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

All right. Well, great. Thanks so much, everyone, for being here on day 4 of Communacopia. My name is Adam Hotchkiss and I cover the emerging software space here at Goldman. Really thrilled to have the Vertex team with us. David and John, thanks so much for being here.

Happy to be here. Thank you for having us.

Great. So for those in the audience who might be a little bit less familiar with Vertex, what you provide for your customers and maybe a little bit of company history, David, maybe just give a brief overview of what you're trying to build at the company.

Sure. Indirect tax is the largest form of corporate tax paid. It covers probably 3x the amount of tax revenue collected by state and local governments around the world compared to income tax. So it is the primary source of revenue that governments build their budgets on which I think is important because of its predictability. It is based on transactions happening in the jurisdiction as opposed to income that's residing in the jurisdiction. So what the company has done over the last 47 years is build out interpretation of the rules and requirements in every jurisdiction. There's 10,000 in the United States alone and other probably 10,000 around the world that our customers have to comply with. They will be regularly audited on and we built software capabilities that integrate into the large ERP systems that they run their business on. Our target market is larger enterprises typically -- a typical customer is going to be $500 million of revenue and above. We do, do someone in the mid-market, but our core market is going to be that $500 million and above. And we're providing them the software that integrates into their large ERP system. It provides the monthly update that is required on all the tax regulations so that, that customer can file in real time, compliant information and then ultimately survive the audit process that ensues for large corporations.

That's great. This is a business that's been around for decades. And you've weathered the storm of a lot of technology change. And not only weathered that storm, but still created and maintained a very large Fortune 500 relationships. How has the company been able to do that? And where do we stand on that technology evolution today at Vertex?

So the -- I think part of the survival is the gift that keeps giving as regulations keep changing. And governments are always looking for more revenue, which means they're always creating more complexity and they create complexity in a way that actually allows us to create new products, and therefore, grow wallet share of a customer. A great example, which I'm sure we'll talk about is around e-invoicing where it's a new regime of requirements that customers are now having to comply with. We never were in that space, and now we're getting demand driven to us to actually solve that problem. So from a pure driver of sustainability of the business, it's really driven off of government's continual thirst for revenue, number one. Number two, from a technology perspective, what we've done is we've actually evolved the company from an on-prem, as you can imagine, back in the '90s and 2000s to being a cloud-based business. And so now 95% of all of our new logos are sold in the cloud. And we continue to move existing customers as they slowly work through their migration process, and we're seeing a lot of that now between Oracle, Microsoft Dynamics and SAP, all pushing their customers to move to latest cloud platforms. That creates a nice transactional opportunity for our customers too. So we've kind of evolved our technology, and I'm sure we'll talk about AI in a few minutes, but that now layering in where AI fits across the platform as well.

That's great. I want to touch on a lot of things you just said.

I figured that was a setup for a lot of good questions.

And I almost wanted to jump over to you, John, but we'll go to you. I want to just touch on the most recent quarter because I think we've been getting a lot of questions about it. Revenue is in line. You lowered the full year outlook and you cited a couple of factors, right? You cited softer entitlements and true-ups. So maybe explain what that is for folks and then some elongation in ERP cycles. Yes. Yes. If you could maybe just explain what happened and then parse out for folks what those components look like?

Yes, definitely. I think on an overall basis, we took down the revenue guide about $12 million at the midpoint. It's really broken down into 3 pieces. You just called them out, entitlements, true-ups and demand gen. The first 2 really are about existing customer growth in the environment that they have. And the first one with additional entitlements. This is customers that are buying more of the same product that they had from us in the prior year. So this is a customer that's growing through their usage of our product. We price based on revenue bands as the revenue and as they grow, they're going to grow through a revenue band, so we'll bill them at a higher price next year. So what we saw this year is typically the way that this works is that a salesperson will go to the customer about 60 days before the renewal, they'll come in, what's the usage based on the usage, okay, you're going to renew at a higher band. They will then price them out at that higher band. And then we will then build them at the higher rate. So when you look at that, we didn't see the activity coming through -- give me one sec.

Yes, please take your time.

