Cloud first strategy driving results for Tyler Technologies

Published: 2025-06-27 02:10:40 ET TYL

Published on 06/27/2025 at 02:10, updated on 06/27/2025 at 07:21

By Maya Patel

Tyler Technologies started 2025 on a positive note, with a continued rise in SaaS revenues for the 17th consecutive quarter. This trend reflects the group’s cloud-first strategy, along with focus on expanding the TAM to leverage on growing opportunities in the public sector software market. The company stands to gain on its 6% market share of the fragmented $21bn market.

Tyler Technologies, Inc., headquartered in Plano, Texas, provides integrated software and technology services for the public sector. The company’s solutions equip local, state and federal government entities to operate in a seamless manner with residents. The company’s solutions further enable its clients to gather actionable insights into opportunities and solutions for their communities.

The company has made over 45,000 installations across 13,000 locations, with clients across US, Canada, the Caribbean, Australia and other international locations. The company reported impressive key metric performance in 2024, with recurring revenues at 85% and gross client retention of 98%. ERP/Financial contributed 32% of the revenue mix in 2024; Platform Technologies, 29%; Courts & Justice, 15%; Public safety, 7%; K-12 schools, 7%; Appraisal & tax, 5%; Civic services, 3%; and Other, 2%.

Tyler Technologies posted total revenues of $565.2m in Q1 25, reflecting a 10.3% y/y increase. Recurring revenues increased 13.3% to $487.8m,  contributing towards 86.3% of total revenues. Recurring SaaS revenues rose 21% to $180.1m, marking the 17th consecutive quarter of SaaS growth of over 20%. Transaction revenues outperformed, with 18.5% growth to $194.9m, fueled by increased adoption and deployment of transaction-based services. However, maintenance revenues declined 3.8% to $112.8m, reflecting the ongoing shift from on-premises license to SaaS. Adjusted EBITDA surged 21.5% to $162.3m.

ARR rose by 13.3% to $1.95bn, up 13.3%, highlighting active public sector demand with sustained elevated sales indicators in RFP and demo trends. Fee SaaS deals bagged by the company in the quarter include deal from City of Fort Collins, CO for enterprise permitting & licensing; Jefferson County Public Schools, KY for student transportation; and St. Lucie County, FL for enterprise ERP. SaaS adoption in new software business mix remained high in Q1 25 and accounted for 96% of the new software contract value.

Embarking on its long-term cloud-first strategy, Tyler Technologies has reported a shift in its recurring revenue mix from 55% in 2010 to 85% in 2024, with recurring revenues posting 20% CAGR over the last five years. The company has given revenue guidance growth of approximately 9% in FY 25 with total revenues between $2.31bn and $2.35bn. Subscription growth is expected between 15% and 18%, with SaaS expected to rise between 21% and 24%.

Tyler Technologies’ further stands to gain from strong secular tailwinds with many antiquated government systems no longer supported and governments shifting systems to the cloud. As a result, demand for digital modernization and online services is picking pace, driving the market annually by 4-6%. In view of increasing opportunities in the public space, the company has consciously expanded and more than doubled its TAM since 2018 from $7bn to $21bn in 2024.

Tyler Technologies’ long-term growth has been steady with a steady rise in top-line and bottom-line performance. Revenue rose at a CAGR of 14.5% over FY 19-24, reaching $2.1bn. Operating income surged at a CAGR of 16% to $329m over the same period, with margins rising by 88bp to 15.4%. Net income rose at a CAGR of 12.4% to $263m in FY 24.

The cash position of the group also strengthened over the same period, reaching $745m at end-FY 24 from $233m at end-FY 19, supported by an increase in cash inflow from operations and consistent issuance of equity.

In comparison, Synopsys, a local peer, posted a revenue CAGR of 12.8% over the last five years, reaching $6.1bn in FY 24. Operating income surged at a CAGR of 19% to $1.4bn in FY 24, with margins expanding by 5.8% to 22.1%.

Over the past 12 months, the company's stock has delivered decent returns of approximately 18%. In comparison, Synopsys’ stock has underperformed, having fallen by about 17% over the same period.

Tyler Technologies is currently trading at a P/E of 75.9x, based on the FY 25 estimated EPS of $7.6, which is lower than its 3-year historical average of 95.5x. However, it is trading higher than Synopsys’ valuation of 48.7x.

The company is currently trading at an EV/EBITDA multiple of 36.1x, based on the FY 25 estimated EBITDA of $670.6m, which is almost at par to its 3-year historical average of 36.7x and higher than that of Synopsys (24.8x).

Tyler Technologies is monitored by 20 analysts, 15 of whom have ‘Buy’ ratings, with the other five having ‘Hold’ ratings for an average target price of $669.5, implying 16% upside potential from the share's current price. Their views are further supported by an anticipated EBITDA CAGR of 15.7% over FY 24-27, reaching $880m, with margins of 31.3% in FY 27. In addition, analysts estimate a net profit CAGR of 20.3%, reaching $458.8m with margins of 16.3% in FY 27, with EPS expected to increase to $10.2 in FY 27 from $6.1 in FY 24. Likewise, analysts estimate an EBITDA CAGR of 11.7% and a net profit CAGR of 16.4% for Synopsys.

Overall, the company is set to execute its long-term strategy by leveraging its strong client base, expansion into new markets, completing its cloud transition and growing its payments business. Moreover, increasing recurring revenues and positive guidance on the back of key deal wins positions the company favorably for potential investment. However, Tyler Technologies is exposed to some risks including customer churn, stiff competition from other players and a subdued macro environment.

Maya Patel