Q2 2025 Earnings Call Transcript

Ladies and gentlemen, hello, and welcome to today's Tyler Technologies Second Quarter 2025 Conference Call. Your host for today's call is Lynn Moore, President and CEO of Tyler Technologies. [Operator Instructions] As a reminder, this conference is being recorded today, July 31, 2025. I would like to turn the call over to Hala Elsherbini, Tyler's Senior Director of Investor Relations. Please go ahead.

Thank you, Abby, and welcome to our call. With me today is Lynn Moore, our President and Chief Executive Officer; and Brian Miller, our Chief Financial Officer. After I give the safe harbor statement, Lynn will have some initial comments on our quarter, and then Brian will review the details of our results and update on our annual guidance for 2025. Lynn will end with some additional comments, and then we'll take your questions. During this call, management may make statements that provide information other than historical information and may include projections concerning the company's future prospects, revenues, expenses and profits.

Such statements are considered forward- looking statements under the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties, which could cause actual results to differ materially from these projections. We would refer you to our Form 10-K and other SEC filings for more information on those risks. Also, in our earnings release, we have included non-GAAP measures that we believe facilitate understanding of our results and comparisons with peers in the software industry. A reconciliation of GAAP to non-GAAP measures is provided in our earnings release.

We have also posted on the Investor Relations section of our website, under the Financials tab, a schedule with supplemental information, including information about our quarterly recurring revenues and bookings. On the Events and Presentations tab, we posted an earnings summary slide deck to supplement our prepared remarks. Please note that all growth comparisons we make on the call today will relate to the corresponding period of last year unless we specify otherwise. Lynn?

Thanks, Hala. Our second quarter results again exceeded expectations and reflect continued momentum with double-digit total revenue growth, strong profitability and exceptional free cash flow. Our performance continues to be supported by stable market demand and strong execution as we advance our cloud-first strategy. SaaS revenues grew 21.5%, marking our 18th consecutive quarter of SaaS growth of 20% or more.

Transaction-based revenue growth was especially robust and ahead of plan, up 21.3% as quarterly transaction revenue surpassed $200 million for the first time. Our non- GAAP operating margin expanded 200 basis points to 26.5%. In addition, free cash flow grew 80.9% to $88 million, significantly exceeding expectations. As we've discussed on prior calls, we operate in a market defined by inherently long sales cycles, particularly for larger deals, which can create quarterly variability, but ultimately support long-term growth.

While we still are seeing some scattered delays or cancellations of procurement processes related to the macro environment and noise around federal funding, they are not material. Many of the sales processes that were delayed in Q1 were signed in Q2, and we saw a solid sequential improvement in SaaS bookings in Q2. We're seeing no fundamental change in public sector demand or purchasing behavior and our sales pipeline remains strong, supported by generally stable and healthy budgets with funding priorities increasingly aligned to technology investments that drive long-term efficiencies through digital modernization.

In addition, client conversations at our recent Connect conference reinforced that the vast majority of Tyler clients do not expect federal funding, DOGE or other macro factors to impact their spend with Tyler. Our cloud-first strategy is the foundation of our success and is anchored by unifying principles that drive toward a single release stream to better scale, innovate and deliver improved time to value for our clients. By closely aligning our cloud strategy and client success efforts with our deliberate AI approach, we're unlocking the full potential of the cloud while creating deeper client connections through our unified experience that we believe will enhance cross-sell and upsell opportunities.

Our team continues to execute at a high level against our strategic road map, reinforcing our leadership position in the public sector and advancing our 4 key growth pillars, completing our cloud transition, leveraging our large client base, growing our payments business and expanding into new markets. I'd like to highlight a few second quarter wins that illustrate progress against our growth objectives with a broader list of key deals included in our quarterly earnings deck. Our largest SaaS deal in the quarter was an $11 million contract that expands our relationship with the Arizona Supreme Court for Enterprise Supervision solution.

We signed a contract for a full Enterprise Justice on-premises to cloud migration with the Superior Court in Santa Clara County, California, the sixth most populous county in the state. This is our first California court flip and represents more than $1 million in SaaS ARR. It was another strong sales quarter in public safety, including a multi-jurisdictional, multiproduct competitive SaaS win with the West Suburban Consolidated Dispatch in the Chicago area. And a full public safety suite SaaS win in Anoka County, Minnesota, worth more than $1 million in ARR.

