# Tyler Technologies (TYL) Financial Model

Free Excel 3-statement financial model and company analysis for Tyler Technologies.

- Canonical: https://finamodel.com/companies/tyler-technologies
- Industry: Software
- Downloadable model: Yes
- Excel download: https://finamodel.com/company-models/TYL.xlsx

## Model Purpose

This model evaluates Tyler Technologies' equity valuation and free cash flow generation to help an equity analyst determine if the company's transition to a cloud-first SaaS model and its integration of platform payment technologies justify its premium trading multiple.

## Company Overview

Tyler Technologies provides integrated software and technology services exclusively for the public sector, including local, state, and federal governments, as well as schools. The company operates through two primary segments: Enterprise Software (ES), which handles core back-office functions like ERP and public safety, and Platform Technologies (PT), which handles digital government solutions and payment processing. The vast majority of revenue is generated within the United States, with a minor presence in Canada and the Caribbean. Tyler is actively transitioning its business model from legacy on-premise software licenses and maintenance to a cloud-first Software-as-a-Service (SaaS) and transaction-based model. The company holds a dominant competitive position in the fragmented local government software market, benefiting from high switching costs and long-term contracts. Recent major events include the ongoing migration of clients to Amazon Web Services (AWS), the exit from proprietary data centres, and the termination of a legacy Texas payments contract which will temporarily depress transaction revenue growth in 2026.

## Revenue Deep Dive



### Subscriptions (SaaS)

- **Segment name**: Subscriptions (SaaS)
- **Revenue driver formula**: Beginning SaaS ARR x (1 + Net Retention Rate) + New SaaS Bookings
- **Historical growth rate**: 20% to 23% CAGR over the last 3 years.
- **Key growth levers and headwinds**: Driven by the "Cloud First" initiative converting legacy on-premise maintenance clients to cloud subscriptions, plus new logo wins. Headwinds include the natural friction of migrating highly customised legacy systems.
- **Pricing dynamics**: Contractual, typically 3 to 5 year terms with built-in annual price escalators.
- **Revenue recognition notes**: Recognised rateably over the contract term. Billed annually in advance, creating significant deferred revenue.
- **Seasonality**: Q4 is typically the strongest quarter for new bookings, though revenue recognition smooths this out over the year.

### Subscriptions (Transaction-based)

- **Segment name**: Subscriptions (Transaction-based)
- **Revenue driver formula**: Payment Volume x Take Rate
- **Historical growth rate**: 10% to 15% CAGR.
- **Key growth levers and headwinds**: Driven by digital government adoption (e.g., online utility payments, court fees, park reservations). A major headwind in 2026 is the termination of the Texas payments contract, which reduces growth to the mid-single digits temporarily.
- **Pricing dynamics**: Volume-based percentage fees or flat per-transaction fees.
- **Revenue recognition notes**: Recognised at the point of transaction.
- **Seasonality**: Correlates with tax collection seasons and utility billing cycles.

### Maintenance

- **Segment name**: Maintenance
- **Revenue driver formula**: Prior Year Maintenance x (1 - Cloud Conversion Rate - Churn Rate)
- **Historical growth rate**: Declining at 5% to 7% annually.
- **Key growth levers and headwinds**: This is a structurally declining revenue stream as Tyler actively incentivises clients to migrate from on-premise maintenance to SaaS.
- **Pricing dynamics**: Contractual, billed annually in advance.
- **Revenue recognition notes**: Recognised rateably over the service period.
- **Seasonality**: Minimal seasonality in revenue recognition.

### Professional Services

- **Segment name**: Professional Services
- **Revenue driver formula**: Billable Hours x Average Blended Rate + Appraisal Contract Value
- **Historical growth rate**: 3% to 5% annually.
- **Key growth levers and headwinds**: Driven by implementation services for new software deployments and cyclical property appraisal outsourcing contracts.
- **Pricing dynamics**: Fixed-fee milestones or time-and-materials.
- **Revenue recognition notes**: Recognised as services are performed or milestones are achieved.
- **Seasonality**: Appraisal services can be impacted by weather and local government assessment cycles.

