Tyler Technologies, Inc. (TYL): A Bull Case Theory

Core Thesis - Tyler Technologies, Inc. is positioned as a leading provider of vertical market software for U.S. local governments, showcasing a strong combination of scale, specialization, and recurring revenue resilience [2][5]. Company Evolution - Founded in 1966 as Saturn Industries, the company underwent significant transformation, moving from a diversified industrial conglomerate to focusing on government IT solutions, particularly in justice, tax, and appraisal software [2][3]. - The company has successfully navigated early bankruptcy and divestitures, strategically selling off non-core businesses while enhancing shareholder value [2]. Market Position and Strategy - Tyler Technologies has completed over 45 acquisitions since 1998, consolidating a fragmented market and expanding its capabilities in state-level and transactional payments [4]. - The transition to a SaaS model since 2019 has allowed the company to convert over 2,000 on-premise products to subscription-based offerings, generating long-term recurring revenue [4]. Financial Performance - The company currently generates $2.1 billion in revenues and $5.2 billion in operating cash flow, operates debt-free, and holds $745 million in cash [5]. - With a P/FCF valuation of 21.4x and a zero-debt balance sheet, Tyler Technologies presents a resilient investment opportunity with limited downside and substantial long-term upside [5]. Competitive Advantages - Tyler's high gross retention rate of 98% and long-term contracts create a sticky customer base, making it challenging for competitors to displace them [3]. - The company's expertise in government-specific solutions and high switching costs insulate it from potential disruptions, including those from AI [5]. Recent Developments - Despite a 47.6% decline in stock price since October 2024 due to a Q4 2025 earnings miss and reduced growth guidance, the company maintains strong SaaS revenue growth and a solid client base [6].