TYLER TECHNOLOGIES INC

Tyler Technologies, Inc. is a leading provider of integrated software and technology management solutions for the public sector, serving local, state, and federal government entities. The federal, state, and local public sector IT market is one of the largest and most decentralized in the country, consisting of hundreds of federal agencies, all 50 states, approximately 3,000 counties, 36,000 cities and towns, and 12,600 school districts, along with approximately 40,000 special districts and other agencies. Government entities face challenges in attracting and retaining IT staff, and their primary revenue sources—property, business, and sales tax revenue, as well as transactional fees—historically tend to be relatively stable, driving demand for modern technology solutions that provide a measurable return on investment.

Tyler competes with numerous local, regional, and national firms, including Oracle Corporation, Infor, SAP AG, Workday, Inc., CentralSquare Technologies, Thomson Reuters Corporation, Motorola Solutions, Inc., Axon Enterprise, Inc., and Constellation Software, Inc. The company competes on factors including the breadth, depth, and quality of its product and service offerings, deep industry expertise, technological innovation, name recognition, reputation, value and return-on-investment, and financial strength and stability. Tyler maintains deep, long-term relationships with state and local government agencies, including dedicated state-level offices in the 30 states in which it has enterprise contracts, and has historically experienced very low client turnover of approximately 2% annually.

Tyler derives its revenues from three primary sources: subscription-based services (including SaaS and transaction-based fees), maintenance and support, and professional services. Subscriptions and maintenance are considered recurring revenue sources and comprised approximately 87% of total revenues in 2025. The company offers a comprehensive suite of products addressing back-office systems-of-record for specific government agencies as well as platform technology solutions designed to integrate across many agencies, including a market-leading payments platform, data platform, low-code application development platform, and digital resident experience solutions.

The Enterprise Software (ES) reportable segment provides public sector entities with software systems and services for mission-critical back-office functions such as public administration solutions, courts and public safety solutions, education solutions, and property and recording solutions. For the twelve months ended December 31, 2025, ES segment revenues were $1,694,421,000 ¹, and ES segment operating income was $660,631,000 ². The Platform Technologies (PT) reportable segment provides platform and transformative solutions including digital solutions, payment processing, streamlined data processing, and improved operations and workflows. For the twelve months ended December 31, 2025, PT segment revenues were $628,554,000 ³, and PT segment operating income was $106,064,000 ⁴. Total subscriptions revenue was $1,586,203,000 ⁵ for 2025, consisting of SaaS fees of $777,769,000 ⁶ and transaction-based fees of $808,434,000 ⁷. Maintenance revenue was $445,614,000 ⁸, professional services revenue was $242,700,000 ⁹, software licenses and royalties revenue was $12,816,000 ¹⁰, and hardware and other revenue was $45,007,000 ¹¹.

During 2025, Tyler completed four acquisitions. On January 31, 2025, it acquired MyGov, LLC, a provider of SaaS platform solutions for community development, for a total cash purchase price, net of cash acquired of $215,000, of approximately $18.2 million ¹². On July 28, 2025, it acquired Emergency Networking, Inc., a SaaS company specializing in cloud-native software for fire departments and emergency medical services agencies, for a total cash purchase price, net of cash acquired of $497,000, of approximately $19.4 million ¹³. On November 19, 2025, it acquired CloudGavel, LLC, a SaaS company specializing in cloud electronic warrant solutions, for a total cash purchase price, net of cash acquired of $147,000, of approximately $16.6 million ¹⁴. On December 2, 2025, it acquired Edu.Link, Inc., a SaaS company focused on educator evaluation and performance management for K-12 schools, for a total cash purchase price, net of cash acquired of $716,000, of approximately $37.3 million ¹⁵. During 2025, Tyler repurchased approximately 303,067 shares of its common stock for an aggregate purchase price of $174.7 million ¹⁶ and approximately 84,113 shares to satisfy minimum tax obligations of employees upon vesting of restricted stock awards. On February 3, 2026, the Board of Directors authorized the repurchase of $1.0 billion ¹⁷ of common stock, replacing all previous authorizations. On February 2, 2026, Tyler signed a definitive agreement to acquire the remaining equity interest of a privately held company in which it holds a minority interest for a cash purchase price of approximately $212.5 million ¹⁸.

For the fiscal year ended December 31, 2025, total revenues increased 9.1% ¹⁹ compared to the prior period, reaching $2,332,340,000 ²⁰. Net income was $315,603,000 ²¹, compared to $263,026,000 ²² in 2024. Diluted earnings per share were $7.20 ²³ versus $6.05 ²⁴ in the prior year. Overall gross margin improved to 46.5% ²⁵ from 43.8% ²⁶ in 2024. Operating income was $357,676,000 ²⁷ compared to $299,526,000 ²⁸ in 2024. Cash provided by operating activities was $653,543,000 ²⁹.

