Morgan Stanley Technology, Media & Telecom Conference

Get started here. So thanks, everyone, for being here this morning. My name is Chris Quintero. I am the Office of the CFO Software Analyst here at Morgan Stanley, and I'm really excited to be joined by the Vertex team here today. We've got Chris Young, President, CEO, and John Schwab, CFO. Thanks for joining, guys.

Thanks for having us, Chris.

Awesome. So before we get into the good stuff, for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morgansanley.com forward slash research disclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So maybe to kick things off, guys, for investors who are maybe not as familiar with the Vertex story, give us a quick overview of the company, the business, What are some of your key products, and who are some of your core customers?

Sounds good. So Vertex is a global provider of transaction compliance and indirect tax solutions. We work with customers across the Fortune 1000. We have over 60% of the Fortune 1000 that are customers of ours, and a number of the largest companies in Europe as well comprise our customer base. The company is about 47 years old. So we've been in, you know, we were founded as an indirect tax company, but we've expanded our portfolio to include indirect tax, a number of compliance solutions, e-invoicing, which are, you know, mandates that are happening around the globe right now where customers have to transmit their transactions to the government as a way to get out in front of audit and compliance requirements. So we're a global company today, and we're headquartered out of King of Prussia, Pennsylvania, which is outside of Philadelphia, but operate around the globe.

Yeah, and Vertex has reinvented itself multiple times throughout the entire life cycle of the company. We'll get into the AI transformation in a little bit. But Chris, you recently just joined as new CEO in October. You had an extensive career at Microsoft, McAfee, a bunch of other companies. Now that you've had a few months to kind of assess what's been going on at Vertex, I'm curious what are your top two to three priorities for 2026, and where do you see the greatest opportunity to accelerate the business?

Well, like you said, Chris, I've been at Vertex now just about over 100 days, so I've kind of gotten through my first 100 days here at the company. And, you know, before that, as you mentioned, I have 30-plus years in the technology industry, a decent chunk of that in the cybersecurity landscape. Most recently, I spent some time at Microsoft for about four and a half years there as well. And, you know, as I've come into Vertex, you know, there are a couple of key things that I think are really important for us. One is, you know, we have a very strong core business where we're, you know, serving our compliance and tax needs for, like I said, the Fortune 1000 being the stronghold of our customer base. But increasingly, as I mentioned a bit earlier, there are a series of mandates happening globally. Europe is in a cycle for this right now. Belgium just recently came out with an e-invoicing mandate. France is coming out with an e-invoicing mandate in September of this year. Germany to follow that. So while it's quite common in places like Latin American countries, a certain number of Asian countries, increasingly now in European countries, there's a governmental requirement that when a transaction happens on behalf of a company that they send the invoice to the government and they get a return on that. The reason for that is it allows the government to have forward information about the tax liability for any company before a filing happens at the end of a filing period. And the reason that is important is because these mandates are starting to happen now in Europe, that's created an opportunity for us in a new category of our business, but one that relates very directly to what we do in value-added tax calculation. Increasingly, our customers not only are going to want to have the invoices transmitted, but they're going to want to then be able to reconcile that with the value-added tax calculations that come out of our core product, particularly for companies that are operating in places like Europe, Latin America, parts of Asia, and others. That e-invoicing mandate does not exist here in the U.S. yet, but certainly we believe that some form of that will come to the U.S. at some point as tax legislation continues to evolve and as a number of the authorities look for opportunity. The third priority is really for us is to pivot to AI, and I know that's going to be a major theme of the conference. I know those are some of the questions that are on everybody's mind, and for me, that really means two key areas for us. Area number one is what we're doing internally with the company. Since I've joined, we've now got a series of core initiatives that we're using to completely change how we operate in several parts of our business, whether it's how we develop software, how we service our customers, how we go through a sales process, marketing, et cetera. We're changing the way the company operates using generative AI. And that's going to be an ongoing process for us, and I really believe that we've got an opportunity to operate the company quite differently as we adopt our own set of AI tools and AI agents internally. That's the part one. Part two is there's a huge opportunity that I see for us to bring more AI capabilities to our customer base. Now, while our products operate, I think in a place where they're very well embedded into the customer's infrastructure, what we see is that there's a series of activities that go on in a tax department that exist in and around tax determination or in and around e-invoicing, the transmission of invoices between and among companies and governments. That could be as simple as returns filing, which today is a manual process. In fact, a lot of companies actually outsource that process to companies like Vertex to the big four and other accounting firms and the like. There's a lot of manual work that goes into closed processes, audit preparedness, even some of the upfront work that happens in determining, or I should say in categorizing products in order to go into a tax determination engine. All of that is a set of just manual tasks that a number of tax departments have to execute it on their own, and we see those as opportunities for us to bring AI capabilities to our customers, which will save them time. It'll make them more efficient in their tax departments. And one of the examples of a product that we've got that I talked about on the earnings call is something called smart categorization. Smart categorization is really using AI agents to go after that process of really classifying and categorizing products or SKUs before they become set up as rules in the tax determination engine and ultimately are calculated. If you think about it this way, in a retail environment, for a retailer, every time you change a SKU, a price component, an offer, an ingredient in a product, a supplier for a product. Anytime you make a change like that, that could actually have downstream implications for how that product ultimately gets categorized and ultimately how the tax for that product gets calculated in the engine. And so what we've done is for that classification process, we've built a set of AI agents that will do that on behalf of the user or do that in conjunction with the users. And that's something that, particularly for retailers that have a high volume of product and high volume of changes in their environment, we're basically helping them streamline a lot of the process that they have and reduce some of the people time that's required in doing and going through that process. And that's just the first of what we believe are a number of different AI capabilities that we'll bring to market to help our customers reduce their overall time spent on these processes, reduce their overall need for their humans to focus on those kinds of tasks. Yeah. Since you brought it up, SmartCat, really interesting product.

