Sign in
TT

TYLER TECHNOLOGIES INC (TYL)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered broad-based strength: revenue $0.541B (+12.5% YoY), non-GAAP EPS $2.43 (+31.2% YoY non-GAAP net income), and adjusted EBITDA $142.8M, led by 23.0% SaaS growth and 20.9% transaction growth; ARR reached $1.86B .
  • Non-GAAP operating margin expanded to 24.4% (vs. 22.3% in Q4 2023) while free cash flow hit $216.0M, up 60.7% YoY and 39.9% margin, aided by timing effects (Kentucky prepayment, disbursements float) .
  • FY 2025 guidance: revenue $2.30–$2.34B, non-GAAP EPS $10.90–$11.15, FCF margin 24–26%; SaaS +21–24%, transactions +10–12%, maintenance −4–6%; merchant fees expected down 7–9% .
  • Key catalysts: accelerating cloud “flips” (106 in Q4; larger clients), rising multiproduct wins, version consolidation progress, and margin tailwinds as low-margin Texas commodity payments wind down (2024 ~$44M revenue at ~10% gross margin) .

What Went Well and What Went Wrong

What Went Well

  • “We exceeded our expectations across our key financial metrics with recurring revenue growth of nearly 15%, driven by SaaS revenue growth of 23%… Transaction revenue set a new quarterly high” .
  • Cloud momentum: 97% of new software contract value was SaaS; Q4 flips totaled 106 with TCV +58% YoY and average ARR +32% YoY, evidencing larger, higher-value migrations .
  • Cash generation and margins: non-GAAP operating margin reached 24.4%, and free cash flow of $216.0M “significantly exceeded our expectations,” a new high for Q4 .

What Went Wrong

  • Payments headwind: Texas payments contract (gross model) awarded to another vendor; 2025 revenue expected ~$29M at ~10% gross margin vs. 2024 ~$44M, pressuring transaction growth optics until wind down completes (margin-accretive post exit) .
  • Mix pressures: maintenance revenue expected to decline 4–6% in 2025 amid accelerated flips; licenses and hardware guided down 18–20% each, reflecting SaaS-led model shift and normalization post ARPA-related hardware .
  • R&D ramp: 2025 R&D guided to $177–$182M, growing >50% driven by redeployment from COGS, capitalization shift, and incremental AI investments (near-term opex add before benefits) .

Financial Results

Summary (Quarterly)

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Billions)$0.541 $0.543 $0.541
GAAP Diluted EPS ($)$1.57 $1.74 $1.49
Non-GAAP EPS ($)$2.40 $2.52 $2.43
Non-GAAP Operating Margin (%)24.5% 25.4% 24.4%
Adjusted EBITDA ($USD Millions)$143.959 $152.410 $142.765
Free Cash Flow ($USD Millions)$48.629 $252.913 $215.984

Q4 Year-over-Year

MetricQ4 2023Q4 2024
Revenue ($USD Billions)$0.481 $0.541
GAAP Diluted EPS ($)$0.91 $1.49
Non-GAAP EPS ($)$1.89 $2.43
GAAP Operating Margin (%)9.9% 13.2%
Non-GAAP Operating Margin (%)22.3% 24.4%
Adjusted EBITDA ($USD Millions)$117.968 $142.765
Cash from Operations ($USD Millions)$147.419 $224.774
Free Cash Flow ($USD Millions)$134.363 $215.984

Segment Revenue Mix

Segment ($USD Millions)Q2 2024Q3 2024Q4 2024
Subscriptions$333.682 $347.170 $348.836
Maintenance$115.309 $115.587 $115.018
Professional Services$71.928 $64.462 $62.795
Software Licenses & Royalties$5.329 $6.188 $6.106
Hardware & Other$14.728 $9.930 $8.376

Subscription Components

Component ($USD Millions)Q2 2024Q3 2024Q4 2024
SaaS Revenues$156.0 $166.6 $173.4
Transaction Revenues$177.7 $180.6 $175.4

KPIs

KPIQ2 2024Q3 2024Q4 2024
ARR ($USD Billions)$1.80 $1.85 $1.86
% SaaS of New Contract Value~97% ~97% ~97%
New SaaS Arrangements (#)203 181 150
SaaS Flips (#)111 108 106
New SaaS Contract Value ($USD Millions)~$127 ~$105.6 ~$141
Flip Average ARR Growth YoY+21.8% +37% +32%
Merchant Fees ($USD Millions)~$45 ~$42 ~$41
Free Cash Flow Margin (%)9.0% 46.5% 39.9%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenues ($USD Billions)FY 2025N/A$2.30–$2.34 Initial
GAAP Diluted EPS ($)FY 2025N/A$7.31–$7.56 Initial
Non-GAAP Diluted EPS ($)FY 2025N/A$10.90–$11.15 Initial
Free Cash Flow Margin (%)FY 2025N/A24–26 Initial
Subscription Revenue Growth (%)FY 2025N/A+15–18 Initial
SaaS Revenue Growth (%)FY 2025N/A+21–24 Initial
Transaction Revenue Growth (%)FY 2025N/A+10–12; merchant fees −7–9% Initial
Maintenance Revenue (%)FY 2025N/A−4 to −6 Initial
Professional Services Rev. (%)FY 2025N/AFlat to −3 Initial
Licenses & Royalties (%)FY 2025N/A−18 to −20 Initial
Hardware & Other (%)FY 2025N/A−18 to −20 Initial
R&D Expense ($USD Millions)FY 2025N/A$177–$182 Initial
Capital Expenditures ($USD Millions)FY 2025N/A$32–$34 (incl. ~$19M cap. dev.) Initial
Non-GAAP Tax Rate (%)FY 2025N/A22.5 Initial
GAAP Tax Rate (%)FY 2025N/A17.0 (for EPS calc) Initial
Shares Used (Diluted, M)FY 2025N/A44.6 Initial