The city of Dallas, Texas expanded its contract for our Priority Based Budgeting solution. The city desired an accelerated deployment to leverage our AI-powered application to identify and prioritize the highest value budget initiatives for the city and its constituents. The State of Alabama Department of Revenue Selected our AI-driven Resident Assistant solution. This win builds on our Resident Assistant projects currently in deployment in 4 other states, including Hawaii, Indiana, Mississippi and South Carolina.

We see a strong pipeline behind these wins as we build upon these successes. We were recently recognized as a Leader and Visionary in the first-ever Gartner Magic Quadrant for Cloud-Based ERP for U.S. Local Government. We believe this represents a clear testament to the strength of our competitive position, innovation and the differentiated value of our uniquely integrated suite of public sector solutions.

Before I turn the call over to Brian, I'd like to highlight the acquisition of Emergency Networking earlier this week. Emergency Networking, a Tyler partner since 2023, is a leading provider of cloud-native software for fire departments and emergency medical services agencies, including fire records management and patient care reporting with advanced analytics. The addition of Emergency Networking solutions expands our TAM and adds an important piece of Tyler's public safety portfolio, solidifying our position as a market leader in compliant fire and EMS records management, including the National Emergency Response Information System, or NERIS.

We believe Tyler now has the most comprehensive suite of solutions for public safety agencies, from law enforcement to first responders to EMS agencies. Now I'd like for Brian to provide more detail on the results for the quarter and our updated annual guidance for 2025.

Thanks, Lynn. Total revenues for the quarter were $596.1 million, up 10.2%. Subscriptions revenue increased 21.4%. Within subscription, SaaS revenues grew 21.5% to $189.6 million.

As we've discussed previously, there is often a lag from the signing of a new SaaS deal or a flip to the start of revenue recognition that can vary from one to several quarters. Because of this, as well as the timing of SaaS renewals and related price increases, SaaS revenue growth and SaaS bookings, both year-over-year and sequentially may fluctuate from quarter-to-quarter. Transaction revenues grew 21.3% to $215.5 million, driven by higher transaction volumes from both new and existing clients, increased adoption and deployment of new transaction-based services and higher revenues from third-party payment processing partners.

As a reminder, Q2 is typically our highest volume quarter for transaction revenues encompassing peak outdoor seasons along with tax filing deadlines. Professional services revenues declined 18.5% to $58.6 million due to both an intentional focus on deemphasizing low-margin services as well as the impact of reserves related to projects that were in the implementation phase with agencies in 2 states. Total bookings for Q2 were 28.8%, up sequentially from Q1 and up 5.1% year-over-year as some delayed Q1 decisions signed during Q2. SaaS bookings in total for Q2, including new SaaS deals, expansions, renewals and flips were solid, up 47.7% sequentially from Q1 and up 8.2% year-over-year.

During the quarter, we added 172 new SaaS arrangements and signed 118 SaaS flips of existing on- premises clients, with a total contract value of approximately $91 million, up 35.2% sequentially from Q1, but down 28.4% year-over- year against a difficult comparison, reflecting the lumpiness of large deals. Total ARR from new SaaS deals was approximately $15 million, which more than doubled sequentially from Q1 but was down 7% year-over-year. The average ARR from new SaaS contracts was approximately $87,000, up 65.1% sequentially from Q1 and up 9.8% over last year. The number of SaaS flips grew modestly over last year to 118. Total ARR from SaaS flips was approximately $13.3 million, up 10.9% sequentially from Q1 but down 9.2% year-over-year.

Our total annualized recurring revenue was approximately $2.07 billion, up 15.2%. Our non-GAAP operating margin expanded to 26.5%, up 200 basis points from last year. The margin expansion reflects a positive shift in revenue mix towards higher-margin SaaS and transaction revenues, efficiency gains across our cloud operations and favorable operating expense trends, including leverage in sales and marketing and G&A expenses. As we discussed on previous calls, merchant and interchange fees from our payments business under the gross revenue model, have a meaningful impact on our overall margins as they are included in both revenues and cost of revenues.

We incurred merchant fees of approximately $53 million in Q2 compared to $45 million last year. Cash flows from operations and free cash flow were robust at $98.3 million and $88 million, respectively, driven by higher margins and working capital improvements. The recent passage of the One Big Beautiful Bill Act provided a permanent repeal of Section 174, which required capitalization of R&D expenditures for tax purposes, along with favorable changes in the treatment of tax bonus depreciation. As a result, we currently expect that our cash tax payments in the second half of 2025 will be approximately $55 million lower than previously expected, adding approximately 200 basis points to our free cash flow margin for the year.

