Q3 2023 Vertex Inc Earnings Call

Speaker 1: Yeah.

Speaker 2: Vertex 1 is 8-figure deal because of the array of tools we have introduced over the past several years to support the FIT platform, including our industry leading FIT Connect.

Cortex, one that's eight figure deal because of the array of tools, we have introduced over the past several years to support the S E T platform, including our industry, leading S&P connector.

Speaker 2: References from other customers gave this customer confidence in our ability to support their success.

References from other customers gave this customer confidence in our ability to support their success.

Speaker 2: We also want a major piece of new business with a customer in the defense industry. This customer was also undergoing a massive multi-year move to S. Forhana and adding FAP or Reba for purchasing across the enterprise.

We also won a major piece of new business with a customer in the defense industry.

The customer was also undergoing a massive multiyear moved to S. Four hotter and adding S E T a reader for purchasing across the enterprise.

Speaker 2: As part of the process, the customer wanted to standardize on vertex as they were operating with a mix of vertex, homegrown, and competitive solutions. All in all, this represented a seven-figure revenue uplift over the life of the five-year contract for vertex.

As part of the process the customer wanted to standardize on vertex as they were operating with a mix of vertex homegrown and competitive solutions. All in all this represented a seven figure revenue uplift over the life of the five year contract for vertex.

Speaker 2: If you can note that as a defense contractor, the customer is subject to strict data sovereignty requirements that preclude the use of cloud in certain areas of its business. Accordingly, we won this major contract in part because we were the only player in the indirect tax software space that will fully support an on-premise installation.

It's interesting to note that as a defense contractor customers subject to strict data sovereignty requirements that preclude the use of cloud and certain areas of its business. Accordingly, we won this major contract in part because we were the only player in the indirect tax software space that will fully support an on premise installation.

Speaker 2: A global manufacturer of heavy equipment selected vertex to support their SAP ERP transformation project in North America. Vertex was chosen thanks to the expanded capabilities we have built in the SAP state, including our pre-built certified integration and SAP plus tools that we acquired from LCRDIC.

A global manufacturer of heavy equipment selected vertex to support their SAP ERP transformation project in North America.

Vertex was chosen and thanks to the expanded capabilities, we have built and the S&P space, including our prebuilt certified integration and S. E T plus tools that we acquired from LCR Dixon well.

Speaker 2: We also landed a major U.S. gas pipeline operator in the third quarter. This customer turned a vertex due to persistent challenges with a competitive fact solution. The strength of our integration with SAP drove the customers willing to replace the income that made contracts. In addition, our technical capabilities, our industry-specific content library, was a critical component for this new logo.

We also landed a major U S gas pipeline operator in the third quarter. This customer turned to vertex due to persistent challenges with a competitive solution the strength of our integration with SAP. He drove the customer's willingness to replace the incumbent mid contract.

In addition, our technical capabilities are industry specific content library was a critical component for this new logo.

Speaker 2: This is just a sampling of our wins in 2-3 within the SAP EGRA.

This is just a sampling of our wins in Q3 within the <unk> ecosystem.

Speaker 2: We've invested heavily to deepen our decades-long relationship and strengthen our alignment with SAP's go-to-market

We've invested heavily to deepen our decades long relationship and strengthen our alignment with Sap's go to market team in July vertex Oh series cloud earned the distinction as in S. E T endorsed App for North America.

Speaker 2: In July , Hurkicks O Series Cloud earned a distinction as an SAP endorsed app for North America.

Speaker 2: This premium certification is now reflected in the FFB store. FFB sales professionals are getting wins on the board with vertex, earning commissions in quota credits for co-selling our solution and evangelizing vertex in their accounts and with their teammates. Accordingly,

This premium certification is now reflected in the S E T store.

<unk> sales professionals, we're getting wins on the board with vertex, earning commissions and quota credit for cross selling our solution and evangelizing vertex in their accounts and with their teammates accordingly.

Speaker 2: A pipeline with SAP is building steadily. In 2023, we've seen nearly a five-fold increase in the number of leads from the SAP channel in North America, which is extremely exciting as it is a precursor to new additional business wins.

Our pipeline with S. E. T is building steadily in 2023, we've seen nearly a five fold increase in the number of leads from the S. E. T channel in North America, which is extremely exciting as it is a precursor to new additional business wins.

Speaker 2: On that point, year-to-year wins on deals referred by the SAD channel have more than doubled so far in 2023.

On that point year over year wins on deals referred by the S. A D channel have more than doubled so far in 2023.

Speaker 2: Turning to the Oracle ecosystem, in the third quarter, a longstanding customer in the oil field service of business moved to the cloud as part of an Oracle OCI cloud conversion.

Turning to the Oracle ecosystem in the third quarter, a longstanding customer in the oilfield services business moved to the cloud as part of an Oracle OCI cloud conversion.

This deal exemplifies two key differentiators for vertex.

Speaker 2: This deal exemplifies two key differentiators for vertex.

Speaker 2: The first is our ability to support optionality when it comes to deployment.

First is our ability to support Optionality when it comes to deployment.

Speaker 2: As I often talk about, we can meet our customers where they are in their digital transformation journey. In this case, as soon as they were ready, we were able to help the customer move from their server-based solution to the cloud seamlessly. The second differentiator, this deal demonstrated, is the strength and influence of our partnerships.

As I often talk about we can meet our customers where they are in their digital transformation journey. In this case as soon as they were ready we were able to help the customer moved from their server based solution to the cloud seamlessly second differentiator is deal demonstrated is the strained and influence of our partnerships we have been working closely.

Speaker 2: We had been working closely with our tech and consulting partners to build a combined bill of materials for our customers.

With our tech and consulting partners to build a combined bill of materials for our customers in this deal the triangulation of our go to market efforts with Oracle and Pwc brought us into the process of five to six months earlier. This approach speeds time to value for our joint customers.

Speaker 2: In this deal, the triangulation of our go-to-market efforts with Oracle and PWC brought us into the process five to six months earlier. This approach speeds time to value for our joint customers.

Speaker 2: We also won a new contract with a global provider of property maintenance services that was implementing Oracle Cloud and Pupa.

We also won a new contract with a global provider of property maintenance services that was implementing Oracle cloud and Cooper.

Speaker 2: I'm really excited we are running the same playbook that made us successful in Oracle and FIT ecosystem with middle market ERP providers and leveraging our strength and Oracle to grow our presence in the Net Sweden.

I'm really excited we are running the same playbook that made us successful in Oracle and S. E T ecosystems with middle market ERP providers and leveraging our strength in Oracle to grow our presence in the Netsuite ecosystem.

Speaker 2: For example, we want a North American specialty retailer and a North American provider of employee benefit insurance, both of which were implementing net sweep.

For example.

A north American specialty retailer and a north American provider of employee benefits insurance, both of which were implementing net suite.

Speaker 2: In the Microsoft Dynamic ecosystem, we want to deal with a leading manufacturer of plumbing supplied due to their implementation of big commerce for e-commerce.

And the Microsoft dynamics ecosystem, we won a deal with a leading manufacturer of plumbing supplies due to.

Implementation of Big Commerce for ecommerce.

Speaker 2: I'm going to give you more context on how we're driving our consistent improvement in our

But to give you more context on how we're driving our consistent improvement in AR.

Speaker 2: When our customers have a change in their business, especially M&A or implementation of new commerce channels, it typically leads to new opportunities for verticals.

But our customers have a change in their business, especially M&A, our implementation of new Commerce channel. It typically leads to new opportunities for vertex.

Speaker 2: It's several customers increase their entitlements in the third quarter due to acquisitions, including a major U.S. supplier of electric supplies that acquired one of its competitors, and a major international conglomerate that acquired a new subsidiary.

Several customers increase their entitlements in the third quarter due to acquisitions, including a major U S supplier of electric supplies that acquired one of its competitors and a major international conglomerate that acquired a new subsidiary.

