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

Well, thank you all for being here today and for coming to Philadelphia for Vertex's first ever Investor Day. I'm Joe Crivelli, Vice President, Investor Relations. And we've got a lot of really interesting material to share with you today. Those of you who have followed Vertex for a while know that I like to give you the story upfront. I do this when I send out our quarterly earnings report with the key messages that I want you to take away from the quarter. So indulge me for a minute and let me share with you the key messages that we're hoping you take away from Investor Day today. So first of all, Vertex, this is a great business. We have the best customers, the best partners and the best products and solutions to help those customers and partners make sense of the complexity of indirect tax. We have a smart talented management team, pulling all of the right levers to drive long-term profitable growth, and we have persistent durable tailwinds that are going to drive profitable growth for the foreseeable future. A lot of you have heard me say since I got here 3 years ago that we believe Vertex is a multiyear compounder. But what I want you to take away from today is that this is a multiyear compounder with literally no end in sight. And the material that we've developed to share with you today, I think will state this case very loudly. A few housekeeping items. Any forward-looking statements that we make today are covered by the customary safe harbor language that you see on the screen right now. And a quick peek at the agenda. David will kick things off with the big picture view. Then, we'll do deep dives on strategy, product and go to market. After that, we'll be joined by 2 partners and a customer EY, SAP and Comcast to give you the outside-in view of the indirect tax industry. John will wrap it all up with the financials and the financial path forward. And then we'll conclude with about 40 minutes for open Q&A. So we do ask that you hold any questions until the Q&A period. And for those of you who are listening online, please feel free to enter your questions through the Q&A portal. We will take a break at 10:00 -- approximately 10:00, but if you need to step out by all means, please do so. And with that, let's bring to the stage, the captain of the ship, David DeStefano.

Appreciate it. Good morning, everyone. I hope everyone had a chance to get a little time with Brandon Graham, wonderful representative of Philadelphia. We invited Brandon this morning because not only have we are huge Eagles fans here at Vertex, but also, he's 15 years of an NFL player, Pro Bowl, All-Pro, won 2 Super Bowls, came back from injury on numerous occasions. And I think he demonstrates the type of resilience, consistency and quite frankly, ultimately, success that Vertex believes we are. And so we thought we'd have a little fun to have him here. Hopefully, you got your picture taken with him. You'll have a chance to get that when you leave this morning. But we have a lot to share. So I thought I'd start off a little bit with kind of why? Why Investor Day now, what's so important. And I think it starts with we've been public for 5 years. And since we went public, we set out on a very defined mission of what we needed to do. And I think we demonstrated we would do exactly what we said we were going to do -- in the time frame we would do it. And over the last several years, we made important strategic investments. They generated stronger financial performance, and ultimately, they positioned us to continue to grow. So today, we wanted to reconvene, sort of reset expectations for what -- how we're going to build on the track record that we have built for the past 45 years and ultimately take this business forward into the future. I want to spend a few minutes talking about and helping you all understand why the depth and breadth of the opportunity that we see with customers is only going to continue and accelerate, and also why we are starting to expand our opportunities with new logos. We're going to highlight a little bit about the tailwinds that are the persistent tailwinds that have been in this business. I've had the good fortune of working at Vertex for 25 years, and I can tell you, these tailwinds have been persistent, whether it be in technology change, they'd be in regulatory change or in just the fundamentals of how businesses continue to evolve in search of growth. And all those things show no signs of abating and really have fueled the growth of Vertex. We think about it, the current wave of ERP refresh that we're seeing between Oracle and SAP, now creating a new wave of demand for Vertex and then we have the new e-invoicing regimes that have just launched that are going to create an even stronger tailwind over time. And then finally, we'll discuss a little bit about how we are bringing AI into our platform, how it will affect not only commercial opportunities that we see going forward, but will also help improve margins from the business. So with that, I think it's important to start with how does the company go for 45 years and be as successful as we have been. It starts with having a very definitive rally cry that starts and drives the business forward and cascades all the way into the day-to-day activities. And I can assure you we wake up at Vertex, and we talk about this all the time. Are we crystal clear on what our vision is? Do we understand what our mission is? Our mission is essential to us because it drives our actions and starts with understanding our customers. We've spent time talking to our customers. We know the pain that they face as they try to grow their business and the challenges that indirect tax creates for them. And it has driven us to continually innovate with technology as well as continue to advance our tax content database to make sure they can operate and grow in any jurisdiction they choose to. Creating a frictionless experience, not only for them when they engage with us, but also a frictionless experience with their end customer, which is a part of the journey that indirect tax has to deal with. Why? The why is we exist at the epicenter between how commerce is conducted and the dynamism that is going on in commerce and the strict regulatory regime that is tax compliance. That's fueled our growth rate for years. And from that position, we have earned an incredibly loyal customer base. Because of the mission criticality of what we're doing, we touch every transaction that goes through a business. We have to be line item invasive. We have to ensure that it can operate in any jurisdiction. And that's why the largest companies in the world rely on us. And not only do they rely on us, but they actually stand up and act as references to help us win new logos. And we've consistently demonstrated by earning those new logos that we can actually expand revenue through a proven land-and-expand motion, which I'll talk about in a few minutes. And I think a great example of this is the fuel we're seeing now in cloud transformations and how customers have been with us for years on-premise are now migrating 100% with us to the cloud. So what's so important about indirect tax and why do we exist? We exist because indirect tax is the largest form of revenue that corporations pay around the world. It's 3x greater than what's paid in corporate income tax. And the reason why it's consumption-based. It's predictable. So for a government, I can build my budget knowing how much revenue is going to occur versus income tax, which could be planned around in a given jurisdiction. That predictability ensures that governments who continue to expand their budgets and continue to take on debt can more and more find ways and introduce new regulations and new rules through indirect tax. The challenge is for business that creates complexity because no jurisdiction levies tax the same way. So I can be selling goods in 5,000 different jurisdictions around the world between the states and the U.S. and globally. And guess what? They're not levying tax on those items in the same way, which means I have to deal with that complexity. So just imagine, billions of transactions are happening across millions of SKUs in thousands of jurisdictions. And I have to calculate tax in real time on every invoice and in some cases, now report that invoice information in real time as well. Invoicing is actually giving your tax information away in real time to the government. That's the complexity to face, and it's not just a B2C issue. It cascades all the way through your global supply chain. So it's B2B as well. And that's the complexity that our customers face. I've been here for 25 years and what amazes me is that companies, so many of them still solve this problem with internal capabilities. Why? Because you know what, if it works, if you grew your business up over time, and it was good enough, you're going to stick with that as your solution. So you're going to leverage native ERP, you're going to leverage Excel, you're going to leverage a lot of times very sophisticated IT teams building capabilities to customize a tax solution that works until they have a problem. And there are three very distinct reasons we get invited to the table to solve that problem. The first is something that they're doing to run their business in the technology or the systems that they're running their business on change. We've seen this go from over the last several years from best-of-breed to cloud, how our company is choosing, what to run platforms on. That causes complexity for a tax because everything they have constructed to work in the current environment, now suddenly changes and it's out in the cloud, where the company adopts an Ariba procurement system and they adopt a 0 billing system. So they adopt different transaction processing systems and the tax department can't keep up. And that disruption will create an opportunity for them to say, we need to bring in a third-party solution, run a structured process in RFP, and that's when Vertex gets to compete. That's driver number one. Driver number two, the regulatory environment will change. As I said earlier, we are the -- indirect tax is the primary source of corporate tax paid around the world, both in the U.S. at every state, local, county, city. It also applies federally outside the U.S. It's the #1 source. So therefore, they're going to continue to look for modifying the rules, changing the way they can raise their revenue base. So that serves Vertex well. And they will also audit these companies. Most of our large organizations can be battling anywhere from 5 to 20 audits around the world at any point in time. That audit pressure can reveal less than accurate results, causing a company to say, I need to change the way I've been doing this, solving this problem, and I'm going to go to a third-party solution. And then lastly, the business itself changes. Businesses can move into new jurisdictions. They can create new products, they can do M&A. That can create disruption to what was a well-defined solution and now they need to move on and bring in the third party. And so those things are our drivers. And the beauty from Vertex's perspective, what I've learned over 25 years is they are mutually exclusive, meaning regardless of the macro environment, company -- government needs to raise revenue, companies continue to modify their technology platform and businesses are always in search of growth. And the beauty of working at the large complex market versus the SMB space is these are the businesses that are moving the economy. So they are always dynamic and moving, and that creates opportunity for Vertex. So how we do that? We've focused on developing unmatched solutions around the world by starting with looking at the end-to-end life cycle that customers are dealing with that. Our customers have to think about and then bringing it together on a single end-to-end cloud platform that enables the company to solve the problem regardless of where they want to do business. So it starts with frictionless integration. It's so critical that we can deliver a solution that does not disrupt the flow of commerce. Think about when you're online and you're purchasing something, and you bought 13 items online from your favorite e-commerce site. The last thing you want is that spinning wheel calculating what tax you have to pay on that item as you hit checkout. You need to know that every one of those items has been communicated to the Vertex software. It knows what you bought, where you bought it and what the taxation is in real time. And that's really the key. We are challenged by our customers for the reliability, the scalability and the speed of processing. We're measured down to milliseconds in terms of the effectiveness and then underpin that with a content database and make sure it's at the accuracy that they require. On this platform, we have also layered in an important element, which is a data layer. And Sal and Uwe and will talk more about this, but it's essential because what it does is it allows the company to have -- the tax department to have confidence that the data that comes in from all the different transaction processing systems that we attach to flows throughout the entire life cycle of the process. So they have confidence in their tax data. They don't have to wrangle that data, which is a constant challenge for tax departments. And so once it's in that data layer can support all determination, all compliance and then ultimately be there for those audits that can run out 6, 8, 10 years before they're settled, needing to know the exact accuracy of the data when it was calculated, what was calculated and why. Our upcoming panel is going to talk much more about this. I'm often asked, okay, so that's your broad-based solution. What are customers actually buying? So I wanted you to just get a quick visual of the diverse portfolio that we have in place. And the takeaway here is that there are multiple points of entry that we can start to deliver value. So a company A could say, "I have a compliance problem in my VAT area. I want to bring you in, just to help me with VAT returns" or in today's world now, I have an e-invoicing challenge, and that's your starting point. And the thing we've learned over our journey here 45 years is customers invite us in only to solve one problem. It's the problem they have right now. I was doing it fine. Now I have a problem. I'm not inviting you in to solve tax in 7 different divisions around the world on 22 different ERPs that -- that's not your invitation. The invitation is to solve this problem. But if you solve it and you demonstrate the accuracy that I need and you demonstrate the services and the quality of capability of technology that I require, you're now in place to get the next opportunity and the next opportunity. And when you look at the duration of some of our largest customers, that has proven out time and again. And that is our proven land-and-expand model. I'll go into that more in a few minutes. And now we're taking this platform one step further and how do we start to leverage in AI. And with all the data we're capturing bring data management capabilities to market. And we'll talk more about that on the panel again in a few minutes. So technology, clearly proven, scalable, reliable, working in the largest companies in the world in real time. But you can't get there without content. Content is the lifeblood of Vertex, tax content and the tax content database. It is actually what was the foundation of our company and something that we will continue to invest in with rigor. From our IPO in 2020, we had 300 million-plus rules in our content database. We've now invested to drive that up over 1 billion, and we will continue to add to that because our customers are constantly looking for more information down at the lowest possible level across more product SKUs than ever before. And it's created incredible opportunities for us. When we went public, we did not serve a vertical that was oil and gas. We didn't have sufficient content to do that. So we partnered with a great organization. We built out the content that we needed, and we now are competing and winning and building reputation in the oil and gas space. So adding content has allowed us to go deeper -- to go into new verticals. Adding content -- premium content like in Brazil or in leasing has allowed us to expand wallet share with existing customers. So there's part of our land and expand motion. Expanding content can open wallet share for customers in a given area. And then lastly, it allows us to win new logos. So it's a critical part of our success. We developed that content, leveraging things like RPA and AI, as you would imagine but it's the final mile that actually matters the most. AI is a wonderful technology, but it's probabilistic. And tax is a deterministic thing. I got a 1 or a 0 in the box. That's all I can have. I got to be confident you can be more accurate than I can do it by myself. That's why we're invited in. So we have over 100 experts who are looking at that, making sure they're interpreting the rules properly and then codifying it and connecting it to the algorithms that are unique to our software to make sure it's delivering the accuracy that our customers require. And it's that harmonization of great technology and world-class content that is critical to our success. I mentioned earlier our success has landed us with the largest companies in the world, but I think it's important to just take a look at this slide. We have over 60% of the Fortune 500 that rely on us because of the mission criticality of our software. And if you look at the depth in some of those verticals, it tells you that not only do we have the content they need, but we have the technology that can run at the speed and scale and volume that they require. And when I talk about referenceability. Imagine you're a company, you're not in the top 10, but you're #11, 12 or 13, and you now have a tax problem. The first thing your CFO is going to ask you is, who else is using this software? I can put you in touch with 6 people that are larger than you, more complex than you but are in the same space that have the same problem, and they're going to trust. They're going to give you as a peer, the confidence you need to leave your in-house solution and come to Vertex. And so the act is incredible references for our success and help us win a lot of new logos. If you look at the tenure of that customer base of this -- just this cohort, I think it's pretty clear how long they have entrusted us to be their mission-critical provider. Take a great example though of the importance of that referenceability. Few years ago, the food services delivery didn't really exist. We all didn't have to think about that. And then a global phenomenon happened and now suddenly, food service delivery is the booming business. Well, we were fortunate, we were invited into an early start-up in that business, and we won that opportunity. And because we won that, we had to develop special products and special content because you're picking up your salad and your pizza in one jurisdiction, you're dropping it off in another, you're doing it on a mobile phone. That's all got to be thought about in terms of what's the technology and the tax content needed to deal with all that in real time. We did that. We won one. But now guess what? We dominate the entire food services industry -- food delivery industry because of the capabilities that we created and then the referenceability that came and each other competitors as they've grown up, have reached out to Vertex, and we're now working with them. I think that's really powerful example of what this base affords us. I'm often asked, so why do you win? I want to talk about this from a number of elements because this is really, to me, one of the most proud things and the largest part of how we differentiate. It's the multitude of capabilities that we have in place to deliver value. It starts with multi-cloud, being able to meet the customer where they're at. You're running on Azure we can -- we deliver our solution on Azure. You want an OCI? We're there for you. AWS? We've got it. So being multi-cloud allows them to optimize spend and optimize performance. Also meeting them where they are in their IT journey. What if they are running on legacy platforms and they need on-premise for a period of time, we will deliver our solution to you on-premise. You might already be advanced and gone to SAP cloud. Great. We can deliver our solution 100% in the cloud or you may be one of those companies that your retail businesses in stores on-premise, but you adopted omnichannel and you need part of our solution to work in the cloud. We can meet your hybrid. And then as our GR proves out, when you're ready to migrate, you're coming with us, and we'll be with you and we'll get you to the cloud when you're ready. So that's part one. I think part two is really nuanced, but it's important you understand that the customers we work with do not run monolithic platforms, meaning they're not a $30 million SMB business. I run my entire business on NetSuite. That's fine. That works for you if you're a small company. When you become $10 billion, $50 billion, $100 billion of revenue, you've got 20, 30 ERP systems. You've got procurement systems. You run on Oracle, you run on SAP. You run on multiple platforms. The tax department wants a single answer that's consistent from everything. Being able to do a one-to-many and connect all those and create it into a single answer is a differentiator for us. We win a lot of large complex companies because we can do that. I highlighted the accuracy of our content database and the reason we invest in it. Rest assured, if you're leaving an in-house solution. The first thing you got to know, is am I going to get the same answer or a better answer than I was getting on my own. So certainly, the accuracy of our content database. The partnerships we form are critical to our moat. We have worked to create those frictionless experiences inside of Oracle or SAP or Workday or Salesforce. That's critical. And then tied to it working with the tax experts of our alliance partners. All of the alliance partners, top 10 accounting firms have all built the largest implementation practices of our software. And in fact, many of them are customers of ours. So they are influencers. They're sitting at the table with a tax leader saying, what solution should I go with and why? They're running the structured process for the tax leader at the large complex company, and they're often recommending and actually referring business to Vertex. And then once you've earned the right to work with that customer, if you want to win more business, you have to have great services, industry-recognized support like we do and a great customer success function that helps you expand wallet over time. Build that loyalty, build that brand and then get the opportunity to expand going forward. And it's truly this multivalued set of assets that we've accrued over 45 years is why we win. Any competitor could come out and say, "Oh, I've got to differentiate relationship with an ERP than you do or whatever. " You need all of that, and you need the referenceability of the largest companies in the world who are going to say you're the best provider. That's what helps us win time and time again. So let me spend a minute and say I've talked a lot about this land and expand. I want to go into our growth algorithm and help you understand how it drives our business. 70%, give or take, a few percentages every quarter of our new revenue comes from existing customers buying more. Think about that. 70%. That tells you land and expand is essential to our success. It starts with rock-solid GRR. We need to know that our customers were delivering on the here and now. That content database I talked about, we have to deliver and update that every month and make sure it's compliant in every jurisdiction around the world. That's where loyalty comes from. That's the mission criticality of our software. That's where our customers pay us regularly and so that GRR doesn't waver. How do we expand wallet share? There's a couple of ways. So first take, let's just assume, by way of example, you're a large automotive manufacturer, and you invited us in to solve a sales tax problem in your automotive division, your car division. Vertex comes in, we're solving that problem. You're very happy with us. Three years later, you've got a sales tax problem in your truck division. That's what we call expanded usage. About 25% of the walk from GRR and our growth algorithm is going to be because customers have bought one solution. They're going to buy the same solution to serve other operating businesses. Again, working in the market, we get to -- we've chosen to work with, you're going to have companies that have multiple divisions and that gives you the opportunity to solve the problem in one area and then solve the same problem in multiple areas over time as you prove out the quality of your solution. Same automotive manufacturer could say, I've got a problem with my European operation. So you saw my sales tax problem, but now I have a VAT determination, compliance problem. So I'm going to need your engine and your compliance solution for VAT. So that's what we call a cross-sell. And that's going to be about 50%. You're buying different products to serve different parts of your business over time, and that will be about 50% of the walk from GRR up to NRR. And then the last 25% will be standard industry price increases. And that's where we get to get from the core base. And then we get the ARR. So the ARR comes from the new logos. And we've invested heavily over the last several years to expand our go-to-market function, our channel function such that we can actually fish in more ecosystem, meaning we've expanded into Microsoft and Salesforce and Shopify and Workday in other areas as well as expanding our relationships inside of SAP and Oracle, all creating the opportunity to expand our new logos. And it's showing up, quite frankly, in those results. In 2024, we ended the year with a record number of new logos added to the business. Wallet share is so important. We're measured often as we think about our business internally in terms of scaled customers. We can view that as the mission-critical part of our success in terms of how many scale customers are we getting and how much growth are we seeing from that. We've worked hard since we went public to try to expand wallet share. We talked about the investment needed in customer success in tax research and in product to give us more opportunities to bring more value to our customers. And we've moved that from 75 up to about 135 through the last quarter. We see the opportunity though to go far further with things like e-invoicing, the ERP wave that's hitting us now. Areas that we're now starting to invest in, in the future, like data management and AI will add to that and allow us to expand wallet share far further in the future because digital transformations are not going to abate. Regulatory change is going to continue to accelerate and be more complex and businesses at the level we get to work with are in constant search of growth, and that means change for a tax department. And that gives us the opportunity to consistently drive revenue per customer up as we bring more value to market. We've been on this journey for quite a while now since we went public, and I'm so proud of what the team has accomplished. We built out, as I said, customer success. We've added technology and we've added content to be ready for the opportunity that's coming for us. And we advanced our go-to-market team. But what we've learned is we got to continue to invest. We can't stand still because the world around us is not -- is changing. Commerce is actually getting more complex. The dynamism around commerce and the way commerce is happening is increasing opportunities and therefore, increasing challenges for our customers. Things like e-invoicing, a regulatory mandated opportunity is accelerating. We're seeing it now moving into the largest economies in the world and lowering the bar of how many companies have to comply, all creating demand opportunities for us. And then we're building our own capabilities, leveraging things like AI and -- around data management, all to give us new opportunities for growth. So how are we doing all this? I'm so proud of what the team has accomplished, and now we're taking on this new journey for growth. It's about the team, and you're going to get to meet some of them here today. I have an incredible leadership team, quite frankly, you'll realize the depth and breadth of them in a few minutes. Deep industry experience, worked at far bigger companies, have seen what scale needs to be, understand tax at a level that's truly amazing and know how to go to market with the efficiency and effectiveness that we need to be successful. So before I leave here, let me just summarize. I think you'll hear in a moment that -- and I believe you should walk away from today as Joe teed up, we are clearly the market leader in the space we go after, and we have a significant competitive advantage that isn't going to change. It's going to fuel the durability of our growth to not only expand wallet share but also continue to accelerate new logos. And as we've proven with our core business from the last investment round we made, you will see margins accelerate, and we'll be able to walk you through why, and ultimately, through the partnerships that we have, why we're positioned to grow into the future. So with that, we're going to go a little deeper now into strategy. I'm going to invite Chirag Patel up to take you through the broader market opportunity and really double-click on some of the strategies we're putting in place. Thank you, Chirag.