### Software Licenses and Royalties

- **Segment name**: Software Licenses and Royalties
- **Revenue driver formula**: Number of On-Premise Deployments x Average License Fee
- **Historical growth rate**: Highly volatile, generally declining long-term but subject to double-digit spikes based on specific large legacy renewals.
- **Key growth levers and headwinds**: Headwinds from the cloud transition, though occasional large on-premise renewals (especially in federal or high-security deployments) can cause temporary growth spikes.
- **Pricing dynamics**: Upfront perpetual license fees.
- **Revenue recognition notes**: Recognised upfront upon delivery of the software.
- **Seasonality**: Heavily weighted toward Q4 as government agencies exhaust their annual budgets.

### Hardware and Other

- **Segment name**: Hardware and Other
- **Revenue driver formula**: Hardware Units Sold x Price per Unit
- **Historical growth rate**: Declining at 15% to 20% annually.
- **Key growth levers and headwinds**: Tyler is de-emphasising pass-through hardware sales as it focuses on high-margin software.
- **Pricing dynamics**: Cost-plus pricing.
- **Revenue recognition notes**: Recognised upon delivery.
- **Seasonality**: Tied to software implementations.

## Cost Structure



### Variable Costs / COGS

- **Line-by-line breakdown**: Hosting costs (AWS fees), payment processing interchange fees, salaries for appraisal personnel, hardware pass-through costs, and amortisation of capitalised software development costs.
- **Gross margin range**: 43% to 45% over the last 5 years.
- **Key input costs and commodity exposures**: Cloud computing costs and payment gateway fees.
- **How COGS scales with revenue**: SaaS hosting costs exhibit strong operating leverage, while transaction-based interchange fees scale linearly with payment volume.

### Operating Expenses

- **R&D**: Typically 10% to 11% of revenue. A significant portion of software development costs is capitalised and amortised through COGS. R&D covers the modernisation of legacy applications and integration of acquired platforms.
- **SG&A**: Sales commissions, marketing, and corporate overhead. Heavily headcount-driven. Tyler does not split Sales & Marketing from General & Administrative in its primary income statement face.
- **Depreciation & Amortisation**: High due to the amortisation of acquired intangible assets from historical M&A (e.g., the NIC acquisition) and capitalised software.
- **Stock-Based Compensation**: Significant non-cash expense, typically running at 4% to 5% of revenue.
- **Restructuring / one-time charges**: Infrequent, though occasional lease restructuring charges occur as the company exits proprietary data centres.

### Margin Profile

- **Gross margin**: 43% to 45%.
- **EBITDA margin (Adjusted)**: 26% to 28%.
- **Operating margin (GAAP)**: 13% to 15%.
- **Operating margin (Non-GAAP)**: 23% to 25%.
- **Margin trend**: Margins are expanding as the cloud transition matures. The initial phase of the SaaS transition pressured margins due to dual-running costs (maintaining legacy data centres while paying for AWS), but the exit from proprietary data centres is now yielding margin expansion.

## Balance Sheet Structure

- **Total assets**: Approximately $4.5 billion to $5.0 billion.
- **Key asset categories**: Goodwill and acquired intangible assets dominate the asset base due to a history of acquisitions.
- **Goodwill & intangibles as % of total assets**: Typically 60% to 70%.
- **Working capital profile**:
  - **Days Sales Outstanding (DSO)**: 60 to 75 days.
  - **Days Inventory Outstanding (DIO)**: Not applicable (software company).
  - **Days Payable Outstanding (DPO)**: 20 to 30 days.
  - **Net working capital as % of revenue**: Highly negative due to massive deferred revenue balances.
  - **Is working capital positive or negative?**: Negative. Tyler funds its growth through working capital, collecting cash upfront for annual SaaS and maintenance contracts before recognising the revenue.
- **PP&E**: Relatively small and declining as the company shifts to public cloud infrastructure.
- **Right-of-use assets / operating leases**: Material due to office space and remaining legacy data centre leases.

## Capital Expenditure & Investment

- **Capex as % of revenue**: 1.5% to 2.0% (approximately $32 million to $34 million annually).
- **Maintenance capex vs. growth capex**: Almost entirely growth capex focused on software development and internal IT infrastructure.
- **Major capex programmes underway or planned**: Finalising the exit from proprietary data centres and migrating internal systems.
- **Capitalised software / development costs**: Highly material. Tyler capitalises a significant portion of its R&D, which is then amortised over 3 to 5 years.
- **M&A pattern**: Serial bolt-on acquirer (e.g., CloudGavel, Edulink in 2025) with occasional transformational deals (e.g., NIC in 2021).
- **Typical acquisition multiple paid**: 4x to 6x forward revenue for high-quality public sector software assets.

