Q1 2025 Vertex Inc Earnings Call
Speaker Change: After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press star then one on your telephone keypad.
To withdraw your question, please press star then two. [inaudible]
Please note, this event has been recorded. It's been recorded.
Speaker Change: I would now like to turn the conference over to Mr. Joe Crivelli. Investor relations from Vertx, please go ahead.
Speaker Change: Hello, and thanks for joining us to discuss Vertx's first quarter financial results.
Speaker Change: David DeStefano, our president and CEO and John Schwab, our CFO , are also with us today. During this call, we may make forward-looking statements about expected future results.
Speaker Change: Actual results may differ due to risks and uncertainties, these risks and uncertainties are described in our filings with the Securities and Exchange Commission.
Speaker Change: Our remarks today will also include references to non-gaft financial measures.
Speaker Change: A reconciliation of these non-GAAP metrics, two gaps is also provided in today's press release. This call is being recorded and will be available for replay on our investor relations website. I'll now turn the call over to David.
Welcome everyone, and thank you for joining us! [inaudible]
David DeStefano: Vertx executed well in the first quarter, getting 2025 off to a strong start. The consistency of our business, which we highlighted during our investor day in March, continued as expected.
David DeStefano: In addition, last week we announced an equity investment in Kinsugi, a fast growing startup focused on applying AI technology to indirect tax in the small business sector. I'll discuss this in a moment.
David DeStefano: and adjusted EBITDA with $37.8 million, representing an EBITDA margin of 21.3%. This was above the high end of our guidance range for the quarter and sets this up well for 2025.
David DeStefano: In addition, annual recurring revenue or ARR grew 17.9% to $618.5 million.
David DeStefano: Net Recurring Revenue, or NRR, remains strong at 109%, we continue to expect NRR to increase in 2025 and rebound above 110% by the end of the year.
David DeStefano: Average annual revenue per customer for Vertx stand alone increased 16% year-over-year to $141,000.
David DeStefano: Rothen Scaled Customer Count was 15% year-over-year. As a reminder, this number represents our customers with annual revenues greater than $100,000 and demonstrates our ongoing success in the underpenetrated enterprise market. This number represents our customers with annual revenues greater than $100,000 and demonstrates our ongoing success in the underpenetrated enterprise market.
David DeStefano: As investors know, the proliferation of e-envoysing mandates globally is expected to be a significant tailwind in our business in the coming years.
David DeStefano: We believe this can be best addressed by providing a single solution which combines VAT compliance and e-envoicing to a single user experience. This is a game changer for companies exposed to the burgeoning e-envoicing mandates.
David DeStefano: We are pleased that our joint e-envoicing solution with Acosio achieved general availability in mid-March, enabling us to accelerate our sales pursuits.
David DeStefano: We see a growing pipeline for this offering and several major catalysts on the horizon, including the launch of Ian Voicing and the two large economies in Europe . France in late 2026 and Germany, which is adopting a phased approach that is expected to be fully implemented in early 2027.
David DeStefano: In addition, this week is our European customer conference and we expect Ian Voicing to be a major topic of discussion with the customers in attendance.
David DeStefano: A fast-growing specialty retail increased its business with Vertex to support business growth as well as a company-wide cloud migration.
David DeStefano: The company increased its title months while also adding our Edge product and SAP accelerator and other tools. This doubled our revenue with this customer into the low seven figures.
David DeStefano: In the Oracle Ecosystem, a customer in the higher education sector re-evaluated its indirect tax technology to improve risk management and reduce operational costs.
David DeStefano: The company was previously using Vertx for tax return filings in addition to two additional competitors for various aspects of its business.
David DeStefano: This customer standardized on Vertx, resulting in low six figures of new revenue and transforming this longstanding relationship into a scaled customer.
David DeStefano: In the Microsoft ecosystem, a manufacturer of defense and law enforcement products expanded its entitlements with Vertx to support its growth in global markets while also adding premium support and Shopify connectors.
David DeStefano: Revenue from the scaled customers now up more than 160% over the past 12 months to the mid-six fingers.
David DeStefano: A long-standing US customer in the toy manufacturing industry added Vertx for its EU headquarters operation, which was previously using native ERP functionality for indirect tax.
David DeStefano: The customer standardized on Vertx for sales and use and VAT calculation as part of a global SAP S4 HANA transformation. This led to nearly seven figures of new revenue for Vertx. [inaudible]
David DeStefano: In the first quarter, one of the world's largest processors of electronic payments selected Vertx as part of an RFP for its...