Speaker 2: And our customer success organization, which is one of the key focal points of our growth investments, is charged with finding new opportunities with existing customers and driving in our growth.

And our customer success organization, which is one of our key focal points of our growth investments is charged with finding new opportunities with existing customers and driving <unk> growth.

Speaker 2: In the third quarter, a longstanding customer in the automotive industry added premium Brazilian content to his vertex subscription. And a customer in the grocery industry increased entitlements, bring additional sub-series under the vertex umbrella, and also added edge to support its e-commerce channel.

In the third quarter, a longstanding customer in the automotive industry added premiums resilient content towards vertex subscription and a customer in the grocery industry increased entitlements bring additional subsidiaries under the vertex umbrella and also added edge to support its e-commerce channels.

Speaker 2: Now, turning to Europe , since 2020, you've gone from having a small presence on the cut head. To having a fully fleshed out go-to-market team, a full array of products laser focused on European enterprise customers, and an impressive slate of reference customers ready to rise to the occasion and evangelize on vertex-to-be-half.

Now turning to Europe since 2020, we've gone from having a small presence on the continent too.

So having a fully fleshed out go to market team a full array of products laser focused on European enterprise customers and an impressive slate of reference customers ready to rise to the occasion and evangelize on vertex behalf.

Speaker 2: And even though the European economy has been slow in 2023, we have built our presence there to pay dividends for years to come, not just in the short term. I already highlighted a European deal we won in the pharmaceutical industry.

And even though the European economy has been slow in 2023, we have built our presence there to pay dividends for years to come not just in the short term.

Already highlighted the European deal, we won in the pharmaceutical industry.

Speaker 2: But we also won the largest VAT compliance deal in our history with a European publisher.

We also won the largest of that compliance deal in our history with a European publisher.

Speaker 2: The deal was driven by customers desire to improve controls and reduce risk into that compliance across 24 different countries.

This deal was driven by our customers' desire to improve controls and reduce risks and VAT compliance across 24 different countries.

Speaker 2: We won this business in part because of the reference accounts we were able to provide in Germany. In fact, we were the only competitor that could provide viable references in that market.

We won this business in part because of the reference accounts, we were able to provide in Germany and in fact, we were the only competitor that could provide viable references in that market.

Speaker 2: In the past, that was a very simple and easy to calculate tax.

In the past that was a very simple and easy to calculate tax.

Speaker 2: The European tax regulations were nothing like the 12,000 different jurisdictions we deal with in the US. Generally speaking, there is one that rate per country.

The European VAT tax regulations were nothing like the 12000 different jurisdictions, we deal within the U S.

Generally speaking there is one VAT rate per country.

Speaker 2: But that is getting more complex and the global expansion of e-invoicing regulations will only exhaust.

But that is getting more complex and the global expansion of invoicing regulations will only exacerbate it.

Speaker 2: E-invoicing is a global trend that is accelerating and there are no signs of it slowing down. Over 50 countries have already adopted different forms of reporting requirements and several other major economies including France and Germany have indicated they will soon fall soon Supreme Policeconscious Police ?????????????,????,??????????,??,??????ribes

E. Invoicing is a global trend that is accelerating and there are no signs of it slowing down over 50 countries have already adopted different forms of reporting requirements and several other major economies, including France, and Germany have indicated they will soon follow suit.

Speaker 2: Simply put, e-invoicing requires companies to remit information on sales and the associated vat calculation in real time. At the point of purchase, so governments can reduce the vat gap, which is the difference between what they expect to collect and what they actually collect.

Simply put E invoicing requires companies to remit information on sales and the associated that calculation in real time.

At the point of purchase so governments can reduce the VAT gap, which is the difference between what they expect to collect and what they actually collect.

Speaker 2: To address the Ian Worseyng opportunity in October at Vertex Exchange, our North American user conference, we formally announce our partnership with Pagaro. As the CEO join me on stage in front of over 1,000 attendees.

To address the E invoicing opportunity in October at vertex exchange, our North American user conference, we formally announced our partnership with the Garo as the CEO joined me on stage in front of over 1000 attendees.

Our partnership with the Garo adds there E invoicing cloud network. The vertex is tax compliance portfolio, providing our customers with a seamless set of tools for compliance with the latest E invoicing and continuous transaction control regulations globally.

Speaker 2: A partnership with the Garo adds their e-invoting cloud network to Vertex's tax compliance portfolio, providing our customers with a seamless set of tools for compliance with the latest e-invoting and continuous transaction control regulations.

Speaker 2: Throughout the conference, we jointly met with customers and discussed how our differentiated single cloud platform helps companies manage continuous compliance for e-invoting that and sales and use tax, providing a true global compliance solution.

Throughout the conference, we jointly met with customers and discuss how our differentiated single cloud platform helps companies manage continuous compliance for E invoicing that and sales and use tax providing a true global compliance solution.

Speaker 2: Customers voice their enthusiastic support for the integrated solution. And we came away the conference with self-

Customers voice their enthusiastic support for the integrated solution that we can.

I came away from the conference with several joint opportunities.

Speaker 2: Equally exciting, this week we announced a new partnership with Shopify, in which we became the first global tax technology provider to join the Shopify Tax Partner Program.

Equally exciting this week, we announced a new partnership with Shopify, and which became the first global tax technology provider to join the Shopify tax partner program.

Speaker 2: This partnership will enable Shopify's customers to automate tax calculation and compliance on a global scale.

This partnership will enable shopify as customers to automate tax calculation in compliance on a global scale.

Speaker 2: We are excited about this partnership with one of the major providers of Internet Infrastructure for e-commerce, which provides access to entirely new ecosystem of prospects for Vertex.

We are excited about this partnership with one of the major providers of Internet infrastructure for E Commerce, which provides access to entirely new ecosystem of prospects for vertex.

Speaker 2: When I think about all we accomplished in the third quarter, it all comes down to focus on delivering great customer experiences with powerful solutions and trusted relationships. This is what...

But I think about all we accomplished in the third quarter. It all comes down to a focus on delivering great customer experiences with powerful solutions and trusted relationships. This is what drives our success.

Speaker 2: At Exchange, I was excited to share that once again Vertex has been recognized with IDC's SAS Customer Satisfaction Award for Tax for overall customer satisfaction.

At exchange I was excited to share that once again vertex has been recognized with Idc's SaaS customer satisfaction award for tax for overall customer satisfaction.

Speaker 2: This award is incredibly meaningful to me and the Vertex team. Not only because we are the only indirect tax technology company to be recognized, but because it is based on the direct feedback of customers.

This award is incredibly meaningful to me and the vertex team not only because we are the only indirect tax technology company be recognized but because it is based on the direct feedback from customers.

Speaker 2: It is the recognition of our relentless commitment to deliver an exceptional customer experience. This is something we do not take for granted, and it is essential to be the leader in the middle and enterprise market.

This is a recognition of our relentless commitment to deliver an exceptional customer experience. This is something we do not take for granted and it is essential to be the leader in the middle and enterprise markets.

Speaker 2: Finally, I'd like to share a few thoughts on the topic that is top of mind for most business today. Artificial intelligence.

Finally, I'd like to share a few thoughts on the topic that is top of mind for most businesses today.

Artificial intelligence.

Speaker 2: Let me quickly highlight what AI means for our business and how we plan to capitalize on the enormous opportunity to present. At Vertex, we've been using AI machine learning for years. And now we're moving into generative AI and large language models, which can generate new solutions from existing concepts.

Let me quickly highlight with AI means for our business and how we plan to capitalize on the enormous opportunity to present at vertex we've been using AI and machine learning for years and now we're moving in degenerative AI and large language models, which can generate new solutions from existing contracts.

Speaker 2: We believe Gen-A-A-L has the power to revolutionize how we approach indirect tax software. By combining human ingenuity with Gen-A-I capabilities, we can optimize workflows and elevate user experience.

