Vertex, Inc. Price & Performance (VERX)

In the fourth quarter, the Vertex team delivered revenue of $178,500,000 up 15.2% year over year and adjusted EBITDA was $38,100,000 up 21.3% compared to last year's fourth quarter. This reflects investments made in our e invoicing product, in the fourth quarter as well as previously discussed expenses that were delayed from earlier in the year while we focused on completing our acquisitions. In addition, this quarter, ARR grew nearly eight Cloud revenue growth for the full year was 28.6% and I'm pleased to share that total cloud revenue now exceeds on premise revenue for the first time in line with our strategic intent for future growth. NRR was 109%, While still extremely healthy, this is lower than in recent quarters due to a a We fully expect it to rebound above 110% throughout the coming year given that actual full year cross sell units increased over 2023 which validates our customers' continued appetite to buy more from us. Average annual revenue per customer for Vertex Vertex increased 14.8% year over year to $136,000 Growth in scaled customer count was 15% year over year. As a reminder, this number represents our customers with annual revenues greater than $100,000 and demonstrates our ongoing success in the underpenetrated [indiscernible] Beyond scaled customers, our new logo additions from our expanded ecosystem efforts are kicking into high gear, The fourth quarter was a record for new logos from both dollar and unit standpoint.

We believe this new logo success will fuel our proven model of ongoing cross sell and up sell opportunities in the future. Finally, GRR was 95% in the fourth quarter, within our targeted best in class range of 94% to 96%. Our 2024 results demonstrate We lead in the enterprise space for indirect tax software because our forty seven year heritage serving the industry has given us several competitive moats that we believe are sustainable. These are highlighted by first, the know how to connect to disparate enterprise systems that sit within the critical order to cash process to a single cloud platform without creating any friction. Second, the ability for our applications to operate at the enterprise scale and speed standards that multinational corporations require. As an example, on Black Friday weekend, we processed over 1,000,000,000 transactions in our cloud environment in addition to similar transaction volume in our other deployed solutions. Third, we have created one of the most extensive tax content databases including over 1,000,000,000 rates and rules supporting indirect tax compliance across more than 20,000 tax jurisdictions worldwide.

Fourth, trusted relationships with the influencers who drive decision making for indirect tax solutions including the sales team of the major ERP vendors, to the enterprise sector and the largest accounting firms and system integrators in the world, many who have built multimillion dollar professional services practices around Vertex integrations. And fifth, We have an unparalleled stable of reference enterprise accounts, many who have been Vertex customers for decades. These customers champion our solutions at industry events and are willing to speak to prospects on our behalf to help us win deals. All this commands premium value for our offerings.

Even though we are often two to three times the price of competition, we routinely win the majority of enterprise deals we compete for. Has been the case throughout our history. The indirect tax regulatory environment is increasingly complex as governments seek new sources of revenue to reduce debt, while providing needed services to their constituents. As an example, of the complexity our customers must address, in January, we published our annual rates and rules report for 2024, which noted significant growth in U. S. District level tax activity. These special purpose tax districts add another variable and layer to complexity to indirect taxes. This in turn creates demand for our solutions as enterprises automate tax to stay up to date and in compliance. In Latin America, Europe and Asia Pac, value added tax has not historically been a growth area for Vertex Vertex, because VAT determination was straightforward. Compliance was the bigger challenge. This is changing with the proliferation of e invoicing mandates, and evolving VAT requirements and opens overseas markets in a way we've not seen in our history. On that note, our e invoicing solution is proving to be very well received and the market is responding positively to our approach, which integrates e invoicing and VAT compliance on one platform with inherent data sharing capabilities.

This allows customers to stay ahead of changing mandates, remain in compliance on a country by country basis and do so in an efficient manner. In the fourth quarter, we began selling our offering in limited availability several key customers quickly filled the available slots. And yesterday we announced general availability. Our early e invoicing wins highlighted several key proof points for us. They included a competitive takeaway, they triggered broader end to end product sales and they were all connected to the core ERP platforms where we have developed deep relationships. Thus, we have decided to accelerate our investment in e invoicing, including the Ross of countries we can support as well as our go to market capacity. John will provide additional details in a moment. Technology changes continue to challenge global enterprises who are still using legacy homegrown solutions to tackle indirect tax compliance, leading them to evaluate partners like Vertex Vertex. This trend is expected to increase as the major ERP software providers are aggressively work to move their long standing customers to modern cloud platforms. The most prominent of these changes is the impending 2027 end of mainstream support for SAP ECC accelerating the need for businesses to modernize.

