not thousands of people. And that those staff are starting to build integrations on top of that system of record, maybe they're by coding a dashboard. Maybe they got a little something that takes a little bit of friction out of their day. And imagine a year, 2 years, 3 years goes past, and you come to this decision, you're like, okay, what do we need to do with our -- what should we do with the system record. 3 years past, you've got thousands of integrations people are using every day. Is that system of record more sticky or less? Are the switching costs lower or higher? We would argue that AI has made those switching costs higher. And we would argue that AI has made those -- that system of record, particularly that critical system of record that we sell more sticky and more valuable. But then there's another advantage that I think some people miss and that's what you see here on the right. And this is the advantage that we really bring within distribution. And you heard me talk about having spent time in a startup, having some time in at Tyler. And it's given me a unique perspective. I've got to kind of see the market this specific market from 2 different angles. I've got to see it from the angle of a start-up, and I'm going to see it from the angle of a trusted incumbent. And let me tell you, I can tell you firsthand that trusted incumbent is better, particularly in a world in which feature development is accelerating, and the big bottleneck is not how quickly you can build or how quickly you can sell and how quickly you can scale AI into this market. And Tyler's advantages here, the 16,000 clients that we have, the deep trusted relationships, the earned position that we have in this market means that there is nobody better positioned to deliver this technology to our clients. And Tyler can be scaling this technology to hundreds to thousands of different doors while our competitors, particularly new entrants are still on their second procurement. And so that's why if all we did was play defense. If all we did was focus on that $2 billion and the growth rates out to 2030, we think we'd be in a significant -- we think we'd be in a stronger position with AI and without it. Now of course, that's not all we're going to do. because there's a bigger prize that's out there. And this bigger prize is a new TAM that AI is going to make uniquely available to Tyler. So let me tell you a little bit about what we're looking at on the slide here. On the left-hand side is you see our existing TAM, vertical software in the government space, about $44 billion. On the right-hand side is the TAM that we start getting into will, we start moving away from systems that simply record outcomes to systems that drive outcomes. Now I think 1 of the things that people often overlook or misunderstand about our market is just how hard it is for people to hire into this market. This is a market that is ripe for a technology that can help do people do more with less. It's right for a company that can come in with a trusted position and help people do more is less. That technology is AI. And that company is Tyler. Let me give you an example of kind of what this looks like in practice. We have a solution today that we call a document automation. And what this does is it helps people do more or less by taking off things like data entry, document redaction, the things people spend weeks doing in the public sector. So again, walk with me and put yourself in our customer shoes. Imagine you're supporting the staff, you've got dozens of people that are doing nothing other than data entry, document redaction and violate. And you would go hire another 12 next week if you could find them, but you can't. Now imagine that a company comes along, Tyler comes along and we say, "Hey, we can actually help you with this problem. We can use AI and instead of needing a staff of dozens, you'll need a staff of 5. And when you're done, you're not going to get an 85% accuracy, you're going to get a 95%. " Well, that solution would be pretty valuable to you, right? Like particularly if the company that was delivering it was uniquely positioned to deliver because we had the data, the expertise and the trust that the public sector requires to deliver these types of capabilities into the market. That's the type of opportunity that we're seeing here on the right-hand side. And that's the type of opportunity that we get pretty excited about at Tyler. It's also an opportunity that we think we have a unique right to win. You can see all of the things that are uniquely required by the public sector to deliver AI into this market. And there's a lot of them. And you've heard me talk already. You've heard me talk about trust. You've heard me talk about data. You've heard me talk about distribution. But there's 1 more on this list that I'm going to spend just a couple of seconds highlighting, and that's expertise. We've earned our position in this market over decades. We know the jobs that people are trying to do in the public sector, almost better than they do. And what that means is we can deliver AI, We can deliver agents that are helping them do more with less that are helping them do those jobs better than just about anybody that's out there. But here's the really cool part. And this is also a thing that I