Tyler Technologies (TYL) investor relations material

Customer demand and technology adoption

• Public sector clients are risk-averse and slow to adopt new technologies, preferring proven solutions and waiting for successful implementations elsewhere before committing to innovations like AI.

• AI is a topic of curiosity among clients, but not yet a significant driver of new business or budget allocation; current focus is on practical, real-world applications that address staffing shortages and inefficiencies.

• AI solutions are being piloted and deployed in areas such as document automation and resident engagement, with measurable cost savings and efficiency gains.

• Adoption of AI and cloud solutions is often driven by the need to replace aging, inefficient systems and address workforce shortages.

• Clients are funding AI initiatives from labor budgets due to their role in offsetting staffing gaps.

Cloud transition and business model evolution

• Cloud migration has accelerated, with nearly 90% of new business now cloud-based, though the overall customer base is still transitioning.

• By 2030, 80-85% of on-prem customers from 2023 are expected to be on the cloud, with the peak of migrations projected for 2027-2029.

• Cloud transition enables higher revenue per customer, margin expansion, and opportunities for upselling and cross-selling additional products.

• Consolidation to single cloud versions and product optimization are reducing support and development costs, with operating profit margins targeted above 30% by 2030.

• Double costs from maintaining both proprietary data centers and AWS are expected to end after this year, further improving margins.

Market dynamics and growth strategy

• The public sector software market remains highly fragmented, with significant cross-sell and upsell opportunities due to a broad product suite and deep client relationships.

• Average customers use only a fraction of available products, leaving room for expansion within existing accounts, especially as systems reach end-of-life.

• Integrated solutions and acquisitions have strengthened the ability to offer comprehensive, connected platforms across government functions.

• A new Chief Client Officer role and standardized processes are improving the client experience and supporting multi-product adoption.

• State-focused sales organizations and compensation changes are aligning teams to maximize cross-sell and upsell potential.