All right. Thank you, David, and good morning, everyone. It's really nice to be here. I'm going to spend the next 20 to 25 minutes talking about our enterprise strategy at a high level and why it's geared to set up -- to create long-term sustainable growth and competitive advantage. But before I do that, I want to highlight some of the points that David made that are so critical in understanding our industry and our business. The first being, why is it that our customers view us as an absolute must-have versus a nice to have, right? Our customers are selling more products to more places through more channels than ever before. Every buy/sell transaction that our customer makes must be evaluated for tax against millions, if not billions, of product and jurisdictional specific rules. These rules are in constant change. And there are new rules being added all the time by the tax authorities to try and increase revenues from transaction taxes. And it's also the best and as David mentioned, sometimes the easiest way for them to fund their government programs. If the companies don't comply, not only do they run audit risk and penalties that you're all aware of, but they also run major operational risk. Imagine if they can't calculate taxes accurately or at all on Black Friday. That translates into real revenue loss. It also translates into brand and reputation risk, right? So it's not just an audit risk issue. It's a real business issue. This is why so many of the Fortune 500 companies choose Vertex because they look at Vertex and what we do is mission-critical to their business. So let me talk about the size of the market. It's a massive market. It's a $30 billion opportunity today, growing to $35 billion by 2028. That includes indirect tax solutions and the new e-invoicing mandates that are out there today. I'm just going to reemphasize that this market is highly specialized. It's a vertical software industry, okay? This is not a horizontal play. You really need deep subject matter expertise and experience and reputation in a brand to be successful capitalizing in this market. Okay. Now what's driving some of this market? And David highlighted a lot of this, but growing complexity in both domestic and foreign regulatory requirements. Okay? That's driving the need for -- or heightened need for more robust third-party indirect tax solutions, solutions that can scale at a global level. And then you think about the growth in commerce. E-commerce alone is growing at 29% CAGR and the emerging e-invoicing mandate, which you're going to hear a lot about today, and I'm going to highlight some more in a minute. Over 200 VAT regimes are going to be requiring this mandate by 2030 according to PwC. That's a lot of mandate, a lot of countries out there. We'll get into that. So let me describe to you one area of this market that, again, David highlighted, but I'm just going to reemphasize is our unique competitive advantage. And that's really around complexity. We look at complexity as a driver to growth, okay? So let me give you some examples. Our customers are some of the largest companies in the world, as you know. And they have really complex business systems and compliance requirements. Many of our customers -- most of our customers sell through lots of different channels, right, bricks-and-mortar, online, mobile, social media. Each one of these point of system -- a point-of-sale systems, we have to integrate with each one of these point-of-sale systems, calculate tax at a transaction level in real time and make sure all of these systems are coordinated. In addition, many of our customers might have 10, 20, sometimes hundreds of ERP systems that we have to seamlessly integrate with and orchestrate the set of aggregate data in order for our customers to be able to do their periodic and now real-time filings. So that's one area of complexity that we thrive. The second area is really around what we call product taxability, right, which is highly variable. Maybe some of you know this, but maybe some of you don't. Not every product is taxed the same. Let me give you a simple example. I brought this up not because I needed water, but it's my example. A simple bottle of water. In Pennsylvania, if you buy this water, it's tax exempt. When you buy it in Arkansas, it's subject to sales tax. In Texas, if you buy it in a grocery store, it's tax exempt. But you can walk across the street and buy through a vending machine and there's a sales tax, okay? If this bottle of water contain any flavors or coloring, it could be considered a soft drink, which gets taxed at a much higher rate, okay? And then in many cases, this bottle of water is probably made out of plastic, right? And so some states would charge a green tax on top of the regular sales tax. So that's complex, just for a simple bottle of water. Our customers in many instances, have millions of product SKUs, and they're a lot more complex than this bottle of water. They could be electronic components or electronics, highly engineered products that have lots of engineered components that sit inside that product. So imagine how complicated that could get. The tax rules associated with this are ever-changing. And as David pointed out, and we'll keep -- you're going to hear this a lot, we manage well over 1 billion tax rules today through our content and our software. And it's -- we're going to continue to invest in growing it. This also highlights that complexity reinforces our 40-year moat, and it will continue that way because tax is not getting simpler, business is not getting simpler. It's just all getting a lot more complex. So now let's turn to our strategy. I describe it as a 3-pillar strategy. It's really around growth, right, 3 growth pillars. The first pillar is really about driving growth in our core enterprise segment, right? All the big companies that we work with today continuing to really reinforce our value proposition and delivering more value to that segment. The second area is really around expanding the core. It's growing our geographic footprint, also growing into new segments or growing our new segments like the mid-market. And then thirdly, it's really about scaling and differentiating through our platform. It's all about technology. So let's get into the first pillar. I think all of you have heard about the ERP migration opportunity that's looming. This is going to be an important source of new opportunities for Vertex. And I'm going to double-click on this in a second. So -- but it's a big opportunity for Vertex. The second area is really around cross-selling. We work with so many multinationals. We have so many customers, U.S.-based, but multinationals. There's a lot more value that we can deliver to that segment. It's a real emphasis on cross-selling some of our products, whether it be use tax or VAT compliance offering for where they have -- may have subsidiaries around the world. E-invoicing, which we're going to talk more about, certificate management, there's a lot more value we can bring to these customers, especially as their business gets more complex. The third area is really around strengthening our key influencer relationships. And what I mean by that is tax departments alone are not in a position to make large-scale technology purchases on their own. They typically partner up with their CIO organization, their IT department or finance. And so we are strengthening that relationship. We're helping our customers who are the tax departments, build the business plans to make the case for technology transformation. So we are really engaging our customers, not just sales, but really helping them build their business plans. The fourth area is really around e-commerce. So many of our customers run e-commerce businesses. And there -- most of them or many of them are separate lines of business, right? They operate some ways independently of the core business. So we are emphasizing our brand and our reputation with those companies and with the tax departments that we work with to enter and penetrate their e-commerce line of business with our e-commerce and marketplace offerings. So let me double-click on the ERP opportunity. So we look at the ERP migration opportunities, a $1.8 billion total addressable market through 2028. Now that includes both SAP and Oracle, who are encouraging their customers to get off of their legacy platforms and onto their modern-day cloud environment. And we know and we've heard through our alliance partners, but also directly from our customers, that they're starting to have to develop their business plans and their road maps and their financial plans to figure out how they're going to affect this migration. So how are we poised to win? One, it's the strength of our relationships with our alliance partners and ecosystem partners. So we want to get in the middle of that business planning stage. And many of our alliance partners are helping these companies with their business plans. We want to emphasize -- and you'll hear more about it a little bit later, but we want to emphasize our tight relationship and integrations with SAP and Oracle. We have a lot of proprietary embedded apps, not just integration but apps inside this -- inside of this software. And we also think that we will receive a premium of 25% ACV uplift from moving companies to the cloud. The one thing I will say is many of these opportunities that come our way are more than likely going to be in the form of RFPs or formal request for proposal. And many of the tax departments that are issuing these RFPs are actively taking this opportunity to rethink how they're actually performing their indirect taxes. Just the way David described, a lot of these are homegrown solutions built on spreadsheets and duct tape. So this is a unique opportunity for tax departments to make the case for acquiring a more robust third-party solution. And in RFP situations or formal situations, Vertex really thinks we can -- we have historically shown that we have successfully been able to win the majority of those situations. Okay. So while ERP is unlocking opportunities in our core business, we're also focusing on expanding the core. So what that means is growing our geographical footprint and growing our mid-market segment. Again, we work with lots of multinational companies. Many of these companies have subsidiaries and brands all around the world, particularly Europe, which is where we're really emphasizing our growth. And there's an opportunity for us to really highlight our VAT compliance and determination solutions to those subsidiaries. Now, e-invoicing is really a catalyst for growth in Europe and other parts of the world. E-invoicing is a must-have. It's a mandate. It's not a nice to have, right? Our ecosio, e-invoicing solution is incredibly well positioned to compete in that space. And you'll be hearing a little bit more about that as we go. The second area or the third area is really around the mid-market. There are a lot of younger companies who are doing business globally but also have the complexity profiles that are similar to that of these large enterprises. They are a perfect target for us in terms of being able to promote our tax solutions. And it's a big market opportunity, this mid-market segment. And then finally, it's really about deepening our region and segment-specific relationships. We're starting to plant some early seeds with -- particularly, our alliance partners who have customers in other parts of the world outside of North America and Europe, where these companies have U.S. tax and European VAT obligations. So we're testing to see whether or not there's interest from these companies to acquire our software. So far, it's been a very positive feedback. So let me double-click on e-invoicing. You're going to hear a lot more about e-invoicing again as we go. But e-invoicing is -- the way we look at it, it's a $7 billion market opportunity. Now what we're referring to when we talk about e-invoicing are the new global mandates that requires every company doing business in a country that has that mandate in place to have to deliver an invoice, every invoice they produce in that country, which is, by the way, a tax that has a lot of tax data in it invoicing in that country in real time to the tax authority. The tax authorities are going to use these real-time invoices to try and reconcile what the company is producing on a periodic basis to see if the numbers map out. they're accurate. This -- there are 200 of these VAT regimes that are going to be introducing this mandate through 2030. So this mandate doesn't -- not only produces a burden on our customers to have to produce these invoices accurately, right, but it also introduces potential audits and risks if these numbers don't reconcile. Now what is our opportunity? Well, the companies that have the most invoices are the companies that are the most challenged. It just so happens that look at our customer list, large multinationals. They have the most invoices, do business globally everywhere around the world. Now the market is also highly fragmented. I look at it still as an early market opportunity. Yes, there's a lot of noise. There are a lot of solution providers out there, but it's still an emerging market and there's an opportunity for us to define that market. It's very fragmented. Today, there are lots of country -- local country solution providers, who are providing this service. Unfortunately, they're not scalable. Our clients need scalable, global visibility. But these local country solution providers are not scalable, okay? Secondly, there are lots of APAR automation companies that have entered the market. to try and capture some of this revenue because they're struggling in APAR automation, let's be honest. So they're jumping into this game using their technology. What they're quickly finding out is that this is not a technology-only problem. This is a tax problem, and they don't have tax data or the tax experience to be able to compete in the long run. And our customers are starting to point that out and highlight that. Now, why is there an advantage for Vertex? Well, we're in the tax business, right? We do VAT determination and compliance all day long. So for companies that are using our VAT determination and compliance software, this becomes an easy decision as long as they understand the risk of not doing it, it becomes an easy decision, bundling and acquiring our ecosio, e-invoicing product only strengthens their ability to satisfy this mandate but satisfy it in a way that's actually going to reduce some of their risk, right? We're going to be able to reconcile their numbers because we're using the same numbers from the periodic filings and for their real-time filings. For customers who don't use our VAT compliance and determination solution, this offers an opportunity to sell the bundle, right? Again, there's a heightened need now for more VAT compliance and determination engines. Okay. It's also the technology itself is built on a modern stack. I'm not going to spend too much time on it because I'll let my product and engineering teams talk more about it. Okay. With all of that growth, all of that complexity with e-invoicing mandates, our customers are having to do more with less. They're requiring their solution providers to deliver world-class modern day platform and product experiences. And that leads us to the third pillar of our strategy, which is really around scaling and differentiating through our platform. What we keep hearing over and over and over again is that indirect tax departments are just stretched too thin. They're having a hard time keeping up with all of this that's hitting them at once. All the global regulatory mandates, all the business complexity that's tied to it. They're also having a hard time hiring qualified CPAs and accountants. There's a shortage of these experienced people. So their expectations of their solution providers is that they'll be able to deliver technology that will help them scale and meet the growing demands. So our platform strategy, which, again, we're going to spend a lot more time on in the panel is really geared towards helping our customers manage risk at a global scale and do it as efficiently as we can -- as efficiently as we can deliver. And that means delivering products that service the end-to-end workflow of the indirect tax department. I'm not going to go into the details of the workflow, but think about a workload, we deliver products to sit inside the entirety of that workflow. These products integrate seamlessly for our customers. So even if a customer purchases one product in the workflow, they can very easily click and provision the second product to make it easier. So all of our ability to cross-sell becomes a lot simpler because it's through the platform. We're also using AI to improve the workflow of our customers so they can focus more so on the most important tasks and not some of the mundane tasks that they typically have to perform. Our data management product, which is soon to be launched, is going to bring all of the necessary tax data that our tax departments need to be able to operate more efficiently but also be able to do more tax planning to really kind of get ahead of the workflow and to be more ready for audits if and when they occur. And then finally, the platform allows for a much superior customer care and overall customer experience, being able to engage -- will be able to engage our customers using technology in ways that we couldn't do before, increasing our touch points, increasing our cross-sell opportunities. Okay. I touched a little bit on AI. When I think about AI, as we developed our AI strategy, we didn't look at AI something that's like this big monolithic thing, right? We kind of looked at it as it's the future Internet. It's going to be part of everything we do, right? It's going to be ubiquitous. It's going to be embedded in everything we do. So think about the four areas that we're actually applying AI. Starts with internal transformation, that is driving margin and even deal velocity. So for example, we're arming our salespeople and our marketing people with AI technologies to be able to better target and engage our customer prospects. The second area is around customer experience, touched on a little bit, but every one of our products will have copilots to be able to not only navigate the product with all these complex content and complex rules that David talked about and I touched on as well. They need to know how these things got calculated. Well, AI, I can help you do that. The third area is around commercial value. That's generating ARR right? So we recently launched a product called Smart Cat. So that water bottle example that I showed you and the millions of products that people have to categorize where our Gen AI operated Smart Cat is going to make that entire process a lot more efficient. And hopefully, and we're seeing it already, a lot more accurate. This is an industry play here. This is industry first in many ways. And then on the partner side, we're enabling our partner ecosystem, creating -- using AI to more seamlessly integrate with their platforms, but also leveraging our alliance relationships who have deep subject matter expertise and tax as our human-in-the-loop partners to help train and grow our models, right? So again, we don't look at AI as one thing. We look at it as an enabler to everything we do in our business internally, all the way through our -- to our customers and our partners. Okay. So switching gears just a little bit. AI is a growth -- is an accelerator to our growth, but so is corporate development. So we've demonstrated certainly last year that we can acquire a company like Ecosio, bring it in-house, integrate it, take it to market and become an incredibly competitive offering, which is what we've done. We've also demonstrated that we can buy a raw asset from a services company, RION, bring it in-house, train the model, get the system running and launch it a Smart Cat. We're going to continue to do that, look for opportunities to create either accelerate our market entry markets but also to expand our product portfolio. The second area is around partnerships. So we're becoming a little bit more aggressive about exploring and identifying partnerships that will create scale in our business whether it's on the market side or on the capacity and the ability to scale our operational capability side. And then the third area is around investments. We know there's a lot of technology innovation going on all around us. So we're exploring the potential of investing in either projects or -- projects with academia or even potentially young startups that we think will help accelerate our innovation efforts. All right. So that was a lot. Let me try to wrap it up. And hopefully, there are 4 things that you took away from my presentation and perhaps a lot of what David was describing as well. So we are a leader and a must-have in our industry. We're not just a tax calculation company, right? We're a must have. Companies cannot conduct commerce without our solution. We are mission-critical, okay? We not only help them conduct commerce, we help them manage operational risk and even potentially brand and reputational risk and financial risk. We have unmatched ability to address complexities. Nothing in tax is getting simpler, okay? And those simple things can probably be done through automation and AI, but nothing in tax is getting simpler. So we have unmatched ability to address those complexities. We operate in a large $30 billion market, and I'll reemphasize, this is a highly specialized market. It's a deep vertical is the way I describe it. It's a vertical. It's not a horizontal SaaS play. It's a vertical, deep vertical SaaS play. That's why there are only a handful of viable players operating in this space. And then finally, we have a well-defined strategy, one that's really focused on growth, maximizing and delivering the maximum value to our existing enterprise customer segment, growing our global brand and our mid-market segment; and finally, differentiating and scaling to our platform and technology capabilities. All right. So with that all said, I am going to introduce Jeff Foucher, who is going to facilitate a product panel.

