Good day and welcome to the Vertex, Inc Second Quarter 2025 Earnings Call. Today all participants will be in a listen-only mode. Should you need assistance during today's call, 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 a touchtone phone. If you would like to withdraw your question, please press Star then two. Please note that today's event is being recorded. I would now like to turn the conference over to Joe Crivelli, Vice President, Investor Relations. Please go ahead. Hello and thanks for joining us to discuss Vertex's Second Quarter 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 and a ctual 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 metrics. A reconciliation of these 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. In the second quarter, we delivered results that were in line with our guidance and investor expectations. However, as the quarter progressed, for the first time, we saw macroeconomic factors that have been noted in the software industry in 2025 impact our customers and begin to affect their activity with us. We took action to mitigate this, but it necessitated a reduction in our full year guidance. We will discuss all of this in today's call. For the second quarter, revenue was $184.6 million, up 14.6% year-over-year. Subscription revenue grew 15.7% and cloud revenue growth increased to 29.9%. Adjusted EBITDA rose to $38.4 million, representing an EBITDA margin of 20.8%. In addition, annual recurring revenue, or ARR, grew 16.1% to $636.6 million. Average annual revenue per customer for Vertex standalone increased 12.7% year-over-year to $142,600. Growth in scaled customer count was 16%. 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. Gross revenue retention, or GRR, remained at 95% in the second quarter within our targeted best-in-class range of 94%- 96%. Finally, net revenue retention, or NRR, decreased to 108%, down one point from the first quarter. We attributed the decrease to two main factors: lower growth of additional entitlements as our customers' annual growth has slowed, keeping them within current bands of usage, and recent regulatory changes in Brazil created compliance confusion for customers, which resulted in delayed deal activity for some of our large multinational customers. More broadly, in addition to the macro impacting our customers' growth rate, we have seen a slowdown in ERP migrations, thus elongating our deal cycles. This is consistent with what publicly traded ERP providers noted in their quarterly earnings reports. This has the downstream impact of also pushing out pipeline build. We attribute this to the overall macro environment as our enterprise customers are being more cautious about software spend. As a result of this, we recognize the need to take immediate actions to control expenses and deliver on adjusted EBITDA margins. These include leveraging efficiency from internal technology investments and reducing planned headcount growth, which will give us back better expense trajectory as we look into 2026 and beyond. John will discuss how all this impacts our guidance in his remarks. The short-term environment does not impact our confidence in the long-term growth expectations we shared at Investor Day earlier this year. This is because our business has multiple significant tailwinds, many of which are still ahead of us. First, the ongoing cloud ERP upgrade cycle. This has been stubbornly slow in 2024 as I mentioned earlier. However, deadlines for conversion are looming over the next two and a half years, and we fully expect this motion to accelerate over this timeframe. Second, governments all over the world are looking for new ways to generate revenue to meet their obligations, and reduced federal funding in the recently passed U.S. tax bill will further pressure state and local budgets. In our 2024 Mid-Year U.S. Rates and Rules Report, we noted that the U.S. saw a 24% increase in sales tax rate changes and new rates compared to the same period last year. This in turn creates complexity and increases demand for our solutions. In Europe, the regulatory mandates for VAT and e-invoicing are accelerating, and this is expanding now to parts of Asia Pacific and Latin America. In Brazil, tax reforms underway are making companies completely revisit their existing compliance and technology roadmaps. We believe even more changes are likely as inflation, global trade disruptions, and federal tax policy around tariffs compound to create both opportunity and uncertainty. This is the hallmark of what we do best: make sense of that complexity for global companies at scale. Additionally, our win rates in the enterprise market remain consistently strong, and several of these delayed deals have now already closed in the third quarter. This confirms our experience that the strong underlying demand and customer commitment that we have worked hard to earn remain solidly in place. Despite deal timing being impacted by larger forces, the durability of our customer base remains outstanding. Churn was lower on a dollar basis in the second quarter compared to both the first quarter and the same period last year. This demonstrates strong product stickiness and high customer satisfaction, providing a robust foundation for future growth. In addition, our team secured some key new logo wins in the Oracle and SAP ecosystems, as well as several e-invoicing successes that mitigated some of the second quarter headwinds. In context with these long term growth drivers, let me share some highlights from the second quarter, particularly around Europe e-invoicing and the investments we've made in our global platform. We had good momentum in Europe, which was in part driven by accelerating growth at ecosio, where annual recurring revenue reached $10.8 million, a 33% increase from the prior quarter. We are seeing strong deal flow driven by the upcoming launch of e-invoicing in Belgium, which is mandating the use of e-invoicing beginning on January 1, 2026. The acceleration in demand due to the Belgian e-invoicing launch bodes well as the two largest economies in the EU are still on the horizon, with France set to