David DeStefano: First-ever, Vendent Indirect Tax Solution. This was propelled by a company mandate to reduce risk across its business. The seven-figure deal included sales and use and VAT calculation, as well as our edge solution and other indirect tools. [inaudible]
David DeStefano: In the lodging industry, we gained a new customer when they outgrew one of our major competitors. The customer, which is on a cloud transformation journey with Oracle, which referred to Vertx who are partner PWC.
David DeStefano: This mid-six-figure initial relationship includes sales, use and VAT compliance. Our Oracle Accelerators were a major differentiator for Vertx.
David DeStefano: Also in the Oracle ecosystem, a major real estate investment trust specializing in data centers chose Vertx for sales, use and VAT calculation and compliance.
David DeStefano: This comprehensive global contract will deliver high six figures of recurring revenue for Vertx. Our telecommunication tax content was a significant differentiator in winning this business.
David DeStefano: A major building materials company selected Vertx for indirect tax and conjunction with an acquisition and an SAP S4 HANA transition.
David DeStefano: This six-figure new logo wind, which was a competitive takeaway, included sales and use tax calculation, as well as LCR Dixon tools, the SAP Accelerator,
David DeStefano: Now let's discuss Kansugi. Kansugi is an AI native startup focused on automating sales tax compliance for small and mid-sized businesses.
David DeStefano: Throughout the due diligence process, we got to know the company's founders and were impressed by what they've built. [inaudible]
David DeStefano: Using AI can suit you automate the entire sales tax compliance life cycle for small business in new and creative ways, including tax calculation, filing and compliance across multiple jurisdictions.
David DeStefano: We think this technology could be a game changer in the SMB market.
David DeStefano: Our investment gives us a front row seat as Consugi executes its game plan.
David DeStefano: Let me highlight three examples of the differences between how an AI solution works for SMBs, but fall short in its viability for complex enterprise customers.
David DeStefano: Enterprise recustomers require the ability to write significant numbers of custom rules that are unique to their business, and these would interfere with AI functionality.
David DeStefano: 2. A significant number of jurisdictions below the state level do not publish rate and regulations, and these must be manually gathered and interpreted before codifying them into our algorithms. AAS requirement for digital consumption is not effective here. [inaudible]
David DeStefano: Three, on top of tax regulations, indirect tax teams must also determine and comply with various fees around the world from plastic bag fees to environmental fees, which are not published digitally.
David DeStefano: For the small business market, where audit risk is low and good enough compliance is the focus, we believe in AI driven solution like
David DeStefano: We do see opportunities to apply elements of Consugies technology to our business. [inaudible]
David DeStefano: That's why we included an IP sharing agreement and commercial partnership in our investment, which will enable us to explore ways we can apply their technology to our market opportunity well, expediting and enhancing our AI roadmap.
David DeStefano: In summary, it was a good quarter with results in line with our expectations. We continue to see a strong market for indirect tax technology and no change in buyer behavior, and we are optimistic about the balance of 2025. Let's start it.
David DeStefano: As highlighted at investor day, Vertx is a resilient business. Over the past several decades, our revenue has never decreased from one year to the next, even during severe recessionary periods.
David DeStefano: This is because involved to economic times, taxing authorities lean into audit and enforcement to replace revenue that...
David DeStefano: is lost due to lack of economic growth. In turn, audit and enforcement actions highlight the need for companies that are using homegrown solutions to adopt a more automated solution that can scale like Vertx.
David DeStefano: Another benefit, our customers enjoy, is the confidence that comes from using Vertx solutions.
David DeStefano: When attacking authority audits one of our customers, they have a full audit trail to defend their compliance results. More importantly, they have the ability to find errors before they submit them helping our customers head off and audit right from the start.
David DeStefano: and while audit enforcement is one of the persistent tailwinds we've seen throughout our 47-year history serving the enterprise sector,
David DeStefano: with our indirect tax solutions. It's just one of several. The ongoing cloud migration cycle, which is driven by ERP providers, cloud initiatives, is expected to fuel growth for the next several years. As noted at investor day, we see this as a major opportunity. [inaudible]
David DeStefano: We believe we are extremely well positioned to benefit its enterprises that are using homegrown tax solutions migrate to the cloud and their homegrown solutions which are often based on legacy code are unable to function in the new modern infrastructure.
David DeStefano: Another persistent tailwind is business change resulting from mergers and acquisitions expanding into new geographies who are opening up new business channels like Omni Channel Sales.