What's the opportunity to expand outside of retail? You've kind of first kind of gone into retail as that first vertical to sell that product into. How do you think about expanding it outside of retail as well as the monetization potential? How do you think about the pricing and packaging of that?

So that is a standalone product. And when I think about AI in our products, I tend to think about it in two different categories. Category one is we're building a lot of AI into our products themselves. We have a co-pilot that exists in our core product. But the way I think about something like that is it enhances the experience of the product that many customers already have. It's going to make it easier to use if they have questions, if they want to dive deeper in a topic. The AI is just going to make that whole experience easier, smarter, better for the customer. But I consider that part of the core product experience they already have. But the second category is really net new products that we'll sell to our customers or net new capabilities that we'll bring to our customers that we'll charge for that really help them remove some of the time and effort that they have in their current processes. And smart categorization is in that particular category, so to speak, no pun intended there. And smart categorization returns filing would fall in that kind of a category. These are products that are separate but related to what we do in the determination engine itself. And so retail is the first vertical largely because of the volume of products and changes that happen in a retail environment. But we're expanding that to other verticals, you know, medical devices is another vertical where you've got, you know, you potentially have, you know, very large lists of products where the taxability of those products is very complex. Think about it in medical products. There's all there's a, you know, the interplay with the insurance companies and what gets paid for and what's taxable and what's not taxable. Very complex in that world. So the categorization part of that is very important for our customers who sit in that category. And then we believe that will just extend into a variety of products categories. Certainly organizations that have large numbers or high volumes of changes are ones that are more likely to use that kind of a product first. But we believe there's opportunity, a lot of opportunity in retail to start with, and health care becomes another one that we see real opportunity in.

Yeah, so clearly a lot of focus from you on product innovation, bringing new products to your customers. How do you think about informing your product roadmap? Is Vertex Coopilot kind of seeing what customers are really doing in the product? What really informs that product roadmap for you?

