Q4 2024 Vertex Inc Earnings Call

<unk> a conference specialist by pressing the star key followed by zero <unk>.

Speaker Change: After today's remarks, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Joe Crivelli, Vice President of Investor Relations. Please go ahead.

Speaker Change: Hello, and thanks for joining us to discuss <unk> fourth quarter financial results I'm, Joe Crivelli, Vice President Investor Relations, David <unk>, our president and CEO and John Schwab, Our CFO are also with us today.

Speaker Change: During this call we may make forward looking statements about expected future results actual financial results may differ due to risks and uncertainties. These risks and uncertainties are described in our filings with the Securities and Exchange Commission.

David DeStefano: We were extremely proud when Vertex was selected by one of the pioneering companies in artificial intelligence research, a company that has been in the headlines since AI first hit mainstream awareness 2 years ago. This comprehensive 7-figure deal for global e-commerce and tax determination, which is integrated across their global sales channels, encompasses 35 regions around the world and an estimated 500 million transactions per year, with the potential for significant growth over time. One question we often get from investors is: Why don't we force migrate our self-hosted customers to the cloud, as that would provide a significant revenue tailwind for Vertex? Our experience has proven that by meeting our customers where they are and supporting their transformation journey on their timeframe, they stay with us when migrating.

Speaker Change: Our remarks today will also include references to non-GAAP financial measures. A reconciliation of these non-GAAP metrics to GAAP is also provided in today's press release.

This call is being recorded and will be available for replay on our Investor Relations website.

David: I'll now turn the call over to David.

David: Welcome everyone and thank you for joining us for Texas.

David: Strong execution continued in the fourth quarter wrapping up what was a very consistent year for the company.

David: More importantly, I am excited about our growing pipeline, which is fueled by the ongoing <unk> of the Oracle cloud and S. P. S. Forehand on migration cycles that are underway and the new products, we're bringing to market.

David DeStefano: A leading energy utility validated this strategy when one of our competitors tried to do just that, force the customer to move from a self-hosted platform to their cloud offering. Instead of transitioning with the incumbent, the customer issued an RFP and selected Vertex as their new indirect tax provider, resulting in nearly seven figures of new revenue for us. A global industrial manufacturer selected Vertex to be its indirect tax partner as part of a global technology transformation that included migrating its existing ERP solution to Oracle Cloud. This competitive displacement was a high six-figure deal, including VAT calculation compliance in 21 countries, our e-invoicing solution, as well as Certificate Center and address cleansing. In Europe, we won a new logo with an up-and-coming cybersecurity training company that was seeking to improve compliance with global tax rules for its e-commerce operations.

David: In the fourth quarter, the vertex team delivered revenue of $178 5 million up 15, 2% year over year and adjusted EBITDA was $38 1 million up 21, 3% compared to last year's fourth quarter.

David: This reflects investments made in our E invoicing product in the fourth quarter as well as previously discussed expenses that were delayed from earlier in the year, while we focused on completing our acquisitions in.

David: In addition, this quarter AOR grew nearly 18% to $603 1 million.

David: Cloud revenue growth for the full year was 28, 6% and I'm pleased to share. The total cloud revenue now exceeds on premise revenue for the first time in line with our strategic intent for future growth.

David: <unk> was 109% while <unk>.

David: Extremely healthy this was lower than recent quarters due to a challenging comparable to our very strong Q4 last year, we fully expect it to rebound above 110% throughout the coming year given the actual full year cross sell units increased over 2023, which validates our customers' continued appetite to buy.

David DeStefano: While this new customer is a relatively small company revenue-wise, given they were launched only 6 years ago, their complexity across multiple geographic regions made them an ideal Vertex customer. Accordingly, this mid six-figure deal was one of our largest in Europe in 2024. Now turning to upsell and cross-sell wins with existing customers. In partnership with SAP, a global fashion brand increased its business with Vertex due to a global cloud transformation initiative. In making the move to the cloud, the customer increased its entitlements with Vertex for sales, consumer use, and VAT tax, and added our Edge product. This resulted in mid-six figures of new revenue, nearly doubling our business with this customer. Finally, a specialty chemical manufacturer had been a non-scaled Vertex customer for several years, as they were relying on a homegrown solution for the bulk of their needs.

David: More from us.

David: Average annual revenue per customer for vertex Standalone increased 14, 8% year over year to $136000.

David: Growth in scaled customer count was 15% year over year. As a reminder, this number represents our customers with annual revenues greater than $100000 and demonstrates our ongoing success in the Underpenetrated enterprise market.

David: Beyond scaled customers, our new logo additions from our expanded ecosystem efforts are kicking into high gear. The fourth quarter was a record for new logos from both dollar and unit standpoint.

David: We believe this new logo success will fuel our proven model of ongoing cross sell and upsell opportunities in the future.

David DeStefano: In Q4, this changed during an S/4HANA cloud transformation. The customer is consolidating 3 instances of ECC into one global S/4HANA environment and adopting Vertex O Series as part of the process. After integration is complete, this will be a broad-based, mid-six-figure relationship. In conclusion, we continue to benefit from our position at the intersection of commerce and compliance in a way that enables durable and profitable long-term revenue growth with increasing earning leverage. When a company is struggling with indirect tax compliance, our solutions are not optional. This is because we provide a regulatory-focused solution, not a nice-to-have SaaS solution. By and large, this minimizes the risk to our business from outside influences like changes in the macroeconomic environment. At Vertex, our focus is on indirect tax compliance.

David: Finally, <unk> was 95% in the fourth quarter within our targeted best in class range of 94% to 96%.

David: Our 2024 results demonstrate the durability and consistency of vertex is business model.

David: We lead in the enterprise space for indirect tax software because our 47 year heritage serving the industry has given us several competitive moats that we believe are sustainable.

David: These are highlighted by <unk>.

David: First the know how to connect the disparate enterprise systems that sit within the critical order to cash process to a single cloud platform without creating any friction.

David: Second the ability for our applications to operate at the enterprise scale and speed standards that multinational corporations require.

As an example on Black Friday weekend, we processed over 1 billion transactions in our cloud environment. In addition to similar transaction volume in our other deployed solutions.

David DeStefano: In the US, this means we address sales and use tax regulated at the state and local government level. Our market opportunity is not impacted by potential changes to the US federal income tax system. Accordingly, we believe a transition to a tariff-based funding structure at the US federal level would have no impact on Vertex's business. In closing, we continue to see deals moving through the sales funnel in a normal and consistent way. Our financial track record of delivering what we say we will do since we became a public company demonstrates our team's ability to execute our strategy, differentiate our solutions, deliver value to our customers and partners, and consistently drive great results quarter in and quarter out that our investors can count on. John will now take you through the financials for 2024 and our guidance for 2025. John?

David: Third we have created one of the most extensive tax content databases, including over $1 billion of rates and rules supporting indirect tax compliance across more than 20000 tax jurisdictions worldwide.

David: Fourth trusted relationships with the Influencers to drive decision, making for indirect tax solutions, including the sales team of the major ERP vendors to the enterprise sector and the largest accounting firms and system integrators in the world many of them who have built multimillion dollars professional service.

David: As practices around vertex integrations.

David: And fifth we have an unparalleled stable of reference enterprise accounts, many who have been vertex customers for decades. These customers champion our solutions at industry events and are willing to speak to prospects on our behalf to help us win deals.

John Schwab: Thanks, David. Good morning, everyone. I'll now review our results in detail and provide financial guidance for Q1 and full year of 2025. In Q4, revenue was $178.5 million, up 15.2% compared to last year's Q4 and exceeding the high end of our Q4 guidance by $500,000. For the full year, total revenue was $668.8 million, up 16.5% from 2023. Excluding ecosio, revenue was $175.5 million in Q4 and $662.8 million for the full year. Note that in Q4, contract renewals with several major customers resulted in usage true-ups of approximately $2 to 3 million above our typical Q4 run rate. While true-ups can occasionally skew sequential comparisons, they increase annual recurring revenue in subsequent periods. Subscription revenue in Q4 increased 16.8% over last year's Q4 to $152.6 million.

David: All this commands premium value for our offerings.

David: Even though we are often two to three times the price of competition, we routinely win the majority of enterprise deals we compete for.

This has been the case throughout our history.

David: The indirect tax regulatory environment is increasingly complex as governments seek new sources of revenue to reduce debt, while providing needed services to their constituents. As an example of the complexity our customers must address in January we published our annual rates and rules report for 2024, which noted significant growth in U S.

David: District level tax activity.

David: These special purpose tax districts at another variable in layer two complexity to indirect taxes. This in turn creates demand for our solutions as enterprises automate tax to stay up to date and in compliance.

David: In Latin America, Europe, and Asia Pac value added tax has not historically been a growth area for vertex because the determination was straightforward compliance was the bigger challenge. This is changing with the proliferation of invoicing mandates and evolving requirements and opens overseas markets in a way we have not.

John Schwab: Full-year subscription revenue was $567.1 million, up 17.9% year over year. Services revenue in the Q4 grew at 6.8% over last year's Q4 to $25.9 million. Full-year services revenue was $99.7 million, up 8.8% year over year. Cloud revenue was $76.9 million in the Q4, up 27% from last year's Q4. Full-year cloud revenue was $276 million, up 28.6% year over year. Annual recurring revenue, or ARR, was $603.1 million at Q4 end. ecosio added $7.9 million to ARR, and Systax added $5.9 million. Excluding these amounts, organic ARR growth was 15% compared to our very strong Q4 of 2023. Net revenue retention, or NRR, was 109% compared to 113% in the comparable 2023 period, down from 111% in the Q3. The year-over-year decrease was largely driven by the comparison to last year's Q4 results, which were unusually strong.

David: Seen in our history.

David: On that note our E. Invoicing solution is proving to be very well received in the market is responding positively to our approach, which integrates invoicing and VAT compliance on one platform with inherent data sharing capabilities. This allows customers to stay ahead of changing mandates remain in compliance on a country by country.

David: And do so in an efficient manner.

David: In the fourth quarter, when we began selling our offering and limited availability several key customers quickly filled the available slots and yesterday, we announced general availability.

David: Our early E invoicing wins highlighted several key proof points for us. They included a competitive takeaway a triggered broader end to end product sales and they were all connected to the core ERP platforms, where we have developed deep relationships.

David: Thus, we have decided to accelerate our investment in the invoicing, including the roster of countries. We can support as well as our go to market capacity John will provide additional details in a moment.

John Schwab: A healthy increase in new logo revenue in the 2024 Q4 revenue mix also impacted NRR comparisons, both on a quarterly and on a year-over-year basis. As David mentioned, we do expect NRR to rebound to above 110% during 2025. Gross revenue retention, or GRR, remained at 95% at quarter end, within our targeted range of 94% to 96%. For Vertex standalone, average annual revenue per customer, or AARPC, was $136,475, up 14.8% from last year's Q4. Including the impact of ecosio and Systax, AARPC was $122,706. For the remainder of the income statement discussion, I will be referring to non-GAAP metrics. These non-GAAP metrics are reconciled to our GAAP results in this morning's earnings press release. Gross profit for the Q4 was $133.9 million, and gross margin was 75%.