David DeStefano: Anytime there is change, there is added complexity for our customers to manage. [inaudible]
David DeStefano: As everyone has seen, the volatility in the macro economic environment is unprecedented. [inaudible]
David DeStefano: However, I am pleased with our first quarter results and our market opportunity.
David DeStefano: We have not seen elongated sales cycles or deal slippage at this point. Our pipeline continues to grow, and that is something that we will continue to monitor carefully as the year develops and companies and regulators adapt to the changing environment.
David DeStefano: John Willow, take us through the financials for Q1. John ? Thanks David and good morning everyone. I will now review our first quarter financial results and provide guidance for the second quarter in full year of 2025.
John Schwab: In the first quarter, revenue was $177.1 million, of 12.9% year-over-year. Because you have contributed $3.3 million of revenue during the quarter.
John Schwab: Accordingly, on an organic basis, revenue is $173.8 million, and revenue growth was 10.8% in line with expectations for the quarter.
Subscription revenue increased 14.4% period over period to 150.8 million dollars.
Services revenue grew 5.4% to 26.3 million dollars.
John Schwab: Our cloud revenue was $80.2 million, up 29.6% from last year's first quarter, and ahead of our guidance for the full year.
John Schwab: Araniel Recurring Revenue, where ARR was $618.5 million at Quinter End. [inaudible]
Ecosio added $8.1 million to ARR and SIFTX added $6.6 million. $8.2 million.
Excluding these amounts, organic AORR bros was 15.1% [inaudible]
John Schwab: Noted in the second quarter, we will lack the completion of the SISTAX acquisition, and accordingly, the SISTAX contribution will be included in our organic revenue growth going forward. In the third quarter, we will lack the Ecosio acquisition.
John Schwab: Net Brevenue Retention, or NRR, was 109%, compared to 112% in last year's first quarter and 109% from the fourth quarter of 2024.
John Schwab: Our gross revenue retention or GRR remain at 95% at quarter end within our targeted range of 94% to 96%.
John Schwab: Our average annual revenue per customer, or AARPC, for Vertx standalone, was $140,943, up 14.1% from last year's first quarter.
Included in the impact of Ecosio and SIFTX, AARPC was $126,534.
John Schwab: For the remainder of the income statement, I will be referring to non-GAAP metrics. These non-GAAP metrics are reconciled to gap results in this morning's earnings press release.
John Schwab: Gross Profit for the first quarter was $132.8 million and Gross Margin was 75%. This compares with Gross Profit of $113.7 million and $72.5% gross margin in the same period last year. This is the end of the year. This is the end of the year. This is the end of the year.
John Schwab: Rose Margin on subscription software revenue was 82.6% compared to 78.6% in last year's first quarter and 81.4% in the fourth quarter of 2024.
John Schwab: and Gross Margin on our services was 31.1%, compared to 40.5% in last year's first quarter and 37.6% in the fourth quarter of 2024.
John Schwab: The decrease was driven by higher compensation expense in our MSO business, as well as the inclusion of the Ecosio services which have lower margins.
John Schwab: Turning to operating expenses in the first quarter of research and development expense for $16.5 million compared to $13.5 million last year.
John Schwab: With capitalized software spend included, R&D spend was $37.3 million for the first quarter, which represents 21.1% of revenue.
John Schwab: Selling and marketing expense was $41.8 million, or 23.6% of total revenues, an increase of $6.1 million.
and approximately 17.2% from the prior period. Thank you very much.
John Schwab: and General and administrative expense was $36.6 million, up $9 million from last year.
John Schwab: Arjusted EBITDA with $37.2 million, an increase of $500,000, or 1.3% year-over-year, and above the high end of our quarterly guidance.
John Schwab: Its favorable result was in part impacted by approximately one to two million dollars of expenses that were expected in the first quarter but will be realized in the second quarter.
John Schwab: In the first quarter, our operating cash flow was $14.8 million, and free cash flow was a negative $12.3 million, in line with our seasonal cash flow patterns due to annual bonus payments that fall in March, higher payroll taxes that started beginning of the year, and marketing expenses related to our sales kickoff.
John Schwab: In addition, the accelerated investments we mentioned on last quarter's call also impacted the first quarter cash flow. We ended the first quarter with over 270.4 million dollars of unrestricted cash and cash equivalence. [inaudible]
John Schwab: For additional liquidity, we also have $300 million on use availability under our line of credit. [inaudible]
John Schwab: and now turning to guidance. For the second quarter of 2025 we expect total revenue in the range of $182 to $187 million, which would represent 14.5% year-over-year growth at the midpoint.
