Tyler Technologies, Inc. (NYSE:TYL) Q4 2024 Earnings Call Transcript

Tyler Technologies, Inc. (NYSE:TYL) Q4 2024 Earnings Call Transcript February 13, 2025

Operator: Fourth quarter 2024 conference call. Your host for today’s call is Lynn Moore, President and CEO of Tyler Technologies, Inc. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. In order to address your questions and stay within the allotted time, please limit your question to one question per person. You may get back into the queue for a follow-up. As a reminder, this conference is being recorded today, February 13, 2025. I would now like to turn the call over to Hala Elsherbini, Tyler’s Senior Director of Investor Relations. Please go ahead.

Hala Elsherbini: Thank you, Calvin, 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 provide 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 results, future prospects, revenues, expenses, and profits. Such statements are considered forward-looking statements under the Safe Harbor provisions 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 those projections.

We refer you to our Form 10-Ks 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. We have also posted on the investor section of our website under the financials tab a schedule with supplemental information including information about quarterly recurring revenues and bookings. On the events and presentations tab, we’ve posted an earnings summary slide deck to supplement our prepared remarks. Please note that all loan comparisons we make on the call today will relate to the corresponding period of last year unless we specify otherwise.

Lynn Moore: Thanks, Hala. Our fourth quarter results provided a solid finish to an exceptional year of growth and profitability as we executed on our key objectives across financial, operational, and strategic initiatives. We exceeded our expectations across our key financial metrics, with recurring revenue growth of nearly 15% driven by SaaS revenue growth of 23%, our sixteenth consecutive quarter of SaaS revenue growth of 20% or more. SaaS adoption continued to accelerate with both new and existing clients. With 97% of our new software contract value in the cloud, transaction revenues set a new quarterly high, growing nearly 21%. Our non-GAAP operating margin expanded to 24.4%, benefiting from the mix shift to higher SaaS revenues.

In addition, free cash flow of $216 million significantly exceeded our expectations, reaching a new high for a fourth quarter. In 2023, we passed a cloud revenue inflection point where long-term recurring SaaS revenues surpassed on-premise license and maintenance revenues. At our 2023 Investor Day, we unveiled our Tyler 2030 vision and multiyear strategic direction, including drivers of revenue growth and margin expansion. We also laid out our 2025 and 2030 targets, key metrics around revenues, margins, and cash flow. We’re pleased with our progress in 2024 toward those goals. As planned, we closed our Dallas data center midyear and are on track to close our main data center at the end of 2025. We delivered SaaS revenue growth that exceeded our 20% growth target, and transaction revenues were well above plan.

We made significant progress with our cloud operations initiatives, delivering better than expected operating margin expansion through version consolidation, releasing cloud-optimized products. These proof points give us confidence in achieving our 2025 targets as well as our long-range goals of organic recurring revenue CAGR of 10% to 12%, sustainable margin expansion, with non-GAAP operating margins of 30% or more, and expanded free cash flow of $1 billion with free cash flow margins in the high 20s. The public sector market remains strong, with robust demand supported by healthy budgets, especially at the state and local levels, which comprise approximately 95% of our total revenue. The public sector’s drive towards digital modernization continues to accelerate as aging mission-critical systems reach end of life, cybersecurity threats continue to increase, and governments at all levels face a growing demand for an improved citizen experience and seek operational efficiencies to enable them to do more with limited resources.

While the new federal department of government efficiency or Doge is still in its early days, we don’t envision its effort having a significant impact on funding or demand for our software and services, which power what are generally essential functions. In fact, we view an increased focus on government efficiency at any level as an opportunity rather than a risk for Tyler, and we believe that technology is ultimately the greatest driver of improved efficiency. The elevated market activity we’ve discussed for the past few quarters, along with excellent execution by our sales teams, is reflected in our new software bookings this quarter with new SaaS contract value of approximately $141 million, up 37% over last year. Our market-leading position and competitive strengths, including our deep domain expertise, broad portfolio solutions, and most importantly, our client base, serve as the foundation for our long-term strategic focus on four key growth pillars: executing on our cloud-first strategy, leveraging our unmatched installed base, expanding into new markets, and growing our differentiated payments business.

Our cloud transition is anchored by our unifying principles toward a single release stream to better scale, innovate, and deliver an enhanced client experience. We’ve made significant progress with our cloud optimization efforts, with cloud-optimized releases launched across many of our flagship products, driving an accelerated pace of on-premise client migrations to the cloud, with more flips of larger clients taking place. For the quarter, we inked a total of 106 flips of on-premises clients. The total contract value from flips signed this quarter grew 58% over last year’s fourth quarter, and the average ARR of flips signed in the quarter was nearly 32%. As we previously discussed, we are executing multiple cloud transitions across our product solutions, each with its own nuanced roadmap and timeline.

We’re pleased with the current trajectory of flips from on-premises to cloud deployments and currently envision flips peaking in 2027 and 2028 as we work towards migrating more than 80% of our on-premises clients to Tyler’s next-generation cloud. We continue to lead with cloud across all product solutions, and during the quarter, we saw increased momentum from clients selecting multiple integrated solutions from Tyler. Our largest SaaS deal this quarter was an $11.4 million multi-suite contract with the city of Kenosha, Wisconsin, for enterprise ERP, enterprise permitting licensing, enterprise asset management, municipal justice, and enterprise assessment and tax solutions, which adds $1.3 million ARR, leveraged our expanding footprint and strong client references in Wisconsin, combined with our unique ability to offer multiple integrated solutions from a single platform.

This is what we refer to as a total Tyler client engagement. Notable multiproduct SaaS contracts include Hernando County, Florida, and the city of Warner Robins, Georgia, for enterprise ERP, enterprise permitting licensing, and enterprise asset management solutions, adding almost $1.3 million in ARR. We’re also pleased to see growing adoption of our AI-driven priority-based budgeting solution, which we acquired with ResourceX in the fall of 2023. Priority-based budgeting enables informed decision-making and efficiencies by linking financial resources to strategic funding priorities and goals. There were three key wins for the solution in Q4, with large clients, including LA County, California, Kansas City, Missouri, and Johnson County, Kansas, adding a total of nearly $1.8 million ARR.