think people miss is that because of our continued focus in this space, these agents, this AI is only going to get better over time. So we're going to basically be in a situation where we're going to get a bit of a flywheel effect turning here. And what's going to happen there is people are going to use our agents, those are going to produce data. We're going to use that data and make those agents better. What's that going to do? It's going to cause more people to use them. And then they're going to produce more data. Those agents are going to get smarter and 2 things happen. Our clients are going to get a ton of value. But then the distance between us and our closest competitor is going to start to separate over time. because, again, nobody has the focus that Tyler does and nobody can get that flywheel affect turning like Tyler can. And when we think about our competition, we don't think that there's actually anybody else that's out there that can provide these capabilities like Tyler can. There's no horizontal SaaS player. There's no AI startup, there's no point solution. And I would argue that there's no -- even no hyperscaler that has the unique set of advantages that are required to win in this market and the unique set of advantages that are required to deliver in this market. But I don't want you to just take it from me. I want you to hear from our clients about why our market is unique and specifically why Tyler is well positioned. So for the next few minutes, you're going to hear them a series of our leading clients that are using Tyler solutions today, Tyler AI solutions today that are helping them do more with less. They're going to you a little bit about why our market is unique. And why Tyler is the only vendor out there that they trust to deliver this transformative technology into their jurisdictions. [Presentation]

See you heard from me, you heard from clients about why our market is unique, why we're well positioned to win and why we have a unique right to win in this market. So let's spend the last 10 minutes that we have together, talking a little bit more about explicitly how we win. And if you want to understand Tyler's AI strategy, there's really kind of 3 key things that you need to understand. You understand how we embed it, you understand how we price it and you understand how we scale it. And if you can understand those 3 things, you're going to have a great foundation to see how AI is going to drive incremental revenue for Tyler. So let's start from the top. Let's start with how we embed it. So in the video, you heard from our clients, and they told you how important it is to have AI that's available where they work. And so that's what we're doing. We're bringing AI capabilities directly into the workflows where our clients are already working. By the end of the year, we expect to have 25 different agents in production being used by our clients across 100% of our flagships. And not only is that going to give our clients industry leading value, and this is super important. That's going to give us a platform on which we can start to monetize AI across Tyler's very broad and very diverse client base. And when we think about monetization, we're thinking about monetization really kind of in 3 tiers. The first tier that we have is what we call our essential steer. So these are the table stakes features. These might be the freemium upsells where we're trying to move people to higher tiers or they might be the type of features that benefit not just the client but also Tyler as well. So let me give you a quick example of what that might sound like. We're in the process of embedding Agentic support into our core flagship operation -- our core flagship products. So this is support the kind of rides along with the user. It sees what they're doing, knows who they are. And because of that, answer questions in a targeted way and provide a better experience for the client. So our clients get a better support experience, but then that also benefits Tyler because there's simply less inbound cases for us to handle. And over time, we start support costs decreasing. Those are the types of capabilities that you might see here in this first bucket, this kind of essentials bucket. Now the second bucket, though, is 1 that we get pretty excited about. And this is a bundled set of AI capabilities, things around agents, access information and data and AI capabilities that we think will ultimately lead to a premium uplift on top of our base SaaS SKUs. So this might be something along the lines of an order of 10%, 20%, 30%, but we really think that this is a meaningful uplift that is going to cover really kind of the broad portfolio of Tyler solutions. Within the one that we get really excited about, the 1 that is represented by the right-hand side of that TAM that I talked about earlier is when we start talking about outcome-based. These are places where we share measurable savings and efficiency gains from our clients. So when we're putting time back and people say, money back in their budget, we're able to command a premium there, and we're able to basically deliver AI that we can charge for that's commensurate with the value that's being delivered. An example of that might sound like document automation, something that we talked about earlier, where