TYLER TECHNOLOGIES Q2 FY26 earnings call TYL

Tyler Technologies executed several strategic initiatives in Q2 FY26, including an Investor Day detailing new 2030 targets, a convertible debt offering to enhance financial flexibility, and significant share repurchases. The acquisition of 'for the record' further solidified its position in the courts and justice market, with the acquired entity winning a $1.6 million annual ARR deal in Australia and 7-8 other deals in the quarter.

The company reported strong operational results with 21.7% SaaS revenue growth, record SaaS bookings, record total bookings, and record Q2 free cash flow. Public sector demand remains healthy, driven by modernization, digital transformation, cybersecurity, and operational efficiency priorities. Organic revenue growth was approximately 2 points lower than overall growth.

Tyler is actively advancing its AI strategy, with growing client engagement and early adoption across its portfolio. While AI-specific revenue is currently a small percentage, management anticipates meaningful contributions from AI monetization starting in the second half of 2027, with a focus on outcome-based solutions and labor budget savings. Examples include document automation and resident AI assistant, which are being viewed through the lens of labor budget savings.

Tyler is actively encouraging clients to migrate to the cloud, outlining incentives such as AI functionality, cloud-only features, and faster time-to-value through a cloud living release model. The company aims to convert 85% of its 2023 maintenance base to the cloud by 2030, with pilots for the cloud living model launching in 2027 and clients becoming referenceable in 2028. Disincentives for non-migration are expected to be communicated more over the next 12-24 months.

The transaction business showed strong growth, excluding the Texas contract, with revenues growing about 10%. This growth is driven by higher volumes, new client acquisitions, and the bundling of transaction services with new software sales. Large software deals, such as a digital motor vehicle titling solution, are increasingly transaction-based, providing budget flexibility for clients by operating outside appropriated funds.

Share repurchases have become a higher priority for Tyler, with the company having bought back over 5.5% of shares outstanding year-to-date. Management views the current valuation and strong free cash flow generation as compelling reasons to continue this cadence, aiming to reduce and maintain a lower share count going forward^⏳.