Good day, and welcome to the Vertex Inc First Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event has been recorded. I would now like to turn the conference over to Mr. Joe Crivelli, Investor Relations from Vertex. Please go ahead. Hello, and thanks for joining us to discuss Vertex's First Quarter Financial Results. 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 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 executed well in the first quarter, getting 2025 off to a strong start. The consistency of our business, which we highlighted during our investor day in March, continued as expected. In addition, last week we announced an equity investment in Kintsugi, a fast-growing startup focused on applying AI technology to indirect tax in the small business sector. I'll discuss this in a moment. In the first quarter, revenue was $177.1 million, up 12.9% year-over-year. Subscription revenue grew 14.4%, and cloud revenue growth was strong at 29.6% in the first quarter. An adjusted EBITDA was $37.8 million, representing an EBITDA margin of 21.3%. This was above the high end of our guidance range for the quarter and sets us up well for 2025. In addition, annual recurring revenue, or ARR, grew 17.9% to $618.5 million. Net recurring revenue, or NRR, remained strong at 109%. We continue to expect NRR to increase in 2025 and rebound above 110% by the end of the year. Average annual revenue per customer for Vertex standalone increased 16% year-over-year to $141,000. 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 under-penetrated enterprise market. Finally, gross recurring revenue, or GRR, was 95% in the first quarter, within our targeted best-in-class range of 94%-96%. As investors know, the proliferation of e-invoicing mandates globally is expected to be a significant tailwind in our business in the coming years. We believe this can be best addressed by providing a single solution which combines VAT compliance and e-invoicing through a single user experience. This is a game changer for companies exposed to the burgeoning e-invoicing mandates. We are pleased that our joint e-invoicing solution with Acozio achieved general availability in mid-March, enabling us to accelerate our sales pursuits. We see a growing pipeline for this offering and several major catalysts on the horizon, including the launch of e-invoicing in the two largest economies in Europe, France, in late 2026, and Germany, which is adopting a phased approach that is expected to be fully implemented in early 2027. In addition, this week is our European customer conference, and we expect e-invoicing to be a major topic of discussion with the customers in attendance. I'll now share a few key new business wins from the quarter, starting with existing customers. A fast-growing specialty retailer increased its business with Vertex to support business growth as well as a company-wide cloud migration. The company increased its entitlements while also adding our Edge Product, an SAP Accelerator, and other tools. This doubled our revenue with this customer into the low seven figures. In the Oracle ecosystem, a customer in the higher education sector reevaluated its indirect tax technology to improve risk management and reduce operational costs. The company was previously using Vertex for tax return filings in addition to two additional competitors for various aspects of its business. This customer standardized on Vertex, resulting in low six figures of new revenue and transforming this long-standing relationship into a scaled customer. In the Microsoft ecosystem, a manufacturer of defense and law enforcement products expanded its entitlements with Vertex to support its growth in global markets while also adding premium support and Shopify Connectors. Revenue from this scaled customer is now up more than 160% over the past 12 months to the mid six figures. A long-standing U.S. customer in the toy manufacturing industry added Vertex for its EU headquarters operation, which was previously using native ERP functionality for indirect tax. The customer standardized on Vertex for sales and use and VAT calculation as part of a global SAP S/4HANA transformation. This led to nearly $1,000,000 of new revenue for Vertex. Turning to new logo wins, investors are often surprised by the size and scale of companies that are still using homegrown solutions to process indirect tax. In the first quarter, one of the world's largest processors of electronic payments selected Vertex as part of an RFP for its first-ever vended indirect tax solution. This was propelled by a company mandate to reduce risk across its business. This $1,000,000 deal included sales and use and VAT calculation, as well as our edge solution and other indirect tools. In the lodging industry, we gained a new customer when they outgrew one of our major competitors. The customer, which is on a cloud transformation journey with Oracle, was referred to Vertex through our partner, PwC. This mid six-figure initial relationship includes sales, use, and VAT compliance. Our Oracle Accelerators were a major differentiator for Vertex. Also, in the Oracle ecosystem, a major real estate investment trust specializing in data centers chose Vertex for sales, use, and VAT calculation and compliance. This comprehensive global contract will deliver high six figures of recurring revenue for Vertex. Our telecommunication tax content was a significant differentiator in winning this business. A major building materials company selected Vertex for indirect tax in conjunction with an acquisition and an SAP S/4HANA transition. This six-figure new logo win, which was a competitive takeaway, included sales and use tax calculation, as well as LCR Tools, the SAP Accelerator, Address Cleansing, and Certificate Center. Now let's discuss Kintsugi. Kintsugi is an AI-native startup focused on automating sales tax compliance for small and mid-sized businesses. Throughout the due diligence process, we got to know the company's founders and were impressed by what they've built. Using AI, Kintsugi automates the entire