We’re excited to partner with these clients as they implement their data-driven applications, leveraging our deep domain expertise and industry-leading best practices. We continue to drive higher cloud adoption for our public safety solutions, with both new competitive wins and a growing number of flips. Notable SaaS wins included the Southwest Regional Communications Center, a Texas 911 consortium in the Dallas Fort Worth area, and Peoria, Illinois, which dispatches for ten different agencies, each contracting for our full enterprise public safety suite. We also continue to build momentum at the state level with our public safety solutions. We signed three enterprise public safety deals with state agencies in the quarter, including SaaS contracts with the Iowa Department of Public Safety, which was a competitive effort leveraging our digital solutions division state enterprise relationship and contract vehicle, and also the Michigan State Police.

We also signed a license deal with the Nebraska State Patrol. We now count nine state police agencies as enterprise public safety clients. In our state and federal business, we signed an eight-year contract with the state of Maine for a resident engagement portal, adding $2.2 million in ARR. This competitive win leveraged our strong state relationship as a trusted partner, offering deep public sector domain expertise and strong references from other successful implementations of our resident engagement platform. At the core of our growth strategy, leveraging our unmatched install base through cross-sell and upsell initiatives, we added to our growing footprint in outdoor recreation, signing a multi-year SaaS arrangement with the South Carolina State Parks under our state enterprise master agreement.

Additionally, we signed a contract with the Colorado Department of Corrections for an inventory warehouse management solution, leveraging our Colorado State Enterprise relationship, to add $612,000 ARR. Driving transaction revenue growth through our integrated payments business is another key element of our growth strategy. Our payment strategy is centered on a high-value unified platform that seamlessly integrates with our software solutions and proprietary back-office services, creating opportunities for higher margins. Demand for our differentiated payment solutions continues to be strong, and in the fourth quarter, we signed 244 new payment deals across Tyler software clients, representing approximately $8.1 million in projected ARR. For the year, we signed 995 new payments deals.

In our state enterprise business, we secured a two-year extension for our digital government and payment processing services with the state of Utah, representing approximately $11.5 million in ARR. Now I’d like to provide Brian to provide more detail on the results for the quarter and our annual guidance for 2025.

Brian Miller: Thanks, Lynn. Total revenues for the quarter were $541.1 million, up 12.5% and organically grew 12.4%. Subscriptions revenue increased 21.9% and organically rose 21.8%. Within subscription, SaaS revenues grew 23% to $173.4 million and grew organically 22.8%. Keep in mind that there’s often a lag from the signing of a new SaaS deal or 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 both year over year and sequentially may fluctuate from quarter to quarter. Transaction revenues grew 20.9% to $175.4 million, driven by new transaction services, higher transaction volumes from both new and existing clients, including the August go-live of the California Department of Parks and Recreation, and e-filing growth.

While Q4 is historically a seasonally lighter quarter for transaction-based revenues, we are seeing slightly less seasonality than in previous years, as we continue to diversify our mix of revenue, including digital titling services that are less seasonal, and outdoor recreation services that have different peak periods from state to state. As Lynn noted, we had a very good quarter for bookings in Q4, with a marginal benefit from field timing associated with the year-end deadline for allocating ARPA funds. SaaS deals comprised approximately 97% of our new software contract value, compared to 89% last year. During the quarter, we added 150 new SaaS arrangements and signed 106 best flips of existing on-premises clients, with a total contract value of approximately $194 million, up 42%.

In Q4 of last year, we added 156 new SaaS arrangements and had 92 flips with a total contract value of approximately $137 million. The average ARR from new SaaS contracts increased 63%. The average ARR associated with our Q4 flips increased 32% over last year, as we continue to see larger clients flip to the cloud. Our total annualized recurring revenue was approximately $1.86 billion, up 14.9%. We entered 2024 expecting margin expansion operating margin. After experiencing the margin trough from our cloud transition in 2023, and we have exceeded our expectations. Our non-GAAP operating margin in the fourth quarter was 24.4%, up 210 basis points from last year. The margin expansion reflects the impact of our cloud efficiency initiatives along with effective operating expense management.

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 $41 million in Q4, compared to $35 million last year. Because of strong earnings and effective working capital management, both cash flows from operations and free cash flow reached new highs for our fourth quarter at $224.8 million and $216 million respectively, with free cash flow up 60.7%. Cash flow in the quarter was positively impacted by two significant items. The first was a $29 million prepayment in October of six years of SaaS fees related to our new enterprise justice contract with the state of Kentucky.

The second was the timing of funds that we routinely collect and disperse through Tyler disbursement platform, formerly Rapid. At year-end, approximately $25 million of cash was held by Tyler that was subsequently dispersed under these contracts. We ended the quarter with $600 million of convertible debt outstanding and cash and investments of approximately $779 million, and net leverage is zero. Now I’d like to turn to our annual guidance for 2025. We expect total revenues will be between $2.30 billion and $2.34 billion. The midpoint of our guidance implies organic growth of approximately 8.5%. We expect GAAP diluted EPS will be between $7.31 and $7.56 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 $10.90 and $11.15. Our estimated non-GAAP tax rate for 2025 is expected to be 22.5%. We expect our free cash flow margin will be between 24% and 26%, including an estimated impact of approximately $27 million of incremental cash taxes related to section 174. We expect research and development expense will be in the range of $177 million to $182 million. Other details of our guidance are included in our earnings release and in the Q4 earnings deck posted on our website. I’d like to add some additional color around our guidance. Subscription revenues in total are expected to grow between 15% and 18%, and within subscriptions, SaaS revenue is expected to grow between 21% and 24%. Transaction revenues are expected to grow between 10% and 12%, with merchant fees down 7% to 9%.

Our expected transactions growth is below the 2024 growth rate and will be impacted by the wind-down of our payments processing contract with the state of Texas, which currently expires at the end of August 2025, and was awarded to another payment vendor after a competitive procurement process. The Texas contract is a standalone, somewhat commoditized payments arrangement and differs in a number of respects from our core payment strategy, which is centered on providing differentiated payment solutions integrated with our software solutions, enterprise portals, and proprietary back-office services that add value to our clients and provide opportunities for premium pricing. For background, the payment relationship with Texas was not an organically developed relationship but was part of a state enterprise agreement that NIC purchased from BearingPoint following their bankruptcy in 2009.