Last month, SAP announced that they are maintaining the 2027 deadline but allowing large and complex customers who make a long term commitment to remain on ECC through 02/1933. In our view, this is a positive development. As it will enable us to build connections to more customers as they evaluate their indirect tax obligations as part of their migration process. This will also help prevent a logjam for integration resources and enable customers to migrate steadily and in turn it extends the tailwind for Vertex Vertex. We are excited about the continued acceleration of deal flow in the SAP channel. SAP is one of our longest standing partners. But I can say that our relationship has never been stronger or our opportunity more exciting. Our pipeline is more than 20% higher than it was last year at this time. And likewise, in 2024, referral deals from SAP sales reps increased more than 20%. In short, we are not seeing any indications of a slowdown in the channel in either The U. S. Or abroad.

I'll now share a few key new business wins from the fourth quarter. Our ability to win when sophisticated market leaders are modernizing their indirect tax platform validates that Vertex's technology is built to seamlessly serve the most In recent quarters, we've highlighted new logo wins with the leading electric vehicle manufacturer, a leading provider of public cloud infrastructure and software and a global semiconductor manufacturer, So we were extremely proud when Vertex was selected by one of the pioneering companies in artificial intelligence research.

A company that has been in the headlines since AI first hit mainstream awareness This comprehensive 7 figure deal for global e commerce and tax determination which is integrated across their global sales channels, encompasses 35 regions around the world and an estimated 500,000,000 transactions per year, with the potential for significant growth over time. [indiscernible] One question we often get from investors is, why don't we force migrate our self hosted customers to the cloud? As that would provide a significant revenue tailwind for Vertex Vertex. Our experience has proven that by meeting our customers where they are and supporting their transformation journey, on their timeframe, they stay with us when migrating. A leading energy utility validated this strategy when one of our competitors tried to do just that forced the customer to move from a self hosted platform to their cloud offering. Instead of transitioning with the incumbent, the customer issued an RFP and selected Vertex as their new indirect tax provider. Resulting in nearly 7 figures of new revenue for us. A global industrial manufacturer selected Vertex to be its indirect tax partner as part of a global technology transformation that included migrating its existing ERP solution to Oracle Cloud.

This competitive displacement was a high 6 figure deal including VAT calculation compliance in 21 countries, our e invoicing solution as well as certificate center and address cleansing. Finally, in Europe, we won a new logo with an up and coming cybersecurity training company that was seeking to improve compliance with global tax rules for its e commerce operations. And while this new customer is relatively small company revenue wise, given they were launched only six years ago, their [indiscernible] Accordingly, this mid 6 figure deal was one of our largest in Europe in 2024. Now turning to upsell and cross sell wins with existing customers. In partnership with SAP, a global fashion brand increased its business with Vertex due to a global cloud transformation initiative. In making the move to the cloud, the customer increased its entitlements with Vertex for sales, consumers use and VAT tax [indiscernible] This resulted in mid-six figures of new revenue nearly doubling our business with this customer. Finally, a specialty chemical manufacturer had been a non scaled Vertex customer for several years as they were relying on a homegrown solution for the bulk of their needs. In the fourth quarter, this changed during an S4HANA Cloud transformation.

Customer is consolidating three instances of ECC into one global S4 HANA environment and adopting Vertex O Series as part of the process. After integration is complete, this will be a broad based mid six figure relationship.

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

When a company is struggling with indirect tax compliance, our solutions are not optional. This is because we provide a regulatory focused solution not a nice to have SaaS solution. And by and large, this minimizes the risk to our business from outside influences like changes in the macroeconomic environment. At Vertex, our focus is on indirect tax compliance, In The U. S, this means we address sales and use tax regulated at state and local government level. Our market opportunity is not impacted by potential changes to The U. S. Federal income tax system. Accordingly, we believe a transition to a tariff based funding structure at The U. S. Federal level would have no impact on Vertex's business. In closing, we continue to see deals moving through the sales funnel in a normal and consistent way Our financial track record of delivering what we say we will do since we became a public company demonstrates our team's ability to execute our strategy, differentiate our solutions, deliver value to our customers and partners, and consistently drive great results quarter in and quarter out that our investors can count on. John will now take you through the financials for 2024 and our guidance for 2025.

John?

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

In the fourth quarter, revenue was $178,500,000 up 5015.2% compared to last year's fourth quarter and exceeding the high end of our fourth quarter guidance by $500,000 For the full year, 16.5% from 2023. Excluding Ecosio, revenue was $175,500,000 in the fourth quarter and $662,800,000 for the full year.