Thanks, Chirag. I am bringing up water to drink not to reference, but any way. Awesome. Good morning. I am Jeff Foucher, I'm Vertex's Chief Marketing Officer. I've been with the company for 8 years. I want to also say thank you for all of you for joining us today and investing the time to learn more about our business and our growth trajectory as we go forward. I'll be hosting a platform, our first panel here, and we're going to touch on our overall product portfolio strategy. We'll touch on where we're accelerating some investments across our cloud platform. And then we'll highlight a couple of key investment areas that we've referenced already. I'll go into a little bit more detail. And these are areas we believe will further extend our market leadership position and capitalize on the growth opportunities that David talked. Okay. So guys, thanks for joining us. With that, we'll do some intros and kick things off. Mike?

Sure. Thanks, Jeff. Good to be with you all here today. As Jeff said, I'm Michael Bernard, I'm the Chief Tax Officer here at Vertex. Prior to coming to Vertex almost 7 years ago, I actually spent most of my career in 3 large corporate tax departments. So one was a construction and mining company. Another one was a major U.S. railroad and then most recently was at Microsoft for 28 years, where I essentially led 3/4 of that tax department. Everything from indirect tax to direct tax to benefits to a lot of transfer pricing work. And that was at -- when I was at Microsoft, where I really implemented 3 large Vertex solutions. One was a tax engine for our European operations. Another one was a telecommunications tax engine for our Skype business and further services beyond that. And then lastly was for microsoft.com, our e-commerce website. So prior -- before you couldn't come to microsoft.com and buy anything, but before I left, we actually implemented something like that. Today, where I work today as I work with these gentlemen here and trying to -- and work with Chirag and trying to use some innovative things about what we can do to actually come and produce software and services for our business. A couple of key things that I do currently is, one is we have a very rich environment for our customer community. So we actually -- our department actually serves up about 24 in-person webinars and in-person connections with those folks. So it represents about 800 to 900 customers and about 1/3 of our revenue base. So we're tightly committed and connected to those individuals. And the biggest advantage we get out of that is we build trust with them. But also we codevelop software and services around that. We also do a lot of work in the social media space. And so those are some of the things that we're doing here today.

Hi, everyone. I'm Sal Visca, I have the privilege of being our Chief Technology Officer. I lead our product and tech teams for product management that Uwe leads as well as our software engineering team as well as our emerging tech groups. Within that, we have our customer support and tax research teams as well. I've been at the company 4 years now. I started off many years ago, almost 4 decades building technology, 12 years at IBM, did a bunch of startup stuff. Then I was a CTO of a company called Business Objects in the analytics space. We sold to SAP for about $7 billion back in 2007, then I kind of helped drive the integration into SAP and became CTO of their overall platform team. So most of my career, I've been involved in building platforms that enable new applications to be built on top of it and to expand that, which has been quite relevant here. After that, I kind of did a bunch of work in the e-commerce market. I was working with private equity companies, did a bunch of board work and then I was thrilled to join here in 2021. Really excited. I've always known Vertex in the market, especially in the e-commerce market and all the things that are happening here. And when I understood the vision forward, that super excited about where we could go. And we've been investing quite heavily in building out this platform and all the capabilities around it. So really excited to be here.

Yes. Good morning, everybody. My name is Uwe Sydon. I'm SVP of product management and our tax research team. Before I joined Vertex, I've had several executive roles in companies like Siemens, Nokia and Blackberry. So I'm really more on the telecom side from my background. I was very fortunate that these countries really allowed me to drive business out of different countries like Switzerland, Canada and the U.S., now second time in the U.S. I joined Vertex about 6 years ago. Really, the mission and mandate was try to build a strategic product portfolio and a vision around products and also really to bring much more business rigor into the product management organization.

Excellent. So Mike, I've gotten to know you over 7 years. I truly appreciate all the knowledge that you've given me, and you have a very unique perspective having spent your whole career in indirect tax with some of the biggest companies in the planet. So maybe you could give us a sense for what does it feel like to actually be a global tax leader and the teams that they're having to manage and some of the challenges they're facing?

Yes. Thanks, Jeff. You know I always love to talk about tax. I really love it. So a couple of things. I think it's important for the folks in this room to know a couple of things that are greatly impacting the indirect tax space. And a couple of years back, Jeff, I actually kind of coined a term, which was I consider this kind of the golden age of indirect tax. There's been more changes in the indirect tax space in the last 7 -- in the last 5 to 6 years and for the foreseeable future than there has been in, say, the past, say, 70 years. And so let me give you a few attributes around that. First and foremost, I think a lot of folks in this room are familiar with the Wayfair decision that was decided by the U.S. Supreme Court back in 2018. And that revolutionized the reporting requirements that if you sold something or you bought something in terms of how you had to collect and remit sales tax. So previously, I think most of you remember those days before 2018, where you only had to collect or remit sales tax where you had a physical location, so maybe a brick-and-mortar store. After 2018, what happened was their geographic footprint expanded greatly. So it not only came where you actually at a physical presence. But if you met certain sales levels in other countries or other states, you had to collect as well. So what we saw a lot of, we had a lot of customers who their footprint increased by 3 or 4 or fivefold. And the other thing too is that, that decision in Wayfair actually was accepted on a global basis. So it wasn't just a U.S. state mandate, but it also became a global mandate. So if you were here in the U.S. and you sold it to Germany or Poland or any other place, and you met certain levels of taxation, you had to collect or admit bad tax, even though you may have no physical presence there. So that's number one. Number two, the other thing that happened was that corporate tax departments had to also expand their catalog that they supported. So previously, they might only have to support a brick-and-mortar catalog. But what happened was with the mandates that occurred in March of 2020, particularly as it related here in the states and other places where in-person contact was restricted, today, e-commerce websites are commonplace. Everybody knows that. But back then, they had to be actually built up and enhanced. And so what happened was if you're in a corporate indirect tax department, not only did you support brick-and-mortar, but you had to support third-party marketplaces, maybe a first-party marketplaces and all the channels that Chirag had mentioned before. So mapping to our categories in our research group became rather just expanded algorithmically greatly. And so that happened. So they had to support a large mortar, a bigger product catalog. The third thing and I want to underscore something that David said in his opening comments, and I think you should really kind of keep this in mind. Is the indirect tax is the most consistent, reliable way for governments to actually fund their ongoing operations. And so there's a lot of data that shows over the last 40 or 50 years that indirect tax collections track very nicely with GDP, whereas income taxes and property taxes aren't. They're much more variable. When the bad times sit. They actually don't actually come back as fast, and they're more greatly affected. So that's the third thing. And then the last thing I do want to mention is that, that talent, and I think David and Chirag both mentioned this, is that talent is at a premium today in indirect tax spaces. The accounting profession feeds the tax profession. And we're at a 17-year low just in 2024, the number of individuals we actually sat for the CPA exam. That's one thing. And the other statistic is that about 75% of the CPAs today in this country will retire over the next 10 to 12 years. So that group of individuals who support that professional are lessening. And I think today, what we're going to see a lot from Uwe and Sal is this idea that we have to build these platforms and these automated systems that really support the fact that there is going to be a talent shortage in the future.

Excellent. Thanks, Mike. Yes, I love the golden age of indirect tax, golden age of indirect tax technology. With that, how is this informing and providing context for how we're responding from a platform and a road map standpoint, guys?

So maybe I'll start. And then our platform strategy is really there to enable this kind of end-to-end that we'll talk a lot about. My past has been around building scalable enterprise solutions that integrate with all the various business flows. In indirect tax, obviously, the business systems are where all the transactions are occurring. I think it was mentioned earlier, whether it's SAP or Oracle or Workday or Salesforce.com, all the ERPs are managing the accounts payable, the procurement and those kind of processes. E-commerce has brought on business to consumer, business-to-business, business-to-business to consumer, which is through marketplaces. We have customers like a Best Buy. They obviously do all of that, then they've got the retail stores and their point-of-sale systems. And they may have the Geek Squad guys that go out with their mobile devices and they're purchasing things. All of those transactions are occurring and all those need to funnel into a system to figure out the taxability. So we obviously built up this huge tax determination capability. The rules, these billion rates and rules are things that are constantly being updated, especially at a lower county level and more granular level. Huge amounts of data in this rules system. So all those transactional systems have to hit literally hammer that tax determination engine to make sure that the calculation is done correctly and within milliseconds, so it doesn't get in the way of the transaction. We're operating live real time in all of those systems. So literally, you flip on a switch, our system gets hammered. We're collecting data. By the way, we have really strong connectors in each of those applications space. Our SAP connector is like 1 million lines of code. It's really significant. It's not just a connector that's grabbing a few fields. It works within the flow of the SAP systems. So these are deep connectors that collecting hundreds of fields are able to process the transaction real time. And then our system is collecting in our data fabric, all of the telemetry, all of what I call the data exhaust from the transaction. All of that gets pulled in. Because think about it, the tax department needs to make sure that the right tax is being determined and calculated and collected and then ultimately remitted. If you miss that and you have it wrong, it flows downstream. And then your audit process has to take care of all that and trying to reconcile all of that downstream, much, much more expensive to deal with there. So if you get it right upfront, you're able to kind of collect all that. And imagine when the auditors come along, you're able to show them exactly what happened, the data that was collected, the transaction, you're kind of recreating that transaction in real time, and that goes a long way. So our whole strategy is really to enable those end-to-end flows. We see -- we'll talk about AI in a few minutes. We see lots of opportunities to leverage AI, generative AI in these areas. We have a really powerful deterministic engine, as you heard David talk about. It's a rules engine that can operate very, very quickly and then the AI processes around that. So we're really excited about where we can go with all this. The data foundations are really critical, and we'll talk more about some of the data opportunities we have.

Yes. And from a product point of view, of course, maybe let's start with that. We have a very rigor process that makes sure we look at everything we build from a customer lens. We're just not building some stuff because we think it's cool. And we use also people like, yes, it's also cool. We use Mike and his team and our customers to really make sure we look through it through a customer lens, and we focus on the value we're generating for the customer and actually for us as well. And if you look at it from a business point of view, of course, the portfolio really enables us to cross-sell by delivering new solutions, cross-sell to our installed base, and you heard that before, help us grow in Europe by making sure we have the right solutions for the region. Obviously, it's VAT versus sales tax. So you have to have the right solutions there. And then open new market segments by having the right content and also really making sure we're addressing the right ecosystems. We talk a lot about SAP and Oracle. That's ecosystems. If you go lower in the market size, not every small company has SAP. That's a big thing, but there's Microsoft as well. So how do we now make Microsoft the same as relevant as SAP is. So we're focusing around that. And if you really look at it specifically, there's a couple of key investment areas. I think Sal said it, it's AI. Obviously, everybody looks into AI, and we're just launching a product called Smart Categorization. I think Chirag talked about it. The other big thing is, of course, e-invoicing. You heard about that. It was really the missing puzzle piece that we had, and it's really now coming together. So that's really super exciting. Content in general, we continuously invest in content. We expanded. David talked about oil and gas. We just also basically enabled medical devices, a huge area where I think we actually have -- there's really no competing content there. And then there's a greenfield opportunity. We talked a lot about data, data management for our customers is really something where -- and Mike, correct me if I'm wrong, but I don't think there's any commercial solution out there. All these tax departments trying to manage their data with Excel and all kind of stuff. And we think there's an enormous opportunity for us to have a commercial solution there to have them really manage the data. So that's really the areas where we're investing here.

Awesome. Thank you. Mike, so from a platform standpoint, right, how does that impact customer experience? And what is the customer expectations when they interact with the platform? And how do you and your team's view that?

Sure. I'll go back a little bit to our customer community. When I mentioned we meet with all of these customers throughout the year, really what corporate tax departments really want enterprise customers want is something that we term what's called the self-service model. And I think when you think about the technology advancements that have been in terms of data, and when you think about the platforms that we're trying to build, the tax department, what they really want is they want a system where they can get all of the data that they want and then have a place like our platform where they can solve essentially all their issues where they can do all their compliance work, their planning work, they can handle their audits. And they really -- we've talked about this before, where they don't have to leave that. They never have to leave the Vertex platform. And so that's really kind of what we're looking for is that self-service model. There are certain attributes that they want to it. And I think the self-service model is very, very achievable, particularly over the next several years given the fact that our content supports them that, but also the platforms that we're actually building. So some really good opportunities there for us.

Very tech savvy.

Exactly. Yes.

So let's move over a little bit. David talked on our last earnings call about our accelerated some investments around AI in 2024, some very targeted investment areas there. So let's just step back and kind of get perspective on where we are with AI today and kind of where are we thinking about it in terms of going forward?

Maybe I can kick it off. So we obviously are using AI as a technology company, getting great efficiencies and productivity from cogeneration test bench management, all these kinds of things. So super powerful tooling that we can use for documentation of things that we're building. But really importantly, we're building AI into our offerings, that end-to-end platform. There's so much opportunity to really leverage agentic AI, large language models, small language models, retrieval augmented generation. We're doing some stuff around neuro-symbolic AI, there's really amazing things where we can kind of bring the best of what large language models bring along with deterministic models. So we've been digging in on this for many years, even before I joined the company, a lot of machine learning, more traditional machine learning has been done. I've been doing neural networks and deep learning and expert systems for years. But ultimately, now with all the capabilities we have and the capacities of these large language models, it's phenomenal. So I'm super stoked, as you can probably tell, about the opportunity we have here. And the beauty is the combination of what we have in this kind of really heavy-duty rules capability and then being able to augment that with tax content curation, taking content in, being able to have reconciliation services, these agentic AI componentry. We can connect to our partner ecosystem as they have specialty agents. Our agents can work together. We can orchestrate all of these. So really incredible opportunity for us. We have been building AI as a foundation within our platform. So we keep talking about a platform. Platform is really a common set of services. It's a cloud container service that allows us to leverage all of the applications that we have today, the ones we're buying and the new ones that we're going to build in the future. All of them are going to benefit from the data fabric capabilities, the data governance, the AI models within this. Copilot is starting to emerge through all of our interfaces to guide users through the interface. Over time, customers will be able to talk in a conversational way to their data for reporting for saying, I want to do sales in France and let the system start to drive that. So AI as the interface with the large language models is a fascinating area. So we're investing heavily in all this. We're prioritizing within our envelope of investment, more and more AI spend to go along with the work we're doing more traditionally.

Excellent. And we've -- so multiple use cases for commercial application. Neuro-symbolic AI, I got to do little research on that. But a particular use case that we did identify was around product mapping and smart categorization. So let's dive into that. That's an area that we're going to be investing in. And maybe you can give us a sense for -- start off with what is the problem that we're solving? And how big is that problem?

