Good morning and welcome to the Vertex Incorporated Fourth Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s remarks, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Joe Crivelli, Vice President of Investor Relations. Please go ahead.

Hello and thanks for joining us to discuss Vertex’s fourth quarter financial results. I’m Joe Crivelli, Vice President, Investor Relations. David DeStefano, our President and CEO; and John Schwab, our CFO, are also with us today. During this call we may make forward-looking statements about expected future results. Actual financial results may differ due to risks and uncertainties. These risks and uncertainties are described in our filings with the Securities and Exchange Commission. Our remarks today will also include references to non-GAAP financial measures. A reconciliation of these non-GAAP metrics to GAAP is also provided in today’s press release. This call is being recorded and will be available for replay on our Investor Relations website. I’ll now turn the call over to David.

Welcome everyone and thank you for joining us. Vertex’s strong execution continued in the fourth quarter, wrapping up what was a very consistent year for the company. More importantly, I’m excited about our growing pipeline, which is fueled by the ongoing tailwinds of the Oracle, Cloud, and SAP S/4HANA migration cycles that are underway and the new products we are bringing to market. In the fourth quarter, the Vertex team delivered revenue of $178.5 million, up 15.2% year-over-year, and adjusted EBITDA was $38.1 million, 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 18% to $603.1 million. 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 challenging comparable to our very strong Q4 last year. 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 standalone 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 enterprise market. 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…

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 $178.5 million, up 15.2% compared to last year’s fourth quarter and exceeding the high end of our fourth quarter guidance by $500,000. For the full year, total revenue was $668.8 million, up 16.5% from 2023. Excluding ecosio revenue was $175.5 million in the fourth quarter and $662.8 million for the full year. Note that in the fourth quarter contract renewals with several major customers resulted in usage true-ups of approximately $2 million to $3 dollars above our typical Q4 run rate. While true-ups can occasionally skew sequential comparisons, they increase annual recurring revenue in subsequent periods. Subscription revenue in the fourth quarter increased 16.8% over last year’s fourth quarter to $152.6 million. Full year subscription revenue was $567.1 million, up 17.9% year-over-year. Services revenue in the fourth quarter grew at 6.8% over last year’s fourth quarter to $25.9 million. Full year services revenue was $99.7 million, up 8.8% year-over-year. Cloud revenue was $76.9 million in the fourth quarter, up 27% from last year’s fourth quarter. Full year cloud revenue was $276 million, up 28.6% year-over-year. Annual recurring revenue or ARR was $603.1 million at quarter end. ecosio added $7.9 million to ARR and Systax added $5.9 million. Excluding these amounts, organic ARR growth was 15% compared to our very strong fourth quarter of 2023. Net revenue retention or NRR was 109% compared to 113% in the comparable 2023 period, down from 111% in the third quarter. The year-over-year decrease was largely driven by the comparison to last year’s fourth quarter results which were unusually strong. A healthy increase in new logo revenue in the 2024 fourth quarter revenue…

Thanks, John. As I said at the top of the call, I am 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 modes. We have several multi-year 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. [Operator Instructions] Our first question comes from Rob Oliver from Baird. Please go ahead.

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 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’ve 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 stuff 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. Thanks.

Sure. Thanks, Rob. Yes, the maturity of the relationships with both Oracle and SAP continue to be strength 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 SAP reinforced not only the 2027 deadline, but also the 2033 opportunity because what that’s going to do is it’s going to allow us to actually network to a broader group of SAP prospects before they make the decision on indirect tax, 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 through 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 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 ecosio as well as across the rest of R&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 enough margin year in 2025. I’d love to hear your thoughts on that. Thanks.

Yes. No, Rob, I 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 is 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 ecosio and you exclude some of this, what I would consider kind of somewhat anomalous investment 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 Quintero 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. 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 2025?

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, 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 other items. 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 and 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 – a 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 2025? I know Q3 was only about 2% growth and Q4, a little step up to close to 7%. So just curious how we should think about that pro services 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 services 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, candidly, with our services, really using it more as a harvester for great customer experience and driving innovation into the – into our products as opposed to being a primary revenue driver. I 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 Reilly 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 monetization is more in 2026 and beyond? Or do you think there is a quicker payback opportunity in terms of margin benefits for customer support? And do you expect to see some revenue from smart categorization and some of these AI products in 2025 as well?

Yes. I think there’s two aspects to that. 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. But we’re also seeing it, and we’ve talked about this, I think, Josh, in the past, you and I – the conversation about our data management capabilities. One of the areas 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 conversations and the feedback that they’re giving us about why this is a good opportunity to pursue now, tying to the question of why are we accelerating in the face of margins. It’s because some of the feedback we get from customers about bring it to market now, so 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? Thanks, guys.

Yes. A couple of things. I think in terms of kind of the capitalization, typically, we are running around kind of 50%-ish, give or take. Hard for me to say right now, Josh, 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 very – 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’ve talked about that 65% to 70%. You saw we increased in the full year, up to $77 million of free cash flow, up from about $6 million last year. So we’ve made a lot of good strides. Josh, what I would tell you is, obviously, the acquisition of ecosio and some of the other investments we’re making is going to slow that down. And my expectation, it will slow that down. I think we talked about 18 months to 24 months of investment. And so 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.