John Schwab: and adjusted EBITDA's expected to be in their range of $35.5 to $39.5 million, a slight decrease year-over-year at the midpoint.
John Schwab: The second quarter EBITDA range also reflects the accelerated AI investments and e-invoicing investments that were made and the $1.2 million mentioned earlier that were expected in Q1 but will be incurred in the second quarter. [inaudible]
Our full year 2025 guidance.
Remains unchanged. [inaudible]
John Schwab: as it has been our custom not to adjust full-year guidance after one quarter of results. We continue to expect.
John Schwab: Total revenue in the range of $760 to $768 million, representing annual growth of 14.6% at the midpoint.
John Schwab: and adjusted EBITDA on the range of $161 to $165 million, representing a year-over-year increase of $11 million at the midpoint and full-year adjusted EBITDA margin of 21%.
John Schwab: and four-year cloud revenue growth is expected to be 28 percent.
John Schwab: David will now make some closing comments before we open up for Q&A. David?
David DeStefano: Thanks, John . In conclusion, it was a solid first quarter with financial results that were in line with our expectations for the quarter and strong progress on our long-term strategic initiatives, including e-invoicing and AI.
John Schwab: Our view is that the market opportunity remains strong and the tailwinds that we expect to deliver consistent growth and profitability in the coming years are firmly in place.
John Schwab: I also want to reiterate that we have seen no signs of a change to buyer behavior or any indication of a slowdown in indirect tax momentum from our vantage point.
with that, we will take your questions.
John Schwab: Thank you. We will now begin the question and answer session. To ask a question you may press a star, then one on your telephone keypad.
John Schwab: If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time a question has been addressed and you would like to withdraw your question, please press star then two.
Speaker Change: The first question comes from Joshua Reilly with Needham, please go ahead.
Speaker Change: who are converting to a package software solution like Vertx. Can you just give us a sense? Is there anything going on in terms of product or feedback from those customers? Why now is the time to be migrating to a package software solution?
Speaker Change: Yeah, Josh, I think that's a very good question. I think that the, you know, two things are happening. I think one, as Ian Voicing is a growing problem for global organizations, they're starting to adopt a mindset of, I need to be more future ready.
Speaker Change: for the constant change that's coming at me. And the point solution, spread sheet and manual efforts that they've been living on are getting harder and harder to sustain given the pace of regulatory change. They were...
There were hundreds of bee invoicing...
Speaker Change: The changes within approved systems already last year, the governments are continuing to change the rules as they look for more revenue. And so I think that's one big driver. And then I think the other one is the continue auto pressure that customers are feeling. When they combine this two, I think they're just starting to wake up two.
This, you know, [inaudible]
Speaker Change: Salvatore at a point-solution basis is just not sustainable and so we seem to have different conversations and then I would add to the fact that now that we have Ian Boyce and we really have a great complete end and sweet from determination.
Speaker Change: Drew, to audit support, although including easy invoicing and compliance, and I think when you look at all that together, it just gives customers real pause to say, how long can I stay where I'm at?
Speaker Change: Got it, that's helpful. And then the direct customers did declines sequentially. Can you help us understand? Is there just some more low-end customers? Like really low-arpoons that are coming out of the model there? Thank you.
John Schwab, John Schwab,
Speaker Change: Again, our focus is really on the scaled customers. But thank you very much for the question.
Thanks guys.
Thank you. Bye.
Speaker Change: Thank you. The next question comes from Chris Quintero with Morgan Stanley , Peace Guide.
Chris Quintero: Hey, David. Hey, John . Thanks for taking the questions here. I want to hit on the macro and what you're seeing out there. Really great to hear that.
David DeStefano, John Schwab
and...
Speaker Change: is the kind of conversation at all having any type of impact on kind of indirect tax type of priorities for organizations given the volatility out there.
Yeah
Speaker Change: Chris, I think it's a couple of reasons. I think one is, you know, we just continue to track well to the SAP activity that SAP reports as an example. So I think one...
Speaker Change: that customers are having as they're moving to the cloud of how are we going to stay ahead of this? [inaudible]
Speaker Change: and so I think that's that's reason number one. I think that reason number two is we have we have a nice diverse set of wins across the ecosystems that we highlighted this quarter. And I think our continued investment in channel and particularly with Microsoft and the work we're doing with Azure and the TCS solution we brought for dynamics that we go for dynamics. All is and I think that's that's that's that's that's
Speaker Change: is supporting the diversity of growth for us. I think continues to help in our pipeline build. [inaudible]
David DeStefano: That's helpful, David. And then I want to follow up on Kinsugi, really interesting deal there.