sales tax compliance lifecycle for small businesses in new and creative ways, including tax calculation, filing, and compliance across multiple jurisdictions. We think this technology could be a game changer in the SMB market. Our investment gives us a front-row seat as Kintsugi executes its game plan. Let me highlight three examples of the differences between how an AI solution works for SMBs but falls short in its viability for complex enterprise customers. One, enterprise customers require the ability to write significant numbers of custom rules that are unique to their business, and these would interfere with AI functionality. Two, a significant number of jurisdictions below the state level do not publish rate and regulations, and these must be manually gathered and interpreted before codifying them into our algorithms. AI's requirement for digital consumption is not effective here. Three, on top of tax regulations, indirect tax teams must also determine and comply with various fees around the world, from plastic bag fees to environmental fees, which are not published digitally. For the small business market, where audit risk is low and good enough compliance is the focus, we believe an AI-driven solution like Kintsugi's can work very well, given the more straightforward requirements of SMBs. We do see opportunities to apply elements of Kintsugi's technology to our business. That's why we included an IP sharing agreement and commercial partnership in our investment, which will enable us to explore ways we can apply their technology to our market opportunity while expediting and enhancing our AI roadmap. In summary, it was a good quarter with results in line with our expectations. We continue to see a strong market for indirect tax technology and no change in buyer behavior, and we are optimistic about the balance of 2025. As highlighted at Investor Day, Vertex is a resilient business. Over the past several decades, our revenue has never decreased from one year to the next, even during severe recessionary periods. This is because in volatile economic times, taxing authorities lean into audit and enforcement to replace revenue that is lost due to lack of economic growth. In turn, audit and enforcement actions highlight the need for companies that are using homegrown solutions to adopt a more automated solution that can scale like Vertex. Another benefit our customers enjoy is the confidence that comes from using Vertex solutions. When a taxing authority audits one of our customers, they have a full audit trail to defend their compliance results. More importantly, they have the ability to find errors before they submit them, helping our customers head off an audit right from the start. While audit enforcement is one of the persistent tailwinds we've seen throughout our 47-year history serving the enterprise sector with our indirect tax solutions, it's just one of several. The ongoing cloud migration cycle, which is driven by ERP providers' cloud initiatives, is expected to fuel growth for the next several years. As noted at Investor Day, we see this as a major opportunity. We believe we are extremely well-positioned to benefit as enterprises that are using homegrown tax solutions migrate to the cloud, and their homegrown solutions, which are often based on legacy code, are unable to function in the new modern infrastructure. Another persistent tailwind is business change resulting from mergers and acquisitions expanding into new geographies or opening up new business channels like omnichannel sales. Anytime there is change, there is added complexity for our customers to manage. As everyone has seen, the volatility in the macroeconomic environment is unprecedented. However, I am pleased with our first quarter results and our market opportunity. We have not seen elongated sales cycles or deal slippage at this point. Our pipeline continues to grow, and that is something that we will continue to monitor carefully as the year develops and companies and regulators adapt to the changing environment. John will now take us through the financials for Q1. John? Thanks, David, and good morning, everyone. I will now review our first quarter financial results and provide guidance for the second quarter and full year of 2025. In the first quarter, revenue was $177.1 million, up 12.9% year-over-year. Acozio contributed $3.3 million of revenue during the quarter. Accordingly, on an organic basis, revenue was $173.8 million, and revenue growth was 10.8% in line with expectations for the quarter. Subscription revenue increased 14.4% period over period to $150.8 million. Services revenue grew 5.4% to $26.3 million. Our cloud revenue was $80.2 million, up 29.6% from last year's first quarter and ahead of our guidance for the full year. Acozio added about three and a half percentage points to cloud revenue growth. Our annual recurring revenue, or ARR, was $618.5 million at quarter end. Acozio added $8.1 million to ARR, and Systax added $6.6 million. Excluding these amounts, organic ARR growth was 15.1%. Note that in the second quarter, we will lap the completion of the Systax acquisition, and accordingly, the Systax contribution will be included in our organic revenue growth going forward. In the third quarter, we will lap the Acozio acquisition. Net revenue retention, or NRR, was 109% compared to 112% in last year's first quarter and 109% from the fourth quarter of 2024. Our gross revenue retention, or GRR, remained at 95% at quarter end, within our targeted range of 94-96%. Our average annual revenue per customer, or AARPC, for Vertex standalone was $140,943, up 14.1% from last year's first quarter. Including the impact of Acozio and Systax, AARPC was $126,534. For the remainder of the income statement, I will be referring to non-GAAP metrics. These non-GAAP metrics are reconciled to GAAP results in this morning's earnings press release. Gross profit for the first quarter was $132.8 million, and gross margin was 75%. This compares with gross profit of $113.7 million and 72.5% gross margin in the same period last