Tyler Technologies

Company overview

Tyler is the largest US software provider dedicated to the public sector: courts and justice, public safety, property tax and appraisal, ERP for local government, schools, and payment processing for state and local agencies (through NIC, acquired in 2021). FY25 revenue was $2,332M, of which 87.1% was recurring: SaaS $778M, transaction-based fees $808M, maintenance $446M, professional services $243M and software licences, hardware and other $58M. Clients are state and local governments, courts and schools, with long sales cycles, multi-year contracts and very low churn; SaaS and maintenance are billed annually in advance, which creates deferred revenue.

Application-software shares fell sharply in 2026 on fears that AI tools will erode seat-based and workflow software. Tyler fell about 15% on 12 February 2026 after results and 2026 guidance that implied roughly 8% revenue growth. It is moving clients from on-premises licences with annual maintenance to SaaS: SaaS revenue grew 20.6% in FY25 and 22.5% in 1H26 while maintenance fell 4.6%. At its 9 June 2026 Investor Day management set 2030 targets of $3.3–3.4bn of recurring revenue and $1.1–1.2bn of free cash flow.

In May 2026 Tyler issued $1,437.5M of 0.50% convertible notes due 2031 (conversion price $405.94, with a capped call to $655.77), repurchased $320.7M of stock alongside the deal and kept buying: $755M of repurchases in 1H26 and a new $1.5bn authorisation on 29 July 2026. Net cash of $558M at FY25 became net debt of $393M at 30 June 2026. The Federal Reserve raised its target range to 3.75–4.00% on 16 September 2026 and the 10-year Treasury closed at 5.24% on 9 October; a long-duration software stock is sensitive to both.

You are an Associate in the Technology group of an investment bank. A growth-at-a-reasonable-price fund that sold Tyler near its high asks whether it is time to buy it back: at $329.55 the shares are 37% below their 52-week high of $524.43 and close to the low of $270.71. Your memo is what gets graded here. The assignment also asks for an integrated FY26E–FY30E model in the student template, which you can attach as a supporting file. The case uses public information only and is a training exercise, not investment advice.

Your client memo should answer

1. 01Recommendation and price target. Rating (Outperform / Neutral / Underperform), 12-month price target and expected return, in the first three sentences.
2. 02Investment thesis. Three numbered points, each tied to a number in your model.
3. 03The SaaS transition. What conversion from maintenance to SaaS does to revenue, gross margin, deferred revenue and free cash flow, and how far through it Tyler is. Compare your FY30E with the Investor Day targets.
4. 04Quality of earnings. GAAP versus non-GAAP: share-based compensation, amortisation of acquired intangibles, the remeasurement gain. State which EBITDA you use for valuation and comps, and why.
5. 05Capital structure. Explain the 2031 convertible notes, the capped call and net share settlement, how you treat them in the equity bridge and the share count, and whether the levered buyback created value.
6. 06What the market is pricing in. Back out the perpetual growth rate or exit multiple implied by $329.55.
7. 07Valuation. DCF (both terminal methods) and trading comparables, summarised in a football field. Explain why the methods differ so much for software.
8. 08Risks and catalysts. AI disruption, public-sector budgets, payments volumes, execution of the SaaS migration; at least one quantified downside case; what you would watch at 3Q26 results and in the 2027 outlook.

Financials ($M)

Term sheet

Mandate

Buy-back decision for a growth-at-a-reasonable-price fund on Tyler Technologies (TYL): rating, 12-month price target and expected return

Company

Tyler Technologies, Inc. (NYSE: TYL) · Plano, Texas · calendar fiscal year

Case date

Friday 9 October 2026 (market data as of the close). Latest filing: 10-Q for the six months to 30 June 2026.

Your role

Associate in the Technology group of an investment bank, writing for a fund that sold the stock near its high

Share price

$329.55 at the close on 9 Oct 2026; 52-week high $524.43, low $270.71

Shares

40,952,274 shares outstanding at 27 July 2026

Capital structure (30 Jun 2026)

Cash and investments $1,015M; 2031 convertible notes $1,437.5M principal (carrying value $1,408.7M); undrawn $1.0bn revolver maturing May 2031; no dividend

Assignment 1: memo

Written memo the Managing Director can send to the client, no more than three pages plus up to two pages of exhibits

Assignment 2: model

Five-year (FY26E–FY30E) integrated model in the template: revenue and ARR build by line, deferred revenue, three statements with SBC and buybacks, debt schedule with the converts, DCF, comps, three sensitivity grids, football field and a one-page convertible and buyback analysis

Periods

Calendar years; LTM Jun-26 = FY25A + 6M26A − 6M25A as a formula

SBC

Share-based compensation is a real, recurring cost paid in shares. Do not add it back to unlevered free cash flow unless you also model the dilution; use GAAP EBITDA (after SBC) against the GAAP-based peer multiples

Convertible notes

Show the principal in the bridge, explain the share-count treatment at the current price, and use a straight-debt cost of debt, not the 0.50% coupon

Valuation date

Discount to 30 June 2026 and roll the equity value forward to 9 October 2026 using the cost of equity. Tyler pays no dividend

Market inputs

Use the price, share count, Treasury yield and peer data in the template. A different equity risk premium, beta or terminal assumption needs a dated source or a Judgment label with a rationale

Market data and valuation inputs (close of 9 Oct 2026 unless stated; from the student template's Inputs tab)

TYL share price (close)