begin mandating e-invoicing beginning in September 2026 and Germany beginning January 1, 2027. Our growth thesis in e-invoicing is unfolding as anticipated. Customers who adopted our solution earlier this year are already returning to license additional country coverage. Early indications suggest that e-invoicing is shaping up to be a classic land-and-expand motion, mirroring the trajectory of our core indirect tax business and supporting sustained NRR growth. Our e-invoicing solution has also been recognized by industry experts. In July, Gartner included Vertex in its research study Develop a Global E-Invoicing Compliance Strategy supporting global e-invoicing compliance efforts. From a product standpoint, we continue to build the global compliance platform of the future, combining thoughtful AI and automated workflows tightly embedded in our ecosystems and powered by our content and data. It's a strategy that's resonating with our customers and partners around the world. Our Kintsugi investment is accelerating our second half AI roadmap, supporting new product functionality, increased efficiency, and a greater customer experience. This relationship has also generated opportunities to support their focus on the good enough requirements of the S& B market. Also on the AI front, we are working with several AI and cloud hyperscaler providers and ecosystem partners on using Vertex's agentic AI agents natively within their application workflows. These agents work within the ecosystem and leverage the services of our Vertex cloud platform to orchestrate more advanced capabilities. These Vertex value added AI agents can be seamlessly enabled within their marketplaces of the enterprise application providers and embed it within the financial and compliance workflows, enabling a new level of customer value and stickiness. As an example, in the Microsoft Azure ecosystem, we built strong relationships at the executive, technical, and go to market levels. Coupled with new AI innovations, this will continue to enable us to expand our mid market opportunity even further. In addition, we launched Copilot within our platform, giving customers in platform knowledge and product documentation with a single click. Feedback has been great and adoption continues to grow. I'll now highlight a few new business wins among our install base customers. We are seeing a growing trend towards globalizing their tax operations, driving both more usage of our solutions and expanding our footprint. As an example, in the second quarter, a leading European truck manufacturer, which has been a Vertex customer since 2009, expanded its relationship with Vertex during an SAP ECC to S/4 migration. The customer, which had previously licensed Vertex only for its U.S. operations, expanded its entitlements to cover its global operations and licensed additional Vertex tools. This led to mid six figures of additional annual revenue and nearly doubled our annual volume from this long standing customer. In addition, a major automobile manufacturer migrated to the cloud with Vertex as part of its SAP ECC S/4HANA Cloud Transformation Journey. The customer also expanded its entitlements so it could consolidate additional operations into its Vertex contract as part of the project. The result was seven figures of additional annual revenue with this long standing customer. Also during the quarter, one of our first e-invoicing customers committed to expand country coverage with Vertex. This customer started with Vertex in four countries and after a successful launch has now expanded to several additional countries, driving nearly $100,000 of new annual revenue. As I noted earlier, we're especially excited that this is an early proof point that e-invoicing will be an ongoing land and expand motion for Vertex. The new customers we acquire in the early stages will provide a strong foundation for significant future revenue opportunities. A leading global aerospace and defense manufacturer selected Vertex for e-invoicing. As I noted earlier, this was driven by the upcoming Belgian mandate, which will kick off in January. However, we expect additional invoicing opportunities with this long-standing customer. Turning to new logos, we won a customer in the food delivery industry after an intensely competitive bake-off with an incumbent competitor. The customer was unhappy with the competitor's per-transaction-based pricing, which led to extremely high costs for this high-volume business. Vertex's revenue-based pricing model provided them with the predictability, consistency, and stability of costs. This competitive takeaway included sales and value added tax calculation as well as several Vertex tools. The customer also signed on to be one of our early adopters for smart categorization. The six-figure deal, which was in the Shopify ecosystem, was facilitated by our partner KPMG in Europe. We won a new mid six-figure customer in the gaming industry when an Oracle cloud transformation led them to explore third-party indirect tax solutions. This new customer relationship included VAT, consumer use tax, and sales tax calculation as well as address cleansing. A manufacturer of popular collectible toys switched to Vertex as part of a global Microsoft D365 cloud transformation. The result was mid six figures of new annual revenue. The customer was previously using a competitor in the U.S. and native ERP tax solutions in Europe but was getting incorrect tax answers due to a flawed integration. In addition, the competitor support to resolve these issues was unsatisfactory. The implementation, which was led by our partner DMA, included an e-commerce component with connectivity to the company's instance of BigCommerce for online sales. Our global tax content coverage was also a significant differentiator as the customer had aggressive international expansion plans. Finally, a major public utility selected Vertex to displace an incumbent competitor as part of an Oracle Cloud transformation. This three-year mid six-figure deal included sales and consumer use tax calculation on Oracle Cloud along with the Exemption Certificate Manager and other