year. Gross margin on subscription software revenue was 82.6%, compared to 78.6% in last year's first quarter and 81.4% in the fourth quarter of 2024. Gross margin on our services was 31.1%, compared to 40.5% in last year's first quarter and 37.6% in the fourth quarter of 2024. The decrease was driven by higher compensation expense in our MSO business, as well as the inclusion of the Acozio services, which have lower margins. Turning to operating expenses, in the first quarter, research and development expense was $16.5 million, compared to $13.5 million last year. With capitalized software spend included, R&D spend was $37.3 million for the first quarter, which represents 21.1% of revenue. Selling and marketing expense was $41.8 million, or 23.6% of total revenues, an increase of $6.1 million and approximately 17.2% from the prior period. General and administrative expense was $36.6 million, up $9 million from last year. Our adjusted EBITDA was $37.2 million, an increase of $500,000, or 1.3% year-over-year, and above the high end of our quarterly guidance. This favorable result was in part impacted by approximately $1-$2 million of expenses that were expected in the first quarter but will be realized in the second quarter. In the first quarter, our operating cash flow was $14.8 million, and free cash flow was a negative $12.3 million, in line with our seasonal cash flow patterns due to annual bonus payments that fall in March, higher payroll taxes that start at the beginning of the year, and marketing expenses related to our sales kickoff. In addition, the accelerated investments we mentioned on last quarter's call also impacted the first quarter cash flow. We ended the first quarter with over $270.4 million of unrestricted cash and cash equivalents. For additional liquidity, we also have $300 million of unused availability under our line of credit. Now turning to guidance. For the second quarter of 2025, we expect total revenue in the range of $182-$187 million, which would represent 14.5% year-over-year growth at the midpoint. Adjusted EBITDA is expected to be in the range of $35.5-$39.5 million, a slight decrease year-over-year at the midpoint. The second quarter EBITDA range also reflects the accelerated AI investments and e-invoicing investments that were made and the $1.2 million mentioned earlier that were expected in Q1 but will be incurred in the second quarter. Our full year 2025 guidance remains unchanged. As it has been our custom not to adjust full year guidance after one quarter of results, we continue to expect total revenue in the range of $760-$768 million, representing annual growth of 14.6% at the midpoint. Adjusted EBITDA is expected in the range of $161-$165 million, representing a year-over-year increase of $11 million at the midpoint and full year adjusted EBITDA margin of 21%. Full year cloud revenue growth is expected to be 28%. David will now make some closing comments before we open up for Q&A. David? Thanks, John. In conclusion, it was a solid first quarter with financial results that were in line with our expectations for the quarter and strong progress on our long-term strategic initiatives, including e-invoicing and AI. Our view is that the market opportunity remains strong and the tailwinds that we expect to deliver consistent growth and profitability in the coming years are firmly in place. I also want to reiterate that we have seen no signs of a change to buyer behavior or any indication of a slowdown in indirect tax momentum from our vantage point. Accordingly, we continue to expect financial momentum to build throughout the balance of 2025 as our financial guidance reflects. With that, we will take your questions. Thank you. We will now begin the question and answer session. To ask a question, you may press Star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time a question has been addressed and you would like to withdraw your question, please press Star, then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Joshua Riley with Needham. Please go ahead. Yeah, thanks for taking my questions. It seems that you've been highlighting more recently some larger customers who had homegrown solutions who are converting to a package software solution like Vertex. Can you just give us a sense? Is there anything going on in terms of product or feedback from those customers? Why now is the time to be migrating to a package software solution? Yeah, Josh, I think that's a very good question. I think that with two things are happening. I think one, as e-invoicing is a growing problem for global organizations, they're starting to adopt a mindset of, "I need to be more future-ready for the constant change that's coming at me." The point solution spreadsheet and manual efforts that they've been living on are getting harder and harder to sustain given the pace of regulatory change. There were hundreds of e-invoicing changes within approved systems already last year. I mean, governments are continuing to change the rules as they look for more revenue. I think that's one big driver. I think the other one is the continued audit pressure that customers are feeling. When they combine those two, I think they're just starting to wake up to this solvent at a point solution basis is just not sustainable. We're seeing to have different conversations. I would add to the fact that now that we have e-invoicing, we really have a great complete end-to-end suite from determination through to audit support, all the way including e-invoicing and compliance. I think when you look at all that together, it just gives customers real pause to say, "How long can I stay where I'm at?" Got it. That's helpful. The direct customers did decline sequentially. Can you help us understand? Is there just some more low-end customers with really low RPUs that are coming out of the model there? Thank you. Yep. Yep, Josh, thanks for the question. You hit right on it. I think what we've seen, and we've seen in the past, and we continue to see this quarter was some of the lower-end customers sort of migrating away