## Debt & Capital Structure

- **Total debt**: Approximately $600 million to $700 million, primarily drawn on a revolving credit facility.
- **Debt/EBITDA ratio**: Below 1.5x, indicating a very conservative balance sheet.
- **Credit rating**: Investment grade profile, though often unrated by major agencies due to reliance on bank debt rather than public bonds.
- **Key debt instruments**: $700 million unsecured revolving credit facility. Historical term loans have been fully repaid.
- **Maturity profile**: Long-dated revolving facility with no near-term cliff maturities.
- **Interest rate profile**: Floating rate based on SOFR plus a spread.
- **Covenants**: Standard maximum consolidated leverage ratio and minimum interest coverage ratio. Tyler operates well within these limits.
- **Share repurchase programme**: Highly active. The company announced a $1 billion share repurchase plan in February 2026.
- **Dividend policy**: Tyler does not pay a dividend, preferring to return capital via share repurchases and reinvest in M&A.

## Cash Flow Characteristics

- **Operating cash flow conversion**: Consistently above 1.5x GAAP Net Income due to deferred revenue growth and high non-cash expenses (amortisation and stock-based compensation).
- **Free cash flow margin**: 26% to 28% of total revenue.
- **Major non-cash items**: Amortisation of acquired intangibles, amortisation of capitalised software, and stock-based compensation.
- **Working capital cash flow impact**: A major source of cash. As the business grows, the deferred revenue liability grows, providing a continuous cash float.
- **Capex intensity**: Very low (under 2% of revenue).
- **Cash tax rate vs. GAAP effective tax rate**: Cash taxes have been elevated recently due to IRC Section 174 rules requiring the capitalisation and amortisation of R&D for tax purposes. This created a ~$40 million cash tax headwind in 2025, which will gradually fade by 2030.

## Sheet Structure

1. **Assumptions**: Contains all hardcoded drivers for revenue growth by segment, margin profiles, tax rates, and working capital days.
2. **Revenue Build**: Projects revenue across the six key reporting lines (SaaS, Transaction, Maintenance, Professional Services, Licenses, Hardware). Includes a bridge showing the cannibalisation of Maintenance by SaaS.
3. **Income Statement**: Standard GAAP income statement down to Net Income, followed by a reconciliation to Non-GAAP Operating Income and Adjusted EBITDA.
4. **Balance Sheet**: Assets, Liabilities, and Shareholders' Equity. Must explicitly break out Deferred Revenue (current and non-current) and Capitalised Software.
5. **Cash Flow Statement**: Indirect method starting from Net Income. Must clearly show the add-backs for stock-based compensation, amortisation, and the working capital benefit from deferred revenue.
6. **Debt Schedule**: Tracks the $700 million revolving credit facility, interest expense calculations (SOFR + spread), and mandatory vs optional paydowns.
7. **Working Capital Schedule**: Calculates DSO, DPO, and the critical Deferred Revenue waterfall based on forward 12-month subscription and maintenance billings.
8. **Intangibles & Capitalised Software**: Roll-forward of goodwill, acquired intangibles, and capitalised software development costs, calculating the associated amortisation expense for the income statement.
9. **DCF Valuation**: Unlevered free cash flow calculation, WACC assumptions, terminal value, and implied share price.

## Key Financial Relationships

1. `SaaS Revenue = Prior Year SaaS Revenue * (1 + SaaS Growth Rate)`
2. `Transaction Revenue = Prior Year Transaction Revenue * (1 + Transaction Growth Rate)`
3. `Maintenance Revenue = Prior Year Maintenance Revenue * (1 + Maintenance Growth Rate)` (Note: Growth rate will be negative).
4. `Total Recurring Revenue = SaaS Revenue + Transaction Revenue + Maintenance Revenue`
5. `Gross Profit = Total Revenue - (Hosting Costs + Interchange Fees + Amortisation of Capitalised Software + Other COGS)`
6. `Capitalised Software Additions = Total Gross R&D Spend * Capitalisation Percentage`
7. `Deferred Revenue Balance = (Forward Year SaaS Revenue + Forward Year Maintenance Revenue) * Upfront Billing Percentage`
8. `Change in Deferred Revenue = Current Period Deferred Revenue - Prior Period Deferred Revenue` (Flows as a positive to OCF when increasing).
9. `Adjusted EBITDA = GAAP Net Income + Income Tax Expense + Interest Expense + Depreciation & Amortisation + Stock-Based Compensation`
10. `Free Cash Flow = Cash from Operations - Capex - Capitalised Software Additions`
11. `Interest Expense = Average Revolver Balance * (SOFR + Applicable Margin)`
12. `Shares Outstanding = Prior Period Shares - (Share Repurchase Spend / Average Share Price)`

