Vertex, Inc. (VERX) Q1 2023 Earnings Call Transcript

Greetings. Welcome to Vertex's First Quarter 2023 Earnings Conference Call. Please note, this conference is being recorded. At this time, all participants are in listen-only mode. At this time, I'll now turn the conference over to Joe Crivelli, Vice President of Investor Relations. Mr. Crivelli, you may now begin.

Hello, and thanks for joining us to discuss Vertex's financial results for the first quarter ended March 31, 2023. I'm Joe Crivelli, Vice President, Investor Relations. David DeStefano, Vertex's President and CEO; and John Schwab, our CFO, are also on the call today. As a reminder, during this call, we may make forward-looking statements related to expected future results. Our actual results may differ materially from our projections, due to risks and uncertainties. These risks and uncertainties are described in our filings with the Securities and Exchange Commission. Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information to the GAAP financial information, is provided in the press release. This conference call is being recorded and will be available for replay via webcast on our Investor Relations website. I'll now turn the call over to David.

Thanks, Joe. Welcome everyone, and thank you for joining us. 2023 is off to an exciting start. Through the focused efforts of our global team, we delivered great execution across all areas of the business. In the first quarter, we saw widespread contribution of our revenue growth balanced across new logos and cross-sells, as well as software and services in spite of the uncertain macro environment. We also saw continued positive momentum in the metrics we use to track our success. Annual recurring revenue grew 17.3% in the quarter, GRR and NRR remain at consistently healthy levels of 96% and 110%, respectively. Average annual revenue per customer was $104,370 at the end of the first quarter, up 16.4% year-over-year, and the number of scaled customers, those generating over $100,000 of annual revenue, grew 13%. This resulted in revenue of $132.8 million and adjusted EBITDA of $20.2 million. We accomplished this while continuing to execute on our multi-year growth strategy with focused investments in R&D, go-to-market, customer success, and corporate infrastructure. With these investments beginning to taper off, we are optimistic about the opportunity for earning leverage in the back half of 2023. We still see opportunity and demand as companies continue tax transformation efforts in response to changes within their business and growing compliance requirements. Governments often look to indirect tax as a source of additional funding in challenging economic times; they lean into the enforcement of tax codes to replace lost revenue. As audit pressure builds, so does the need for companies to reevaluate how they calculate and remit taxes. And while they've been playing catch-up with the accelerated pace of digital transformation, governments are now putting new rules and legislation in place to ensure that cross-border digital commerce is taxed fairly, and this has sweeping impact as most businesses today have an online presence. Growing revenue, doing business in new places and delivering a seamless omnichannel experience, all add a layer of complexity that makes automation critical to managing compliance at scale for global enterprises. This, in turn, meets the demand for Vertex solutions. Our notable strength in the enterprise market was evident again this quarter. Our unified platform, multi-cloud strategy, and deep partnerships continue to drive strong win rates for our sales and partner teams. These same differentiators are also empowering mid-market businesses as they expand their business models, drive global omnichannel strategies, and continue their digital transformations. This quarter, with our focused investment in building our go-to-market ecosystem with Microsoft, Workday, and Salesforce, we saw nice traction with mid-market customers. And we continue to see a steady stream of customers expanding their usage of the existing solutions they licensed with us. Beyond the technical strength of our solutions, it's the trust and experiences we deliver that gives our customers the confidence to grow with us and invest in additional solutions. We don't talk a lot about our services business on these calls, but I believe the steady growth that continues in both revenue and new business activity reflects how businesses continue to invest in their tax technology. We had a strong quarter in our services business and have a healthy backlog of statements of work that should enable continued growth in services revenue. I'd like to share a few highlights that really reflect how pervasive tailwinds contributed to the strength of the quarter. An existing customer, one of the largest social networks in the world, significantly expanded its business with Vertex in the first quarter. The customer manages an online marketplace where goods are bought, sold, and traded. As part of this aspect of their business, they are seeing more and more products that are subject to sales and use tax liability. Accordingly, they tripled the revenue tier of their entitlements, resulting in seven figures of new annual recurring revenue for Vertex. This company is not alone in the challenge to manage the growing tax complexities of operating a marketplace. Vertex released a global research study in Q1 that revealed that 81% of responding businesses are taking advantage of marketplaces to attract new customers and sell into more countries. Both marketplace operators and sellers need to feel confident that their chosen platforms will enable them to meet growing compliance requirements while maintaining top performance. This was a driving factor in a six-figure new customer win with another leading e-commerce platform. We won this business due to our Edge product, our industry-leading customer support, and for more consistent and predictable pricing. Perhaps the biggest reason for selecting Vertex was that the downtime and performance of their existing solution was unacceptable in an industry that requires near-perfect uptime. We also had a very exciting new logo win with one of the largest SaaS companies in the world, which also selected Vertex as their indirect tax platform in the first quarter. The customer is experiencing significant growth, both organically and through acquisitions, which increases the number of source systems that the tax department needs to pull data from for their clients. Our ability to effectively manage data across multiple systems and integration points into a single-cloud solution allowed us to earn their business. This seven-figure deal includes complex integrations with the customer's CRM, ERP, and accounts payable systems. The strength of our ecosystem also played a significant role in this competitive takeaway as we partner with PwC and Accenture. This is a common scenario as most companies today are managing applications and workloads across fragmented environments. Our approach wins because we offer a single platform for all indirect tax types with interfaces to the multitude of systems our customers rely on every day. I can't emphasize enough how important it is for a tax professional to have confidence and consistency in their tax outcomes across all their systems, particularly as we see audit pressure intensify. One of the major food delivery companies became a customer this quarter when audit pressure opened their eyes to the importance of tax calculation accuracy to support their fast-growing business. This is a segment we have come to lead in the past few years. It's an industry where complexity reigns and in-house solutions and manual processes are simply not enough for tax management. Sales tax for food delivery can be impacted by hundreds of esoteric factors such as the location of the restaurant, location of the end customer, how the food is prepared, and even the ingredients in the food, making it one of the most complex industries we serve. Our robust tax content database, which today covers more than 700 million effective rates and rules, along with our geo-locator capabilities that deliver pinpoint tax area ID assignment, gives our customers more precise tax calculation accuracy. And finally, let me share an example that highlights how we are winning in the middle market; a provider of industrial parts and accessories based in Europe selected Vertex in conjunction with an Oracle ERP cloud transformation. As this company grew, the complexity of their needs changed, and they outgrew an incumbent competitor. Our ability to handle a complex ERP integration was an important winning factor for Vertex. I'm proud of the success our teams are having on the go-to-market front; the combination of our investments in expanding the go-to-market team, as well as delivering new products and services has really helped to differentiate Vertex with customers and prospects. We are pleased with our progress in using intelligent automation to monitor tax code changes and keep our tax content database up to date. We are also leveraging it within our solutions to help streamline workflows and ensure that our customers remain compliant with the various tax laws that impact their business. Our growing pipeline of organic and inorganic opportunities and ability to keep that momentum going on the sales front gives me confidence for the quarters ahead and in our overall strategic position in the market. John, I will now hand the call to you to provide additional details on the quarterly results.