Similarly, we expect that our cash tax payments in 2026 will be minimal. We ended the quarter with $600 million of convertible debt outstanding and cash and investments of approximately $895 million and net leverage of 0. In light of our strong second quarter results and our positive outlook for the balance of the year, we have revised our annual guidance for 2025 as follows. We expect total revenues will be between $2.33 billion and $2.36 billion. The midpoint of our guidance implies growth of approximately 10%.

We expect GAAP diluted EPS will be between $7.40 and $7.70 and may vary significantly due to the impact of discrete tax items on the GAAP effective tax rate. We expect non-GAAP diluted EPS will be between $11.20 and $11.50. Our estimated non-GAAP tax rate for 2025 is expected to be 22.5%. We're currently evaluating potential impacts of the new tax bill on our tax rate going forward. We expect our free cash flow margin will be between 25% and 27%.

We expect research and development expense will be in the range of $202 million to $205 million. Other details of our guidance are included in our earnings release and in the Q2 earnings deck posted on our website. I'd also like to add some additional color around our revenue guidance. Subscription revenues in total are expected to grow between 17% and 19%.

Within subscription, SaaS revenue is expected to grow between 21% and 23%. Transaction revenues are expected to grow between 14% and 16%, with merchant fees up 7% to 9%. We now expect the majority of payment services under the Texas contract to continue through the end of 2025 or early 2026, with full year revenues of approximately $41 million. Maintenance revenue is expected to decline 4% to 6%.

Professional services revenue is expected to decline 3% to 6%. License revenues are expected to decline 16% to 18%. Hardware and other revenue is expected to grow between 3% and 5%. Now I'd like to turn the call back over to Lynn.

Thanks, Brian. We closed the second quarter with strong performance and solid execution, positioning us well for the second half of the year. Our results reflect the competitive strength of our diversified business, delivering the broadest, most integrated portfolio of public sector solutions to lead our clients' digitally empowered future. In May, nearly 7,000 clients, sponsors and team members came together at Tyler Connect 2025 in San Antonio.

At the conference, we previewed our AI strategic road map with resounding client interest and indications of elevated adoption readiness. Our AI strategy rooted in 3 core pillars, productivity, decision-making and service delivery, will include the introduction of new AI features for multiple products by year-end. We've also worked to standardize our monetization strategy, focusing on a value-based SaaS model that provides predictability that our clients' need. We also highlighted our increased focus on investments in improving the client experience, including presentations by our new Chief Client Officer, Andrew Kahl.

You may have seen our Form 8-K filed last week, announcing John Marr's intention to end his service on Tyler's Board of Directors effective after the company's Annual Meeting of Shareholders in May of '26. John joined Tyler through the acquisition of Munis, ultimately rising to President and CEO of Tyler. He joined the Board of Directors in 2002 and has chaired the Board since 2017. John's impact on the company is immeasurable, and we look forward to celebrating him and his leadership next year. In the meantime, we extend both our profound thanks and our sincere congratulations to him. We're also grateful that he made this decision months before his actual Board service ends so that we have time to execute a thoughtful and responsible Board transition.

To that end, Independent Directors of the Board discussed and unanimously agreed that their current intention is to nominate me as the company's next Board Chair. Independent Directors also unanimously agreed that they would continue to appoint a Lead Independent Director for as long as the Board Chair is not independent. On a personal level, I want to thank John for the remarkable ride we've had together since 1999. I'm deeply grateful for his leadership of the company and the Board, but also in my own career at Tyler. I remain fully committed to executing our mission, building momentum on the initiatives we have launched and delivering value to our shareholders, and clients and Tyler team members.

It's been a privilege to do that with John, and I'm inspired as ever to continue writing more chapters in the incredible story that John helped write. Additionally, I'm pleased to announce the recent appointment of Ryan O'Connor as our Senior Vice President of Payment Strategy and Operations, a newly created executive role to support strategic objectives and further expand our payments market opportunities. Ryan brings more than 30 years of experience in the payments industry and a proven track record of driving innovation and operational excellence. He'll be responsible for Tyler's overall payment strategy, technology, third-party payments partnerships and day-to-day payments operations.

Ryan's strategic counsel will be key in this next phase of our growth as we realize the full potential of Tyler's payments business. Now we'd like to open the line for Q&A.

[Operator Instructions] And our first question comes from the line of Terry Tillman with Truist Securities.