instead of needing a team of dozens, you needed a team of 5 that are helping you drive these outcomes and the remaining staff are freed up to work on more pressing problems and get back to the mission of government. And so the final leg of the stool, the final thing to understand about our AI strategy is, again, how do we scale this? How do we get it out into the market? And this is again a place where Tyler's unique advantages really come into play. We have an installed base. You heard Russell talk about Cloud Living earlier today. And what that means is that they are -- we can turn these capabilities on with a flip of a switch. No new installs for clients to manage, nothing new that has to get installed. We turn it on, those capabilities are there. We have an established sales force with deep relationships that can push these products out in the market and get us to hundreds of thousands of doors before our competitors ever on their second procurement. We have a path to procurement, where we can attach an amendment to an existing contract and procure these solutions in the order of weeks, whereas the new entrants may be spending quarters, if not years, navigating the procurement cycle. And then finally, you heard Lynn, you heard a number of people today talk about trust. Our clients trust us. They trust us to run their critical systems and they trust us to deliver this transformative technology in a way that's going to work for them. And what's exciting about this is that this work is well underway. Like again, you heard me talk about, by the end of the year, we expect to have 25 different agents across 100% of our flagships. If you attended to connect, you saw the launch of Tyler Foundry, our platform for agentic AI across this entire portfolio. And so the work here is underway, although I will say that because of the pace of our market, we do expect this to be a multiyear journey. However, we expect the prize at the end of this journey and the opportunity at the end of this journey is going to be significant. And to try and give you a sense of what that opportunity looks like, you heard me talk earlier today about our pricing strategy. we talk about the 10% to 20% uplift on top of 16,000 different clients and $2 billion. I want to share with you 3 early examples that we have for our clients that show that this story is resonating in the market and that our strategy is working. Let me share with you the first from a client in Tarrant County, who's telling us with tools like Tyler's document automation, we're starting to look at our labor budget as a software budget, because that's where Taylor is adding value, and that's where we're seeing really real opportunity in our client base. They pay us a roughly $900,000 for their core system of record, by adding a single solution that helps put time back in people's day, money back in their budget, they're paying us almost 43% more, almost $400,000 more for a single solution. Another client, City of Doral, Florida, we beat out 40 different vendors in this. And the reason why we did was because they told us that Tyler is built in governance, security and controls, configurable workflows and future integrations, reinforce the city's commitment to investing in technology for tomorrow, not just for today. And they're awarding us for that. They spend about $190,000 on their core system of record, that's enterprise permitting and licensing. With the addition of a single AI solution something that keeps their staff off the phone that helps residents have a better experience. They paid us almost $40,000 more, so a 21% uplift for a single solution. And then finally, our friends in Plaster County, California tell us that AI is only as powerful as the data behind it. Our data lives in Tyler and our workflows live in Tyler, and that's where AI needs to be. And Plaster is rewarding us for this strategy. They spent about $225,000 on their supervision software. After AI, with the addition of 1 AI solution that, again, is helping save time, that is helping with one of their most pressing problems, which is a workforce shortage in supervision, they're paying us almost double that base system of record. And so I hope what you see with each of these examples is that there is a significant opportunity ahead of us. Now we're obviously very encouraged by this. But because of the pace that our market moves, we don't quite yet have enough data to raise our projections for the next 5 years. However, we believe and we hope you would agree that the opportunity here is going to be significant. We also hope you would agree with us that at the end of the day, AI is going to make Tyler a stronger company. Most of you would agree that the public sector market behaves differently and the Tyler is well positioned within it. that our strategy is well underway and already resonated with clients, and we expect this to have a material impact on our business long term. However, if there is 1 thing and only 1 thing, that I hope you take away from this presentation, it's what you see here at the bottom of this slide, is that if you were designing a company from scratch to winning government AI, you would build Tyler Technologies. I want to thank everybody for the time today. Looking forward to the Q&A session here this afternoon. Thanks.