from us. Again, if you take a look at our GRR, it continues to remain rock solid at that 95%. Our big focus is really on those scaled customers. You can see we had a really good quarter from a scaled customer perspective, growing at about 15%. That is really our main focus. There will be some noise here with some of the direct fallout at the low end, but I think, again, our focus is really on those scaled customers. Thank you very much for the question. Thanks, guys. Thank you. The next question comes from Chris Quintero with Morgan Stanley. Please go ahead. Hey, David. Hey, John. Thanks for taking the questions here. I wanted to hit on the macro and what you are seeing out there. Really great to hear that there's no change in the buyer behavior, but just curious, from your perspective, why you think you're not seeing that macro volatility show up in the model? Is the kind of conversation at all having any type of impact on kind of indirect tax type of priorities for organizations given the volatility out there? No, Chris, I think it's a couple of reasons. I think one is we just continue to track well to the SAP activity, that SAP reports as an example. I think one thing that we're just continuing to see is that tax is moving, as I noted in the previous question, with e-invoicing now rising as a new mandate. It's just rising higher in the strategic discussions that customers are having as they're moving to the cloud of, "How are we going to stay ahead of this?" I think that's reason number one. I think reason number two is we had a nice diverse set of wins across the ecosystems that we highlighted this quarter. I think our continued investment in channel, and particularly with Microsoft and the work we're doing with Azure and the TCS solution we brought for Dynamics that we built for Dynamics, all is supporting the diversity of growth for us that I think continues to help in our pipeline build. Got it. That's helpful, David. I want to follow up on Kintsugi, really interesting deal there. I'm curious, where is that kind of technology, from your perspective, the most applicable within the Vertex tax business? I know you all have some SMB customers as well as the indirect channels, so just curious how applicable that can be to your business in what areas? Yeah, Chris, we're looking at it from two dimensions, both commercial, which we have commercial discussions with them as part of the investment we made, and then the IP. On the commercial side, I mean, things like what John was highlighting at the low end where we see attrition from time to time, even though it doesn't impact GRR, they may be a really nice landing area that we'll actually be able to participate in that going forward. We are going to work on that with them for some of those customers that are really in their sweet spot. I think the other thing is in some of the marketplaces and all that we get to work commercially, the marketplace that we're serving is the large client, but there's a lot of much smaller companies that sell into that marketplace that we may now have a pass-through solution to bring to market. Kintsugi's done an amazing job inside of the Shopify ecosystem at the real low end of the market. They're taking share from competitors in the SMB space in there. I think it could be a nice marriage of the two from that perspective. I think on the IP side, we're certainly going to be looking at some of the things they've done on putting AI across the workflow. That's an area we're investing in with our AI. I think they've got some thinking that they've developed as it flows across the end-to-end workflow that we're intrigued by. Those are the early parts of diligence that have us really excited. The team is just phenomenal there. They are some of the smartest people I've had a chance to work with in the AI space. Excellent. Thanks, guys. Thank you. The next question comes from Adam Hotchkiss with Goldman Sachs. Please go ahead. Great. Thanks so much for taking the question. David, we've seen some of your competitors talk about tariff-related products. Could you just remind us what your solutions are on the tariff side? Is this a dedicated product you guys offer, or is this functionality within your broader platform? Have the tariff conversations impacted your pipeline in a positive way at all, given what you're able to do on the tax side? Thanks so much. Yeah, I appreciate it, Adam. I think the tariff is more of an income tax-related thing directly. It is not an offering we focus on just being an indirect tax provider. There is no immediate economic opportunity for us on that. What is happening to us and where the conversations are really going is more around as customers rethink supply chains. They are having to deal with maybe new e-invoicing mandates and new VAT compliance regimes that they did not previously have to comply with. They may have had a very mature supply chain that was stable, and they had compliance perfected across the four or five countries that they were pulling their supplies from. Now they are going to maybe six or seven new countries, given the diversity that they are trying to navigate through the tariff war. That has led to discussions more about e-invoicing and VAT. That's more where it shows up as an indirect complement to our opportunity as opposed to, "We have a tariff solution, and we can help you manage that directly," because it's really much more of an income tax-driven requirement. That completely makes sense. I appreciate the clarification and detail. You're consolidating the Acozio product, one general availability. How has that gone versus your expectations? Maybe re-highlight for folks what technically is different with the new GA product versus what Acozio's product was prior to that. Thanks so much. Yeah, sure. Acozio prior, just answering in reverse order there, Acozio prior was just the CTC compliance and the EDI. They have a really strong EDI foundation, which is actually essential because it gives them the incredible scalability of transaction processing that our large customers are