Tyler Technologies (TYL) Q3 2025: SaaS Bookings Hit All-Time High, Setting Stage for 20% Growth in 2026

October 30, 2025 | By EarningsIQ Research

Tyler Technologies delivered a quarter of broad-based execution, with SaaS bookings reaching record levels and a clear path to 20% SaaS revenue growth in 2026. Management emphasized operational discipline and AI-driven product innovation, while maintaining robust cash flow and margin expansion. The company’s deep public sector domain expertise and high client trust are emerging as key differentiators as the next wave of digital transformation accelerates.

Summary

• SaaS Momentum: Record SaaS bookings and strong flips underpin management’s 20% growth target for 2026.
• AI and Cloud Integration: Purpose-built AI products and cloud adoption are expanding cross-sell and upsell opportunities.
• Disciplined M&A Strategy: Balance sheet strength and targeted acquisitions position Tyler to accelerate inorganic growth.

Performance Analysis

Tyler Technologies’ Q3 results reflected broad-based strength, with total revenues up nearly 10% year over year, driven by 20% SaaS revenue growth and 11.5% transaction revenue growth. Subscription revenue, now the largest segment, rose 15.5%, with SaaS revenues reaching $199.8 million. Transaction revenue, at $201.3 million, benefited from both new and existing client adoption, as well as third-party payment processing partners. The company’s annualized recurring revenue (ARR) climbed to $2.05 billion, up 10.7%, with SaaS ARR and flips both contributing materially.

Bookings were another highlight, with total SaaS bookings up 5.8% year over year and 5% sequentially, reaching a new quarterly high. The mix of new deals, flips (on-premises to SaaS migrations), and expansions from the installed base provided a resilient foundation for future growth. Flips ARR soared 64%, offsetting a 39% decline in new SaaS ARR due to tough comps from last year’s large deals. Non-GAAP operating margin expanded to 26.6%, up 120 basis points, reflecting a favorable revenue mix and operational efficiencies in cloud delivery. Free cash flow remained robust at $247.6 million, though slightly down year over year due to working capital timing.

• Revenue Mix Shift: SaaS and transaction revenues now dominate, driving higher margins and more predictable cash flow.
• Record Bookings: All-time high SaaS bookings signal strong demand and backlog conversion into 2026.
• Margin Expansion: Cloud operational efficiencies and revenue mix continue to support margin gains, though not expected to be linear going forward.

Tyler’s balance sheet remains a strategic asset, with $973 million in cash and investments and $600 million in convertible debt maturing in 2026. This underpins continued investment in R&D, M&A, and opportunistic share repurchases.

Executive Commentary

Strategic Positioning

1. Cloud-First Execution and Flip Acceleration

Tyler’s cloud-first strategy is fully embedded across the business, with the company now seeing flips (on-premises to SaaS migrations) as a primary growth lever. The installed base, still roughly 50% on-prem by revenue, represents a long runway for future flips. Version consolidation, which simplifies client migration, is progressing rapidly, especially in ERP and justice verticals. Flips deliver significant uplift (1.7x–1.8x) in recurring revenue per client and create additional cross-sell opportunities.

2. AI-Driven Product Innovation and Monetization

Tyler is leveraging its vast data assets and long-standing client trust to deliver AI-powered solutions that drive measurable ROI for public sector clients. Early deployments in document automation and priority-based budgeting are producing 10–30% productivity gains and 2–3x ROI on targeted processes. The company is moving toward agentic AI, digital workforce solutions that can be monetized via annual SaaS fees tied to value delivered. Pricing models are evolving to capture a fair share of ROI, with some clients already reallocating labor budgets to fund digital workforce initiatives.

3. M&A as a Growth Accelerator

With a healthy balance sheet and steady free cash flow, Tyler is signaling a return to a more proactive M&A approach. Recent tuck-in acquisitions like Emergency Networking and MyGov are expected to outperform core growth rates as they are leveraged through Tyler’s established sales channels. Management emphasizes discipline on valuation and bandwidth, but expects to use both cash and reasonable debt to drive inorganic growth, particularly in adjacencies and AI-enabled offerings.