David: Technology changes continue to challenge Global enterprises, who are still using legacy homegrown solutions to tackle indirect tax compliance leading them to evaluate partners like vertex. This trend is expected to increase as the major ERP software providers aggressively work to move their long standing customers to modern cloud platform.

David: Forms.

David: The most prominent of these changes is the impending 2027 and of mainstream support for SAP ECC accelerating the need for businesses to modernize last month S&P announced that they are maintaining the 2027 deadline, but allowing large and complex customers, who make a long term commitment.

David: To remain on ECC through 2033 in our view. This is a positive development as it will enable us to build connections to more customers as they evaluate their indirect tax obligations as part of their migration process. This will also help prevent a log jam for integration resources and enable customers to migrate steadily and in turn.

John Schwab: This compares with gross profit of $109.6 million and 70.7% gross margin in the same period last year. Gross margin on subscription software was 81.4%, compared to 76.8% in last year's Q4, and 80.5% in the Q3 of 2024. Gross margin on services revenue was 37.6%, compared to 38.2% in last year's Q4, and 35% in the Q3 of 2024. Turning to expenses. In the Q4, research and development expense was $17.3 million, compared to $11.3 million last year. For the full year, R&D was $56.4 million, with capitalized software spend included, R&D spend was $35.5 million for the Q4 and $123.1 million for the full year, which represents 19.9% of revenue for the Q4 and 18.5% of revenue for the full year.

David: <unk> it extends the tailwind for vertex.

David: We are excited about the continued acceleration of deal flow in the S&P channel S&P is one of our longest standing partners.

David: But I can say that our relationship has never been stronger or opportunity more exciting our pipeline is more than 20% higher than it was last year at this time and likewise in 2020 for referral deals from S. E. T sales reps increased more than 20% in short we're not seeing any indications of a slowdown in the channel in either of the <unk>.

David: U S or abroad.

David: I'll now share a few key new business wins from the fourth quarter, our ability to win when sophisticated market leaders are modernizing their indirect tax platform validates that vertex is technology is built to seamlessly serve the most dynamic and fastest growing businesses in the world in recent quarters, we've highlighted new logo wins with the leading electric vehicle.

David: <unk>, a leading provider of public cloud infrastructure and software and a global semiconductor manufacturer among others.

John Schwab: Selling and marketing expense was $43.7 million, or 24.5% of total revenues, an increase of $9.4 million at approximately 27.3% from the prior year period. For the year, selling and marketing expense was $154.9 million, up 19.9% from last year. Our general and administrative expense was $34.2 million, up $2.8 million from last year. For the full year, general and administrative expense was $128.2 million, compared to $124.9 million last year. Adjusted EBITDA was $38.1 million, an increase of $6 million, or 18.8% year over year. This was approximately $1.1 million above the high end of our quarterly guidance. Full year Adjusted EBITDA was $151.9 million, representing an increase of $51.1 million, or 50.7%, over 2023.

David: So we were extremely proud when vertex was selected by one of the pioneering companies in artificial intelligence research.

Speaker Change: A company that has been in the headlines since AI first hit mainstream awareness two years ago.

Speaker Change: This comprehensive seven figure deal for global ecommerce and tax determination, which is integrated across their global sales channels encompasses 35 regions around the world and an estimated $500 million transactions per year with the potential for significant growth over time.

Speaker Change: One question, we often get from investors is.

Speaker Change: Why do we force migrate our self hosted customers to the cloud.

Speaker Change: Is that would provide a significant revenue tailwind for vertex our experience has proven that by meeting our customers where they are in supporting their transformation journey on their timeframe they stay with us when migrating.

Speaker Change: A leading energy utility validated this strategy when one of our competitors tried to do just that forces the customer to move from a self hosted platform to their cloud offering.

John Schwab: As you look at our GAAP income statement, I want to call out that GAAP profitability in Q4 was impacted by a deferred tax valuation allowance, as well as the valuation of the ecosio earn-out, which contains a fixed share component, which is impacted by changes in our stock price. Q4 free cash flow was $17.9 million. For the full year, free cash flow was $77.7 million, a significant increase from the $6.1 million of free cash flow in 2023. We ended Q4 with over $296 million of unrestricted cash and cash equivalents, and investment securities totaled $9.2 million. For additional liquidity, we also have $300 million of unused availability under our line of credit. Next, turning to guidance.

Speaker Change: Instead of transitioning with incumbent customer issued an RFP in selected vertex as their new indirect tax provider, resulting in nearly seven figures of new revenue for us.

Speaker Change: A global industrial manufacturers selected vertex to be its indirect tax partner as part of a global technology transformation that included migrating its existing ERP solution to Oracle cloud.

Speaker Change: This competitive displacement with a high six figure deal, including V. T calculation compliance in 21 countries are E invoicing solution as well as certificate center and address cleansing.

Speaker Change: Finally in Europe, we won a new logo with an up and coming cyber security training company that we're seeking to improve compliance with global tax rules for its E Commerce operations.

John Schwab: For the full year 2025, we expect total revenue in the range of $760 to 768 million, representing annual revenue growth of 14.6% at the midpoint. Adjusted EBITDA in the range of $161 to 165 million, representing a year-over-year increase of $13.5 million at the midpoint, and a full year Adjusted EBITDA margin of 21.3%. The full year cloud revenue growth is expected to be 28%. For Q1 2025, we expect total revenue in the range of $175 to 178 million, representing revenue growth of 12.6% at the midpoint. While this represents a slower start to the year than normal, we are very confident in our full year guidance given the current level of sales activity and pipeline. Adjusted EBITDA in the range of $33 to 36 million, representing a decrease of approximately $1.7 million at the midpoint.

Speaker Change: And while this new customers relatively small company revenue wise, given they were launched only six years ago their complexity across multiple geographic regions made them an ideal vertex customer. Accordingly. This mid six figure deal was one of our largest in Europe in 2024.

Speaker Change: Now turning to upsell and cross sell wins with existing customers.

Speaker Change: In partnership with SAP, a global fashion brand increased its business with vertex do to a global cloud transformation initiative and making the move to the cloud the customer increased its entitlements with vertex for sales consumers use and VA T tax and that is our edge product.

Speaker Change: This resulted in mid six figures of new revenue nearly doubling our business with this customer.

Speaker Change: Finally, a specialty chemical manufacturer had been a non scaled vertex customer for several years as they were relying on a homegrown solution for the bulk of their needs, but in the fourth quarter. This change during an S. Four Hana cloud transformation.

John Schwab: Our Adjusted EBITDA guidance reflects certain strategic investments we are making in 2025. Excluding these investments in the dilutive impact of ecosio, on a standalone basis, Vertex's full year guidance would have approximated an Adjusted EBITDA margin of over 25%, demonstrating the leverage we are seeing from our previous investment cycle. Last quarter, we noted that investments associated with e-invoicing would be approximately $3 million to $4 million per quarter in 2025, or $12 million to $16 million for the full year. As we mentioned in this morning's press release, we are accelerating our worldwide country coverage and making additional go-to-market investments. This will increase the full year investments related to e-invoicing to approximately $16 million to $20 million, up $4 million from our original guidance.

Speaker Change: Customer is consolidating three instances of ECC into one global S for Hana environment, and adopting vertex OS series as part of the process.

Speaker Change: After integration is complete it will be a broad based mid six figure relationship.

Speaker Change: In conclusion, we continue to benefit from our position at the intersection of Commerce in compliance in a way that enables durable and profitable long term revenue growth with increasing earning leverage.

Speaker Change: When a company is struggling with indirect tax compliance our solutions are not optional. This is because we provide a regulatory focused solution not a nice to have SaaS solution and biologics. This minimizes the risk to our business from outside influences like changes in the macroeconomic environment.

John Schwab: In addition, we are making approximately $10 to $12 million of incremental R&D investments across major initiatives, including the commercialization of our AI-based Smart Categorization product, other AI-related tools, and new product initiatives and other emerging technologies. We believe that these strategic actions are the right thing to do for our customers and will result in continued momentum in the business over the long term. Before I turn the call over to David, we hope that you will join us for our Investor Day, which is scheduled to take place at 8:30 AM on 19 March. We're all very excited to give you a deeper dive into our business drivers and our strategy to execute on that. We also look forward to introducing you to the rest of the Vertex leadership team.

Speaker Change: At vertex our focus is on indirect tax compliance in the U S. This means we address sales and use tax regulated at the state and local government level, our market opportunity is not impacted by potential changes to the U S. Federal income tax system. Accordingly, we believe the transition to a tariff based funding structure.

Speaker Change: At the U S federal level would have no impact on vertex is business and.

Speaker Change: In closing, we continue to see deals moving through the sales funnel in a normal and consistent way our financial track record of delivering what we say we will do since we became a public company demonstrates our team's ability to execute our strategy differentiate our solutions deliver value to our customers and partners.

John Schwab: Please visit our investor relations homepage to register in advance or to view the live broadcast on the day of the event. If you have any questions regarding Investor Day, you can reach out to Joe Crivelli, our VP of Investor Relations. David will now make some closing comments before we go on to Q&A. David?

David DeStefano: Thanks, John. As I said at the top of the call, I'm very pleased with our execution in 2024. We believe we have all the pieces in place to continue to grow shareholder value in the coming years. We have a differentiated market position in a critical market segment, with significant competitive advantages and competitive moats. We have several multi-year tailwinds that we expect to accelerate new logo growth and enable us to increase our wallet share with existing customers. We have a great team executing this business day in and day out to ensure that we seize on our opportunity. With that, we will take your questions.

Speaker Change: And consistently drive great results quarter in and quarter out that our investors can count on.

Speaker Change: John will now take you through the financials for 2024, and our guidance for 2025 John.

Thanks, David and good morning, everyone I'll now review our results in detail and provide financial guidance for the first quarter and full year of 2025.

Speaker Change: In the fourth quarter revenue was $178 5 million up 15, 2% compared to last year's fourth quarter and exceeding the high end of our fourth quarter guidance by $500000.

Speaker Change: For the full year total revenue was $668 8 million up 16, 5% from 2023.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Rob Oliver from Baird. Please go ahead.

Speaker Change: Excluding <unk> revenue was $175 $5 million in the fourth quarter and $662 $8 million for the full year.

Speaker Change: Note that in the fourth quarter contract renewals with several major customers resulted in usage true ups of approximately $2 million to $3 million above our typical Q4 run rate or true ups can occasionally skew sequential comparisons.