David DeStefano: Consoogie is an amazing job inside of the Shopify ecosystem at the real low end of the market, they're taking share from competitors in the SMB space in there. And I think it could be a nice marriage of the two from that perspective. I think on the IP side, we're certainly going to be looking at some of the things they've done on.
David DeStefano: putting AI across the workflow that's an area we're investing in with our AI, and I think they've got some thinking that they've developed as it flows across the end end workflow that we're intrigued by. So those are my people early. Thank you very much.
David DeStefano: parts of diligence that have us really excited. And the team is just phenomenal there. There are some of the smartest people I've had a chance to work with in the AI space. [inaudible]
Excellent. Thanks, guys.
Speaker Change: Thank you. The next question comes from Adam Hotchkiss with Gorman Sash, please go ahead.
Speaker Change: and have the tariff conversations impacted your pipeline in a positive way at all given what you're able to do on the tax side. Thanks so much.
Speaker Change: Yeah, I appreciate it. Adam, I think the tariff is more of an income tax related thing directly, so it's not an offering we focus on just being an indirect tax provider. There's no immediate economic opportunity for us on that. What's happening to us with the conversations are really going as more around as customers reaching supply chains. [inaudible]
Speaker Change: as an indirect complement to our opportunity as opposed to we have a terror solution and we can help you you know manage that directly because it's really much more of an income tax driven requirement. Thank you very much for your time.
Adam Hotchkiss: Now, that completely makes sense. I appreciate the clarification in detail. And then, your consolidated Ecosioproduct, when general availability, how is that gone versus your expectations, and then maybe re-highlight for folks what technically is different with the new GA product versus what Ecosioproduct was prior to that. Thanks so much.
Speaker Change: Jeff C, the CTC compliance and the EDI, they have a really strong EDI foundation, which is actually essential because it gives them the incredible scalability of transaction processing that our large customers are going to require. We went live, general availability at the end of March, and what excites me there is...
Speaker Change: The team's already being able to go out and start generating. We've had a number of, picked up a number of really talented people who've joined our firm since we've launched our solution that we're part of other e-invoicing providers and they come because they love our customer base and the story we can tell by merging and the differentiation is by merging the VVC solution with the e-invoicing. So VVC is our bat compliance. Thank you very much.
Speaker Change: with the cozy invoicing. You now have a seamless process that goes from real-time filing.
Speaker Change: After the fact, by putting them together, the customer can actually see where there's problems.
Speaker Change: up front. So that's a big advantage for us. Also, the fact that we've built connectors into our long-term ERP partners and allowing us to reach into the ERP system because of the deep integration knowledge we have about how to integrate into SAP that we've built for years with our determination engine. We're able to leverage that to touch the invoice attributes that we need in the various jurisdictions. . . . . . .
Speaker Change: So I think those are the two very large differentiators right now we're seeing in the market and very encouraged by the team that's that's joined us in the pipeline we're starting to build.
Okay, thanks so much, David.
Sure, thanks Adam.
Speaker Change: Thank you. The next question comes from Steve Enders, with City, please go ahead.
Speaker Change: Hey, thanks for taking the questions. This is George Crasal on First Steve.
Speaker Change: Um, maybe just first to start on the SAP ecosystem, you know, big focus for the business highlighted a lot of the investor day. If you could talk about how deal volumes came in in the quarter within that ecosystem and how you guys are feeling about pipeline for the rest of the year. Okay.
Speaker Change: in Europe and in the U.S. And that is continuing to navigate nicely. And I'd be remiss if I didn't highlight the deep relationships we enjoy with the ecosystem partners that are doing the implementations the big four and others. They are critical.
Speaker Change: reference point in the process. And so the combination of the three has all is all working well. I haven't seen any lack of constructiveness if you would to the way that's built quarter over quarter. You know what I mean?
Speaker Change: Okay, that's great color. And then maybe kind of a modeling question here on the Delta between sub-revenue versus ARR, sub-revenue.
Speaker Change: A little bit of a desaleration down to Quinterly versus ARR, actually accelerating a bit. Maybe if you could just help us, is there anything? Maybe timing related to when deals went live, or true upper evidence, or anything else we should kind of keep in mind there.
Speaker Change: Thanks for the question, George. There was really nothing in this quarter's revenue that was out of the norm. Again, we continue to see, obviously, ARR beating the leading indicator of revenue as we move forward. But there weren't any significant true ups in the quarter above our normal level that we typically see that I would call out. So there was nothing really driving anything anomalous, driving any of the change there in the numbers you pointed out.