tools. Vertex Consulting was also engaged by our partner PwC to assist with the implementation. Throughout our five years as a public company, we built a reputation for under promising and over delivering. The second quarter fell below that standard, and we take that seriously. We're taking clear, focused steps in the short-term to ensure we're executing at the level we expect of ourselves and that of our investors, while also remaining steadfastly focused on the long term and the great market opportunity we have in front of us. John will now take us through the financials. Thanks David and good morning everyone. I'll now review our second quarter financial results and provide guidance for the third quarter and full year of 2025. In the second quarter, revenue was $184.6 million, up 14.6% year-over-year. Ecosio contributed $3.4 million of revenue during the quarter. Accordingly, on an organic basis, revenue was $181.2 million and revenue growth was 12.4%, in line with expectations for the quarter. Subscription revenue increased 15.7% period- over- period to $157.8 million. Our services revenue grew 8.3% to $26.7 million, and cloud revenue was $86.2 million in the second quarter, up 29.9% from last year's second quarter and ahead of our guidance for the year. Ecosio added about four points to cloud revenue growth. Annual recurring revenue, or ARR, was $636.6 million at quarter end. Ecosio added $10.8 million to ARR, up from $8.1 million in the first quarter. Approximately $600,000 of this increase was due to favorable foreign currency translation adjustments. Excluding ecosio, organic ARR was 14.1%. Net revenue retention, or NRR, was 108% compared to 110% at last year's second quarter and 109% from the first quarter of 2025. As David noted, the decrease in NRR was attributable to lower deal activity from some of our large multinationals and a decline in additional entitlements in the enterprise market due to regulatory and tariff-driven economic uncertainty. Gross revenue retention, or TRR, remained at 95% at quarter end within our targeted range of 94%- 96%. Average annual revenue per customer, or AARPC, for Vertex standalone was $142,584, up 12.7% from last year's second quarter. Including the impact of ecosio, AARPC was $130,934. Note that in the third quarter we will lap the acquisition of ecosio, so metrics such as ARR and average annual revenue per customer will be consistent on a year-over-year basis. Now for the remainder of the income statement discussion, 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 second quarter was $140.1 million, and gross margin was 75.9%. This compares with gross profit of $118.8 million and 73.7% gross margin in the same period. Last year, gross margin on subscription software was 83.2% compared to 80.4% in last year's second quarter and 82.6% in the first quarter of 2025. Gross margin on services revenue was 33.1% compared to 36.8% in last year's second quarter and 31.1% in the first quarter of 2025. Now turning to expenses in the second quarter, research and development expense was $18.1 million compared to $12.7 million last year. With capitalized software spend included, R&D spend was $38.9 million for the second quarter, which represents 21.1% of revenue. Selling and marketing expense was $44.6 million, or 24.2% of total revenues, an increase of $7.6 million and approximately 20.6% from the prior year period. General and administrative expenses was $38.1 million, up $7.4 million from last year. Adjusted EBITDA was $38.4 million, roughly flat with the year-ago quarter and in line with the midpoint of our quarterly guidance. In the second quarter, our operating cash flow was $46 million and, as anticipated, free cash flow was positive at $19.6 million. We ended the second quarter with over $284.4 million of unrestricted cash and cash equivalents, and for additional liquidity, we also have $300 million of unused availability under our line of credit. Now turning to guidance for the third quarter 2025, we expect revenues of $190 million- $193 million and adjusted EBITDA of $38 million- $40 million. For the full year, we now expect revenues of $750 million- $754 million, cloud revenue growth of 28%, and adjusted EBITDA of $156 million- $160 million. This guidance reflects the following. First, the previously mentioned slowdown on ERP conversions, which has an impact on deal conversion and pipeline build and lower entitlements as well as true-up revenue as our customers are largely remaining within their usage bands. David will now make some closing comments before we open up for Q& A. David. Thanks, John. To wrap things up, while we had a solid performance in the second quarter across several metrics, there were some areas that did not meet our expectations. The tailwinds that fuel our demand opportunity, including the proliferation of e-invoicing mandates globally and cloud migrations being driven by the ERP providers, remain in place. With the continued uncertainty in the macro environment, I believe we have taken prudent steps while not underserving our long-term value proposition and market opportunity. With that, we will take your questions. Thank you. We will now begin the question- and-a nswer session. To ask a question, you may press Star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press Star then two. At this time, we will pause momentarily to assemble our and today's first question comes from Chris Quintero with Morgan Stanley. Please proceed. Hey David. Hey John, good morning. I wanted to ask on the guide first, the cloud guide that stayed in place. I'm curious, is the macro impact that you're calling out here more in the on-prem and services side? Just help with marry kind of the lower total revenue guide versus the maintained cloud revenue guide. Yeah. Chris, thank you for the call. Appreciate it. I think as I think about the guide and I think about the adjustment down, I kind of break it into a couple of different pieces. I think the largest driver when I think about it is really coming from entitlements. It's entitlements, which is our customers' usage of activity. We typically don't have a tremendous