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Cloud flips & version consolidation111 flips; Munis ~95% on single version; Idaho statewide court flip go-live in 4 months 108 flips; flips TCV >3x YoY; ERP and Justice versions sunset encouraged 106 flips; flip TCV +58% YoY; avg ARR +32%; flips to peak in 2027–2028 Accelerating flips; consolidation progressing
Payments strategy & marginsDriving higher-margin integrated payments; merchant fees ~$45M Extensions in NJ/IN; merchant fees ~$42M Texas gross-model wind down (2025 ~$29M, ~10% margin); merchant fees down 7–9% Shift away from commodity payments; margin uplift
AI initiativesHigh interest post-Connect; CSI/ARInspect deals; early monetization AI curiosity; roadmap emerging; no major demand driver yet Every flagship product to have AI features by YE; investments in AI; partner with AWS/MSFT/GOOG Deliberate investment; features scaling in 2025
Data centers & AWSDallas exit essentially complete; AWS discounts and optimizations driving gross margin New $700M revolver; AWS efficiencies cited On track to close main data center end of 2025 Cloud operating efficiency building
Public safety cloud adoption90% Q2 contract value SaaS; state momentum (Idaho State Police) 100% public safety new contract value SaaS (second quarter in a row) Multiple state wins (Iowa DPS, Michigan State Police); flips aided by cyber events Strong statewide adoption continues
Budgets & macro (DOGE)Healthy budgets; demand for modernization; self-funded portals enabling large deals Healthy market, no election slowdown; RFPs steady DOGE seen as opportunity; limited federal funding at local level; core demand resilient Supportive environment sustained

Management Commentary

  • Lynn Moore: “We achieved recurring revenue growth of nearly 15%, driven by SaaS revenue growth of 23%… SaaS adoption continued to accelerate with… 97% of new software contract value in the cloud.”
  • Brian Miller: Non-GAAP operating margin reached 24.4%, “reflects the impact of our cloud efficiency initiatives, along with effective operating expense management.”
  • Lynn Moore: “Free cash flow of $216 million significantly exceeded our expectations, reaching a new high for a fourth quarter.”
  • Strategy: “We’re well on track to meet or exceed the 2025 targets… and remain confident in realizing our Tyler 2030 vision.”
  • AI: “We expect that by the end of this year, every flagship product road map will have clear AI-driven features.”

Q&A Highlights

  • Payments: Texas commodity payments contract wind down reduces low-margin revenue; focus remains on integrated, differentiated payments with partners like Fiserv to enhance tech and margins .
  • Maintenance decline visibility: Broad-based migrations across products; public safety flips accelerating; flips expected to peak in 2027–2028 .
  • Cash flow normalization: Q4 benefited from ~$29M Kentucky SaaS prepayment and ~$25M disbursements timing; underlying FCF margin ~24.3% for 2024, implying continued expansion in 2025 .
  • R&D step-up: >50% growth driven by redeployment from COGS (~$35M in 2025), capitalization shifts (~8 pts), and incremental AI investments .
  • Demand backdrop: Healthy budgets; strong pipeline; flips and multiproduct wins gaining momentum; AI interest rising but not yet primary driver of flips .

Estimates Context

  • We attempted to retrieve S&P Global Wall Street consensus estimates for Q4 2024 EPS and revenue, but the service returned a request limit error at the time of analysis, so consensus comparisons are unavailable. Values would normally be sourced from S&P Global; unavailable at this time.

Key Takeaways for Investors

  • Recurring engine is accelerating: SaaS +23% and transactions +20.9% powered Q4, while ARR reached $1.86B; non-GAAP margin expansion demonstrates operating leverage from cloud optimization .
  • Cloud transition is a durable tailwind: 97% of new contract value is SaaS; larger flips with rising ARR per flip should continue to support growth and margins as consolidation progresses .
  • Mix shift boosts quality of revenue: Maintenance, licenses, and hardware guided lower in 2025, but margins benefit as commodity payments exit and services intensity declines .
  • Cash flow trajectory remains strong: Q4 FCF of $216.0M; excluding timing, underlying margin ~24.3% for 2024, with FY25 guided to 24–26% despite Section 174 headwinds .
  • Payments strategy de-risks margin: Texas (gross) wind down reduces merchant fee burden and low-margin revenue; integrated payments tied to software should sustain mid-to-high-teens underlying transactions growth .
  • FY25 guide is constructive: $2.30–$2.34B revenue and $10.90–$11.15 non-GAAP EPS, with clear segment growth/decline vectors and tax assumptions; watch for upside from flips, multiproduct SaaS, and AI features into YE25 .
  • Near-term trading setup: Narrative favors margin expansion and high-quality recurring growth; catalysts include additional large-state flips, AI feature previews at Tyler Connect, and updates on data center exit timeline .