First, I guess, I want to say congrats to John and all the best going forward. Lynn, Brian and Hala, my one question -- I'm going to focus on bookings, the SaaS bookings. I think there was some commentary in the prepared remarks about maybe some benefit from stuff from 1Q to 2Q actually materializing. But if I just look at the SaaS bookings of [ $148 million to $218 million ], that is a substantial uplift sequentially and is higher than any bookings last year, including some quarters where there were some big deals.

So just anything you could share more on that bookings because no part of the definition of the SaaS bookings is not just new deals, but also extensions and renewals. So maybe talk a little bit more around that SaaS bookings.

Yes, Terry. The real strength in the SaaS bookings this quarter, although the new deals, the new logo, new name deals did improve pretty significantly from Q1 sequentially, and that did include the impact of some of the deals that we talked about in Q1 that were delayed. But really, the strength there was around inside sales, which the expansions, additional sales to existing customers and renewals. It was a very strong renewal period.

Some of that is just timing of when some of the SaaS deals, especially multiyear deals, deals that we signed last year in a very strong bookings year, have renewed. And so that's really what drove most of that strength. But there's really four components there, as you mentioned, new names, additional sales to existing customers, renewals and flips. And the latter three were all pretty strong this quarter.

And our next question comes from the line of Alexei Gogolev with JPMorgan.

Lynn, yesterday, we've heard Tenable call out improving federal spending environment. How have Tyler's sales cycle evolved since Q1? And what specific improvements are you observing in the pipeline as macro begins to improve?

Yes, Alexei, that's a good question. And you're right. I think if you step back and look at the broader economy, you go back just 3 months ago, there was kind of a lot of noise going on a lot of things, whether it was DOGE or whether it was tariffs. And things seem to be stabilizing on a more broader level.

I think reports recently, inflation is down. GDP, I think, was around 3% this past quarter, reflecting, I think, both a change in import, exports. I think there -- for Q1, there was a lot of pre-tariff imports coming in. Wages are up.

There's an expectation of rate cuts coming. So I think some of that market uncertainty is starting to loosen on a broader environment. What we're seeing is there was a little bit of uncertainty, I think, coming out of Q4 really into Q1 around that broader environment. And -- but in our business, those deals don't go away.

So when we talk about our pipeline remained strong, it does remain strong. And even when there's been a little bit of a delay in some decisions, which we're still delivering mission-critical systems to our clients, they have to have them, that demand doesn't go away. And I think you're starting to see that. And we're seeing that in market activity, an anecdote, for example, in our ERP space, RFPs are up, I think, 25% since Q1. So as I said, the demand doesn't go away.

The pipeline is still there and robust. And we are starting to see decisions. And I think as we continue throughout the year sequentially, we'll be seeing those increase in those decisions more back to our -- what we were accustomed to in the last several years.

Our next question comes from the line of Ken Wong with Oppenheimer.

Hoi-Fung Wong: I realize that everyone's still digesting all the potential [ OBAA ] impacts. Any thoughts on as more responsibility is pushed down the state, specifically around things like Medicaid, they're already stretched thin. Any concerns this could potentially influence buying behavior in the near term?

Yes, Ken, that's not something that we're hearing. And particularly when you talk about things being pushed down in the state. I mean what we see is pretty normal budgets. I think NASB recently came out with a report that state budgets are relatively flat over the past couple of years, and those budgets the last few years have been elevated.

And just as a reminder, even in our state business, our DSD business, I think less than 15% of our deals are actually coming from state-funded expenditures as opposed to transaction-based funding. So it's a -- that's a small percentage of our business. But what I would say is we're not seeing any real change due to that -- due to One Big Beautiful Bill Act.

And our next question comes from the line of Michael Turrin with Wells Fargo Securities.

Brian, I was hoping we could just go back to some of the free cash flow commentary and unpack it a bit more. I guess with Q2 specifically, I'm wondering if anything, in terms of transaction outperformance, it all impacts seasonality of free cash flow or anything we should be mindful of? And then the commentary on the bill impacts. Was that 200 basis points for the full year, just given the change in the second half assumptions, anything additionally you can add just there and in terms of seasonality as we're updating our forecast and just trying to get a bit more calibration around some of the changes there is helpful.

Yes. The 200 basis points is the -- it's the impact of that $55 million lower cash tax payments for the full year. So that is the impact on the full year margin. In terms of seasonality, it was a really strong -- seasonally, the second quarter is the strongest quarter for transaction revenues.