We didn't see the customer activity going through the bands as high as we have in the past. And because of that, we're not getting the additional revenue that comes with that renewal. So that's an important piece of it. In addition, what also happens is when the customer goes through that band, there's a true-up aspect, and that's for the old period. That true-up is immediate revenue in the period. We did not -- I apologize -- we did not see that come through either in a similar way that we had in the past. And so typically true-ups are $1 million to $2 million quarter 1, 2, 3, and then $3 million to $4 million in the fourth quarter. So we took that down because we said, listen, we didn't see it in May, June and early part of July, and so we said we better knock this, we better slow this down in the back half of the year and especially in the fourth quarter worth $3 million to $4 million. So we took the guidance down to reflect that. So that's a big piece that's for additional entitlements, about $3 million to $4 million for additional entitlements, $3 million for true-ups. And then finally, the last piece really is -- the last piece really is just the slower demand volume. We weren't seeing -- we were seeing activity top of the funnel is growing. Our customer win rate is still really strong. But what we saw was that it has taken a little bit longer to get deals through the pipeline. And because it was taking long for that, it was slowing things down. And so a customer that I thought I would get that -- I thought I might get in April, if I don't get it until June, well, it's going to -- or until August, I'm going to lose 4 months worth of revenue. So we need to take revenue down for that. So they were the real 3 big drivers that --

Can I just put a hair of color on that? Yes, I think it's important to note -- it's not a GRR issue. If you look at GRR, it's been 95% every quarter, which is really the strength of our existing customers. So it's just the customers didn't grow through bands. And we saw this during COVID. So in when COVID happened, we saw a little bit of a slowdown in the same exact issue. The difference was e-commerce exploded, and it kind of basically covered it up in terms of we were able to meet our guidance, and so it didn't impact things. The difference was in the current cycle with some -- and by the way, when that happened in '22 and '23, we saw sort of an acceleration of companies growing through these bands. Remember, this is their growth rate growing through our price bands that automatically just creates a bump or a benefit in our renewal price. And we saw sort of that snap back in '22 and '23. So given my tenure, 26 years now, I see this more as like a timing issue that I would expect somewhere either '26 or '27, we will have that reacceleration of customers growing, we haven't given guidance yet, but fundamentally, they will just be going back to their normal pacing of you've got hundreds of customers renewing every quarter, they will have grown through a band, and that will just sort of come back naturally for us.

Is there something about the end markets that you're exposed to that's driving this? Or is it so broad-based that this is more a comment on just like growth in the economy? Like what are you levered when it comes to those --

Yes. And again, because the economy is growing. I don't think it's growth -- it is -- tax is a horizontal. So I wouldn't say manufacturing and retail are probably our largest to verticals, but they still collectively only make up maybe 22%, 23% of the total revenue. So it's a nice horizontal that actually protects us from economic volatility from -- on the downside. But I think it's more like they just didn't grow at the pace that we normally see the handfuls that grow through and give us the 6- and 7-figure increases of renewal pricing that we just didn't benefit from.

Maybe just quickly and then we can get into the business in some of the bigger themes, but just on that deal signing point in the lower guidance from that. I think that's a little bit -- we had heard some of your peers in other areas of the office of the CFO mentioned that earlier in the year, but a lot of that tone has softened. And I think you guys were one of the few that brought that up again -- so brought it up for the first time actually.

That's an important thing.

So what's different this time? Because you had been relatively insulated from this whole trend for the last number of years. What's different this time?

Yes. I think we saw some of the cloud migrations that had started where we would normally -- we typically are going to get invited to an opportunity. The way opportunity we're -- typically, most of our competition is the in-house solution a customer has built on their own that is no longer viable for them, and that creates an opportunity for a software vendor to come in. And I think what we saw was the deals that we had started, they were top of funnel, as John said, "We're not moving to a station because they were slowing down some of their activities." So they may have said, hey, we've got a finite budget. There's some tariff uncertainty. We've got other AI investments in other parts of our business that are using up investment bandwidth. So we are slowing down our own individual migration. And I think you saw that in some of the announcements, Oracle recently slower financial service SAP had announced in Q2 a slower uptick in cloud migration. So I think that process slowed down a little. And we saw, as we've talked in August on our call, we saw some of that come back already. We already saw some of that elongation pickup, but you just can't make up the revenue in the -- once you've lost it ratably, you're not going to make it up for the period.