We believe <unk> has the power to revolutionize how we approach indirect tax software by combining human ingenuity with Gen. AI capabilities, we can optimize workflows and elevate user experiences.

Speaker 2: Our Gen AI-related R&D spend is focused in three main areas, content duration, customer experience, and customer data insight.

Our Gen AI related R&D spend is focused in three main areas concentration.

Customer experience and customer data insights.

Speaker 2: We will be enabling Gen AI co-piles within our user interfaces to assist our customers with processes like product categorization or system configuration, or to access product knowledge quickly and easily.

We will be enabling gen AI co pilots within our user interfaces to assist our customers with processes like product categorization or system configuration or to access product knowledge quickly and easily.

Speaker 2: And on the new product front, we are delivering tools that will help our customers gain additional insight from tax data to make smart business decisions.

And on the new products, we are delivering tools that will help our customers gain additional insights from tax data to make smart business decisions. This is perhaps the biggest area of opportunity for vertex because our software is insight into literally every transaction the company executes down to specific skus and precise geo location.

Speaker 2: This is perhaps the biggest area of opportunity for Vertex, because our software has insights into literally every transaction the company executes down to specific SKUs and precise geolocation.

This was very well received element of our keynote at the vertex exchange and several customers and partners have since step forward. The product design partners in these areas of investment, which is consistent with how vertex securities early adopters and ultimately built its leading position in the enterprise market.

Speaker 2: This was very well received element of our keynote at the Vertex Exchange. Several customers and partners have since stepped forward the product design partners in these areas of investment, which is consistent with how Vertex secures early adopters and ultimately built its leading position in enterprise markets. John will now take you...

John will now take you through the financials John.

Thanks, David and good morning, everyone today, I'm going to review, our third quarter financial results and provide guidance for the fourth quarter and full year of 2023.

Speaker 2: Thanks David and good morning everyone. Today I'm going to review our third quarter financial results and provide guidance for the fourth quarter and full year of 2023.

Speaker 2: Total third quarter revenues grew 14.9% year-over-year to $145 million, exceeding the upper end of our quarterly guidance by approximately $2 million.

Total third quarter revenues grew 14, 9% year over year to $145 million exceeding the upper end of our quarterly guidance by approximately $2 million subscription.

Speaker 2: Subscription revenues increased 14% period over period to $121.3 million.

Revenues increased 14% period over period to $121 $3 million.

Speaker 2: Our services revenues grew 19.5% to $23.7 million. And cloud revenue was $54.6 million in the third quarter of 24.8% from last year.

Our services revenues grew 19, 5% to $23 $7 million and cloud revenue was $54 $6 million in the third quarter up 24, 8% from last year.

Speaker 2: As David mentioned, our customer metrics remain solid. ARR was up 17.8% year over year.

As David mentioned, our customer metrics remain solid.

<unk> was up 17, 8% year over year.

Speaker 3: NRR was 111% and GRR was 96% in the third quarter.

<unk> was 111% and <unk> was 96% in the third quarter.

Speaker 3: And AARPC, which is based on our direct customer count, was $112,690 in the third quarter, up from $109,170 in the second quarter of 2023.

And AARP C, which is based on our direct customer count was $112690 in the third quarter up from $109170 in the second quarter of 2023.

non-GAAP gross profit for the third quarter was $103 4 million, representing a gross margin of 71, 3%.

Speaker 3: non-GAAP gross profit for the third quarter was $103.4 million, representing a gross margin of 71.3 percent. This compares with $87.6 million and 69.4 percent, respectively, in the same period last year.

This compares with $87 6 million and 69, 4% respectively in the same period last year.

Speaker 3: Non-GAP gross margin on subscription software revenue was 78.3% and non-GAP gross margin on services revenue was 35.3%. Turn.

non-GAAP gross margin on subscription software revenue was 78, 3% and non-GAAP gross margin on services revenue was 35, 3%.

Turning to non-GAAP operating expenses in the third quarter research and development expense was $15 $4 million compared to $9 $8 million last year with capitalized software spend included total R&D spend was $28 4 million for the third quarter, which represents 19, 6% of revenue as.

Speaker 3: In the third quarter, research and development expense was $15.4 million, compared to $9.8 million last year. With capitalized software spend included, total R&D spend was $28.4 million for the third quarter, which represents 19.6 percent of revenue, as compared to 15 percent of revenue in the prior year period.

Compared to 15% of revenue in the prior year period.

Speaker 3: are selling and marketing expense with $31 million or 21.4% of total revenues. This is the fourth consecutive quarter that selling and marketing expense has been relatively steady in the low $30 million range, reflecting the moderation of our investments in the go-to market over the past year.

Our selling and marketing expense was $31 million or 21, 4% of total revenues. This is the fourth consecutive quarter that selling and marketing expense has been relatively steady in the low $30 million range, reflecting the moderation of our investments in the go to market over the past year.

Speaker 3: General administrative expense was $31 million or 21.3% of total revenue.

General and administrative expense was $31 million or 21, 3% of total revenues. This is down approximately $2 $3 million sequentially as some of the consulting expenses related to our second quarter ERP conversion did not recur in the third quarter.

Speaker 3: This is down approximately $2.3 million sequentially as some of the consulting expenses related to arts, second quarter ERP conversion did not recur in the third quarter.

Speaker 3: We expect relative stability and GNA expense on a dollar basis going forward, reflecting the conclusion of our heavy growth investment theory.

We expect relative stability in G&A expense on a dollar basis going forward, reflecting the conclusion of our heavy growth investment period.

Speaker 3: Adjusted EBITDA was $26.6 million in the third quarter of 2023, an increase of $5.9 million year over year, and exceeding the upper end of our quarterly guidance.

Adjusted EBITDA was $26 $6 million in the third quarter of 2023, an increase of $5 $9 million year over year and exceeding the upper end of our quarterly guidance.

Speaker 3: Operating cash flow was $27.6 million and free cash flow was $9.1 million in the third quarter.

Operating cash flow was $27 6 million and free cash flow was $9 1 million in the third quarter.

Speaker 3: As the fourth quarter is usually our strongest cash flow quarter for the year, we expect positive operating and free cash flow for the full year 2023.

As the fourth quarter is usually our strongest cash flow quarter for the year, we expect positive operating and free cash flow for the full year 2023.

Speaker 3: We ended the third quarter with $49.5 million in unrestricted cash and cash equivalents. Total bank debt was $47.4 million, and our investment securities totaled $8.3 million.

We ended the third quarter was $49 $5 million in unrestricted cash and cash equivalents total bank debt was $47 4 million.

And our investment Securities totaled $8 3 million for additional liquidity, we also have $200 million of unused availability under our line of credit.

Speaker 3: For additional liquidity, we also have $200 million of unused availability under our line of credit.

Turning to guidance in the fourth quarter of 2023, we expect total revenue in the range of $145 to $147 million, which would represent 11, 4% year over year growth at the midpoint.

Speaker 3: Turning to guidance, in the fourth quarter of 2023, we expect total revenue in the range of $145 to $147 million, which would represent 11.4% year-over-year growth at the mid-

Speaker 3: An adjusted EBITDA in the range of $27.5 to $29.5 million, which would represent a year-over-year increase of approximately $7.5 million at the mid-

And adjusted EBITDA in the range of 27, five to $29 5 million, which would represent a year over year increase of approximately $7 $5 million at the midpoint.

Speaker 3: This results in an increase to our full year financial guidance as follows.

This results in an increase to our full year financial guidance as follows.

Speaker 3: We now expect total revenue for the year to be in the range of $562.5 to $564.5 million, which represents 15% full-year growth at the midpoint, up from 14% at the midpoint in our prior guidance.

We now expect total revenue for the year to be in the range of 562, 5% to $564 5 million, which.