going to require. We went live general availability near the end of March. What excites me there is the team's already being able to go out and start generating. We've picked up a number of really talented people who have joined our firm since we launched our solution that were part of other e-invoicing providers. They've come because they love our customer base and the story we can tell. By merging, and the differentiation is by merging the VVC solution with the e-invoicing—so VVC is our VAT compliance with the Acozio e-invoicing—you now have a seamless process that goes from real-time filing, continuous transaction controls, to periodic transaction controls, or the VAT return that you file at the end of the period. The ability to reconcile—one of the hardest challenges customers have currently is, "I use somebody for my e-invoicing. I have to then take that information and reconcile it with what I file in my VAT return. That is complex, and it leads to errors, and you identify problems after the fact. By putting them together, the customer can actually see where there are problems upfront. That is a big advantage for us. Also, the fact that we build connectors into our long-term ERP partners and allowing us to reach into the ERP system because of the deep integration knowledge we have about how to integrate into SAP that we have built for years with our determination engine, we are able to leverage that to touch the invoice attributes that we need in the various jurisdictions. I think those are the two very large differentiators right now we are seeing in the market. I am very encouraged by the team that has joined us and the pipeline we are starting to build. Okay. Thanks so much, David. Sure. Thanks, Adam. Thank you. The next question comes from Steve Enders with Citi. Please go ahead. Hey, thanks for taking the questions. This is Christopher Allen for Steve. Maybe just first to start on the SAP ecosystem, big focus for the business, highlighted a lot of the investor day. If you could talk about how deal volumes came in the quarter within that ecosystem and how you guys are feeling about pipeline for the rest of the year. Sure, George. Happy to connect with you. Right now, as I said, I think we really see us tracking well to SAP's activity. They had a very solid quarter of performance. I think we saw good pipeline growth as a result of that. We continue to expand our efforts with the SAP sales teams in Europe and in the U.S., and that is continuing to navigate nicely. I'd be remiss if I didn't highlight the deep relationships we enjoy with the ecosystem partners that are doing the implementations, the Big Four and others. They're a critical reference point in the process. The combination of the three is all working well. I haven't seen any lack of constructiveness, if you would, to the way that's built quarter over quarter. Okay. That's great color. Maybe kind of a modeling question here on the delta between sub-revenue versus ARR sub-revenue. A little bit of a deceleration down sequentially versus ARR actually accelerating a bit. Maybe if you could just help us, was there anything maybe timing related of when deals went live or true-up revenue or anything else we should kind of keep in mind there? Yeah. Thanks for the question, George. There was really nothing in this quarter's revenue that was out of the norm. Again, we continue to see, obviously, ARR being the leading indicator of revenue as we move forward. There weren't any significant true-ups in the quarter above our normal level that we typically see that I would call out. There was nothing really driving anything anomalous driving any of the change there in the numbers you pointed out. Okay. Thanks for taking the questions. Sure. Thank you. The next question comes from Jake Roberge with William Blair. Please go ahead. Yeah. Thanks for taking the questions. Could you talk about how the competitive environment in e-invoicing compares and contrasts to maybe your core indirect tax market? Has there been any impact to deals as a result of Acozio not having as broad of country coverage as others in the market, or does it already have kind of the sufficient coverage for the deals that are coming up today? Yeah, Jake, really good question. I think it starts with most providers in the market are just e-invoicing. They don't have VAT compliance as core to the DNA of their company. They're an e-invoicing organization. The company we did try to buy that we walked away from, all they did was e-invoicing. They didn't have VAT compliance as an example, and they certainly haven't merged the two together the way we have. That's one big differentiator. A lot of point solutions that just do the e-invoicing, but they do not do both, and they certainly do not do them together in a reconciled approach. I think that is point number one. I think point number two is the interest in it and the approach to the e-invoicing is really around—how do I want to say this best? The competition is really looking at, "How do I factor this into being ready for across-the-board compliance?" The countries that we have are all the current countries that they are most concerned about. As we alluded in the investor day, they are typically going to start with just a few countries. They are going to adopt three or four, and then they are going to roll out because it is a complex process to go to this. Nobody's going to say, "Hey, I need all 50 countries right up front." We've got the major economies. We've got France and Germany in line as they're coming on in 2026 and 2027. We're well-positioned to handle the big economies, and that's not going to be a reason we're not going to compete in this market. Okay. That's really helpful. Just from a macro perspective, you all obviously have more of a consumption-oriented model based on the transactions that are rolling through your platform. Sounds like deal flow and pipeline have been really steady thus far, but is there any way to think about kind of the potential impact to your model if transactions were to start to slow? Maybe just a