Thanks, Franklin. You all know me, I'm Lynn Moore. I've already been up on stage. So I'm going to spend a few minutes talking about capital allocation. Now earlier this morning, I talked about a new 2030 free cash flow goal of $1.1 billion to $1.2 billion. And I think the logical question is, what are you going to do with all that money? That's a lot of cash. So ever since I've been a part of Tyler, capital allocation has been a real focus for me as part of my responsibility. And it's a responsibility that I take very seriously. Specifically, I can't tell you how many conversations I've had internally about how do we take the cash we generate and turn it into increasing shareholder returns. So let's take a little deeper dive into our thoughts. So I'm going to go through capital allocation in 2 segments. First, I'm going to talk about where we are today. And then second, I'm going to talk about what our priorities are going forward. So let's start by reviewing what we've done in the last 3 years. At our last Investor Day, we outlined 3 priorities: debt repayment, strategic M&A and opportunistic share repurchases. If you all recall, back in 2023, we had about $1 billion of debt still on the balance sheet from the NIC acquisition. I think about $600 million in the convertible and almost $400 million in term debt. And you can see over the last 3 years, what we've done. We paid off that $1 billion of debt. We spent $360 million buying 8, 9 companies. I can't remember the exact number now. We spent $840 million repurchasing our shares. I talked earlier in my first presentation about commitments made and commitments delivered. And this is just another example of Tyler making that commitment in 2023 and delivering on that commitment in less than 3 years. So what's our capital position today? Today, our balance sheet is as strong as ever. In March, we paid off the $600 million convertible from the NIC acquisition. And last month, we issued a $1.4 billion convertible debt and also upsized and renewed, extended our revolver to $1 billion. Now a lot of people have asked me questions, both internally and externally, why did you do the convertible debt? And the answer is really, to me, kind of simple. Number one, the convertible debt market is as good as it's been in over 5.5 years. It was really robust. And then the way I think about it in my head is, to me, I was basically taking my 2031 free cash flow, and I'm putting it on the balance sheet today at really attractive terms to be able to go out and utilize that cash today. Another reason was as part of that convertible debt process, we were actually able to do significant share repurchases on the day of offering. We bought over 1 million shares that day, over $300 million we spent in that 1 day. We also took some of the money and invested in a capped call option to protect future dilution, which effectively raises the dilution up to $655 stock price. Now on the right side of the slide, you'll see what our projected cash firepower is over the next 5 years. We currently have $1 billion of cash on the balance sheet. We expect the free cash flow about $4 billion cumulatively. We have a $1 billion revolver. So again, $6 billion, that's a lot of firepower at our disposal for the next 5 years. One thing I want to emphasize, though, is, yes, that's a lot of money. And it's easy when you put a lot of money on the balance sheet to maybe not have the same discipline that you've had for so many years. But I can tell you it's one thing I continually emphasize internally, one thing I think about all the time is we are going to continue to execute our capital allocation priorities with the same discipline that's been our MO for the last 28 years. So we have a strong balance sheet. Our cash flow is growing. Let's talk about what our priorities are over the next 5 years. I spoke also earlier about consistency at Tyler. And when you see these 3 priorities, they've really been our historical priorities since the 28 years I've been here, invest in organic growth, continue to do strategic acquisitions and do opportunistic share repurchases. So let's take a deeper dive into each one. Our first priority will continue to be internal investment in R&D. We're going to continue to invest in new product offerings, competitive enhancements to our existing products and new functions and capabilities around AI that you just heard Franklin talk about. The purpose of this innovation, again, is simple. We want to continue to drive top line growth, and we're going to continue to expand our moat in this market. Our second priority, we're going to continue to pursue M&A. I mentioned earlier, M&A is part of our DNA, and it is. We've done over 60 acquisitions in that time that I've been here. As a reminder, what I said earlier, what do we look for in acquisitions? We look for voids or gaps in our offerings, new product capabilities, new technologies, things like AI. We talked about document automation and priority-based budgeting. We talk about increasing our TAM, adding to our client base, so we can get more cross-sell and upsell. And I think one thing at the end of the day, and I mentioned this earlier, is we think about bringing a company in, leveraging our Tyler machine, leveraging our position in the market to help that company grow at a rate faster than Tyler's overall growth rate. Now at the last Q&A, Keith asked a question, where are you, Keith? There he is. It's a question I've been asked before. How have these performed? A lot of times, these acquisitions, they get buried in the financial statements. It's kind of hard to tell how have they done? You've talked about what you like to do, but are they actually performing. So what you see here is the actual and projected 5-year revenue streams from the deals that we've just done in the last 3 years. Each bar on this chart represents a company that we actually acquired between 2023 and 2025. And as you can see, we expect our revenues from those acquisitions to grow at a 24% CAGR in their