Present, 15% full year growth at the midpoint up from 14% at the midpoint than our prior guidance.

Speaker 3: We are also increasing our four-year adjusted EBITDA Outlook to a range of $96.3 to $98.3 million.

We are also increasing our full year adjusted EBITDA outlook to a range of 96, 3% to $98 3 million.

Speaker 3: Our new adjusted EBITDA guidance represents a year-over-year increase of $18.6 million at the midpoint, an increase of over $2 million compared to our prior guidance.

Our new adjusted EBITDA guidance represents a year over year increase of $18 $6 million at the midpoint, an increase of over $2 million compared to our prior guidance.

We now expect cloud revenue growth of approximately 25% for the full year compared to 27% previously.

Speaker 3: We now expect cloud revenue growth of approximately 25% for the full year compared to 27% previous.

Speaker 3: This is due to a slight next shift in the business to higher margin on-prem software revenue.

This is due to a slight mix shift in the business to higher margin on Prem software revenue as.

Speaker 3: As a reminder, for new deals, we are price-agnostic between cloud and on-prem deployments.

As a reminder, for new deals we are priced agnostic between cloud and on Prem deployments.

Speaker 3: David will now make a few closing comments before we open up for Q&A. David.

David will now make a few closing comments before we open up for Q&A David.

Speaker 2: Thanks, John . So to wrap it up, it was another great quarter for Vertex. We have built an execution engine that is delivering strong and durable financial results in what has been a challenging economy for many staff companies.

Thanks, John.

To wrap it up it was another great quarter for vertex we have built an execution engine that is delivering strong and durable financial result in what has been a challenging economy for many SaaS companies.

Speaker 2: We're fortunate that our offerings are a must have, not a nice to have, for our enterprise customers. Tax compliance is required in strong and challenging economic time. This is what makes our solution so sticky and is the foundation of the consistency in our GRR and NRR.

We're fortunate that our offerings are a must have not a nice to have for our enterprise customers tax compliance is required and strong and challenging economic time.

This is what makes our solution so sticky and is the foundation of the consistency in our <unk> and NR.

Speaker 2: With the investments we've made and the results they are delivering, over the next few years, we see a clear path to the Rule 40 metrics, long-term revenue growth in the mid to upper teens and EBITDA margins in the low to mid-20s.

With the investments we've made and the results they are delivering over the next few years, we see a clear path to the rule of 40 metrics long term revenue growth in the mid to upper teens in EBITDA margins in the low to mid twenties.

Speaker 2: Unlocking this kind of performance was the North Star of our growth investments. And from here on out, it's about delivering the same consistent execution that we have since we went public in mid-2020. I'm confident the Vertex team is up to the task.

Unlocking this kind of performance was the north star of our growth investments and from here on out it's about delivering the same consistent execution that we have since we went public in mid 2020, I am confident the vertex team is up to the task.

Speaker 2: With that we'll take your questions. Operator, please go ahead.

We will take your questions operator. Please go ahead.

Okay.

Speaker 4: Thank you very much. We will begin the question and answer session.

Thank you very much we'll begin the question and answer session.

Speaker 4: To ask a question, you may press star then one on your touchtone phone. If you are using a speaker phone, please pick up your hand fat before pressing the keys.

To ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

Speaker 4: And if you need to withdraw your question, please press star then two.

And if you need to withdraw your question. Please press Star then two.

Speaker 4: At this time, we will pause momentarily to assemble our roster.

At this time, we will pause.

Materially to assemble our roster.

Yes.

Speaker 4: And our first question comes from Chris Kimpero from Morgan Stanley . Chris, please go ahead.

And our first question comes from Chris <unk> from Morgan Stanley Grace. Please go ahead.

Hey, guys good morning, and congrats on the strong set of results here.

Speaker 3: Hey, guys. Good morning and congrats on the strong set of results here. Menu ads came in kind of the highest for Q3 in maybe kind of four years. So, any sense of what the channel mix is of where these new customers are coming in from? You talked about continuing to accelerate momentum with SAP and imagine some nice customer wins there. So, just curious how big of a contributor maybe the partnership with SAP was in the quarter.

Net net new ads came in kind of the highest for our Q3 and maybe kind of four years. So I mean any sense of what the channel mixes of where these new customers are coming down from you talked about continuing to accelerate momentum with SAP.

You mentioned, some nice customer wins there. So just curious how big of a contributor maybe the partnership with SAP was in the quarter.

Yes, Chris.

Speaker 2: Appreciate the question. SAP clearly is a strong tailwind given all the investments we've made right now in new offerings in the SAP space, the LCR, Dixon acquisition, and all the work we're doing with their go to market teams and our partners, you know, collectively, that has clearly started to improve our, our pipeline and it's creating a nice tailwind. But what's been really great is we're able to leverage

I appreciate the question.

Clearly is a strong tailwind given all the investments we've made right now in new offerings in the SAP space of the LCR Dixon acquisition and all the work we're doing with their go to market teams and our partners collectively that has clearly started to improve our our pipeline and it's creating a nice tailwind, but what's been really great is we're a.

The leverage the playbook, we've been running SAP and we're starting to to improve execution and Microsoft net suite Workday and we had some really nice wins and so while RPC did rise nicely, we actually saw a good diversification of wins across the different ecosystems, we're focused on.

Speaker 2: playbook we've been running in SAP, and we're starting to improve execution in Microsoft NetSuite Workday. And we had some really nice wins, and so while AARPc did rise nicely, we actually saw a good diversification of wins across the different ecosystems we're focused on.

Speaker 5: Got it. That's very helpful. And then on the fewer conversations around, moving to the cloud, but what's your sense? Do you think that's more like macro driven, more secular? And as is more existing customers down that on-prem version, does that change your calculus thinking around pricing between the two different versions?

Got it that's very helpful. And then on the fewer conversations around you know moving to the cloud.

But what's your sense do you think that's more kind of like macro driven more secular and as is more kind of existing customers stay on that on Prem version does that change your calculus thinking around pricing between the two different versions.

Speaker 2: You know, as you know, we made the switch to have the same pricing for cloud that we do on-prem. So we're getting the same subscription revenue regardless of whether an existing customer is upping their, you know, expanding their wallet share with us with another on-prem license or in unique fact patterns, like the one we highlighted in the call where a defense industry, there are certain governors on where they can have their data and being able to support them where they're at has always been a key differentiator for us, Chris. I'm really pleased with the actual, we're able to sustain such strong cloud growth and yet grow AR even more. And margins picked up as a result because of the, it's obviously...

As you know we made the switch to have the same pricing for cloud that we do on Prem So.

Getting the same subscription revenue, regardless of whether an existing customers upping their expanding their wallet share with us with another arm from license or in Uniques fact patterns like the one we highlighted in the call. We're a defense industry. There are certain governors on where they can have their data and being able to support them, where they're at as always been a key differentiator.

<unk> for us, Chris and so I'm really pleased with the extra we're able to sustain such strong cloud growth and yet grow a or even even more.

And margins picked up as a result because of that it's obviously.

Speaker 2: More more profitable for us when they're buying on prem so it's actually been a really nice Shifton strategy that's working incredibly well for us

More profitable for us when they are buying on Prem. So it's actually been a really nice shift in strategy that is working incredibly well for us.

Excellent. Thanks Damian.

Okay.

Yeah.

Speaker 4: And our next question comes from Matt Fall from William Blair. Matt, please go ahead.

And our next question comes from Matt Pfau from William Blair Mac. Please go ahead.

Yeah, great. Thanks for taking my question and nice results wanted to ask on the strong NRI number I think it's the second quarter in a row of record level. There is this sustainable and perhaps is there even additional upside to this metric. Thanks.

Speaker 5: Results wanted to ask on the strong N R? R number. I think it's a second quarter in a row, a record level there. Is this sustainable and?