But this quarter was especially strong and exceeded the expectations around the cash flow from those transaction revenues with higher volumes and some of the newer contracts that we've signed in recent quarters coming online. The third quarter is still our biggest free cash flow quarter by a wide margin, and that continues to be the expectation, especially because we still have a lot of maintenance that the majority of which renews in the third quarter or that we can't collect the cash for in the third quarter. So the really a big change to the second half assumption is around the lower cash taxes.

So we really expect that we won't pay any meaningful federal cash taxes for the next 1.5 years almost.

And our next question comes from the line of Mat VanVliet with Cantor.

I guess when you look at the pipeline for cloud flips, curious on how that was trending into your Connect user conference, how the conference helped support that? And then as you look towards the back half of the year, how should we think about the progress of cloud flips and the magnitude of the ARR flipped over?

Yes, Matt, I think -- I'll start, Brian. You may want to jump in with some specifics. But I think generally speaking, as every quarter goes by and as more clients successfully flip to the cloud, it creates more momentum. I got a phrase I've used around Tyler, momentum creates momentum.

And we're seeing that. I think the SaaS flips that we did in California is a good example. I think -- I can't remember exactly when it was. Maybe 1.5 years ago, 2 years ago when we did our first statewide court flip in Idaho and we talked about how that reference would create more momentum, and we're seeing that.

I think the other thing is it's one of the things that I think also drives the elevated interest in AI is just some of the unique factors that are going on in the public sector, one being the changing workforce and really the reductions in workforce, which also is going to be driving as people retire -- continue to retire and they're having more difficulty hiring than, say, in the public sector. I think that's also going to continue to fuel momentum in our cloud flip business.

And with respect to the flips this year, it is a little bit more back-end weighted towards the second half of the year. I think our assumption around flips this year really hasn't changed from where we started out the year. We expect the number of flips to grow around 25% year-over-year. I would say that our client base -- our on-prem client base is still more heavily weighted towards large customers.

As Lynn said, we've only flipped at this point, one of our state court's customers. We have a big presence in California with counties that we just flipped the first county there. So the timing of the bigger flips really impacts that ARR, and it can be somewhat unpredictable. We still see the sort of the peak of the flips, especially around the bigger customers, somewhere in that 2027, 2028 time frame.

And we're working with customers all across our on-prem base to develop time lines for when they'll flip, but I think with virtually every customer now, it's a matter of when and not whether they'll flip. But we still see that peak a couple of years down the road.

And our next question comes from the line of Saket Kalia with Barclays.

Great to see some of the stabilization. Brian, maybe for you. Again, it was really good to see the SaaS bookings this quarter and that sequential growth. I noticed that you narrowed the SaaS revenue growth for the year just a little bit.

It's really not that material. But I was just wondering if you could just talk us through what were some of the puts and takes that you considered when doing that? And then just broader, remind us what you said about the long-term model here with SaaS growth at Analyst Day. If I remember correctly, it was kind of a 2-stage sort of model.

I wanted to see if you had -- if you could just remind us about what that 2 stages sort of said about SaaS growth.

Yes, sure. Yes, as we look at the -- just as we get further in the year, now halfway through the year, we just have more clarity and are able to narrow that range. I think the biggest variables around the SaaS growth in the current year, it's not as much the current year bookings. As you get into the second half of the year, they don't have much impact on the current year revenues.

But really, fully understanding the timing around the start of revenues around the bookings in the first half of the year, more information around the timing of flips and when those revenue shifts from maintenance to SaaS will occur. So those are the biggest factors that enabled us to kind of narrow that range down a little bit but really no fundamental changes there. In terms of the Investor Day targets, we talked about long term between 20 -- the time of the Investor Day in 2030, recurring revenues, in total, growing 10% to 12% CAGR with SaaS in the high teens kind of a 20% CAGR through 2025. As you've seen, we're ahead of pace on that.

But as we get through that peak of the flips, it starts to move more towards that high teens over that total period but kind of low 20s up through the peak of the flips and then slowing down as we get on the downside of the flip chart.

And our next question comes from the line of Joshua Reilly with Needham.

As we enter the second half of the year here, how should we think about the pipeline for big deals. I know specifically, there's 2 states with RFPs for statewide court management contracts. Any update on how these are progressing and just the overall pipeline for big deals?

I think, Josh, as we said, just generally, our pipeline is solid. I'm aware generally -- I probably can assume which dealers you're talking about. We always have a good pipeline in the court space. Those bigger deals in courts tend to be lumpy.