That contract was split in 2017, with NIC retaining the payment services, and it was subsequently extended through August of 2025. We knew that the rebid would be highly competitive and price-sensitive, and margins under the existing contract were already very low. There were no issues with the quality of our services, and we believe that price was the significant factor in the award. The Texas payments contract is a gross contract with 2024 revenues of approximately $44 million, merchant fees of approximately $39 million, and a gross margin of approximately 10%. We currently expect that 2025 revenues from Texas payments will be approximately $29 million at a similar gross margin. While we expect to continue to provide payment services to Texas through August, it is possible that some services may transition prior to then.

Excluding emergencies that are absorbed under the gross revenue model, expected transactions growth in 2025 would be approximately 17%, and total growth would be approximately 10%. Given the narrow margins of the gross model Texas contract, we will see a positive impact on margins as these services end. Maintenance revenue is expected to decline 4% to 6%, reflecting the ongoing shift in our new software business mix to SaaS, as well as the acceleration of flips in 2024 and 2025. Professional services revenue is expected to be flat to down 3% as our cloud transition drives efficiencies in implementations and allows us to limit the growth of these lower-margin revenues. License revenues are expected to decline 18% to 20% with very few license sales to new clients.

Hardware and other is also expected to decline 18% to 20% as 2024 benefited from elevated hardware sales tied to the use of ARPA funds. Research and development expenses are expected to grow more than 50% due to three main factors: The first, representing approximately 30 percentage points of the growth, is a redeployment to R&D of development resources previously focused on support activities and expense and cost of revenues. As we continue to transition to a SaaS-only model, this redeployment will continue over the next few years as product lines complete their transition to SaaS-only. Secondly, certain capitalized software development projects either concluded in 2024 or will conclude in 2025, resulting in more development costs being expensed and accounting for approximately eight percentage points of the R&D growth.

The remaining growth represents our incremental funding of R&D initiatives, including investments in AI. Now I’d like to turn the call back over to Lynn.

Lynn Moore: Thanks, Brian. 2024 was another successful year in advancing our cloud-first strategy. We delivered growth and consistent operating margin improvement, tracking towards our 2030 objectives. Our sales organization continues to execute at a very high level, which was reflected in our bookings growth. Our unified go-to-market strategy is creating substantial expansion opportunities with both new and existing clients. Our inside sales team has performed exceptionally well, representing a high-growth sales channel. We’re investing across our sales channels and adding additional sales resources, including a new dedicated state sales team that will be in place this year. We’ve also aligned incentive compensation and commissions across Tyler in a way that has reduced barriers and facilitated more cross-sell.

We take very seriously our responsibility to be good stewards of the capital that our shareholders entrust us, which we have exhibited through our long history of disciplined financial management and prudent capital allocation. That continued to be the case in 2024. In a high-interest rate environment, we fortified our balance sheet by paying off the remaining term debt associated with the NIC acquisition, reducing our net leverage to zero at year-end. Additionally, we enhanced our financial flexibility by replacing our $500 million unsecured revolving credit facility with a new facility extending maturity to 2029, increasing the size to $700 million with improving terms. Our disciplined acquisition strategy focuses on opportunities that complement our existing portfolio, expand our addressable market, and add technologies that can be leveraged across our product portfolio.

We remain patient acquirers and are well-positioned to continue to make tuck-in acquisitions while maintaining the flexibility to pursue compelling larger opportunities. But we did not make any acquisitions in 2024. I want to highlight our recent acquisition of MyGov, closed January 31st. MyGov is a leading provider of integrated community development and asset management solutions to small and mid-sized municipalities and currently serves approximately 150 clients, with a high concentration in Texas. MyGov strengthens our public administration offering and expands our local market footprint with an integrated platform that complements our extensive enterprise portfolio. We’re thrilled to welcome the MyGov team and clients to Tyler. AI continues to garner significant attention in the software space, and interest in AI from the public sector is growing.

Building on our momentum and commitment to innovation, we are taking a deliberate and strategic approach to our AI strategy centered on three core pillars: productivity, decision-making, and service delivery. We’re separating the hype from reality by leveraging our unmatched strengths of decades of public sector experience, 13,000 clients producing critical data every day, and deep collaboration with leading AI vendors like AWS, Microsoft, and Google. We expect that by the end of this year, every flagship product roadmap will have clear AI-driven features, and we plan to preview our AI strategy to clients at our Tyler Connect user conference in May, demonstrating our commitment to innovation and empowering clients with dramatically enhanced productivity and performance.

I’d like to highlight some recently announced additions and changes to our senior leadership team that support our commitment to long-term growth and leadership development. As we enter the next phase of our cloud-first transition, we took a significant strategic step toward further enhancing our client experience with the creation at the end of 2024 of a new chief client officer role. Our appointment of industry leader Andrew Call to that position is critical to strengthening our long-term client relationships, maximizing the value of our installed base, and driving expansion through cross-sell and upsell opportunities. Andrew will oversee our client-centric approach across Tyler’s vast public sector client base. He brings extensive technology leadership experience, having served as CEO of Backbox Software, the global category leader in the network security automation market, where he led cloud transformation and business model evolution.

In his previous positions, he held multiple client success roles and served as chief customer officer at SailPoint, overseeing global customer success and partner enablement. Andrew’s deep technology background and track record of driving innovation and client engagement positions us well for success as we scale our cloud initiatives and create a single unified experience for clients with multiple Tyler products. Our chief marketing officer, Samantha Crosby, has announced her intent to retire this June. In her 16 years with Tyler, Samantha’s visionary leadership in developing our unified brand strategy and her contributions across marketing and communications have been instrumental in our growth and success. Until June, we will continue to tap into Samantha’s immense experience during her transitional senior marketing adviser role, and we extend our heartfelt appreciation to Samantha for her dedicated service.

In January, we named Eric Flanders as chief marketing officer, succeeding Samantha. Since joining Tyler’s marketing team in 2023, Eric has significantly enhanced our digital marketing operations, technology and data practices, and demand generation strategies. Prior to joining Tyler, Eric gained extensive experience as an innovative leader in progressively responsible global marketing management roles with Texas Instruments. Abby Diaz, previously our chief legal officer, has been elevated to the newly created position of chief administrative officer. In this expanded role, she will continue to oversee our legal team, adding responsibilities for internal audit, data privacy, corporate governance and responsibility, and corporate communication.