Thanks, David, and good morning, everyone. Today, I'm going to review our first quarter financial results and provide guidance for the second quarter and full-year of 2023. Total first quarter revenue grew at 15.5% year-over-year to $132.8 million, reaching the upper end of our quarterly guidance. Our subscription revenues increased 14.3% period-over-period to $111 million, and average services revenues grew 21.8% to $21.7 million. Annual recurring revenue or ARR was $446.5 million at quarter end. This is up 17.3% year-over-year and 14.3% on an annualized sequential basis. Net revenue retention, or NRR, remained strong at 110% and was consistent on both a year-over-year and sequential basis. Gross revenue retention or GRR was 96% at quarter-end, consistent with our prior quarters and within our historical range of 94% to 96%. These metrics continue to demonstrate the stickiness of our solutions, as well as the strength of our customer relationships. Our returns processing Managed Services business generated recurring service revenues of $7.4 million in the first quarter of 2023, up from $6 million in the comparable prior year period. Our average annual revenue per customer or AARPC continues to steadily increase and was at $104,370 in the first quarter, up from $100,500 in the fourth quarter of 2022. Note that AARPC is based on the direct customer count, which is disclosed in the earnings press release that was issued this morning. Cloud revenue was $48.2 million in the first quarter, up 26% from last year. And for the remainder of the income statement discussion, I will be referring to non-GAAP metrics. Gross profit for the first quarter was $95.3 million, and gross margin was 71.8%. This compares with gross profit of $80.7 million and 70.2% gross margin in the same period last year. Gross margin on subscription software revenue was 78.4%, compared to 76.6% in last year's first quarter, and 78.4% in the fourth quarter of 2022. Gross margin on services revenues was 37.9%, compared to 35.3% in last year's first quarter and 36.8% in the fourth quarter of 2022. Turning to operating expenses. In the first quarter, research and development expense was $13.6 million compared to $9.5 million last year. With capitalized software spend included, R&D was $23.8 million for the first quarter, which represents 17.9% of revenue as compared to 17.2% of revenue in the prior year period. This increase in R&D expense is driven by ongoing investments in innovation and expansion of our solution capabilities. Selling and marketing expense was $32.1 million or 24.2% of total revenues, an increase of $6.4 million and approximately 25.1% from the prior year period. This increase was a result of the expansion of our go-to-market and customer success organizations in 2022. General and administrative expense was $29.3 million or 22.1% of total revenues, an increase of $3.1 million from the prior year period. This increase is due to the infrastructure investments we are making to support the long-term growth of the company. Adjusted EBITDA was $20.2 million in the first quarter of 2023, an increase of $1.1 million year-over-year. We saw positive year-over-year improvement in cash flow. Our operating cash flow was $6.8 million in the first quarter, a $4.2 million improvement compared to last year's first quarter. And free cash flow was negative $10.6 million in the first quarter, a $3.6 million improvement from last year's first quarter. Historically, our cash flow in the first quarters are seasonally lower than the remaining calendar quarters due to annual bonus payments, payroll taxes, and sales and marketing expenses that are typically elevated at the start of the year. We do expect free cash flow to be positive for the full-year as our period of accelerated growth investment subsides; we expect Vertex to return to historic levels of free cash flow generation. We ended the first quarter with over $68.6 million in unrestricted cash and cash equivalents. Total bank debt was $48.6 million and investment securities totaled $11.5 million. For additional liquidity, we also have $200 million of unused availability under our line of credit. Turning to guidance. In the second quarter of 2023, we expect total revenue in the range of $135 million to $137 million, which would represent 14% year-over-year growth at the midpoint. And adjusted EBITDA in the range of $21 million to $22 million, which would represent an increase of $3.7 million at the midpoint. And for the full-year of 2023, we continue to expect total revenue in the range of $550 million to $556 million, representing annual revenue growth of 12.5% at the midpoint. And adjusted EBITDA in the range of $92 million to $96 million, representing an increase of more than $15 million at the midpoint. And we believe that cloud revenue will grow by approximately 27% in 2023. We are very pleased with the strong first quarter performance and believe we are off to a very good start to achieve our financial goals in 2023. David will now make a few closing comments before we open up for Q&A.