So the most important thing, I have people right now, we've got customer user groups going on right now. So we do spend a lot of time with our customers trying to understand how they use the product, how we can make it better for them. And that's our direct engagement with our customers is really important. But as you point out, you know, as our customers use more of our tools, as they use our SaaS products, as they use our our AI products like our copilot, they're you know, they're the way they interact with those products are telling us a lot about where they have challenges, where they're where they're seeing benefit in the product. And it does point to, I will tell you, even when we look at some of what our customers are saying, are asking or prompting in our co-pilot, a lot of it actually goes back to smart categorization. They start with, how do I think about this particular product, and how should I ultimately start to think about the rules categorization for that particular product? And so that is a good example of a place where we will learn a lot more about how our customers use our products, where they see opportunity, where they see value, where they might want to call us for a support case, because those are going to be also the kinds of questions that our customers will ask to the AI tools that we make available in the product. But nothing substitute for direct engagement with the customers, really seeing how they use our products, whether that's in a hands-on kind of a lab-style event or whether that's really just kind of sitting down with them and kind of working through some of this. Because of the relationships that we have with a number of our large customers who've been with us for a long time, we have customers who are co-developing products with us. In fact, I talked to a customer last week, and he said, look, we've been a customer of yours for over 20 years, and even some of the product that you've built out, we've helped kind of co-develop that with you over time. There's so much, one of the things I've really learned as I've come on board is there's so much interpretation that goes into the way in which rules get built into our tax engine that our customers really, and because tax legislation is always changing, because of the way that legislation impacts a given organization, we're kind of constantly working with our customers to figure out, okay, is this a new rule or is this literally a new set of capabilities, for example, that needs to get built into the product? And that's the kind of relationship that we've had with many of our longest-standing customers over the years, and it's really helped us evolve the product, and we continue to kind of like that's a place I'm really leaning into because I just have a lot of passion for how our products get built.

Let's address the investor concern. Obviously, a lot of concern about the terminal value of a lot of software businesses today, risk of displacement from AI startups, large language models. So from the Vertex perspective, what's your competitive mode? What makes you really defensible here against those threats?

So, Chris, one of the reasons I came here, and I've said this to you before, one of the reasons I came here is I see a huge opportunity for us to bring more AI capabilities to our customers. And I believe we're coming at that from a real interesting position of strength. You know, as I've talked to our customers, the things that they would say to me, if I was to put together a word cloud, it would include words like trusted, accurate, auditable, reliable. Like our customers, you know, they can't get their taxes wrong. So if you get, for anyone who's ever, I don't know if anybody here has ever worked in a tax department, but, you know, this is the kind of thing, if you get your taxes wrong, you're now in disputes with governments, potentially in lawsuits, you're getting audited. Not only are there penalties involved, but you're now you've got people that are pulled off their day jobs because they're working to respond to these issues. So tax is just something that you really can't get wrong. It has to be right all the time. And it's not just what comes out in terms of the calculated tax that gets paid. There's got to be an entire process of auditability of how you got to the decision to calculate the tax the way you did in the first place. That starts with how you categorize a product, how you interpret a rule, how you actually create the rule in the engine, and ultimately the calculation that comes out of that. And so when we talk about what Vertex brings to our customers, the first thing I would say is the content effort that we put in that ultimately manifests itself as rules in our engines, a lot of that is the content is not available online. So we estimate that around 70% of what goes into a tax engine as a rule ultimately is not what's available online. A lot of that is because of localities that exist out there. There's a lot of federal information. There's a lot of information at the state level. That's a lot simpler. But, like, when you get down into the tens of thousands of local jurisdictions, that's not just cities or even municipalities. There are specific tax districts, counties. So when you start to get into that level of complexity, oftentimes even legislation that gets posted online is not done so in a timely manner. And there's an entire process that we have to go through to turn that into a rule that ultimately gets built into the engine before it gets calculated. And so it's not as simple as saying, let me just go read what's online, and I can turn that into a rule and have it be a calculation that comes out the other side. So much of what we do there is proprietary. The second thing I would say is we're deeply embedded in our customers' infrastructure. We're embedded in the ERP systems, integrated with point-of-sale systems. Oftentimes, companies will use us. You know, the customer I referenced a moment ago, they use us in 30 countries around the world. We integrate in multiple ERP systems. A lot of the large companies that we serve very well not only have multiple ERP instances, but they use different ERPs from different vendors. All of that complexity is something that we handle very, very well. And the third thing I would say is accuracy is key. Large language models are great. As context windows get bigger, they can do more, but they're not based on deterministic outcomes. They're based on probabilistic outcomes. Our answer has to be right, 10 times out of 10, 1,000 times out of 1,000. We can't rely on probabilistic approaches to what we do. And that actually is not just, again, the calculation, but we have to be able to trace back through the entire process because it has to be auditable. And so you put those different pieces together, and that's why I really would say Vertex has a strong foundation in what we do. Last thing I'll say, business model. We're not a seat-based model. We're based on company size or almost a consumption-based model, but it's really revenue band-based in our business model. So we're not relying on companies to buy more seats from us. We grow with our customers as they grow.