This transition strengthens alignment across these critical functions and fosters an integrated approach to governance, compliance, and communications. Associate general counsel, Bill Van Essel, has been promoted to chief legal officer and assumes direct leadership of the legal team. Bill joined Tyler in 2021 through the acquisition of NIC, where he served as general counsel. Lastly, I’m pleased to highlight that Tyler has recently been recognized by multiple leading publications for our commitment to excellence, innovation, and workplace culture, including Forbes’ American Dream Employers and Best Large Employers 2025 list. In December, we were named AWS State or Local Government Partner of the Year, and most recently, we were named to the 2025 GovTech 100 list for the ninth consecutive year.

As we enter 2025, I’d like to repeat what I said to our Tyler team in our recent town hall: that I’m not just excited about Tyler’s future, but I’ve never been more confident in our future. We’re experiencing success in growing our high-value SaaS and differentiated transaction revenues while reducing the mix of lower-margin revenues like professional services and commodity payments. As our 2025 guidance illustrates, we’re well on track to meet or exceed the 2025 targets we communicated at our 2023 Investor Day, and we remain confident in realizing our Tyler 2030 vision. I look forward to reporting on our progress during the coming year. Now I’d like to open up the line for Q&A.

Operator: We’ll now begin the question and answer session. To answer a question into the question queue, if you are using a speakerphone, please pick up your handset and press the star key and the number one. To withdraw your request, press the star key and the number one. As a reminder, please limit your question to one question so we may have more time for progress. We will pause momentarily to assemble our roster. Your first question comes from the line of Alexei Gogolev, JPMorgan. Please go ahead.

Q&A Session

Alexei Gogolev: Good morning, everyone, and congratulations on the amazing results. Lynn, could I first start with your payment comments and comments that Brian made? It’s clearly appears that you’re prioritizing profitability within payments. As you mentioned, you’re moving away from commoditized products. Could you perhaps elaborate on the announcements made by Fiserv at their recent earnings call around the expansion of their payments partnership with Tyler? What does that imply longer term for your partnerships with other third parties? And do you think that expansion of the Fiserv partnership could benefit your margin outlook?

Lynn Moore: Thanks, Alexei. So that was there’s a lot in there. I’m gonna I’ll try to hit all the points. If not, I’m sure Brian or someone else will catch up. I think our strategy at Tyler has always been to not really pursue commodity payments. And I think when you look back, you know, pre-Tyler’s acquisition of NIC, I think the viewpoint there was more sort of any payments deal was a good deal, and that’s not really what we’re pursuing. We don’t really want to pursue those pure payment contracts. It’s commoditized pricing. It’s low margin. It’s not sticky. They come up for rebid. It’s a race to the bottom. We want to be there where we have a differentiated offering that we connect to our back-office systems, that we do reporting, that we can drive higher margins and drive higher revenue.

So I think that’s sort of been where we’ve been the last couple of years, and I don’t think that’s changed. As Brian mentioned in the comments, we inherited the contract. We were happy to have the Texas contract. It showed it was showed our relationship with Texas. It showed our ability to do payment processing. But again, there was no additional add-on or stickiness that we were bringing with that. As it relates to Fiserv, Fiserv is one of our larger payment processors. They had a long-standing relationship with NIC prior to our acquisition. They primarily or exclusively right now serve our payment processing in the state market within NIC. What Fiserv does is they provide a lot of technology, and I think that’s really what you’re seeing from that relationship is it’s an opportunity for us to really tap into some of the technology that they deliver.

As of right now, it does not impact our other payment processing vendors. We use a handful of other ones. But it’s sort of when I look at payment processing, I almost think back about how we were when we made our decision to go to the cloud and AWS and really to exit our data centers. When you think about things we used to talk about, you know, Tyler running its own data sets. We’re not in the data center business. And we’re not really in the payment processing business. And we’re not going to invest in some of the technology around there the way that some of the core payment processors do. I mean, we have some of that, and we do invest, but I think going forward, being able to leverage broader technology and capabilities that can help our client base around things like enhanced fraud protection and cryptocurrency and things like that.

So, you know, we’re looking to deepen our relationships with payment processing providers so that we can leverage the things that they’re really good at and we can leverage the things that we’re good at. I mean, it’s I think part of your question was which will ultimately drive higher margins for Tyler.

Alexei Gogolev: Appreciate it, Lynn. And speaking about the increases in investments, based on what Brian suggested, and what you said, you’re clearly investing in AI. So all that portion that is incremental this year. Looking forward to seeing those products at the main conference. How much of that is coming from AWS, which I’m assuming is probably your main partner that you’re collaborating with? And are there any joint investments that you’re doing or joint products that you’re hoping to introduce?

Lynn Moore: Well, that’s a good question. We obviously partner with AWS on a lot of things. Yes, they are helping us with roadmaps on not just AI, but just even other things with respect to our cloud initiative. We do have a number of investments in our 2025 plan around that AI. Those are both new headcount, but also repurposing of our existing headcount. Again, as I mentioned in my remarks, we’re going to have all of our major applications will have some sort of AI component and feature, and we’re gonna unveil some of those or a lot of those at Connect this spring.

Alexei Gogolev: Appreciate it, Lynn. Thank you.

Operator: Your next question comes from the line of Joshua Reilly of Needham and Company. Please go ahead.

Joshua Reilly: Great. Thanks for taking my question. If we look at the guidance of down 4% to 6% on maintenance revenue, clearly, you have some line of sight around migrations to kind of provide this revenue guidance sits down a little bit more this year. Can you help us understand the level of visibility you have right now on migrations for the year to provide that guidance? And are these migrations broad-based, or is there a particular product line that’s accelerating the migration?

Brian Miller: Yeah. I think the migrations are generally pretty broad-based. Each product has a different sort of roadmap and timeline for its customer base, and as we get further down the road, we generally have more visibility over that. I’d say public safety is certainly an area where we’ve seen a pretty rapid increase in the desire to be in the cloud, both from new customers and existing on-premises customers. So I guess on a percentage basis, you’re probably seeing more of an increase in the public safety. That flips the it’s really across all customers and or all product lines, and we’ve said that right now, we still sort of envision a bell-shaped curve over the next several years as we move towards those long-term targets.