Okay, thanks for taking the questions.
Sure.
Speaker Change: Thank you. The next question comes from Jake Robert with William Blair, Blizzle Gohead.
Jake Roberts: Yeah, thanks for taking the questions. Could you talk about how the competitive environment and e-invoicing compares and contrast to maybe your core indirect tax market? And has there been any impacted deals as a result of Ecosio not having as broad of country coverage as others in the market, or does it already have kind of the sufficient coverage for the deals that are coming up today?
Jake Roberts: Jack Jake, really good question. So I think it starts with most providers in the market.
Jake Roberts: are just e-invoicing. They don't have that compliance as core to the DNA of their company. So they're at e-invoicing.
Jake Roberts: The interest in it and the approach to the e-envoicing is really around, I want to say this best.
Jake Roberts: The competition is really looking at how do I factor this into being ready for across the board compliance? So the countries that we have are all the current countries that they're most concerned about as we alluded in the investor day. They're typically going to start with...
Jake Roberts: and just a few countries. They're going to adopt three or four and then they're going to roll out because it's a complex process to go this. So nobody's going to say, I need all 50.
Jake Roberts: Country's right up front. We've got the major economies, we've got France and Germany in line, as they're coming on in 26 and 27, so we're well positioned to handle the big economies and that's not going to be a reason we're not going to compete in this market. [inaudible]
Speaker Change: Okay, that's really helpful. And then just from a macro perspective, you all obviously have more of a consumption oriented model based on the transactions that are rolling through your platform. Sounds like Dealflow and Pipeline have been really steady thus far, but is there any way to think about the potential impact to your model if transactions were to start to slow? Yeah.
Speaker Change: So maybe just a point of clarity on that, Jake, so I think.
We are revenue. We are revenue. We are revenue.
Speaker Change: Vertx O Series as we describe it in the market. That's based on revenue bands and the bands are pretty wide and it doesn't typically experience anything in a downturn that would cause us. The bands are wide enough that even if a customer were to slow down by 10% of their total revenue, it's probably not going to fall out of the band that would be a revenue. The only area that we are pure transaction pricing is actually in this new area of EN voicing. This is a new area of EN voicing. This is a new area of EN voicing. This is a new area of EN voicing.
Speaker Change: and so obviously we're new to the game there and we haven't seen the input. The good news is the customers we're going to work with in that space are the largest companies in the world which means they have the most invoices.
OK, that's really helpful. Thanks for taking the questions.
Yep.
Speaker Change: Thank you. The next question comes from Daniel Jester, with BMO Capital, please go ahead.
Speaker Change: I like good morning. This is Kyle, I'm Rastery, I'm for Dan Jester. Thanks for taking my question. Can you discuss what you're seeing in terms of new logo growth, anything in terms of the composition of enterprise versus mid market would be helpful? Sure.
Yeah, you know I
We saw in the quarter a...
Speaker Change: Solid diversity of growth in new logos across all of the key ecosystems that we're targeting.
I would say... [inaudible]
Speaker Change: You know, by nature, the SAP ones tend to be our scaled customers coming out of the blocks largely the same for Oracle. It's been interesting for us as we've had some nice wins in Microsoft of late that we've highlighted that have actually been scaled customers coming out of the block. But I would say in the Microsoft Dynamics ecosystem, that's where we're going to probably see less of the scaled customers coming out of the block. Thank you very much. Thank you.
Speaker Change: All that means is typically, remember, our motion is a land and expand motion, which means there are customers that may only need an $80,000 determination engine to start. But then as they continue to evolve and grow, they will grow into a scale customer by buying more of our products over time. And I would say, still the preponderance of our wins.
Speaker Change: are in the enterprise market, that typical 500 million at above type market, and then lesser so in the mid market.
Speaker Change: Great, and then it looks like a fairly strong quarter for software gross margin. Anything specific to call out there? I wish you think about this right going forward. Thank you.
Speaker Change: Yeah, nothing specific to call out in terms of any drivers that were in there that are kind of one time in nature anything, but I think we've had strong performance, we continue to see leverage in the business.
Speaker Change: I'm a little bit cautious with respect to whether that's going to continue throughout the rest of the year. So I feel like we have achieved the results we've expected to see. We are seeing good synergy amongst a lot of the activity that's there. But I wouldn't say anything to start moving everything, changing everything to that higher rate on a go-forward basis for the longest storms. [inaudible]
Thank you.
Alex Clark: The next question comes from Alex Klar with Raymond James, please go ahead.