Yeah, so it's really about the accuracy, the compliance, the auditability, the fact that 70% of your rules you can't find online. That requires curation from you all. Great, so let's shift over. Let's talk about growth. So 2025 was a little bit of a slower growth year for you all. 18% ARR growth went down to 11% in 2025. The main drag was really that existing customer growth. So maybe unpack for us what were the drivers on the growth retention side and the expansion side that led to that little bit lower growth rate.

You want to take one? Yeah, maybe I'll start out. Again, just doing the walk, Chris, we lost about a point from our GRR. So a lot of that typically is around we have controllable and uncontrollable. The uncontrollable are bankruptcies, there are M&A activities, things that are kind of out of our hands. Then in the more – so that's somewhat uncontrollable. The controllable is more – a lot of the churn we saw there was – low dollar, small customer, that type of thing that we've had for a long period of time. So I think, you know, that's something that we are spending a lot of time digging into with Chris coming on. We've spent a lot of time thinking about, you know, the reasons behind getting in front of what are we, you know, how are we going to attack the customers to make sure we can see these things in advance of them happening. And so we're really focused on that because that's the beginning of the entire funnel of, you know, the funnel of our ARR growth algorithm that's out there. So that's one where we spent some time. You know, we did have, during the year, we also then, moving into NRR, we lost about a point and a half from additional entitlements, and that's just growth from existing customers. So growth, as Chris mentioned, we price based on revenue bands. The revenue band pricing, as customers exceed those bands, we then charge them for their overages, and then we renew them at a higher rate, and so we see that. When we saw the renewal cycle this year, we didn't see people crossing those bands as aggressively as they had in prior years, and so that resulted in two things. One, we had a smaller amount of true-up revenue, which is that backwards-looking, you know, pay us for your past sins. And then, two, we didn't see the renewals cut. We weren't renewing at higher tiers for our customers. This isn't saying they were using us less. It was just saying they weren't growing through the band. And so that was about a point and a half or so. You know, we've been working with, again, another customer success opportunity there for us to spend time with the customers, understand what their renewal is looking like, how that's going to come to be. And so I think that's an area that, again, we're attacking with not only technology but people. And then second, a little bit in the cross-sell upsell. We lost about a point and a half there. And so the cross-sell upsell was one, you know, again, about 70% of our new revenue opportunities come from existing customers. And so that's customers buying, if they're a sales tax customer, they'll buy a use tax or they'll buy returns or something along those lines. And so the motion there was just a bit slower. we did have a good, a strong new logo year in terms of kind of bad activity. And again, sometimes it just ebbs and flows between the two pieces. But again, new logo activity helped us offset a little bit of the impact we saw coming out of the cross-sell upsell. But I think what we anticipate is that this year, thinking about the cross-sell opportunity, Chris had mentioned, you know, getting into the e-invoicing. And e-invoicing is going to be big for us this year as additional mandates come on. We saw Belgium go live in January 26th. We know that France is coming live in September, and we have Germany in January of 2027, the sales motion around that activity will be picking up as those deadlines approach, and we're going to then start to see more revenue as the volume because they're consumption-based as well, run through that. So a lot of activity expected for 2027 for sure, or 26 for sure. And what's the path to stabilizing