line of sight into that, 60ish days or so a s those renewals are happening, we're starting, we're then getting wind of what the uptick is going to be and to the extent that there's a true-up, what that's going to look like. As Q2 developed, we started to see a little bit of, we started to see that activity was lower than it's been in the past, especially in the real larger additional entitlements, those big six-figure type of deals. The volume was much lower than we had seen. The good news is we hadn't seen pullbacks or any changes going the other way. Just the magnitude of those additional entitlements is certainly lower than we've seen in prior quarters. That's part of the driver for our NRR dropping from that 109 back to 108. Based on that trajectory, we really looked at that, we looked at that and that really weighed heavily as we think about what the guide looks like. When you take that into consideration, then you also take into consideration true-ups, which aren't, you know, very typically a giant piece of our revenue, but they can be significant and they have 100% revenue impact in the quarter in which they occur. We certainly pulled that back a little bit as we thought through that. Finally, the last piece really has to do around the elongation of some of those sales cycles. That's sort of how I kind of box out each of those different pieces. We feel good and confident with the guidance that we've set and our ability to achieve it. Hi, thanks John. I want to follow up on. The e-invoicing momentum that you're seeing is really, really encouraging to see. As you've seen those early customers come back to you and add additional country coverage, what are some of those early learnings that you're seeing in terms of the adoption rate for that product so far? Yeah, I'll take this one. Chris, I think it's a couple factors. One, the value of our end-to-end offering is really differentiating us and playing well in the market, meaning that we've got the front-end VAT determination engine, the middle point, the invoicing transmission, and then the VAT compliance a ll on the platform. I think that's really being validated as point number one. I think point number two is that this is a classic land-and-expand model. As we prove out to the customer that we can deliver on this, they come back and say right now we want to expand because they all focused on getting a single global provider. As the proliferation of these e-invoicing requirements are expanding and getting more complex, they're really looking for a single provider on a single platform. That's playing right into our strategy. I'm really pleased with the early pipeline build. Deal cycles are typically running three to six months depending upon how big the customer wants to start. If you recall, we went live with the product in general availability at the very end of the first quarter. We're just through our first three-month cycle and already seeing really nice build and I think that should, no reason that won't continue as we continue to expand our country coverage. Excellent, thanks, David. Welcome. The next question is from Steve Enders with Citi. Please proceed. Hi, thanks. This is George Crosaw on for Steve. I wanted to circle back to the targets you laid out. At your recent investor day, just given based off of. What you've seen and what's implied. The guidance here, it looks like you're looking at a bit of a deceleration. Through the end of the year, I tell the things that you've discussed. On the call here, does that change at all how you guys are thinking about that kind of longer term accelerating growth outlook? Just any color there? Yeah, George, it's a super fair question and we spent a lot of time, as you can imagine, thinking about that. I think when we looked at it, we actually looked at the transactional volume that's happening in e-invoicing and the type of regulatory tailwinds that we're seeing actually accelerate in that area as a key driver. Number one, and then number two, as we continue to expand with SAP and Microsoft and some of the ecosystems with some of the work we're doing, we continue to see that cloud migration being a persistent driver for them, which means the tailwind has to continue for us because it's so disruptive to a tax department. We really paused on, like, do we change anything? Those tailwinds are so solidly in place right now. There was no compelling reason to think that the company isn't going to resume its normal. I mean, this franchise has been around for 45 years. We've been through these journeys where we see economic blips, but the steady durability of our customer base and then the continued growth both in new logos and recurring and cross functional sales as our customers continue to grow has not changed. The fundamental model is just rock solid. That's why we felt really confident in sustaining, you know, our current position on it should play out as we expect. Okay, great. That's really helpful. In the prepared remarks, you alluded to maybe some changes in your. Hiring plans for the year. Just love a little more detail there. What are you expecting to change, and how should we think about the model impacts there? Yeah, I think what we've looked at and said, you know, we've been gaining leverage from internal investments we've made. We've disclosed to investors over the past several years on internal leverage about where we can drive more efficiency in the business and gain scale to ultimately drive margins. We prioritize some of those as we saw some of the short-term transactional challenges that John described in our performance. Leaning into that, you start to manifest itself in terms of what you would need in future headcount. Most of the pullback is in areas that are not strategic to the core strategy that I just focused on in terms of how we advance our number one priority around invoicing and how we continue to optimize against Microsoft, Oracle, and SAP. It's more in other areas of the business that are going to be less impacted by those strategies. Got it. Thanks for taking the questions here. Thank you. The next question is from Joshua Riley