We think 2027 and 2028 will probably be those peak years. But we’ll continue to see a higher level of flips in 2025 than we did in 2024, and that will continue on through 2026, 2027, 2028. So we have decent visibility. Sometimes we’re engaged with large numbers of our customers around the process of flipping. We’ve talked in the past about some of the things like cybersecurity attacks, ransomware attacks, their challenges in running their own internal networks and data centers, the replacement of hardware, all those things as factors that drive them to want to flip to the cloud. As well as our continued move to the cloud and focus there, the release of new features that are sometimes only available in the cloud. So all those things are contributing to that increased momentum towards flips.

You know, we have a range, so sometimes the timing of when those flips actually sign and then that, like, from when they sign to when they’re actually live is a factor in where we perform in that range, but I’d say we have pretty decent visibility over that.

Joshua Reilly: Awesome. Thank you. I’ll leave it to one question.

Operator: Your next question comes from the line of Ken Wong of Oppenheimer. Please go ahead.

Ken Wong: Great. Thanks for taking my question. Brian, I wanted to ask about cash flows, you know, recognizing that this was a particularly strong cash flow year, which, you know, kind of creates the tougher comp into 2025. But as we kind of map out our models going forward, I mean, should we assume that some of the strength this year is gonna be a drag into future out years, or just trying to get a sense for kind of how we should kind of when we should start to kind of ramp up the cash flow growth?

Brian Miller: Yeah. We called out the two items that totaled around $55 million of incremental cash flow in the fourth quarter, that the Kentucky prepayment, which we talked about last quarter. That’s a very unusual sort of an item where with the six-year prepayment. And then that so the timing of the float around some of the client money that flows through us for disbursements. That is a recurring item, but it was unusually high from some new customers at the end of right at the end of December, so that incremental, you know, $25 million or so kind of gave us a boost. But, you know, if it had happened two days later, it would have been in next year’s cash flow. So sort of if you take those two items and sort of set them aside, our normalized what I’d sort of call it normalized cash flow margin would have been 24.3% for 2024, which is still above, you know, what we had targeted and what our guidance was at the beginning of the year.

And so that would imply, you know, it’s a midpoint of our guidance for 2025. That would imply another 100 basis points of margin expansion, free cash flow margin expansion in 2025. So some of the stuff has been pulled forward. We’re seeing certainly some of the margin benefits sooner. But I think we’ll continue to progress towards those 2030 targets that we talked about, you know, high 20s, 30% sort of range of free cash flow margin. So we’re getting there a little faster, but I think we still have an upward trajectory and sort of normalized that still implies some expansion next year.

Ken Wong: Got it. Thanks, Brian.

Operator: Your next question comes from the line of Kirk Materne. Evercore ISI. Please go ahead.

Dylan: Hi. This is Dylan for Kirk, and thank you for taking my question. The prepared commentary mentioned strong cross-sell momentum.

Lynn Moore: Yeah. No. I think I don’t know that I would say anything specific. It’s really across all of our product lines. You know, some of the things that we’ve done in the last couple of years around I mentioned in the prepared remarks around sales comp and incentives. Other things we one internal one Tyler initiative we’ve done have really been fueling this, but look, our sales teams have are just really knocking it out of the park. Last year was a really great sales year. Generally speaking, if you look across Tyler as a whole, we generally either add or exceeded, you know, our quotas for the year, which is really encouraging. What’s exciting about me, I mentioned in my remarks about being excited for the future, not only is it how we’re performing against the metrics that we set out in investor day.

We’re also now, you know, able to make some more investments into Tyler that are gonna keep fueling that growth without sacrificing margins. You know, we are making some additional investment of the change there. But we’re making some investments in our sales teams. We’re making investments across our inside sales teams. I mentioned the creation of a new state sales team. We’ve done things and looked at territories and quotas. So there’s a lot of stuff going on right now that’s exciting, but it’s really across the board of Tyler.

Dylan: Great. Thanks for taking my question.

Operator: Your next question comes from the line of Saket Kalia, Barclays. Please go ahead.

Saket Kalia: Okay. Great. Hey, guys. Thanks for taking my question here. Lynn, maybe for you, I just wanted to flush out the question on those just a little bit more. You know, federal is clearly a small part of Tyler’s business. I mean, I think you said it’s probably 5% or less. Right? But I was wondering if you could speak to just roughly how much of an average state or local government budget comes from federal funding versus other sources like real estate taxes. And I know you spend a lot of time with customers. As you speak to customers, what are they saying about Doge, if anything, as they think about investing in tools like Tyler?

Lynn Moore: Yeah. It’s a good question. I don’t know that I have the Brian, you have that number?

Brian Miller: Yeah. I’ve got some sort of high-level averages on where government revenues come from, and at the local level, there’s very, very little federal funding. There can be some grants around specific things. And generally, on a national average at the local level, about 14% of their revenues come from state funding, which can include some trickle-down from federal, but almost half of their revenues are from local taxes and another 17% from general charges like licenses and those sorts of things. So very, very little funding at the local level from federal revenues. And at the county level, there’s roughly a quarter of their budgets tend to come from state funding, which again can include some trickle-down from federal. But again, at the county level, mostly, you know, 40% or more from local taxes. So not a whole lot that gets down to the local level, which is the vast majority of our revenues.

Lynn Moore: Yeah. I’d say I’d just echo the comments I made in the opening remarks, which I view it and I think Tyler views it as really an opportunity, not a risk. There’s a big splash going on out there right now. But the crux of that is how do we make government more efficient? How do we make sure we’re not wasting dollars? You look at I mentioned this priority-based budgeting deal. Deals we did in Q4 with the city of LA. That’s what that solution is all about. You know, we signed a $1.2 million ARR deal with the city of LA for that offering. So to me, you know, I’m not hearing from our clients that that’s going to create a pause in spending. What I believe it’s going to do is create more partnership opportunities and then looking for us to help to continue to help them find ways to be more efficient, which is really our been our business model for, you know, since I’ve been at Tyler 26 and a half years.

So I don’t see that as any as a headwind. I see it as an opportunity going forward.

Saket Kalia: That makes a ton of sense. Thanks, guys.

Operator: Your next question comes from the line of Alex Zukin of Wolfe. Please go ahead.