first 5 years. Some of these are actual revenues they've achieved to date and some of them are near-term projections based on what we see in the market. That's more than 2x Tyler's overall growth rate. But again, these are just a sample of the acquisitions we did from 2023 to 2025. What about our most recent acquisition, FTR? That's not represented here. Let's spend a minute talking about it. FTR, it's the third largest acquisition we've done in Tyler's history. They're the global leader in cloud-based courtroom recording and what we call legal grade speech-to-text technologies. I'm really, really excited about this acquisition and for good reason. It ticks all the boxes. It's adjacent to one of our core market-leading offerings, our court systems. It makes both products more competitive and more sticky. It's going to be accretive to growth. We expect their ARR to grow at a 20% rate over the next 5 years. It addresses a critical market need. There's a growing shortage of court reporters in the court business. They're a leader in the U.S. They have international operations. They've established that. That's another opportunity for us. And our strategy with FTR is to take their AI-powered transcription and unify it with our underlying case files to create what we call judicial intelligence. Now this is a deep data and AI play. We believe it expands the TAM by over 4x of what it was before, over $1 billion TAM, we think this opportunity creates. And here's the critical piece of the puzzle. You heard Franklin talk about this earlier, data. We own the data that's produced here. That's very critical. This is also a company that we knew very well. We made a minority investment in FTR in 2015. So we've been involved. We've had a Board seat. We know their culture. We've watched their strategy evolve over time. We've gotten to the point where it was like this was the right time to pull the trigger on this acquisition. Again, at the end of the day, there's a lot to like about this acquisition, and it's why it's -- I'm excited about our third largest ever. Okay. Our third priority is opportunistic, meaningful share repurchases. Bruce is already smiling. He's talked to me about this for many, many years. Our approach has always been opportunistic. We look at the market value of Tyler stock, and we look at what we think the intrinsic value of -- and when there's a gap, we generally step in and buy. Last -- and we have no fixed annual targets, and we're always focused on long-term EPS accretion. In February, the Board authorized a $1 billion share repurchase. And you can see that so far today, we've executed on about 2/3 of that. That includes the purchases that we did in the convertible debt offering. That equates to about 5% of Tyler's outstanding shares. Now when I started on this slide, I talked about opportunistic, but I also talked about opportunistic, meaningful purchases. So what do I mean by that? Well, there's 2 things about that. Number one, when we buy, we typically don't nibble. We tend to get in and try to get a significant share of the market. And second, you have to really look at the disciplined approach that Tyler takes itself with respect to issuing equity. So let's take a look at what I mean by that. What you see here is a comparison of Tyler's stock-based compensation versus our peers across 3 metrics: total expense, a percent of revenue and a percent of free cash flow. And you can see on this chart that we issue shares at a rate of about half of what our peers do. Now I'm a shareholder of Tyler. I'm a shareholder of other companies. And as a shareholder, I want executive teams to be vested in equity. I want them to think like shareholders, be aligned with shareholders' interests. And that's the approach I've taken in designing executive comp at Tyler. All our senior executives are comped in a way that's 80% performance-based, 20% service-based. And of their total compensation package, there's a target of 70% of their target comp is based on 3-year long-term goals. Those goals are growing ARR and growing operating margin. And as we know, operating margin turns into free cash flow. And those goals just happen to line up with what I said our measures of success were going forward, growing ARR and growing free cash flow margin. So when you combine this approach of how we take to issuing equity and you couple it with the approach on share repurchases, it creates accelerated shareholder returns. So over the last 25 years, Tyler's top line revenue has grown over 2,000%, but our fully diluted share count has declined by 12% -- now I understand I'm not supposed to talk about free cash flow per share metrics. There's strict rules about that. But I actually think it's a very valuable metric. It's a very valuable measure of a company. And what you see on the left-hand side, which is not a free cash flow share per metric, it's our free cash flow from 2001 to 2026. In 2001, our free cash flow was a little over $3 million. Today, it's approaching $700 million. That's over a 20,000% increase in free cash flow. Again, at the same time, our fully diluted share count has gone down by 12%. So to me, the takeaway from this slide, it's really representative of what I would consider our balanced approach to capital allocation, taking our money, investing in top line growth and bottom line margin expansion while also taking opportunistic share repurchases to lower our fully diluted share count. So in summary, today, Tyler is extremely well capitalized. We've got a lot of flexibility to execute on all our priorities regardless of the economic environment. As our free cash flow grows, our capital allocation will become more and more important. Our approach to capital allocation is consistent and it's proven. And when you couple that with our disciplined approach to issuing equity, we're really well positioned to continue to deliver accelerated shareholder returns. Now I'd like to turn it over to Brian Miller to go over the financials and review our 2030 model.