with. Please proceed. All right, great. Thanks for taking my questions. Maybe just starting out, can we get some more color on how the quarter progressed and what happened post Q1 as that print was pretty strong and it seemed like the pipeline was pretty strong for the balance of the year. Was it really just the end of June where the weakness started to come into play or help us understand how the linearity of the quarter progressed? Yeah, in terms of how the quarter progressed, what I would say is when I think about kind of Q1 and the activity in Q1, we had a nice, we had a good Q1. As Q2 started to develop again, we started to see a little bit of softness as we got through May and, you know, as we got, you know, April seemed strong. As we got through May, we started to see a little bit of softness start to show up, but we didn't think it was, you know, it was, yeah, we wanted to monitor and manage it to see what that happened. As we got through May and then into June, that's when we started to see a bit of that elongation, a little bit of that push out again, very similar with how the additional entitlements and that activity that I described earlier sort of played out during the period. It really, really manifested itself towards the back end of the quarter. That's why we stopped and took a pause and made sure that we understood some of the big drivers that were gathering that were building in the business. Got it. That's helpful. You kind of alluded to a little bit slower activity in the SAP ECC base. If I interpreted the signal there correctly, what do you think is going on there? Why haven't the trajectory of those deals accelerated this year like maybe we would have expected? Yeah, I mean, as best we can tell, I think it's just the uncertainty in the macro environment in general. Companies are judging when do we want to embark on this, this march to make the cloud transformation. They're looking at where do we prioritize our investment. Obviously, AI elsewhere inside of those organizations is a priority investment for many companies. I think in general they're saying if we can defer this a little longer, hopefully get through some of the tariff uncertainty and the macro challenges, they'll be able to absorb that expense model. I think that's kind of the basic feedback we're hearing. We don't have, obviously, direct visibility into those, but I think that seems to be the themes that we're most hearing. It's just pushing out the timing of those, creating a little bit of that bubble that it's going to come in the back end of the process, which is really going to be 2026 and 2027. Understood, thank you. Our next question is from Adam Hotchkiss with Goldman Sachs. Please proceed. Great. Thanks so much for taking the question. David, I'd be curious how you think about the deals that did get pushed from Q2 into Q3. I think you had mentioned you closed some quarter to date. Is there any way you can sort of quantify for us what percent of those deals that were pushed have been closed or you have a sort of near term lens on when those might be closed versus folks that have sort of delayed indefinitely due to those conditions. Thanks. Yeah, Adam, I think delayed indefinitely would be a wrong characterization because they're still going through their migrations, they're still going to address the issues, have to address the issue of tax. It's just a question of the pacing of the ERP adoption and whether they're, you know, you and I have had the conversation. I think I've spoken to investors about, you know, it's a, it's a, the process of an integration. We get brought in about the midpoint of an onboarding of a new cloud offering. In terms of the customer adopting a new ERP system, if those are pushing in the early periods where they're slowing down their process, then it's pushing our process out. I think that's really a contributing factor here. I don't have visibility to how many number of deals close. I know from the sales teams and we talk to them weekly and monthly. We have different processes to do that. I'm comfortable that they are closing. I think it's just the timing issue again, in terms of pacing it to where the customer's migration process is. Okay, great. That's really helpful. John, just on guidance philosophy and maybe how that's evolved on this print relative to how you've looked at things previously, in particular related to things like entitlements and true-ups, would you say you're taking a particularly conservative view on the second half of the year around entitlements and true-ups relative to what you've done historically? Or is this something that's just purely reflecting what happened in the second quarter? Yeah, I think, Adam, what I would say is this. I think we took into consideration what we saw develop in the second quarter and how it developed and the types of customers that that came from and certainly built that in. I wouldn't say that we have changed our philosophy at all. Certainly, they were the levers that we kind of pulled on to make the changes that we pulled. I wouldn't say that we have changed on our philosophy of how we think about it. I think what we did see is that magnitude start to come down in terms of those true-ups. Again, they're the ones that have a big impact on dollar for dollar in the revenue line items. Similarly, with the additional entitlements, same thing. I think we're just reevaluating based on what we're seeing and trying to be very thoughtful about how we think about that going forward. I think we've always had a pretty conservative philosophy around guidance and setting it and making sure that we have good visibility in there. As we saw a little bit of that visibility get hazy in the second quarter, we wanted to make sure we adjusted accordingly. Okay, great. Thank you very much. The next question is from Rob Oliver with Baird. Please proceed. Great, thank you. Good morning. Thanks for taking my questions. The first one is on just the SAP comments. SAP called out on their call some weakness in public sector, which I know is not an end market for you guys, as well as in North American industrial and manufacturing. I