Initiated 2026-09-26 · Price $325.57 (as of 2026-09-25 close, stockanalysis.com) · Mkt cap $13.33bn · Technology / public-sector application software · Model: verified

Rating: Hold — Conviction: Low

Tyler is the dominant US local-government software vendor. SaaS revenue has grown 20%+ for 22 straight quarters. The stock is down ~38% in a year on fears that AI lets governments build or buy cheaper tools. That de-rating has taken the price close to the base case: it is now 27.8x GAAP EBITDA, after SBC, against total growth of ~8–10%. It is no longer expensive enough to sell, but the base case still sits below the price. Conviction is Low because the gap between bear and bull is wide, and the AI question will not be settled by the next two quarters.

Model value range vs price
Bear $151.86Base $297.18Bull $440.16Price $325.57

Business overview

Tyler sells ERP, courts and justice, public safety, property tax and appraisal, and payments software to US counties, cities, schools and states. Q2 2026 revenue was $645.1mm:

Three things drive earnings: how fast the on-premise base converts to SaaS, payments volume, and whether SBC ($151mm in FY2025, +23%) grows slower than revenue.

Competition

In ERP, Tyler competes with Workday Government Cloud, Oracle Fusion, OpenGov, Infor and CentralSquare. In public safety, CentralSquare has 359 projects in Civic IQ's procurement database (January 2026). Tyler says rivals in public safety are still in "lift and shift" mode (Q2 2026 call). Competitive pressure would show up first in new-logo SaaS bookings and payments pricing, not in the installed base: only 7% of courts clients remain on legacy systems. The closest listed comparable is Roper, a vertical-software aggregator, at 14.3x EV/EBITDA. Blackbaud trades at 11.4x on depressed sentiment. Guidewire, at 72.7x, is distorted by thin GAAP EBITDA (stockanalysis, 2026-09-25).

Bull case

  1. The cloud flip compounds on contracted revenue. SaaS grew 21.7% in Q2 2026, and SaaS and total bookings both set records. New SaaS ACV grew 22%, built on a high volume of mid-sized deals rather than a few mega-contracts. Plays out if the company reaches its goal of moving 85% of the 2023 maintenance base to cloud by 2030 and the market keeps paying today's multiple. Model: rev_growth, exit_ev_ebitda
  2. Margin scales with the SaaS mix. GAAP EBITDA margin has been stuck at 20–22% for five years. Hosting efficiencies and the ~30% developer-productivity gain management cites from AI could lift it toward 29%. Plays out if the 2026 guide of ~100bp organic margin expansion is repeated. Model: ebitda_margin
  3. Payments and AI add-ons widen revenue per client. Transactions grew ~10% excluding Texas. Q2 included a $10mm-ARR vehicle-titling deal, and AI add-ons are expected to contribute from H2 2027. Plays out if AI bundles price as uplifts rather than being given away as "table stakes". Model: rev_growth

Bear case

  1. AI substitution caps growth and the multiple. LLMs may let agencies build or buy cheaper tools. Plays out if new-logo SaaS bookings slow and the multiple converges on Roper's ~14x. Model: rev_growth, ebitda_margin, exit_ev_ebitda, wacc
  2. SBC is most of the gap between the two margins. Non-GAAP operating margin is 25.7%, while GAAP EBITDA margin is ~20%. SBC was 6.5% of revenue in FY2025 and $43.7mm in Q2 2026. Buybacks absorb it: $947mm TTM, partly funded by a $1.4bn convertible. Plays out if SBC keeps outgrowing revenue. Model: ebitda_margin
  3. Growth decelerates as the flip completes. Revenue growth has slowed from a 10% FY2021–FY2025 CAGR to 8.4% in H1 2026, of which ~2 points is acquired. Adjusted net income rose less than 1% in Q2 2026. Plays out if maintenance runs off faster than SaaS replaces it. Model: rev_growth

Valuation & balance sheet

Metric (definition) Current Own history (range or 5y avg) Peers Source, as-of
EV/EBITDA, aggregator (TTM, narrower EBITDA) 30.1x 44.2x (FY2025) – 86.6x (FY2021), FY-end Roper 14.3x · Blackbaud 11.4x · Guidewire 72.7x stockanalysis.com, 2026-09-25
EV/EBITDA, model basis (EV $14.08bn incl. convertible, no leases / FY2025 GAAP EBITDA $506.3mm after SBC) 27.8x n/a (not restated) n/a (peers not restated) model-inputs.json
EV/FCF (TTM FCF, before SBC) 19.4x 30.2x (FY2025) – 68.8x (FY2021) Roper 17.7x · Blackbaud 9.3x · Guidewire 31.4x stockanalysis.com, 2026-09-25
Forward P/E (adjusted EPS) 22.7x n/a Roper 15.2x · Blackbaud 7.7x · Guidewire 34.8x stockanalysis.com, 2026-09-25

Rule of 40: ~9.6% guided revenue growth plus a 26–28% guided FCF margin (before SBC) comes to ≈36, or ≈30 with SBC deducted.