Alex Zukin: Hey, guys. Congrats on another great quarter. Maybe, Lynn, just first for you. Can you just maybe you touched on this in the prepared remarks, but maybe go a little bit deeper on just the quality of the demand environment, the pipeline going into this year, because it seems like, again, specifically on the SaaS line, it continues to outperform your expectation. I think you’re even now guiding to an acceleration for next year. So what’s been driving this faster than expected or faster than you anticipated conversion story? And how does AI play into this mix of maybe, you know, in addition to the cyber threats that have accelerated some of these migrations, actually also layering on top of that as a driver for the increased velocity of those conversions?

Lynn Moore: Yeah. There’s a lot there. Our, you know, I just say generally, and we’ve been saying this for some time, which is really budgets are healthy and stable. Leading indicators are all steady. Our competitors remain strong. Just touched on it a couple of questions ago. Our sales team continues to execute at a really, really high level. And the more that we are getting better at our story of OneTyler and cross-selling and divisions helping other divisions sell and move product, it gains its own momentum. Then you’re seeing things in the acceleration of SaaS we’ve talked about, public safety and the acceleration there. We often talk about how our clients, you know, they don’t compete with each other. In fact, they share information with each other, and one of the things we’ve always been really, really good at is getting clients up and live in how we deal with our clients, whether it’s a flip or a new client.

And the more that our clients see us perform that and the efficiencies that start coming to the client, the more that they talk, then the more demand it creates for us and our services. So to me, it’s a bit of a mini flywheel where we just continue we’re building on our own momentum. But also, look, it starts with our people. It starts with really excellent sales execution. And it’s excellent execution from our implementation people, from our services, from our support up and down the board. It’s the stuff we don’t spend enough time talking about it, but it’s the stuff that really makes Tyler go. And I couldn’t be more proud of our people for driving that kind of success.

Brian Miller: And I’d just add that at this point, I don’t think AI is really a big driver of either flips or new business. I think most things. Government doesn’t want to be the first adopters, but a lot of our clients are very curious and want to know more about AI. They’re looking for us in many cases to help show them the way that AI can increase productivity and make them more efficient. And as Lynn said, we’ll be talking about that at our user conference coming up in May and making investments there. We have a story in each of our major products. But at this point, I don’t think it’s a significant factor in that cloud acceleration, but down the road, it’ll certainly be another area that provides us competitive advantage.

Alex Zukin: Excellent. And then, Brian, maybe on the R&D investment side. We’ve never necessarily covered the company. I think I’ve been waiting for that to come out of the cost of goods line and make its way onto the R&D line. Maybe just dive a little deeper on the trajectory that you see as the maintenance stream continues to kind of, you know, as those conversions pick up, how should we think about that R&D line even maybe beyond just this year taking on a different shape over the course of the next few years?

Brian Miller: Yeah. You know, there’s talk about roughly, there’s $100 million of development expense that’s in cost of sales. This year, about $35 million we believe will be redeployed to the R&D line, and that’s really tied to as individual products and development teams reach certain points where they’re more cloud-focused and less focused on support and development around existing on-prem products. So that’ll take place over the next several years, the balance of that or a big part of the balance of that $100 million moving and being redeployed to the R&D line. I’m not sure exactly how that trajectory will play out, but we just we’ll see that over the next few years. But probably more front-end loaded over the next let’s call it three to four years.

Lynn Moore: And, Alex, to be clear as well, while the bulk of this is cost of sales, we are adding R&D people. I mentioned it earlier. We are making some investments in AI. We are making some other competitive investments across some of our core applications. So it’s not just a shift that we are also increasing our investment in R&D.

Alex Zukin: Perfect.

Operator: Your next question comes from the line of Michael Turrin of Wells Fargo. Please go ahead.

Michael Turrin: Hey, thanks. Greg, good morning. I appreciate you taking the question. The commentary throughout the call, the Q4 results show an uptick in SaaS momentum, some of the growth metrics. The initial 2025 guide for overall growth, Brian, of 8.5% doesn’t at least appear to fully capture some of that momentum. So maybe just speak a bit more to the mix of what you’re seeing across segments, how that impacts total growth, and is there any change to the guidance approach you’re embedding for 2025 here at all. Thank you.

Brian Miller: There’s not really a change to the approach. You know, one thing we point out is and then we did give a little bit more information around the ranges of growth expected for each of the major categories, and clearly, the growth is more on the high-value and higher-margin revenues. So, you know, SaaS revenues that range up 21% to 24%, which is kind of consistent with what we’ve seen in terms of bookings growth this year in kind of that low 20s. And so as that turns into revenues as the deals get implemented and those customers go live, the flips take place. That kind of mirrors the kind of growth we’ve seen in bookings. Transactions, up 10% to 12%, that does encompass the roughly $10 million decline from the wind-down of the Texas agreement.

So excluding that, our transactions growth would be more up in the mid to upper teens. Maintenance is going down as we expected with the flips, and professional services is going down slightly, which is a good thing given that the margins around professional services and our ability to be more efficient around. So I’d say that the philosophy around our guidance is really not changed, and, you know, we give a range that encompasses what we believe are the various risks and opportunities embedded in there, and we would expect to fall within that range.

Lynn Moore: And, Michael, I’d add and sorry, Alex. I think I called you Mike on the last question. I apologize for that. Just echo what Brian said. Look, our quality revenue lines are actually the ones that are gonna drive our growth. Those are the ones we focused on investor day. SaaS and transactions. There is a little bit of there is some noise in this year’s financials from the Texas payments. That’s actually gonna show up a little bit like last year. If you pull out those merchant fees, we’re growing at our 10% target, which is good. But again, if you look at the metrics that we shared, the things to focus on at investor day, they’re tracking either at or above where we said they’d be two years ago. And that’s all extremely encouraging.

Michael Turrin: That’s all very helpful. Thank you.

Operator: Your next question comes from the line of Charles Strauzer of CJS Securities Incorporated. Please go ahead.

Charles Strauzer: Hi. Good morning. Prime ABCU. Maybe initially shed some light on the abnormally high stock comp implied in the guidance.

Brian Miller: Yeah. It looks like the stock comp, it goes up a bit next year, mostly related to expectation, you know, the higher level, higher stock price that we’re going into the year with relative to where we were last year as the stock grows through the year. But generally, the dilution that we’re going to see from the from new issues of stock compensation is pretty modest. There is an impact from the convert in the dilution, but stock comp should be really mostly related to just a higher stock price.