Note that in the fourth quarter, contract renewals was several major customers resulted in usage true ups of approximately $2,000,000 to $3,000,000 above our typical Q4 run rate. While Troops can occasionally skew sequential comparisons, increased annual recurring revenue in subsequent periods. Subscription revenue in the fourth quarter increased 16.8% over last year's fourth quarter to $152,600,000 Full year subscription revenue was $567,100,000 up 17.9% year over year.

Services revenue in the fourth quarter grew at 6.8% over last year's fourth quarter to $25,900,000 Full year services revenue was $99,700,000 up 8.8% year over year.

Cloud revenue was $76,900,000 in the fourth quarter, up 27% from last year's fourth quarter.

Full year cloud revenue was $276,000,000 up 28.6% year over year.

Annual recurring revenue or ARR was $603,100,000 at quarter end. Ecosio added $7,900,000 to ARR and SysTax added $5,900,000 Excluding these amounts, organic ARR growth was 15% compared to our very strong fourth quarter of twenty twenty three.

Net revenue retention or NRR was 109% compared to 113% in the comparable 2023 period. A healthy increase in new logo revenue in the in the twenty twenty four fourth quarter revenue mix also impacted NRR comparisons both on a quarterly and on a year over year basis. As David mentioned, we do expect NRR to rebound to above 110% during 2025. Gross revenue retention or GRR remained at 95% at quarter end. Within our targeted range of 94% to 96%. For Vertex standalone, average annual revenue per customer or AARPC was $136,475 up 14.8% from last year's fourth quarter. Including the impact of Ecosio and SISTAC, AARPC was $122,706 For the remainder of the income statement discussion, I will be referring to be referring to non GAAP metrics. These non GAAP metrics are reconciled to our GAAP results in this morning's earnings press release. Gross profit for the fourth quarter was 133.9 gross margin was 75%. This compares with gross profit of $109,600,000 and 70.7% gross margin in the same period last year. Gross margin on subscription software was 81.4% compared to 76.8% in last year's fourth quarter and 80.5% in the third quarter of twenty twenty four. And gross margin on services revenue was 37.6% compared to 38.2% in last year's fourth quarter and 35% in the third quarter of twenty twenty four. [indiscernible] Now turning to expenses.

In the fourth quarter, research and development expense was 17 point $300,000 compared to $11,300,000 last year. For the full year, R and D was $56,400,000 with capitalized software spend included R and D spend was $35,500,000 for the fourth quarter and 123,100,000.0 for the full year, which represents 19.9% of revenue for the fourth quarter and 18.5% of revenue for the full year. Selling and marketing expense was $43,700,000 or 24.5% of total revenues, an increase of $9,400,000 and approximately 27.3% from the prior year period. For the year, selling and marketing expense was $154,900,000 up 19.9% from last year. And our general and administrative expense was $34,200,000 up $2,800,000 from last year. For the full year, general and administrative expense was $128,200,000 compared to $124,900,000 last year. Adjusted EBITDA was $38,100,000 an increase of $6,000,000 or 18.8% year over year. This was approximately $1,100,000 above the high end of our quarterly guidance. Full year adjusted EBITDA was $151,900,000 representing an increase of $51,100,000 or 50.7% over 2023. As you look at our GAAP income statement, I want to call out that GAAP profitability in the fourth quarter was impacted by a deferred tax valuation allowance as well as the valuation of the Ecosio earnout, which contains a fixed share component which is impacted by changes in our stock price.

Fourth quarter free cash flow was $17,900,000 and for the full year free cash flow was $77,700,000 a significant increase from the $6,100,000 of free cash flow in 2023. We ended the fourth quarter with over $296,000,000 of unrestricted cash and cash equivalents, and investment securities totaled $9,200,000 For additional liquidity, we also have $300,000,000 of unused availability under our line of credit. Next, turning to guidance. For the full year of 2025, total revenue in the range of $760,000,000 to $768,000,000 representing annual revenue growth of 14.6% at the midpoint. Adjusted EBITDA in the range of $161,000,000 to $165,000,000 representing a year over year increase of $13,500,000 at the midpoint and a full year adjusted EBITDA margin of 21.3%. And the full year cloud revenue growth is expected to be 28%. For the first quarter of twenty twenty five, we expect total revenue in the range of $175,000,000 to $178,000,000 representing revenue growth of 12.6% at the midpoint. While this represents a slower start to the year than normal, we are very confident in our full year guidance given the current level of sales activity and pipeline. And adjusted EBITDA in the range of $33,000,000 to $36,000,000 representing a decrease of approximately $1,700,000 at the midpoint.