Rob Oliver: Great. Thank you, guys. Good morning. I appreciate you taking the questions. I have two. David, I'll start with you. Right at the top of your prepared remarks, you cited ongoing enthusiasm for the ERP migrations around Oracle and SAP, and that's been somewhat of a question mark within the investment community lately. I was hoping you could touch on that in a little bit more detail. I know you also said you weren't impacted by the move to true-ups, but just if we can get your sense of how those pipelines continue to develop, particularly relative to some of the concerns here globally, what you're seeing and how much of that perhaps is stuff within your own control, the unique relationship you guys have had with SAP. Any more color on those pipelines to get us comfortable would be helpful.

Speaker Change: Increased annual recurring revenue in subsequent periods.

Speaker Change: Subscription revenue in the fourth quarter increased 16, 8% over last year's fourth quarter to $152 $6 million full year subscription revenue was $567 1 million up 17, 9% year over year.

Speaker Change: Services revenue in the fourth quarter grew at six 8% over last year's fourth quarter to $25 $9 million full year services revenue was $99 7 million up eight 8% year over year.

Speaker Change: Cloud revenue was $76 $9 million in the fourth quarter up 27% from last year's fourth quarter.

Speaker Change: Full year cloud revenue was $276 million up 28, 6% year over year.

Speaker Change: Annual recurring revenue or <unk> was $603 1 million at quarter end, <unk> added $7 $9 million to IRR and set that at $5 $9 million. Excluding these amounts organic AOR growth was 15% compared to a very strong fourth quarter of 2023.

Rob Oliver: I had a quick follow-up for John. Thanks.

David DeStefano: Sure. Thanks, Rob. Yeah, the maturity of the relationships with both Oracle and SAP continue to be strengths for the business, and we're not seeing any slowdown in the SAP activity at all, specific to your question. We saw a nice actually increase in our pipeline as we rolled into 2025. When we look forward, there's really no slowdown. In fact, I was really encouraged when SAP reinforced not only the 2027 deadline, but also the 2033 opportunity. What that's going to do is it's going to allow us to actually network to a broader group of SAP prospects before they make the decision on indirect tax, whether they stay with native functionality or move. It actually gives us a nice tailwind that's going to persist into the future, that I'm very encouraged by.

Speaker Change: Net revenue retention or <unk> was 109% compared to 113% in the comparable 2023 period down from 111% in the third quarter a.

The year over year decrease was largely driven by the comparison to last year's fourth quarter results, which were unusually strong.

Speaker Change: A healthy increase in new logo revenue in the 2024 fourth quarter revenue mix also impacted in our comparisons both on a quarterly and on a year over year basis.

Speaker Change: As David mentioned, we do expect MLR to rebound to above 110% during 2025.

Speaker Change: Gross revenue retention or <unk> remained at 95% at quarter end within our targeted range of <unk>, 94% to 96%.

David DeStefano: I will tell you that the processes that these companies are going through started well before we got into the pipeline, and they're all moving at the same pace. We're not seeing any slowdown in those decisions, and in terms of when they're making their migration decision. It's actually moving quite healthily, and it's increasing.

Speaker Change: <unk> Standalone average annual revenue per customer or RPC was $136475 up 14, 8% from last year's fourth quarter.

Speaker Change: Including the impact of a cozy setbacks AARP seed was $122706.

Rob Oliver: Great. Thanks. I appreciate that. Then, John, you guys have been very disciplined on the margin front. Now looking at margins, they're going to be down this year. I know you guys have called out here the incremental investment in ecosio as well as across the rest of R&D. I just would love to hear from you, obviously, given the judicious approach you guys have taken to margins, why now? What was the sort of cost benefit trade-off that went into that calculus to say, Okay, we are going to spend more here this year, and not have an up margin year in 2025? I'd love to hear your thoughts on that. Thanks.

Speaker Change: For the remainder of the income statement discussion I'll be referring to be referring to non-GAAP metrics. These non-GAAP metrics are reconciled to.

Speaker Change: So our GAAP results in this morning's earnings press release.

Speaker Change: Gross profit for the fourth quarter was $133 9 million and gross margin was 75%. This compares with gross profit of $109 6 million.

Speaker Change: 77% gross margin in the same period last year.

Speaker Change: Gross margin on subscription software was 81, 4% compared to 76, 8% in last year's fourth quarter and 85% in the third quarter of 2024.

David DeStefano: Yeah. No, Rob, appreciate the question. As we thought about it, obviously the acquisition of ecosio at the end of the year, we were very excited by it. We knew we'd be making some spend there to grow that business, because again, we want to put it into a position where we can deliver the solutions that the largest enterprise customers need throughout the world. We feel like it's the right time, based on some initial indications we have, is to step on the accelerator, move forward, and make those investments now, not just in e-invoicing, but in some of the other areas of AI, and some of the Smart Categorization tools that we have there. We really feel that now's the time to make those investments to get ourselves prepared.

Speaker Change: And gross margin on services revenue was 37, 6% compared to 38, 2% in last year's fourth quarter and 35% in the third quarter of 2024.

Speaker Change: Now turning to expenses in the fourth quarter research and development expense was $17 3 million compared to $11 $3 million last year.

Speaker Change: For the full year R&D was $56 4 million was capitalized software spend included R&D spend was $35 5 million for the fourth quarter and $123 $1 million for the full year, which represents 19, 9% of revenue for the fourth quarter at 18, 5% of revenue for the full year.

David DeStefano: When we looked at sort of the ending results of kind of where we ended up with the budget, we really look at the core and focus on where the core is. If you exclude the investments we're making in ecosio and you exclude some of this, what I would consider kind of somewhat anomalous investment that we're going to be making in 2026 to chase after some of this investment, our Adjusted EBITDA margin is in excess of 25%, and it really demonstrates that leverage that we've been able to get from our previous investment activity that we did over the last couple of years. We feel very good about where that stands, and we look at the core business versus some of the other things, and that really gives us the confidence.

Speaker Change: Selling and marketing expense was $43 7 million or 24, 5% of total revenues, an increase of $9 $4 million and approximately 27, 3% from the prior year period.

Speaker Change: For the year, selling and marketing expense was $154 9 million up 19, 9% from last year.

Speaker Change: And our general and administrative expense was $34 2 million up $2 $8 million from last year.

Speaker Change: Full year general and administrative expense was $128 2 million.

Speaker Change: Compared to $124 $9 million last year.

Speaker Change: Adjusted EBITDA was $38 1 million, an increase of $6 million or 18, 8% year over year.

Rob Oliver: Great. I appreciate the commentary. Thank you.

Operator: The next question comes from Chris Quintero from Morgan Stanley. Please go ahead.

Speaker Change: This was approximately $1 $1 million above the high end of our quarterly guidance.

Chris Quintero: Hey, David. Hey, John. Thanks for taking the questions, and congrats on the solid quarter here. Actually, wanted to ask on gross margins. Nice to see that really expand in 2024 here. Just curious if you can give us a bit more color on unpacking the driver there of that improvement on the gross margin side, and what should we expect for 2025?

Speaker Change: Adjusted EBITDA was $151 9 million, representing an increase of $51 1 million or 57% over 2023.

Speaker Change: As you look at our GAAP income statement I want to call out that GAAP profitability in the fourth quarter was impacted by a deferred tax valuation allowance as well as the valuation of the <unk> earn out which contains a fixed share component, which is impacted by changes in our stock price.

John Schwab: Yeah, Chris, thanks very much for the question. We have seen some nice growth in margins over time. As we've talked about over the years, over time, we expected that we would see some leverage in the margin area. We are certainly seeing that grow through the business. I will point out, as we did mention to you in Q3 and a bit in Q4, some of those revenue true-ups have come in at a bit higher margin, certainly than some of the other items. There's a little bit of an impact there. We don't guide to margins, but what I would say to you is that I wouldn't take these margins and extrapolate them out over the longer term. I think we feel very good about margins and how they're operating right now, but I wouldn't certainly be expanding these.

Fourth quarter free cash flow was $17 9 million and for the full year free cash flow was $77 7 million a significant increase from the $6 $1 million of free cash flow in 2023.

Speaker Change: We ended the fourth quarter with over $296 million of unrestricted cash and cash equivalents and investment securities totaled $9 $2 million.

Speaker Change: For additional liquidity, we also have $300 million of unused availability under our line of credit.

Speaker Change: Next turning to guidance for the full year of 2025, we expect total revenue in the range of $760 to $768 million.

John Schwab: Again, I think we had a bit of benefit in Q3 and Q4 by some of the true-up activity that we've called out previously.

Speaker Change: Representing annual revenue growth of 14, 6% at the midpoint.

Speaker Change: Adjusted EBITDA in the range of $161 million to $165 million, representing a year over year increase of $13 $5 million at the midpoint and our full year adjusted EBITDA margin of 21, 3%.

Chris Quintero: Got it. That's super helpful, John.

John Schwab: Yep.

John Schwab: On services, how should we think about that for 2025? I know Q3 was only about 2% growth, and then Q4 a little step up to close to 7%. Just curious how we should think about that pro services run rate as you continue to work with your implementation partners there too.

Speaker Change: And the full year cloud revenue growth is expected to be 28%.

Speaker Change: For the first quarter of 2025, we expect total revenue in the range of $175 million to $178 million, representing revenue growth of 12, 6% at the midpoint. While this represents a slower start to the year than normal we are very confident in our full year guidance given the current level of sales activity and pipeline.

David DeStefano: Yeah. I'm going to take that, Chris. I think our strategy of minimizing services growth to support a more durable ARR growth is really working. We're seeing it in increased pipeline with our alliance partners, and that's something we're going to continue to focus on. We envision a pretty flat year, candidly, with our services, really using it more as a harvester for great customer experience and driving innovation into our products as opposed to being a primary revenue driver. Really want to continue to push everything we can into our advisory community with our business wherever possible.

Speaker Change: And adjusted EBITDA in the range of 33% to $36 million representing.

Speaker Change: Representing a decrease of approximately $1 $7 million at the midpoint.

Speaker Change: Our adjusted EBITDA guidance reflects certain strategic investments, we are making in 2025.

Speaker Change: Excluding these investments and the dilutive impact of <unk> on a standalone basis vertex is full year guidance would have approximated an adjusted EBITDA margin of over 25% demonstrating the leverage we are seeing from our previous investment cycle.

Chris Quintero: Super helpful. Thanks, guys. See you in Philly.

David DeStefano: Thanks, Chris.

John Schwab: Thanks, Chris.

Operator: The next question comes from Joshua Reilly from Needham. Please go ahead.

Speaker Change: Last quarter, we noted that investments associated with E. Invoicing Levy would be approximately $3 million to $4 million per quarter in 2025% or 12% to $16 million for the full year.

Joshua Reilly: All right. Thanks for taking my questions. You highlighted some additional product-related investments for AI. If you look at Smart Categorization and the investments for the internal AI tools as well, do you see this as a front-loaded investment period when monetization is more in 2026 and beyond? Do you think there is a quicker payback opportunity in terms of margin benefits for customer support? Do you expect to see some revenue from Smart Categorization and some of these AI products in 2025 as well?