and accelerating that net retention rate going forward? And what components are you really most

confident and being able to turn around? There's a couple pieces that we're very focused on. One is a support experience. I talked about some of this on the call recently, improving the median time to remediate the issue, changing, basically reducing the number of handoffs that happen when a customer calls in with an issue. There's some clear things that we can do in the support experience to improve that. That's always a factor in how customers think about working with us. The second one is reducing the amount of time it takes to implement the product. Whether we're the ones doing the implementation or whether we want to bring some of that to our partners, if we can shrink that amount of time, again, that leads to better satisfaction. That keeps the customer happier. John mentioned it earlier. We're also expanding our coverage with our customer success managers to cover our customers. When we, you know, we've seen some of the analysis, when we have a customer success manager assigned to an account, their, you know, their overall satisfaction is higher than when, you know, accounts don't have a customer success manager. We can do, because we have a, you know, because of the size of our customer base, you know, we can touch a lot of customers with, you know, a modest improvement in the number of people that we have in that part of the business. There's also a lot we can do there with AI, so we can really expand a lot of how we help our customers because so much of it is about answering questions. It's about anticipating the problems that customers are going to have. It's about anticipating the questions that they're going to want to answer and giving that information to them in a way that's going to help them solve their problems quickly or giving that information to them in a way where they don't run into a problem in the first place. and we believe we can automate a lot of that with generative AI. I mean, and that's something that I think is a real near-term opportunity for us. And then we can also augment the people, the men and women who are our best people who are helping our customers, again, with the hardest problems. Those are the ones that we can really scale them a lot better by just bringing more information to their fingertips so that they can just move more quickly through the process. So those are some things that we're doing in the very near term. In the longer term, as I mentioned, there's more that we can do in the product. There's more that we can do in the product with AI tools, as an example. And there's simply more that we can do in the product just to simplify the experience, you know, easier to use, easier to implement, easier to support. You know, every company is like kind of constantly on that journey of making their product better, easier to use, more valuable to the customer. We're on that same journey. Just even in the time I've gotten here, some of the new capabilities that we're bringing to the market, we're very excited about that. Certificate management, which is a big part of what our customers rely on for their overall tax rule set, that's a major product enhancement that we made in 2025, and that's something that our customers are getting the benefit of now in 2026, and we'll continue to build on some of that as we go forward.

Let's flip over to the new logo side. That was really strong last year, up 20%. What's really driving that growth, that durability, and how durable is it really going forward?

New logo was, for me, really, it's my first quarter of seeing some of the new logo growth and actually the new logos that we brought on board. What I think is notable about our new logo growth is, number one, we're winning brand name customers. Some of those customers are customers that are graduating from solutions that were simpler than ours because their tax needs have gotten more complex over time. Some of those are customers that were doing it using a homegrown set of solutions. Maybe they were using spreadsheets or other forms of calculation methodology, and now they decided they needed to have something like Vertex to automate the process that they were using before. And some of it is, you know, is really, you know, the growth of our, you know, existing, you know, kind of existing small customer base that become bigger customers, you know, for us over time. And, you know, what I was encouraged with with the new logo growth for us is that, you know, a lot of new logos are people that have gone through an RFP process. They've compared us to other solutions in the market. They're not somebody who maybe has been with us for a long time, and it's just easier to stay with you. You know, if they've been a customer of yours for a while, these are customers who've gone through a selection process. They've decided to choose Vertex. And, again, you know, we had some really great marquee logos that we brought into the business last year. I shared some examples of that on the call. But these are wins that I think tell me a lot about, you know, the competitiveness of the product and the market. It's not just that we've been with these customers for a long time. It's that new customers that are looking to solve real problems are coming to us because they see us as the best way to do that.

So we've coined this term, the ERP super cycle, to talk about the different migrations that are going to be happening over the next few years from SAPs, on-premise install base, over to the cloud. 2024 was a great year for that. 2025, a little bit slower. I think you guys called that out too. What does the pipeline look like for some of those cloud migrations going forward?

