We'll get started here. Thanks, everyone, for coming in. My name is Pat McElwee. I'm a research analyst here at William Blair covering the software sector as a part of which I cover Vertex. Real quick disclosures. I'm required to inform you that a complete list of disclosures and potential conflicts of interest are available at our website at williamblair.com. This year, we're very excited to have the Vertex team back at our conference. Today, I'm joined by President and CEO Chris Young and CFO John Schwab in the front row here. For those not familiar, Vertex develops enterprise-grade tax software, which automates indirect tax determination, compliance, reporting, and regulatory management for complex global commerce environments. Many of the world's largest enterprises rely on Vertex for mission-critical tax processes today. So that's my two cents, but Chris is going to start us off with a presentation on the business. So I'll hand it over to Chris.
All right. Pat, thank you very much. Thanks, everybody. As Pat said, Chris Young, CEO of Vertex, pleased to be here. It's my first time presenting on behalf of Vertex at this conference. I just joined the company about six months ago, and it's been a great journey so far. I'm also required to remind you that the comments are covered under all the writing I can't read on this slide, but it'll be available for all of you in the repost. But just given that everybody is going to be on a different, maybe a different page about, you know, what, you know, what you know about Vertex, simply put, you know, Vertex provides intelligent compliance solutions for global commerce. The way to think about that is specifically, it's the automation of transaction based compliance. Every time a good is sold or a service is provided, every time something traverses a border or a supply chain change happens, some form of global compliance obligation is attached to that kind of a transaction. That oftentimes starts with tax determination, which is where Vertex really started as a company, which is the calculation of the tax associated with that transaction. It then requires that invoices in some countries, again, outside of the U.S., invoices get remitted to the government so governments can see the transaction itself. From there, there's a filing period where you've got to actually file returns on behalf of the organization as well as remit payment. And then ultimately, if a government chooses to audit, you've got to be able to prove that that entire chain of events complies back with the regulatory and compliance intent of the government. And Vertex provides solutions across that chain of capabilities. Really think of us as an end-to-end compliance platform, an end-to-end compliance set of capabilities to help our customers manage that complexity across their franchise. You know, we're one of the global leaders in this space, the global leader in this space, particularly in the enterprise segment of the market. You know, we have some of the, you know, we're trusted by over 60% of the Fortune 500 in the U.S. We do business with a number of the largest companies in Europe that are global multinationals. Some other data points that stand out for us. If you take our top 50 customers by ARR, those customers on average have been with us for 20 years. That's a testament to how deeply integrated and how closely we've worked with those customers and built up our franchise with those customers over the years on an aggregate basis, over 95% gross retention in our customer base.
And we'll talk more about the numbers as we get into the presentation.
Maybe to double-click down on the customer picture, which I think is really, really important, we have about 5,000 customers globally. As I mentioned, we specialize in serving large global multinational customers. And really what stood out for me as I've joined the company is we cover multiple verticals, whether that's retail, manufacturing, financial services, health care. We actually have a really even split across many of the largest verticals as it relates to the global enterprise customers that we serve. And a really interesting fact is per the ranking of the top 10 players in AI, as by CIO Magazine, half of those organizations are also doing business with Vertex. So this is just about the coverage and our customer base. You know, this really talks to the longstanding, deeply embedded relationship and partnership that we have with some of the most demanding organizations in the world as it relates to global transaction compliance. The issue for them and for all of our customers is the problems are getting more challenging, and it's changing all of the time. You know, the way to think about it is this. Just in today's world, $5.5 trillion of global indirect tax revenues get collected and remitted every year. So that is a massive, massive operation. That's the main way in which most governments around the world, certainly state and local governments here in the United States, collect tax in order to pay for their operations as governmental entities. That's three times greater than corporate income tax, just to put it in perspective. Now, the complexity and scale that it requires for many of our customers who are quite large to maintain their position in these categories is dramatic. In many cases, on behalf of an individual customer, we're processing billions