point of clarity on that, Jake. I think we are revenue-priced for our core transaction processing engine, Vertex O-Series, as we describe it in the market. That's based on revenue bands, and the bands are pretty wide, and it doesn't typically experience anything in a downturn that would cause us. The bands are wide enough that even if a customer were to slow down by 10% of their total revenue, it's probably not going to fall out of a band that would be a revenue. The only area that we are pure transaction pricing is actually in this new area of e-invoicing. Obviously, we're new to the game there, and we haven't seen the input. The good news is the customers we're going to work with in that space are the largest companies in the world, which means they have the most invoices. Okay. That's really helpful. Thanks for taking the questions. Yep. Thank you. The next question comes from Daniel Jester with BMO Capital. Please go ahead. Hi. Good morning. This is Kyle Aberasturi for Dan Jester. Thanks for taking my question. Can you discuss what you're seeing in terms of new logo growth? Anything in terms of the composition of enterprise versus mid-market would be helpful. Yeah. We saw in the quarter a solid diversity of growth in new logos across all of the key ecosystems that we're targeting. I would say by nature, the SAP ones tend to be our scaled customers coming out of the blocks. Largely the same for Oracle. What's been interesting for us is we've had some nice wins in Microsoft of late that we've highlighted that have actually been scaled customers coming out of the block. I would say in the Microsoft Dynamics ecosystem, that's where we're going to probably see less of the scaled customers coming out of the block. All that means is typically, remember, our motion is a land and expand motion, which means they're a customer that may only need an $80,000 determination engine to start, but then as they continue to evolve and grow, they will grow into a scaled customer by buying more of our products over time. I would say still the preponderance of our wins are in the enterprise market, that typical $500 million and above type market, and then lesser so in the mid-market. Great. It looks like a fairly strong quarter for software gross margin. Anything specific to call out there and how we should think about this rate going forward? Thank you. Yeah. Nothing specific to call out in terms of any drivers that were in there that are kind of one-time in nature or anything. I think we had strong performance. We continue to see leverage in the business. Again, I'm a little bit cautious with respect to whether that's going to continue throughout the rest of the year. I feel like we have achieved the results we've expected to see. We are seeing good synergy amongst a lot of the activity that's there. I wouldn't say anything to start moving everything, changing everything to that higher rate on a go-forward basis for the longest terms. Thank you. The next question comes from Andrew Clark with Raymond James. Please go ahead. Great. Thank you. David, I wanted to follow up on that nice new customer success. New logos are making up a bigger piece of ARR growth the last couple of quarters. What are you seeing in terms of win rates on those new opportunities versus maybe one to two years ago? Any change in the mix of those new logo bookings that are coming from a vended indirect tax kind of takeaway versus kind of the manual or native ERP usage previously? Thanks. Sure. I think in terms of the second question around competitive, I think we've consistently seen as businesses continue to grow in complexity, that tends to be the biggest opportunity for us to have takeaways from a competitor. The other thing that we've been gaining some traction in is the investment we've made in customer success and customer support. Enterprise customers are so complex, and they are needy. I mean, I make no bones about it. They require a lot of attention, but we have really—we've done a lot to get certifications around the quality of our support. I think if somebody stubs their toe competitively in how they're supporting a customer, we've been able to step in. There are points where the customer just reaches a tolerance level where they're like, "They're going to move on." We've seen a few of our wins when they're looking at a broader solution problem set where they're saying, "You know what? It's time to just leave the current vendor we're working with and move on to a new one." I think the new logo win rates, what I would say there is holding consistent in the core ecosystems that we compete in. Again, I really attribute a lot to the advisory community that really we've worked hard to enable and invest in, and they continue to support us. I think what I'm encouraged by is the investments we've made in Azure and in AI and in TCS, which is tax calculation services for the Dynamics community. Microsoft has responded very well to that, and the Microsoft community is. I think we're building a nice brand in that space that is working to our favor in some of our new logo wins. Okay. Great. Thanks for the color there. John, maybe a follow-up for you. The implied license revenue looks down a bit more sequentially. Anything change in terms of migration activity this quarter versus prior quarters? What's kind of the migration activity embedded in the outlook for 2025? Thanks. Yeah. No real change in the migration activity on a current quarter basis. Again, we've talked about that being that 2-4% roughly of our entire customer base on an annual basis. We haven't seen a change in that. We didn't see any differential in that in the second quarter. Even as we look out for the rest of the year, we don't see a big change coming from that. Again, we continue to see nice growth, but again, we don't see any big changes coming out of the migration activity. I think, as you heard David say, the SAP ecosystem and the other ecosystems that we work with are certainly continuing to perform well, and we're seeing good pipeline there. Nothing to call out specifically. All