Tyler Technologies, Inc. (NYSE:TYL) Q4 2022 Earnings Call Transcript

Page 2 of 11

We have other sort of satellite data centers that we’re looking to collapse, as well as things like looking at real estate and stuff like that. So there’s a lot of initiatives around that, which I think give us that confidence when we talk about €˜23 being sort of the margin trough.

Sami Badri: Got it. Thank you for that color. I want to shift gears a little bit and just talk about the your end market your customers, the funding flywheel. We’ve clearly started to see some companies that are indexed to federal state and municipal budgets start to see the benefit of funds flowing in. They could be coming in from ARPA, some of them are still coming in from the Cares Act. And just in general, state and local budgets are up or up a lot, I guess, in 2022, fiscal 2022, and look like they’re going to be up low single digits in fiscal year €˜23 which means like the base level of state and local budgets are just much higher than what we’ve really seen before. Have you been able to identify some of those incremental lifts in those budget allocations or federal funds start to come into the business in the form of contracted revenue or bookings?

Lynn Moore: I think the answer is probably similar to what we’ve said in the past. I would say is I look at our clients budgets, they’re generally very healthy. As I’ve mentioned, before, they were not as impacted by COVID, as people thought. They are having access to federal funds. Some of it, Brian, the timetables are one that they still have a couple of years, I think it’s been that. So we’re just generally seeing healthy budgets, healthy buying seasons, sort of just a really good, robust market. In terms of identifying specific deals there are occasions for that. But I think really, what it does is it’s more about just overall confidence that our clients being willing to spend money.

Operator: Your next question comes from the line of Rob Oliver with Baird. Your line is now open.

Rob Oliver: Great, thanks, guys. Good morning, Lynn, one for you. You mentioned the milestones on the cloud side since 2019 when you pivoted to the cloud first approach and certainly seems like those are paying off particularly with new business around subscription definitely felt that among your customers in Indianapolis last year talking to them about their readiness for cloud. But I wanted to ask a little bit about you talked about new flips. How should we think about the pace of conversions, this is clearly going to be an important driver here. They are up modestly from last year, nothing to really write home about So can you just help us understand how you’re thinking about maybe success relative to conversions and migrations of existing customers this year and then I had a quick follow up for Brian. Thanks.

Lynn Moore: Yes. Sure. Robin. I think you’re right. I flipped actually, I think there are quite a bit year-over-year. I think this year, we did about 336 flips. Last year, we did about 239 flips give or take. So roughly 40%. I see flips being a significant driver of revenue growth over the next five to seven years. I see them continuing to grow at a healthy pace. And I don’t really, I’m not in a position to tell you that we’re going to grow North of 15%, 20% each year, but we have a wide and deep customer base, that has become a priority, and we’re prioritizing our flips internally.

Rob Oliver: And then Brian, just one on the Q4 operating margin was a bit below our expectations. And that could be driven indeed, by those flips, or by NIC but just wanted to get a little bit more color on that. Thanks.

Page 2 of 11