Yes. So it's actually a very real problem in a sense. The CalcEngine we have has actually solved the automation of determining the tax rate pretty well. This is a solution. There is no need even to replace that. Now for the CalcEngine to do that, you have to -- they basically tell the engine. Here is the product you've got to process. So you have to map the product to what we call tax categories. And that is a manual process today. And I think as Mike pointed out, like there might be thousands and thousands of products you have there. I think one thing that I learned in retail area, some of our customers have thousands of new products a week. So imagine you have to do that. And then it depends really on you have to understand the product very well. And obviously, you have to understand our CalcEngine very well so that you understand what you map. And then rules might change. So it is a real problem. And what we've done now is we have actually AI is it's actually a perfect problem for AI. So if you train it in the right way, and once we've got this human in the loop really figured out, it was really a breakthrough. So basically, what AI will do, it will take a look at the product, it will make a recommendation where to map it to, it will also tell you why it made that recommendation. And I would also tell you, here's the probability, my confidence level. And then the human in the loop will say, well, 75% confidence level, not so good, we'll take a look at it and you correct the AI. Now that's important because that's how you train the AI. And you train the AI with tax experts. So that's actually very unique in that process. So I think that's an important part that can actually -- we're focusing on retail today. Obviously, we want to -- we have a very rigorous process, how we bring things to market, but every customer will have that problem. Some larger, some smaller, but it is something that every customer has to deal with.

So as we're exiting beta with that, we're entering general availability with that. The first vertical is retail.

Absolutely.

It's a horizontal problem that we're solving for multiple verticals and that's monetization?

Yes. So well, number one, it's -- obviously, we solve it for every customer we have. As I said, we have a very rigor process in bringing new products to the market, specifically new -- that new. So we're really trying to make sure we're not just open the floodgates and then we cannot deal with a number of customers. So we're very focused. We're focused on retail and make sure we take a limited number of customers on board. Everybody is happy. It works, and then we open the flood gates in a controlled way. So that's happening as we speak. The product goes to market now. And of course, we -- that's actually a good example for how we commercialize new products. We have a consumption-based pricing around that. The more products you have, the more sort of you pay. And it's actually very well received by our customers. So it's sort of a no-brainer use really value proposition.

And that referenceability is really important because a lot of tax teams are pretty risk-averse, right, Mike? So getting that -- doing it right and following the playbook for launching new products with our partners, with our customers in this case is no different.

They definitely are. I want to pick up on something that Uwe said. In order for -- to meet governance models that normally CFOs normally have, you actually can't place a product or sell a service into a geography until that it's been properly mapped. And when we mean mapped, we mean you take the attributes of that product and you map it against our tax content categories, right? And if that's not done properly, then you can't sell something. And if you can imagine, that's important because it actually slows sales down. But also if you -- if it's not mapped correctly, then it's incorrect. And the issue there, then it becomes -- that becomes either a 7% issue on the value of the product or in that regimes, it's 20%. So it has to absolutely be correct at that point. So...yes.

One thing that Mike told me when I started here was like if you're 99% right, you're actually 100% wrong, which is great -- it was a great start for me. Take it from there. Yes.

Yes. I'm glad my academics didn't have that same rigor happen. Let's talk about e-invoicing now. We've heard a lot about it, but where are we really at with it? Let's again reinforce what's the market problem, and then we'll go into what is the tax problem that we're trying to solve here?

Yes. So number one, let's be very clear. e-invoicing is a tax problem, continuous transaction control. It's about really providing transparency to the government about your transaction, including your tax data. So it is actually really a tax problem. The other thing is it is a global challenge, specifically for our installed customers, every global multinational that is in every country has to deal with it. There's many countries that have it. already the mandate. And as Chirag said, there is 200 countries that will implement it. So it is definitely a global problem. And it's very interesting. Of course, every country is different. So they have different formats, different standards and different data requirements. I think there is -- I think in Italy, they asked for about 400 data points for an e-invoice. That's quite a lot. If you go to Poland, they probably also ask for 400, but 300 different than from Italy. So you have to figure out. It's becoming a data problem as well. So very, very high complexity. When we started to look into that, it was very clear, we're going to do a network approach. We did not try wanted to go country by country, let's try to find a solution for Brazil, then you've tried one for Mexico, but we said we want a holistic approach with a network approach that is highly scalable. And so that was one thing. And the other thing is integrated with periodic filing because at the end of the day, I think Chirag pointed it out, you're sending all these invoices per month in real time to the government. But then at the end of the month, you file the sum. And that needs to somehow reconcile and that is, of course, a big effort. So it's a very, very important part here, and it's a big problem specifically for everybody who has a global business.

It's important to note if I can jump in. E-invoicing is not just electronic invoicing. It is a mandate. It's a business to government manage. So business -- usually have a business-to-business transaction. Now it's a business to government to business transaction. The government is getting the same data. And to Uwe's point, the reconciliation has to add up completely because now in real time, they're getting the data. And when you're doing your periodic reporting, it all has to mesh as well. What we acquired with ecosio, it was an incredible resilient network that can do point-to-point delivery of all of these messages. With CTC on top of this, we can do this in real time with low latency with fast speeds, and we have a very powerful network. So we're layering more and more capability on top of this as part of our overall network. The other thing I'd say is our connector framework that we talked about, all those connections into the business systems are able to collect the data that's also required all the way through the invoice. So this all fits in beautifully because we have the data for determination, but also for invoicing and driving all the way through to the end of the process.

And Jeff, if I could, just one other thing on AI besides the content creation. As you know, Uwe, the e-invoicing regime is not harmonized, right? You pointed that out, so we'll need that to actually do that content creation. But the other thing, too, that Sal has mentioned earlier was about AI being exposed to our platform. And so just 1 really quick example of that. Let's assume that you're an indirect tax specialist and you're remitting sales tax say to Georgia every month. And normally, those amounts are, say, $100,000, and then now it comes up to like $80,000. Well, what we'll be able to do with AI is those tax departments based upon whatever their persona is, they'll be actually able to ask a series of questions anywhere from 5 to 10 or deeper than that, say, well, did the rate go down? Were there a lot of things that we sold that were exempt, did we miss a data set. So the corporate tax departments have told us, while they've used machine learning extensively over the last 6, 7, 8 years, they expect us to build all the AI capabilities into our platform to help them actually achieve their compliance goals and their audits as well.

Excellent. Thank you. So a couple of minutes left before we move over to our break. I wanted to just -- leadership comes with looking at what's next, and we've been able to do that for many, many, many years. So I wanted to kind of just get final thoughts from the panelists here on the next horizon and what excites you about that?

Maybe I can kick off with that. So clearly, we're giving the message of we're building a future-proof platform that enables us to not do just the core traditional business we've had and expanding into invoicing and compliance and data management solutions. We have a platform that's here for growth. And we built it in the cloud. It's multi-tenanted, scales beautifully. We have transaction capability that doesn't -- it's frictionless. It doesn't get in the way of the business systems that need to run. We're layering in AI where it makes sense, and there are so many places it does make sense. To Mike's point, there are so many gaps in these end-to-end workflow processes where data can leak out or you don't -- things are mismatched. So looking for anomaly, anomaly detection, reconciliation, we can deploy a whole army of agents that work within these tax processes, all orchestrated to work within our platform to connect into our partner ecosystems. So the future is very, very bright for what we have, what we've built and what we've invested in and where things are going. We're constantly looking at the next wave of capabilities. We're doing work in blockchain technologies. Down the road, blockchain will start to become important as governments want more things on the blockchain for immutability and transparency and all that. So there's a lot of investments that we are kind of monitoring carefully as we go. We're very focused in on value add and working with our customers on that.

Yes. So what excites me. I think what -- if I'm looking back, I said I started 6 years ago, it's actually super exciting how all the puzzle pieces come into place now. I think we built the data capabilities. We built the data fabrics. We added e-invoicing, we're adding data management capability, we brought things to the edge. So it's actually super exciting how we have all the puzzle pieces that really deliver the end-to-end capabilities now in place. So I think that's super exciting for me to see how we work over time here. So it's really, really cool.

Yes, a quick final thought. Just on the tax side, what I would say is that governments will continue to look for ways to actually continue to tax new work streams, particularly we're looking at things like in the bundling space. video and conferencing in those kinds of areas. And I think the granularity that's going to occur continue on tax content will continue to increase as well.

Great. So to wrap things up, I want to say thank you to the panelists for sharing your perspectives, your insights about where we're at, where we're headed from a product technology and tax technology perspective and giving the audience a better sense for the investments that we're making and how those are going to continue to extend our market leadership and capitalize on the growth potential that we have in front of us. So I'll bring Joe for some final remarks before we go to break.

No final remarks, but I love when a plan comes together and we finish right on time, like on the minute. So we'll take a 15-minute break, refreshments outside. Refill your coffee, hit the restroom. The men's room is a bit of a hike down to the other end of the floor. And then we'll reconvene here at 10:15 sharp with the go-to-market strategy. Thank you. [Break]

If you could take your seats, we'll get started again. All right. Let's get started again. Now you've heard about the strategy and the product road map. And I'm pleased to bring to the stage Chris Jones, our Chief Commercial Officer, who's going to help you understand how we're bringing this to market. Chris?