Speaker Change: However, as we mentioned in this morning's press release, we are accelerating our worldwide country coverage and making additional go to market investments. This will increase the full year investments related to E invoicing to approximately $16 million to $20 million up $4 million from our original guidance.

Speaker Change: In addition, we're making approximately $10 million to $12 million of incremental R&D investments across major initiatives, including the commercialization of our AI based smart categorization product other AI related tools and new product initiatives and other emerging technologies.

David DeStefano: Yeah, I think there's two aspects to that. Yes, I think Smart Categorization will be in the market this year. We will see some more probably ARR lift than we will necessarily revenue, obviously, just with our revenue recognition. But we're also seeing it, and we've talked about this, I think, Josh, in the past, you and I, the conversation about our data management capabilities. One of the areas that's adjacent to this increase in investment that is part of what we're focused on here is advancing a more commercial data management offering into the market. Part of this investment is because we're seeing some of the power of what we can do with that AI across our platform, especially as we look at agentic AI being added into our platform.

Speaker Change: We believe that these strategic actions are the right thing to do for our customers and will result in continued momentum in the business over the long term.

Speaker Change: Before I turn the call over to David We hope that you will join us for our Investor Day, which is scheduled to take place at 830 a M. On March 19, we're all very excited to give you a deeper dive into our business drivers and our strategy to execute on that.

Speaker Change: We also look forward to introducing you to the rest of the vertex leadership team.

Speaker Change: Please visit our Investor Relations homepage to register in advance or to view the live broadcast on the day of the event do you have any questions regarding the Investor day, you can reach out to Joe Crivelli, our VP of Investor Relations.

David DeStefano: It just has us really excited about what we're seeing and how we continue to bring our customers along in the journey of those conversations and the feedback they're giving us about why this is a good opportunity to pursue now. Tying to the question of why are we accelerating in the face of margins? It's because some of the feedback we get from customers about bring it to market now so you can get that adoption longer term.

David: David will now make some closing comments before we go onto Q&A David.

David: Thanks, John.

David: As I said at the top of the call I'm very pleased with our execution in 2024, we believe we have all the pieces in place to continue to grow shareholder value in the coming years, we have a differentiated market position and a critical market segment with significant competitive advantages and competitive moats we've.

Joshua Reilly: Got it. That's super helpful. As we look at some of these investments for the AI products and tools, how should we think about how much of the incremental expenses will be expensed versus capitalized? How are we thinking about the conversion of EBITDA to free cash flow for this year? Thanks, guys.

David: We have several multiyear tailwind so we expect to accelerate new logo growth and enable us to increase our wallet share with existing customers and we have a great team executing this business day in and day out to ensure that we seized on our opportunity.

John Schwab: Yeah. A couple of things. I think in terms of the capitalization, typically, we are running around 50-ish%, give or take. Hard for me to say right now, Josh, exactly how that would play out, but that's generally the rate at which we consider that. Hard to say with that, but that's the guidance I would give you there. In terms of free cash flow for this year, again, we don't guide to free cash flow. What I can say is that we were on a very nice pace to achieve our free cash flow goals, as we've talked about, that 65% to 70%. You saw we increased in the full year, we're up to $77 million of free cash flow, up from about $6 million last year. We've made a lot of good strides.

David: With that we will take your questions.

David: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble the roster.

Speaker Change: And our first question comes from Rob Oliver from Baird. Please go ahead.

Rob Oliver: Great. Thank you guys. Good morning, I appreciate you taking the questions I have two David I'll start with you.

Right at the top of your prepared remarks, you cited ongoing enthusiasm for the ERP migrations around Oracle and SAP.

John Schwab: Joshua Reilly, what I would tell you is, obviously, the acquisition of ecosio and some of the other investments we're making is going to slow that down. It'll slow that down, I think we talked about 18 to 24 months of investment. As I see us exiting 2026, having made those investments, I think we'll be on track for that 65% to 70%.

Rob Oliver: And that's been somewhat of a question mark within the investment community lately. So I was hoping you could touch on that in a little bit more detail. I know you also said you weren't impacted by the move to terrorists, but just if we can get your sense of how those pipelines continue to develop.

Particularly relative to some of the concerns here globally.

Rob Oliver: Youre seeing and how much of that perhaps is stuff within your own control. The unique relationship you guys have had with S. P.

Joshua Reilly: Got it. Thanks, guys.

John Schwab: You got it.

Operator: The next question comes from Samad Samana from Jefferies. Please go ahead.

Speaker Change: Any more color on those pipelines to get us comfortable would be helpful. And then I had a quick follow up for John Thanks.

Samad Samana: Hey, thanks for taking my questions. Maybe first, just on the early customers that have adopted ecosio or that you've made it available for joint operating, anything that you can tell us about that cohort, whether they're your larger customers, more mid-size, what geo specifically that they're working on or how they're early on thinking about leveraging it and just what you've learned? I know it's been a short period of time, but just anything we can use to start to think about what the opportunity could mean in a more meaningful way.

Rob Oliver: Sure. Thanks.

Rob Oliver: Thanks, Rob.

Rob Oliver: The maturity of the relationships with both Oracle and SAP continue to be strength for the business and we're not seeing any slowdown in the activity at all specific to your question.

Rob Oliver: We saw a nice actually increase in our pipeline as we rolled into.

Rob Oliver: 2025.

Rob Oliver: And we look forward.

Theres really no slowdown and in fact I was really encouraged when S&P reinforce not only the 2027 deadline, but also the 2033 opportunity because what that's going to do is it's going to allow us to actually network to a broader group of SAP prospect before they make the decision on indirect tax whether they stay with native functionality of <unk>.

David DeStefano: Yes, Samad, appreciate the question. It was a combination. We had a nice competitive takeaway here in the States. We won a nice deal in Europe that actually led to a much broader relationship. Meaning the customer came in with the pain point around the invoicing, as we laid out our vision around linking VAT compliance and then VAT determination, the client actually stepped back and bought a much broader suite than actually the initial pain point. I think the addition, the ability to add on other product sales as our team begins to take this to market and gets our reference ability is really encouraging to me in terms of what we're seeing in the conversations. I would say, US base is going to still be our primary focus. We did pick up wins in Europe.

Rob Oliver: Move so it actually gives us a nice tailwind that's going to persist into the future.

Rob Oliver: I'm very encouraged by.

I'll tell you that the.

Rob Oliver: The processes that these companies are going to start it well before we got into the pipeline and they are all moving at the same pace, we're not seeing any slowdown in those decisions.

Rob Oliver: Terms of when they're making their migration.

Rob Oliver: Decision, so it's actually moving quite healthy and it is increasing.

Speaker Change: Great. Thanks, I appreciate that.

Speaker Change: And then John you guys have been very disciplined on the margin front.

David DeStefano: Some were new logo, some were competitive takeaway, some were existing customers just adding it into their mix. All were critical proof points. I think the other big thing I would acknowledge is the fact that they're all running on the core ERP systems that we have deep relationships with, which is critical to our strategy as we want to further wallet share and advance our strategic relationships with those partners.

Speaker Change: And then looking at margins, they're going to be down this year and I know you guys have called out here the incremental investment in <unk> as well as across the rest of R&D.

Speaker Change: And I just would love to hear from you obviously, given the judicious approach you guys have taken to margins.

Speaker Change: Why now and what was the sort of cost benefit tradeoffs that went into that calculus to say, okay. We are going to spend more here this year and.

Samad Samana: Understood. Maybe a follow-up on just, John, I thought it was interesting that some of the incremental investments are around internal AI, can you maybe help us flesh that out for us a little bit? Is that in terms of AI that you want to use internally for your own development? Is that something that you look at as a potential, something that drives efficiency or cost savings, whether that's in R&D development or in the cost to serve? Are there commercial prospects for whatever you end up developing?

Speaker Change: And not have it op margin year in 'twenty five love to hear your thoughts on that thanks.

Speaker Change: No I appreciate the question and as we thought about it obviously the acquisition of <unk> at the end of the year. We were very excited by it we knew we'd be making some spend there to grow that business because again, we want to put it into a position where we can deliver the solutions that the largest enterprise customers need throughout the world and so we feel like it's the right time.

John Schwab: Yeah. Certainly, Samad, from additional costs that when we talk about the AI investment, there's certainly a lot there that's focused on external commercial opportunities within the products, and that's really our main focus. We are making some investment for internal use, but that's the much smaller piece of the pie. The majority of it is really focused on external customer opportunities, and being able to leverage that along with some other data management tools that we think will be certainly useful to our customers as they continue to navigate tax.

Speaker Change: Based on some initial indications we have is to step on the accelerator moved forward in and make those investments now not just in the invoicing, but in some of the other areas of AI.

Speaker Change: And some of the smart categorization tools that we have there. So we really feel that now is the time to make those investments to get ourselves prepared so when we looked at when we looked at sort of the ending result of kind of where we ended up with a budget. We really look at the core and focus on where the core is and if you exclude exclude the investments we're making in <unk> when you exclude.

David DeStefano: Samad, a good example of that is the Smart Categorization.

Some of this what I would consider kind of somewhat anomalous investment that we're going to be making in 2026 to chase. After some of this investment our adjusted EBITDA margin is in excess of 25% and it really demonstrates that leverage that we've been able to get over from our.

John Schwab: Sure.

David DeStefano: That will be an independent commercial offering that can be bolted on to existing customers as well as will help us land new logos.

Samad Samana: Great. Look forward to hearing more at the analyst day.

Previous investments investment activity that we did over the last couple of years. So we feel very good about where that where that stands and we look at the core business versus some of the other things and that really gives us the confidence.

David DeStefano: Yes. Look forward to having you there.

Operator: The next question comes from Steve Enders from Citi. Please go ahead.

Steve Enders: All right. Great. Thanks for taking questions this morning. I guess maybe just following on the AI conversation here. I guess interesting to hear you talk about the agentic AI experience and the Vertex opportunity there. Yeah, can you just maybe give a little bit more detail on how you're thinking about what that agentic experience looks like or maybe some of the use cases or opportunity around that?

Speaker Change: Great I appreciate the commentary thank you.

Speaker Change: Okay.

Chris Cantariff: The next question comes from Chris can tariff from Morgan Stanley. Please go ahead.

Speaker Change: Hey, David Hey, John Thanks for taking the questions and congrats on the solid quarter here.

Chris Cantariff: Actually wanted to ask on gross margins.

Speaker Change: The thing that really.

Speaker Change: Expand in 'twenty four here I'm just curious if you can give us a bit more color on unpacking. The driver there of that improvement on the gross margin side and what should we expect more of a 25%.

David DeStefano: Well, obviously early days, but as we're looking at it across our platform, I think we see opportunities for it to improve, both the customer experience as well as, which I think is going to be interesting, is some of our partners are also in the market, our technology partners are working with agentic AI, and I think you're going to see how agentic AI can work to improve actually the relationship and the engagement between some of our ecosystem partners.

