Vertex, Inc. (VERX) Earnings Call Transcript & Summary

All right. Awesome. Welcome, everybody, to our next session at the Citi Technology Conference. I'm Steve Enders part of the software research team here. And with us, for the next session, we have the team from Vertex, David DeStefano and John Schwab. So I want to thank both of you for being here.

Appreciate it. Thank you. Appreciate the opportunity to talk to everybody.

Yes. So maybe just to start off for maybe some people who might be a little bit newer to Vertex. Can you just give us a quick history, quick overview of Vertex and what it is that you all do in the in the software space?

Sure. 45 years old company, went public in 2020. Family held up to that point in time. We serve indirect tax solutions for the global 5000. So by VAT, sales tax, use tax that these companies pay on every transaction, have to process, we're the software engine behind most of the largest companies in the world.

Okay. All right. Great. And maybe you can just talk a little bit about the macro at this point because it seems like really strong execution at this point out there. And so yes, can you just walk us through what's been -- what you've been seeing where demand is at this point for tax software and just overall, what's going on in the landscape?

Sure. There's 2 key unique things about tax. One is it's very horizontal, it's not vertical. So whether -- there's a lot of different industries that we serve, whether it be oil and gas, retail, telecom, automobile, et cetera. And I think that diversity gives us great durability of our business performance. I think the second thing is there's 3 distinct drivers of why a company, who's been using an in-house solution would go to Vertex, and that's our largest competitors. We're replacing in-house solutions that have been good enough. They could be a business model change. The company evolves its revenue stream in some way through M&A, adopting E-commerce, going into new jurisdictions, and that creates a tax problem for the in-house solution. The second will be the regulatory environment. So you can increase audit pressure or complexity of rules that -- again, in-house provider can't keep up with, and so they'll turn to a third-party vendor. And then the third is infrastructure change, system changes like adopted Coupa system or CPQ, I'm using CPQ on Salesforce, or upgrading my ECC platform to SAP. And any one of those 3 can cause complexity for a tax department leading to an opportunity for us. And so even in a macro environment that's dynamic, you can look at those 3. So now we see a lot of debt being created across global jurisdictions as they -- because of some of the economic challenges they're facing. Well, that debt has to be paid with tax and corporate indirect tax is the largest form of tax. It's like 3:1 versus income tax. So it's the primary way [indiscernible] are going to pay their debt -- service their debt, and that works well for us because it creates demand inside of the tax department. If you go back to the early parts of the pandemic when e-commerce took off, that became a new business model change that caused a lot of opportunity for us. And now as we look forward, some of the pipeline we're seeing build -- SAP announced that they're going to retire the ECC platform in 2027. So that's going to create a wave of re-platforming of a lot of SAP users. They've got -- there's like 8,000 to 10,000 ECC users. We only have 1,800 total SAP customers. So there's a great opportunity for us to now meet a whole new set of new logos that have been using in-house solutions. So those are the key drivers of, those 3 areas.

Sure. Maybe if we could break into that a little bit more. If we think about those drivers, I guess, how is maybe the mix shifted and evolved over time? Like is the SAP updating ecosystem, is that becoming a bigger driver for upgrades and people looking at Vertex? How should we think about -- maybe how that is change over the past few years?

Yes. So again, if I go back to 2020, the e-commerce was the driver. And we actually saw. If you think about what happened right when the pandemic hit, most of the ERP implementation stopped because IT leaders were like, I don't even know if I can run my business globally on a remote basis. We worry about getting a new system. So that we actually saw that really slow down, but we saw e-commerce fill in the void because of the new business model changes. . I'd say right now today, the demand drivers are actually pretty diverse across the 3, maybe a little stronger in regulatory and system and a little slower but relatively speaking, they're early. I think the upside for us is coming is more this ECC driver in SAP in particular. I see that playing out in '24, '25 and '26 because they're end of lifing it in '27. So that's sort of the ebb and flow where we are right now.

Okay. Okay. That makes sense. Maybe shifting gears slightly on talking about the macro aspect of it. How are you seeing sales cycles, deals extension or downsizing? Have you seen any of that activity recently. I mean, it seems like that's been a big factor across other places in...

