Lynn Moore Jr.
President & Chief Executive Officer at Tyler Technologies
Thanks, Brian. I'm very pleased with our fourth quarter results, especially with regard to our sales and revenue performance. Activity in the public sector market continues to trend positively with indicators such as RFP and demo were generally at or above pre-COVID levels. It's also gratifying that our NIC operations are executing at a high level and that we're seeing early successes in achieving the go-to-market objectives we envision around the acquisition. For example, NIC was recently awarded an early three-year extension to its Texas payments contract at existing rates. Similar to the South Carolina rebid, the inclusion of Tyler's enterprise data platform and in particular payment insights with fraud detection and prevention proved to be a major factor in obtaining this early extension.
We're very excited to expand NIC portfolio of software solutions with the acquisition of US eDirect, which we completed last week. US eDirecthas a market-leading AWS cloud hosted outdoor reservation platform for the fast-growing camp ground and outdoor recreation management market which complements our existing strength in the hunting and fishing license market.
This combination will allow us to create a very competitive all-in-one outdoor solution addressing an estimated $2 billion market, while also expanding our payments opportunity. US eDirect is now part of our NIC division and we welcome their 60 team members to Tyler.
Now I'd like to take a few minutes to discuss our accelerated move to the cloud, including the expected impact on our results in both the near term and the long-term. As most of you know, we have operated in hybrid model for many years, offering our core products in either an on-premises model with an upfront license and annual maintenance or a SaaS model with a software generally hosted in a Tyler datacenter and a multi-year subscription revenue stream. Since our first SaaS client, Eau Claire Wisconsin chose Tyler 2000, the mix of clients choosing our SaaS model grew slowly but steadily as we pursued a cloud agnostic approach to sales and let the market decide the pace at which you would move to the cloud.
And as with many things in the public sector, our market has moved to the cloud more slowly than the private sector. In fact, it took until 2019 for the majority of our new business to come to us in the cloud, a year in which we also recognized an all-time high $100.2 million in license revenues.
2019 was also the year in which we made the strategic decision to shift our future model from a cloud-agnostic approach to a cloud-first approach. In conjunction with that shift, we entered into a strategic collaboration agreement with Amazon Web Services and embarked on significant development efforts to optimize our key products to be efficiently deployed in the cloud through AWS, with an ultimate goal of exiting our two proprietary datacenters and eventually deploying all of our SaaS clients in the public cloud.
Over the past two years, we've made substantial progress under our cloud-first approach. I'm pleased to report that we remain on target with our product development initiatives with an expectation that all of our major products will be cloud-efficient or cloud-optimized by the end of 2023 or early 2024. In addition, almost every product we've added through acquisition in the last several years has been cloud-native. We've been -- we've begun deploying some new SaaS clients in AWS as well as lifting and shifting a limited number of existing SaaS clients out of our data centers and into AWS. We've made changes to sales compensation to encourage cloud sales over licenses.
In early 2021, we also created a new cloud strategy and operations team, which has responsibility for our overall cloud transformation, strategy and operations including things like defining best practices for cloud development, operations and deployment to achieve the full value of our cloud initiative. And as we've embraced the cloud-first approach, our market has also continue to embrace the cloud at an increasing rate. In 2021, 71% of our new software contract value came to us in the cloud with that percentage reaching 77% in the fourth quarter. And conversions of existing on-premises clients of the cloud have also reached new highs in each of the last three quarters. So clearly our shift to the cloud is in sync with the market as clients recognize the many benefits of cloud-based solutions.
This acceleration of our cloud transition is continuing as we move into 2022. Effective January 1, 2022, some of our major products including enterprise ERP powered by Munis and enterprise permitting and licensing powered by EnerGov will almost exclusively be offered to new clients as cloud solutions. Other applications will follow. We expect that the percentage of new clients choosing the cloud model will continue to grow significantly in 2022, with the exception of public safety where to date, there has been more market reluctance to move systems to the cloud.
The general impacts of a SaaS transition on a software company financial model are generally understood. From a revenue perspective, there is an initial headwind as license revenue that is generally recognized upfront is replaced by a recurring subscription revenue stream. And unlike licenses that recurring revenue stream is not recognized in full immediately rather revenue recognition typically begins when customers go live with particular models, which can take several quarters. However, because the annual recurring revenues from a subscription client are approximately 1.8 to 2 times the annual maintenance, the same type would generate in a license deal, the SaaS revenue stream is significantly higher over the life of the client. Some extent, we have experienced this headwind for several years, but the impact is increasing as the shift accelerates.