Speaker Change: Yes, Chris Thanks, very much for the question, yes, we have seen some nice growth in margins over time and as we've talked about over the years, but over time, we would we expected that we would see some leverage in the margin area and so we did we are certainly seeing that grow through the business I will point out as we did mentioned in the third quarter and a bit in the fourth quarter some of those.

David DeStefano: I think we're looking at it in two dimensions about how we can improve the end-to-end workflow and along the lines of our data fabric and what it can do, the jobs it can do for a tax department and bring value there, and then also how we can think about it on a broader level as we look out further, where it may fit in the ecosystem with some of our ecosystem partners.

Speaker Change: True ups have come in at a bit higher margin certainly than some of the other some of the other items. So theres a little bit of an impact there. So I wouldn't take we don't guide to margins, but what I would say to you is that I wouldn't take these margins and extrapolate them out over the longer term I think we feel very good about that.

Speaker Change: Margins and how they're operating right now, but I wouldnt certainly be expanding these and again I think we had a little bit of benefit in the third and fourth quarter by some of the true up activity that we've called out previously.

Steve Enders: Okay. Got you. That's helpful. I guess maybe on kind of the pipeline development or, I guess it seems like that's kind of like what's giving you confidence for the back half of the year, but can you just maybe help us think through some of the moving pieces or maybe the linearity through the year, as we kind of accelerate off of Q1 levels and maybe what that looks like?

John Schwab: Got it that's super helpful. John.

John Schwab: And then on services.

John Schwab: Do we think about that for 25 I know.

John Schwab: Q3 was only about 2% growth in Q4, it will step up to close to 7%. So just curious how we should think about that process and your run rate as you continue to work with your implementation partners there too.

David DeStefano: Yeah. I'm really glad you asked this question because obviously, when you look at Q1, you may say, Well, how are we going to get to the exciting guidance that we have for the full year and the growth? That suggests much stronger ARR as the year goes on. I think that's just a function of really deep understanding of and visibility into our pipeline. When we look at our coverage ratios of what we're going to need in pipeline, both in Europe and the US, to achieve our goals, what we're seeing is already building, as we rolled into 2025, is very different than we rolled in in 2024. We highlighted some of our new logo wins. The broadening of the ecosystem of where we're seeing pipeline build is very encouraging to me. It's not just single-threaded.

John Schwab: Yes.

John Schwab: Going to take that Chris I think our strategy of minimizing services growth to support a more durable AOR growth is really working and we're seeing it in increased pipeline with our alliance partners and that's something we're going to continue to focus on so we envision a pretty flat year candidly with our services really using it more as a harvester for great customer experience and <unk>.

John Schwab: <unk> innovation into the into our products as opposed to being a primary revenue driver really want to continue to push.

John Schwab: Anything we can into our advisory community with our with our business wherever possible.

John Schwab: Super helpful. Thanks, guys.

Chris Cantariff: Thanks, Chris Thanks, Chris.

David DeStefano: I think our progress there is one reason I have the confidence. I think the second reason is some of the feedback we're getting about the new offerings and where we're envisioning bringing products to market. That combination, along with just the core execution of the team. I also think you're going to see, and we highlighted this, a nice movement back in NRR. While NRR pulled back a little bit in Q4, I think you have to look at the actual unit opportunities actually increased for us, which tells me the customer appetite and the pain they're still dealing with is there. It's a question of what products they buy that oftentimes drives that NRR, but I think you're going to see that come back nicely.

Speaker Change: Next question comes from Joshua Reilly from Needham. Please go ahead.

Joshua Reilly: Alright, Thanks for taking my questions. So you highlighted some additional product related investment for AI. If you look at smart categorization and the investments for the internal AI tools as well.

Joshua Reilly: This isn't like a front loaded investment period when monetization is more in 2026 and beyond where do you think there is a quicker payback opportunity.

Joshua Reilly: The margin benefit for customer support and do you expect to see some.

Joshua Reilly: Revenue from Smart categorization and some of these AI products in 2025 as well.

Joshua Reilly: Yes, I think there's two aspects to that yes, I think smart categorization will be in the market. This year.

David DeStefano: When I look across the business, across all those dimensions, that's the confidence I have for the nice growth through the year and that snap back that you acknowledged.

Joshua Reilly: And so we will see some more probably AUR lift that we will necessarily revenue, obviously, just with our revenue recognition.

Steve Enders: Okay. Perfect. No, great to hear, and thanks for taking the questions.

Joshua Reilly: But we're also seeing it and we've talked about this I think Josh in the past.

David DeStefano: Yeah. Thank you, Steve.

Operator: The next question comes from Daniel Jester from BMO Capital Markets. Please go ahead.

Joshua Reilly: And about our data management capabilities one of the areas. That's adjacent to this increase in investment that is part of what we're focused on here is is advancing a more commercial data management offering into the market and so part of this investment is because we're seeing some of the power of what we can do with that AI across our platform, especially as we look at <unk>.

Daniel Jester: Hey, good morning. Thanks for taking my question. Just on ecosio and e-invoicing. I'm sorry if I missed this in terms of the investments you're making. How much of this is product related, and how much of this is getting go-to-market investments and getting sort of boots on the ground in Europe? I think maybe more generally, I'd love to kind of hear an update as you see your go-to-market investments in Europe. David, you talked about VAT unlocking sort of more opportunities. Is that going to require you to put sort of more sales resources into Europe in the coming years to attack that? Thank you very much.

Joshua Reilly: Being added into our platform.

Joshua Reilly: And it just has us really excited about what we're seeing and how we continue to bring our customers along in the journey of those conversations and the feedback they're giving us about why this is a good opportunity to pursue now.

Joshua Reilly: Turning to the question of why are we accelerating in the face of margins. It's because some of the feedback we get from customers about bringing it to market now so you can get that adoption longer term.

Speaker Change: Got it that's Super helpful. And then as we look at some of these investments for.

John Schwab: Yep. Yeah, Dan, thanks for the question. It's a good one. What I would tell you is this, as we think about the investment in ecosio, you're right, there are two pieces to it. There's the go-to-market aspect, and then there's the product aspect. The biggest piece certainly is the product. Getting the country coverage that we need, ensuring that we've got great integration across the product set that we offer. That is where the majority of the spend is. That said, we certainly still have to ensure that we have the right amount of coverage out there. Again, as we expand and get usage throughout Europe and elsewhere, we want to make sure we've got feet on the street as well as other subject matter experts to be able to articulate the story. That is certainly a much lesser part than the product aspect of it.

Speaker Change: For the AI products and tools, how should we think about how much of the incremental expenses will be expensed versus capitalized and then how are we thinking about the conversion of EBITDA to free cash flow for this year. Thanks guys.

Speaker Change: Yeah, a couple of things I think in terms of kind of the capitalization typically we are running around 50.

Speaker Change: 50 ish percent give or take hard for me to say right now Josh exactly how that would play out but thats generally the the rate at which we consider we consider that so.

Speaker Change: Hard to say with that but that's kind of the guidance I would give you there in terms of free cash flow for this year again, we feel very we don't guide to free cash flow. What I can say is that we were on a very nice pace to achieve our free cash flow goals as we've talked about that 65% to 70%.

David DeStefano: Yeah. I would just add, I think, I'm really encouraged. One of the things I should've said earlier when we talked about what's happening in e-invoicing is the talent that we've actually drawn into our organization around e-invoicing, who are people who had worked at other competitors, Big Four partners, et cetera, that have now come and joined our organization because of the strategy we've adopted here and the offering that we're bringing forward in the market. I just really like our positioning and their energy around why we're going to succeed. I think John hit it really well. We're going to see much more about accelerating the product. That positions us in the long run to execute in the go-to market.

Speaker Change: You saw we increased in the full year up to $77 million of free cash flow up from about $6 million last year. So we've made a lot of good strides Josh what I would tell you is obviously the acquisition.

Speaker Change: Acquisition of <unk> and some of the other investments, we're making it's going to slow that down.

Speaker Change: And my expectation it'll slow that down and I think we talked about 18 to 24 months of investment so as I see us exiting 2020 as I see us exiting 2026, having made those investments I think we will then we'll be on track for that.

Speaker Change: For that 65% to 70%.

Speaker Change: Got it thanks guys.

Daniel Jester: Okay. That's really helpful color. Thank you. On the record improvement in new logos, that's great to hear. I think throughout the conversation, you've touched on it a few times about what drove that. Can you be a little more explicit? Is this actually seeing new sort of SAP and Oracle-related customers as they go through their digitization journey coming to Vertex? Or is this maybe a broader set of different opportunities? If you can give any more clarity as to what's driving those.

Speaker Change: Got it.

Speaker Change: The next question comes from Samad Samana from Jefferies. Please go ahead.

Samad Samana: Thanks for taking my question.

Speaker Change: Maybe first just on the.

Speaker Change: Early customers that are adopting it.

Speaker Change: I know you've made a joint offering any anything that you can call us back.

Speaker Change: That cohort, whether they're your largest customers more mid size.

Speaker Change: What GSK co.

Speaker Change: We're working on and how they are early on thinking about leveraging it.

David DeStefano: Yeah

Daniel Jester: that'd be very helpful.

Speaker Change: Learn in a short period of time, but just anything we can be.

David DeStefano: No, we look carefully at this, thank you for the question. It is the combination. It's the broadening of that ecosystem relationship. I think we highlighted a 20% increase in pipeline and referrals in SAP. That's new logos. Really pleased with how we're working with our alliance partners, and we continue to advance in Oracle, again, new logos. Going further, we continue to nurture our ecosystem relationships with Shopify, Microsoft, Salesforce, NetSuite, and the investment we have made in channel over the last several years is really starting to bear fruit that is opening up that aperture of broadening the revenue base for more durable, sustainable revenue growth into the future. To me, that is really encouraging. We're not as single-threaded.

Speaker Change: Start to think about what the opportunity could mean in a more meaningful way, yes, Bob I. Appreciate the question. It was a combination we had a nice competitive takeaway.

Speaker Change: Here in the states, we won a deal in a nice deal in Europe that actually led to a much broader relationship.

Speaker Change: Meaning the customer came in with the pain point around the invoicing and as we laid out our.

Speaker Change: Our vision around linking VAT compliance and then VAT determination in the client actually step back and bought a much broader suite than actually the initial pain point. So I think the addition, the ability to add on other product sales as our team begins to take this to market and get our reference ability is really encouraging to me in terms of what we are.

Speaker Change: Seeing in the conversations so I would say.

Speaker Change: U S base is going to still be our primary focus.

Daniel Jester: Thank you very much.

David DeStefano: Thank you.

Speaker Change: But we are seeing we did pick up wins in Europe somewhere new logo somewhere competitive takeaways somewhere.

Operator: The next question comes from Jake Roberge from William Blair. Please go ahead.

Speaker Change: Existing customers, just adding it into their mix.