Yes. So in North America, not at all. We -- and the reason why is, again, the in-house solution that you're using. You're going to stay with that until you absolutely can't. That's what we're competing against. But once you make the decision, you can't be as compliant as you need to be. You have to fix that problem. And so the sales cycles really haven't changed at all. Procurement pounds on pricing all the time. But that -- the fundamental sales cycle, because you've got to deal with the compliance challenge, hasn't changed in North America. I think in Europe, we've seen a couple of deals move from quarter to a quarter, but not -- I don't think we're seeing a systemic change over there, again because of the driver. If you've been compliant, you're not talking to us. If you've got a compliant challenge, you now have to solve their problem, and there is a fuse on that. And so it sort of drives an inevitability of the sales cycle.

Okay. Okay. That makes sense. I do want to ask about the SAP, ECC opportunity. Understand end of life is '27 and see a lot coming in the next kind of few years here. I guess what is it about those upgrades in particular that might be triggering a new opportunity for you to step in and help them with it?

Yes. So ECC is an on-premise solution. So they have built whatever they're using around in on-premise solution. So when they move -- if they're moving their whole platform to the cloud now, they have to determine whether their in-house tax solutions they build can work in a cloud-native environment. We have -- obviously, we have our cloud solution that we know can work for them. So that's the challenge they'll be facing. So they may find that the solution they have, while it is compliant, can't interface and work with the S/4 platform. And so that would create a demand opportunity for us.

Got you. Okay.

And we've seen that play out, by the way, OCI. It's happening in the Oracle community right now with the OCI platforming. It's not a new phenomenon. It's something we saw it when Coupa had accelerated their traction, a lot of in-house procurement systems. Couldn't work with the Coupa Cloud solution so they had to go to buy a cloud-based use tax solution that drove a lot of demand for us. So this is a very common pattern we see..

Okay. No, it makes sense. Maybe if we think about your customers and how they're thinking about on-prem versus cloud at this point? I know you've talked about cloud growing, I think, 27% this year in the outlook. But how are they thinking about where they want their tax solutions deployed? When does it make sense for it to be on-prem? And as you think about this upgrade cycle you're talking about, how does that math kind of shake out between on-prem and cloud?

Yes. So 90% of our new logos are cloud. So we're clearly seeing as customers are adopting a new solution. Cloud is the preference. About 50% of our existing customers, who are using On-prem somewhere in their business when they buy a different module, about 50% of the time, they're buying cloud, too. So it's certainly the bias of activity is to move towards cloud. That said, there are unique fact patterns. We announced the deal in Q2, a very large deal we closed where it was one of the largest cloud providers in the world, licensed a new product from us. And they actually put it behind their firewall. They are representing cloud as the future in terms of what they sell, but in using our software. And it had unique -- it was because of the unique characteristics of their business and the infrastructure that they had set up around the rest of their procurement -- or their order to cash process that they wanted that connected directly without having it go to a public cloud environment. So it's really driven by the IT infrastructure of the business that makes the decision. The tax buyer is actually less concerned about the platform they run on. They're much more concerned about the tax content we deliver. The reason we win and differentiate so much in the market is much more about the accuracy we give from our tax content. The platform is sort of a lower level decision in the process.

Okay. So I guess with that context, I mean, as you put it, I think it was a really strong past couple of quarters for on-prem, and cloud is still kind of hanging in that 27% level. So I guess with like the flexibility of what you're talking about between on-prem versus the cloud, I mean, I'm sure you're pretty agnostic about where things actually get deployed. But like how do we put that in context for the actual cloud guide?

Yes. I think from a cloud guide perspective, again, as David said, it's going to move around a little bit. We've seen cloud revenue bounce around that. We were 25% in Q1, 27% in Q2, and we saw the same phenomenon last year. Things bounced around a little bit. But we feel very good about the opportunity that's coming down the road, as David described, I mean, with 90% of our new customers wanting cloud and many of the existing on-prem customers move into cloud as well as the general transformation that 2% to 4% of our base that just moves over naturally in the ordinary course. So, we feel pretty good about how that operates, and we feel good about 27% for the full year. And again, I think we'll see a little bit of strength in the back end to kind of to support that. But I think we feel pretty good about where that stand.