know, David, you mentioned somewhat limited visibility into exactly where those deals are for you guys and when you're brought in. To the extent that perhaps you've gotten color from your CRM, your sales folks as to where that weakness was, we can match that up with some of the other companies that we follow which are actually calling out strength within the SAP channel. I had a quick follow- up. Yeah, you know, Rob, as we've talked, the driver for us in tax is around a disruption to the tax department, which is what a migration is. It's not like a nice to have solution. It's a must have when you're going through a migration. We've seen that process elongate. I don't have any great visibility that can add color in terms of how far out. The softness is largely focused, I think, in the U.S. where I think there's been reports of some of that slowdown that you noted. I think that given that's our larger market, that has been our larger market opportunity and remains, that's why it's showing up more, impacting us more. We've actually had strong European quarters as we noted. That's a smaller part of our business still. I think that's kind of where we're seeing it the most. Okay, helpful. Thanks. Thanks, David, appreciate it. John, just a quick follow up for you. Maybe a two parter here. One is just maybe a corollary to Adam's question earlier about guidance philosophy. You know, going back to the analyst day. Obviously SAP is an important part of the story as are ERP migrations broadly for you guys and, you know, given the absence of visibility and getting tripped up here very early after the analyst day, how that might impact how you think about the contribution from SAP in any given year and how you guide to that. Is there any potential impact or how do we think about the margin trajectory into next year? Is the accelerated investment cycle kind of need to be pushed out a little bit? Thank you. Thank you. I appreciate it. Rob, a couple of good questions there. The first, in terms of our view of trajectory of SAP and as we think about sort of longer term, I don't think, as David described earlier in one of the earlier questions, I don't think there's a change in our view on end markets and our ability to drive growth into the future. We feel good about that. I think we obviously are taking all of the factors into consideration as we think about guidance and we think about our plan and how the business is developing over time. I don't think there's anything that I'm seeing that occurred this quarter that would change how we're looking at either the longer- term plan or the way that we're evaluating different contributions, different contributors into our longer term growth algorithm. In terms of margins, I think as David had also mentioned, we did take some actions in terms of ensuring that we've got a good cost structure in place, but also prioritizing some of those investment areas, ensuring that we're getting, after invoicing, getting the country coverage that we need and continuing to build out for those goals because that's going to be a driver of our success as we move forward. We continue to focus on those important things. We still feel good about that investment, the investment program that we're on. We talked about again, that country coverage extending through the middle, getting that up and going, some AI investments, and really that plays itself out through the middle of next year. I think then we'll start to see more leverage come. We certainly, just given some of the headwinds that we saw, are being very mindful around our cost structure and the contribution that we're seeing there. We'll see how that develops over time. I think we're still focused on those investments, and we are still focused on driving that leverage in our business and trying to find ways to accelerate it where possible. Great. Thanks, John Appreciate it. Thank you. Our next question is from Andrew DeG asparry with BNP Paribas. Please proceed. Thanks for taking my question. I guess in terms of just to follow up with Rob's question, just to be clear, that sort of leverage. You expect in the back half of next year. That is not changing, right? As these investments are getting pushed out, I have a follow up. Thanks. I don't think we're going to alter our. We haven't offered any guidance for 2026 yet. Obviously the fundamentals of our strategy are, you know, as I said we're not, while quarterly performance is critical, we understand that the long term strategic opportunities we're pursuing are significant enough. We want to be thoughtful about what we back off on. I'm going to look to see where we can deliver leverage from our internal investments already and use that to drive continued margin opportunity to fund the long term strategic things that we're pursuing. Pursuing e-invoicing expansion right now is mission. We think it's strategically high ground that we have to complete. It'll put us in the best position for the long term durability that we've enjoyed for 45 years. We're not going to back off that. Great, that's helpful. I guess I wanted to. Follow up on the I think you mentioned on the call. Earlier, some compliance confusion for customers. Was it Brazil, I think? Maybe you could just expand on that. What did that mean? I mean, how impactful was that? Relative to all the other factors, you've. it as to the lower guidance? Sorry for interrupting you there. Yeah. The impact I think was a half a point in NRR, John. Roughly. That's about the impact to NRR that it was. The bigger issue there is Brazil has introduced a new VAT set of requirements that will actually, they have two different sets of requirements in place right now. They have their legacy system and they are transitioning into this new one over a period of 10 years, which is actually creating confusion for customers in terms of how much has to be applied again, how much has to be complied against the old rules versus the new regulations as they're being phased in. It has clearly caused some frustration for customers down in that area. We view that actually, that confusion and frustration to be another complexity that