Our adjusted EBITDA guidance reflects certain strategic investments we are making in 2025. Excluding these investments and the dilutive impact of Ecosio, on a standalone basis, Vertex's full year guidance would have approximated adjusted EBITDA margin of over 25%, demonstrating the leverage we are seeing from our previous investment cycle. Last quarter, we noted that investments associated with the e invoicing would be approximately $3,000,000 to $4,000,000 per quarter in 2025. Or $12,000,000 to $16,000,000 for the full year. However, as we mentioned in this morning's press release, we are accelerating our worldwide country coverage and making additional go to market investments. This will increase the full year investments related to e invoicing to approximately $16,000,000 to $20,000,000 $4,000,000 from our original guide. Investments across major initiatives including the commercialization of our AI based smart categorization product, other AI related tools and new product initiatives and other emerging technologies. We believe that these strategic actions are the right thing to to do for our customers and will result in continued momentum in the business over the long term. Before I turn the call over to David, hope that you will join us for our Investor Day, which is scheduled to take place at 08:30AM on March 19.

We're all very excited to give you a deeper dive into our business drivers and our strategy to execute We also look forward to introducing you to the rest of the Vertex leadership team. Please visit our Investor Relations homepage to register in advance or to view the live broadcast on the day of the event. If you have any questions regarding Investor Day, you can reach out to Joe Provelli, our VP of Investor Relations. David will now make some closing comments before we go on to Q and A. [indiscernible] Thanks, John. As I said at the top of the call, I'm very pleased with our execution in 2024. We believe we have all pieces in place to continue to grow shareholder value in the coming years. We have a differentiated market position in a critical market segment with significant competitive advantages and competitive moats. We have several multiyear tailwinds that we expect to accelerate new logo growth and enable us to increase our wallet share with existing customers. And we have a great team executing this business day in and day out to ensure that we seize on our opportunity. With that, we will take your questions.

We will now begin the question and answer session.

Our first question comes from Rob Oliver from Baird. Great. Thank you guys. Good morning. I appreciate you taking the questions. I have two. David, I'll start with you. Right at the top of your prepared remarks, you cited ongoing enthusiasm for the ERP migrations or around Oracle and SAP. And that's been somewhat of a question mark within the investment community lately. So I was hoping you could touch on that in a little bit more detail I know you also said you weren't impacted by the move to tariffs, but just if we can get your sense of how those pipelines continue to develop particularly relative to some of the concerns here globally what you're seeing and how much of that perhaps is within your own control, the unique relationship you guys have had with SAP, Any more color on those pipelines to get us comfortable would be helpful. And then I had a quick follow-up for John. Sure. Thanks, Rob. Yes, the maturity of the relationships with both Oracle and SAP continue to be strange for the business. And we're not seeing any slowdown in the SAP activity at all. Specific to your question. We saw a nice actually increase in our pipeline as we rolled into 2025.

And when we look forward, there's really no slowdown. In fact, I was really encouraged when reinforced not only the 2027 deadline, but also the 02/1933 opportunity because what that's going to do is it's going to allow us to actually network to a broader group of SAP prospect before they make the decision on indirect Vertex, whether they stay with native functionality or move. So it actually gives us a nice tailwind that's going to persist into the future. That I'm very encouraged by. And I will tell you that the processes that these companies are going to started well before we got into the pipeline and they're all moving at the same pace. We're not seeing any slowdown in those decisions in terms of when they're making their migration decision. So it's it's actually moving quite healthy and it's increasing. Great. Thanks. I appreciate that. And then John, you guys have been very disciplined on the margin front. And now looking at margins, they're going to be down this year. And I know you guys have called out here the incremental investment in Ocosio as well as across the rest of R and D. And I just would love to hear from you, obviously, given the judicious approach you guys have taken to margins.

Why now? And what was the sort of cost benefit trade off that went into that calculus? To say, okay, we are going to spend more here this year and not have an up margin year in 2025. I'd love to hear your thoughts on that. Thanks.

Yes. No, Rob, appreciate the question. And as we thought about it, obviously, the acquisition of Ecosio at the end of the year, we were very excited by it. We knew we'd be making some spend there to grow that business. Because again, we want to put it into a position where we can deliver the solutions that the largest enterprise customers need throughout the world. And so we feel like it's the right time based on some initial indications we have as to step on the accelerator, move forward and make those investments now. Not just in e invoicing, but in some of the other areas of AI. And some of the smart categorization tools that we have there. So we really feel that now is the time to make those investments to get ourselves prepared. So when we looked at sort of the ending results of kind of where we ended up with the budget, we really look at the core and focus on where the core is. And if you exclude the investments we're making in the Cozy and you exclude some of this what I would consider kind of somewhat anomalous that we're going to be making in 2026 to chase after some of this investment.