One of the nice things we did at John -- under John's leadership, that took place about 18 months ago, is we now price our on-prem solution at the same price as cloud. So used to be on-prem was expensive in year 1, and then it dropped, most are familiar. We now price them both the same. So it's actually economically very lucrative for us, if they still buy on-prem. And they're going to be with us for -- the LTV is going to be quite long as well. So we're in a very comfortable position. And in fact, some of our competitors don't even offer on-prem. And many times, again, for certain customers, that's the only way you're going to win the deal. So it works to our advantage is what I would tell you.

Okay. Okay. That makes sense. Maybe switching gears a little bit on the go-to-market front. I know there's been a lot of attention on some of the partners that you work with, SAP and Oracle historically, but now it's beginning to broaden out a little bit. How should we think about those investments you are making in the mid-market? Maybe how are the customers different based on the various partners that you're working with there?

Yes. So there are 3 distinct segments to the tax buyer in our space. There's the S buyer, very small $30 million, $40 million company, very simple. They just want compliance at the lowest cost possible. There's a mid-market buyer. That's that $50 million to $250 million company, Microsoft Dynamics, Workday, Salesforce, upper end of the NetSuite space. They're starting to experience complexity because their business model is they're selling into multiple jurisdictions. They may have like a zero billing system so they have multiple systems that they have to knit together in some way and their jurisdictional footprint is accelerating. There may be -- because of e-commerce, they're now selling into 20 states and 6 countries. And so there are regulatory challenges. And so they are becoming like an enterprise buyer, but they are just have less zeros in terms of their revenue to solve for. And then you have the enterprise buyer, who is -- pick large company X multibillion-dollar type company. They're going to be the most complex in terms of regulatory business model and technology footprint. The mid-market strategy what we've seen, and the reason we've sort of accelerated from being just an enterprise customer into the Microsoft Dynamics, Salesforce, Workday and NetSuite space, which is really our target is those are the core platforms that mid-market companies are running their business on. And what we're seeing is the value prop of what we do and the opportunity to both land and expand, that's a really critical part of our strategy. 70% of our new revenue comes from existing customers expanding wallet share, so being able to see land and expand opportunities of critical decision strategically for us. And so what we're seeing now, as we target the Microsoft Dynamics, is we're building new channel relationships. We've invested heavily in a channel indirect sales motion. And now we're starting to see the progress that we've announced. I think in the quarter, we had some really good growth in our mid-market unit count. So we're starting to see the payoff of doing that.

I guess any -- as we think about that new ecosystem, any standout so far across Workday and Microsoft?

I would say the best opportunities for us are really going to be in Microsoft, especially will be on Azure. So right now, we're on AWS and OCI. We'll be able to -- we'll be fully integrated into Azure as well and giving them the platform-agnostic capability but also leveraging the Azure. And the example, Azure capabilities enhances the customer experience. So Dynamics and Workday are probably the 2 primaries and then I would put Salesforce and NetSuite further down in terms of the opportunity set that we see in those spaces.

All right. That's helpful context there. I do want to ask on the -- some of the significant wins you had. Especially, I think you called an 8-figure deal in this past quarter, and I think really good strength in some of those large upmarket opportunities. I guess what is it that's driving those large customer outcomes? Is something changing in the marketplace? Is this something that from like a timing perspective? Or has something changed from a Vertex perspective to be able to go after that opportunity?

Yes, I think it's a combination of factors, to be honest, to not make too complex. One is we've expanded for the first time ever after 25 years plus of working with Oracle and SAP on the technology side. We are now working with their sales teams. So we had never had that motion. It was always -- they were 2 different -- we didn't have that access. . We now work into account planning and sales planning with SAP sales reps and Oracle sales reps. And that has been a value add to our experience because we're able to tell a better story to their prospects, and they're getting quota relief for doing that. So there's a financial incentive for them and so I think that's one piece of the experience that's gotten better. I think the second piece is, if you think about the investments we made and the products we've launched like the edge computing solution, our Chain Flow Accelerator and the LCR-Dixon specific to the SAP space, so bringing new products to market is giving us a differentiated portfolio versus -- and so it's solving additional problems for the tax buyer, making this more opportunistic in this space. And I think, those 2 things are really -- but the 3 fundamental drivers of business model, regulatory and systems are still the essence of the driver. Our ability to execute on it, which is why our ARR and NRR gotten better, is really because of those 2 things.

