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TYLER TECHNOLOGIES INC (TYL)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered modest beats: revenue $595.9M (+9.7% y/y) vs Street ~$594.3M and non-GAAP EPS $2.97 vs Street ~$2.86; GAAP EPS $1.93 . Revenue and EPS outperformance was driven by 20% SaaS growth and 11.5% transaction growth, plus non-GAAP operating margin expansion to 26.6% . EPS est: $2.86*, Rev est: $594.35M*.
  • Recurring revenue mix and cloud efficiencies expanded GAAP gross margin to 47.2% and non-GAAP to 50.4% (up ~330 bps y/y); non-GAAP operating margin rose 120 bps to 26.6% . Free cash flow surged to $247.6M in Q3 (seasonal collections) despite slight y/y decline; YTD FCF $383.8M .
  • FY25 guidance was essentially maintained at the midpoint: revenue $2.335–$2.360B; non-GAAP EPS $11.30–$11.50 (low end raised vs Q2), GAAP EPS $7.28–$7.48 (trimmed vs Q2), FCF margin 25–27% vs prior $2.33–$2.36B, $11.20–$11.50, $7.40–$7.70 .
  • Call highlight and likely stock narrative: management’s early view for 2026 calls for ~20% SaaS revenue growth and total recurring growth in the long-term target range (10–12%, ex-Texas), plus confirmation that flips are accelerating and still carry a ~1.7–1.8x uplift from maintenance to SaaS .
  • Additional catalysts: exit of the Yarmouth data center (longer-term margin tailwind) , active M&A posture with tuck-ins (Emergency Networking) and $173M of Q3 buybacks (~300k shares) .

What Went Well and What Went Wrong

What Went Well

  • Non-GAAP profitability expansion: non-GAAP operating margin rose to 26.6% (+120 bps y/y), aided by mix shift to SaaS/transactions and cloud efficiency gains . “Strong gross and operating margin expansion reflected a favorable revenue mix, operating discipline, and cloud efficiency gains.” – Lynn Moore .
  • SaaS/AI traction and bookings: SaaS revenues +19.9% to $199.8M; total SaaS bookings hit an all-time high (+5% q/q, +5.8% y/y); AI-led solutions (document automation, priority-based budgeting, resident engagement) cited with 10–30% productivity gains and 2–3x ROI .
  • Cash generation and capital returns: Q3 cash from operations $255.2M and FCF $247.6M; ~300k shares repurchased at $576.82 average ($173M), reflecting confidence and helping offset potential convertible dilution .

What Went Wrong

  • Slight downtick in some recurring optics: ARR was $2.05B (+10.7% y/y) but down from $2.07B in Q2, reflecting lumpiness in large deal timing; CFO noted bookings/recognition lags and working capital timing impacted cash flows earlier in the year .
  • GAAP EPS guide lowered: FY25 GAAP EPS range cut to $7.28–$7.48 from $7.40–$7.70 given tax-rate variability; non-GAAP EPS low end raised to $11.30 (from $11.20), but GAAP optics may concern some holders .
  • Texas payments headwind: the wind-down continues; FY25 revenue now expected ~$39–$40M (was ~$41M last quarter), with ~$4–$5M carrying into 2026, creating a 2026 drag as volumes roll off .

Financial Results

Headline Metrics

MetricQ1 2025Q2 2025Q3 2025
Total Revenue ($M)$565.2 $596.1 $595.9
GAAP Diluted EPS ($)$1.84 $1.93 $1.93
Non-GAAP Diluted EPS ($)$2.78 $2.91 $2.97

Margins

MetricQ1 2025Q2 2025Q3 2025
GAAP Gross Margin (%)47.3% 45.8% 47.2%
Non-GAAP Gross Margin (%)50.4% 48.9% 50.4%
GAAP Operating Margin (%)15.8% 16.0% 16.4%
Non-GAAP Operating Margin (%)26.8% 26.5% 26.6%

Cash Flow

MetricQ1 2025Q2 2025Q3 2025
Cash from Operations ($M)$56.2 $98.3 $255.2
Free Cash Flow ($M)$48.3 $88.0 $247.6