4. Payments and Transaction Revenue Expansion

Despite the wind-down of the Texas payments contract, Tyler’s transaction revenue is being backfilled by new deals such as the California State Parks contract and Colorado’s Inmate Services Financial Suite. The payments pipeline remains active, and management expects low double-digit growth in transaction revenue excluding the Texas impact. The company’s ability to win statewide contracts and embed payments into software suites is a competitive differentiator.

5. Operational Discipline and R&D Investment

Tyler continues to invest in R&D above revenue growth rates, focusing on AI, product development, and cloud enablement. The transition of resources from cost of sales to R&D as part of the cloud shift is elevating short-term expense, but is expected to moderate as revenue scales. Data center consolidation, including the recent Yarmouth exit, will drive long-term margin tailwinds after absorbing some transitional costs.

Key Considerations

Tyler’s Q3 performance underscores the company’s ability to execute on multiple fronts while navigating sector-specific and macro challenges. The public sector’s steady demand and efficiency mandates continue to support technology investment, and Tyler’s domain expertise is proving to be a key moat.

Key Considerations:

• Pipeline Health and RFP Activity: RFP and demo activity remains at multi-year highs, supporting a robust sales outlook into Q4 and 2026.
• Cross-Sell and Upsell Expansion: Add-on sales to the installed base now drive the majority of new SaaS bookings, with a long-term goal to expand from 2–3 products per client to 10+.
• AI Adoption Pace: Public sector clients are increasingly receptive to AI, especially as workforce shortages and retirement accelerate digital workforce adoption.
• Payments Transition Risk: The winding down of the Texas contract creates a near-term drag, but is being offset by new transaction-based deals and a healthy pipeline.
• Margin Trajectory: Margin expansion will be non-linear as investments in AI, product development, and cloud operations are front-loaded for future growth.

Risks

Key risks include the timing and magnitude of large SaaS deal conversions, potential delays in public sector procurement cycles, and execution risk around cross-sell and upsell initiatives. The wind-down of the Texas payments contract will pressure transaction revenue in the near term, while elevated R&D spending and transitional costs from data center exits may weigh on margins. Competitive threats from new entrants touting AI solutions are rising, but Tyler’s deep domain expertise and client trust remain critical defenses.

Forward Outlook

For Q4 2025, Tyler guided to:

• Total revenues between $2.335 billion and $2.360 billion for the full year
• Non-GAAP EPS between $11.30 and $11.50

For full-year 2026, management provided an early view:

• SaaS revenue growth of approximately 20%
• Total recurring revenue growth within the 10–12% long-term target range, excluding the Texas payments wind-down

Management highlighted:

• Strong backlog visibility and robust pipeline activity underpinning confidence in 2026 growth
• Disciplined capital allocation, with increased M&A activity and opportunistic share repurchases expected

Takeaways

Tyler Technologies is executing on a multi-pronged strategy of SaaS transition, AI-driven product innovation, and selective M&A, supported by a resilient public sector demand environment.

• Backlog Conversion: Record SaaS bookings and a growing installed base of flips provide clear visibility into 2026 growth targets.
• AI as a Differentiator: Early AI deployments are driving measurable client ROI and expanding Tyler’s monetization opportunities in digital workforce solutions.
• Watch for Margin Dynamics: Investors should monitor the pace of margin expansion versus elevated R&D and transitional costs, as well as the impact of payments contract transitions.

Conclusion

Tyler Technologies’ Q3 showed comprehensive strength across SaaS, transaction, and bookings metrics, with operational discipline and innovation setting the stage for sustained growth. The company’s positioning as a trusted digital transformation partner to the public sector, combined with a disciplined approach to M&A and capital allocation, supports a constructive long-term outlook.

Industry Read-Through

Tyler’s results highlight that public sector technology spending remains resilient, with efficiency mandates and digital transformation driving steady demand even amid macro uncertainty. The accelerating shift to SaaS and embedded AI solutions is becoming a sector-wide imperative, with client trust and data governance emerging as key differentiators. Competitors in vertical software and payments should note the rising importance of cross-sell, version consolidation, and value-based AI monetization models. The public sector’s gradual but persistent adoption of AI and cloud will likely shape industry growth trajectories and competitive dynamics over the next several years.

TYL Technology Vertical Software SaaS Public Sector AI Cloud Recurring Revenue