Okay. Let's talk about the flip side of this because what we have been hearing alternative to that is that tax is growing as a priority within the broader ERP transformation cycle and upgrade cycle. Talk about why that is and how that's impacted numbers?

Yes. I think why that is, and I think that's why top of funnel remains encouraging is that I think it's because the regulatory environment is getting more complex. The recent tax bill passed by the federal government, what you saw are 2 important things that impact our business. The first is that there was slowing down -- the federal government getting less money in the states for food stamps and Medicaid, 2 critical things for the citizens of each local economy. Guess what? They're going to have to make -- the local government is going to have to make that up. The way they're going to make that up is indirect tax. They're going to increase regulations. They're going to increase rates, all of which creates demand and therefore, customer pain and customer thinking about that becoming more prevalent. Then when you add to that for the larger multinationals, the e-invoicing issue that's emerging, which I'm sure we'll talk about. That's a new requirement that is bringing deeper scrutiny to tax compliance, intact effectiveness inside a corporation. So I think those are examples of why we're seeing this become a bigger issue for companies in terms of their whole ERP as they're going through the ERP migration to want to make tax a priority decision.

Okay. David, we've heard from a number of LLM providers at this conference. And I think one of the questions we've increasingly been getting is this question of a depth of SaaS from large language models and applications from those LMs. What is sort of the rebuttal from the Vertex perspective of how you are going to remain competitive? And what is it about the tax -- indirect tax ecosystem for large corporations that you think is moated from all of the disruption from the --

Sure. So I think one of the biggest things really important to understand is that the difference in who the buyer is and why the buyer is so different. So if you go to an SMB company, $30 million company, they've got 80 employees. They don't have a tax department. They have a controller, and they want what I would call a good enough solution. The bottom end of the market just wants indirect tax, sales and use tax solved at the lowest cost, the simplest way because they realized they're not going to be audited. So AI as a core capability is a probabilistic technology. It is not deterministic. Tax is a very deterministic world. You got to put a 1 or 0 and you need audit traceability to that, and you need confidence in that. At the low end of the market, you're okay with the issue of it's going to be probably right because you're not going to be audited. You move up to a large multinational. They may have 50 people in their indirect tax department. The accuracy requirements that they have and the traceability of how they reach that accuracy is far more important. A lot of our customers might have 30 to 50 audits a year going on in different jurisdictions of the 10,000 in the U.S.. So that's number one reason it's incredibly challenging for AI in the upper end of the market. I think the other reason is a significant number of the rates -- the rules and regulations that we have to interpret and put into the software that our customers expect each and every month are not published. So AI can't even access that information to -- and then you add to it, a lot of our customers have negotiated special exemptions and special rules. They may have sales tax holidays based on their business located in the jurisdiction in the things they negotiate, that's all customized. Again, we can handle that in our software, but AI can't handle that. So there are significant reasons why AI can't replace what large complex customer does. But by the flip side to the reason we made the investment in Kintsugi, which is an AI start-up is because I firmly believe at the bottom end of the market, there's going to be material disruption to anybody who's a provider of companies that are doing tax software for the $30 million, $50 million $60 million revenue company. I think that's highly disruptable over the next 3 years.

Okay. Let's talk a little bit about outside of Kintsugi, are you using AI for internally? I know you made a recent acquisition of -- I guess it's no longer recent, but Ryan LLC's AI capabilities what can you do? And what does that maybe, John, do for you financially either on the revenue or the cost side?