Okay. I mean you've gone through a pretty big investment cycle in the past few years here. I guess how are you thinking about the -- I guess, ROI and the productivity of those investments? And then I guess, secondarily, how should we be thinking about the leverage that comes now that you -- now they're on the back half of this?

I'll talk about the strategy, and then I'll let John speak to the numbers.

Sounds good.

So the strategy when we went public, we were very clear. Because we have paid significant dividends to our historical shareholders, we were shifting into a heavier investment mode. We wanted to fund -- build out our R&D, add new products, again, best customers in the world. We should be able to sell more products to them. So we needed a broader product portfolio, number one. Number two, we wanted to really expand our sales and marketing motion in 3 dimensions. We enhanced our customer success function. We really hadn't -- didn't have a hunter-farmer model. So we've built out now a true hunter-farmer model. And we're seeing our NRR accelerate because we're selling more through that model, number one. Number two was the build out an organic -- and we had to build from scratch essentially a European sales staff. We learned the hard way, trying to send either North American salespeople or London-based salespeople, the few that we had, into Germany to sell large German conglomerates, wasn't going to work. You needed a German sales team, spoke to language, native culture and how to do that by region. So we had to build that out and get them up to quota. And so there -- we're now maturing that nicely. And then the third area was we needed that indirect channels, talked about the value prop accelerating in the mid-market. We really needed a different motion for ourselves there to penetrate Microsoft and Workday and those types of organizations and their customer base. And so those were the 3 go-to-market motions that we had to invest, and then the last piece of our investment cycle that we've just come out of was we really need to improve G&A by having an infrastructure that's scaled to $1 billion plus of revenue and we didn't have that. And so just gone live with our new ERP system. And so the combination of those 3 has really been the journey we've been on. I'll let John speak to now the transition of performance against that.

Yes, I think as David described, we are at the back end. And I think as we think about the back end and what that means to the P& L, I think as we gave our actual performance this quarter, we came in at about 15% adjusted EBITDA margin. Our guidance would then indicate that 17% expected in Q3 and about 19% in Q4. And what you're seeing is you're seeing leverage really come out of the areas that are going to start to now slow. G&A is really the leader of the pack there in terms of the investment spend that we've been making to get that, to get the ERP system up running and online as we had. So we're going to start to see that initially come out of there. And over time, I think as we get through stabilization, get into optimization, we're going to really start to see those numbers come through. I would also point out that when we think about additional spend that we've been making -- David talked about the selling and marketing build that's been done. Again, a lot of that is behind us. So as I think about opportunity there going forward, I see that really flattening out over time. We've seen nice growth in those areas to build those functions up. And now that we've got that moving. The adds are just going to be incremental -- modest incremental adds to kind of target needs where they arise. But I think as we look into the future, where I really see, again, opportunity coming out is really focused around G&A, the flatness around selling and marketing. R&D is another area that we feel very good about the spend and the investments that we've been making. So I would say that's an area that we're still going to continue to invest in because, again, product growth is what's going to fuel that future customer and that future revenue growth. And with 70% of our new revenue opportunities coming from existing customers, we want to make sure we can continue to drive the NRR forward.

Okay. Maybe to kind of follow up and build on that. I think you've given long-term targets about what the margin profile could look like. I guess how should we be thinking about like the glide path to some of those longer-term margin targets?

Yes. I think -- when I think about from a revenue perspective first, I think we talk and disclose our ARR growth, 117 and change this past quarter. I think, again, that's a real leading indicator of what revenue looks like on a go-forward basis. So we feel very good about sort of that movement there. Again, we've talked about targeting 20% revenue growth rates and I think -- organic. And I think we're kind of walking ourselves into that over time with some of the tailwinds that David talked about. So that's over the next year or 2 that we kind of get ourselves there. Again, the 117 this year turns into revenue next year and then that builds from there. From a -- when you think about how to think about our future guidance around adjusted EBITDA, again, as talked about 15% to 17% to 19% in the quarter, again, we're getting some big hits coming out of -- just the lack of implementation of an ERP system. But I think from that point forward, the expectation is we find ourselves into the 20s, in the low 20s because, again, as a private company, we operated with low 20% -- low to mid-20% margins. The leverage we're going to get out of the systems and some of the integration that we've done is going to certainly put us in that same zone pretty quickly over the next couple of years. Again, you're [indiscernible] or so. But again, we'll get a couple of big hits this quarter and early next year, as that implementation is done, but then over time, you'll see some just incremental steps.