Thanks, Joe. Hi, everyone. Great to see you all today. Really excited to talk about our commercial model for growth and how Vertex is positioned to continue to win in the market. To build off some of the comments that you've heard from David and Chirag in the panel today, I've been with Vertex and in this industry for over 20 years. And I get asked all the time like how have you stayed in tax for 20 years. And I've never expected to be in tax for this long. But what you've heard so far this morning is all these things are constant. So change is constant. There's constant regulatory change. Our customers are constantly changing the landscape of their systems and their business models. And along with that change comes demand from these companies for excellence. You heard the joke that 99% is not good enough. And It's not. The companies that we work with demand excellence. And that, combined with the constant change over the year has created this fun, challenging opportunity for a very long time that Vertex has become the leader in. When you think about this complexity model that we keep talking about, that's one of the core pillars that you hear us continue to speak to is complexity. And our customers not only have complexity, but that puts Vertex in a position and an opportunity for us to deliver on that complexity. So while we'll talk about our go-to-market model and our products, we've also built a company and a team with deep subject matter expertise in all of these areas. We have tax experts. We have Oracle experts, SAP, Microsoft, all the different partners you've heard us talking about. We've built a stable team to be able to deliver the solutions to these complex customers in a way that allows them to drive value out of our solutions. So while I'll talk about structure and our model and our strategy, there's also a key part of this that is the talent and how we go to market. So you'll hear me talk about a few themes that are consistent with the morning today. We'll talk about complexity. Complexity from a system standpoint, a business model standpoint, a geographic standpoint. You'll hear me talk about partnerships and the importance and the value of partnerships in the tax technology space. Vertex solutions work with other systems. We add value to order processing systems and the different systems you've heard us talk about this morning. And then finally, I'll talk about our go-to-market strategy and model and how we utilize that to take advantage of this great opportunity you've heard us talk about. So I want to first start with some investment. Vertex went through an investment cycle that we just came out of in 2023 and it was all predicated on growth. How are we going to grow the pipeline? How are we going to grow the funnel? How are we going to get deeper and wider into the market with the offerings that we have? So we put forth 4 key areas of focus. We wanted to build a customer success organization. We wanted to establish and expand the partner ecosystem. We wanted to put in place an indirect sales capability. And then, of course, to be able to capitalize on all this, expand the sales organization to drive additional business that's being created from these new demand drivers. From a customer success standpoint, this was not really an area of focus for Vertex up until about 2020. We then went through an investment cycle to build out a full-blown customer success capability that's very focused on retention and evenly -- even more importantly, or equally important, expanding with our base and cross-selling and our customer success organization is up and running and doing that. We also took our partnerships to another level. We have been partnering with Oracle and SAP for over 20 years. To take a little walk down memory lane, it was back in the early '90s, that Vertex partnered with Oracle and SAP to build the first-ever tax connectors and integrations for their customers. They were doing business in the ERP era back in the '90s, and there was a gap in the solutions around indirect tax. And we actually were the first company to partner with them to build out these integrations. And those partnerships with SAP and Oracle were really product-centric for a long time. And within the last 5 years, we've now gone from just product-centric partnering to really focusing on business development and going to market together and driving business and driving the pipeline. So we work within their programs, however, we can from a cross-selling and team selling and demand generation perspective. We also expanded our partnerships to go into the middle market in the complex middle market with companies like Microsoft, Salesforce, Workday, NetSuite, and we approach these partnerships from both a product level and a go-to-market level. So we'll build integration, so it's very easy for their customers to plug Vertex into their system. And then we'll also work with them from a go-to-market standpoint to either get on their store, work with their sales teams, work with their VAR communities to make sure that Vertex is front and center when they're out in the market. And then finally, we've built an indirect sales capability. The indirect sales group works hand in hand within this partner ecosystem. So they're working closely with our tech partners, our alliance partners and our SI partners. They're helping generate demand and opportunities. They're supporting co-sell, they're involved in the sales motion, working with Vertex sales teams and the partner's sales and go-to-market teams. And these folks are dedicated strictly to generating demand and feeding the funnel. And then finally, sales. All of this has to come. We manifest this by adding sales capacity as we grow the pipeline. So as these 3 new functions generated more and more activity, we've constantly expanded our direct sales capability to be able to close the business. So that's a little history on what we've done. This is behind us. We are operating at this right now at scale, and you're seeing it in the numbers that we put forward. So you think back like why did we do this? Why would you invest in these areas? Why would you focus in these areas? Well, it's really to take everything you heard this morning about the market opportunity from Chirag. And everything we have from a solution product standpoint from the panel, they are married together. We have built specific solutions and products to address our market. We know our market very well. We know the complexity they have. We know the challenges they have, and we've tailored solutions specific to that market. Now it's -- we have to layer in the right go-to-market model to capitalize on that. And that's how these 3 pieces all fit together. I'm going to dive a bit into our go-to-market strategy and model. So it all starts with generating demand, generating opportunities, feeding the funnel, as I say. We have a number of partners within the ecosystem to do this. We have tech partners, tech partners are your e-commerce providers, ERP providers, procurement, subscription billing, CRM, CPQ, any type of system where transactions are being processed, there can be a tax consequence. And many of our customers use different providers for all of these systems. So a big part of our investment in our growth strategy is solid and fruitful partnerships with these tech partners. We also have accounting firms and SIs who are involved in reengineering projects with their customers, whether that's a tax reengineering project or a system reengineering project, they're looking to improve their overall processes and they look to tax as a part of that improvement. So if you're going through a major finance transformation or you're looking at how to improve your tax process, tax technology becomes an important component of that. You can look at process, you can do advisory work. But at the end of the day, it's going to come down to how can I automate certain functions that I'm doing manually today. And our SI and accounting partner community work with clients and Vertex becomes a piece of that puzzle. And then finally, our customer community. I love how Chirag calls this a vertical. This is a niche market. It's a very large market opportunity, but it's very specialized. People talk to each other. When Mike Bernard from Microsoft talks his peers listen, they share information about what works and what does not work. And part of the reason we've been doing this for 45 years is exactly that. We have delivered what we say we're going to deliver. We're accurate, we're timely. We do all the things that are important to a tax department, and that's part of how we get this customer referral, and we'll talk about some of our logos coming up here. So now we have to land the accounts. We generate opportunity and demand through all these partnerships and traditional sales and marketing efforts. Our goal is to land an account. And as David said, we can land in a number of ways. We can land by helping them calculate tax better. We can land by helping them comply and file their taxes. We can land with e-invoicing. We can land with exemption certificate management. There's all different parts of the tax life cycle where companies have challenges that we can enter an account. And we do that through a direct sales model that consists of inside sales who's working through the thousands and thousands of opportunities that we have with dedicated field sales teams that are segmented by geography, by customer complexity, and we even have some vertical specialization within those sales teams. And tying back to my earlier comments around subject matter expertise, we deploy very specialized teams for these pursuits. We're working with the biggest companies in the world, we have to be able to sit across the table with them and speak their language and understand their needs and they're paying specific to their business from both a tech system standpoint and from a tax standpoint. And we're able to bring those capabilities and that talent to the table as part of that sales and customer acquisition process. And then finally, to land the account, now we need to get them up and running live and successful. We're not looking to have a customer for 1 or 2 years. We're looking for 10-, 20-, 30-year customers. We talk a lot about this content set and the billion rules that we have. Well, those billion rules are updated every month as changes occur. So we want a company to put this in place and use it for the next 30 years. That's where you really derive the value. Getting the software implemented in the beginning is just the beginning of a journey. We want longtime sticky customers. So we put a lot of emphasis with our customer success group on getting on board it, getting up and running in live. If one of our accounting firm or SI partners, is doing the implementation within our CS group, we provide partner enablement and support where we're training them and helping them with the implementation with the ultimate outcome being we want a successful go live because we're not going to have that customer for 20 or 30 years. So that's our overall model. Again, land and account ensure success expanded for a long period of time. So to dive a bit deeper in customer success. I mentioned this is an area of investment for us that we've just come out of, and it's really played a major role in our growth and our customer satisfaction and retention numbers. So if you look at the chart on the left, you'll see that accounts that have a dedicated customer success resource, we're growing at a much higher rate than those that do not, something we're very proud of, and we continue to work to get dedicated customer success resources to more accounts as it makes sense. You'll see in the middle that we've been able to do this and grow the number of opportunities coming from customer success without growing our expense. You'll see the line through the charts that we'd be able to keep head count flat, leverage technology, AI and other capabilities but double the number of opportunities that are flowing through the customer success group. And then finally, to the right, the ultimate outcome is what is your revenue per CS resource. And you see we've been able to double that in the last 3 years from $200,000 to $400,000. So the net is we put a very strong capability in place here. It's playing a very key role in the GRR numbers and the cross-sell numbers that you're seeing, and it's poised to take advantage of the opportunity that we've talked about moving forward. Another key part I talked about was partnerships. You'll see logos here up on the left. We've only listed -- a smaller group of strategic partners here. We have about 200 different partners that we work with. The tech partners, again, we go to market from a product and go-to-market standpoint. The accounting firms and the ESI firms are implementing our product. They're building practices around helping companies select tax software, tax advisory, tax process reengineering, which all comes together in tax optimization. And these firms that we work with, they see a lot of value in Vertex and they choose us and they're willing to put their neck out for us a bit because of our track record. If you're an advisory, if you're advising a client or you're going through a system implementation to bring Vertex into that mix, you have to have some confidence that we're going to deliver and our software is going to work and our content is going to be accurate, and we're going to support the implementation, and we're going to be there to support that customer for a long time after they implement. And all of these factors together give our partners confidence in Vertex, which helps them be in the market, advocate for us and present them as an option to their clients. So what's this all lead to? It leads to a phenomenal group of customers. We keep talking about 60% of the Fortune 500 and the logos that we have, the biggest companies in the world rely on Vertex 24 by 7 by 365 mission-critical, one line item at a time. B2B invoices going back and forth with thousands of line items on them, and we're being called at a millisecond level for every single one. We are deeply embedded in these systems, mission-critical, it cannot go down, and they rely on us for that. And as again, Chirag described to us as a vertical, I like to say, tax is horizontal. If you buy or sell something, you have -- you're subject to tax. You have to deal with indirect tax. If you buy something or if you sell something. So from that sense, to me, it's very horizontal, but there's also very deep vertical niches within it. Industries like retail, oil and gas, leasing, telecommunications. They are so nuanced when it comes to indirect tax. We've had to build specific solutions just for those industries. It's not just a different rule set. It can be a different technology deployment. In the retail space, we have to run on cash registers and handheld devices and their main servers. So we've built specific products in these 4 industries and they are unique in the industry. We have products we bring to market in those areas that are extremely unique to Vertex that provide differentiated value to those customers. And this all results in referenceability to have 8 of the 10 business service companies, to have 8 of the 10 manufacturers using Vertex kind of speaks for itself as far as the quality of our product and our company and company's willingness to refer us to their peers. I'm going to talk a bit about 2 core markets and some of the similarities and the differences between those markets. The U.S. market is a phenomenal opportunity for us. You've heard us talk about the companies that are still doing this manually. They're doing it with in-house methods. They're doing a combination of a point product with Excel in the ERP system. This is a space that we go after from a new logo standpoint day in and day out. Then we also have our installed base to cross-sell to. I'll cover some slides here in a minute where you'll see the type of expansion we can do with the accounts. So within North America, we have both a new logo opportunity for companies that are doing it manual or using competing solutions as well as the cross-sell opportunity. And we have many competitive advantages. I think David said it really well. It's not just one thing. We have a superior product. And when we talk about having 1 billion tax rules and being able to calculate tax for water differently than food, different than a plastic bottle, I hope you all leave here today next time you look at an invoice when you get your coffee in the morning and you see coffee, water and a breakfast sandwich, you think of Vertex. That's one thing I want to leave here with today when you will never look at an invoice the same again because of the role we play in calculating tax. But to be able to support that, you need end-to-end capabilities, and you don't just need great content, you need great software. So we can have the best rules in the world, the best tax rates in the world, but how the tax is calculated is not always that straightforward. It's not always $100x6% is $6. There's different rules as far as how the tax is calculated. So we have the most flexible software combined with this billion rule set that allows us to support the most complex transactions in the world. We've had the biggest companies in the world throw the most complex transactions at us, and we can have -- we can handle it within our system. And then finally, the go-to-market strategy, I have talked about leveraging the partner ecosystems and leveraging our customer success group for the cross-sell side. So ecosystems are driving a lot of our new logo opportunity and customer success to build out the cross-sell opportunity. Shifting to Europe, there are some similarities, and there's also some differences. So in Europe, utilizing vended solutions for tax is newer than it is in North America. Many companies in Europe use their ERP system for tax determination and for reporting, SAP having a large presence in Europe is predominantly used by a lot of companies to handle their tax. And the adoption of tax engines and tax add-ons like a Vertex is in a newer stage than it is in North America and there's focus on compliance reporting, e-invoicing and determination with tax determination being not as complex as it is in the U.S. So this is a great opportunity for us to pursue, given the newness of the market. You also have companies that are outside of the U.S. selling into the U.S. So back to the Wayfair discussion we had earlier, if you're not in the U.S., but you sell into the U.S., you could be subject to jurisdictional requirements across all the areas you're selling into. So we could sell our products into non-U.S. companies that are selling into the U.S. And then the e-invoicing mandate is a catalyst that comes along once every 20 or 30 years in an industry like this. That's a mandate, companies have to deal with it, and it's driving pipeline and market activity for us. From a competitive standpoint, our end-to-end story is what resonates and how we differentiate in Europe. We're not trying to solve one piece of the tax life cycle for our European customers, we're looking to solve the entire end to end. A lot of times, that starts with e-invoicing or compliance because the reporting is very challenging in Europe. And then ultimately, they decide, wow, we're reporting better now, we're reporting more timely, or we're reporting the wrong numbers. So that leads to a cross-sell opportunity to our determination software to make sure you're charging the proper taxes on your transactions. We leverage our large U.S. installed base to get warm entries into the accounts in Europe, whether that's their counterparts, their subsidiaries, affiliates, part of their company tree. And we take the success we've had with the North America business into the Europe business to open that door and expand our business with the European companies. And then finally, the go-to-market approach is very similar. It's very partner-driven. We work with the ecosystem in both a technical and an accounting SI level to drive opportunity through the process. Finally, e-commerce is a unique piece of our opportunity in Europe. I mentioned companies selling into the U.S. You could be anywhere in the world that doesn't even have to just be Europe, but selling into the U.S. in an e-commerce world creates certain requirements that you have to follow that our solutions can help address for companies. So in the e-commerce world, we have a unique value proposition. We have a series of offerings that not just calculate tax as part of e-commerce but we actually process wider elements of the e-commerce transaction into the shopping cart. And we bring that expanded value prop to customers that have an e-commerce requirement, and we do this globally. Companies in the marketplace space, we have a unique offering just for marketplaces. It seems every day a new marketplace pops up, you can be working with a company and not even know it that you're on a marketplace. You think they're on their website and you're actually on a marketplace. We've built specific capabilities to address marketplaces. They have unique requirements beyond just a company-to-company transaction when you're operating as a marketplace, there's unique requirements that we have built specific products to address. We have specific partnerships in e-commerce with the partners that we feel fit our segment the best. So from an enterprise standpoint, e-commerce used to be more of an SMB play. They were small companies doing their own e-commerce, and it's evolved over time to now the biggest companies in the world have an e-commerce part of their business. And that's where we've seen this opportunity really increase for us because they're all our customers already. So they're looking for this omnichannel approach. They sell in many different ways, e-commerce being one of those and then they want to plug Vertex into every part of their transaction flow. So with that, we partnered with companies like Adobe, SAP, Salesforce and Shopify to make sure we can bring easy solutions to our customers. Shopify is an interesting partner in a sense that they are coming up market. So they started more in the SMB space. They are now selling more into the enterprise space. And as they do that, they're finding that either, a, the company already uses Vertex or b, they now have a complexity factor where Vertex makes sense. So we're leveraging that in our partnership with Shopify, and that's going very, very well. We have pipeline building in Shopify twofold compared to this time last year. So new logos. New logos are so important to us. We drive new logos from a number of sources. We focus on the complex middle market and the enterprise space for new logos. We do that through ecosystem partners as well as general sales and marketing demand account-based programs. Technology evolution, again, cloud migrations, people changing their ERP, people upgrading their ERP system is another opportunity for new logos. That's when a company says, "I'm budgeting for a large project, let's start looking at the add-on projects within that project and tax is typically one of those. Geographic expansion, sometimes people think of taxes as a compliance thing and something we just have to do to comply. I would argue that it's a business enabler. If you want to expand into Brazil as a company, you can't go there if you can't handle their tax regime. So while it is a compliance and something you need to do, it's also a business enabler to help you grow and be a support mechanism for you to be able to grow your business. And then finally, new offerings with e-invoicing being the current that we're really focused on and data management is coming down the road. So a couple of specific examples from last year that pay off multiple of these catalysts. One is a major electric car manufacturer that their business evolved and complexity grew to a point where they revisited their current solution, went through an evaluation process and selected Vertex as their end-to-end provider for tax. We also had a manufacturer that was going through HANA migration and also expanding into Brazil. And when they looked at their current methods and the way they were handling their taxation, they decided that Vertex would allow them and help them grow into Brazil and also support their HANA project. And then finally, we had a company that was driven by the German mandate for e-invoicing. This is a mid-market company. The original catalyst for our discussion was e-invoicing. And once we had e-invoicing in the process of being implemented, they quickly realized that, wow, we also have to comply and I'm not calculating tax properly. And they have since added our VAT compliance tool and our tax determination tool, and they're now looking at this as an end-to-end solution as opposed to just a point product to solve their e-invoicing need. And this is a trend that we're seeing in the market. We talk about e-invoicing as the initial discussion, but it quickly evolves into how are you handling your reporting. How are you handling your compliance, how do you handle tax determination, how many system feeds do you have, how do you bring all this data together. And that's the trend we're seeing, and we see pipeline growing nicely in this space of what we consider global e-invoicing management as opposed to managing it one country at a time. So the new logo part of this is a huge focus for us, but we also put a huge focus on our current customers and that expansion cross-sell motion that we've talked about. I'm going to walk through 3 specific customer examples. There's a lot of commonality across these 3. You're going to see geographic expansion. You're going to see system change and system expansion and you're going to see organic growth within these accounts. The first account is a manufacturer, where you'll see we took their ARR from $185,000 to almost $1.9 million over this period. They were a long-time Vertex customer just using us for sales tax, and then a couple of change catalyst events happened. They started to go through an ERP consolidation project. They had multiple systems, including SAP and Oracle. And they also decided to expand their business globally. So if you look at the chart, you'll see the dark blue grows as they bring on additional business units as part of their ERP transformation project. Then you'll see the light blue grow, which is our VAT product when they went global. So that we were supporting them for U.S. for a period of time. And then in the 2021 time frame, you'll see the light blue start to feather in, where we start supporting them for their global taxation. And then as part of that ERP transformation, they identified gaps in their SAP system, and you bring in the yellow bar, which is our SAP tool set that we acquired through the LCR-Dixon acquisition. And that adds another layer of ARR. And then the green bar that goes throughout is consumer use tax. Many companies clean up and address their sales tax collection using our sales tax products, but you also have to tax on your purchase transactions for indirect tax. So it's very common for a company to first clean up their sales tax because that's where your customers are impacted. Your customers get inaccurate invoices and you really don't want that. So sales tax many times is the priority. But once you have that in order, there's a lot of exposure on the purchase side of your business, where our consumer use tax solution solves for that. That's actually an area Mike Bernard would tell you where the auditors focus even more than sales tax many times because they know companies do not automate their consumer use tax. So you'll see the consumer use tax in the green bar feather in, and this is a really perfect example of how we can -- this customer is just using us for sales tax for many, many years, and then all these change events occur that created opportunity for us. Second case study is a retail grocery chain. And this to me is a really cool story. I remember every step of this process and how we work with this client. They have a complex data system complex. They have SAP for ERP and multiple POS systems. And this all started with -- they gave us an opportunity to be on their app for purchasing prepared foods. When you go into a supermarket and you can buy prepared foods to just have a quick dinner, and that started as a $32,000 ARR. We just were on their app, calculating tax online for prepared foods. Well, that worked well. And after a couple of year period, like we want to be in compliance. We want to make sure we're addressing this properly. We wound up putting Vertex on all of their cash registers in their point of sale. So we went from starting on handheld device just an app to now expanding into all their retail stores on their cash registers handling their point-of-sale transactions. And then again, similar to the prior case study, you see the green consumer use tax start to feather in. We got the sales tax in order. We're calculating properly. We're charging our customers properly. Now the auditors are going to focus on what we're buying. And are we calculating tax properly in our purchase transactions, and we bring the green consumer use tax into our overall spend with this customer. And then the light blue is a really interesting piece as well. That's our edge technology. This company changed and went through a transformation of their point-of-sale system. And as part of that new technology, our edge solution fit perfectly into their system landscape. So we were able to add a technology element to that increased the ARR. And you see here, we went from $32,000 to over $700,000 ARR with this customer. And then our last case study is a consumer food delivery company, building off David's comments earlier. This company was going IPO, and it was very important for them to get controls and governance around this tax concept. So this started right out of the gate as a nice $803,000 ARR to calculate sales tax on their delivery services. You'll then see in the light blue bar, they started to go global. So they went from just U.S. to adding our VAT into the mix to increase the ARR. And then you'll just see organic volume growth over time. So you'll see as this bar grows, we've gone from $800,000 in ARR to just under $4.7 million ARR with this client as a result of going global and their overall increase of their growth in organic volume. So these stories are intended to pay off and give some real-world context too. We have a great set of products in our stable, different catalysts can drive growth and customers expanding their spend with us, and we have the go-to-market model to be able to deliver on that. So in closing, hopefully, you leave here with a few points. One is we have a model and a team and the talent and the subject matter expertise to be able to execute on this space. There's very unique factors in this space. It's nuanced. Tax and technical have some very difficult aspects to it. We have the right talent and SME to deliver on that. We have a strong partner ecosystem that triangulates technical along with advisory along with implementation, and we nurture and build and expand those relationships to ensure our customer success. We're focused on many growth drivers, new logo opportunities through ecosystem, current customer cross-sell through our customer success motion. And we really believe we have the company that stands behind the implementation. We're the only company that has certification on our support practices, and we take very serious getting companies onboarded, live and realizing the value we told them they would realize in the sales cycle. And that's why we have companies for 20, 30 years and the average tenure of the 19 of the top 50 we talked about. So with that, looking forward to the rest of the day here this afternoon. Hopefully, that gives you a good context on how we go to market and why we do it the way we do and what some of the outcomes are. We're going to transition to our customer and partner panel. We are thrilled and very lucky to have some key folks. If you guys want to come up and please join on the screen and on the stage, I'm sorry, I'm going to monitor our discussion. We thought it would be good for you to hear this from somebody else. We've been talking at you here for a few hours this morning, and it's great to hear about Vertex from Vertex people, but I think it's way better to hear it from others. People that are using our products, implementing our products or using them in a partner capacity. So you all grab a seat. And we'll do some introductions and go through. Great. Okay. We'll just start with some intros. Our team here is kind of looks and works with Vertex through some different lenses. So I'll ask you to introduce yourself and maybe with a slant on how you interact with Vertex. So Jeff, in your case, how you've gotten to work with Vertex and partner and what you know about us. Dom, from your case, your background in indirect tax and your company landscape and then Maria, more around your practice and how you guys work with tax technology. So one of you could start.

Sure, absolutely. So first of all, thanks for having us here today. And just a couple of words on SAP. Most people may know or hopefully know SAP. But if not, we are a multinational based in Walldorf, Germany founded by former IBM engineers in 1972. We recognize not only the need for automation, but actually for integrated automation across the enterprise. And that became the basis for the flagship product, which is S/4HANA. And SAP has expanded into other areas like cloud computing, AI, business analytics, using tools like the SAP business technology platform. I personally have been an employee of SAP for the past 27 years. And during that time, I've really had the opportunity to work in a lot of different areas within the company. I would say primarily, I would break it into 2 parts. So the first part was me as an internal-facing employee working on the implementation of our own systems within SAP implementing SAP solutions. So it gave me a good hands on experience with working with the applications. And then the second half of my time at SAP, I've been working in more customer and partner-facing roles where I've had the opportunity to work with partners like Vertex. And I guess it's worth noting that Vertex actually has more seniority within SAP than I do. So SAP has been a customer of Vertex since, I think, 1990. And as a critical solution for SAP, it was only natural that we extended the partnership that we have with Vertex. And so we've had the opportunity as our partner programs have matured over -- particularly over the last 5 to 10 years, we've had the opportunity to expand the relationship to a more strategic relationship with Vertex during that time.

Hi. My name is Dom Zambrano. I'm an Associate Vice President of Indirect Tax at Comcast Corporation. Comcast is a leading provider of connectivity services as well as entertainment services. So in our family of companies, we have the Xfinity brand you might be familiar with for broadband, video, voice services, mobile services. And we also have NBC, the broadcaster as well as Universal Studios and the theme parks Universal, a pretty diverse organization. I've been with the company in excess of 23 years. The company's relationship with Vertex precedes me. And so we run any number of applications and solutions from Vertex and have expanded in my tenure, the different parts of the business that leverage Vertex solutions. So the partnership with Vertex over that 23-plus year period and happy to be here today. So...

Okay. Hi, everyone. This is Maria Hevia. I'm a partner in EY. I led the global indirect tax practice in EY. And I've been working with clients in order to support them, how to automate their indirect tax obligations for a long time, I've been in EY for the past 25 years. I started when I was 12. I want to make that clear. And then I came here to the U.S. I started in Spain where indeed, you were mentioning that in your presentation before, but where tax engines and things like Vertex are a little bit less known than they were in the past, right? But obviously, since we are here in the U.S., that's a massive tool that we help our clients with. So within our global practice, we have around 7,000 people that we are implementing indirect taxes, and we are helping our clients with that. And within that, there's a subgroup of people that we focus on automating our clients, helping our clients how they can further automate their indirect tax obligations globally. And that will be from a determination perspective, from a reporting perspective, compliance perspective, and of course, Vertex is a big component of that, right? So we have been together for a long time. We work from vendor selection solutions, right? So how to make a decision what to implement to also the implementation phase and then even managed services now, how to maintain some of the aspects we implement.

Excellent. Thank you. So we've been talking a lot this morning about what we see in the market, the trends, the system changes, tax changes regulatory. I'd love to hear from you all your lens through that. So maybe we'll start with you, Maria. What trends are you seeing in the indirect tax market?