So I'll talk to that AI side, and John will talk to the financials. So AI is absolutely an enabler that will add certain value and capability we're looking at it in a few dimensions. So the first is, again, if you're a large multinationals, you may have thousands, if not millions of SKUs. You are constantly adding new SKUs and eliminating SKUs. The tax department cares deeply about that because each one of them can be taxed differently that have to be set up properly. So categorization of all your product is significant. So let me give you a quick example. A bottle of water could be taxed one way in a jurisdiction. If you sell it in a pack of 24, it could be taxed a different way. So just the way the company packages up, a product you're selling is a different SKU and it could have different tax treatment. If some jurisdictions that believe it or not, if I buy this bottle of water at a retail store, it's not taxable. But if I buy it from a vending machine across the street, it's taxable. Like that's the nature of business time rules that exist in indirect. So categorization matters dramatically. And so the Smart Cat product we bought was to begin to help our customers leverage AI where we can create a tool that -- and we're educating the tool on how the product is all the elements of it so that over time, it will help them categorize and take it. And what we designed it and back to my traceability and expertise requirements is we are designing the product to only go, if I use a football metaphor, from the goal line to like the 10-yard line, then there'll be a human in the loop expert that's still required. So AI still won't even solve that problem because the tax department will not want to let go of that decision authority that it was set up properly. So one piece is around smart categorization. The second piece that we're excited about is we host enormous amounts of data going through our system. You think about every line item of every transaction going through the system that we're a part of. We have millions upon millions of transactions that touch our software every moment in some company situations because of the volume that they're putting through. So AI becomes incredible tools on that data to provide analytics and important valuable information back to the company. we're definitely looking at how data can be turned into analytics and a value process of the customer, and we're working on a number of things there. And then the final area that to me, I think in the long run could be very attractive to us is the whole agent-to-agent, agentic world where you see these large ERPs like Oracle, SAP, Microsoft setting up. Agents inside of their ERP capabilities, whether it be on Dynamics or it be on S/4 and having the Vertex agents who are dealing with tax workflow communicate directly with the agents and that would enrich the customers' experience and actually cut down on their workflow requirement today. So I think those are the big 3 we're putting money into. Smart Cat is the first product we've launched in the market and we're starting to take on early adopters. So it's early days in terms of the economics. But that, to me, is where we're headed as a strategy AI wise.

Okay. And then on the financials, John?

On the financials, as David said, we're in L.A. right now for Smart Cat that's going to play itself out.

Limited availability.

Apologies, limited availability. So that's going to -- we're in that right now. We're excited about what that's going to bring to us. And again, that's an opportunity for revenue as we think kind of next year, year after, et cetera. But that's the first AI product we're going to charge for. So that's exciting. I think when I think about the cost structure, we're leveraging AI on the cost side of the house for a lot of different things. Certainly, the engineering teams are very focused on really getting the most out of they can out of their programmers and out of the efficiency with which they can create product and get things moved along. And so we're very excited about that. As we'll talk about, I'm sure later, we're in the midst of an investment phase right now with our business, investing in additional country coverage for e-invoicing, investing in a lot of go-to-market in the invoicing, but we're investing in a number of different things right now that is causing our R&D expense to be up and elevated at levels a little higher than it's been in the past. And so we're right now operating at about 21% to -- 21% of revenues on a quarterly basis. That number is about 18% or 19%. A lot of that's because of the investment activity we're doing around getting this extra country coverage. But when that slows down -- when that -- when we get back to the right country coverage, which I'll explain in a little bit, we're going to see leverage come out of that 18% to 19%. That's going to drop down because of the activity we're seeing and the throughput we're seeing going through there. So we're very excited about it. Certainly from an engineering standpoint. That's where I get most excited because I think that's a great opportunity there. But we're also leveraging across the rest of our business. And when I think about our acceleration of margin activity that's going to begin next year, those margins are going to come through again, R&D, as I just mentioned. But selling and marketing and G&A are certainly right. They're going to be fast followers because of the leverage we're seeing already.

Okay. Great. David, I want to just quickly touch back on the analytics point you made. I feel like that it is a big opportunity, but there's a lot of competition in the space for just doing analytics on transactional data. So what do you think your boat would be around analytics on transactional data that someone else who maybe have similar access to transactional data might --

I think you just answered your own question. Access to the tax data --

The tax --

Is going to be unique inside of our system because if it isn't the right tax data, it's -- they're not going to have confidence in the output. And so because that's in our source system, that's, I think, you answered your own question, sorry.

No, all good.