You know, we continue to grow in our SAP ecosystem. We continue to grow in our Oracle ecosystem. We are beneficiaries when our customers migrate to the cloud. You know, in fact, the day we finished up some earnings calls, I was able to go over to a user group here locally and talk to some customers who are in the process of an ECC migration to S4 and are looking at using Vertex as part of that. or they're going to implement us as part of that transition. So we see a healthy movement there. I think what is probably different than where the company was a year ago is the expectations for how fast that cycle would go were, I think, higher or broader than what we ultimately saw in the marketplace. But what we are seeing is strong win rates when there's an RFP process. We continue to see growth in that ecosystem. We're very well networked with the SAP Salesforce, with their product teams. You know, we're in their partner programs. And so we work very closely with them. We work very closely with our partners who are implementers of the ERP systems, whether that's the big four, SI partners, et cetera, and other firms that specialize in that particular category. So we're, you know, very well networked in the partner community as well as directly with SAP. You know, what we're seeing is customers are moving, but they're going to move at their own pace. And, you know, the tax engine decision or tax engine migration decision that comes along with an ERP transition, it's part of the process. And we continue to see a steady flow there, but we're not seeing something that's, you know, an anomaly in the market either.

So you all held your first analyst day last year. You put out some ambitious medium-term growth targets. How do you reconcile getting to those targets versus the 2026 guidance, which is only about 10%, 11%, versus the 2028 guidance calls for high teens growth rate? How do we get there?

So this has come up, and I mentioned this when asked on the call. What I would say is you feel very good about our profitability goals. I feel very good about our cloud growth goals in the long run. I do think overall growth is something that is going to moderate relative to what we've seen or what we shared in the investor day last year. As I mentioned, I'm still 100 days in, so there's more work that we need to do to think about what our longer-term plan is going to look like, and that's something I'm digging in with John and the team on. We'll have more to say about that as time passes.

Awesome. Let's touch a little bit on e-invoicing. You brought it up a little bit earlier. How do you expect this market to play out? It's a brand-new market because of these new regulations. How do you think about the adoption curve of some of these customers over time?

We've seen a healthy movement in the market right now. And, you know, there's two different ways to think about e-invoicing and its impact in our customer environment. John mentioned this earlier. A big part of our bet on e-invoicing is about selling that into our install base. You know, many of our customers are global, multinational organizations. They use us in many countries. They have e-invoicing mandates. Even if they're based in the U.S., they have e-invoicing mandates that they've got to meet if they're doing business in other parts of the world. A big part of what we're doing is working with those customers to meet their e-invoicing and really, more importantly, their broader set of compliance needs. needs. You know, what our tax experts would tell you is that e-invoicing is really just a very basic foundational mechanism that governments are starting to use. But it's really, it's part of a broader shift towards more of a continuous audit compliance posture that companies have to keep up with. So it's not as simple as just saying, I'm transmitting an invoice and I'm done. You've got to then understand what does my compliance posture look like across countries, how do I marry that up with legislation, when I do my tax filings, how do I make sure that I'm able to reconcile what I file with what, you know, what those governments have. So there's a broader compliance mandate here, particularly for the larger organizations that we serve well. And that, you know, last year, one of the product improvements that we made was to really integrate our e-invoicing solution with our VAT compliance capability so that you've got a true compliance platform that we can bring to our customers. So that's one motion. That's more of a cross-sell, up-sell motion into our install base. The second motion is there's just a bunch of companies that have to comply with the invoicing mandate, and we can sell directly into that opportunity as well. What I also like about that is that's a new way for us to acquire new customers for whom we may ultimately be able to solve their tax determination needs as well. So there's a cross-sell up. That new customer acquisition creates an opportunity for us to cross-sell up, sell later.