Speaker 2: You know, Matt, a key part of our strategy was to invest in building out a customer success function over the last several years, and combine it with the new product suite that we've been expanding and the acquisitions we made, all so that we could better serve our existing customers. And I think what you're seeing is the execution on that and the maturity of that strategy is playing out really nicely. We don't guide to NRR, but I'm certainly pleased with the progress the team is making to make sure we're delivering value across our entire customer base.

A key part of our strategy was to invest in building out a customer success function over the last several years and combine it with the new product.

Suite that we have been expanding in the acquisitions. We made also that we could better serve our existing customers and I think what youre seeing is the execution on that and the maturity of that strategy is playing out really nicely. We don't guide to MLR, but I'm certainly pleased with the progress the team is making to make sure we're delivering value across our entire customer base.

Okay.

Great and then just wanted to follow up on the commentary around fewer on Prem migrations. If you could just give a few more details on what's driving that thanks.

Speaker 5: And then just wanted to follow up on the commentary around fewer on-prem migrations. If you just give you a few more details on...

Speaker 2: Yeah, so one of the things we've always talked about, Matt, in our process is we meet the customer where they are in their digital transformation journey and support them as they're ready. And I think our GRR proves

Yes so.

One of the things, we've always talked about Matt in our processes, we meet the customer where they are in their digital transformation journey and support them as they are ready and I think our <unk> approves.

Speaker 2: When they're ready, they are migrating with us because it's much more about the content than it is the underlying platform. And so where I think it's just episodic to where customers are in their journey with migrations that we, you know, that that ebbs in Flosal bit, but fundamentally not seeing any change in GRR and the fundamental shift continues. I think it's also important to remember that, you know, 90% of all the new logos that we're winning are on the cloud. So we're still leading with cloud and it is where we, where we see the bulk of our, of our new logos, but we've got a wonderful install base and some of those customers are just on their journey at different pace.

When they are ready they are migrating with us because it's much more about the content then it is the underlying platform.

And so we are I think it's just episodic to where customers are in their journey with migrations that we that that ebbs and flows a little bit, but fundamentally not seeing any change in <unk> and the fundamental shift continues I think it's also important to remember that 90% of all the new logos that we're winning are on the cloud. So we're still leading with cloud.

Is where are we where we see the bulk of our of our new logos, but we've got a wonderful install base and some of those customers who are just on their journey at different paces.

Perfect. Thank you I appreciate it.

Speaker 6: Thank you.

Yeah.

Speaker 4: And we now have a question from Joshua Riley from the Medium. Joshua, you may proceed.

And we now have a question from Joshua Reilly from Needham.

Sir you May proceed.

Alright, Thanks for taking my questions and nice job on the quarter guys.

Speaker 7: All right, thanks for taking my questions. Nice job on the quarter here, guys. What are you seeing in terms of customers allocating budget, dear category of products, maybe exiting 2023 versus a year ago? Are you seeing larger budget opportunities year over year, which it appears that's the case, given some of these large wins? And what if any macro risks do you see exiting the year that could maybe impact some of the spending to close out the year?

What are you seeing in terms of customers allocating budget tier category of products, maybe exiting 2023 versus a year ago are you seeing larger budget opportunities year over year, which it appears that the case.

Given some of these large wins and what if any macro risks do you see exiting the year that could maybe impact some of the spending to close out the year.

Speaker 2: Josh, always good to talk to you. You know, I think, you know, fundamentally, there's three major tailwinds that affect our opportunity set. The one is business model changes, M&A, and we highlighted a couple of things we saw in the quarter where M&A deals were happening and we were getting expanded wallet share. You've got the regulatory environment, which is only getting more complex.

Josh always good to talk to you and you know I think fundamentally there are three major tailwind that affect our opportunity set. The one is business model changes M&A and we highlighted a couple of things we saw in the quarter, where M&A deals were happening and we were we were getting expanded wallet share you have got the regulatory environment, which is only getting more comp.

Speaker 2: as governments are taking on more debt and looking for new ways.

<unk> as.

As governments are taking on more debt and looking for new ways in the indirect space to raise revenue and then lastly.

Speaker 2: in the indirect space to raise revenue. And then lastly, you know, the ongoing digital transformations that businesses are going through. And I think that diversification of business drivers has given us the consistency of performance. And I think it's much more about our execution against those drivers that's driven our numbers up so much this year. And you know, certainly we haven't, we haven't guided anything for 24, but those three factors working are really nice balance for us. And I see that continuing as we move forward fundamentally.

The ongoing digital transformations that businesses are going through and I think that diversification of our business drivers has given us the consistency of performance and I think it's much more about our execution against those drivers that's driven our numbers up so much this year and certainly we haven't we haven't guided anything for 'twenty four but.

Those three factors work in a really nice balance for us and I see that continuing as we move forward fundamentally.

Speaker 7: Got it. And then yet a nice beat on the operating and coming here in the quarter. John , can you help us think about the operating leverage going forward, you know, without guiding into 2024? Should investor should, you know, we assume that we will continue to be in a period of harvesting the investments that you've made or should is there another cycle of spending maybe coming in 2024? Thanks guys.

Got it and then you had a nice beat on the operating income here in the quarter.

John can you help us think about the operating leverage going forward without guiding into 2024 should investors should we assume that we will continue to be in a period of harvesting the investments that you've made or is there another cycle of spending may be coming in 2024. Thanks guys.

Speaker 3: Great question, Josh. Thank you. Yeah, as I think about leverage and kind of how we think about that moving across the pay, across the years, again, we've talked about GNA being an area we think there's opportunity for leverage there. And that's an area that will continue to be focused on again, having the ERP upgrade behind us and kind of moving forward with that. We feel very good about the opportunity to be able to leverage that going forward. And I think you've seen in our results the selling and marketing expense has been fairly flatish for the left handful of quarters. And so that's another area that again, again, after we got through the big build period in that 21-22 timeframe, you're starting to see a little bit of moderation in that area. So there are a couple of the areas that I would say that we feel good about leverage. Again, R&Ds1, we're always going to be very mindful of because that's kind of the key to our future success. And so we'll continue to monitor that and determine kind of what the right spend areas there. But again, I always hate to put a little bit of a governor on that just given the opportunities that are out there with our Blue Chip customer base.

Yes, great Great question, Josh. Thank you, yes, as I think about leverage and kind of how we think about that moving across the page across the years again, we've talked about G&A being an area, we think theres opportunity for leverage there and Thats an area that we'll continue to be focused on again, having the ERP upgrade behind us and kind of moving forward with that we feel very good about the <unk>.

Fortuna to be able to leverage that going forward and I think you've seen in our results for selling and marketing expense has been has been fairly flattish for the last handful of quarters and so that's another area that again again after we got through the big build period in that 'twenty, one 'twenty two timeframe youre starting to see a little bit of moderation in that area. So there are a couple of the areas that I would.

Say that we feel good about leverage again R&D is one we're always going to be very mindful of because that's kind of the key to our future success and so we will continue to monitor that and determine kind of what the right spend areas there, but again I always hate to put a little bit of a governor on that just given the opportunities that are out there with our blue chip customer base.

Okay.

Speaker 4: And we'll proceed with the question from Steve Anderson from city. Steve?

And we will proceed with the question from Steve Anderson from Citi.

Steve.

Go ahead.

Okay, great. Thanks for thanks for taking the question this morning.

Speaker 8: Okay, great. Thanks for taking the question this morning. I guess I'm going to ask a little bit about the Shopify partnership that was announced recently. I guess, how does this relationship kind of come together and evolve? And how are you thinking about, you know, how this changes the customer base and how you kind of go after and attack the mid-market moving forward here? Yeah, super.

I guess I wanted to ask a little bit about the shopify partnership that was announced recently I guess, how does this I guess, how does this relationship kind of kind of come together and evolving.

How are you thinking about.

How this changes the net.

Customer base and how you kind of go after and attack that in the mid market moving forward here.