I mean it was kind of if that was a lay-up question or --

This is the point you're saying is it's because it's the tax specific data, you're not talking about like broader core financial?

No. And I think it's important to realize that tax data is very different than financial data. Like it's -- there's an indirect tax close that occurs every month, separate from the corporate tax close. It's its own unique body because you're not doing it -- you have to do it based on legal entity. You're not doing it based on line of business like the mindset is very different in terms of what you need because of the compliance requirements.

Okay. Great. What drives an RFP for a customer? What is it that happens internally at a customer that says --

There's 3 big funnels of demand that we benefit from. So the first is something changes fundamentally in their business. They make a large acquisition, which again, large multinationals are often making acquisitions. They can evolve into launching a new -- let's say they launched e-commerce as a new platform to go business in some jurisdictions. Something about the business model has changed that from a tax department's perspective, they can't keep with or they can't solve for at the pace the business needs, and so they'll look for a third-party vendor. That's part 1. Part 2 is the regulatory environment. And this has 2 flavors. The regulatory environment is new regulations are introduced into the market like an e-invoicing or now behind the recent federal tax build, there's going to be a lot of new regulations around the world. That will put pressure on the way a tax department was working to solve their compliance problem. And the second will be audit, audit related to regimes that have introduced new regulations typically 1 to 2 to 3 years afterwards, we'll start to get after -- all right, what we've got a data set now, are we getting our fair share from what we thought was the new to increase our budget in some. And so audit pressure will uncover a company that thought it was following the new rules properly and found out it wasn't. Brazil has now gone through a situation where Brazil, which is the most complex indirect tax jurisdiction in the world, is introducing a new phase in 10-year revamp of their entire tax system, but it's phased in. So companies are actually dealing with the fact that some rules apply in the old regime, some will supply in the new regime, and it's creating enormous consternation about how do they comply across both regulations. So audit. And then the third is something about the platform that the company runs on is being transformed. I was running ECC and now I'm going to S/4. I was running JD Edwards and now I'm going to Fusion. Whatever is the migration to the cloud. Again, most of our competitive situations are, I built something that works internally and now I'm going to a new platform and the custom solution I built for my business doesn't work in the new environment, and I'm going to need a third party. And those are the 3 drivers of RFPs. And I will tell you for Vertex, probably 9.5 out of every 10 deals we work on are run through some form of an RFP process because the vendor -- the buyer wants to make sure they understand all the landscape of competitors and how they can solve their problem. And so our relationships with those vendors, those providers, the big 4, et cetera, is an enormous part of our business.

And then how should we think about your win rates and who you compete with?

Yes. So I would say for most deals that we get an opportunity inside of SAP, we talk about 70% to 75% of those deals were going to win at the enterprise market. And our typical competitor is going to be a division of Thomson Reuters. That's our primary competitor in that market.

Okay. I want to talk a little bit about just the stability of growth and the growth algorithm. And I think this is going to segue into an NRR conversation with you, John. But just how do you think about the typical customer life cycle once you land them in adding product SKUs and then adding new geographies and how does that flow through to your -- the stability of your net revenue retention?

Yes. So I'll start and then John can just. So we focus on what we call scaled customers. Scale customers are customers that pay us over $100,000 in license. And the reason why we do that is they're complex businesses that are always going to be changing one of those 3 big macro drivers that I talked about are going to impact that business in the future. Important to understand, when we land an account, we are typically landing them in one part of the business. No company is going to say, "Hey, I've got 5 operating divisions around the world. I want you to come in and do my sales tax, my use tax, and my VAT in every jurisdiction, I do business." That -- it's far too disruptive to the tax part. And more importantly, and we've had this conversation, the dirty secret about our business is nobody who bought tax software grew their top line or improved their bottom line. What they did is they got more compliant. And that's a big issue if you have a compliance problem. But otherwise, it's -- that's the demand driver of our business. And I say that because -- our land and expand motion is foundational to our growth algorithm. We get 70% of our new deals every quarter. Our new revenue is coming from existing customers buying more. We bought sales tax from you 2 years ago. We now -- you've proven out your capabilities. We've got a problem over in VAT. We want to buy -- we want to buy your VAT solution. We bought VAT. Now we need you for use tax here in the United States, whatever it is. So that's a big component of our growth algorithm. So it's buying more. It's to John's point, it's buying more of the same -- where your usage just increases, and then we keep adding products. So we'll add something now like e-invoicing. So you didn't have to deal with this in the past, but now you need a third-party provider for e-invoicing. And so we do your sales and use tax you want us to be your global provider for e-invoicing. So it could be new products, it could be cross-sell of existing products. And that really drives the primary algorithm of our growth. And then those new logos, the balance of that 30% to 35% is going to come from things like e-invoicing or cloud migrations where we didn't have the account, and that's our land in before we can expand. Hopefully, helpful.