$329.55

52-week high / low

$524.43 / $270.71

Shares outstanding (10-Q 2Q26 cover, 27 Jul 2026)

40,952,274; repurchases under the 16 Sep–29 Oct 10b5-1 plan are not yet disclosed

Dilutive securities (options and RSUs, treasury method)

0.289M

Cash + short-term investments (30 Jun 2026)

$970.0M (cash $895.4M + short-term investments $74.7M); non-current investments $45.2M

2031 convertible notes (30 Jun 2026)

$1,437.5M principal (carrying $1,408.7M net of $28.8M unamortised costs); revolver undrawn

Dividend

None

Risk-free rate: 10-year US Treasury (CMT, 9 Oct 2026)

5.24% (20-year: 5.65%)

Equity risk premium

4.20% (Damodaran implied ERP, 1 Oct 2026)

Pre-tax cost of debt (straight-debt equivalent, not the 0.50% coupon)

5.50% (Judgment in the template)

Marginal tax rate (for unlevering betas and the tax shield)

25% (Judgment: 21% federal + ~4% state)

TYL beta, 2-year weekly vs S&P 500

0.499 raw / 0.664 Blume-adjusted

Fed funds target range

3.75%–4.00% (FOMC, 16 Sep 2026)

Terminal growth rate and exit multiple

Your judgment: blank in the template; give a dated source or label it Judgment

2031 convertible notes and capital returns (indenture and closing press release (8-K, 14 May 2026); 10-Q 2Q26)

Principal and coupon

$1,437.5M at 0.50% a year, payable semi-annually; matures 15 Jul 2031

Initial conversion price

$405.94 (2.4634 shares per $1,000; a 30% premium to $312.27 on 11 May 2026)

Capped call

Cost $187.2M; offsets dilution up to $655.77 (110% premium)

Shares underlying the notes if fully converted

3.541M

Discount and issuance costs allocated to the notes

about $29.4M at issue; $28.8M unamortised at 30 Jun 2026

Buybacks

$320.7M repurchased alongside the notes; $755M of repurchases in 1H26; a new $1.5bn authorisation on 29 July 2026

Earlier notes

The $600M 2026 convertible notes were repaid in March 2026

Trading comparables: inputs ($M except per share; LTM = FY + YTD − prior-year YTD; EBITDA after SBC (GAAP); equity value, EV and multiples are yours to build)

GWRE · Guidewire Software (LTM to 31 Jul 2026)

Price $167.32; diluted shares 81.993M; debt $678.1M; cash and investments $1,215.3M; LTM revenue $1,475.4M; LTM EBITDA (GAAP) $177.8M; LTM net income $139.3M; LTM diluted EPS $1.63; beta 0.908 raw / 0.938 adjusted

BSY · Bentley Systems (LTM to 30 Jun 2026)

Price $34.97; diluted shares 302.093M; debt $1,217.2M; cash and investments $147.0M; LTM revenue $1,602.0M; LTM EBITDA (GAAP) $444.6M; LTM net income $290.0M; LTM diluted EPS $0.90; beta 0.628 raw / 0.751 adjusted

VEEV · Veeva Systems (LTM to 31 Jul 2026)

Price $296.13; diluted shares 161.909M; debt $0.0M; cash and investments $7,242.9M; LTM revenue $3,458.1M; LTM EBITDA (GAAP) $1,075.3M; LTM net income $1,014.8M; LTM diluted EPS $6.10; beta 1.023 raw / 1.016 adjusted

ROP · Roper Technologies (LTM to 30 Jun 2026)

Price $364.09; diluted shares 98.901M; debt $11,319.4M; cash and investments $364.9M; other claims / (assets) $-1,792.2M; LTM revenue $8,280.3M; LTM EBITDA (GAAP) $3,238.0M; LTM net income $2,504.3M; LTM diluted EPS $24.00; beta 0.501 raw / 0.666 adjusted

MANH · Manhattan Associates (LTM to 30 Jun 2026)

Price $204.89; diluted shares 58.305M; debt $0.0M; cash and investments $186.1M; LTM revenue $1,126.2M; LTM EBITDA (GAAP) $280.7M; LTM net income $210.2M; LTM diluted EPS $3.49; beta 1.208 raw / 1.139 adjusted

Recurring revenue, deferred revenue and management targets (10-K FY25, 10-Q 2Q26, Investor Day 9 Jun 2026)

ARR (current-quarter recurring revenue × 4, Tyler's definition)

FY24 $1,855.4M; FY25 $2,057.7M; Jun-25 $2,068.8M; Jun-26 $2,238.1M. Includes transaction-based fees, which depend on volumes

SaaS growth

20.6% in FY25 and 22.5% in 1H26; maintenance revenue fell 4.6%

DSO (days, receivables incl. long-term ÷ revenue × 365)

115.5 / 117.6 / 101.6 / 100.9 (Jun-26 on LTM revenue: 110.5)

Current deferred revenue ÷ (SaaS + maintenance)

63.4% / 63.6% / 63.3% / 63.8%

Remeasurement gain

6M26 EPS includes a $25.0M non-cash gain on remeasuring Tyler's earlier stake in For The Record (acquired 14 April 2026)

Investor Day targets for 2030 (management)

$3.3–3.4bn of recurring revenue and $1.1–1.2bn of free cash flow

2026 guidance (February)

Implied roughly 8% revenue growth; the shares fell about 15% on 12 February 2026