Yes. You were mentioning some of them before, right? So the first one that we see is definitely digital. That is coming from everywhere on a very, very rapid pace, right? We see that pretty much every week, we have a new country, new region, someone, one government that is telling us that there's a new obligation in digital. And that means real-time reporting obligations. And that means, of course, that people have to be ready in order to have their data very accuracy, right? That they have to be accurate in order to be presented to the tax authority. So I think that other trend that we see is data management, everything related to data management to data accuracy is key. There's not going to be time after the submission or after the end of the month in order to manipulate data and change the data and be able to submit that, you will need to get data right from the beginning. So that's definitely something that is impacting big time what we do from a direct tax perspective, from a technology perspective. And then the other trend that we see a lot is new transformations, right, and new technologies as AI, right? So I think we did a survey to our clients, our CFO clients, compliance clients 2 years ago, where we asked whether they thought that AI was going to be critical in order to their day-to-day business operations. And I think only 10% or 20% said that, yes, that could be critical, but they didn't see a big change. We asked the same question last year, and I think 90% said that, yes, it was going to be critical, and it was going to be impacting all their operations. So another one.

Yes. That makes a lot of sense. Dom, I'm thinking about it from more of a customer lens. Do those concepts resonate with you thinking about it as a user? And then I'm curious, within your organization, I think you have some systems that do not use Vertex. And I'm curious how you think about that with these trends?

Yes, absolutely. Some of these trends do resonate absolutely. And I think you probably heard Mike talk this morning how governments are increasing the scope of taxes, the percentage of taxes. And when they're done raising the taxes, they impose new fees. And so these are all things are complexities that we need to manage. I think that's a trend that's very prevalent these days as states are hard-pressed for their revenue and Vertex through their content helps us obviously keep up with those changes so that they're a trusted partner to help us stay compliant if we're not compliant, obviously, we have issues. And I'll just post Wayfair that I know we mentioned this morning, that was mentioned this morning. My technical partners internally. I'm not a technologist, I'm a tax person, but my technologists now know post Wayfair, they need a tax solution to go live with their project. It's no longer, hey, we can deal with that later. It's a day 1 obligation. So sort of in my practice, I see more proactiveness on the part of the business, on the part of our technology partners internally as they're setting up their platforms or migrating or upgrading their platforms. So those are some trends that I've seen as well. So...

Yes, makes sense. And I guess a little different, Jeff, from an SAP standpoint, but when do you see a company decide to use a Vertex for something like this? Or what type of companies do you see use of Vertex and why?

Yes. I mean, I'll go back to the complexity again here as well, right? I mean complexity is inherent in the DNA of every large enterprise that needs to run applications. There's just no way to get around it. If you can look at operating in multiple geographies across the enterprise, across industries, global, state, local, federal, it's -- there are just so many different complexities that are there and then you layer taxes on top of it, and it just compounds it. And so SAP, we have an industrial strength application, but the fact is we can't be everywhere all the time and know everything. And it's important for us to have partners that we can trust and lean into that provide a core competence in taxes and help us address some of the critical challenges that our customers have and to do it in a really secure and reliable way.

Yes. Dom, you had mentioned that your new business initiatives now you look to a tax a part of that decision. Can you say how did you do that before? What led to that point?

Fit in the game a little bit into a few rodeos. And oftentimes, free Wayfair, I would say, was like 11th-hour thing. Oh, we have to do tax, call the tax guy, he'll fix it, right? But these days, we continue to build out our relationships internally and bring partners like Vertex, like EY, or other consultants in to our business partners as early as we can, and we have these relationships internally that we can leverage to ensure a seat at the table as we move those projects forward. And from there, over time, as I mentioned, we have expanded relationship with Vertex, implemented new solutions, which, over time, our business partner see, ah, Vertex, they become synonymous with tax in our organization, so they know they can dial us up, they can message us and tell us, hey, look, we're launching a project, we need a tax solution. And to Vertex credit, we have a very -- it's not a monolithic organization, as you can imagine. So we have different SAP here, SAP there, maybe another ERP and another division. So each vested with the interest in advancing their project and getting their platform up and running. But Vertex, so Vertex is credit, again, I can swivel to Vertex and say, hey, we've got an integration for this particular e-commerce platform and other businesses. Yes, we've got that. So that's a huge component, a huge win if we can turn around that process quickly. Platform -- scale our platforms accordingly to meet the business need and so on, so.

Helpful. Maria, does that resonate with you in your practice? Are you seeing expansion within a company, whether it's using tax technology for one division or entity your business line and then look at others?

Yes, absolutely. What I see a lot because I focus a little bit more on global VAT, right? What I see a lot is that companies, they normally have a solution like Vertex for the U.S. because you get so comfortable and you understand everything or the benefits that they bring to the table, they want to explore how to implement that outside the U.S. And we see that geo expansion very big. I think there are 2 components when they go through the decision. One is around complexity, what you were mentioning, right? It gets very difficult to be able to track every single rule in every single country, make sure that it's compliant and make sure that you are going to be making the changes. And then also you have to go and make the changes everywhere. So that gets tricky and it's much easier when you have someone like Vertex. That is going to be giving the rules and doing that monthly updates. But then what we also see is that some companies, even if they've think they can get everything in track and they can everything done in another way, they realize because, of course, they can do it through SAP and have a very sophisticated way of customizing their indirect tax there, but then that becomes very costly because you have to maintain it, right? So if you are going to customize your ERP in order to put every single rule that applies in every single country, at the end, you will need to maintain that yourself. And that's where it gets very costly and it gets very risky. So we see that as a massive driver because of expanding.

Yes, it makes a lot of sense. Okay. I'm going to pivot to ERP cloud migration. A big topic for all of us, and we've talked about it this morning here quite a bit with Oracle, moving their clients to Oracle Cloud, SAP moving clients to the HANA. So I'd like to spend some time on that. Before we do that though, let me ask you, Jeff, Vertex is a part of your endorsed program and as part of this HANA opportunity that we're all pursuing together. I was wondering if you could help the group understand what SAP endorsed is and what it means to be a part of that program and what opportunity that affords us?

Sure, absolutely. So SAP offers a wide range of partnering options. The endorsed apps program is for our ISV partners, and it builds on top of a standard partner offerings that we have. And I would say there's a couple of things that are really relevant and worth knowing. Number one, it's a by-invitation-only model, which means a partner can come to us and upped their way into that program. So SAP is the opposite, right? So SAP has to reach out and say, hey, we think you're a relevant solution. We like the functionality. It complements our solution well. We want you to be a part of it. That's the first step. And as part of that invitation, we're doing things like security code scans to make sure that the solution is not susceptible to vulnerabilities. We do integration testing, between the SAP application and the third-party solution. And I can't tell you how important that is because we have to ensure and our customers require the critical applications are running 24/7 on a global basis. And so we have to ensure that as companies are upgrading either their Vertex solution or their SAP solution that it continues to run in a seamless fashion. So that integration testing is a big piece of it on the product side. Now if we flip over to the go-to-market side. And Chris, I think you had touched on a lot of this as well. There's a lot of things that we do together. As a strategic partner, we work on demand generation, pipeline generation, participation in activities, management of joint pipeline, working on opportunities hand in hand, some Vertex led, some SAP led, but there's a big go-to-market component that complements it. So bringing those 2 things together make it a really valuable solution for those partners that we invite into it.

Got it. Great. Thanks for that context. I just thought it would be good to lay that foundation. It's one thing for me to talk about Vertex and SAP, but it will be good to hear from a program standpoint from there. Thinking about the HANA migration, I'm curious, we'll start with maybe Maria. How does EY and you and your practice? How do you think about that? And what role does that play in your business?

Yes. So obviously, we have thousands of companies that they are going to go through that migration pretty soon, right? A lot of them, they are already there or even the -- yes, I know no one -- we have pretty much every client going through that, right, in one way or the other. And what we always try to convey it with the clients is that this is the perfect moment in order to reevaluate the indirect tax technology you have, right? Because, of course, you can have whatever you have today, but that you know that there are errors. You know that there are issues in it to fix. There are things that could be better. You know that technology evolve as well, right? So we always want to try to bring value to our clients and understand S/4HANA as a value prop scenario, a transformation scenario where you can rethink what you have and what you really need. And then there's a perfect opportunity in order to rethink, okay, we do -- what do we want to do from indirect tax determination? Do we want to have a tax engine? Do we want to expand what we have in the U.S. that we want to put it in the other geos? What do we want to do from a compliance perspective? Do you want to put any sort of technology in-house as well? What do we want to do for digital, right? So we always try to have that value prop conversation with them. And I think something you mentioned resonated with me pretty well, which is we try to also make our clients understand that tax needs to be at the table but also needs to be at the table before we kick off the project because by the moment they kick up the project, they already think we know what we want. So you have been able to do that analysis before and understand what is needed, understand your requirements and why a particular solution is going to be good for you. You may miss that boat, right? So you want to make sure tax is at the table and all these kind of tax technology discussions you have them with time.

Jeff, does that resonate with you when SAP is taking a company through a HANA migration, does tax come up. And from your view, is that also a good time to be looking at tax?

100%. So migration is basically just a starting point, right? It's very, very narrow. It starts the process. But from our perspective, it's really about getting our customers on the latest version of our technology including AI and other innovations that we're able to bring forward. And that becomes the basis or the starting point for a true digital transformation within this company. So they have the opportunity then to leverage the new technologies, reevaluate business processes and then set themselves up for success and try to gain a competitive advantage and really a very difficult business environment.

Yes, makes sense. Okay. Really appreciate that great insight. Before we move on from the SAP topic, Jeff, I would just like to ask what's SAP's current view on HANA and the progress against the end of life?

Yes. So it's been a big topic for SAP. It's -- SAP considers it a very strategic focus to get customers from where they are today, one of the latest version, the S/4. So we talked about the migration as being the starting point, and that puts them in the position to work on the digital transformation it's been a focus. We do not expect any slowdown, if anything, possibly an acceleration of those migrations to S/4 to enable that digital transformation.

Okay, I want to shift to our last topic. The topic of the day, today quite a bit is e-invoicing. Again, multiple lenses of how we might think about e-invoicing. Maybe start with you, again, Maria, from your perspective, as a consulting advisory firm, how do you look at it? What are your clients bringing to the table? And how are you helping them?

Yes. So e-invoicing, digital reporting obligation, as I mentioned before, that's a massive issue for our clients, right? Because we see a new obligation every day coming up. So there are 2 things to consider, well, a least 2 things, there are probably many more to consider. But the first one is how you are going to be able to track everything that is coming their way? And how you are going to be confident that you know what is coming about the time is coming. So that's one. And I think everything supporting on those sort of trackers with that is always helpful but then, of course, it's what do you want to implement? And how you are going to handle those obligations, that technology obligations. And what we have seen in the past is because the pace was a little bit slower, and we had some indirect tax obligation in relation to e-invoicing or digital, one particular country here, one particular country there. It was slower. Clients were focusing on identifying those local solutions that they were going to give them what they needed for that particular obligation for that particular moment. But now that this is really growing and expanding, they realize that's not sustainable, right? You need to have 1 solution that addresses all your obligations in the world. And maybe it's not 1 solution, maybe it's 2 or 3 because I think it's difficult to find that magic solution that addresses everything. Although I know everyone is working in order to get to that, right? So that's the first thing that I think clients need to understand what could be that solution that will help them managing most of their obligations. And then what would be ideal if it's just the ultimate goal, right, that, that solution is connected to everything, that is connecting your whole indirect tax process. So it's not only the digital reporting piece, but from the termination, right, that goes to the invoice, that connects to invoicing and then that connects to the reporting piece. So you have end-to-end indirect tax process totally automated for the same solution.

You mentioned companies that are using multiple kind of low-cost point products per country and the challenge that creates. Can you just say a little bit more about that?

Yes. So I think -- and this is something that is normal because of how it evolves, I think. So clients are starting seeing these operations, specifications in countries here and there, and they just went for this costly efficient at a time solution for a particular country, quickly to implement and we have it done, and now we are done with this one, let's go to the other one. But I think clients they're realizing, companies are realizing that, that's becoming pretty expensive at one point, right? Because it's very difficult to maintain when you have 50, 60, 100 solutions out there, it becomes costly and it becomes risky. So it was normal that they were following that path, but I think clearly, everyone is understanding that's probably not the way to go.

Okay. Very helpful. Dom, from a customer, again, user standpoint, how does Comcast think about this problem, solve for or anticipate solving for it?

Yes. I think I'm going to echo a lot of things Maria just said, which is we have an obligatory sort of build-buy analysis. And so we quickly got to the buy and the determination just because of the complexity and the ability to keep up with the changes and so on and when we're maintaining that, that introduces a level of risk that just isn't acceptable. So our organization is looking for a vended solution, evaluating vended solutions that do integrate with other parts of the tax life cycle, if you will, and entertaining solutions that would serve that need, evaluating we're sort of midstream here, managed service offerings and so on. But definitely, like Maria said, it's when you have a patchwork of sort of solutions, that's super complicated to keep on top of and making sure your check in and everything is coordinated with these multiple vended solutions or solution providers is a challenge. So we're working diligently with our VAT team to kind of get to a place where we can get to a more unified kind of solution. So that's our goal.

Great. Makes sense. Okay. We have a few minutes left. I'm going to close us out here, which is kind of a generic question for each of you from, again, your lens. Looking ahead, what do you see ahead? Do you see any of this getting easier? Do you see it getting more difficult? What's your outlook as far as the tax technology space next few years?

I hope no. That's my job. So sorry. So hopefully, it continues getting more and more complex. That's where we drive, all of us probably. And no, I don't see this getting more easier, right? I see that governments are discovering that by implementing this kind of new rules and legislation, right, it's better for them to avoid fraud, it's better for them to be more on top of revenue, it's better for them to get more revenue. I don't think this is going anywhere else, and it's difficult to track this without the proper technologies. So I think this trend will continue, and we will see more and more how companies they need to use technology in order to be able to be on top of their indirect tax obligations globally. We are even considering that maybe on one point, there won't be returns, right? Because the tax authorities will get the information already through the reporting real-time reporting obligations. So what do we do with that, yes.

Yes. I'll again echo Maria a little bit on this. But as I mentioned before, state and local governments, that's kind of the space that I work in primarily, but that revenue base, the sales tax and direct taxes represent such a substantial portion of the revenue base, it represents an area that will likely be an area where they continue to increase the tax rate, increase the tax and the fees that I mentioned. So that introduces us more complexity in terms of compliance and keeping the compliance risk down and we'll be looking for solutions to help us minimize that risk. And I think the Vertex Solutions will help us do that. So...

And Jeff, you may not be from a pure tax view on this question, but just thinking ahead, partnering, solve problems like this, how do you think about it?

Absolutely. Well, the one thought that just popped into my head, we keep talking about complexity and for some reason, I remembered something I learned in college in the previous century, which was that the universe tends towards disorder. And I think it applies in the case of taxes, complexity just keeps on growing. And I know, Maria, you wanted to continue. I prefer that, that didn't happen, but we're not going to violate the laws of the universe, right? So I do expect it to happen, and I think it's in customers' best interest to work with the top companies to tackle that complexity and to do it using proven systems, proven partners, proven applications. And so that's kind of my view going forward is, we really need to work with our customers and to try to bring the latest technologies to those customers to help them manage the complexity.

I'd like to thank you all very much for spending your time with us today. Hopefully, we accomplished our goal here to hear about this industry and this opportunity from different views and from different lenses. And we thank you all for the time. We're going to transition to John Schwab, as our next section. Thank you very much.

Thank you.