Our adjusted EBITDA margin is in excess of 25% and it really demonstrates that leverage that we've been able to get over from our previous investment activity that we did over the last couple of years. So we feel very good about where that stands and we look at the core business versus some of the other things and that really gives us the confidence.

Great. I appreciate the commentary. Thank you.

The next question comes from Chris Cantero from Morgan Stanley. Please go ahead. Hey, David. Hey, John. Thanks for taking the questions and congrats on the solid quarter here. I wanted to ask on gross margins. Nice to see that really expand in 2024 here. I'm just curious if you can give us a bit more color on unpacking the driver there of that improvement on the gross margin side and what should we expect for '25 Yes. Chris, thanks very much for the question. We have seen some nice growth in margins over time. And as we've talked about over the years, we over time, we would we expected that we would see some leverage in the margin area. And so we did we are certainly seeing that grow through the business. I will point out, as we did mention to you in the third quarter and a bit in the fourth quarter, some of those revenue true ups have come in at a bit higher margin certainly than some of the others. Some of the other items. So there's a little bit of an impact there. So I wouldn't take we don't guide to margins, but what I would say to you is that I wouldn't take these margins extrapolate them out over the longer term.

I think we feel very good about margins and how they're operating right now, but I wouldn't certainly be expanding these. And again, I think we had a little bit of benefit in the third and fourth quarter by some of the true up activity that we've called out previously.

Got it. That's super helpful, John. And then on services, how should we think about that for '25? I know Q3 was only about 2% growth and in Q4 a little step up to close to 7%. So just curious how we should think about that pro service run rate as you continue to work with your implementation partners there too? Yes. I'm going to take that Chris. I think our strategy of minimizing service growth to support a more durable ARR growth is really working. We're seeing it in increased pipeline with our alliance partners. And that's something we're going to continue to focus on. So we envision a pretty flat year, can with our services really using it more as a harvester for great customer experience and driving innovation into our products as opposed to being a primary revenue driver Really want to continue to push everything we can into our advisory community with our business wherever possible. Super helpful.

Thanks guys. See you in Philly. Thanks, Chris. Thanks, Chris. The next question comes from Joshua Riley from Needham. Please go ahead.

All right. Thanks for taking my questions. So you highlighted some additional product related investments for AI. If you look at smart categorization and the investments for the internal AI tools as well, Do you see this as like a front loaded investment period when [indiscernible] quicker payback opportunity In terms of margin benefits for customer support, And do you expect to see some revenue from smart categorization in some of these AI products in 2025 as well? Yes. I think there's two aspects of Yes, I think smart categorization will be in the market this year. And so we will see some more probably ARR lift than we will necessarily revenue obviously just with our revenue recognition. We're also seeing it and we've talked about this I think Josh in the past you and I conversation about our data management capabilities. One of the areas that's that's adjacent to this increase in investment that is part of what we're focused on here is advancing a more commercial data management offering into the market. And so part of this investment is because we're seeing some of the power of what we can do with that AI across our platform, especially as we look at Agentic AI being added into our platform.

And it just has us really excited about what we're seeing and how we continue to bring our customers along in the journey of those [indiscernible] why this is a good opportunity to pursue now, tying to the question because some of the feedback we get from customers about bringing it to market now, you can get that adoption longer term.

Got it. That's super helpful. And then as we look at some of these investments, For the AI products and tools, how should we think about how much of the incremental expenses will be expensed versus capitalized And then how are we thinking about the conversion of EBITDA to free cash flow?

For this year?

Yes. A couple of things. I think in terms of kind of the capitalization typically, we are running around kind of 50 ish percent give or take. Hard for me to say right now, Josh, it's exactly how that would play out, but that's generally the rate at which we consider that. So, hard to say with that, but that's kind of the guidance I would give you there. In terms of free cash flow for this year, again, we feel we don't guide to free cash flow. What I can say is that we were on a very nice pace to achieve our free cash flow goals as we talked about that 665% to 70%. You saw we increased in the full year up to $77,000,000 of free cash flow up from about $6,000,000 last year. So we've made a lot of good strides. Josh, what I would tell you is obviously the acquisition of Ecosio in some of the other investments we're making is going to slow that down And my expectation, it'll slow that down. I think we talked about eighteen to twenty four months of investment. And so as I see us exiting 2020 as I see us exiting 2026, having made those investments, I think we'll then we'll be on track for that 65% to 70%.

Got it. Thanks, guys.

You got it. The next question comes from Samad Samana from Jefferies.

