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We came across a bullish thesis on Tyler Technologies, Inc. (TYL) on Substack by Douglas Ott. In this article, we will summarize the bulls’ thesis on TYL. Tyler Technologies, Inc. (TYL)'s share was trading at $644.68 as of Feb 19th. TYL’s trailing and forward P/E were 106.56 and 58.14 respectively according to Yahoo Finance.
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Tyler Technologies recently reported strong full-year 2024 results, demonstrating continued execution toward its long-term 2030 goals. Total revenues grew 9.5% to $2.138 billion, with recurring revenues rising 11.1% to $1.81 billion, now making up 84.5% of total revenue. Subscription and SaaS revenues continued their rapid ascent, up 15.8% and 22.1%, respectively, with SaaS reaching $645 million. Free cash flow hit an all-time high of $574.7 million, soaring 75.5% year-over-year. These figures underscore Tyler’s successful transition to a SaaS-driven model and its ability to generate robust cash flows as it scales.
The company remains on track to achieve its goal of 90% recurring revenue by 2030 while improving margins to support its $1 billion free cash flow target. Management is confident in its trajectory, driven by a combination of strong state and local budgets, growing software demand, and operational efficiencies. Tyler generates 95% of its revenue from state and local governments, which remain financially healthy and eager to upgrade outdated software. This budget stability ensures reliable revenue streams, with federal funding contributing minimally to local government expenditures. Even in the face of federal efficiency initiatives like DOGE, Tyler sees more opportunity than risk, as governments increasingly look to technology to streamline operations. A prime example of Tyler’s impact is its modernization of Cook County’s 40-year-old court system, eliminating the need for manual file processing.
The shift to cloud-based subscriptions remains a key driver of Tyler’s growth. Over 93% of new contracts in the past year have been subscription-based, significantly outpacing declining maintenance revenues. The company expects its transition to peak between 2027 and 2028, with a goal of migrating at least 80% of on-premise clients to the cloud by 2030. This transition is accelerating Tyler’s version consolidation, a major efficiency gain. For instance, over 95% of enterprise ERP clients and more than 75% of Enterprise Justice clients are now on a single version, allowing for better support, faster updates, and significant margin expansion.