Hey, thanks for taking my questions. Maybe first, just on the early customers that have adopted ecosio or that you’ve made it available for the joint offering. Anything that you can tell us about that cohort, whether they’re your larger customers, more midsize, what geo specifically they’re working on and how they’re early on thinking about leveraging it? And 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 and 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 get our referenceability is really encouraging to me in terms of what we’re seeing in the conversations. So I would say U.S.-based is going to still be our primary focus, and we are seeing – we did pick up wins in Europe. Some are 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 flesh that out for us a little bit? Is that in terms of AI that you want to use 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&D development or in the cost to serve? And are there commercial prospects for whatever you end up developing?

Yes. Certainly, Samad, from additional cost that – 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 investment for internal use, but that’s 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 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.

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. Please go ahead.

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 Agentic 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 Agentic experience looks like or maybe some of the use cases or opportunity around that?

Obviously early days, but 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 – our technology partners are working with Agentic AI. And I think you’re going to see how Agentic 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, I guess, maybe on kind of the pipeline development or I guess, it seems like that’s kind of like what’s giving you confidence for the back half of the year, but can you just maybe help us think through some of the moving pieces or maybe the 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 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 2024. We 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 Q4, I think you have to look at the actually 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 you’re going to see that 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. 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 and 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? And 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. Is that going to require you to put sort of more sales resources into Europe in the coming years to attack that? Thank you very much.

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 ecosio, 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 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 of the things I should have said earlier when we talked about what’s happening e-invoicing is the talent that we’ve actually drawn into our organization around e-invoicing who are – people who have done worked at other competitors, big four partners, et cetera, 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, 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? Or is this maybe a broader set of different opportunities? I just – if you can give any more clarity as to what’s driving this? That’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 a 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 has 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 from Jacob Roberge 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? 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 the – 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 roadmap. 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 e-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 the – we don’t see as much urgency because we don’t see as much demand in that jurisdiction.

Okay, that’s helpful. And then we’d 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 we’d love to hear kind of how general consumption on the platform was. And you had slightly lower true ups this Q4 when compared to 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’s 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 that.

No, I think that’s fair. I think that’s something that we certainly want to make sure that we have and have better visibility to going forward. And I think as David talked about, some of those processes will help give us that. But again, we did have some – we’d like to call out when those things – 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, 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 subscription revenue. We’re excited about that, because it’s just showing the adoption of cloud and it’s also positioning us to have better visibility going forward, which again will help minimize this into the future and give us a cleaner profile on the true ups going forward.

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

Yes. Thank you.

The next question comes from Alex Sklar from Raymond James. Please go ahead.

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 six – high six 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 competitive 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 the confidence we’re going to be with them for when the needs are and it has played to our favor every time 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 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? Is 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 logos, we don’t certainly guide to that IPO. 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 shares, 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 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 deadline of 2027 for customers that are trying to move in that way. So certainly encouraged by that. We’re not taking our foot off the gas. And in fact, looking at new ways to bring more value to SAP customers with some of our product extensions to make sure not only is the win rate continuing to grow, but also the value proposition to more new logo’s continues.

Okay. Great color. Thanks guys.

The next question comes from Patrick Walravens from Citizens. Please go ahead.

Oh, great. Thank you. Congratulations. Hey, David, can I just start to do a big picture tone of business? So how was salesforce attainment in Q4? And you’re two-thirds of the way through Q1. So how’s it looking so far and how does that tie to your – a 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 and really the great – there’s 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 recognize revenue, ratably we have strong confidence and the sales team has 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 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 e-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 offline. 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, what you can see that evolving to over the next 18 months to 24 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 opportunity we brought in as well as some of that talent I brought in, I referenced a moment ago in terms of there giving us the really good clarity in terms of where to build next – 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. I 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 of 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 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 at roughly 10% to 15% a quarter and I think that’s continuing. And so no reason that it shouldn’t going forward.

Great. Thanks, David.

The next question comes from Adam Hotchkiss 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 companies that complexity thresholds and general ledger migrates to cloud? Or do you think of this more as like an S-Curve when things accelerate, once you get enough referenceability? Any color there would be helpful.

Yes, it’s a very interesting question. I think and well framed. I will tell 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 mature in complexity, as a business gets more diverse jurisdictions, you’re dealing with more diverse business platforms you’re running on, they will crush that tipping point. The second part of your question that really ties into the other my other part of my answer is when you get outsized regulatory change like the phenomenon of e-invoicing and real time reporting that’s now occurring and it’s 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 have a differentiated growth rate as I think about 2026 and beyond. 2025 is our proving year. I think we said that from the moment we bought the ecosio was, 2025 is our proving year to build out the product, build out the referenceability, 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 can position ourselves for the demand cycle of 2026 and beyond. And I think we’re just accelerating our readiness in investment for that because we see the feedback we’re getting from our alliance partners and our early adopters about what we’re bringing to market. So that’s more of that S-Curve that you reference.

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 in 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 you’ve 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 of the activity we saw in the new logos, 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. I would like to turn the conference back over to Joe Crivelli for any closing remarks.

Thanks everybody for joining us today. Apologies if we didn’t get to you in the queue. If you have any follow-up questions or would like to schedule additional time with the team, please send me an email at investors@vertexinc.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.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.