Okay. All right. That's helpful. Helpful context there. I do want to shift gears a little bit and talk about your AI strategy. But for those in the room, if you have a question, we'll -- raise your hand and make sure to get to an upfront here. [Operator Instructions]

I know you said that your largest competitor is in-house solutions. I was wondering if you could speak more broadly just to your actual competitors and specifically Avalara, which was taken private by Vista about a year ago. I was curious if you've seen any changes in competition with Avalara, perhaps with their strategy or the win rates relative to them?

Yes. So our primary competitor is a company called Thomson Reuters. So in the enterprise market, that's what we see in almost literally every RFP that we did. And most of the deals at the enterprise level are run by RFPs by big 4. That's really who our competitor is in the enterprise market. As we move overseas -- and these are very distinct because the buying behavior and the competitive dynamics are different in terms of third-party providers. In the U.S., North American enterprise market, it's Thomson Reuters. To go overseas, we see a lot of Thomson and a company called Sovos. They're our primary competitors for VAT compliance solutions. And then as we move -- I talked about our mid-market strategy moving into the Microsoft Dynamics, NetSuite, et cetera, that's the space that Avalara seems to be moving into when they talk about -- and they used to talk about going upmarket. It was from the S to the M, and that's really where we see them. And that hasn't really changed in the time that Vista has owned them. It feels very much the same behavior in that space that we were experiencing prior to the transaction. We do have an anecdotal data point about -- our largest competitor, when I joined Vertex in 1999, was company called Taxware. Vista eventually owned them. They bought them. They eventually sold them to Sovos, and that's still a part of Sovos' business today. They are -- Taxware was never the same tax competitor that they were prior to -- and I think it's because Vista did a wonderful job of monetizing their investment, but they weren't the same tax competitor. So I don't know, we'll see what happens with Avalara in the long term. But right now, they haven't changed in their competitive dynamics at all. Is that helpful?

Okay. All right. Maybe going to the AI discussion. I guess, where does the AI strategy sit today at this point? And how is maybe your thinking shifted there? And I guess how should we be thinking about what the biggest use cases that you're going to be looking to go after for AI?

Yes. So the good news is we've been using machine learning and AI for a long time in our content space. And Generative AI creates the opportunity for maybe more in that space. I mean I think when you say AI, you really mean Generative AI. So I think content curation is a big part of what we're looking at and how we can leverage that. I think it's super important to realize that Generative AI is a probabilistic technology. And tax compliance is a deterministic requirement. So I can't be probably right with my accuracy. I need to be -- and that's one of the things our brand has been built on for 45 years now, is the quality of our tax content. So that's a critical part of what we're -- as we're doing our internal explorations around being more productive to either build more tax content or deliver the tax content we have in a more efficient -- cost-efficient manner is can it give us the same deterministic quality that we can do right now? I think that's a big -- It will be a key requirement that our customer base will look at -- the enterprise customer will look at, number one. Number two, we touch the most sensitive data every transaction that we -- our source system touches, every purchase order, every line item, all the specific, so that data -- it's a very rich data set that we touch to determine taxability. So we're certainly seeing now some commercial opportunities to look at how the data we can bring more value to that data and bring it back to our customers to add more value, which could be a new commercial opportunity for us. And then the third is around customer experience. I think AI is going to be part of the UI of our offering over time. It will be -- show up as copilots in the offering that we bring forward, allowing the customer to improve their user experience. And so I think those are the 3 big dimensions that we're looking at right now.

Okay. And then how are you thinking about monetization potential for those kinds of products? Does that help with price and help us kind of baking that into uplift over time? Or does this have separate SKUs to potentially kind of cross-sell into the base? .