Yes. And I would just say that GRR to NRR walk, our GRR is at 95%, our NRRs at 108. About 50% of that makeup is what David described as cross-sells and migrations. That cross-sell activity is about 50% of that. The next 25% comes from those additional entitlements that I spoke about earlier. And then the last 25% is really price increase. We have a very mature renewals team that works with our customers and thoughtfully determines what our price increase is going to be every year. And so that's been a really strong algorithm in terms of how that's played out over the last month.

How do you think about pricing power in this business just at a high level?

Yes. I'll start, how about this. I think it's always been something that we've taken into consideration. We've been around for 45 years and we have to be very thoughtful about it because as much as I want to make sure that we're -- it's certainly going to be more than inflation is going to be. But as much as I want to -- I recognize the position that I'm in some of my customer systems and so invasive into their ERP systems, the ability to be -- have the ability to do things potentially unnatural things. And we want to be very thoughtful about balancing the price increase that we're going to get with the potential for that future revenue opportunity, as David talked about, that 70% of new revenue opportunities coming from existing customers. I'd rather get a shot at a use tax opportunity at a customer I don't have -- or at a customer that I'm not doing in it, then hit an extra 2% or 3% in the price increase. I don't know if your thought.

Great. And then on e-invoicing, we haven't talked in detail about this yet, big opportunity for you. I think you said at your recent Investor Day, $100 million revenue -- dollar revenue opportunity by 2028. And you've now integrated the acquisition you made in the space of ecosio with broader Vertex Cloud platform the cloud platform. So maybe talk to us about the opportunity and your offering.

So just to level set everybody e-invoicing is a requirement in 50-plus countries around the world, 58 countries around the world, where you have to transmit your invoice in real time to the government. So the government now electronically has a version -- an EDI version of your invoice. And then at the end of the period, when you file your tax return, they can actually compare, did I get all of the information that -- I get my fair share of dollars. Basically, it's going after what's called the VAT gap which is estimated to be in the $80 billion to $100 billion a year range between the government -- I think they should be getting in VAT and what they are getting. And so that was the reason it is the only legislated compliance requirement that has to use a third party. That's important to us. Our #1 competitor is normally in-house solutions. You can't use an in-house solution to solve for e-invoicing. You have to transmit the data to the government via a third-party certified provider. So when we bought ecosio, they had 20-some countries around the world covered. The problem is, competitively, we need to sell in every jurisdiction that requires the e-invoicing. So that's the -- part of the investment cycle we're in, is to make sure we can handle all the jurisdictions that our multinationals are requiring. Now one would say, yes, but EDI as a basis is somewhat of a commodity. And the truth of the matter is it is. But where the value comes in is we have the bookends around it, and this is what our sweet for our multinationals is so attractive. We offer the vast determination engine that would give them confidence in the invoice data they give to the government, they'll even calculate that, right? And then more importantly, the complexities of reconciling all of your invoice data to what do I file for my VAT return, we do all seamlessly on our platform. So there's lots of e-invoice providers out there, Coupa, Tungsten, they all offer e-invoice, but they don't do the bookends. They don't do the tax side of it. So what has transformed is as more countries, big economies like France, Germany, et cetera, are coming online with e-invoice requirements, companies are pulling back and saying, "I want to -- I want a global provider, which starts to limit the number of companies that actually can compete for that business. And I want to think about it holistically. I don't want to think about it just on the EDI transmission part." And so our large multinationals have enormous invoice volume in many of the countries that are requiring this are saying, "I'm looking for a global provider. And by the way, Vertex, you do all of my sales and use tax all in North America, you can do my VAT and my e-invoice and my VAT compliance all on the same platform." And that's the real strategic opportunity. And in the early days of our launch of the product, we're already seeing companies come in. And the buying behavior is this, they're going to say, "Hey, look, you can -- I'm going to give you the first 3 countries because I want you to prove your solution. And then I'll give you the other 10 that I didn't have." And so we're already seeing customers come back to us who we sold for the immediate requirements to say, "Hey, I'm going to need -- I'm going to want you for more." So that's where it will support NRR. It will just be land and expand again in terms of the foundation of our business model.