Please go ahead. [indiscernible] Maybe first just on the early customers that have adopted Eposio, or that you've made it available from joint offering, any that you can talk about that cohort, whether they're your larger customers more midsized what geo specifically they're working on and how they're early on thinking about leveraging it Just what you've learned, I know it's been a short period of time, but just anything we can use to start to think about what the opportunity could mean in a more meaningful way?

Yes, Samad, I appreciate the question. It was a combination We had a nice competitive takeaway here in The States. We won a deal in a nice deal in Europe that actually led to a much broader relationship, meaning the customer came in with the pain point around the invoicing. And as we laid out, our vision around linking VAT compliance and then VAT determination in the client actually stepped back and bought a much broader suite than actually the initial pain point. So I think the addition the ability to add on other product sales as our team begins to take this to market and gets our referenceability is really encouraging to me in terms of what we're seeing in the conversations So I would say U. S. Base is going to still be our primary focus. But we are seeing we did pick up wins in Europe. Some were new logo, some were competitive takeaways, some were existing customers just adding it into their mix. All were critical proof points. I think the other big thing I would acknowledge is the fact that they're all running on the core ERP systems that we have deep relationships with, which is critical to our strategy as we want to further wallet share and advance our strategic relationships with those partners.

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

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

And Samad, a good example of that is smart categorization That will be an independent commercial offering that can be bolted on to existing customers as well as help us land new logos. Great. Look forward to hearing more at the Analyst Day.

Yes, look forward to having you there. The next question comes from Steve Enders from Citi. All right, great. Thanks for taking the questions this morning. I guess maybe just following on the AI conversation here.

I guess interesting to hear you talk about the AgenTek AI experience and the Vertex opportunity there. But yes, can you just maybe give a little bit more detail on how you're thinking about what that AgenTek experience looks like or maybe some of the use cases or opportunity around that? Obviously, early days, but as we're as we're looking at it across our platform, I think we see opportunities for it to improve both the customer experience as well as which I think is going to be interesting is some of our partners are also in the market are technology partners are working with the Genic AI. And I think you're going to see how AgenIC.ai can work to improve actually the relationship and the engagement between some of our ecosystem partners. And so I think we're looking at it in two dimensions about how we can improve the end to end workflow and along the lines of our data fabric and what it can do, the jobs it can do for a tax department and bring value there and then also how we can think about it on a broader level as we look out further. Where it may fit in the ecosystem with some of our ecosystem partners.

Okay, got you. That's helpful. And then guess maybe on kind of the pipeline development or I guess it seems like that's kind of like what's given you confidence for the back half of the year. But can you just maybe help us think through some of the moving pieces linearity through the year as we kind of accelerate off of 1Q levels and maybe what that looks like, Yes. I'm really glad you asked this question because obviously when you look at Q1, you may say, well, how are we going to get to the the exciting guidance that we have for the full year and the growth? And that suggests much stronger ARR as the year goes on. I think that's just a function of really deep understanding of and visibility into our pipeline When we look at our coverage ratios of what we're going to need in pipeline, both in Europe and The U. S, to achieve our goals. And what we're seeing is already building as we rolled into 2025 is very different than we rolled in, in 2024. Definitely see across we highlighted some of our new logo wins, so the broadening of the ecosystem of where we're seeing pipeline build is very encouraging to me.

It's not just single threaded, And so I think our progress there is one reason I have the confidence. I think the second reason is some of the feedback we're getting about the new offerings and where we're envisioning bringing products to market that combination along with just the core execution of the team I also think you're going to see and we highlighted this a nice movement back in NRR. So while NRR pulled back a little bit in in Q4, I think you have to look at the actual unit opportunities actually increased for us, which tells me the customer appetite and the pain they're still dealing with is there. It's a question of what products they buy that oftentimes drives that NRR. But I think come back nicely. So when I look across the business across all those dimensions, that's the confidence I have for the nice growth to the year and that snapback that you acknowledged.

Okay, perfect.

No, great to hear and thanks for taking the questions. Yes, thank you, Steve. The next question comes from Daniel Jester from BMO Capital Markets.

Please go ahead.

Hey, good morning. Thanks for taking my question. Just on Ecosio in e invoicing. I'm sorry if I missed this in terms of the investments you're making.

How much of this is product related and how much of this is getting go to market investments and getting sort of boots on the ground in Europe I think maybe more generally, I'd love to kind of hear an update as you see your go to market investments in Europe David, you talked about that unlocking sort of more opportunities that going to require you to put sort of more sales resources into Europe in the coming years to attack that.

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

Yes. I would just add, I think I'm really encouraged one thing I should have said earlier when we talk about what's happening in invoicing is the talent that we've actually drawn into our organization around e invoicing who are people who had done worked at other competitors big four partners, etcetera, that have now come and joined our organization because of the strategy we've adopted here and the offering that we're bringing forward in the market. So I just really like our positioning and their energy around why we're going to succeed. So I don't I think John hit it really well. We're going to see much more about accelerating the product but that positions us in the long run to execute in the go to market.