right. Great. Thank you both. Goodbye. Thank you. The next question comes from Will Jellison with DA Davidson. Please go ahead. Great. Good morning, and thank you for taking my questions. The first one, David, for you. This is the second consecutive quarter now where we've seen incremental capital committed to AI-related investments in the business. I'm curious to get a refreshed perspective on whether that's been catalyzed by things you've seen in a competitive environment or positive feedback that's given you encouragement to step on the gas or anything else that you've seen. Yeah. Really good question because it's super strategic to our future. I would say the bulk of our AI strategy is heavily tied to the feedback we get from our customers and partners about the opportunities they see. Core to our strategy has been to create a unified data structure underneath the end-to-end workflow of tax such that customers would have confidence in the data that they could apply AI to. AI is only, as you know, we all know AI is only great if it's on data that you have confidence in. Having some of the purpose-built capabilities that we're now bringing to market around smart categorization that feed into our data model tied to our tax content, again, where the customers have enormous confidence in the data, they're able to start talking to us about use cases. Partners are looking at it saying, "We can develop use cases together where we can deploy AI." Just to point of clarity on your opening comment, the $10 million-$12 million that John highlighted as investment is not just in the quarter. It's actually just spread throughout the year. It's not just a single quarter. John highlighted it, but I don't want to confuse anyone that we put all that to work in the first quarter. That's spread throughout. The new investment in Kintsugi is an exciting one, really driven by some innovation they're doing and, again, some of the commercial opportunities I highlighted earlier on the call here around what we think we can do with that team. They're just a really great team, and they can fit well around some of the edges of our base where we don't—where there's no obvious solution that we've ended up with a customer that I think the Kintsugi team is going to be able to come in and do some nice things. Great. Thank you. And then as a follow-up to that, as you went through the first quarter of deploying that incremental 10-12 across the whole year, any early learnings or pieces of positive feedback that are worth sharing from those investments thus far? We've had a number of design partners lean in and say they want to be a part of it. Obviously, customers are pushing us to go faster in terms of teach the model for my categories of—so we started in some of the most complex ones around retail and grocery, which are some of the most complex things from an indirect tax perspective. We've got a—I'm here in Prague right now at our EU Customer Conference, and some of the largest heavy equipment manufacturers in the world here in the European community are like, "When are you going to get to our side of the equation and get to some other lines and categories of products that you could help us classify?" I think more it's a question of how fast can you train the model in a way that we're going to have confidence is part of the key feedback. We're just being really thoughtful because nobody wants to get taxed wrong, and we really need to make sure the customers have confidence in the results we're producing with it. We're trying to balance, but the feedback has been, "Sounds great, guys. Go faster." That's candidly been the feedback because categorization is one of the hardest things they deal with, and it's a never-ending chase to stay current with their product categorizations, their products as they continue to grow. That's probably the biggest one I would highlight is positive feedback. Great. Thank you, David. Sure. Thank you. The next question comes from Rob Oliver with BofA. Please go ahead. Great. Thanks. Good morning. David, when you look at that Kintsugi strategic investment, you called out the presence that these guys have in relationship with Shopify. I know that's something that came up also at the analyst day you guys had, which was great. Just asking about, as Shopify clearly is moving up market, the state of the relationships with Vertex there. Maybe just stepping back a little bit, can you talk about how you see Kintsugi influencing that relationship? You called out SMB currently, but is there an opportunity to move up market towards what for you guys would be scaled customers, and how should we think about that potentially strengthening or solidifying the relationship with Shopify? Thanks. Yeah. Very good question. Obviously, there are two very distinct markets. Shopify has an incredible community, and they continue to do phenomenal in the SMB space, and Kintsugi on their own has accelerated there. We enjoy a great relationship with Shopify, and I think this will strengthen it because we can serve them in a broader way. Not that we own Kintsugi by any stretch, but we can help further Kintsugi's efforts inside of the Shopify ecosystem. Shopify's move up market has been very beneficial to us because we've landed some very large accounts, accounts that really just can't be served by AI alone, as I had highlighted some of the challenges and the requirements that enterprise customers require. I actually think it's a wonderful complement to the conversation for us to have with Shopify. Obviously, the investment is new, but our relationship with Shopify is solid, and I look forward to, as we continue to work with the Kintsugi team, bringing a message to Shopify of how we can continue to support their growth. Okay. Super helpful. I had a quick follow-up. I guess one of the benefits of going late in the queue is I got a lot of good questions asked. I got a chance to look at some of your previous scripts just to match some things up here with what you guys just said. You called out Oracle a lot more, David, on today's