We expect some large RFPs to be coming out over the next several quarters. We expect to be extremely competitive in those deals. The timing of those is always a little bit uncertain. But even if RFPs were to be announced in the next quarter, say, it would take some time to get through the process and get those signed.

I'd say at the high level, the mix of large deals in our pipeline is pretty consistent with what we've seen over a long period of time. But as Lynn said, it's really hard to -- it's harder on the bigger deal to predict the timing until they actually get down to an award. Oftentimes they're -- even when they have published time lines for procurements. They don't stick to them too religiously.

So I'd say that broadly, the mix of large deals in our pipeline is consistent with kind of our historical norms.

And our next question comes from the line of Rob Oliver with Baird.

My question is on cross-sell. Brian, I think you mentioned from the SaaS revenue in the quarter, there was a good contribution from entices and cross-sell. So Lynn, my question for you is, and particularly coming out of Connect, you've done a lot to kind of change the culture internally at Tyler and to drive cross-sell. So two areas of focus.

One, where are you seeing kind of the bulk of the cross-sell today? And I guess, within product sets. And then how are you seeing the evolution of kind of the One Tyler where you're creating a pipeline of ability to cross-sell, say, public safety into Munis and Odyssey into Munis and vice versa.

Yes, sure. I think that last point is pretty important. The One Tyler initiative, which really encompasses a lot of things and will become foundational for future cross-sell and upsell. And it's more than just things we're doing around our sales teams and how we're now quoting people.

And even when we've talked recently about building out a state sales team, which is still in the early stages. But it extends into things like how we're approaching the cloud, how we're approaching cloud living, how we're approaching client experience, trying to give all of our clients a single unified experience, both from sales to support to implementation. That's what's going to continue to drive more and more cross-sell and upsell. We're seeing those opportunities really, I'd say, just kind of consistently across the board.

I'd say we're still early in the process of capitalizing on the cross-sell, upsell opportunities. as we continue to build out that sort of One Tyler foundation that makes that, for lack of a better term, sort of helps grease the skids for those types of sales. So I continue to see that as one of our long-term growth drivers as we can continue to get more and more of our Tyler products into each of the clients' hands.

And our next question comes from the line of Jonathan Ho with William Blair.

Let me echo my congratulations as well. In terms of the transaction-based revenue, what maybe drove the strong performance this quarter? Can you just unpack that for us a little bit more? And what maybe causes us to drop back down to more normalized levels over the balance of the year?

Well, there's a couple of things. Our Tyler Payments revenues, as we've talked about, we have a focus on cross-sell focus really into bundling payments in an integrated manner with new Tyler software sales as well as back into our installed base. And we've had a lot of success with that really over the last year and continue to work with existing customers to add payments to their software solutions. So we've seen good growth in that.

We've also seen growth in the revenues that we get from third-party payment relationships with some of our customers, and we've seen nice growth there. And then in new payment relationships, some of which are really what I kind of like to refer to as SaaS as a transaction where we're providing software but getting paid for it with transaction revenue. So for example, the California Parks contract that we talked about last year went live last August. So that's still providing growth for us that it wasn't in there last year.

Some of our digital titling solutions that are paid for with transaction revenues, we went live, for example, in the State of New Jersey with that. The Florida payments contract continues to grow as we went live actually last July with SunPass the toll roads in Florida. So that's new revenue on a year-over-year basis. And then Texas, which is going away at some point, continues to have higher volumes as well.

So we saw some increase there. So it's really volumes, new customers and some of those new customers being cross-sell. I guess the things that would -- some of the volumes can be seasonal somewhat. And over time, I think as we continue to mine the existing customer base, at some point, we'll sort of reach a peak there and have fewer opportunities or have worked through most of those opportunities.

And I think we're still some time away from having fully penetrated our customer base. But eventually, we'll get there.

I think to add to that, Jonathan, just two things, and it was kind of -- I think you may have covered it, Brian, but we're getting better at accelerating onboarding of our payment streams. And we also have some initiatives around trying to help increase adoption within our client base. So all the things that Brian mentioned, plus those two factors as well.

And our next question comes from the line of Alex Zukin with Wolfe Research.

Echo the congrats. I guess maybe just two quick ones for me. First, around the kind of macro timing impacts, is there kind of maybe gauge the level of conservatism still embedded in the outlook for those events just given the kind of maybe lower macro impacts that we've seen thus far. That's just the first one. And then I have a quick follow-up.