Alex Clark: All right, thank you. David, I want to follow up on that nice new customer success. New logos are making a bigger piece of AR growth the last couple quarters. What do you see in terms of win rates on those new opportunities versus maybe one to two years ago. And then any change in the midst of those new logo bookings that are coming from a vended indirect tax kind of take away versus kind of the manual or native ERP usage prior previously. Thanks. Thank you.
Alex Clark: Chirag, so I think in terms of the second question around. And I'll be right back.
Alex Clark: Competitive, you know, I think we've consistently seen as businesses continue to grow in complexity, that tends to be the biggest opportunity for us to have takeaways.
Alex Clark: They're going to move on and we've seen a few of our wins when they're looking at a broader solution.
Alex Clark: Problem set where they're saying, you know what, it's time to just leave the, you know, the current vendor we're working with and move on to a new one. I think the, the new logo winrate.
Alex Clark: What I would say there is holding consistent in the core ecosystems that we compete in. Again, I really attribute a lot to the advisory community that really...
Alex Clark: We've worked hard to enable and invest in and they continue to support us.
and in... Um...
Alex Clark: AI and TCS, which is a tax calculation services for the dynamics community. Microsoft has responded very well to that and Microsoft community is and I think we're building our nice brand in that space that is working to our favor in some of our new logo wins.
Alex Clark: Okay, great. Thanks for the color there. John , maybe a follow-up for you. The implied license revenue looks down like a bit more sequentially. Anything change in terms of migration activity, this quarter versus prior quarters, and what's kind of the migration activity embedded in the outlook for 2025. Thanks.
Alex Clark: At no real change in the migration activity on a current quarter basis, again we've talked about that being that 2% to 4% roughly of our entire customer base on an annual basis.
Alex Clark: We haven't seen a change in that. We didn't see any differential in that in the second quarter. And even as we look out for the rest of the year, we don't see a big change coming from that again. We continue to see nice growth, but again, we don't see any big changes coming out of the migration activity. I think as you heard David said, the SAP ecosystem and the other ecosystems. The SAP ecosystem.
Alex Clark: that are we work with are certainly continuing to perform well and we're seeing good pipeline there so nothing to call out specifically.
All right, great, thank you both [inaudible]
Goodbye.
Speaker Change: Thank you, the next question comes from Will Jellison with DA Davidson, please go ahead.
Will Jellison: I'm curious to get a fresh perspective on whether that's been catalyzed by things you've seen in a competitive environment or positive feedback that's given you encouragement to step on the gas or anything else that you've seen.
Will Jellison: Customers would have confidence in the DAX data that they could apply AI to, AI is only as you know, we all know AI is only great if it's on data that you have confidence in. And so having some of the purpose built capabilities that we're now bringing to market around like smart categorization that feed into our data model tied to our tax content, again where the customers have enormous confidence in the data, they're able to start talking with us about use cases and partners are looking at it saying we can develop use cases together where we can we can develop use cases together where we can develop use cases
Speaker Change: Deploy AI, and just a point of clarity on your opening comment. The 10 to 12 million that John highlighted as investment is not just in the quarter. It's actually just spread throughout the year. It's not just a single quarter. John highlighted it, but they want to confuse him when we put all that to work in the first quarter. That's...
Speaker Change: that spreads you out. The new investment in Consugi is an exciting one really driven by some innovation they're doing and again some of the commercial opportunities I highlighted earlier on the call here around what we think we can do with that team. They're just a really great team and they can fit well around some of the edges of our base where we don't know where there's no obvious. I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: Solution that we ended up with a cost result. I think the consumer team is going to be able to come in and do some nice things.
Speaker Change: Great. Thank you. And then as a follow-up to that, you know, as you went through the first quarter of deploying that that incremental 10 to 12 across the whole year, you know any early learnings or pieces of positive feedback that are worth sharing from those investments thus far.
Speaker Change: and some other lines and categories of products that you can help us classify. So, I think more it's a question of how fast can you train the model in a way that we're going to have confidence, is part of the key feedback. We're just being really thoughtful because
Speaker Change: Nobody wants to get tax wrong and so we really need to make sure the customers have confidence in the results we're producing with it. So we're trying to balance but the feedback has been...
Speaker Change: Sounds great guys, go faster. That's really been the feedback because categorization is one of the hardest things they deal with and it's a never-ending chase to stay current with their product categorizations, their products as they continue to grow. So that's probably the biggest one I would highlight is positive feedback. Thank you for the feedback.
Great. Thank you, David.