Lynn Moore: Yeah. So Charlie, if you look at this year versus last year, I think our plan that we’re gonna probably experience somewhere around 28 to 30 cents of dilution year over year. That’s a combination of we obviously had a nice run on the stock last year. A number of option exercises. That will now have the full weight of the year plus the full value to convert. You step back and look at our compensation plans and how we do things with Tyler, you’ll recall that in 2022, we stopped issuing options and went to purely share-based, mostly performance-based, and some are issued on an annual basis, the number of shares that will be approved that were approved by the board and that will be issued here. Less than on a net share issuance, less than four-tenths of one percent of our outstanding. So it’s something I watch carefully every year. I think from a technology company perspective, our dilution is pretty modest. And I would expect that to continue going forward.

Charles Strauzer: Great. Thanks for the clarification.

Operator: Your next question comes from the line of Clarke Jeffries of Piper Sandler. Please go ahead.

Clarke Jeffries: Hello. Thank you for taking the question. You know, Brian, Lynn, I’m reflecting on the initial free cash flow guide you had for 2025 at the Analyst Day that was a midpoint of 18%. And I think, you know, since here less than two years later, we’re over 700 basis points higher than that original estimate. And so I guess I wanted to ask the question, you know, reflecting on that. What has been the most significant outperformance? And with some of these items that still seem like margin tailwinds that are pretty controllable here over the next few years, you know, reduction of commodity payments, maybe scaling some of those R&D costs that might be accelerating in 2025, and then the data center closure. You know, why aren’t long-term margins going higher in your mind as we get to, you know, the later part of those long-term targets for 2030?

Lynn Moore: Well, Clarke, I think that’s a fair question. And I would say that we’re I’ll repeat what I said earlier. I’m really confident in Tyler’s future. And, you know, we set four targets two years ago. We’ve kept our eye on the ball. We have outperformed those targets, as you mentioned, both from a SaaS growth perspective and even transactions, but also from a margin perspective, and we’re starting to see those. I’m not sitting here today ready to adjust our 2030 targets. I’m just I’m really happy with where we sit here in 2025. As I told the management team, we have to hit our 2025 targets, and we’re doing that, and again, the entire management team is focused on it. We will, you know, when we look up two years from now, three years from now, and maybe adjust those, we might.

I don’t want to get ahead of our skis. You know, we still have a lot of initiatives going on within Tyler. Again, I’m excited about all the signs that we’re seeing out there, some of the things that you pointed to. But I’m not ready to declare that victory on our 2030 Investor Day. Now it’s time to up the ante. We just want to keep executing and moving forward.

Brian Miller: And I think cash flow, as you point out, we are well ahead of the targets that we originally set out for 2025. I think we’ve had some assumptions there around things like cash taxes, working capital. I mean, we’ve been very effective about managing those. We’ve had effective management of receivables that have given us an impact sooner. And then clearly, the fact we’re also ahead on margins and that flows through the cash flow. So a lot of that is a pull ahead, but as Lynn said, that makes us, you know, highly confident of those longer-term targets as well. And, you know, as we move down the road, we’ll look at adjusting those if that’s appropriate.

Clarke Jeffries: Thank you very much. And absolutely. I mean, the last two years is a very encouraging result. Thank you.

Operator: Your next question comes from the line of Rob Oliver from Baird. Please go ahead.

Rob Oliver: Great. Thanks. Good morning, Lynn and Brian. My question is around the cloud-optimized products. Appreciate that you guys have been very methodical about laying out milestones for the street and hitting those milestones, and a lot is going on behind the scenes. I was wondering if you could update us on you mentioned you’d made progress in 2024. If you could update us on where we are with the cloud optimization of your products and what sort of milestones we should be looking for as the investment community over the next couple of years to get fully cloud optimized. Thank you.

Lynn Moore: Yeah. I don’t know that I’m ready to put out a specific metric. All I can tell you is sitting here today in 2025 in February 2025, I’m really pleased with where we are in our cloud transition, which includes the optimization of our products. There’s still more room to go. I’m really pleased with where we are on version consolidation. If you would have told me three years ago that some of our core applications, for example, our enterprise ERP application, you know, over 95, 97 of our clients run a single version. Enterprise Justice, you know, I think we’re north of 75 on a single version. These are things that were big moves, and I wasn’t quite sure when we would get there. And to me, we’re ahead of schedule. And all of that starts to feed into each other.

We’re gonna continue to make optimizations to the cloud, but we’re also gonna continue our efficiencies in how we deliver the software as we continue to evolve into a more continuous improvement, continuous delivery. That’s going to take time. But that is part of our goals. And I think as you look out to, you know, the later part of this decade, those are big milestones is when we really start moving down into synchronized cadence releases across our client base, across our major products. And we’re making progress towards those goals.

Rob Oliver: Great. Thanks, Lynn. Appreciate it.

Operator: Your next question comes from the line of Jonathan Ho of William Blair. Please go ahead.

Jonathan Ho: Hi. Good morning, and congrats on the strong results. Is there a way for us to think about the impact that ARPA funding has had? And going forward, is there potentially any impact to agency spending confidence as this starts to wind down? Thank you.

Lynn Moore: You know, we’ve talked about a lot over the last couple of years, Jonathan. ARPA funding has been around and in the background. It hasn’t necessarily specifically driven a lot of deals. Although, I will say, that we got a few SaaS deals signed at the end of the quarter. Were on a shorter time fuse. We were going to win those deals anyway. Those were probably gonna be Q1 deals that got a little bit accelerated because there was some ARPA funding. You saw it we talked about it some last year in our hardware business school transportation business. One reason why our hardware line is going down this year, again, a low margin low margin line. I think generally, you know, I would more point to my comments of the general environment and the general health of the state and budget psych budget and local budgets, excuse me, and where we sit today and our competitiveness.

I think it’s been there. I don’t if you’re if you’re I think part of your question is is it now is it a headwind going forward? I don’t I don’t believe it is. And there’s still even even places where there are ARPA funds allocated, I believe there’s still time for them to spend those. They had to earmark them. But again, I don’t I’ve never viewed that as a as a material part of Tyler’s performance over the last four to five years. It’s there on the edges. And so therefore, I also don’t view it as a headwind going forward. And doesn’t change my confidence in our near-term or long-term sales projections.