That's great. Thanks so much, David. John, on the financial just one on the revenue and one on the margins. How should we think about your latest thinking on the pacing of some of those deal pushes closing? And then on the margin front, what are the biggest priorities for you to really get margin expansion ramp back up? I know you said you've made a lot of investments in AI and e-invoicing. When should we expect that inflection?

A couple of things. Just on the revenue pacing. Again, I think we've seen this quarter continue to play out the way that it did previously. So we're going to continue to see that develop through the rest of the year. Obviously, we're like many software companies back-end loaded towards what happens in the fourth quarter. But we feel very good in the level of guidance that we set and the way that we set it to pull it back somewhat that we feel like we're derisking the business appropriately for the back half. In terms of leverage for our business, we're in the midst of an investment cycle right now, as David has talked about. And again, it really relates to 2 acquisitions, both of which were done last year. The first is ecosio really getting that country coverage and go-to-market where we need it, and that's $4 million to $5 million a year. And the second is in $5 million a quarter million to $5 million a quarter, my apologies. And then the other one was the Smart Cat product, which is about $9 million for the year. And so when I look at the -- when I look at those specific items, those investments have time periods. The Smart Cat largely is done this year. And when you think about the -- when I think about the stuff with ecosio, that's going to go into the middle of next year. So I feel very good about sort of the time lines that we have in place because I think we've demonstrated with a prior investment cycle that we'd run that when we get to the end, we see immediate leverage coming out of it. And I talked a little bit about it earlier, but we'll see it coming through an R&D for the country coverage activity that's going on. But really, we expect to see a good amount of leverage really coming through G&A and then selling and marketing for the opportunities out there. So back half next year.

So basically, net-net, that cycle all kind of times out to end of June and middle of second quarter, whatever in the second quarter and then we'll start to see that pick up.

Just what you did in '23. It was like right at that.

We didn't mean it that way, but it actually worked that way, yes. And yes, if you look back at our track record, we announced that the cycle would end in the middle of '23 and you look at our quarter cash and margin increase that followed right after it and it accelerated nicely.

Yes. Okay. We have about a minute left question for both of you. What are you most focused on over the next 6 to 12 months, what's most important for you to execute on? And then what are you most excited about over a 3- to 5-year time frame?

So e-invoicing, clearly 100% country grade dealing with that. It's a land grab moment. We don't get many of those in our industry where companies are making the decision of who they want to use as a global provider. We have to have that right. Like that is mission-critical. I'm intrigued by some of the compelling work we're starting to do in AI around this agentic -- to agentic. I think that could be a very interesting differentiator. It's early days. I don't want to ERP themselves are figuring out what the economic models are going to be doing around that. But I think it will actually disintermediate the risk of -- at some point in the future, weight, everybody is going to go to cloud. that's way, way out. But when it happens, it changes, APIs are going to be -- everybody can interface the same way. Agentic will be actually the differentiated way you'll come back. So I answered longer than I should have but I do think that's where it's going to be exciting 3 to 5 years out.

And then, John, for you on the finance side?

Listen, e-invoicing is our focus. And I think getting -- as David said, for the reason that land grabs out there, but I want to make sure that we've got we've got that leverage continuing to come from the business. So managing the business, managing that cost side and those investments to get us even faster than we want some of that product and that country coverage into play.

Okay. So David, John, thanks so much for being here.

Thank you. Appreciate it.

Thank you.