will serve us well. We've got a number of initiatives that are moving forward in Brazil right now to actually address. I'm actually strategically super pleased with how we're positioned and we're delivering value. In the short-term, again, customer deal flow has slowed a little bit as customers are sorting through what their compliance needs are going to be. That's all that was. In the long run, again, it's just enhanced complexity from the regulators. That only creates opportunity for us. Understood, thank you, that's very helpful. Our next question is from Brent Bracelin with Piper Sandler. Please proceed. Thank you. Good morning. Thanks for taking the question here. I wanted to go back to the on prem license versus cloud discussion. Very clear. Entitlements and true-ups are more variable here. That's the drag on the second half. My question here is around the longer term trend. Why wouldn't you see on prem license maybe start to be a bit of a drag, especially if we start to see a more acceleration to cloud. ERP. I know you're agnostic, it's a smart thing to do. Curious if you see any sort of early signs that some of these migrations might become a longer term drag on license but potential accelerant to cloud. I want to make sure. I'm not understanding your question. I think that fundamentally when customers migrate from on prem to the cloud we get a typically a 30- 40% increase, dollar for dollar for the same license. It's not a drag when those existing customers who are on prem move to the cloud. It's actually an upsell opportunity for us. Just to make sure I'm paying off that part of the story I think because everything we're doing is cloud first, probably 90%- 95% of all of our new logos. With our platform expansion we're continuing to drive all of our activity to the cloud and onto our platform. I see that being the accelerant for our future growth, not the drag. The migrations will happen. What we'll start to eliminate over time will be the true-ups because as cloud is over 55% or so of our revenue now, and as it continues to accelerate and become, you know, probably 60%, 70%, 80% of our revenue, it'll be more just the entitlement. We won't have those one-off true-ups anymore in the on prem business because they'll become a smaller percentage of our total revenue. Got it. Very clear. It's the true-ups that might be impacted. Entitlements, you know, will continue in that cloud shift. Helpful. Just last one here on E-invoicing, we're seeing in Europe specifically, if I think about the momentum there, over 30% sequential growth. It is very small, Belgium is very small, but France and Germany are 10x larger GDP areas. I'm curious to hear, are there different competitors in each country in the EU that you have to fight against? From a timing standpoint, when. Would you start to see, you know? France if that doesn't happen until September. 2026 and Germany in 2027, when would you start to see some of those deals light up? Yeah, two good questions. I think again, as the global providers, if you think about it from a global, there's hundreds of local providers in every country. We've known that from the moment we entered the space. The mid and enterprise market is looking for the single provider that can do business in all the jurisdictions that they operate in. If I'm doing business in 30 countries, I want a provider that can handle my e-invoicing in 30 countries. That's critical to our strategy that we are one of the very few that can do that. It kind of changes the playing field. If the customer's only looking for a point solution, that's going to be a much harder sell. Candidly, it may not be one we want to pursue. It's like selling into the S&P market in the U.S. Sales tax, it's not going to be a high value opportunity, but the customer who's like, hey, I got to solve for Belgium now, but I'm going to need to solve for 12 other countries in the next two years is exactly our target market. That's where we're focused. The number of competitors there really shrinks down to, you know, Sovos and Thomson are probably the two primary ones that have the same capabilities, the similar capabilities that we would have that we would be in most of our RFPs we're seeing. France and Germany should start to light up here as we get through the back half of this year and probably more so France just because of the looming deadline and then really much more into 2026, which is pretty consistent with what we said all along. The race for us was, and which is why we're not slowing down our investment in the invoicing, is we want to be where we need to be. We already have France in our, you know, we've already covered France. We can handle it right now. We want to be in all the right jurisdictions with our investments over the next 12 months, hence the investment cycle we're in, so that we're incredibly well positioned as customers are making global decisions on who are going to be our providers. We've got the country coverage and the protocols they need in place to provide for color. Thank you. The next question is from Alex Clar with Raymond James. Please proceed. Great, thank you. David, on your prepared remarks, you talked a bout some of the expected state and l ocal budget pressures from reduced federal funding. You've been operating for 40+ years. What have you seen in prior cycles when state budgets are tightened in terms of accelerating rate and complexity changes? More importantly, how that correlates to buying Vertex? Yeah. The new tax bill that was passed by the federal government here changes Medicaid and food stamp funding to states, so mission critical for their citizenship that they're going to have to address. Indirect tax is the most predictable form of revenue for a government. I think we have seen consistently in the past when governments are in search of revenue, they turn to a transaction tax. They do it somewhat in rates, they do it more in rules. Rates are helpful, but obviously it's hard to get reelected if you're a local politician and you just keep raising the sales tax rates, so they come up with more complexity in the rules. They'll add a sugar tax into