Speaker Change: All were critical proof points I think the other big thing I would acknowledge is the fact that they are all running on the core ERP systems that we have deep relationships with which is critical to our strategy as we want to further wallet share and advance our strategic relationships with those partners.

Jake Roberge: Yeah. Thanks for taking the questions. You talked about ecosio needing to add those geographies, and you've been talking about that the past few quarters to kind of get it in the right place for some of your larger global customers. In terms of where it sits today, are you able to address the markets that are starting to get lit up this year and next year, and these are more forward-looking, or is there a little bit of a catch-up that you need to do to address the current demand that you're seeing with ecosio?

Speaker Change: Yeah.

Speaker Change: And then maybe a follow.

Speaker Change: Got it and then it was interesting that some of the incremental investments are on internal AI and maybe.

David DeStefano: Certainly, we want to be most importantly focused on the greenfield countries that are coming, meaning countries like France and in Germany, where the requirements didn't exist, because that's going to be a greenfield where all the markets are trying to figure out how do we solve for those jurisdictions. There are certain prime jurisdictions that had already adopted e-invoicing that ecosio didn't cover, and we want to make sure, given where our customers do business, we make sure we hit the ones that are most prevalent. There might be a small jurisdiction, pick a region, let's say Africa, that we don't have a lot of customers doing a lot of business in that region. We will push that out on the roadmap.

Speaker Change: Flesh that out for us.

Speaker Change: And in terms of AI that you want to use and kind of like bring your own development is that something that you look at that.

Speaker Change: All right.

Speaker Change: Efficiency cost savings, whether that's R&D development for in our cost to serve.

Speaker Change: And are there commercial prospects for whatever you end up developing.

Speaker Change: Yes, certainly some odd from a from a additional costs that we'd be talk when we talk about the AI investment Theres certainly a lot of there thats focused on external commercial opportunities within the products and Thats really our main focus we are making some investment for internal use but that's as much a much smaller piece of the pie. The majority of it is really <unk>.

David DeStefano: If you've got a big LATAM jurisdiction where your customer is doing a lot of business, you're going to want to make sure you cover that, even though they may have had e-invoicing in place for several years. It's making sure we hit the greenfields first and foremost, where we know regulations are coming, then looking at areas where the largest economic activity from our customer's perspective is happening and making sure we're adding those into the queue, as quickly as possible. Then again, pushing out the ones that are further down that we don't see as much urgency because we don't see as much demand in that jurisdiction.

Speaker Change: Focused on external customer opportunities and being able to leverage that along with some other data management data management tools that we think will be certainly useful to our customers.

Speaker Change: They continue to navigate tax it's about a good example of that is smart categorization that will be an independent commercial offering that can be bolted on.

Speaker Change: Existing customers as well as will help us land new logos.

Speaker Change: Great.

Speaker Change: Okay.

Speaker Change: Yeah.

Jake Roberge: Okay. That's helpful. Would love to just get a little more detail on the overall demand environment. I know it sounds like deals are still moving through the funnel at a normal pace, but would love to hear kind of how general consumption on the platform was. You had slightly lower trips this Q4 when compared to last year. Was there anything specific that drove that or just a really tough comp?

Speaker Change: Yes look forward to having you there.

The next question comes from Steve Enders from Citi. Please go ahead.

Steve Enders: Alright, great. Thanks.

Steve Enders: Thanks for taking the questions. This morning, I guess, maybe just following on the AI conversation here.

Steve Enders: It's interesting to hear you talk about Genentech AI experience in the vertex opportunity there, but can you just maybe give a little bit more detail on how youre thinking about what that in gen taken experience looks like or maybe some of the use cases or opportunity around that.

David DeStefano: I think it was a really tough comp. I think we are also, to the team's credit, we're putting in processes to try to minimize those surprises going forward. We're trying to see where we can get more advanced knowledge and either put that into our guide more specifically or, even better, actually reconcile it into ARR sooner so that we don't create those in the future. I think we've instituted some new processes to do that, is how I would largely say that. Johnny can build on that.

Steve Enders: Well, obviously early days, but as we are.

Steve Enders: As we're looking at it across our platform I think we see opportunities for it to improve.

Steve Enders: Both the customer experience as well as which I think is going to be interesting as some of our partners are also.

John Schwab: No, I think that's fair. I think that's something that we certainly want to make sure that we have and have better visibility to going forward. I think, as David talked about, some of those processes will help give us that. Again, we like to call out when those anomalous things are there just to set people straight with sort of the trajectory of the business, and we wanted to make sure that that came out.

In the market are.

Steve Enders: Technology partners are working with <unk>, and I think youre going to see how genic AI can work to improve actually the relationship and the engagement between some of our ecosystem partners and so I think we're looking at it in two dimensions about how we can improve the <unk>.

David DeStefano: I was going to say, obviously, as we continue to drive cloud, as our primary go-to market and the success we're having in SAP and Oracle around cloud. It's now over 50% of our subscription revenue. We're excited about that because it's just showing the adoption of cloud, and it's also positioning us to have better visibility going forward, which again, will help minimize this into the future and give us a cleaner profile on the true-ups going forward.

Steve Enders: End to end workflow and.

Steve Enders: Along the lines of our data fabric and what it can do the jobs that can do for a tax department and bring value. There and then also how we can think about it on a broader levels as we look out further where it may fit in the ecosystem with some of our ecosystem partners.

Steve Enders: Okay Gotcha.

Paul: Paul and then.

Speaker Change: I guess, maybe on kind of the pipeline development or I guess it seemed like that was kind of like what's giving you confidence for the back half of the year, but can you just maybe help us think through some of the moving pieces or maybe the linearity through the year.

Jake Roberge: That's really helpful. Thanks for taking the questions, and look forward to seeing you all in a few weeks.

David DeStefano: Yes. Thank you.

John Schwab: Thank you.

John Schwab: The next question comes from Alex Sklar from Raymond James. Please go ahead.

Speaker Change: And as we kind of accelerate off of Alpha <unk> levels, and maybe what that looks like.

Alex Sklar: Great. Thank you. David, I appreciate the call-out on that competitive takeaway where they were being forced to migrate to the cloud, and you were able to win that business away. Can you just talk about that opportunity, and was that a cloud win for you? Are you seeing a broader displacement opportunity arise from any competitors just kind of forcing broader migration activity, or was that just kind of a one-off? Thanks.

Speaker Change: Yeah, I'm really glad you asked this question because obviously when.

When you look at Q1, you may say well how are we going to get to the <unk>.

Speaker Change: The exciting guidance that we have for the full year and the growth and Thats suggest much stronger as the year goes on I think that's just a function of really deep understanding of and visibility into our pipeline.

David DeStefano: I will say that was an on-premise replacement, just to be clear. We met the client where they were at. In doing so, the loyalty and the appreciation we got gives us the confidence, given our historical track record of when they are ready to migrate, they're going to migrate with us. Being that flexibility ensures high six figures of ARR and revenue for us, positions us for revenue, and it gives us that position for sustained relationship going forward. I don't want to mislead you, that wasn't a cloud conversion at that time, but it will set up a cloud conversion going forward. I think the second thing is, we don't have great visibility to every of our competitor strategies by any means.

Speaker Change: We look at our coverage ratios are what we're going to need in pipeline, both in Europe, and the U S to achieve our goals and what we're seeing is already building.

Speaker Change: As we rolled into 2025 is very different than we rolled into 2024, we definitely see across we highlighted some of our new logo wins.

Speaker Change: The broadening of the ecosystem of where we're seeing pipeline build is very encouraging to me, it's not just single thread it.

Speaker Change: And so I think our progress there is one reason I have the confidence I think the second reason is some of the feedback we're getting about the new offerings and where we are we're envisioning, bringing products to market that combination along with just the core execution of the team I also think you're going to see and we highlighted this a nice movement back in <unk>. So.

Speaker Change: <unk> pulled back a little bit.

David DeStefano: We have seen this play out over time where customers are being forced to do something they're not ready to do, and being the organization that we are, it gives them the confidence we're going to be with them for when the needs are, and it has played to our favor every time, and it's why our win rates are where they are.

Speaker Change: In Q4, I think you have to look at the actual unit opportunities actually increased.

Speaker Change: For Us, which tells me the customer appetite and the pain. There is still dealing with is there. It's a question of what products. They buy that oftentimes drives that MLR, but I think youre going to see that come back nicely. So when I look across the business across all those dimensions.

Alex Sklar: Okay. Great color there. Just maybe a 2-part question on partnerships and then the second part on SAP specifically. Just given the commentary about partner contributions ramping into 2025, the strong new customer activity in Q4, can you talk about what was factored in 2025 from a new logo standpoint relative to 2024? Then on SAP specifically, the 20% pipeline growth, really strong outcome for you all. Just given the magnitude outcome of that opportunity, is that like a level we should think about kind of being sustainable for a multi-year period? Is that something that maybe could even accelerate from here? I'm just kind of curious how you think about 20% growth from that channel, just given the longer-term opportunity. Thanks.

Speaker Change: That's the confidence I have for the nice growth through the year and that snapback that you acknowledged.

Speaker Change: Okay perfect great.

Speaker Change: Great to hear and thanks for taking the questions.

Steve Enders: Thank you Steve.

Speaker Change: The next question comes from Daniel Jester from BMO capital markets. Please go ahead.

Daniel Jester: Hey, good morning, Thanks for taking my question.

Speaker Change: Just on <unk>.

Speaker Change: <unk> I'm, sorry, if I missed this in terms of the investments you're making how much of this is product related and how much of this is getting go to market investments and getting sort of boots on the ground in Europe, and I think maybe more generally I'd love to kind of here.

David DeStefano: Sure. I think relative to new logos, we don't certainly guide to that. Historically, new revenue every quarter came 75% from existing customers, 25% from new logos. We've certainly seen that shift to 30. We have a goal we've talked about, trying to get that to like 35%. We still think that working with the best customers in the world is going to be an increasing wallet shares, is going to be the primary driver, but we are definitely seeing traction towards trying to get towards that 35% of each quarter coming from new logos. Because, again, we think that positions us for that proven land and expand model that we've demonstrated to customers and investors over the years, where once we're in, we develop loyalty, and then we solve broader problems, especially as we bring products to market.

Speaker Change: Date as you see your go to market investments in Europe.

Speaker Change: David you talked about that unlocking sort of more opportunities is that going to require you to put sort of more more sales resources.

Speaker Change: Into Europe in the coming years to attack that thank you very much.

Speaker Change: Yes, Dan Thanks for the question and it's a good one what I would tell you is this as we think about the investment in it goes youre right. There are two pieces to it.

Speaker Change: Go to market aspect and then theres the product aspect. The biggest piece certainly is the product getting the country coverage that we need ensuring that we've got great integration across the across the product set that we offer and that is where the majority of the spend is that said, we certainly still have to ensure that we have the right amount of coverage out there again, as we expand and get and get.

Speaker Change: Usage throughout Europe, and elsewhere, we want to make sure we've got feet on the street as well as other subject matter experts experts to be able to articulate the story, but that is certainly a lesser.