Over the next several years, as Brian mentioned, license and maintenance revenue will continue to decline while subscriptions will accelerate. For example, in 2019, maintenance revenues were 45% higher than subscriptions, in 2022 subscriptions will surpass maintenance revenues.
From a margin perspective, there are multiple short term headwinds as well. License revenues have very high margins with immediate impact and as they decline, margins are negatively impacted until the subscription revenue stream reaches the point where it offsets those lost licenses. In addition, we will experience some margin headwind from bubble costs around the transition from our internal data centers to the AWS hosting environment.
We currently host, almost all of our more than 5,400 SaaS clients in one of the two main proprietary data centers. We have certain fixed costs associated with running those data centers, even as we transition the hosting of new and existing clients to AWS. Until we completely exit one and ultimately both of our data centers, we will incur some duplicative costs that put pressure on margins. Once we are in AWS with products that are architected and operate more efficiently in the public cloud, we will see an uplift in margins.
With that backdrop, I'd like to turn to a closer look at our outlook for 2022 and beyond. Our revenue growth outlook is solid, representing the continuing return to and growth over pre-pandemic levels and our increasing competitive position. The midpoint of our guidance would represent approximately 16% total growth and 9.5% organic growth, even in light of the continued accelerated shift of new business to SaaS. We expect that approximately 80% of our new software contract mix in 2022 will be SaaS.
From a margin perspective, the midpoint of our 2022 guidance implies non-GAAP operating margin contraction of approximately 160 basis points. That said, our implied 2022 non-GAAP operating margin is consistent with or even slightly higher than our 2021 Q4 operating margin as the major factors impacting margins began before this year. I'd like to break down a few of those factors.
The first material category margin pressures we consider to be part of our long-term strategy of becoming a cloud first company. The impact of the year-over-year increase in our SaaS business mix, net of on-premises conversions along with increasing global costs in 2022 will negatively impact operating profit by approximately $28 million to $30 million.
The second significant category of factors causing margin pressure is made up of costs and low margin revenues that experienced reductions during the pandemic, but have been slowly returning since the end of last year and which we've discussed on prior calls. These include trade shows, sales-related travel costs and some billable travel. Importantly, some costs have not and will not return to pre-COVID levels.
The third category of factors include some one-time or non-discretionary costs. We like virtually every company are experiencing the effects of labor market disruptions and increased wage pressure. And healthcare costs also continue to rise as a result of healthcare inflation, combined with the catch-up of expenses from healthcare that were deferred during the pandemic. We've posted on our website with the supplemental quarterly data, a summary of these margin challenges. The estimated total impact of all these items accounts for approximately 290 basis points of operating margin impact in our 2022 outlook.
Looking beyond 2022, we expect that our margins will continue to be impacted by some of these factors, particularly declining license revenues and cloud transition bubble costs. We believe that operating margin pressures from the cloud transition will bottom out in 2023 and that beginning in 2024, we will start to see accelerating revenue growth and return to margin expansion. The timing of the cloud transition varies by products as some products are further along, creating something of an ebb and flow in the short term headwinds and long-term tailwinds. For example, for enterprise ERP, our largest and most profitable product, revenue growth slowed to approximately 8.5% in 2021 and is expected to grow approximately 8% in 2022 as the mix of new business significantly shifted to SaaS. For example in 2019, the new business mix was 50%, fourth quarter last year it was over 90%.
However, the early expectations for that products growth to accelerate to around 11% in 2023 as it begins to reach the other side of this transition and experience the SaaS uplift.
As we head in to 2022, I am more excited than ever about Tyler's future. It's amazing to think that it took 19 years from the time we entered the government technology market in 1998 to surpass $800 million in revenues in 2017. And in 2022, we will have added the next $1 billion of revenues in just five years. In 2017, recurring revenues accounted for 63% of total revenues, in 2022, we will exceed 80% and approach $1.5 billion creating long-term value. We're executing on our strategic long term cloud transition and we have an incredible platform as the clear leader in the massive public sector market.
We have reorganized and aligned our Tyler payments team with NIC's payment team to further capitalize on this opportunity. Our elevated pre-pandemic investments are paying off as our market environment is strong and our competitive position and win rates across our four occupations remain extremely high. One of our biggest assets is our existing client base with over 37,000 installations across more than 12,000 locations, something that takes decades to establish, and we are poised to take advantage of cross-selling and payment opportunities to accelerate growth and expand margins as we complete our transition to the cloud.
With that, we'd like to open the line for Q&A.