Thanks, John. The year is off to an excellent start with our strong financial results in the first quarter, and our outlook for the balance of the year is positive from both a revenue and earnings standpoint. We remain on track with our growth investments, and we expect to see earnings leverage in the second half of 2023. We've already seen some progress here as selling and marketing expenses leveled out in Q1, as we launch our new ERP system in Q2, spend associated with this project should also wind down. We continue to deliver exceptional and differentiating value to our customers, and we believe the winning formula we have put in place will continue to drive success with end-to-end solutions, the most complete and accurate content database in the industry, a scalable unified cloud platform across all major tax sites, seamless integration and consistent results across source systems, and partners and in-house experts who deliver rapid value in even the most complex environments. In closing, I'd like to thank our employees for their continued dedication to our mission, our customers, and our partners. Your hard work makes all our success possible. With that, we will take your questions. Operator, please go ahead.

Thank you. Our question comes from Matt Stotler with William Blair. Please go ahead.

Good morning. Thank you for taking the question. Maybe just wanted to start on the indirect customer base. I just saw some decent growth there on indirect customer account in the quarter. Maybe just digging into where you're seeing that success in terms of adding customers through the channel ecosystem? And then if you could refresh us on the economics of revenue that comes from those indirect customers versus direct customers, that would be helpful as well.

Yes. Thanks, Matt. I appreciate the question. Yes, the indirect customers are – again, they're coming through partners that we're aligning ourselves with to help market some of the mid-market and down-market customers. So, they've been working with us over the last number of years to pull that together, work through us. And again, as it turns out, we end up recording revenue that we sell to those individual partners and then support and a lot of the activity behind that gets handled by the partners that we partner with.

Got it. That's helpful. And then maybe on the international front. Let's just get an update on what you're seeing in terms of relative performance in international markets? You mentioned some strong performance in Europe specifically last quarter. So, how has that kind of pipeline trend continued? And how is e-invoicing playing into that opportunity there for you guys?