Good morning, everyone. So you've heard a lot today about our key strategic initiatives and the progress we've made across multiple dimensions since our last Investor Day in 2023. I'm going to recap our financial performance since then and then tie together everything you've heard today into how it rolls into our updated 2030 targets. As Lynn previewed in his opening, we're a much stronger company with a visible path into the future than we were in 2023 with greater free cash flow generation, and that's reflected in our new 2030 outlooks. From a financial perspective, we're well on track to achieve our long-term objectives. What you see here are multiple vectors that are driving that performance. I'm not going to go through each one of these, but I want to highlight our progress with our cloud transition and our progress in growing recurring revenues that have been keys to achieving those results and will be keys in the future. And our performance to date really gives us the conviction in our ability to achieve our new 2030 targets. So how did our 2025 results compare to the interim targets that we laid out at our 2023 Investor Day. So what you see here in the middle column are how our 2025 actual results were achieved. And on the right side, you see a whole column of tick marks that show that we met or surpassed all of those interim targets for 2025. So what's interesting to see is how our revenue mix has changed over the last 3 years. Recurring revenues topped $2 billion for the first time in 2025, and we've achieved almost a 12% CAGR in recurring revenues. Our SaaS revenues have grown at a 21% CAGR, which exceeds the targets that we set out for that 2023 to '25 period. And transactions revenues have exceeded or have been on the high end of our growth range at 13%. So how is this growth translating to margin improvement? We've added 300 basis points to our operating margin and the recurring revenue growth I just highlighted has really been an important margin driver. In addition to expanding recurring revenues, the progress with our cloud transition that Russell detailed earlier, has also contributed to margin improvement. And as you heard, there is much, much more to come from that side. And we continue to maintain a very strong discipline around managing our operating expense. So before I move on to our updated 2030 targets, I want to spend a minute to update our 2026 annual guidance. As Lynn just discussed in his capital allocation presentation, we completed a $1.4 billion convertible debt offering on very attractive terms last month, and we were concurrently able to repurchase a little over 1 million shares of our stock. The impact of the convert is accretive to our full year 2026 earnings with higher net interest income and a lower share count. So as you can see here, we're raising both ends of our current EPS guidance range by $0.30 to reflect the impact of the convert. I also want to point out that primarily as a result of this change, our full year earnings are expected to be a little bit more back-end loaded. And so showing you the linearity that we expect here, approximately 53% of the full year EPS is expected to be posted in the second half of the year. So now let's turn to our updated 2030 targets and how everything you've heard today comes together in a stronger outlook for Tyler. So what you see here is a layer chart showing how our recurring revenue momentum continued through the end of the decade with a 10% to 12% CAGR driving a higher recurring revenue target with better margins. So the top layer is SaaS which is the biggest contributor with a CAGR of approximately 20% through the end of the decade. This represents an acceleration from our previous targets, which called for high teens growth from 2023 to 2030. Second layer is transactions, which are expected to grow around 10%, as Liz outlined. As we refocus away from lower-margin, commoditized payments and commoditized payments and focus more on higher margin, higher value transaction revenue streams. And maintenance will continue to decline as on-prem clients flip to the cloud. On the bottom, you see nonrecurring revenues with lower margins like services and hardware will grow at a much lower rate than overall revenues in the single digits. You also heard Lynn talk a lot about our M&A firepower and how we have a strong record of completing acquisitions that are accretive to growth. And Franklin outlined how we believe that AI will be a tailwind to growth. The numbers you see here, the 10% to 12% CAGR do not include incremental revenues from M&A and AI, although we believe that both of those will provide additional growth on top of that. So what you see here is a bridge to our 10% to 12% targeted recurring revenue growth. So let me touch on the key drivers of that. The first is the uplift from on-prem clients, flipping to the cloud, typically at a 1.7x uplift from their maintenance revenues. The second is SaaS growth from new logos and net expansion within existing clients. You heard earlier us talk a lot about that opportunity within existing clients moving from 3 products to 8 to 10 products. That also includes pricing, which we typically see a very consistent kind of 5% pricing increase. And the third is transaction revenue growth, with M&A and AI revenues providing incremental growth on top of that. And while we're excited to continue to drive double-digit recurring revenue growth, we're also looking to get almost 1,000 basis points of operating margin improvement over the next 5 years. And so what you see here are the 4 key drivers to a mid-30s operating