David DeStefano: As far as the SAP pipeline, I think we just continue to expand our footprint inside of that ecosystem with their channel reps, the sales reps, our relationship with the alliance partners and the work we're doing there and the preference we're getting. I think all that is contributing to the expansion as well as the deadline of 2027 for customers that are trying to move in that way. Certainly encouraged by that. We're not taking our foot off the gas, and in fact, looking at new ways to bring more value to SAP customers with some of our product extensions, to make sure not only is the win rate continuing to grow, but also the value proposition to more new logos continues.

Speaker Change: Much lesser part than the product aspect of it.

Speaker Change: Yes, I would just add I think.

Speaker Change: Only encouraged mornings I should've said earlier, when we talked about what's happening. The invoicing is the talent that we've actually drawn into our organization around the invoicing who are.

Speaker Change: People, who had done work with other competitors.

Speaker Change: Big four partners et cetera that have now come and joined our organization because of the strategy. We have adopted here in the offering that we're bringing forward in the market. So I'd just really like our positioning in their energy around why we're going to succeed. So I don't I think John hit it really well, we're going to we're going to see much more about accelerating the product.

Alex Sklar: Okay, great color. Thanks, guys.

Operator: The next question comes from Patrick Walravens from Citizens. Please go ahead.

Speaker Change: But that positions us in the long run to execute in the go to market.

Patrick Walravens: Great. Thank you. Congratulations. Hey, David, can I just start with your big picture tone of business? How was Salesforce attainment in Q4? You're two-thirds of the way through Q1, how's it looking so far, and how does that tie to your bit of a slower start for the year commentary?

Speaker Change: Okay. That's really helpful color. Thank you and then.

Speaker Change: On the record improvement and new logos, that's great to hear I think throughout the conversation you've touched on it a few times about what drove that but I just.

David DeStefano: Yeah. I think this super engaged Salesforce, I just came back from our SKO, roughly 400 people. There's really great energy in terms of the team's confidence in the growth. In fact, Pat, as you noted, that's why our guidance for the full year is as high as it is relative to Q1. Even though we recognize revenue ratably, we have strong confidence, and the sales team has good confidence in our pipeline build and their visibility to opportunities as we move forward here into Q2 and beyond. I'm really bullish on the way the team is seeing the goals for 2025 and capitalizing on the opportunities that are in front of us.

Speaker Change: Can you be a little more explicit as this actually seeing new sort of SAP and Oracle related customers as they go through their digitization journey coming to vertex or is that maybe a broader set of different opportunities.

Speaker Change: If you can give any more clarity as to what's driving yes, that's very helpful.

Speaker Change: We look carefully at this so thank you for the question.

Speaker Change: It's it is the combination it's the broadening of that ecosystem relationships. So I think we highlighted a 20% increase in pipeline and referrals and SAP.

Speaker Change: That's new logos.

Speaker Change: Really pleased with how we're working with our alliance partners and we continue to advance in Oracle again, new logos, but going further we continue to nurture our ecosystem relationships with.

Patrick Walravens: Okay. Then if I could just ask sort of a follow-up here on all the questions about e-invoicing. I think when we had you out meeting with investors in December, it came up that there's about 50 countries worldwide that have e-invoicing mandates, and at the time, I think you guys said you had coverage of 26 of those. Hopefully, I wrote that down right. Where are we now? Sort of how do you see the, if we're at 26 now, how do you see that gap filling over the next couple of years to get to 50?

Speaker Change: Shopify, Microsoft Salesforce Netsuite and the investment we have made in channel over the last several years is really starting to bear fruit that is opening up that aperture of broadening the revenue brace for more durable sustainable revenue growth into the future and to me that is really encouraging so we're not a single thread.

Speaker Change: Thank you very much.

Speaker Change: The next question comes.

Speaker Change: The next question comes from Jacob <unk> from William Blair. Please go ahead.

David DeStefano: Yeah. I wish I had that definitive answer. I will get you that offline. I don't have the exact amount as of now. I will tell you the acceleration investment is intended to address just that. What I will say is, what you can see that evolving to over the next 18 to 24 months is we will be at the country coverage that we need, which would be essentially everywhere we know that there's important adoption, we will have covered in that timeframe. That's why you're seeing the slight uptick in investment. Because of the feedback we're getting from the customers with the opportunity we brought in, as well as some of that talent I brought in, I referenced a moment ago in terms of their giving us the really good clarity in terms of where to build next, for where the opportunities are the strongest.

Speaker Change: Yes, thanks for taking the questions.

Speaker Change: You talked about <unk> need to add those geographies and you've been talking about that in the past few quarters to kind of get in the right place for some of your larger global customers in terms of where it sits today are you able to address the markets that are starting to get lit up this year and next year or in knees are more forward looking or is there a little bit of a cat.

Speaker Change: That you need to do to address the current demand that youre seeing with <unk>.

Speaker Change: Certainly we want to be most importantly focused on the greenfield countries that are coming meaning countries, like France, and Germany, where they didn't where the requirements didn't exist because thats going to be a greenfield where all customers all of the markets. We're trying to figure out how do we solve for those jurisdictions and there are certain prime jurisdictions.

Patrick Walravens: All right, great. Thank you.

Operator: The next question comes from William Jellison from D.A. Davidson. Please go ahead.

Speaker Change: Had already adopted E. Invoicing that of course, you didn't cover and we want to make sure given the where our customers do business. We make sure we hit the ones that are most prevalent so there might be a small jurisdiction pick a region, let's say Africa that we don't have a lot of customers doing a lot of business in that region, we will push that out on the roadmap, but if you've got a big one.

William Jellison: Hi, good morning, thanks for taking the question. I have just one, it is, in light of the strength of the long-term drivers you've called out, maybe even the incremental strength you've seen over the last few months, in conjunction with the accelerated rate of investments across a couple of important drivers in the business, does it change how you think a bit longer term about a metric like AARPC and wanting it to about triple from current levels to 300,000+? Forgive me if this is something that you're going to articulate further in the Investor Day in a couple of weeks.

Speaker Change: Latam jurisdiction, where your customer is doing a lot of business youre going to want to make sure you cover that even though they may have had the invoicing in place for several years and so it's it's making sure we hit the Greenfields first and foremost where we know regulations are coming in and looking at areas, where the largest economic activity from our customers perspective is happening.

Speaker Change: And making sure we're adding those into the queue.

David DeStefano: No, it's okay. It's a very fair question. Yeah. Certainly the acceleration of investment in our new products, whether it be e-invoicing or some of the AI and data management capabilities, are all based on the continual feedback and demonstrated ability of our customers to want us to bring more value to market, and is allowing us to drive that AARPC up. I think that's a direct correlation. We spend a lot of time in user group meetings and our advisory board meetings talking to our customers about where their next needs are and their willingness to buy from us, and how we can drive more wallet share and bring more value ultimately to our customers, which drives wallet share. I think all those things are coming across strong signals of continue to do what we're doing, which should continue to move that number up nicely.

Speaker Change: As quickly as possible and then pushing out the ones that are.

Speaker Change: Further down we don't see as much urgency because we don't see as much demand in that jurisdiction.

Speaker Change: Okay. That's helpful. And then would love to just get a little more detail on the overall demand environment and I know it sounds like deals are still moving through the funnel at a normal pace, but would love to hear kind of how in general consumption on the platform wise.

Speaker Change: You had slightly lower trips in F Q4, when compared to last last year was there anything specific that drove that or just a really tough comp.

Speaker Change: I think it was a really tough comp I think we're also to the team's credit we're putting in processes to try to minimize the Soc surprises going forward, we're trying to see where we can get more advanced knowledge and either put that into our guide more specifically or even better actually reconcile it into a sooner. So that we don't create that those in the future and I think we've institute.

David DeStefano: I think we've been growing at roughly 10% to 15% a quarter. I think that's continuing. No reason that it shouldn't going forward.

Speaker Change: Some new processes to do that is how I would largely stay on John and Bill I think I think that's fair I think.

William Jellison: Great. Thanks, David.

Speaker Change: It's something that we certainly want to make sure that we have and have better visibility to going forward and I think as David talked about some of those processes will help give us that but again, we did have some we'd like to call out when those things Theres anomalous things are they are just a set people straight with sort of the trajectory of the business and we wanted to make sure that that came out obviously.

Operator: The next question comes from Adam Hotchkiss from Goldman Sachs. Please go ahead.

Adam Hotchkiss: Great. Thanks for taking the questions. David, it would be great just to take a step back and talk a little bit about how you think about the adoption curve for dedicated tax systems in the broader market. Do you generally think of this as more linear, as more companies hit complexity thresholds and general ledger migrates to cloud, or do you think of this more as like an S curve when things accelerate once you get enough referenceability? Any color there would be helpful.

Speaker Change: As we continue to drive cloud as our primary go to market and the success, we're having in SAP and Oracle around cloud.

Speaker Change: Now over 50% of our of our subscription revenue and we're excited about that because it is just showing the adoption of cloud and it's also positioning us to have better visibility going forward, which again will help minimize this into the future and give us a cleaner profile on the on.

David DeStefano: Yeah. It's a very interesting question, and well-framed. I will tell you that for the core challenges they're facing now, meaning, let's just say, determination and calculation of sales tax in the US, that's really driven a linear thing of as they mature in complexity, as a business gets more diverse jurisdictions, they're dealing with more diverse business platforms they're running on. They will cross that tipping point. The second part of your question that really ties into my other part of my answer is, when you get outsized regulatory change, like the phenomenon of e-invoicing and real-time reporting that's now occurring and is really sort of disrupting and transforming, that's more of an S curve where we're getting in the market with something new.

Speaker Change: The troops going forward.

Speaker Change: That's really helpful. Thanks for taking the questions and look forward to seeing you all in a few weeks.

Speaker Change: Thank you.

Speaker Change: The next question comes from Alex Sklar from Raymond James. Please go ahead.

Speaker Change: Great. Thank you.

Speaker Change: David I appreciate the call out on a competitive takeaway were where they were being forced to migrate to the cloud and you were able to win that business. The way can you just talk about that opportunity and was that a cloud win for you and are you seeing a broader displacement opportunity arise.

Speaker Change: Just kind of forcing broader migration activity or was that just kind of a one off.

David DeStefano: As we get that referenceability that we've proven in other parts of the end-to-end life cycle, it will have a differentiated growth rate, is what I think about 2026 and beyond. 2025 is our proving year. I think we said that from the moment we bought ecosio, was 2025 is our proving year to build out the product, build out the referenceability, train up the alliance partners, because we're going alliance only in terms of our implementations, in terms of everything we're doing there, so that we can position ourselves for the demand cycle of 2026 and beyond. I think we're just accelerating our readiness in investment for that because we see the feedback we're getting from our alliance partners and our early adopters about what we're bringing to market. That's more of that S curve that you referenced.