## Cross-Sheet Dependencies

- The **Assumptions** sheet dictates the growth rates in the **Revenue Build**.
- The **Revenue Build** feeds the top line of the **Income Statement** and drives the Deferred Revenue calculation in the **Working Capital Schedule**.
- The **Working Capital Schedule** calculates the change in net working capital, which feeds the **Cash Flow Statement**.
- The **Intangibles & Capitalised Software** sheet calculates amortisation, which feeds both the **Income Statement** (as an expense) and the **Cash Flow Statement** (as a non-cash add-back).
- The **Cash Flow Statement** determines the cash available for debt paydown or share repurchases, feeding the **Debt Schedule** and **Balance Sheet**.
- The **Debt Schedule** calculates interest expense, creating a circular reference with the **Income Statement** and **Cash Flow Statement** (requires an iterative calculation or a circuit breaker toggle).

## Sign Convention

- **Revenues, Assets, and Equity**: Modelled as positive numbers.
- **Expenses**: Modelled as positive numbers in their specific build schedules, but subtracted in the Income Statement and Cash Flow Statement.
- **Liabilities**: Modelled as positive numbers on the Balance Sheet.
- **Cash Flow**: Cash inflows are positive; cash outflows (including capex, debt paydowns, and share repurchases) are negative.

## Things Most Likely to Go Wrong

- **Ignoring Maintenance Cannibalisation**: Modelling positive growth for legacy Maintenance revenue will overstate total revenue. This line must decline as clients migrate to SaaS.
- **Mismodelling Deferred Revenue**: Failing to link the deferred revenue liability to forward-looking SaaS and Maintenance revenue will break the cash flow conversion logic.
- **Omitting Capitalised Software**: Tyler capitalises a large portion of R&D. Expensing all R&D immediately will understate GAAP operating income and overstate operating cash flow.
- **Texas Contract Termination**: Straight-lining historical transaction revenue growth will overstate 2026 revenue. The model must reflect the 2026 headwind from the lost Texas payments contract.
- **Section 174 Cash Taxes**: Failing to model the cash tax penalty from IRC Section 174 will overstate near-term Free Cash Flow.
- **Stock-Based Compensation**: Excluding SBC from the GAAP to Non-GAAP reconciliation will result in a failure to match management's Adjusted EBITDA and Non-GAAP EPS guidance.
- **Amortisation Burden**: Acquired intangibles carry heavy amortisation schedules. This must be modelled separately from standard PP&E depreciation.
- **Share Count Reduction**: Failing to reduce the share count based on the new $1 billion repurchase programme will understate EPS.

## Validation Checks

- **FCF Margin**: Free Cash Flow divided by Total Revenue must land between 26% and 28% for 2026.
- **SaaS Growth**: Year-over-year SaaS revenue growth should be between 20.5% and 22.5%.
- **Recurring Revenue Mix**: Total Recurring Revenue (SaaS + Transaction + Maintenance) should exceed 88% of Total Revenue.
- **Balance Sheet Check**: Total Assets must exactly equal Total Liabilities plus Shareholders' Equity in every forecast period.
- **Debt to EBITDA**: Total Debt divided by Adjusted EBITDA should remain below 1.5x.
- **Maintenance Decline**: Year-over-year Maintenance revenue growth must be negative (between -5% and -7%).
- **Effective Tax Rate**: The Non-GAAP effective tax rate should be hardcoded at 23.0% based on management guidance.