So I think on the 1 side, the content curation would be two dimensional. Firstly, it would be a productivity, which would be just a margin opportunity for us. It could be a commercial opportunity in terms of we're able to create perhaps unique content that we think is a value. We have premium content in certain parts of our business. Like our Brazilian content is at a premium cost to the customer because of the complexity of that jurisdiction. So there could potentially be that -- but I see that more on the productivity side. I think the area for revenue growth off of it would largely be either those copilots being something that they turn on or access for an improved user experience that's sort of an upsell of something they're already buying. And then the data, as I was describing, is really more of a true new offering that -- a new offering. In terms of the true economics of that, in terms of what's that going to do to revenue growth rate or margin, I think we're too early in the process to give you a quote on that.

Okay. All right. No, that's helpful context, though. Maybe staying on the product side. I think you have made quite a bit of M&A in the past couple of years and augmented the base. So I guess, one, how should we think about what's knew, what's different in the product set today? And then I guess, secondarily, how should we think about like the product road map and where things could potentially go? And how do you kind of broaden out the product set even further?

Yes. So the good news is commerce -- forms of commerce continue to change. That drives regulatory change, that drives product opportunities. And it's a very clear cycle. So edge computing is a great example where infrastructure is moving to the edge because commerce is moving to the edge, and guess what, the regulators are saying, you got to be able to tax -- you have the determine tax at the edge, at the point of mobile or IoT level. And so edge is a big part of what we've launched here in the last year that came out as a result of a small embryonic acquisition we made that we then developed into the edge solution that we brought to market. And I'm really excited about that. I think we're in the very early days of significant use cases around that. Chain Flow Accelerator, SAP data visualization tool targeted specifically because of our growing relationship inside of SAP between the technology and the sales team relationship we now have, having differentiated product between the LCR-Dixon acquisition, and our own organic build of this Chain Flow Accelerator, which is sort of inside the supply chain, giving them visualization to all the VAT compliance process across their supply chain -- a large enterprise supply chain is a real differentiator for us. And it's going to improve our win rates. As I look forward, we're really excited to announce this quarter, we'll be bringing forward our e-invoicing solution. Which we've got -- e-invoicing is a new emerging compliance challenge for companies where they are being asked to deliver at the time of the execution of the invoice. They have to deliver that data to the government -- just send the data to the government. But what happens is you have to send a certain amount of data many countries. There's 58 of them large countries that have adopted it so far. You have to send different data sets. So from a complexity perspective, that's good for us. We'll be launching a product at the end of this quarter that will merge the data set requirements for e-invoicing with the VAT compliance solution through a single portal, all connected on our tax platform. So from a customer's perspective, I can solve my e-invoicing challenges in different jurisdictions and not have to touch that data again to have it flow into my VAT compliance solution. So I'm really excited about where that will take us. That will be a nice tailwind as we start moving into '24 and beyond. You will see a lot of revenue recognition on that in '23. But as we move forward with the growing requirements around the e-invoicing, I think that's a nice part of our road map as we move forward.

Okay. Interesting. And so when we think about this solution coming to market, does it just get baked into your the VAT solution? Or is it kind of a separate?

No. We will -- it will be -- it's sort of a nice augmentation, but it's stand-alone significant enough that it will be -- we'll be talking about it on our earnings calls. It will be called at some level.

Okay. Helpful. And maybe for John, as we think about M&A and how that is kind of come into the fold here to help kind of broaden out the portfolio, how are you viewing kind of the landscape today for that? And how are you thinking about where it makes more sense to maybe buy versus build out that functionality?

Yes. Historically, we've built rather than bought. And I think as you described, we did 4 acquisitions over probably a 12- or 13-month period and so -- which was a nice way to augment some of the gaps that we had in things. We continue to be very thoughtful about acquisitions. We look at opportunities that are out there, and there's always things that we can -- where we can enhance in a very close adjacency to our portfolio offering things that are out there. And so we've been paying particular attention over the last, I'll say, 18 months. But I would say there's been a bit of a dislocation between kind of the prices that sellers are willing to sell, and the prices at which buyers are willing to buy. And I think we've seen that start -- that gap start to narrow in the last the 9 months or so. And I think so the opportunities -- these are out there. I think there's just -- the question just is, is there going to be something out there that's going to fit us right at the time we need it? And I think David's talked a little bit around the invoicing and things that are out there. In that realm, we've looked at a lot of different things that are out there. And so we'll continue to keep our eyes open, but I don't think there's anything out there right now that we are itching to get that need to have to kind of move ourselves to the next level. But you never know, those things change very quickly.