Yeah Super excited Steve.

Speaker 2: Steve, about this new opportunity. The team has worked incredibly hard.

Steve about this new opportunity the team has worked incredibly hard.

Speaker 2: It started because we had a number of customers that were in the shop that had made acquisitions over the years or whatever And suddenly had a had a division that was using Shopify and they were not Comfort with the answers they were getting intact

Started because we had a number of customers that were in the shop.

Made acquisitions over the years or whatever and suddenly had a had a division that was using shopify and they were not comfortable with the answers they were getting in tax relative to what they were getting an ERP.

So our customers and our team went to shopify and talked about new opportunities. We could work together if they would open up their API.

As they were aligning their strategy to move upmarket to the enterprise space. They saw it as the natural adjacency of what they want to do in tax was to work with us and so it really has played out perfectly and I see it is opening up as you know both the middle market and the enterprise market for two align well with Shopify strategy.

Speaker 8: what to work with us. And so it really has played out perfectly. And I see it as opening up as you know, both the middle market and the enterprise market for to align well with Shopify strategy. Okay, great. Now, great to hear. And then, John , I guess I just wanna get a better sense for, you know, now that we're through the European implementation, you know, do that have any impact on, you know, billions or cash collection in the quarter and you know, I guess what kind of recovery to do this.

<unk>.

Speaker 8: Okay, great. Great to hear. And then, John , I guess I just want to get a better sense for, you know, now that we're through the ERP implementation, you know, did that have any impact on, you know, billings or cash collection in the quarter? And, you know, I guess, what kind of recovery did you see from 2Q on that front and 3Q? And how should we think about that going into Q4 as well?

Okay, great great to hear.

And then John I guess I'm, just trying to get a better sense for now that we're through the ERP implementation does that have any impact on <unk>.

Billing or cash collection in the quarter and I guess, what kind of.

Recovering anything you're from.

<unk>.

On that front and <unk> and how should we think about that going into Q4 as well.

Speaker 3: Yes, Steve. Good call out. On the last call, I did mention that we did see a little bit of a slowdown in some of the collections at the end of the second quarter. I think, as mentioned, you know, we started to see that come back in the third quarter and feel very good about that. Now, you know, as I think about look to the fourth quarter, fourth quarters are typically our largest kind of cash generation quarter. A lot of the billings go out, a lot of those year-end customers. And so we feel very good about the processes and where we stand with respect to the new ERP system. And so I don't know that there's any significant change with respect to, you know, what we should think from a result standpoint because of any of that, because of the move to the new system.

Yes, good call out on the last call I did mention that we did see a little bit of a slowdown in some of the collections at the end of the second quarter I think as mentioned we started to see that come back in the third quarter and feel very good about that now as I think about look to the fourth quarter fourth quarters are typically our largest cash generation quarter lot of the billings go out lot of those year end customers and so.

We feel very good about the processes and where we stand with the with respect to the new ERP system and so I don't know that there is any significant change with respect to what we should think from a result standpoint because of any of that because of the move to the new system.

Okay perfect. Thanks for taking the questions. This morning.

Speaker 8: OK, perfect. Thanks for taking the questions this morning. Sure, thanks very much.

Thanks, very much Steve.

Okay.

Okay.

Speaker 4: from Adam Hodgkins from Goldman Sachs.

From Adam Hodgkin's from Goldman Sachs.

Please go ahead.

Speaker 7: Great, thanks for taking my questions. David, I just wanted to follow up on the partner front. A lot new here with SAP Microsoft Workday and now Pagaro and Shopify. I recognize there are idiosyncratic drivers of all of these, but if we take a step back, is there any commonality in what is giving you guys the edge in each of these ecosystems and why things are collecting now?

Great. Thanks for taking my questions. David I, just wanted to follow up on the partner front a lot new here with SAP, Microsoft Workday and now the Garo and Shopify I recognize there are.

Chronic drivers of all of these but if we take a step back is there any commonality in what is giving you guys. The edge in each of these ecosystems and why things are in collecting now.

Speaker 2: You know, I think the market we play in is the most desirable market, the enterprise and upper mid market, and that's where these players all want to align and give in our brand and reputation, our partner ecosystem with the SIs and Big Four and the influencers that are so critical to winning these deals. I think they see they can, you know, there's a real symbiotic

No.

The market we play in is the most desirable market the enterprise and upper mid market and that's where these players all want to align and given our brand and reputation our partner ecosystem with the size and big four and the Influencers that are so critical to winning these deals I think they see that there's a real symbiotic.

Speaker 2: you know, back to Shopify is a great example, we're going to help them win deals in the enterprise space. I mean, that's part of their rationale for working with us in that, in that opportunity is we can actually help them grow their, their base as well. And so I think that's a, uh, that's the reason that's the symbiotic, whether you look at a Pagaro, which.

Back to Shopify is a great example, we're going to help them win deals in the enterprise space I mean, thats part of their rationale for working with us in that in that opportunity as we can actually help them grow their base as well and so I think that's.

That's the that's the symbiotic with you look at our Garo, which sees itself already is in enterprise and mid market player, they're going to get access to a much broader customer base with a much larger invoice volume, which they see as very attractive for their growth opportunity and it works perfectly with what we need to do to support our end to end compliance needs for our customers.

Speaker 2: sees itself already as an enterprise and mid-market player, they're gonna get access to a much broader customer base with a much larger invoice volume, which they see as very attractive for their growth opportunity, and it works perfectly with what we need to do to support our end-to-end.

Speaker 2: Compliance needs for our customer. So I think that's the reason you see the the magnet being drawn our way

I think thats. The reason you see the the magnet being drawn our way.

Speaker 7: Okay, that's really helpful. And then notice you added Trog Patel as CSO in recorder. Just what was the driver making the change with that role and what gaps are you looking to fill there?

Okay. That's really helpful. And then noticed you added truck vitale as CSO intra quarter.

What was the driver of making the change for that role and what gaps are you looking are looking to fill there.

Speaker 2: Yes, Sharab brings an incredible resume. His serial entrepreneur was at EY, has had his own startup businesses over the years successfully transitioning those.

Yeah sure Rob brings an incredible resume.

As a serial entrepreneur wasn't E Y has had its own startup businesses over the year successfully transitioning those grew.

Speaker 2: grew up his legacy in Oracle, so he understands our space incredibly well. And as we think about innovation, John was highlighting R&D spend and the importance of that. We still see a lot of frontiers where there's opportunities. And I think Chirag is going to bring a keen eye and a discipline that will help us be even more efficient.

<unk> grew up his legacy and Oracle so he understands our space incredibly well and as we think about innovation John was highlighting R&D spend and the importance of that we still see a lot of frontier. So theres opportunities and I think suraj is going to bring a keen eye and a discipline that will help us be even more efficient and effective at driving new opportunities.

Speaker 2: and effective at driving new opportunities in the market. So, I'm really excited about bringing that kind of talent into Vertex. Okay, really helpful.

In the market, so I'm really excited about bringing that kind of talent and vertex.

Okay really helpful. Thanks, David.

Good talking to you.

Okay.

Speaker 4: Then our next question comes from Alex Klaar from Raymond James. Alex, please proceed.

And our next question comes from Alex <unk>.

From Raymond James Alex. Please proceed.

Speaker 9: Great, thank you. Dave, I'm the E-Invoicing Partnership of the Garo. Can you tell frame what percentage of your 4,300 direct customers have international operations that that E-Invoicing can be relevant to? And then any rough range in terms of what an ACV for that solution might look like, given you're working with a partner there? Yeah.

Great. Thank you Dave on the E invoicing partnerships like Arrow can you just help frame what percentage of your 4300 direct customers have international operations at the invoicing is going to be relevant to and then any rough range in terms of what an HCV for that solution might look like given you are working with a partner there.

Yeah.

I can't I mean, I can all I can say is the predominance of large multinationals.