Okay. That's really helpful color. Thank you. And then on the record improvement in new logos, it's that's great to hear. I think throughout the conversation, you've touched on it a few times. About what drove that. But I just can you be a little more explicit? Is this actually seeing new sort of SAP and Oracle related customers as they go through their digitization journey coming to Vertex Vertex.

Or is this maybe a broader set of different opportunities? I just if you can give any more clarity as what's driving this? Yes. It's very helpful. No, we look carefully at this, so thank you for the question. It is the combination, it's the broadening of that ecosystem relationship. So I think we highlighted 20% increase in pipeline and referrals in SAP. That's new logos.

Really pleased with how we're working with our alliance partners and we continue to advance in Oracle. Again, new logos. But going further, we continue to nurture our ecosystem relationships with Shopify, Microsoft, Salesforce, NetSuite and the investment we have made in channel over the last several years is really starting to bear fruit that is opening up that aperture of broadening the revenue brace for more durable sustainable revenue growth into the future. And to me that is really encouraging, so we're not a single threaded.

Thank you very much. The next question comes The next question comes from Jacob Rabii from William Blair. Please go ahead.

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

Certainly, we want to be most importantly focused on the greenfield countries that are coming, meaning countries like France and Germany where they didn't where the requirements didn't exist because that's going to be a greenfield where all customer all the markets are trying to figure out how do we solve for those jurisdictions. And there are certain prime jurisdictions that had already adopted e invoicing that Ecosio didn't cover. And we want to make sure given where our customers do business, we make sure we hit the ones that are most prevalent. So there might be a small jurisdiction pick a region, let's say Africa that we don't have a lot of customers doing a lot of business in that region, we will push that out on the road map. But if you've got a big LatAm jurisdiction where your customer is doing a lot of business, you're going to want to make sure you cover that even though they may have had the invoicing in place for several years. And so it's making sure we hit the greenfields first and foremost where we know regulations are coming and then looking at areas where the largest economic activity from our customers perspective is happening.

And making sure we're adding those into the queue as quickly as possible. And then again pushing out the ones that are further down that we don't see as much urgency because we don't see as much demand in that jurisdiction.

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

I think it was a really tough comp. I think we are also to the team credit, we're putting in processes to try to minimize the surprises going forward. We're trying to see where we can get more advanced knowledge and either put that into our guide more specifically or even better actually reconcile it into ARR sooner so that we don't create that those in the future. And I think we've instituted some new processes to do that. Is how I would largely say in joining and building on that. No, I think that's fair.

That's something that we certainly want to make sure that we we have and have better visibility to going forward. And I think as David talked about some those processes will help give us that. But again, we did have some yes, we'd like to call out when those those anomalous things are there just to set people straight with sort of the trajectory of the business and we wanted to make sure that that came out.

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

It's now over 50% of our of our subscription revenue. We're excited about that because it's just showing adoption of cloud and it's also positioning us have better visibility going forward, which again will help minimize this into the future and give us a cleaner profile on the on the true ups going forward.

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

Yes.

Thank you.

Next question comes from Alex Sklar from Raymond James.

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

I will say that we that was an on premise replacement. Just to be clear, we met the client where they were at. But in doing so, the loyalty and the appreciation we got gives us the confidence given our historical track record of when they are ready to migrate, they're going to migrate with us. And so Being that flexibility ensures 6 high 6 figures of ARR and revenue for us position us for revenue and it gives us that position for sustained relationship going forward. So that was I don't want to mislead you, that wasn't a cloud conversion at that time, but it will set up a cloud conversion going forward. I think the second thing is we don't have great visibility to every customers, every of our competitor strategies by any means. But we have seen this play out over time where customers are being forced to do something they're not ready to do and being the organization that we are, it gives them confidence we're going to be with them for when the needs are and it has played to our favor every and it's why our win rates are where they are.

Okay, great color there. And then just maybe a two part question on partnerships and then the second part on SAP Specifically, but just given the commentary about partner contributions are ramping into 2025, the strong new customer activity in Q4, Can you talk about what was factored in 2025 from a new logo standpoint relative to 2024?

And then on SAP specifically, the 20% pipeline growth really strong outcome for you all. Just given the magnitude of that opportunity, is that like a level we should think about kind of being sustainable for a multiyear period? That something that maybe could even accelerate from here? I'm just kind of curious how you think about 20% growth from that channel just given the longer term opportunity? Thanks.