## Key Assumptions (Default Values)

| Assumption | Default Value | Unit | Rationale |
|---|---|---|---|
| 2026 SaaS Revenue Growth | 21.5 | % | Midpoint of management's 2026 guidance (20.5% to 22.5%). |
| 2026 Transaction Revenue Growth | 6.0 | % | Midpoint of 2026 guidance (5% to 7%), reflecting the Texas contract loss. |
| 2026 Maintenance Revenue Growth | -6.0 | % | Midpoint of 2026 guidance (-5% to -7%) due to cloud migrations. |
| 2026 Pro Services Revenue Growth | 4.0 | % | Midpoint of 2026 guidance (3% to 5%). |
| 2026 License Revenue Growth | 16.0 | % | Midpoint of 2026 guidance (15% to 17%). |
| 2026 Hardware Revenue Growth | -18.0 | % | Midpoint of 2026 guidance (-17% to -19%). |
| Gross Margin | 44.0 | % | In line with historical 3-year average. |
| R&D Expense | 245.0 | $ Millions | Midpoint of 2026 guidance ($242M to $247M). |
| Non-GAAP Effective Tax Rate | 23.0 | % | Management guidance for 2026. |
| FCF Margin | 27.0 | % | Midpoint of 2026 guidance (26% to 28%). |
| Days Sales Outstanding (DSO) | 65 | Days | Based on historical average receivables turnover. |
| Days Payable Outstanding (DPO) | 25 | Days | Based on historical average payables turnover. |
| Capex as % of Revenue | 1.5 | % | Based on historical average and 2025 actuals. |
| Share Repurchase Spend (2026) | 250.0 | $ Millions | Estimated annual run-rate against the new $1B authorisation. |
| Base Share Count | 43.1 | Millions | Actual diluted shares outstanding as of early 2026. |
| WACC | 8.5 | % | Standard discount rate for a large-cap, low-leverage software company. |
| Terminal Growth Rate | 3.0 | % | Reflects long-term GDP growth plus public sector software pricing power. |

## Data Sources & Benchmarks

- **Filings**: SEC EDGAR (Tyler Technologies 10-K, 10-Q, 8-K filings).
- **Investor Relations**: Tyler Technologies IR website (Quarterly Earnings Presentations, Q4 2025 Earnings Release, 2025 Investor Day Presentation).
- **Key Peers**: Motorola Solutions (MSI), Roper Technologies (ROP), Axon Enterprise (AXON), Bentley Systems (BSY).
- **Industry Data**: Gartner reports on State and Local Government IT spending.
- **Consensus Estimates**: FactSet or Bloomberg for forward-looking street estimates to validate model outputs.

## Sources

- Tyler Technologies Q4 2025 Earnings Press Release (February 11, 2026).
- Tyler Technologies FY 2025 Form 10-K.
- Tyler Technologies 2025 Investor Session Presentation (May 2025).
- SEC EDGAR Database (https://www.sec.gov/edgar).
- Tyler Technologies Investor Relations Website (https://investors.tylertech.com).

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## Frequently asked questions

### What does Tyler Technologies do?

Tyler Technologies provides integrated software and technology services exclusively for the public sector, including local, state, and federal governments, as well as schools. The company offers solutions for core back-office functions and digital government services, actively transitioning to a cloud-first SaaS model.

### How does Tyler Technologies generate revenue?

Tyler Technologies generates revenue primarily through its Enterprise Software and Platform Technologies segments, serving government and educational institutions. The company is transitioning from legacy on-premise software licenses to a cloud-first Software-as-a-Service (SaaS) and transaction-based model.

### What is Tyler Technologies' capital expenditure strategy?

Tyler Technologies' capital expenditure, approximately 1.5% to 2.0% of revenue, is almost entirely growth-focused on software development and internal IT infrastructure. The company is currently finalizing its exit from proprietary data centers and migrating internal systems to public cloud infrastructure.

### Why does Tyler Technologies have negative net working capital?

Tyler Technologies exhibits negative net working capital because it collects cash upfront for annual SaaS and maintenance contracts before recognizing the revenue. This allows the company to fund its growth through its working capital cycle, benefiting from significant deferred revenue balances.

### What is the purpose of the financial model for Tyler Technologies?

The financial model evaluates Tyler Technologies' equity valuation and free cash flow generation. It helps equity analysts determine if the company's transition to a cloud-first SaaS model and integration of platform payment technologies justify its premium trading multiple.

### Where can I download a financial model for Tyler Technologies?

A downloadable Excel model for Tyler Technologies is available, covering a forecast horizon from FY2026 to FY2030. This general corporate model includes key assumptions such as revenue growth, COGS as a percentage of revenue, and the company's tax rate.

[Interactive forecast calculator](https://finamodel.com/companies/tyler-technologies/forecast)