Speaker 2: I mean, all I can say is, you know, the predominance of large multinationals by nature at the enterprise space and upper mid-market space operate in more than one country. So it's certainly a unique opportunity that our base is seeing.

By nature at the enterprise space and upper mid market space operate in more than one country.

So it's certainly a unique opportunity that our base is seeing.

Speaker 2: As a problem set that they've been solving with point solutions, and they're not happy and it was it was a key driver to the whole whole strategy was to bring bring together a global solution with a global provider, and we really see it as a.

As a problem set that they've been solving with point solutions and Theyre not happy and it was a it was a key driver to the whole strategy was to bring bringing together a global solution with a global provider and we really see it as a.

Speaker 2: As a great win, I'm not, we haven't gotten into any of the pricing on a public basis, but fundamentally, if you think about the invoice volume that the types of customers we work with running through these countries, it's certainly a, we see it as a very sizable opportunity as we think about our revenue growth rate looking forward in 24, five and beyond as customers start to move to more of a global solution for their e-invoice invoices.

<unk> is a great win I'm, not we haven't gotten into any of the.

The pricing on a public basis, but fundamentally if you think about the invoice volume that the types of customers. We work with running through these countries. Its certainly a we see it as a very sizeable opportunities. We think about our revenue growth rate looking forward in 'twenty, four or five and beyond as customers start to move.

Move to more of a global solution for their their E invoicing.

Speaker 9: Okay that's great color. John , just following up on Steve's question regarding free cash flows, outside of the billing timings and that snapping back there, can you just give some added color on the right way to think about EBITDA to cash flow conversion and if there's any way to quantify what may have been a non-recurring component of CapEx this year as we think about 2024?

Okay, that's great color.

John just following up on Steve's question regarding free cash flows outside of the billing timing in that.

Snapping back there can you just give some added color on the right way to think about EBITDA or cash flow conversion and if theres any way to quantify what may have been a nonrecurring component of Capex. This year as we think about 2024.

Speaker 3: Yeah, I guess a couple of ways to think about that. From an EBITDA to cash flow standpoint, again, I think we talked a little bit this year that we would be certainly free cash flow positive. I think longer term, what we've seen is we've seen that, you know, in the past.

Yes, I guess a couple a couple of ways to think about that from an EBITDA to cash flow standpoint, again, I think we talked a little bit. This year that we would be certainly free cash flow positive I think longer term. What we've seen is we've seen that in the past I can tell you that the company has operated about it kind of 70% or so kind of free cash flow conversion from.

Speaker 3: I can tell you that the company has operated about a 70% or so free cash flow conversion from EBITDA.

Speaker 3: I anticipate certainly we'll be able to get back there as we kind of move through these investment cycles like what like we're doing now you know and and get into the right cadence there so we feel pretty good about that

EBITDA.

I anticipate certainly we will be able to get back there as we kind of move through these investment cycles like we're doing now.

And get into the right cadence there so we feel pretty good about that as far as Capex goes this year again.

Speaker 3: As far as CapEx goes this year, again, I would tell you there's probably the best part in the area of about...

I would tell you there is probably the best part of in the area of about.

Speaker 3: You know, 18 high teens in terms of millions of spend that would not recur in the following year. So, again, related to some of the, some of these infrastructure items that David had talked about. So, you know, in that range, that's what I would, that's what I would guide you to in terms of kind of non recurring, but, you know, there's obviously there's continued spend in the capitalized software and other areas that will recur. So we'll, we'll keep that out there. But that's what I think from a non recurring piece. Okay. Perfect. Thank you both.

High teens in terms of millions of spend that would not recur in the following year.

So again related to some of the some of these infrastructure items that David had talked about so in.

That range, that's what I would what I would guide you to in terms of kind of nonrecurring.

Obviously theres continued spend in the capitalized software and other areas that will recur so that will keep that out there, but that's what I think from a nonrecurring fees.

Okay perfect. Thank you both for that.

Yes. Thank you.

Okay.

Yes.

Speaker 4: And we'll proceed now with a question from Samad Samana from Jeffries. Samad go-

And we will proceed now with a question from Samad Samana from Jefferies.

<unk> go ahead.

Hey, guys. Thanks for taking my questions. This is Jeremy.

Speaker 10: Jeremy on for some odd. Follow up on the net ads, it looked great all around, but I think the rest came in a lot higher than we expected given the emphasis on the indirect channel. Can you talk about what drove strength there as well, and is there an opportunity for this to remain elevated?

On the net adds.

It looks great all around but I think the rest came in a lot higher than we expected given the emphasis on the indirect channel can you talk about what drove strength there as well and is there an opportunity for this to remain elevated.

I think there.

Speaker 2: Great question. I think there's basically, if you think about our focus in the playbook we're running in NetSuite and Microsoft and Workday, I think we're beginning to build the type of execution and the brand that we hope to. We're going to continue to run that playbook firmly in that space. And I think the team's done a nice job of securing enhanced new logo wins.

Great question and I think there is basically if you think about our focus in the playbook, we're running in net suite and Microsoft and Workday I think we're beginning to build the type of execution and the brand that we hope to and we're going to continue to run that playbook firmly in that space and I think the team has done a nice job of securing.

Enhanced new logo wins.

Speaker 2: You know, we don't prognosticate in terms of going forward what that's going to look like, but I'm really pleased that we've disciplined ourselves to a few ecosystems and the teams are running across the partner ecosystem and the tech firm in a very focused way and you're seeing that kind of execution in the numbers.

We don't prognosticate in terms of going forward, what that's going to look like but I'm really pleased that we have disciplined ourselves to a few ecosystems and the teams are running.

Across the partner ecosystem in the tech the tech firm with a very focused way and you're seeing that kind of execution in the numbers.

Yes.

Speaker 10: That's a useful color, and a useful color on some of the customer behavior on cloud versus on-prem. I guess, have you noticed any additional change from the close of the quarter through October and November , whether that's a change in deal cycles or anything like that?

Okay, that's useful color.

Useful color on some of the customer behavior on cloud versus on Prem I guess have you noticed any additional change when the close of the quarter or two through October and November.

Whether that's.

Change in deal cycles or anything like that.

Speaker 2: I don't have any specifics on change in deal cycles this early in the quarter, but fundamentally

I don't have any specifics on change in deal cycles. This early in the quarter, but fundamentally everything we're doing is leading cloud as I said I think 90% of our new logos are cloud anyways.

Speaker 2: Everything we're doing is leading cloud. As I said, I think 90% of our new logos are cloud anyways.

Speaker 2: And you're still seeing that cross sell where existing customers who have on prem for one module will advance in the cloud with a new module. And so we still see that opportunity and that that is really where the teams lead.

And you're still seeing that cross sell were.

Existing customers, who have on Prem for one module will advance in the cloud with a new module and so we still see that opportunity and that is really where the teams lead but no new shift in mix in any way and as I noted earlier with our new on Prem pricing, we're actually enhancing gross margins when they when they go that way because.

Speaker 2: But no new shift in mix in any way. And as I noted earlier, with our new on-prem pricing, we're actually enhancing gross margins when they go that way because obviously we don't have to bear any of the on-prem costs, the hosting costs. So it's actually working out strategically very well for us.

We don't have the bear any of the on Prem costs. So it is.

The hosting cost so it's actually working out strategically very well for us.

Got it thanks for taking my questions guys.

Sure.

Speaker 11: And our next question comes from Pat Wall Ravens from JMP Securities. Pat, please go ahead. Oh great, thank you. And congratulations to you guys. Great to see the performance here. All right, David, what is the most important thing for vertex to get right in 2024?

And our next question comes from Pat Walraven from J M P Securities.

Please go ahead.

Oh, great. Thank you.

Congratulations you guys, it's great to see the performance here.

Alright, David what is the <unk>.

Most important thing for vertex to get rate in 2024.

In 2024.