Sure. So I think relative to new loans, we don't certainly guide to that. Historically, our business was 75% existing new revenue every quarter came 75% from existing customers. 25% from new logos. We've certainly seen that shift to 30%. We have a goal we've talked about trying to get that to like 35%. We still think that working with the best customers in the world is going to be an increasing wallet share is going to be the primary driver, but we are definitely seeing traction towards moving towards trying to get towards that 35% of each quarter being coming from new logos because again, we think that positions us for that proven land and expand model that we demonstrated to customers and investors over the years where once we're in, we develop loyalty and we solve broader problems. Especially as we bring products to market. So far as the SAP pipeline, I think we just continue to expand our footprint inside of that ecosystem with their channel reps, the sales reps, our relationship with the alliance partners and the work we're doing there and the preference we're getting. I think all that is contributing to the expansion as well as the the deadline of 2027 for [indiscernible] Gas and in fact looking at new ways to bring more value to SAP customers with some of our product extensions to make sure only is the win rate continuing to grow, but also the the value proposition to more new logos continues.

Okay, great color.

The next question comes from from Patrick Walravens from Citizens. Please go ahead. Great. Thank you. Congratulations.

David, can I just start your big picture tone of business So how was sales force attainment in Q4?

And you're two thirds of the way through Q1. So how is it looking so far? And how does that tie to your bit of a slower start for the year? Commentary?

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

Okay.

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

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

All right, great. Thank you.

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

Hi, good morning and thanks for taking the question.

Have just one And it is in light of the strength of the long term drivers you've called out maybe even the incremental strength you've seen over the last few months in conjunction with the accelerated rate of investments across a couple of important drivers in the business, Does it change how you think a bit longer term about a metric like AARPC and wanting it to about triple from current levels to 300,000 plus and forgive me if this is something that you're going to articulate further in the Investor Day in a couple of weeks.

No, it's okay. It's a very fair question. Yes, certainly the acceleration of investment in our new products whether it be invoicing or some of the AI and data management capabilities are all based on the continual feedback and demonstrated ability of our customers to want us to bring more value to market and then move that and is allowing us to drive that AARPC up. And so I think that is that's a direct correlation. We spend a lot time in user group meetings and our advisory board meetings talking to our customers about where their next needs are and their willingness to buy from us. And how we can drive more wallet share and more and bring more value ultimately to our customers, which drives wallet share. And so I think all those things are coming across strong signals of continue to do what we're doing, which should continue to move that number up nicely. I think we've been growing it roughly 10% to 15% a quarter and I think that's continuing and so no reason that it shouldn't going forward.

Great.

Next question comes from Adam Hochkiss from Goldman Sachs. Please go ahead.

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

Yes, it's a very interesting question, I think and well framed. I will you that for the core challenges they're facing now, meaning let's just say determination and calculation of sales tax in The U. S. That's really driven a linear thing of as they [indiscernible] you're dealing with more diverse business platforms you're running on. They will cross that tipping point. The second part of your question that really ties into the other part of my answer is, outsized regulatory change like the phenomenon of e invoicing and real time reporting that's now occurring is really sort of disrupting and transforming that's more of an S curve where we're getting in the market with something new as we get that referenceability that we've proven in other parts of the end to end lifecycle It will it will have a differentiated growth rate. So I think about 26% and beyond. '25 is our proving year. I think we said that from the moment we bought the Cozio was '25 is our proving year to build out the product, build out the [indiscernible] train up the alliance partners because we're going alliance only in terms of our implementations, in terms of everything we're doing there, so that we could position ourselves for the demand cycle of '26 and beyond.

And I think we We're just accelerating our readiness and investment for that because we see the feedback we're getting from our alliance partners and our [indiscernible] our early adopters about what we're bringing to market. So that's more of that S curve that you referenced.

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

Yes. Adam, thanks for the question. We didn't see a big change in that in the fourth quarter. We really saw fairly consistent sort of that 50% coming from cross sells migrations. Another 25% from price and the other 25% from the additional entitlement. So it really didn't move too much. And when we look at the '25 budget, again, we don't see a big change coming out of that. Again, as David did talk about, we were very excited when we think about the whole ARR walk the activity we saw in the new logos, but but that's outside the NRR calculation. But that's about the way we see it. So thank you very much for the question.

Great. Thanks so much. This concludes our question and answer session. Like to turn the conference back over to Joe Crivelli for any closing remarks.

Thanks everybody for joining us today. Upon please send me an email at investorsvertexinc dot com Have a great rest of your day and we look forward to speaking with you in the coming weeks and seeing you at our Investor Day.

Conference has now concluded.