Yes. I mean, as I mentioned earlier, I think there has been a little bit of a macro, cloud may be the wrong word, but hanging around. What's going on in the general economy, I think, is -- should free up some of that, maybe uncertainty or we experienced earlier. It's short-lived.

I mean it's -- as I said earlier, the demand hasn't gone away, the pipeline hasn't gone away. In terms of conservatism and the remaining outlook for the year, given the timing of even if we start seeing more deals and the timing I'm getting online, I wouldn't think that there's really any conservatism right now in our approach for the rest of 2025.

Got it. And then, Brian, maybe just on the free cash flow raise, I guess, 200 basis points add from the bill, you increased it by 100. Maybe what's that delta tied to? And then given that's a half year number, should we kind of -- I know we're not guiding to it yet, but as we kind of tune our models for next year, should we assume kind of a 400 to 500 basis point impact from that for next year on top of what we may have been modeling previously?

Yes. No, I wouldn't do that. I think that would probably be overly aggressive. I think the difference is really around just the impact of higher margins and higher earnings.

So that's flowing through the cash, especially on the transaction side because the cash flow characteristics of the transaction revenues are really strong. We get the cash when the transaction takes place. So those are the biggest factors. The tax change and just the higher earnings and particularly transaction revenues.

So I think your starting point is going to be probably somewhere around where we are this year. And then the impact of basically no federal cash taxes next year, which would have been probably in the $100 million range, but that impact on next year.

And our next question comes from the line of Charlie Strauzer with CJS Securities.

Just a personal thanks to John for the 23-plus years we've known each other and you, Brian, especially introducing us to the Tyler story at the very early days.

And our next question comes from the line of Gabriela Borges with Goldman Sachs.

I wanted to follow up on the prior commentary on the potential for flip to grow around 25% year-over-year. Give us a little bit of a sense of how that's progressing from here. I think in the past, you've talked about peak flips being in 2027, 2028. So do you think that 25% can accelerate? Or are we talking number of flips versus percentage growth rate, maybe just a little color on where we go from here on the flip.

Yes. The 25% is number of flips and really the dollar value of the flips, the ARR from those is the bigger factor. It's a little bit hard to predict, but likely '26 is probably something like another 25% on top of where we are in '25 and then acceleration from that to peak in '27 and '28. So we're probably looking at something like a 25% increase year-over-year in ballpark over the next couple of years and with larger and larger -- with a continuous increase in the number in the average dollar value of those flips as well. Certainly bounce around on quarter-to-quarter.

But we're still probably on that kind of trajectory over the next couple of years until we get to the peak.

I got you. And so even if the number of percentage growth is steady to improving, the dollar value associated with that flips will be going up?

That's correct. That's the trend we expect over the next couple of years, the dollar value increasing more than probably the number of flips, especially as you get to the large court flips, some of those -- the state-wide courts, the large counties are multimillion dollar annual maintenance revenue streams, and we're continuing to see a pretty consistent around that 1.7x uplift from maintenance to SaaS.

And our next question comes from the line of Mark Schappel with Loop Capital Markets.

Nice job on the quarter. Lynn, I was wondering if you could just provide some additional details around Emergency Networking. The acquisition just announced, it looks like a nice little pickup, but maybe just some additional information such as maybe number of employees or customers, were they a regional player and where they profitable?

Yes. Thanks, Mark. It's a good question. So as we said, the primary solution is really in fire records and patient care reporting for EMS.

Fire records has always been part of our public safety suite, but something that we actually have not been investing in significantly as we focus more on our CAD and our police records. It's -- they've got a cloud-native, multi-tenant offering. We've been partners with them for probably 2 years to help fill that gap. And part of this is it's what we called internally a partner to acquire model.

So we kind of tested them out. We've got to know them as people, got to know the culture, got the experience whether or not that product is portable and can move up market the way we expect that it could, and it has proved that. There's some new compliance standards in this space. The space has seen a lot of consolidation recently.

There's -- we talked about it being compliant with NERIS, the National Emergency Response Information System. That's where -- all these agencies are -- most of them are on what's called NFIRS, and they're required to move in the beginning of '26. They've got that solution compliant. It's one of the things that we find really exciting about it shortly before or after LOI, but shortly before closing, they had just closed on a statewide Pennsylvania deal, which has garnered a lot of interest. So we think we've got the best solution out there in the market.