A primary growth vector is the ongoing shift toward cloud-based subscription arrangements. Tyler has moved its sales approach from cloud-neutral to cloud-first, with an increasing preference to provide solutions in the cloud. For the twelve months ended December 31, 2025, new software contract mix was approximately 89% subscription-based arrangements and 11% perpetual software license arrangements. Since December 31, 2024, Tyler added 612 new SaaS clients ³⁰, while 488 existing on-premises clients converted to its SaaS offerings ³¹. Subscription-based revenues have been the fastest growing revenue category over the past five years, increasing from $784.4 million in 2021 to $1.6 billion in 2025. Annualized Recurring Revenue (ARR) was $2.06 billion ³² as of December 31, 2025, compared to $1.86 billion ³³ as of December 31, 2024, an increase of approximately 11% ³⁴.

Another growth vector is expanding the existing client base and cross-selling solutions. Tyler has been successfully selling its software products into the NIC Inc. client base and providing NIC's payment services to Tyler's client base since the acquisition in April 2021, and expects those opportunities to continue to expand. The company also intends to continue expanding into new geographic markets and larger jurisdictions, and to expand its presence in international markets by leveraging its leadership position in the United States through the disciplined pursuit of selected opportunities in other countries. Tyler also has a strategic collaboration agreement with Amazon Web Services (AWS) for cloud hosting services to support next-generation applications.

The filing discusses margin trajectory in the context of the shift toward higher-margin SaaS revenues. Overall gross margin increased 2.7% ³⁵ to 46.5% ³⁶ in 2025 compared to 2024, primarily attributed to the shift in revenue mix toward higher-margin SaaS revenues and the redeployment of resources to research and development due to continued migration of clients to SaaS products and consolidation of on-premises software versions. The company seeks to maximize economies of scale and take advantage of financial leverage, believing its marketing and administrative infrastructure can be leveraged to accommodate significant long-term growth without proportionately increasing expenses.

Tyler is making significant investments in optimizing its products to be deployed efficiently in the public cloud, transitioning from hosting clients in its proprietary data centers to utilizing AWS for cloud hosting. As of December 31, 2025, Tyler had approximately 7,800 team members ³⁷, with approximately 51% working remotely and 49% either partially or fully office-based. Voluntary workforce turnover was 7% ³⁸ as of December 31, 2025. The company anticipates that 2026 capital spending will be between $24 million and $26 million ³⁹, including approximately $10 million ⁴⁰ of capitalized software development.

Tyler anticipates that 2026 capital spending will be between $24 million and $26 million ⁴¹, including approximately $10 million ⁴² of capitalized software development. Research and development expense increased 73% ⁴³ in 2025 compared to the prior period, with the majority of the increase due to the redeployment of resources to R&D and increased investments in new product development initiatives including investments in artificial intelligence. The company has authorization from its Board of Directors to repurchase up to $885.0 million ⁴⁴ of its common stock under the new repurchase plan as of February 18, 2026. Tyler does not anticipate paying cash dividends on its common stock in the foreseeable future.

Structural headwinds and execution risks flagged by management include the challenges of selling products and services into the public sector, such as resource limitations caused by budgetary constraints, long and complex sales cycles, political resistance to cloud solutions, and legislative changes affecting a local government's authority to contract with third parties. A prolonged economic slowdown or recession could reduce demand for software products and services, as governments may face financial pressures that could affect growth rate and profitability. The open bidding process creates uncertainty in predicting future contract awards, and fixed-price contracts may affect profits if cost overruns occur.

Management identified risks related to cyber-attacks and the evolving use of artificial intelligence, which increase the risk of cyberattacks and data breaches. The company faces risks from reliance on third-party providers, including AWS, for hosting services, and any disruption in those services could adversely affect its business. Additionally, the company must timely adapt to and implement technological changes, including AI technologies, to remain competitive, and delays in adoption or innovation could render its offerings less competitive or obsolete.

Tyler faces material risks from cyber-attacks and the evolving use of artificial intelligence, which increase the risk of cyberattacks and data breaches that could disrupt business and harm its competitive position. The company relies on third-party providers, including Amazon Web Services (AWS), for hosting services, and any disruption in these services could adversely affect its business and subject it to liability. Selling products and services into the public sector poses unique challenges, including resource limitations from budgetary constraints, long and complex sales cycles, and political resistance to cloud solutions. The company's $600.0 million ⁴⁵ 0.25% Convertible Senior Notes due March 15, 2026, represent a significant debt obligation, and the company may not have sufficient cash flow to repurchase the notes upon a fundamental change or to settle conversions. Additionally, the company faces significant competition from larger firms with greater financial and technical resources, including Oracle Corporation, Infor, SAP AG, Workday, Inc., and others, which could result in pricing pressure and loss of market share.

Management's message emphasizes the company's position as a leading provider of integrated software and technology management solutions for the public sector, highlighting its broad range of solutions and services designed for every level of government. Key themes include the ongoing shift toward cloud-based subscription models, with new software contract mix for the twelve months ended December 31, 2025 being approximately 89% subscription-based arrangements. Management stresses the importance of recurring revenues, which generated $2.0 billion, or 87% of total revenues, in 2025, and notes very low client attrition of approximately 2% annually. Strategic priorities emphasized for the period ahead include continuing to accelerate the move to the cloud, making significant investments in product development including artificial intelligence, and pursuing focused strategic acquisitions to complement organic growth. Management states its objective is to grow revenues and earnings organically, supplemented by focused strategic acquisitions, and expects to continue to achieve solid growth in revenues and earnings.