call than you had previously, and I wondered if that was intentional. I know you guys have been saying that, "Hey, we are well prepared across many ecosystems," but it did seem like you certainly called out Oracle a little bit more right now as far as running. If that is correct, and if you can touch on that a little bit. Thank you, guys. Yeah. We enjoy a great relationship with Oracle. I did not call them out of the nick. Quarter to quarter, we have unique wins. They may be takeaways from competitors or good stories to demonstrate the breadth and depth of our capabilities in the win story. In this quarter, we were fortunate to have a number of wins in the Oracle community. I am thrilled that we have a new go-to-market relationship with Oracle. They formed an incredible program, and we are a top-tier ISV partner within. It's a multi-tier program where they're top-tier for ISVs of working with SIs, ISVs, and the Oracle team together to better serve and bring customer value. I think it's transformative in the industry. I don't know of that program existing anywhere else, and I'm really excited about that. The wins of this quarter were really just driven by a historical pipeline that we've been working on that happened to fall into Q1 with Oracle. Great. Thanks very much. Yep. Thank you. The next question comes from Andrew DeGasperi with BNP Paribas. Please go ahead. Thanks. I guess one question I wanted to ask you is you brought up supply chains maybe changing, and I just wanted to follow up and see if this is an actual conversation you're having with customers as they're deciding to go with your platform to reflect that change in the environment today. Yeah. No, Andrew. To be crystal clear, it's conversations we are having. It has not led to immediate jumps to our platform. It's more with existing customers who are now thinking about it or new logos who are trying to understand an opportunity we may be looking at and saying, "Here's our value prop, and we're starting here." A lot of companies are still taking a wait-and-see attitude on their shifting their supply chain. It's more about they want to understand how we'll help them adapt to it. I started the call talking about being future-ready, and I think more and more customers are starting to think about, "I need to be future-ready for the dynamism, whether it be tariffs that drive me to change my supply chain or all the regulatory change that keeps coming at them." That is really it. I would not say yet it is a direct driver of our current performance because it has not shown up yet. The tariff battle is still too new, and our sales cycles are a little longer than the tariff battle has been ongoing. That is helpful. Maybe to follow up, I think I have asked this question to you in the past, and I just wondered if you could maybe give us a big picture view of your end market exposure. Maybe to follow up with that as well is more on the marketplaces specifically. Have you seen, even though you're saying you're not seeing any sales elongation, any impacts yet from macro? Just wondering, is that something area you're focused on in terms of what could happen? Andrew, obviously, we're monitoring the pipeline carefully. We talk to sales on a very regular basis, John and I, but fundamentally, tax is a wonderful horizontal. It applies to heavy machinery. It applies to marketplaces. It applies to retail. It applies to oil and gas. It applies to basically every vertical you can describe. Indirect tax applies because it is the most dependable source of revenue for governments around the world. The good news is we don't have a concentration. We may have a concentration of SAP customers or Oracle customers, but we do not have a concentration of this vertical is overwhelming in our space that causes me concern. Got it. Thank you so much. Yeah. Sure. Thank you. The next question comes from Patrick Walravens with Citizens Bank. Please go ahead. Oh, great. Thank you. Big picture here. Can you just remind us why we're going to see a re-acceleration this year? So 13% growth this quarter. Midpoint would be 14% next quarter. And then my model goes 15%, 17% to get to your annual. Can you just remind us what's driving that acceleration? Yeah. I think it's the continual migration to the cloud that we're seeing driven by SAP and Oracle that we, just like in last year, the second half of last year, we rebounded nicely from a slower Q2 and saw solid performance. Again, it's visibility to that pipeline, Patrick, that encouraged us. Again, I thought SAP had a great first quarter they announced. Our activity in the SAP community kind of parallels that continued pipeline build. I think that's reason number one. I think then reason number two is we're continuing to drive with our new offerings more cross-sell into the market. I think we expect cross-sell NRR to jump back up to 110% by the end of the year. I think that will be driven by some of those new capabilities we've brought to market. I'm over here in Europe right now and had a number of conversations with customers about some of the new capabilities. You can just see they're encouraged by we've taken their feedback. We've designed and tweaked new offerings to expand wallet share within, and they're still ready to address those concerns. I think those are the two primary drivers why we continue to see pipeline build and why we expect our revenue to continue to matriculate through the back of the year. Again, not rushing anything from our e-invoicing. We still think e-invoicing will be a slower build in 2025, and it will really be an accelerant of revenue in 2026 when we've onboarded enough. There will be more of an ARR help this year and a revenue help next year. Great. Thank you. Yeah. Sure. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mr. Joe Crivelli for any closing remarks. Thanks, everybody, for joining us today. As always, 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. The conference has now concluded. Thank you for attending today's presentation. 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