We are actually taking the call today from Europe, we did our European customer conference this week, record attendance, actually more than double last year's, really pleased with the energy here. The partner ecosystem was really strongly represented across IBM, Big 4 and a number of local providers that really give us confidence in the pipeline activity we have. We continue to see – the position we’ve taken with the products we've added, the relationship with SAP and the referenceability of our customer base all being very strong supporters for our European opportunities. So, we’re really pleased quite frankly from where we sit here, and I think we'll continue to see that momentum as we move through the year.

Got it. Thanks again.

Our next question comes from Adam Hotchkiss with Goldman Sachs. Please go ahead.

Great. Good morning and thanks for taking my questions. I guess a two-part question here to start. David, could you just give us a little more color on the progress you're seeing with the large technology partners? I know you called out the mid-market. Could you give us a sense for how you're thinking about, I guess, one, that first opportunity from a contribution perspective? And then two, your competitive positioning in the mid-market. Thanks.

Yes. We're focused very much in the mid-market on three ecosystems, primarily being Microsoft, Salesforce, and Workday. We continue to see good partnering activity across both the Big 4 and I would say that sort of next tier of both accounting players and systems integrators that are at that level. At the enterprise level, we've seen increasing interest and activity in working with Accenture and IBM on top of the Big 4. So, I really feel like our positioning across both ecosystems from a partner perspective is as strong as it's been and given us really nice competitive differentiation.

Great. That's really helpful. And then I guess, second, I would love to hear how you guys are thinking about generative AI use cases and tax as you invest in technology areas like containers. Given the content database you have, it seems like an area you could leverage to improve workflow and usability. Just wondering if that's something you're thinking about?

Absolutely! This is factored into our R&D investment actually this quarter. We continue to look through our innovation team on a number of use cases for deploying that and how it can serve our customers from a commercial perspective. For a long time, we've already been using machine learning and some other capabilities for the internal effectiveness of our content creation to support our cost structure. So, we've been using it internally. And now with some of the recent technology advances, our innovation teams are exploring a number of things on the external side.

Great. Really helpful. Thanks, David.

Our next question comes from Joshua Rilley with Needham. Please go ahead.

Hey guys. Thanks for taking my questions and nice job on the quarter here. If you look at the managed service businesses, which you guys highlighted here in the prepared remarks, what do you think is driving that demand and growth? Is it the complexity or cost to manage internally, and is that actually benefiting you in an inflationary environment? And then maybe you can just speak to what is the pipeline for these deals look like over the next year?

Yes. I'll start here and John you can pick up. I think referenceability matters greatly in that business; once again, it's a trust factor who you're going to outsource it to. I think as we continue to grow the scale of our business, our customer success teams are able to go further with our customers about how they're handling it, and we're seeing an uptake from existing customers on that service. I think the one cloud service we give is part of the reason why we don’t measure GRR in services, but our GRR there is 97% or so. We just don't lose customers in there because we provide them such high-quality service. I do think part of the factors certainly is also customers are looking to drive efficiency with their tax department. If they can shift some of these lower-value things and focus on more high-value things, taxes are being drawn into more strategic conversations, quite frankly, because of how indirect tax is touching so much of the business's growth these days from the different business models that have emerged. So, we're seeing really good uptake, I think, because of that. And that gives us a lot of confidence in the pipeline as we look out through the year.

Got it. That's helpful. And then pivoting back to the international business, one of the things we're hearing is that European countries are starting to enforce the marketplace laws that were enacted a few years ago, but they kind of didn't enforce for a period of time there. Is that what you're seeing as well? I guess, now that you're actually in Europe, can you just speak to the incremental opportunities that can create for you guys?

We definitely are seeing a slight shift in activity in that area where the pain – it's a pain-driven market. When they feel pain, then they have to do something. We're definitely seeing a shift in those dialogues. Our base in Europe is also very heavily focused, as I mentioned, on SAP and the work we've been doing in that space at the enterprise level. I think both of those are drivers for us as we are growing here in Europe.

Our next question comes from Daniel Jester with BMO Capital Markets. Please go ahead.

Hey, good morning. Thanks for taking my question. Maybe one to start with for John on gross margin, really strong improvement on the software side that builds off of last quarters improving as well. I know you don't guide to it, but maybe how should we be thinking about the gross margin opportunity on the software side going forward?

Dan, thanks for the question. I think you're right. We did have nice momentum coming out of the fourth quarter based on those results and it took off and it drove into the first quarter as well. Again, as I've said previously, I think in the last quarter, we don't anticipate that to be the next Mendoza line of where things are going to go up from here. But we do expect to see leverage come out of that line as we continue to grow our product and expand the opportunity, especially in the cloud area.