Revenue Breakdown

Revenue Line ($000s)Q1 2025Q2 2025Q3 2025
Subscriptions374,989 405,075 401,094
Maintenance112,801 112,123 111,312
Professional Services64,050 58,612 64,728
Software Licenses & Royalties6,994 3,663 5,100
Hardware & Other6,331 16,644 13,645
Total Revenues565,165 596,117 595,879

Subscription Composition

Subscription Detail ($M)Q1 2025Q2 2025Q3 2025
SaaS Revenues$180.1 $189.6 $199.8
Transaction-based Revenues$194.9 $215.5 $201.3

KPIs

KPIQ1 2025Q2 2025Q3 2025
Recurring Revenues ($M)$487.8 (86.3%) $517.2 (86.8%) $512.4 (86.0%)
ARR ($B)$1.95 $2.07 $2.05
Adjusted EBITDA ($M)$162.3 $169.1 $169.9
Non-GAAP Operating Margin (%)26.8% 26.5% 26.6%

vs. Wall Street Consensus (Q3 2025)

MetricEstimate*ActualBeat/(Miss)
Revenue ($M)594.35*595.88 +1.53
Primary EPS (Non-GAAP) ($)2.86*2.97 +0.11

*Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious Guidance (7/30/25)Current Guidance (10/29/25)Change
Total RevenuesFY 2025$2.33–$2.36B $2.335–$2.360B Maintained (slight midpoint nudge)
GAAP Diluted EPSFY 2025$7.40–$7.70 $7.28–$7.48 Lowered
Non-GAAP Diluted EPSFY 2025$11.20–$11.50 $11.30–$11.50 Raised (low end)
Free Cash Flow MarginFY 202525%–27% 25%–27% Maintained
R&D ExpenseFY 2025$202–$205M $202–$205M Maintained
Capital ExpendituresFY 2025$31–$33M $31–$33M Maintained
Net Interest IncomeFY 2025$29–$31M $29–$31M Maintained
Non-GAAP Tax RateFY 202522.5% 22.5% Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
AI/Productivity & MonetizationQ2: AI roadmap launched; focus on value-based SaaS pricing; strong client interest at Connect . Q1: momentum in SaaS and digital modernization .Agentic AI as digital workforce with 10–30% productivity gains and 2–3x ROI; early client budget reallocation from labor to software; partnerships with AWS/OpenAI/Anthropic; disciplined monetization approach .Constructive adoption with ROI proof points; disciplined monetization.
Cloud FlipsQ2: Expect ~25% y/y growth in flips; peak 2027–2028; ~1.7x uplift; SAAS growth high-teens to ~20% through peak .~1.7–1.8x uplift reaffirmed; about 50/50 on-prem vs cloud by revenue equivalent; version consolidation enabling faster flips .Acceleration intact; larger flips ahead.
Payments & Transaction RevenueQ2: Transactions +21.3%; Texas ~$41M FY25; California parks ramp; strong cross-sell .Texas FY25 ~$39–$40M; ~$4–$5M in 2026; Colorado DOC ~$2M ARR; Chesterfield County ~$1.5M; trajectory positive .Growth ex-Texas; manageable 2026 headwind.
Bookings & PipelineQ2: Record 2024 comp; bookings lumpy; pipeline robust; sequential improvement in SaaS bookings .Q3 total SaaS bookings +5% q/q and +5.8% y/y to all-time high; ARR from new deals/flips lumpy but steady indicators .Healthy; lumpy large-deal timing persists.
R&D & Margin PathQ2: R&D elevated from reclassification and AI; FCF tailwinds from tax changes .Elevated R&D to continue into 2026; margin expansion “not linear” near-term; Yarmouth data center exit completed, longer-term tailwind .Investing through 2026; LT margin expansion intact.
M&A StrategyQ2: Emergency Networking tuck-in; payments leadership hire .Proactive M&A returning; two 2025 deals (MyGov, Emergency Networking); balance sheet now enables more intentional M&A and opportunistic buybacks .More proactive tuck-ins within disciplined framework.