Speaker 2: 2024, execution focus that continues to drive operating leverage. That's what we're going to be. That's where we're really heads down. We come through a big investment cycle for the last several years. We've put ourselves in a place and now it's about executing and reaping the margin performance that we expect as we look forward.

Execution focus that continues to drive operating leverage and that's what we're going to be that's where we're really heads down we've come through a big investment cycle for the last several years, putting ourselves in a place and now it's about executing and reaping.

The margin performance that we expect as we look forward.

Speaker 11: Awesome. And then if I could do a follow up with when you

Awesome and then if I could do a follow up.

When you.

Speaker 11: You mentioned customers increasing their entitlements a couple of times with different customers, which I thought was super interesting.

Mentioned.

Customers, increasing their entitlement a couple of times with different customers, which I thought was super interesting.

Speaker 11: What is driving that and how does it work when they increase their entitlement?

What is driving that and how does it work when they increase their entitlements.

Speaker 3: Yeah, Pat, this is John . I'll take that. I think, you know, what we're seeing is that we're seeing a number of different expansion opportunities with existing customers. And so what that means, what that typically means is they're using the same products, but they're expanding their use to different.

Yes, Pat.

This is John I'll take that I think what we're seeing is that we're seeing a number of different expansion opportunities with existing customers and so what that means what that typically means is they are using the same products, but they are expanding their use to different divisions different areas different geographies and then when they do that they typically roll through it.

Speaker 3: divisions, different areas, different geographies. And then when they do that, they typically roll through a pricing tier that we've created. When they roll through that pricing tier, then we have the opportunity to increase the annual amount that we charge. So that's the typical cadence that we see and the reasons for people breaking through.

Pricing tier that we've created when they relative to that pricing tier then we have the opportunity to increase the to increase the annual amount that we charge. So that's.

Typical cadence that we see and the reasons for the reasons for people breaking through.

Speaker 2: If I could build on that, Pat, it's a really good point John made, and I think it's important to remember that we go in and we solve a problem for a large multinational. We're only solving it typically in one division or one operating area of their business. That just creates an LTV opportunity over time, especially if we've now built out our customer success function where they're going back in and talking about, what about division B, C, D, and E that we can add the sales tax that we've covered in division A? That's really what you're seeing in that example is where companies are consolidating more of their other units where they're using a competitor or using an on-prem or an in-house solution that they then want to say, why don't we just standardize across more of our divisions on Vertex?

And if I could build on that pad. It's a really good point, John I mean, I think it's important to remember that we go in and we solve a problem for a large multinational we're only solving it typically in one division or one operating area of their business and so that just creates an LTV opportunity over time, especially if we've now built out our customer success function, where they're going back in and talk.

To me about what about Division B C D and E that we can add the sales tax that we've covered in division <unk> and so we really that's really what youre seeing in that examples where companies are consolidating more of their other units, where they're using a competitor or using an on prem.

An in house solution that they didn't want to say why don't we just standardize across more of our divisions on vertex.

Speaker 12: Great, thank you.

Great. Thank you.

Speaker 4: And now let me just remind you if you would like to come into the question queue, please press star 1.

And now let me just remind you that if you would like to come into the question queue. Please press star one.

Speaker 4: And we will continue with a question from Daniel Jester from BMO Capital. Daniel, please go ahead.

And we will continue with a question from Daniel Jester from BMO capital Daniel Please go ahead.

Speaker 10: Hey, this is Kyle and Brassery, I'm for Dan, thanks for taking my question. Could you just dig a bit further into the silver cloud migration? I guess, does this change any sales strategy into four or any changes there? How you thinking about that? And then I guess how you're preparing for 2024. Do you guys expect consistent trends heading into the new year?

Hey, this is Kyle <unk> on for Dan Thanks for taking my question.

Could you just dig a bit further into the slower cloud migration I guess does this change any sales strategy in Q4 or.

Any changes there how are you thinking about that and then I guess, how youre preparing for 2024 do you guys expect consistent trends.

Heading into the new year.

Speaker 2: Yeah, certainly no change in strategy. I think again, the real focus is on execution. You know, we've worked hard to put ourselves in this position. The team's done an amazing work. We've gone through the investment journey and to get to this point. And now it's about execution. So no, no, absolutely no shift in strategy.

Yes, certainly no change in strategy I think again, the real focus is on execution.

We've worked hard to put ourselves in this position. The team has done an amazing work, we've gone through the investment journey and to get to this point and now it's about execution. So no no absolutely no shift in strategy.

Speaker 2: As far as 24 goes, we have not launched guidance yet, but we clearly are seeing the tailwinds that we've highlighted around things like SAP and the regulatory environment.

As far as 24 goes.

Not launch guidance, yet, but we clearly are seeing the tailwind that we've highlighted around things like SAP.

And the regulatory environment very much supporting the type of performance that we expected when we embarked on this strategy.

Speaker 2: very much supporting the type of performance that we expect when we embark on the strategy.

Yeah.

Speaker 9: Great. Thank you. And one quick one for me. So I appreciate the color on Shopify. I guess, how are you guys thinking about any more or any additional type of marketplace or econ growth in the business? Thank you.

Great. Thank you and one quick one from me so I appreciate that.

Color on Shopify, I guess, how are you guys thinking about it any more or any additional type of marketplace E comm growth in the business. Thank you.

Speaker 2: You know, we continue to work on the platforms where our customers are doing business and looking for new opportunities to expand in partnerships there. So we're gonna be continued to be very disciplined in areas that we think open up a considerable customer based opportunity for us.

We continue to work on the platforms, where our customers are doing business and looking for new opportunities to expand in partnerships. There. So we're going to be continued to be very disciplined in areas that we think open up a considerable customer base opportunity for us.

Speaker 2: to bring our capabilities to bear and Shopify clearly present at that and we're super excited to be partnering with them And we'll continue to look that way obviously we've done other platforms like Miracle and and really seeing great growth there and and some other Others but it's all driven by where our customers at the middle and enterprise market are doing business is where we need to be playing

To bring our capabilities to bear and Shopify, clearly presented that and we're super excited to be partnering with them and.

And we'll continue to look that way, obviously, we've done other platforms like miracle in and really seeing great growth there and some other others, but it's all driven by our customers at the middle and enterprise market are doing business is where we need to be playing.

Terrific I would like to just add one thing unrelated to this matter I just wanted to point out one Alex Sklar asked the question a bit back about nonrecurring nonrecurring capex spend I answered the question with respect to the ERP spend that we had that was the total amount of your ERP spend.

Speaker 3: Terrific. I'd like to just add one thing unrelated to this matter. I just wanted to point out when Alex Squarr asked the question a bit back about Non-recurring, non-recurring cap X spend I answered the question with respect to the ERP spend that we had that was the total amount of your ERP spend about 60 or 65 percent of that spend happened last year the other portion happened this year So I just wanted to draw a line of clarification there That was the total cost not just the cost in the current period. So thank you very much

60.

<unk> 60, 60, or 65% of that spend happened last year. The other portion happened. This year. So I just wanted to draw a line of clarification. There that was the total cost not just the cost in the current period. So thank you very much.

Okay.

Okay.

Speaker 4: And this concludes our question and answer session. I would like to turn the conference back over to Joe Kervali for some closing remarks.

And this concludes our question and answer session.

Like to turn the conference back over to Joe Crivelli for some closing remarks.

Speaker 2: Okay, thanks everybody for joining us today. If you have follow-up questions or if you'd like to schedule additional time with the team, please send me an email at iratvertexinc.com. Have a great rest of your day and we look forward to speaking with you in the coming weeks.

Okay. Thanks, everybody for joining us today, if you have follow up questions or if you'd like to schedule additional time with the team. Please send me an E mail at IR at vertex, Inc. Dot com have a great rest of your day and we look forward to speaking with you in the coming weeks.

Speaker 4: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.