What's the customer behavior you're seeing so far with some of those early e-invoicing customers? Is it they start off with like one or two countries and then expand from there? Do they join in all, you know, a bunch of countries at the same time? How does that kind of behavior look

like? Mostly what we see is there is a reactive move to get compliant in the countries where you need to be compliant. In fact, as I've talked to a number of our large customers who are already doing e-invoicing in a lot of places, if they're doing business in Mexico, for example, or lots of parts of Latin America, they already have an e-invoicing solution there. Italy's had an e-invoicing solution mandate for a number of years. So they may already have solutions for countries like that. A lot of what's happened, however, is companies, even the large companies, have moved to add e-invoicing capabilities in the countries where they need to meet the mandate. But what they're ultimately looking for now is to say, how do I think about a global platform for this? How do I think about a global supplier for this? Because it's no longer, I just need to do this for a few countries in Latin America. I need to now do it all of Latin America. I got to do in all of Europe. I got to think about what's going to happen in Asia. I got to think about what could come online in the United States. And that really opens up the conversation around being a global provider for our customers. And that's, you know, we can enter in and help them at a tactical level, meet a country mandate. But we also, as Vertex, where our strength is, is to be able to also come in and say, we can help you on a global level as well. Yeah. Before I open it up

for Q&A here, wanted to go to margins. You mentioned it a little bit, feeling really comfortable, really confident getting that margin target. What are the key areas you're really looking to drive that leverage from on the EBITDA margin front?

To some extent, for us, efficient growth in the future helps drive margin improvement for us. So that's number one. But when I look across our business, there's opportunity for us to just continue to get more efficient, more productive. I mentioned earlier that one of the aspects of AI that I'm excited about for Vertex is we can use AI ourselves to be more productive, to do more across our business, to change how we serve customers. So much of what people don't talk about as much with AI that I think is really important is that when you implement AI capabilities in your process, in your operation, it makes you a more nimble, more agile company. You can move resources. You can meet demand in different ways. That's a huge benefit, particularly in a world where you've got to move fast. You've got to adapt to market changes, market factors, market conditions. You want to be able, like in our world, we want to be able to adapt when companies have different things that they need to do in different countries around the world. We don't want to be pinned down by where our operations exist or how we've always traditionally done things. And by adding more AI-oriented capabilities to our platform, we not only get more productive, and that should translate into just better efficiency, better outcomes in our overall profitability results as we kind of look out over the years, but also it'll just make us more agile, more nimble in how we meet the market demand.

Any questions from the audience here? I went over here.

I was wondering, you talked about the AI opportunity on the top line and driving new products. I was wondering if you could talk a little bit about what you see as the TAM there compared to what you're currently selling to your customers. And at the same time, also talk about, you know, any accelerations in software development or internal organizations that allow you to attack that TAM and accelerate revenue growth using AI internally as well?

Yeah, so when we think about the market opportunity for AI for us, a lot of it comes in the spend that customers have in outsourcing certain processes in their tax departments as well as just their overall labor expenses in those departments. You know, so that's at least as much as our current TAM, just in the product category where we play. So that, you know, that kind of expands what we do there. So we see that as a pretty significant opportunity. But one of the things that we're doing today is really working through exactly which, you know, which parts of our customers' operations chain do we think are more or less likely to, you know, sort of lend themselves well to AI, you know, kind of the way we want to think about it is in phases. In the fullness of time, we'll be able to do more. But one of the things we're being very careful about is making sure that we understand where do we go first, what happens next, what happens after that, and really trying to think about our TAM opportunity in that way, More about the job, like really being clear about what are the jobs to be done and how do we actually help with those jobs to be done as we think about what our TAM opportunity looks like. And so there's more work that we're doing in that place, but the pool is kind of as I characterized it. The second thing I would say, in our world, you know, just even when we look at our own software development processes, You know, I was on a thread with my engineering team, you know, this morning where we were looking at a specific release that we've got. And in some cases, we're seeing at least a 44% improvement in our sprint velocity by using some of the AI tools that we've got. And I would say we've still, you know, we're still early in our journey. And so there's a lot of opportunity for us to continue to improve there, to do more. You know, the folks that are using, the teams that are using it well are pretty excited. and they see real, again, 44% is a significant velocity improvement, certainly for us. Awesome. I think we can end it there. Chris, John, thank you so much.

Thanks, Chris.