Sure...

Yes, but it's nice to see that pricing has sort of gotten a little bit more back in line.

Yes. Okay. That makes sense. And you mentioned the ERP implementation coming in and being finalized this past quarter and that led to a little bit of an increase on G&A. How should we be thinking about the further G&A progression after here? How do you think about the core kind of leverage pools that would come into the model here?

Yes. I think -- as we talked about earlier, I think, you're really going to see, again, the progression of the adjusted EBITDA margin kind of working into those low 20s, is largely going to find its way through G&A as well as selling and marketing. I think they are the 2 hot spots that I would focus on because, again, the leverage we're going to get out of the systems, the leverage we're going to get out of our ability to kind of manage at scale. Again, for years and years, we've operated on an older system that didn't allow us to expand and get the visibility into the business. And I think it's going to give us not only sort of cost savings on the back end, but it's actually giving some additional visibility into our business and customer opportunities that are out there. So I think we'll see a little bit of top end growth that will kind of work through the regular ARR progression. But I think what we're really going to see is savings kind of the flattening out of selling and marketing. You're going to see the decrease from a G&A standpoint. And again, that will just keep ticking -- I expect that, that will just keep ticking across the board, as we find ourselves into '24 through '25, et cetera. Again, modest progression this next couple of quarters is again the big spend is out of the way.

Okay. We only have a few minutes left, so I want to see if there's any questions in the room. . I do want to ask about NRR, really strong this past quarter, a new high at 111%. So I guess, first of all, congrats on that. How should we be thinking about the drivers of that? And as we think about moving forward -- I know that there were some price increases baked in from inflation. How should we kind of be viewing where NRR can trend and the factors underlying that between use cases and pricing?

John, do you walk...

Yes. I think the best way to kind of start the conversation off and the question off is saying, it all starts with the really strong GRR that we have. And the 96% GRR is just world-class. I mean, we really don't see customer attrition happening, but for isolated incidents where customers are selling off the vision, selling themselves, selling units, et cetera, which create a little bit of a downdraft. But again, it all starts with 96% and then that we work ourselves into that 111% this past quarter. And there's really 3 key components that kind of bridge that 96% to the 111%. 50% of that bridge is really made up of existing customers cross-sell, so selling sales tax to a used tax customer or vice versa. So same customer additional product offerings modules. 25% is going to come from the same customer buying additional usage or additional entitlements of the same product that they have. So they used this in division A, they move over to division B. And as they move to division B, that means more revenue for us. So that's 25% of it. And finally, the last piece, the final 25% is our regular price increases that we give to our customers. We've always given price increases to customers, just a normal part of our business, the cost to curate and gather the content that David talked about earlier, and I think that's just a normal part of the business. So they've been contributing about the same amount over the last 12 months, as they had in the previous 12, but it's been -- it's nice to see that progression go and to see the growth driver really continue.

Okay. Maybe in the last minute here, just think about a 5-year vision for Vertex, I guess what does that look like? How does the company evolve? And if we think about being here at Citi 2028 tech conference, like what will we be talking about then? And what will Vertex look like?

Yes. I think the global regulatory -- I mean there's 10,000 tax jurisdictions in the U.S. alone. So the complexity here is proven, and it's why we're -- I think the global regulatory environment is accelerating. I think -- you look at the behavior in jurisdictions in VAT, et cetera. And I think now e-invoicing, which is a new reporting requirement, is expanding into multiple countries. I think you're going to see the revenue mix and the global scale of Vertex be far larger than it is now, number one. Number two, I think the -- and it ties a little bit to Generative AI, but just in general, the data sets we're touching and the richness of what we can do with that data, I think there'll be a stronger data profile in our business, not just the compliance, so go from a system of record type company to being a system of information. So I think we'll be moving up the value scale, if you will, I think, over time, just again, because of the -- we have not done a lot yet in the monetization of data. So those would be probably the 2 primary things that I think will evolve between now and 2028. I don't know if you want to add anything to that. Those would be the 2 biggest ones I would see moving forward.

Okay. All right. Great. I think we're running up against time here. So I want to thank everybody for being here...

Thank you, Steve. Appreciate it.