Press release·02/20/2025 04:20:53

Financial Performance Overview

Tyler Technologies, a leading provider of public sector software and services, has reported strong financial results for the fiscal year ended December 31, 2024. The company’s total revenues increased by 9.5% compared to the prior year, driven by robust growth in its subscription-based offerings.

Subscriptions revenue, which includes SaaS fees and transaction-based fees, grew by 15.8% year-over-year. This was primarily due to an ongoing shift toward SaaS arrangements for both new and existing clients, as well as growth in certain transaction-based revenues. The number of new SaaS clients added and the number of existing clients who converted from on-premises license arrangements to SaaS were significant drivers of the subscription revenue increase.

Maintenance revenue, which accounts for 21.7% of total revenues, decreased by 1% compared to the prior year. This decline was attributed to the impact of clients converting from on-premises license arrangements to SaaS, partially offset by maintenance price increases.

Professional services revenue grew by 6% year-over-year, primarily due to higher new contract volume and increased billing rates. Software licenses and royalties revenue, however, decreased by 31% as the company continued to shift its model away from perpetual software licenses toward more subscription-based offerings.

Cost Management and Profitability

Tyler Technologies’ overall gross margin decreased slightly to 43.8% in 2024 from 44.1% in the prior year. This decline was primarily due to lower revenue from software licenses and maintenance, higher software development amortization expense, and higher personnel costs. These factors were partially offset by a higher revenue mix for subscription-based offerings, which tend to have higher incremental margins.

The company’s sales and marketing (S&M) expense increased by 5% year-over-year, but as a percentage of total revenues, it decreased to 7.4% from 7.7% in the prior year. This was due to higher personnel, bonus, commission, and trade show expenses, offset by lower professional fees related to marketing and advertising.

General and administrative (G&A) expense decreased by 2% compared to the prior year, primarily due to lower facilities costs resulting from lease restructurings, partially offset by higher share-based compensation costs and increased software and IT support costs. As a percentage of total revenues, G&A expense decreased to 14.1% from 15.8% in the prior year.

Research and development (R&D) expense increased by 8% year-over-year, mainly due to a number of new product development initiatives shifting from capitalized projects to expensed projects. As a percentage of total revenues, R&D expense remained relatively stable at 5.5% compared to 5.6% in the prior year.

Amortization of other intangibles decreased by 20% compared to the prior year due to the impact of certain trade name intangible assets becoming fully amortized.

Overall, Tyler Technologies’ operating income margin improved to 14.0% in 2024 from 11.3% in the prior year, reflecting the company’s ability to effectively manage its costs while driving revenue growth.

Liquidity and Cash Flows

Tyler Technologies’ financial position remains strong, with cash and cash equivalents of $744.7 million as of December 31, 2024, compared to $165.5 million at the end of the prior year. The company also had $34.0 million invested in investment-grade corporate bonds, U.S. Treasuries, and asset-backed securities.

Net cash provided by operating activities increased to $624.6 million in 2024, compared to $380.4 million in the prior year. This was primarily due to higher net income, non-cash adjustments, and favorable changes in working capital. Investing activities used $67.6 million in cash, mainly for software development, property and equipment, and investments in marketable securities.

Financing activities provided $22.2 million in cash in 2024, compared to using $311.8 million in the prior year. This was primarily attributable to cash received from stock option exercises and the employee stock purchase plan, partially offset by the repayment of $50.0 million in term debt.

Tyler Technologies’ available borrowing capacity under its $700.0 million revolving credit facility was $700.0 million as of December 31, 2024, as the company had no outstanding borrowings under this facility. The company also had $600.0 million in outstanding principal for its Convertible Senior Notes due 2026.

Strengths and Weaknesses

Strengths:

• Robust growth in subscription-based revenues, driven by the shift to SaaS offerings and expansion of transaction-based fees
• Improving operating margins through effective cost management, particularly in sales and marketing and general and administrative expenses
• Strong liquidity position with significant cash reserves and available credit, providing financial flexibility for future investments and acquisitions
• Diversified revenue streams, with recurring subscription and maintenance revenues accounting for 84% of total revenues

Weaknesses:

• Declining software licenses and royalties revenue as the company transitions away from perpetual license arrangements
• Slight decrease in overall gross margin due to higher personnel costs and software development amortization expenses
• Potential risk of client attrition as more customers migrate from on-premises to SaaS solutions, though historical attrition rates have been low

Outlook and Future Prospects

Tyler Technologies’ Annualized Recurring Revenue (ARR) grew by 15% year-over-year, reaching $1.86 billion as of December 31, 2024. This growth was driven by the continued shift toward SaaS offerings and expansion in transaction-based fees.

The company expects to continue achieving solid growth in revenues and earnings, supported by its strong financial position and cash flow. Tyler Technologies plans to make significant investments in product development and accelerate its move to the cloud, which should position the company to expand its addressable market and strengthen its competitive position over the long term.

The public sector software market remains active, and Tyler Technologies is well-positioned to capitalize on this opportunity. With its diversified revenue streams, focus on subscription-based offerings, and disciplined cost management, the company appears poised to deliver sustained growth and profitability in the years ahead.