Management Commentary

  • “Third quarter results once again exceeded expectations across our key revenue and profitability measures… Strong gross and operating margin expansion reflected a favorable revenue mix, operating discipline, and cloud efficiency gains.” – Lynn Moore, CEO .
  • “Our non-GAAP operating margin expanded to 26.6%… reflecting a continued positive shift in revenue mix towards higher margin SaaS and transaction revenues and efficiency gains across our cloud operations.” – Brian Miller, CFO .
  • “Early deployments of products like document automation and priority-based budgeting are delivering 10% to 30% productivity gains and 2 to 3 times ROI… Agentic AI… has a natural path to monetization… as a predictable annual SaaS fee tied to the value.” – Lynn Moore .
  • “We currently expect SaaS revenues to grow approximately 20% [in 2026] and… total recurring revenue growth will be within our long-term target range of 10% to 12% excluding the impact of the wind-down of the Texas payments contract.” – Brian Miller .

Q&A Highlights

  • 2026 SaaS growth confidence: Visibility from backlog, flips, renewals, and pricing supports ~20% SaaS growth outlook; backlog from prior big deals contributes more in 2026 versus 2025 .
  • Texas payments wind-down: FY25 revenue ~$39–$40M (down from ~$41M prior), with $4–$5M in 2026; California parks lapped, still growing but mostly in the base; additional transaction wins (e.g., Colorado DOC ~$2M ARR; Chesterfield County ~$1.5M) .
  • Flips economics and pace: Like-for-like uplift ~1.7–1.8x maintenance to SaaS; revenue equivalent now ~50/50 on-prem vs cloud; version consolidation is enabling faster migrations .
  • AI monetization and pricing: Emphasis on proven ROI and trust; mix of competitive differentiation embedded in suites and separately monetized agentic AI modules; some clients reallocating labor budgets to fund AI .
  • Investment and margins: R&D to remain elevated through 2026 (including reclassified resources and AI); margin expansion will not be linear; Yarmouth data center exit complete—short-term transitional costs but longer-term tailwind .

Estimates Context

  • Q3 2025 results beat consensus: revenue $595.88M vs $594.35M*; non-GAAP EPS $2.97 vs $2.86* . Street may lift FY25 non-GAAP EPS low end assumptions modestly given margin discipline and Q4 setup.
  • Next quarter snapshot (Q4 2025): Revenue consensus ~$591.77M*, EBITDA ~$161.12M*, EPS ~$2.74*; guidance and commentary around flip timing and payments ex-Texas likely key to revisions.
    *Values retrieved from S&P Global.

Other Relevant Q3 Press Releases

  • Fulton County, GA selected Tyler’s Enterprise Records Management (cloud-based on AWS) to modernize land records and enhance security/workflow .
  • Oklahoma Department of Labor chose Tyler’s State Regulatory Platform Suite to modernize licensing, enforcement, inspections, and payments with AI-enabled field inspections .

Key Takeaways for Investors

  • Non-GAAP beat and margin expansion were driven by mix and cloud efficiencies; trajectory supports LT 2030 targets even as near-term expansion is “not linear” .
  • The 2026 early view (~20% SaaS growth) is a constructive catalyst; backlog and flips support durability despite the Texas roll-off .
  • Payments remains a growth vector ex-Texas, with embedded “SaaS-as-transaction” deals and cross-sell into the installed base enhancing stickiness and cash conversion .
  • AI execution is anchored in domain data and measurable ROI; trust-based adoption and disciplined monetization could support pricing power and ARPU over time .
  • Capital allocation is balanced: elevated internal investment (AI, product competitiveness), proactive tuck-in M&A, and opportunistic buybacks (~$173M in Q3) .
  • Watch list: bookings cadence into Q4 against tough comps; flip timing variability; GAAP EPS sensitivity to tax items; and the magnitude/timing of payments headwinds into 2026 .
  • Longer-term, completion of data center exits and scale benefits from cloud/AI should underpin margin expansion, with potential upside from disciplined M&A .