Terrific. Thank you very much. That was a great panel, how about it. That was very good. Nice to get them here and hear from the third parties, how things impact tax. First of all, great to see everybody. Thanks so much for those of you that turned out in Philadelphia today to see this. Great to see you in person. For those of you that are participating online, thank you very much for joining today. I'm going to get into a whole lot of information here. We'll cover a lot of numbers, as you would expect that we would in my presentation. But before we get there, I'll first get to the right slide. Terrific. But before we get there, I want to make sure that I leave you with one message, and that is that this is a very consistent and repeatable business with durable revenue growth. I think a lot of people have discussed that today, and I think you've seen that, but I want to be very clear. And this team believes that we can continue this growth for years to come. So with that -- I love this chart. It's one of my favorites. It really demonstrates that this is true. What you can see, it's 20 years of history. For 20 years, Vertex has continued to grow the business year in and year out, and we've never gone backwards. And it's very -- I think it's very impressive. Even through challenging times, the global financial crisis down there on the left, through regime changes in D.C. through up cycles, through down cycles. One thing that's consistent, we've continued to grow. And if you look to the right side of the chart, in the more recent years, we've only accelerated that growth. That's because the senior leadership team here adopted an agenda for growth, and we've been able to deliver on that. It's an impressive track record, no doubt, but the team has been here today to explain and articulate the story of why we believe we can repeat this for 20 years to come. So why are we positioned -- well positioned for durable growth? I mean, I think it all starts really with the recurring nature of our revenues. 85% of the revenue that we have is subscription-based. And when you combine that with that 94% to 96% gross revenue retention that leads the industry, it really demonstrates the very sticky nature of the solutions that we have. And by and large, when customers -- once we get installed in customers, we don't get taken out. I think rather, as you've seen and as Chris demonstrated on the slides there, there are such powerful slides, there's customer expansion slides. Customers expand their usage with us. Customers buy new tax types, they build -- buy more modules and leverage that out. And you've seen that in a number of different examples that the team has presented today. And at the end of the day, this translates into strong earnings and cash flows, which we can then reinvest back into the business. And we've shown that we -- when we invest in the business, the expected returns manifest themselves in our financial statements. So as you've heard today, certainly, our growth opportunities are robust, and they are sustainable. I want to just spend a minute and dive a little bit deeper into the resilient recurring revenue that we have. On the top of the chart, you can see our ARR, annual recurring revenue, it's a key -- it's a leading indicator to our revenue growth and how that's going to perform over time. We're very pleased to see that the strength, this has exhibited over these years. And that really -- and again, that demonstrates the resiliency that we're here talking about. But a lot of reasons for the strength that you've seen. It's driven by a lot of activity. The transition to the cloud, the transformation that the panel just talked about, that is taking place all over enterprises around the world, that's here to stay. It was interesting to hear the panel describe that indirect tax is becoming a much more of a conversation in companies as they draw their attention towards it because they -- because of the complexity that's associated there with. At the end of the day, we're seeing it in our pipelines and in the opportunities that are out there. Evidencing this, when you look at our 2024 results, our cloud revenue grew at 29%, which is very impressive. When new customers come to us, over 90% of the time, they're looking for cloud solutions. And this is no surprise. We develop, we go to market and we sell cloud first all the time. It's very important, and it's a great business driver. However, it's important to keep in mind that we still have a sizable on-prem business. About 50% of our subscription revenue is coming from the on-prem business. And those customers have demonstrated over time that it's -- when it's time for them to migrate to the cloud, they migrate with us, whether that's individual pieces at a time or the entire thing with an ERP transformation. They stick with us. And the beauty of this is, typically, we end up with about a 30% like-for-like price increase when that occurs. And again, this revenue -- the beauty of this is this revenue growth then translates into earnings growth. As I mentioned earlier and the -- as David mentioned earlier in the day today, we invested heavily in the business when we came out of the IPO, that 2021 to the middle of 2023 time frame, that's why our profit margins -- or our margins were lower in that time frame. During that time, we made a number of investments. We invested in go-to-market, building out an indirect sales team, building out that customer success team that Chris talked about. Both of those things have allowed us to expand markets and geographies, and they demonstrate themselves in our numbers. We also invested in new products. We invested in products, you've heard us talk about like Chain Flow Accelerator, the edge products, the LCR-Dixon tools. All of those have contributed to our growth over time and new market opportunities and are going to continue to do that into the future. We also invested in some investments on our own infrastructure to build -- to ensure that we were capable of expanding them being this multibillion-dollar company that we aspire to be over time. And so once those investments got completed in the middle of 2023, we saw significant leverage in our margins, and they demonstrate themselves through '23 and through 2024. And so we are very pleased to see that happen because as those investments end, we see that immediate inflection point and that inflection point translates into earnings and then the cash flows. And we were very pleased to see that when you exclude the dilutive impact of the ecosio's operating losses, the investments we're making in that today and some of the -- in 2025 and the investments in AI we talked about, that core Vertex is operating at about 25% margins. So in summary, I think the important part here is we make prudent investment decisions and we deliver on those results. And those results then translate into free cash flow growth. And you see that, you can see that during those investment periods that 2022 to 2023 period, that growth has slowed. But 2024, as that inflection has occurred was a record year for free cash flow. Our free cash flow is almost $80 million, and our free cash flow conversion rate was over 50%. So we're very pleased with how that has turned out. We did make a strategic decision to make some selective R&D investments in 2025 that we discussed on our most recent earnings call. We saw the opportunity to step on the gas, make some investments faster into the business, the businesses that we acquired in 2024 to drive future opportunities. So we think there's going to -- we think that this is going to be a significant investment that's going to drive opportunity. And once those investments are done, they all have defined periods. When those periods are done, you will see significant margin inflection as you did with the previous investment cycle. So we're very excited about the opportunity and very excited about the new products coming to market and the margins that they're going to drive. I just wanted to spend a quick minute and dig into some of the sources of revenue. Some of my colleagues have discussed this before, but I think it's really important when we talk about consistency. Consistency is one of the things that we pride ourselves after. And over time, we've been able to demonstrate that in the financial statements and outside of the financial statements. But when I look at this, this really brings home the point. Consistency on the left side of the page, that new opportunities, 70% are coming from those existing customers, 30% are coming from new logos. That has happened roughly for the last 5 years. Take a look at that chart. It moves a little bit, but generally speaking, the consistency holds true. Again, same thing, you move on to the right side of the chart. The existing customer rubric that exists to build up -- to build up our NRR. 50% of opportunity is coming from those cross-sells. People buying new modules of our software. 25% comes from expansion of the existing products that they have and the final 25% that comes from the price increases. Price increases in that area, we certainly leverage on that tax content we deliver on a monthly basis as well as the additional functionality that we deliver when we go to our customers with those price increases. And at the end of the day, we get our price. I want to spend a minute and talk a little bit about M&A because M&A has played a role in our growth strategy over time. However, we always want to be mindful and be very selective about the opportunities that are out there. And we want to make sure that we're focusing on those opportunities that are in our lane of indirect tax or that we believe that we have the permissions to really leverage our customer base. Now when I think about -- Chirag did a great job of setting this up and discussing about how M&A rolls into strategy, when we think about -- when I think about M&A, obviously, we're looking for opportunities to expand our existing markets and then develop complementary products or solutions to our customers. 2 of the most recent examples, and we saw them -- were the acquisitions we completed this year. First was the AI acquisition we purchased from Ryan in the middle of last year. When you look at what we did there, the purpose of it was we invested in the acquisition to accelerate our AI innovation strategy to help companies that manage complexities around tax categorization. And then ecosio, certainly -- we certainly talked about it from an e-invoicing perspective and a CTC compliance standpoint, a tremendously important asset to build out our end-to-end compliance solution. When we think about ecosio, certainly, it's a European company. It opens up a tremendous international opportunity to us for all of the CTC activity that's taking place worldwide. But in addition, as we thought through the -- when we thought through the thesis of this, our belief is that we can leverage those existing U.S. multinationals that are our customers. because those are the ones that are having significant impact from these new and evolving regulations that are out there. And so that's an area that we think we are very excited -- we are very excited about for sure. At the end of the day, we're also taking that ecosio solution. We're combining it with the Vertex, VAT solution and going to market with a combined solution that is unique in the market today, and we believe that's going to win in the long run, having that end-to-end solution, touch it once, get your compliance done, get your taxes filed at the end of the day, one version of the truth. So a very great opportunity for us to leverage in this very exciting market. Finally, I'll say before I turn off the M&A -- this M&A page is that I want to be clear that I'm going to give some targets a little bit later on for growth and what we expect in -- by 2028 but any M&A would be supplemental to what's there. There's nothing baked in from an M&A standpoint. I do want to do a quick double take around the ecosio acquisition and talk a little bit about the investments and the discipline that we have when it comes to M&A. We did have a number of options when it came to selecting an e-invoicing partner and focused on acquisition. And we believe we ended up in the right position with ecosio. But from a shareholder standpoint, I think it's really important to look at the total cost of the acquisition and what we got for it. Because when you factor in the upfront purchase price, you factor in the additional earn-out that we're going to be paying as well as some of the near-term operating losses and the investments we're going to make in 2025 and the first half of '26, the total investment demonstrates sound financial discipline. When we get this up and running, we anticipate that revenue from the ecosio and the e-invoicing solutions is going to represent about 7% to 10% of our total revenues by 2028, which demonstrates strong growth and the significant opportunity. So while we may have looked at another -- other options when considering ecosio, we believe we've demonstrated to investors that we do the right thing, and we ended up with the right party to help us capitalize on the opportunity that's in front of us. I want to spend a quick minute and talk about R&D because we continue to enhance our platform through research and development, again, like many other aspects, financial aspects of Vertex, there's been a lot of consistency that takes place across our spend -- across our spend areas, and it travels down into research and development as well. We look at research and development spend, and we consider that the amount that we have as expense on our P&L as well as the amount we capitalize as part of our capitalization policy. And when you look at the total spend, that total spend for the last 5 years has averaged somewhere between 17% and 18.5% of revenues. And so that's been a consistent -- another consistent performer across the board. And while we expect this to be somewhat increased in 2025 due to the additional investments that we discussed, we expect that over the long term, and that comes back to us that we'll see -- we'll continue to see ourselves operate in this kind of 17% to 18.5% range from an R&D perspective. Just moving a minute to our guidance for the first quarter of '25 and the full year '25. This is the guidance that we initiated during our earnings call for the fourth quarter at the end of February. But today, we're reaffirming that guidance. For the full year, this represents revenue growth of approximately 15% and adjusted EBITDA margin of 21%. And so while the first quarter revenue growth was slightly lower than our recent quarters due to a challenging year-over-year comp. We have confidence in the pipeline that's out there to deliver the results for our full year. So I'm going to update our long-term financial targets today as well as adding a couple of new additional long-term targets that we've not provided previously because I think it helps better understand the story. So over the next 4 years, including 2025, our goals are to increase our revenue growth to the high teens. And so we anticipate that we can deliver this on the high teens on a consistent basis. It's really going to be driven by the continued momentum from the existing customers, as we talked about today, that cloud migration that's being fueled by the ERP conversion, ecosio and the e-invoicing solution that we anticipate will be about 7% to 10% of revenue by 2028 and some additional new product offerings. So in order to get this, we do anticipate an acceleration of subscription software revenue and subscription software revenue just for clarity, includes both our cloud and our on-prem software. That's going to advance to over 20%. And our cloud revenue, we expect to be over 30%. Again, the drivers here, steady migration to the cloud, continued focus on our software revenues from our ERP partners as well as from our referral partners. And then finally, making sure that we manage our services revenue to ensure that we're maximizing revenue opportunities from our partner relationships. Next, our goal is to drive adjusted EBITDA margins into the high 20s with adjusted EBITDA to free cash flow of over 70%. The growth is going to be driven by a number of factors. First, there's going to be a more normalized level of R&D spend contributing an additional 1% to 3% of margin from our 2025 guidance. So that 21%, we anticipate that to be increased by 1% to 3% from R&D spend. Second, leverage in selling and marketing expense contributing an additional 1% to 3% of margin as we complete the build of the CTC and e-invoicing initiatives and see the benefit of those investments over time. Finally, from a general and administrative expense, we anticipate 3 to 4 points of additional margin improvement as those investments that we've made historically will show value in the future as we can leverage that infrastructure to drive our business. The good news from this perspective is that from a business standpoint, we feel like we've got all the pieces in place to achieve these goals. I want to spend a minute and talk briefly about our capital allocation framework. I think we've demonstrated a disciplined capital allocation framework over time. Our number one priority continues to be organic reinvestment in the business has been our case through history. As we mentioned in our recent earnings call, in 2025, we're going to be making 2 significant investments along these lines to accelerate ecosio's go-to-market function as well as country coverage and to launch our AI-based Smart Cat product. So that's going to be certainly a priority. And then when we turn from that, in addition, targeted M&A, debt repayment, including the ecosio earnout and convertible debt as well as return of capital to shareholders or other potential uses of capital. In summary, listen, I want to leave you with the fact that this is a tremendously attractive recurring revenue model with tremendous consistency as you've seen over the years. We've accelerated growth in our core plus a number of tailwinds coming from the ERP migration, the e-invoicing and VAT opportunities that are going to allow us to deliver that high-teens growth. We have proven financial discipline, and continued demonstrated financial performance through leverage on the investments that we've made over time. And we're focused on our priorities. We have our near-term priorities as well as those our longer-term priorities that will add benefit for the company over time. And the fact of the matter is the growth targets that we have are driven by demonstrated market opportunities that provide an acceleration of this growth. So thank you all very much. I appreciate the time, and we'll -- I guess, we'll move to the customer panel -- or sorry, Q&A at this point. The riser here set up for the panel to come up for Q&A. And well, I spoke too soon at the break or a little bit over time now. So if we need to, we'll extend beyond 12 if there's enough questions.

[Operator Instructions] Who'd like to kick us off? Samad, right next to Beth.

Samad Samana from Jefferies. First, congrats on all the success post IPO, and it's great to see both the progress that you've made as an organization and the future that's on the horizon. It's exciting for the employees and for all of you guys, so congrats again on that. Maybe first, John, that 20% growth number for 2028, obviously, it implies acceleration. There's a lot of investments in product and distribution. But how much confidence do you have in that number, especially as the dollars get bigger? And I know you gave some of the embedded assumptions, but how are you thinking about how much of a role new product innovation is versus distribution versus ecosio getting to that 20%?

Yes. Great question, Samad, and thank you and others can feel -- jump in on this, feel free. When we thought about it, the opportunities are there in front of us. You've heard about them today from a number of the people that were here on stage, as we talked about the opportunities around the expansion and migration to the cloud. And those activities and those tailwinds are there and they're in front of us. We see that showing up, like we talked about at the year-end -- in our year-end conference. We are seeing activity in our pipeline, demonstrating itself, which is important, right? They're going to be the drivers. We see the activity out there. Our sales team continues to be very busy with opportunities that are out there around that conversion. And then again, when you add on to that the opportunities we see from ecosio and the Vertex e-invoicing solution, that growth opportunity, we think, is robust for sure. And again, that's only going to accelerate because we've got the mandates that are effective now, but the newer ones that are coming and then the opportunity to leverage in to the -- to those existing customers that are using other service providers for point solutions. And so we think it's there for a long time, and it's going to be very robust.

David, I got a follow-up for you. So look, a question that we get a lot from investors is for a company that's been around as long as Vertex has the amount of logos that you have is actually probably not as big as you would think for a company that has established and successful. And I know you talked about the partnerships, I guess as you just take a step back, thinking as a CEO, what should the footprint of this business look like in terms of like with global corporates over that time frame, whether it's through the guidance horizons or just more broadly because if I think about something like Shopify, they alone have 20,000-plus large customers on Shopify Plus, right? And if I think about Salesforce ecosystem, SAP, Oracle, I add all your partners up. There's this massive list and your logo footprint is relatively small compared to that, what should this look like over the next several years? And how much line of sight do you have into that?

Yes. I think it's a fair question. I think if historically, prior to the investments we made coming out of the IPO, we really only fished in the ponds of Oracle and SAP. Now we're building channel relationships with Shopify. And so we're proving our brand inside of those communities and getting references inside of those communities, Microsoft being a great example, Shopify, Salesforce. And so that has started to give us -- to the question you asked John, we're fishing in more ponds, which is giving us more opportunities for sustained growth at higher levels because of that. So that's number one. Thing two, and you heard on stage from Maria, the complexity outside the U.S. is accelerating with EY. So our ability to expand our brand in Wind logos, leveraging EY, PwC, others and the great relationship we enjoy with the ERPs globally gives us a chance now to build our brand and start getting that reference base globally. And we're seeing that in the DACH region, for example, where we've landed some of the largest companies in the world based in that region, who are now showing up at our customer conference that we have coming up in a couple of weeks that to pay off with new prospects, why they should be working with Vertex. So that flywheel is starting to accelerate because of all the go-to-market investment we made over the last several years.

Thanks, Samad. Josh was next. I do ask that you don't double dip. I know we usually permit that on the earnings call, but let's try and get to as many people in the room as possible. Thanks. Josh, go ahead.

All right. Josh Reilly from Needham. Thanks for all the great information today. I just wanted to touch on the depth of your tax content as a competitive advantage. And does AI impact that competitive advantage going forward here? Or does it maybe even bolster your capabilities relative to the competition?

Let, Mike answer that.

Sure I can start with that. I think one of the things that tax departments know and Dom reflected that as well, is that the granularity of tax, particularly here in the U.S. will continue to be there. And I mentioned a couple of things in my comments was that I thought at the local level, we've seen record numbers of changes, both for cities and for districts. And David, you had mentioned that the thing that you have to remember is that all of that information below the state level is not published anywhere. So AI is necessary to kind of grab all of those thousands of jurisdictions to actually promote those rules. And then actually on top of that to actually create a category that where people can actually map to those things. That's the first thing where we see AI in the competitive advantage. And then the second thing I mentioned briefly, too, was that with the e-invoicing mandates, the fact that all of that work in the number of jurisdictions, I think, Chirag, that you had mentioned, is that it's not harmonized, okay? There will be 30 common points that Poland may have and France may have and Romania may have. But the rest of it, they want this kind of -- they're creating their own ecosystem around transparency as they see it. Historically, in the tax world, that would all have been harmonized. And we would have kind of one system in order to report into, but it's not going to be that way. I know there's initiatives to breach harmonization by 2030 or 2032. But quite frankly, those are rather ambitious. So AI is going to be needed to actually gather all that information, pull it together so that it's in a very accurate database where customers can actually map their products into that database and actually do compliant reporting.

Mike, we've talked about the nuance of it can get us close, but because of the interpretation of language that still need that final mile expert in the loop that actually create -- especially for the enterprise market.

It is, particularly, yes. There could still be, David, you're right about that. There can be still special rulings. There can be things that are out there that simply AI just kind of can't detect the nuances in all of that. And so there's still the human in the loop piece of it. And they're still -- well, you've got a great organization of 100 researchers that really still need to review those things. So all of that is important to get accurate reporting.

Just quickly, AI also can feed the engine. We talked about the deterministic engine. It can feed the pipeline of content and drive us quicker down to that level of granularity. Large language models are only as good as the training data. The training data can only -- you can only process so many times as well. So there's a lot of challenges in how do you update the LLMs fast enough as well.

So this is going to be a hit and run. Brad tells me he has to leave after he asked the question. So go ahead.