Model-implied value range (from model-summary.json; generic module, Gordon-growth DCF and exit-EV/EBITDA DCF, midpoints): Bear $151.86 · Base $297.18 · Bull $440.16 per share, i.e. implied returns of −53.4% / −8.7% / +35.2% vs $325.57. These ranges show how the bull and bear drivers translate into value; they are not price targets. The price sits just above the base case and well below the bull case: the market pays for the flip, not for AI monetisation. That is why this is a Hold, not a Sell, despite a negative base return.

Re-rating. The two base-case methods differ by 39%:

Tail, quantified. The bear case is a plateau, so a harsher case was run outside the committed model: revenue +7%, +3%, +1%, then flat; GAAP EBITDA margin 20% flat; NWC −14% of revenue; 12x exit; 11.4% WACC; 2% terminal growth. That gives $99.92 (−69%).

Balance sheet: net leverage 0.87x FY2025 GAAP EBITDA (net debt $438.6mm); coverage not meaningful, because net interest is income ($19–21mm guided for 2026: the convertible pays 0.50% while ~$970mm of cash earns money-market rates). Liquidity: $970.1mm cash and short-term investments. Nearest material maturity: the $1.4bn 0.50% convertible notes due July 2031, effective conversion price $655.77 after capped calls. The 2026 notes ($599.7mm) were repaid. Ratings: n/a (unverified).

Model note:

Scenario stress test

Reasoned from the bull/bear drivers above. The model column comes from the scenario overlays (Base case + shock).

Scenario Effect Mechanism Magnitude Model Δ value vs Base ($/sh)
S1 Fast equity crash − A ~28x software multiple de-rates in a liquidity sell-off; no operating channel over weeks Med −$25.16
S2 Slow bear / recession − Local-government budgets follow property and sales tax with a 12–18 month lag; transaction volumes and new deals slow; multiple compresses. Much smaller than Base − Bear ($145.32) on purpose: transitory, while the bear case is a permanent AI-driven slowdown High −$41.52
S3 Rapid rate shock − Long-duration equity re-prices against a higher risk-free rate; the convertible is fixed at 0.50% to 2031 High −$43.89
S4 Slow rate grind − Same channel, grinding Med −$26.11
S5 Soft-landing cuts + Lower discount rate; government demand unaffected High +$47.37
S6 Recession-driven cuts − Lagged budget squeeze outweighs the lower discount rate Low −$15.00
S7a Credit liquidity shock − Forced selling hits premium software; no liquidity channel with debt termed out to 2031 Low −$15.10
S7b Slow default cycle 0 No material effect, not modeled: government customers don't default in a corporate credit cycle — $0.00
S8 Stagflation − Higher discount rate; wage and hosting inflation against multi-year contracts that reprice slowly Med −$28.08
S9a Dollar spike 0 No material effect, not modeled: revenue is almost entirely US — $0.00
S9b Dollar slide 0 No material effect, not modeled: revenue is almost entirely US — $0.00
S10 Melt-up + Momentum rotates back into de-rated quality software Med +$30.19
S11 Energy supply shock 0 No material effect, not modeled: no energy input of note, and government budgets aren't directly exposed — $0.00
S12 Mega-cap/AI derating − An AI unwind that re-prices application software hits the multiple; the stock's 38% fall shows this channel is live High −$50.14

Currently active/on watch per the playbook:

Model value change vs Base, by scenario
S12 Mega-cap/AI derating−$50.14S3 Rapid rate shock−$43.89S2 Slow bear / recession−$41.52S8 Stagflation−$28.08S4 Slow rate grind−$26.11S1 Fast equity crash−$25.16S7a Credit liquidity shock−$15.10S6 Recession-driven cuts−$15.00S7b Slow default cycle$0.00S9a Dollar spike$0.00S9b Dollar slide$0.00S11 Energy supply shock$0.00S10 Melt-up+$30.19S5 Soft-landing cuts+$47.37

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