Okay. And then, David, maybe just your latest thoughts on inorganic growth opportunities, how are you seeing the landscape and anything you'd like to share there? Thank you.

Yes. Obviously, Dan, in the current environment, we'll be really thoughtful about valuation and whether the sell side has come down from 2021 values and where they think, but we have seen a little bit of a shift in dialogue there with some opportunities that we're exploring across different ends of the end-to-end process that we're trying to fill out to support our customers. So, I would say that there's more activity than there's been, but we're still being really thoughtful about valuation and making sure that the other side is realistic given the current environment.

Our next question comes from Steve Enders with Citi. Please go ahead.

Hi, great. Thanks for the update this morning. I want to ask a little bit just on what you're seeing out there in the marketplace. And as we think about the outlook maintained for the year, I guess, is there incremental conservatism that’s being baked in there and maybe some revenue shifting around as we think about the second quarter outlook or just any other details to maybe provide around that?

Yes, Steve, thanks for the note. I'll address guidance, and maybe David can talk a little bit about the environment and what we're seeing out there. But again, I think we ended with a really strong Q1. You saw strong metrics come across from ARR, NRR, and GRR. Over the last couple of years, we don't necessarily increase our guidance coming out of the first quarter, just given that it's just one quarter we're through, and it doesn't seem to really make a big trend unless we saw something very dramatic. So, we have maintained the same philosophy that we’ve had for the last couple of years, and we're going to re-evaluate at the end of the second quarter and then give an update at that point. But again, everything we saw in the first quarter was very strong, and we feel like we're in pretty good shape.

Yes. And Steve, I'll just build on that. I think the momentum in the ARR spoke to the consistency we're seeing across decision-making. We're not seeing pushes of note here, and the activity that we just experienced here in the EU with our customer conference just gives me a lot of confidence that the activity remains consistent. Compliance needs are increasing; the regulatory environment is not getting any better. It's only getting more complex. When you add in now the growing demand around e-invoicing and how customers are seeing a greater need for data controls, it fits perfectly with our strategy.

Okay. Got you. That's helpful context there. And I guess just on the point on AR being pretty strong in the quarter and I think seeing a bit of an acceleration there for 1Q. But maybe less upside here than last quarter. I guess, was it maybe more of a back-end loaded quarter for on the deal execution side or how should we kind of think about the moving parts between the AR upside and the software line here?

Very well. It's exactly how the quarter played out. I think we had a very robust December. Sometimes that kind of drains the pipeline just a little bit, and so January came out a little bit slow. But the team consistently performed and fulfilled the pipeline that we saw, more of it closed in March. It really wasn't a change in decision-making process. I think it was just momentum coming off of a great Q4, took a little bit more of the month to celebrate the holidays than we would have liked, but they did great and really beat the expectations we had through March.

Our next question comes from Andrew DeGasperi with Berenberg. Please go ahead.

Thanks for taking my question. I guess first on the contract structure you have with your customers. In particular, is it transaction-based? And does it track general economic activity? Maybe could you lay out why that maybe you wouldn't see a slowdown at the time of renewal if things were to get worse from a macro perspective?

Terrific. Thanks for the question, Andrew. I appreciate it. When we think about our revenue contracts, they are based on revenue bands. So, we started banding up with our customers. And as customers kind of outperform or underperform, typically, they fall within the band guidance that exists. To the extent that there's something significant that happens, we can then see some movement, and that's when we see some of the upside of additional entitlements. But generally speaking, an increase or decrease in volume doesn't necessarily impact our revenue as it takes place. So, it's not on a dollar for dollar basis that adjusts our revenue. What really matters is going through that banding structure. We feel very good about how that has performed over time in up cycles, as well as in down cycles because, again, that banding gives us a cushion if things slow down for our customers. I hope that's helpful.

That's helpful. Thank you. And then one question on net retention rate. I mean, it's been tracking at the high end of where you've landed since you've gone public. Just wondering how confident you are that you can kind of track at that level going forward? And if you can maybe elaborate a little bit on what's driving that upward trend. Is there any particular product? Is it the general transaction activity again, what you mentioned earlier, are you landing larger generally? Anything that you could provide would be helpful.