Operator: Your next question comes from the line of Terry Tillman of Truist Security. Please go ahead.

Terry Tillman: Yeah. Thanks for fitting me in here, Lynn, Brian, and Hala. It is a single question, but it’s got a little bit of multiple tentacles to it. You know, all this narrative around Doge, what about some of that actually trickling down to some of these estates that we’re hearing about? Maybe them thinking about efficiency incrementally and digitizing things. Are you hearing about anecdotally some increased conversations because of maybe this trickling down? And then the second part of this is you look at 2025 and just based on what you’re seeing in terms of the pipeline, do you see any meaningful shift between just the composition of your business from local government versus state level? Thank you.

Lynn Moore: I would say, next to the Doge question, no. We’re not really hearing anything yet. And it’s I don’t really expect it to do anything other than to maybe spur more conversation around technology that can help them become more efficient. Those are still relatively new. Although, it was talked about before the new administration actually took over. But it’s still relatively new. And our clients, at least that I know of, are not talking about it. I think if you look generally in 2025 and beyond, how we look at sales, I think it’s still pretty consistent across the board, but I would go back to my comment in the prepared remarks. Look, we are in the midst of creating a new dedicated state sales team. It’s something new to Tyler.

It’s going to be it’s something I’m excited about. So, you know, I think we will start to see more product go in, but part of the mission of that sales team is really about representing the entire Tyler portfolio where it’s our Cox solutions, our payments, our application platform, it’s gonna be geared at not only where we have state enterprise contracts, but also looking at new states. Looking beyond our state enterprise contracts. Look, it’s gonna take time for that to ramp up. I don’t necessarily expect significant variance, but it’s just another sales avenue that we’re teeing up and investing in starting in 2025 that will take, you know, time to see meaningful results.

Terry Tillman: Thanks, Lynn.

Operator: Your next question comes from the line of Mark Schappel with Capital Markets. Please go ahead.

Mark Schappel: Hi. Thank you for taking my question. Lynn, I just want to ask about your priority-based budgeting solution. Appears to be off to a really strong start given the wins in the quarter. I was wondering if you could just provide an example or two of some public sector use cases that you’re seeing your customers adopt around ResourceX?

Lynn Moore: Yeah. You know, what it does is it’s a little bit different than, you know, sort of traditional line item budgeting, and it sort of looks it uses AI, it looks at the cost of all the programs that are out there, kind of lines budgets and programs and scores to those that, you know, really they look at an organization’s priorities and sort of reshift dollars. It’s relatively new. One of the things that we were excited about when we bought it is Chris Fabian, the founder, he’s sort of known as the the leader, really, the leader in public sector around priority-based budgeting. And he is the expert in it’s something that I think we can take and transport across our client base, you know, it’s I think it’s another example when our perfect tuck-in acquisitions and when we see large organizations like LA County or Kansas City taking this solution, it’s pretty meaningful.

We’re able to do demos and fairly quickly show where organizations can achieve some real savings. There’s been a lot of talk around those today. I can’t think of a solution that we have that would be more in line with Doge than our priority-based budgeting solution.

Operator: Your next question comes from the line of Gabriela Borges of Goldman Sachs. Please go ahead.

Gabriela Borges: Hi. Good morning. Thank you. I wanted to ask the Texas payments question in a slightly different way. Lynn and Brian, when you look at your revenue mix holistically, what percentage of business looks like the Texas payment business, meaning it’s more commodity, it’s lower margin, it’s business type. Either you can focus on up leveling or perhaps at the time you might consider walking away from. Give us a sense of what sort of what the size of that quantum of business could look like today and where that could go longer term.

Lynn Moore: Yeah. I think it’s pretty small. Brian’s looking for the numbers. Again, this is this was something we inherited with the NIC acquisition. It’s not been a strategic focus for Tyler. When we talked earlier about our relationship with other payment providers, these are opportunities where we might be able to partner with them where they can provide those types of services and we can come on and do the types of things that around that that make our offering differentiated. You know, I think we talked a couple of years ago and it was something that was in the works when we acquired NIC. We talked about the IRS contract. That was another example of a pure payments and we quote had won that contract. They got it got protested and we subsequently lost it.

You know, we built that into our with margins comparable to Texas. While we were disappointed that we lost it, it really it wasn’t a strategic initiative for us. It’s not a place we want to grow. And I wouldn’t expect that going forward, Brian. Do you have?

Brian Miller: Yeah. We really we have two other enterprise states where we have separate payment contracts from the enterprise agreement, but they are states where we provide a lot of other portal services, other digital government services. It’s just the payments contracts are separate. We have one other state, Florida, which is a payments-only contract. But it has a lot of differences from Texas. We have a lot of other value-added services that we provide there. And it’s a very different kind of an arrangement in Texas. Other than that, we really don’t have a lot of pure what we kind of call commoditized payments business. Generally, it’s either at the state level when it’s part of an enterprise agreement where we’re providing a lot of services, many of which payments are associated with them, or now with our focus on the local level integrating it with our back-office software solutions and proprietary solutions that add that value.

Lynn Moore: Yeah. I think just to answer that, Gabriela, as you know, a year ago, I changed all of our senior executive comp. When we look at our long-term performance drivers around margin and ARR to exclude the impact of merchant fees because it is we do not want to pursue these contracts which could, quote, theoretically, increase our ARR, but decrease our margins. So, you know, when I look internally at how I look at the business, I have all my presentations show me with and without merchant fees because that’s really just to me showing the health of the business. Texas and its impact this year, I just want to remind you that this is something that’s winding down this year, but we will continue to see the same headwind next year on a top-line basis.

But excluding those merchant fees, like, as we said earlier, you know, Tyler’s growing at right at 10%. Our transactions are growing between 15% and 17%. That shows the health of the business and where we’re strategically going in the future.

Gabriela Borges: Thanks, Lynn. Thank you.

Operator: There are no further questions at this time. With that, I will now turn the call back over to Lynn Moore, Chief Executive Officer, for final closing remarks. Please go ahead.

Lynn Moore: Thanks, Calvin, and thanks, everybody, for joining us today. If you have any other questions, please feel free to contact Brian Miller or myself. Thanks again, and have a great day.

Operator: Ladies and gentlemen, that concludes your conference call. We thank you for participating and ask that you please disconnect your lines.