We're excited about it. It is a small company, several million in revenues, a little more than -- around breakeven. But we believe that we can take this now and do what we've done traditionally with some of these tuck-in acquisitions. It rounds out our portfolio.

It makes us even more competitive and with the sort of urgency around this regulatory compliance change and what we've seen with success in the market, we're really pretty excited about it.

I'll add on the impact from Emergency Networking, although it's relatively immaterial is included in our guidance for the year.

And our next question comes from the line of Trevor Walsh with Citizens.

Lynn, I appreciate all the color around kind of DOGE maybe taking a bit of a back seat or at least the noise around that diminishing and that kind of being a good, I guess, confirmation of stronger budgets at the state level. But have you seen anything, I guess, within the confines of your federal business. I know it's small, but just has that pressure released there? Maybe just in that broader question, just give us an update on kind of where the opportunities might lie as you go more towards that part of the customer base.

Yes, Trevor. And you're right. Our federal business is a pretty small piece of our business, less than 5%. What we're seeing right now is that projects haven't been taken away.

As you know, Q3 is the biggest quarter for that. So it's still a little TBD. But I think, generally speaking, I don't see a material change in our outlook. There will be pockets in federal.

But as we mentioned in our opening remarks, while there has been some scattered stuff across our diversified portfolio, we don't view any of it as material.

And our next question comes from the line of Kirk Materne with Evercore ISI.

This is Bill on for Kirk. How should we think about trailing 12-month bookings numbers? Is it still a bit too lumpy? Should we look at it more over a trailing 2-year basis?

Well, the lumpiness probably does sort of point you towards looking at over a longer basis to get a more accurate trend. We'll we've pointed out in the past, and we'll remind people that last year was a record year for SaaS bookings. We had a number of very large deals particularly in the third and fourth quarters. So we do face difficult comps on -- with that just really strong -- just a lot of it based on timing, but a lot of those came together in the third and fourth quarters of last year.

We had large SaaS deals in courts in Arizona, we had a large Resident Portal deal in Maine. These were $15 million, $20 million kinds of deals. So I think the longer -- a little bit longer look back probably gives you a more accurate trend that eliminates a little bit more of that lumpiness. But as we said, the pipeline -- we're really happy with the pipeline and the outlook is -- for bookings in the second half of the year is solid, but it is up against a really tough comp from the last 2 quarters -- last year's last 2 quarters.

So just keep that in mind.

And our next question comes from the line of Keith Housum with Northcoast Research.

Question for you on bookings. As I look at the bookings here, obviously, it's not quite what you guys are growing in terms of revenue. But in terms of your revenue, what do you guys recognize as perhaps not recorded in your bookings? Is there a gap there in terms of payments or whatever might you see in revenue but not in bookings?

Well, payments doesn't show up in bookings at all. Well, it shows up in bookings when the revenue is recognized. So if we sign a new payments deal because -- or other transaction-based deal, you won't see that show up in current quarter bookings because even though the revenue stream may be very predictable and a lot of comfort around that, it is dependent on the transaction, so it doesn't go into the bookings number. So new transaction deals.

And as I mentioned, we're doing -- regularly doing deals where we're delivering software that is being paid for through transaction revenues. And so those won't show up in that bookings number, but they will show up in revenue growth. So there's kind of this hybrid model we have, in many cases, which provides us with a strong competitive advantage of being able to deliver software and get paid under a transaction model, especially at the state level. And -- but that does have the impact of really kind of under -- understating bookings, especially around the software.

Yes, Keith, a good example, our ERP suite signed this past quarter a deal in Florida, I think with the city of Apopka. I don't how to pronounce it, Apopka, I think Florida. That was a $370-ish thousand annual ARR for SaaS but we expect $330,000 in transactions a year. So it's about a $700,000 a year ARR. But of course, a lot of -- most of that transaction doesn't show up in bookings.

Just another example, we signed a deal with the State of Oklahoma for our Cashiering product. There is a small SaaS fee associated with it in $140-some thousand dollars a year. But with transaction revenues associated with it, it's $1 million of ARR. But all that showed up in the bookings was $144,000. So that's why we have sort of deemphasized backlog in bookings in favor of total ARR.

And ladies and gentlemen, that concludes our question-and-answer session. I will now turn the call back over to Mr. Lynn Moore for closing remarks.

Great. Thanks, Abby, and thanks, everybody, for joining us today. If you have any further questions, please feel free to reach out to Brian Miller or myself. Thanks, everybody. Have a great day.

And this concludes today's call, and we thank you for your participation. You may now disconnect.