The business is very resilient. The GRR continues to be very strong. I think it's the nature of our product. It's line-item invasive software, mission-critical to the customer experience. Once it's in, it doesn't usually change too often, and I think this is the strength of our business. You add to that, the customer success team that we've been funding and built out over the last two years, we are getting more active with our customers in dialogue, making sure we're understanding where they may be facing challenges and addressing them head-on. I think that just reinforces our commitment to our customer base. That has shown up in some of the incremental move we've seen over the last two years from like a 94% to 96%. There's a fundamental around M&A and other things that does hit our top line, and I don't think we'll ever get to 100%, but I'm really pleased with where we are. I see no reason that we're going to materially change from that. We did not see that in the 2008, 2009 Great Recession. We didn't see any material shift in our GRR. I think we are a better, stronger company and how we're delivering value to our customers than we were back then.

Thank you.

Our next question comes from Brad Sills with Bank of America. Please go ahead.

Oh, great. Thank you. I wanted to ask a question on just your observation here on customers' willingness to take on ERP upgrade projects now given your position, integration with ERP and some of the partners you mentioned. Have you noticed any change given what's happening in the financial sector with tightening credit and wobbliness in the regional bank sector? Any observations just kind of generally in your business around customers' willingness to take on these projects, particularly in the financials vertical?

Brad, this is John. I'll start with it. I think it’s a great question. Really appreciate it. No, we haven't really seen a big change in the momentum that's been out there. Certainly, within the U.S., the pipeline continues to be strong, and we feel good about the names that we're seeing. We continue to see a pretty good balance across the different industry verticals that are there. I don't have any specific information on the financial services model.

I'll just build on that by saying the great news for us is that not a lot of sales and use tax effects and/or VAT affects the financial community. So, we don't have a strong exposure to that risk factor because they're not usually doing too much with transaction tax. So, it really puts that at a minimal impact for us.

Understood. Thank you for that, guys. And then also a question, if I may, on your partnership with Salesforce. You sell them here, you talk about partnerships with front-office type vendors. Are you finding the digital tax transformation initiatives are starting to come into more of the front-office type project? Thank you.

For sure. We're really excited at the level of visibility we have within Salesforce and the partnership that we've evolved there. More transaction-based activity is happening in CRM systems, and that just is another source system that has to deal with, and it was never built and designed with tax in mind. It creates more challenges for the tax department to link to and also get the information we want. We've been working very well with the Salesforce team to not only build-out our connector and build our story with them but also now in a go-to-market motion that's starting to show good ROI.

Great to hear. Thanks, David. Thanks, John.

Thank you.

Thank you.

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

Hi, thanks for taking my question. This is John on for Alex. I just want to start with one on pricing dynamics. Can you talk about how pricing is contributing to the growth outlook in 2023? Should we expect that to be a lever you pull more than you have historically moving forward?

Yes, I'll take this, John. Thanks for the question. I appreciate it. Generally, pricing has been something with annual price increases, something we do every year with existing customers. Typically, we've talked about that take rate has been about 4% across the board, by the time you get down to customer contracts, matrix adjustments, caps, and certain other dynamics within their contracts. We did have an increase to what our standard increase had been over the prior year, and so we see that as a minor impact. We see that going up a modest amount for 2023 in terms of the impact on our revenues, but it was something that we felt we had to do to address the inflation pressures that we see in our business and the cost increases that we're dealing with. We did pass on a higher increase to our customers, and I think as we think about that going forward and using that as a tool, we'll need to evaluate the environment that exists and determine what we're going to do going forward. The key thing for us is we've always had the opportunity to increase price. We want to make sure that we're not taking advantage of an opportunity with our customers because we really feel the opportunity lies in selling the next product that’s out there and getting some more cross-sell opportunities with those existing customers. So, we focus on that area and are very mindful of that.

Thanks. It was great color there. And then maybe just a follow-up here. John, can you give some additional color on the EBITDA to free cash flow bridge for 2023? I know we have some moving parts from the ERP implementation. Any other moving parts to call out there versus 2022? Thank you.

Thanks for the question. Again, from a free cash flow standpoint, we expect obviously for 2024 and 2023 to have positive cash flow as we did in 2022. It is being impacted by some of the ERP build, and you rightly pointed that out. And it will continue to be impacted by any development costs that are out there. Nothing abnormal though in terms of what our spend outlook looks. Again, we expect to see that start to increase throughout 2023. Again, we should move the needle even much more significantly as we get into 2024.

Thank you very much.

This concludes our question-and-answer session. I would like to turn the conference back over to Joe Crivelli for any closing remarks.

Thanks, everybody, for joining us today. If you have follow-up questions or if you'd like to schedule more time with the team, please reach out to me at [email protected]. Thanks, and have a great day.

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