Speaker Change: I will say that we that was that was an on premise replacement just to be clear we met the client where they were at.

Speaker Change: But in doing so.

Speaker Change: Loyalty.

The appreciation we've got gives us the confidence given our historical track record of when they are ready to migrate they're going to migrate with us and so being that flexibility ensures six high six figures.

Speaker Change: And revenue for us position us for revenue and it gives us a position for sustained relationship going forward. So that was.

Speaker Change: I don't want to mislead you that wasn't a cloud conversion at that time, but it will set up a cloud conversion going forward I think the second thing is we don't have great visibility to every customer every of our competitive strategies by any means.

Adam Hotchkiss: Okay. Understood. That's really helpful. Thanks. John, on NRR components, I know historically you've talked about a mix of geo, new product, price, and volume. I'm curious if in either Q4 or the way you think of in the ramping of NRR throughout the year, there are any changes to sort of the mix you've laid out historically. Thank you.

Speaker Change: But we have seen this play out over time, where customers are being forced to do something they're not ready to do and being the organization that we are it gives them the confidence we're going to be with them for when the needs are and it is play to our favor every time and Thats why our win rates are where they are.

John Schwab: Yeah. Adam, thanks for the question. We didn't see a big change in that in the Q4. We really saw fairly consistent sort of that 50% coming from cross-sells, migrations, another 25% from price, and the other 25% from the additional entitlements. It really didn't move too much. When we look at the 2025 budget, again, we don't see a big change coming out of that. Again, as David did talk about, we were very excited when we think about the whole ARR walk of the activity we saw in the new logos. That's outside the NRR calculation. That's about the way we see it. Thank you very much for the question.

Speaker Change: Okay, great great color there.

Speaker Change: And then just maybe a two part question on partnerships and then the second part on S&P, specifically, but just given the commentary about partner contributions ramping into the into 2025, the strong new customer activity. In Q4 can you talk about what was factored in 2025 from from a new logo standpoint relative to the 24 and then on SAP.

Speaker Change: Specifically, the 20% pipeline growth.

Speaker Change: Really strong outcome for you all just given the magnitude of that opportunity is that like a level. We should think about kind of being stable for a multi year period is that something that maybe you could even accelerate from here I'm just kind of curious how you think about 20% growth from that channel just given the longer term opportunity.

Adam Hotchkiss: Great. Thanks so much.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Joe Crivelli for any closing remarks.

Speaker Change: Sure. So I think relative to new logos, we don't certainly guide to that idea of historically, our business was 75% existing new revenue every quarter came 75% from existing customers, 25% from new logos. We've certainly seen that shift to 30, we haven't a goal we've talked about trying to get that to like 35%.

Joe Crivelli: Thanks everybody for joining us today. Apologies if we didn't get to you in the queue. If you have any follow-up questions or would like to schedule additional time with the team, please send me an email at investors@vertexinc.com. Have a great rest of your day, and we look forward to speaking with you in the coming weeks and seeing you at our Investor Day.

Speaker Change: Still think the working with the best customers in the world is going to be an increasing wallet share is going to be the primary driver, but we are definitely seeing traction towards moving.

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

Speaker Change: Towards trying to get towards that 35% of each quarter being coming from new logos, because again, we think that positions us for that proven land and expand model that we've demonstrated to customers and investors over the years, where once we're in we develop loyalty and we solve broader problems, especially as we bring products to market as far as the S&P.

Speaker Change: Pipeline.

Speaker Change: I think we just continue to expand our footprint inside of that ecosystem with their with their channel reps sales reps our relationship with the alliance partners and the work we're doing there and the preference we're getting I think all of that is contributing to the expansion as well as the.

Speaker Change: The deadline of 2027 for customers that are trying to move in that way so.

Speaker Change: Certainly encouraged by that we're not taking our foot off the gas and in fact looking at new ways to bring more value to SCP customers with some of our product extensions to make sure not only is the win rate.

Speaker Change: <unk> going to grow but also the value proposition to more new logos continues.

Speaker Change: Okay, great color thanks, guys.

Speaker Change: The next question comes from Patrick Wall Ravens from citizens. Please go ahead.

Speaker Change: Oh, great. Thank you and congratulations.

Speaker Change: Hey, David kind of get started you big picture tone of business. So how was how has salesforce attainment in Q4 <unk>.

Speaker Change: And you're two thirds of the way through Q1, so how is it looking so far and how does that tie to your you know a bit of a slower start for the year commentary.

Speaker Change: Yes, I think it's Super engaged Salesforce I just came back from our S. K O Russell.

Speaker Change: 400 people in.

Speaker Change: Really the great really great energy in terms of the teams confidence in the growth and in fact Pat.

Speaker Change: As you noted.

Speaker Change: That's why our guidance for the back for the full year is as high as it is relative to Q1, even though we recognize revenue.

Speaker Change: <unk>, we have strong confidence in the sales team is good confidence in our pipeline build and their visibility to opportunities.

Speaker Change: As we move forward here into.

Speaker Change: Into Q2 and beyond.

Speaker Change: Really bullish on the way the team is seeing the goals for 2025 and capitalizing on the opportunities that are in front of us.

Speaker Change: Okay, and then if I could just ask sort of a follow up here on all the questions about.

Speaker Change: E Invoicing I think when we had you I'm out meeting with investors in December it came up that Theres about 50 countries worldwide invoicing mandates in.

Speaker Change: At the time I think you guys said you had coverage of 26 of those hopefully I wrote that down right.

Speaker Change: Where are we now and sort of how do you see the you know if we're at 26 now how do you see that gap filling over the next couple of years to get to 50.

Speaker Change: Yes.

Speaker Change: I wish I had that definitive answer I'll get you that offline I don't have the exact amount as of now I will tell you. The acceleration investment is intended to address just that but.

Speaker Change: But what I will say is what you can see that evolving too over the next 18 to 24 months as we will be at the country coverage that we need which would be essentially everywhere. We know that there is.

Speaker Change: Important adoption, we will have covered in that time frame. That's that's why you're seeing a slight uptick in investment because of the feedback we're getting from the customers with the with the opportunity we brought in as well some of that talent I brought in.

Speaker Change: Referenced a moment ago in terms of their giving us really good clarity in terms of where to build next.

Speaker Change: Where the opportunities are the strongest.

Speaker Change: Alright, great. Thank you.

William Jellison: The next question comes from William Jellison from D. A Davidson. Please go ahead.

Hi, good morning, and thanks for taking the question I have just one.

William Jellison: And it is in light of the strength of the long term drivers you've called out you know maybe even the incremental strength you've seen over the last few months in conjunction with the accelerated rate of investments across a couple of important drivers in the business does it change how you think about longer term.

William Jellison: About a metric like an RPC and wanting it to about triple from current levels to 300000, plus and forgive me. If this is something that you can.

William Jellison: Articulate further in the Investor day in a couple of weeks.

William Jellison: No.

Speaker Change: It's a very fair question.

Speaker Change: Certainly the acceleration of investment in our new products, whether it be invoicing or some of the AI and data management capabilities for all.

Speaker Change: Based on the continual feedback and demonstrated ability of our customers to want us to bring more value to market and then move that.

Speaker Change: This is allowing us to drive that RPC up and so I think that that is that's a direct correlation we spend a lot of time and user group meetings and our advisory board meetings talking to our customers about where their next needs are and their willingness to buy from us and how we can drive more wallet share and more and bring more value ultimately to our customers, which drives wallet share.

Speaker Change: So I think all of those things are coming across the <unk>.

Speaker Change: Long signals or continue to do what we're doing.

Speaker Change: Which should continue to move that number up nicely I think we've been growing at roughly 10% to 15% a quarter and I think that's that's continuing.

Speaker Change: No reason.

Speaker Change: And that it shouldnt going forward.

Speaker Change: Great. Thanks, David.

Speaker Change: The next question comes from Adam Hotchkiss from Goldman Sachs. Please go ahead.

Adam Hotchkiss: Great. Thanks for taking the questions David It would it'd be great just to take a step back and talk a little bit about how you think about the adoption curve for dedicated tax systems in the broader market.

Adam Hotchkiss: Do you generally think of this as more linear as more companies that complexity thresholds and general ledger migrates to cloud or you do you think of us more as like an S curve when things accelerate once you get enough reference ability any color there would be helpful.

Adam Hotchkiss: Yes, it's a very interesting question I think.

Adam Hotchkiss: Well framed I will tell you that for the core challenges, they're facing now meaning.

Adam Hotchkiss: Let's just say determination and calculation of sales tax in the U S. That's really driven a linear thing of as they mature and complexity as the business gets <unk>.

Adam Hotchkiss: More diverse jurisdictions are dealing with more diverse business platforms youre running on they will crush that tipping point. The second part of your question that really ties into my other part of my answer is when you get.

Adam Hotchkiss: Outsized regulatory change like the phenomenon of invoicing and real time reporting that is now occurring and it's really sort of disrupting and transforming.

Thats more of an S curve, where we're getting in the market with something new as we get that reference ability that we've proven in other parts of the end to end lifecycle. It will it will have a differentiated growth rate as I think about 26 and beyond 25 is our proving here I think we said that from the moment. We bought <unk> was $25 are proving you.

Adam Hotchkiss: To build out the product buildup the reference ability train up the alliance partners, because we're going alliance only in terms of our implementations in terms of everything we're doing there. So that we can position ourselves for the demand cycle of 26 and beyond that I think.

Adam Hotchkiss: We're just accelerating our readiness and investment for that because we see the feedback we're getting from our alliance partners and our and our and our early adopters about what we what we're bringing to market.

Adam Hotchkiss: So thats more of that S curve that you that you referenced.

Speaker Change: Okay understood. That's really helpful. Thanks, and then just John on NR components, I know historically you've talked about.

Speaker Change: Mix of new product price and volume I'm curious if in either Q4 or the way you think in the ramping of NOI throughout the year. There are any changes just sort of the mix you've laid out historically thank you.

Speaker Change: Yes, Adam Thanks for the question, we didn't see a big change in that in the fourth quarter, we really saw a fairly consistent sort of that 50% coming from cross sells migrations. Another 25 from price and the other 25 from the additional entitlements. So it really didnt. It didnt moved too much and when we look at the 25 budget again, we don't see it.

Speaker Change: Big change coming out of that again as David did talk about we were very excited when we think about the whole <unk> of the activity we saw in the <unk>.

Speaker Change: In the new logos, but.

Speaker Change: That's outside the <unk> calculation, but that's about the way we see it. So thank you very much for the question.

Speaker Change: Great. Thanks, so much.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Joe Crivelli for any closing remarks.

Speaker Change: Thanks, everybody for joining us today apologies, if we didn't get to you in the queue.

Speaker Change: If you have any follow up questions or would like to schedule additional time with the team. Please send me an email and investors at vertex Inc. Dot com have a great rest of your day and we look forward to speaking with you in the coming weeks and seeing you at our Investor day.

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