Great. Brad Reback, Stifel. John, if we think about the pacing of the 20%-plus subscription growth, given kind of the commentary on the upfront investment, should we think about that at the latter part of '26? Or more into '27 and exiting '28?

Yes. I would say, Brad, is probably more into that '27 and into '28 kind of time frame and exactly for the reason you said. We're making a number of investments in areas, certainly around the e-invoicing to grow that opportunity. Those investments will take some time. We will see it this year certainly start to show itself up in our ARR. But I think then the revenue will demonstrate a bit in '26, but I think it will get up and moving even more fast at the end of '26 into '27. Thank you.

Adam? Trying to be diplomatic and work both sides.

Adam Hotchkiss, Goldman Sachs. I wanted to ask on ecosio. I know when you acquired that solution, I think you had mentioned maybe relative to some of the other e-invoicing peers in the market, the go-to-market function was a little bit less built out and you obviously paid a little bit less than some of the other assets are worth in the space. So could you maybe let us know 6 months into that acquisition, where you feel competitively and what gives you confidence?

So ecosio actually does have some geographic presence and salespeople in places we did not. So it's actually been additive by bringing them on. From a competitive standpoint, when we are in an account that wants and looking at this from a global standpoint and they're not just looking for a point product, as Maria mentioned earlier, we're very competitive in that space. And we will be looking to expand beyond the current footprint of Vertex ecosio Europe in the second half of this year.

So in U.S. market, we've got more than enough coverage for it, correct, Chris? From a sales coverage perspective.

Yes, it's interesting, e-invoicing while it's a European phenomenon, U.S.-based global multinationals have to deal with. So that fits very well within our current motion and coverage for North America.

Anyone here in the middle section. Yes, Chris?

Chris Quintero from Morgan Stanley. Thanks for doing such a great event here. It's been quite insightful. I want to ask on the installed base. You had a slide in there that shows about a 2 to 3x uplift on the installed base once you get to full penetration. So can you help walk us through those building blocks that get you from today's current level to that 2 to 3x uplift? What are the big levers there?

Yes, sure. I mean, not to be repetitive, but it comes back to a lot of the catalysts you heard about today. So one is tax type. We have companies that go from sales tax to adding use tax to adding VAT tax. So you have a tax type expansion element to it. You have the geographic element to it. So you may be using our VAT product just for Europe. Well, you can expand to Asia Pac and South America and other parts of the world. So there's a geographic expansion. There's a tax type expansion to it. And then there's a pure just add-on product set element to it. So you're adding exemption certificate management or the Edge product I referenced earlier and the various add-ons that we have. So they're kind of the building blocks to go from a customer that's penetrated X percent today to what their real opportunity is.

Alex?

Alex Sklar with Raymond James. John, just a quick clarification, and then I had a follow-up on ecosio, but the 20% software framework, is that intended to be a CAGR over the 4-year period or that's point in time kind of as we get to the end of the 4 years, what we should see kind of the 20% growth?

That is a point in time when you get there, that's kind of what we expect growth will be.

Okay. And then for Chris or David, on ecosio and kind of following up on Adam's question, I just want to ask about adoption curve. So we talked about kind of getting to 7% to 10% of revenue implies a nice acceleration here. You said you're starting with your installed base. Like how do you see the new logo opportunity manifesting from e-invoicing? And then what does the landscape look like in 4 years, given some of these rules are rolling out now? Is it bended in 5 years and then it's kind of a replacement market? I'm curious how you think the landscape will evolve?

Yes. I think the new logo opportunity is weighted a bit more to Europe, while it does exist in the U.S. and Europe. But for us, because of our large installed base in the U.S. We see that as an installed base focused cross-sell opportunity with Europe being more of a new logo opportunity. I think part of how it manifests itself over multiple years is the behavior we're seeing in the market is companies wanting to start with 2, 3, 4 countries and then adding countries over time. And then if you compound the adding of countries over time with their invoice volume increasing is a big contributor to how e-invoicing grows over time. And that's a phenomenon we're seeing in the industry. It's not a big bang. It's more of a grow over time type approach.

And I think that last piece is a really important one to appreciate. They're going to start with a few countries, which means their invoice volume might be tens of what they actually do globally. And then as more countries are adopting and we're building our brand in terms of the one that roll out in more countries, you'll see invoice volume accelerate. And that's really when -- that's why when John highlights it's more on the back end. It's that phenomenon we're seeing pretty consistently.

Anyone from the left side of the room? Yes.

This is Will Jellison from D.A. Davidson. You've spoken today about expanding into the complex customers within mid-market. I'm squaring that with in the past. You've also talked about how you've been successful in prior RFPs, winning those deals even at a significantly higher price point because of the advantages you offer. As you expand into the complex end of mid market, do you expect that price differential to sustain because of the same advantages you offer? Or would you expect slightly more price competition with that cohort of customers?

I actually expect it to stay and maintain because company size is just a proxy really. If you're a $100 million company or you're a $1 billion company, they can have the exact same complexity and challenges. So if you're a $100 million or $200 million company, where you have multiple systems in multiple geographies and multiple lines of business, you really have the same complexity of a company much larger than you, and you're willing to pay to solve the problem, and we have the unique solution to solve the problem. So I really think we will be able to maintain price points in something that is simple, where they do not have that complexity, I think price does become more important.

Pat?

Great. Pat Walravens from Citizens. Great day. Thank you. David, your team's hard work is appreciated. And the long term, obviously, is super, super important, but it's also -- especially when you time these Investor Day towards the end of your quarter, right? I think it's also really important that we talk about the near term. So there's 11 days left in your quarter. What's it like out there? How's business?

As we said in our call a couple of weeks ago, the funnel is operating exactly as it has. We're not seeing any change from a macro perspective in terms of top of funnel or execution going through. So comfortable with the guidance we gave and comfortable with the trajectory, how it needs to set us up as ARR as we look at the acceleration for the back half of the year, no change.

Yes. We're not seeing any abnormal behavior in the market. We're not seeing deals delay. We're not seeing stall. We're not seeing change. It's business as usual to David's point, we're not seeing any other dynamics.

Right. We're going to come up. We've got a bunch of questions on the front row here from our sell side. So let's just go down the line, start with Dan.

Dan Jester, Bank of Montreal. So in the slides, there was a $1.8 billion TAM from the cloud migrations. I think we've talked about the uplift a couple of times 25%, 30% uplift. But maybe just double-click on some of the assumptions to get to that $1.8 billion and how we should be thinking about it?

Yes. So First of all, it's from now to 2028, it includes both SAP and Oracle. There is additional value that can be created beyond 2028 because it's a longer horizon. And we expect that a number of companies will reinvestigate or rethink their tax engine decision, as Maria pointed out, as I described. And we think that we can earn or capture a fair share of those opportunities because historically, in these formal decision, the RFP area, we seem to do pretty well in terms of capturing that market.

The $1.8 billion itself came from industry data that Oracle...

Yes. It's an industry -- we use industry data to come up with that number.

Yes. That's what I think.

I think just to build on that a bit, in my organization, we love migration opportunities, right? Because a lot of the clients that are using our legacy products, they did not handle VAT or consumer use tax. So when we're working with the client, they may have had this requirements for quite some time, and they've been using either native ERP or some band-aid approach to that. Now as part of the migration, we can bring sales tax, consumer use tax and VAT into the conversation, and it's a phenomenal upsell opportunity for us. So we -- that's where you hear the 30% uptick that we get on the cloud.

George?

George Kurosawa with Citi. I wanted to ask about the cross-sell opportunity. You gave some great slides showing kind of customer expansion over time. One of the things that stood out was sales tax for a few of those examples was the small minority of the total ARR stack. Can you guys just talk about your ability to proactively cross-sell kind of the breadth of solutions versus more reactive like waiting for problems to come up with customers? Like how is that muscle developed?

Yes. So we do constantly proactively sell and cross-sell. It's the external catalyst that sometimes give us that extra push to get the sales motion actually going. A lot of it really depends on us. We profile the accounts to understand what they could or should be using in addition to sales tax. I'd mentioned consumer use tax a couple of times. That's pretty much something any company that buys things would use it. But some of those offerings do not apply to all companies. So we profile, we target, we are proactive and then that catalyst event is sometimes the extra push we get.

Jake?

Jake Roberge with William Blair. I know there's been a lot of talk about the ERP and e-invoicing opportunities, but from the presentation, it sounds like you're starting to get more traction with the AI and smart categorization solutions. So 2 questions just on that front. I know it's starting in retail, but how quickly could you get it out to all of the industries across your customer base? And then when customers do adopt, what type of price uplift can they see for those smart categorization products against the core?

So how quickly -- obviously that depends really a little bit on the segment that we're addressing and the starting point. So the reality is you have to train the model. I think we can do that relatively quickly in signing resources. As we said, we have our own tax research people that would sort of start to be assigned and find the model together with the customers, and it's also a question, will the customer put resources in or not. What we've seen actually is that the training of the model in sort of some early experiments was actually very quick, like as I described, you let this thing run. It suggested something. We think it's wrong, you correct it. And once the more often you do that, the quicker this thing learns and then it gets speeds up. So it's difficult to really qualify that in months or something, but we're actually very confident that we can roll it out relatively quickly. We really, at the moment, we want to make sure we do it in a controlled way. So if you really find the problem, you don't want to have 100 customers having that problem. So I think we're very cautious around it. And as I said before, I think we have a very focused process in doing that so that we really deliver high quality and high user experience.

For pricing perspective, I don't know, how are we going to price it?

Well, so we're going to price it based on consumption. So you have a lot of products, you'll pay more. You have only a couple of hundred products, you don't pay a lot. So it's really consumption-based, but we will also expect since you're continuously using it, it will be generating a meaningful uplift.

Yes. And the beauty of AI is it's a gift that keeps on giving because it is growing and getting better and better. Our cost model is really, really strong now. We have an economy of scale that's getting better as well. So at some point, maybe 70% of the products will get auto categorized and then over time, 75%, 80%, and there's going to be more and more consumption based on that.

Anybody on the left side of the room? Anyone else, how about Rob Oliver?

Rob Oliver with Baird. I appreciate all the detail. Two-part question for Chris. I guess the first is, you mentioned and you guys have called out previously some of the success you guys have had, say, in oil and gas. Then you talked about some of the potential to allocate resources within the go-to-market opportunity around other verticals. So I'd be curious to hear if there are other verticals right now that excite you as potential opportunities where given more of a focus with the vertical-focused sales maybe in a year or 2, we'll be talking about that vertical and not oil and gas? And then my follow-up question was just maybe a follow-up to Samad's question around Shopify and it does seem like we're at a little bit of a tipping point right now where Shopify is starting to expose some of the weaknesses of some of the incumbent legacy commerce marketplaces. So I'd be curious to get a little bit more detail on your comfort level with your relationship with Shopify as they move up market.

Sure. On the vertical front, we are in early stages with medical device. We've built out a specific content set for medical devices that we believe, to our knowledge, is unique in the industry. So that's the current target. There is not some other big shiny unique vertical right now. Most of them are just content plays at this point. When I referenced leasing and retail earlier, they require actual different software and a different overall solution to address those markets. And we really don't have any of those on the radar right now. We will pursue content expansion after medical devices for future verticals. As far as Shopify, really exciting relationship. They are really trying to come up market and view us as a key piece to help them do that, and we view it both ways. So you're seeing that traction in the market. We're seeing that expansion. And we're working with them in different ways. There's a referral agreement. There's some other different tighter ways that we're working together and it's nothing but positive. There have been questions about are they a competitor potentially for us? They're not. They solve for the very simple down market, just like an Oracle or an SAP or any of our other partners can solve for a simple client. And then where that value add when the complexity goes up.

For ecosio, where do you see the incremental margins coming in after the investment period?

Yes. I'll start. I think I anticipate seeing the margin come out of selling and marketing because we are ramping up a go-to-market force that's there. And then also in the R&D space, I think R&D is going to be an area that we have continued to invest in to make sure that we're giving that country coverage, and we want to make sure that, that gets where it needs to be.

That's great. I was actually asking like where do you see operating margins shaking out when you get to the 2028 time frame?

We're not giving guidance on specific, I'll say, segments within our pie. But again, ecosio, as we talked about, as negative adjusted EBITDA margins now. We continue -- we expect that, that will continue through '25 as we make further investment in it. And again, we see that being EBITDA positive in that first half '26. So that's when that turns. So we didn't give any further guidance, Corey, on where that all kind of flushes out when it's all said and done. But it will start contributing certainly in the middle of '26. And again, we anticipate that it will share similar kind of -- a similar view of what ours look like over time. I can't say that, that's by 2028.

Last call for questions. Yes, George.

So this is a wonderfully organized event. Thanks so much. The -- a few quick questions. One is the tariff, which is the big elephant in the room and people call that a form of tax. Do you see that as a long-term opportunity? That's question number one. Question number two is the 20% top line growth in 2028. Is that some kind of a peak and then it starts to slow down? Or do you think it's sustainable over the next, whatever, 5 to 10 years?

Mike, why don't you address the tariffs.

On the tariff piece, I would say this. Tariffs have been in place, I think, for quite a while. And certainly, they were in place in the first Trump administration when they impose them. Those tariffs never came off in the Biden administration. And the reason it's gotten a lot of press recently is because President Trump has made a policy decision that he feels that if you want to sell into the U.S. market, you are going to either -- it's going to be fair trade. It's not going to be free trade. So in other words, if you tariff us in your country, we're going to tariff you. And so that's his kind of thinking. It's a way to bring about change in the way he kind of thinks about that. So for us, as most of the people in this room knows is tariffs are always paid by the importer of record that normally goes into a very -- it goes into the base of it. It actually affects the calculation of the VAT or the sales tax. So it's kind of embedded in already. We don't see that as a business, David, to kind of grab on to. And one thing I would point you to, there was a really good article in the Wall Street Journal on Monday about Walmart and Target who are already -- maybe you saw it, they've already trying to get concessions, particularly from their Asian manufacturers to try and get those share in the cost of those tariffs. And there was a lot of pre-buying on tariffs too as well, particularly on the West Coast, we saw container traffic go about 30% in November, December of 2024 and then in January '25. So a lot of companies have pre-bought already for that. So I think they've kind of managed the ways around it. The thing that we normally say is what we've told the indirect cash group is be prepared to work with different suppliers and where they come from. And normally, what we're starting to see is some movement towards in-country suppliers here in the U.S., particularly if they're using different suppliers from say, foreign suppliers. So that's what we've kind of told them that your obligations will change as it relates to the supply chain.

So it could be a tipping point, meaning if they change their global supply chain, they may have to do with new VAT regulations or e-invoicing they previously didn't, which could create -- potentially have an impact for us. But given the volatility of tariff today, gone tomorrow, we're not building our business case of success based on that.

In terms of the guidance, George, thank you for the question. we see opportunity for expansion, obviously, on the growth that we're seeing today. And some of those drivers that we talked about, and Brad asked that question about how do you see this happening? It's really towards the back end of that. I wouldn't say it's a peak. I'm not going to guide anything further than 2028. I thought we were pretty good with '28 today. But what I would say is it's really dependent on those tailwinds that are out there. And I think you heard today from a number of the different parties that were here, the tailwinds around e-invoicing and CTC are there and they're going to persist and the tailwinds around some of the ERP migration activities are there, and they're going to persist for some time. And so I'm not going to call anything further. I don't anticipate seeing a peak and it fall off the cliff. Absolutely not. But what I can't tell you is where that goes into the future from there. But we feel very good about those tailwinds that are there, that are going to get our business up to that level for sure.

One more. I can't help myself, one more.

If we were thinking about cross-sell for the business, putting aside of ecosio and putting aside AI, the things that are kind of on the come in the core of Vertex today, what should we think about as either the products or the cross-sell that's carrying -- maybe the top 2 or 3 that are carrying the bulk of that weight and how you think that goes over the next year?

So Sam, if you take -- I use the automotive company example. It's a great one in terms of -- it's a large automotive company. The logo we showed you perhaps and you're like, oh, you guys are in there. We probably only got in on division A. And it's like we can sell them sales tax in division B, C and D over time because of the nature of our customers or these conglomerates made up a lot of operating $10 billion business. Nestle has like 27 businesses in the U.S. alone. I'm not saying we even represent all of them, like there's always opportunity to sell the same tax type to multiple divisions. And then in my automotive example, we work with a very large automotive manufacturer, where they invited us to sell their VAT -- our VAT solutions. So existing capabilities we already had, where we're just expanding wallet share because the customer had a pain in a different part of their business. And that's really been the driver of the team's success. And we highlighted customer success the leverage we're getting from that, that's what they're doing really well as they're educating our customer base more and more on all the capabilities that product management has already brought to market to make sure that as these pains are evolving, they're picking Vertex, and that's why you have seen that move up, and you'll -- and we expect that to continue.

All right. So let's wrap it there. We do have food and drinks outside. So please feel free to join us for lunch or grab something to go. We do go into a quiet period at the end of the month. So if you have follow-up questions, don't waste your time reaching out to me because we take quiet period very seriously and go dark at that point. I said a couple of things at the beginning of the day that I hope really came through loud and clear in the presentation. This is a great business. We heard from great customers and partners that were here with us today. You met the leadership team that's driving this business and making all the right decisions for shareholders. And clearly evident in the guidance, not the guidance, but the targets that John said that we set for 2028, we're very confident in the durability and persistence of the tailwinds and the opportunity to drive earnings and free cash flow leverage. So again, I hope all of that came through loud and clear today, and we look forward to keeping in touch with all of you, answering your questions and continuing to forge our relationship with you. Thank you.