margin, and I'll touch a little bit more on each of these. So the first of these is the cloud. The cloud unlocks significant margin expansion opportunity for us, we believe, in the range of 3 to 4 points of margin expansion. And a lot of that comes from things like the version consolidation that Russell talked about. You may not realize that as much as 30% of our development and support costs are consumed by noncurrent versions of our products. So you can really see how that continued focus on version consolidation can have a significant impact on our margin. The second key driver is transactions that Liz talked about. She outlined how our differentiated transactions offerings are shifting us towards higher-margin transaction streams that are tied to our software. And we expect to continue to be able to optimize the economics around our transactions business as it scales. For example, contracts like our California state parks outdoor recreation software, deal have software-like margins, even though they're recorded in our transactions line and show up and are paid for with transaction revenues. This, we expect to add 1 to 2 points of margin. So it should be no surprise to anyone that we expect AI to be a contributor to operational efficiencies and higher margins. You can see here the 3 major areas that we're focused on, where we expect AI to be able to drive productivity and enable us to grow head count at a much lower rate than we grow revenues. We're still in the early stages of integrating AI into all of these internal functions, but we're comfortable with an expectation in our 2030 model of 3 to 4 points of margin. For example, in our services business. In services business, we've piloted the use of AI to assist with data conversions and new implementations with really exciting results, reducing our time to complete conversions from several months to 2 to 3 weeks. And in support with 1 product, we're now deflecting 25% of the calls that would otherwise be escalated to a Tyler support team member freeing those support team members up to work on more complex tests. The fifth margin driver comes from operating expense, where we expect to gain 1 to 2 points of margin from leverage as we continue to scale. For example, by consolidating functions, improving systems and adopting AI tools, we've been able to keep our finance head count flat over the last 2 years even as our revenues have grown by almost 20%. So what's the impact of all of these improvements on our cash flow. Our 2030 model now delivers more cash and at higher free cash flow margins. As you can see here, our cash generation is now growing to $1.1 billion to $1.2 billion in 2030, with the free cash flow -- the free cash flow margin in the low 30s, up from the high 20s. The majority of the improvement is coming from higher operating margins, along with some working capital benefits from higher recurring revenue mix, which has more attractive cash flow characteristics. So here you can see how our updated 2030 targets are all in line with or, in most cases, improved from our previous targets. Now I want to focus in on 4 key targets among those, all of which represent improvements to our prior outlook. First, our new recurring revenue target is $3.3 billion to $3.4 billion, which is at the high end of our previous range. Second, our new target for operating margin is now in the mid-30s, up from 30%. And Third, our free cash flow margin has moved from the high 20s to the low 30s. And fourth, we expect to generate approximately $1.1 billion to $1.2 billion in free cash flow in 2030. So how will you measure our progress towards those targets? Again, we're focused primarily on recurring revenue and free cash flow growth. And as we move towards 2030, our recurring revenue growth rate and our free cash flow margin expansion are the best metrics to gauge our progress and our success by. So in summary, you can see why we're excited about the future that's reflected in these new higher 2030 targets. And we've got a credible path to further success with 2 key metrics to measure our progress by. That wraps up our formal presentations. We've shared with you a comprehensive look that should give you a clear and confident picture of our future. And now we're going to bring back the rest of our leadership team for the final Q&A session.

Okay. Lynn, come back up and Franklin and introducing Rusty Smith, our Group President, local government and schools; and Jeff, our COO, come back up. Okay. Well, we'll probably have about 25, 30 minutes. We're running a little bit ahead of schedule here. Do you -- just a reminder, just to state your name and affiliation and we'll get started. . Go ahead and start with Rob. We'll go to Jonathan after that.

Great. Thank you very much. Lynn, I'd be curious to hear from you about M&A, in particular. You guys have been, in my view, highly successful acquiring within your core and appreciate the out of the growth rates of some of those businesses, which we've seen, which you guys have plugged in and really accelerated. A few times over the years I followed you, you guys have moved outside your core to make acquisitions, whether it be getting into public safety or getting into state and payments, new areas. When you think about M&A, how should we think about operating within those verticals in which you guys are already #1 versus maybe looking at other areas where you perhaps don't have a presence within your current customer base? [This call length has exceeded streaming capabilities - Please refer to the preliminary transcript that will be posted shortly.]