Thank you. Bye.
Speaker Change: Thank you. The next question comes from Rob Oliver with bed, please glide.
Speaker Change: Professor and Opportunity Center to move up market towards what for you guys would be scales customers and how should we think about that potentially strengthening or solidifying the relationship with Shopify. Thanks.
Speaker Change: Yeah, I am very good question and obviously there's two very distinct market travel via an incredible community and they continue to do phenomenal in the SMB space and Kansugi on their own as accelerates there. We enjoy a great relationship with Shopify and I think this will strengthen it because we can serve them in a broader way or not that we don't own Kansugi by any stretch, but we can help.
Speaker Change: You know, by AI alone as I had highlighted some of the challenges and the requirements that AI enterprise customers require. So I actually think it's a wonderful compliment to the conversation for us to have which Shopify. Obviously the investment is new, but our relationship with Shopify is solid and I look forward to...
Speaker Change: as we continue to work with the Kentucky team bringing a message to Shopify of how we can continue to support their growth.
Speaker Change: Okay, super helpful. And then I had a quick follow-up. I guess one of the benefits of going late in the queue is I got a lot of good questions to ask. I got a chance to look at some of your previous scripts just to match some things up here with what you guys just said. And you called out Oracle a lot more, David, on today's call than you had previously, and I wondered if that was intentional. I know you guys have been saying that, hey, we are well-prepared across many ecosystems, but it did seem like you certainly called out Oracle a little bit more right now, so I was wondering if that is correct and if you can touch on that a little bit. Thank you, guys.
Speaker Change: I don't know if that program exists anywhere else and I'm really excited about that, but the wins of this quarter were really just driven by historical pipeline that we've been working on that happen to fall into Q1 with Oracle.
Great, thanks very much.
Yep.
Speaker Change: Thank you. The next question comes from Andrew D. Casperi with BNP Paribas. Please go ahead.
Andrew DeCasperi: Thanks. I guess one question I wanted to ask you was you brought up supply chains maybe changing and I just wanted to follow up and see if this is actual conversation you're having with customers at the decided to go your platform to reflect that change in the environment today. Thank you very much.
David Crivelli, David DeStefano, John Schwab
Speaker Change: That's helpful. And then maybe to follow up, I think I've asked this question to you in the past, and I just wondered if you can maybe give us.
A big picture of you of like your end market exposure. . .
Speaker Change: You know, have you seen, even though you're saying I've seen any sales elongation, any impacts yet from macro, just wondering if they, is that something to area your focus on in terms of what could happen?
Speaker Change: Taxes are a wonderful horizontal. It applies to heavy machinery, it applies to marketplaces, it applies to retail, it applies to oil and gas, it applies to basically every vertical you can describe, indirect tax applies because it is the most dependable source of revenue for governments around the world. So, their good news is we don't have a concentration, we may have a concentration of SAP customers or Oracle customers, but we do not have a concentration of this vertical is overwhelming in our space. So, I would like to thank you for your time. Thank you very much. Thank you very much.
that causing me concern.
Jare, thank you so much.
Yeah, sure.
Speaker Change: Thank you. The next question comes from Patrick Walravens with Citizen Bank. Please go ahead.
Oh, great. Thank you.
Speaker Change: Big picture here. Can you just remind us why we're going to see a re-acceleration this year? So 13% growth is quarter.
Speaker Change: My model goes 15-17 to get to your annual, so can you just remind us what's driving that acceleration?
Speaker Change: Pipeline Build, so I think that's that's reason number one. I think then reason number two is we're continuing to drive with our new offerings more cross sell.
Speaker Change: You know, they're still ready to address those concerns. And so I think those are the two primary drivers that why we, you know, we continue to see pipeline build and why we expect our revenue to continue to matriculate through the back of the year. Again.
Speaker Change: Not rushing anything from our Ian Voicing, we still think Ian Voicing will be a slower build in 25 and it will really be an accelerant of revenue in 26 when we've onboarded enough so there will be more of an ARR health this year and a revenue health next year.
Great, thank you.
Thank you. Yeah, sure.
Speaker Change: Thank you. This concludes a question and answer session. I would like to turn the conference back over to Mr. Joe Crivelli for any closing remarks.
Speaker Change: Thanks everybody for joining us today. As always, if you have any follow-up questions or would like to schedule additional time with the team, please send me an email at investors at Vertxinc.com. Have a great rest of your day and we look forward to speaking with you in the coming weeks.
Speaker Change: The conference has now concluded. Thank you for attending to this presentation. You may now disconnect.