a beverage or something like that, which increases compliance pain for the prospects, which creates demand opportunities for us. That's what we have seen in the past, and I don't see any reason why that's not going to continue, again because of the predictability of the revenue and because of the need to fund these gaps that are now increasing as a result of the new tax bill. Okay, great color there. Thank you. I have another one on e-invoicing to add to the bunch today. In terms of the partner channel, you've got a mature partner channel for your core solutions. How does that look on the e-invoicing opportunity? How's enablement been there? How much of e-invoicing deals are p artner influence versus the rest of your business. Yeah, we've made a very important decision to work very much through the same partner channel that we built our brand with for years. We are working very closely with all the alliance partners and we are leveraging them, we've enabled them, we're training them in terms of how they can implement our software, our invoicing solution, and then bring more value around it for their own practices. It's a key part of our go-to-market strategy and they are active in most of the transactions that we're securing right now. We expect that to continue because tax is such a critical part of the decision process. The big four are going to be players in that space and we see it as natural to continue to leverage the relationship. It actually opens up the entire end-to-end platform even more for them in terms of how they can work across our platform with their customer base. This is a good point of entry that then allows them to bring more, you know, demonstrate where Vertex could bring value in the process. All right, great color. Thank you. Our next question is from Patrick Walravens with Citizens JMP Securities. Please proceed. Great, thank you. At the analyst day in March, you guys guided the 2028 revenue growth in the high teens, subscription 20% plus, and cloud 30% plus. Are you standing by those targets? Yeah, as I said earlier, Pat, I appreciate cloud is going to remain the primary focus of everything we sell. It's going to continue to be a material growth driver, and everything around e-invoicing and the classic land-and-expand model that it's becoming, I see that driving both NRR and continued cloud revenue. Fundamentally, that hasn't changed. All the activity that has slowed in the ERP cloud migration or hasn't materialized like we thought it would is still going to play out, and we are still incredibly well positioned around how we can leverage that and continue to expand our relationship inside of areas like Microsoft, where we're now on the Microsoft commercial marketplace, giving us a broader footprint inside of the Microsoft ecosystem. I definitely feel those targets are not something we should back off of at this point. Okay, and then. Great, thank you. The follow up would be, I mean, the stock was already down 38% year to date. Right. And it's going to be down more today. Is the board considering a buyback, you know. Yeah, no, appreciate the question, Pat. I mean, it's something that we certainly will consider and give some thought to, and you know, something that we will update people on as needed. It's, you know, we'll continue to pay attention to it, monitor the stock, and consider that in the other uses of our capital as we evaluate our model. Thank you both. The next question is from Jake Roberge with William Blair. Please proceed. Yeah, thanks for taking the questions. I understand things have been a little bit slower on the migration front, but curious what you're actually hearing from SAP and your other partners on when those headwinds start to abate. Is it all just a macro timing dynamic? Are you seeing SAP's kind of extended deadlines have any impact on when customers might look to go online with your platform? I haven't seen any initial indications of that. I think you need special approvals and you have to make certain investments to even secure that extension. Certainly, we've seen no shift in their public announcements about their intent to move that forward at the current deadline. I think again, it's not the only driver of cloud migration. It's occurring across the ecosystem. It's occurring in our Oracle opportunities. It's a big driver of some of the Oracle wins we had in the quarter. It's occurring now more so in the Microsoft Dynamics area where we're seeing again, we're expanding our relationship there and seeing new opportunities. I don't see that fundamentally changing and at this point I haven't seen any change in the deadline. Okay, that's helpful. I know most of the impact to the guide was related to migration activity and true-ups, but just wanted to double click on how that initial ramp for e-invoicing has been in and just how win rates for that solution might compare to kind of the core platform. I know it's a much earlier solution, but just curious what you're seeing early days on that front. Yeah, I think I'm seeing the things I thought I would see in terms of the strategic value of our differentiation playing really well and competitively with the noted comment around the need to continue to build out the countries. There are companies that are just focused on an individual region, and our cloud-based approach is playing really well with the end-to-end value prop. When a customer says, yeah, but as part of this I need to handle Country X and it's not one we are currently covering, then we don't show up as well. That's why we're putting such urgency on continuing to expand our footprint across the globe in terms of country coverage to make sure that's not a competitive differentiator t hat we can't compete on. Very helpful. Thanks for taking the questions. This concludes our question and answer session. I would now like to turn the conference back over to Joe Crivelli for any closing remarks. Thanks everybody for joining us today. If you have any follow-up questions or you 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 to you in the coming weeks. The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.