of transactions across thousands of taxing jurisdictions. The United States alone has nearly almost just under 20,000 taxable jurisdictions just in the United States when you think about all the way down to state and local kinds of state and local taxing jurisdictions in the U.S. Our customers have to calculate these taxes in real time. In many cases, we're embedded in those transaction workflows so that as our customers are doing business, tax gets calculated and they are able to move forward. So we're deeply embedded in our customers' workflows in order to help them do that. Now, increasingly, outside of the U.S., as it relates to value-added tax, countries increasingly are asking our customers to insert into their workflow e-invoicing, where what they've got to do at point of tax determination or point of transaction, an invoice has to go to the government of record. That government then has to acknowledge that invoice. That invoice has to present information in a way that's compliant with the overall government mandate. And that happens now before a filing happens in that particular jurisdiction. That's changing the nature of the way our customers are interacting with governments. It's part of what's called continuous transaction controls. And that's a way for governments around the world, and this is very prevalent in Latin American countries. It's increasingly becoming more prevalent in parts of Europe. France has a mandate coming online in September of this year. Germany to follow in the beginning of 2027. Italy's already there. Belgium is already there. And there's a mandate called, there's something called VITA, which is called value-added tax in the digital age. But that's about over the next 10 years where we see the creation of a multi-billion dollar opportunity to service the e-invoicing requirements that are existing not only in Latin America, increasing in Europe, but around the world as a set of opportunities. So this is what's changing in our customer environments. And you can see on this slide, if I move to the next slide here, that while complexity is accelerating from a regulatory perspective, there are other forces that work as well which make the problem more challenging for our customers. On the left-hand side of this chart, business complexity. As our customers go global, as they do more mergers and acquisitions, as they add new products, they expand services, commerce channels, marketplace models, anything that they want to do differently in their business, that changes the nature of the way tax is treated on the goods and services that they offer. So the tax world is a constantly changing set of challenges for our customers, not just due to regulatory changes, but due to the complexity of their businesses. Digital transformation is another driver as our customers modernize their IT infrastructures, as they implement new ERP systems, as they add new commerce models, whether it's IoT or connected commerce. Obviously, one of the new, very nascent today, but one of the models that's expected to be large in the future is agentic commerce, where we will have AI agents that are transacting on our behalves. That will be true at a personal level. It will be true at an enterprise level in many cases. That, again, will change the nature of the taxability of transactions. and I guarantee you will create an entirely new set of considerations for customers around how they calculate and remit taxes as that comes online. So it's the conflation of these forces that are compounding and accelerating the challenges that our customers look to us to help them manage in a very dynamic environment. So how do we do that? Talk a little about the Vertex platform. It's an end-to-end intelligent compliance platform that really, if you start at the top of this slide, the context is the business environment in which we operate. Our customers flow transactions through point-of-sale systems, marketplaces, e-commerce, procurement systems, ERPs, obviously, are at the center of that. And we are deeply integrated with each one of those systems. In particular, we integrate very deeply with the large ERP players like SAP and Oracle, because that's really oftentimes the nexus of where many of these transactions take place inside the organization. So it's important that we're deeply embedded there. It allows us to handle a lot of the complexity that our customers have in their overall tax environment. Now, underpinning the solutions we deliver to our customers are really three pillars is how I like to think about it. Tax determination is about calculating the tax, whether it's sales and use tax, value-added tax, or any other type of tax that we support on behalf of our customers. Compliance is about reporting, paying, filing, and increasingly, as I mentioned, e-invoicing inserted into that particular set of workflows. And increasingly, we're helping our customers with auditing and planning, helping them defend themselves in an audit and we're an important source of information as they do that. Underpinning all those three pillars is an integrated data platform that's also powered by Vertex tax content, which plays a role across each one of these pillars. It plays a role in determination, it plays a role in the compliance and ultimately in the downstream audit and planning processes. And I'll talk a little bit more about that in detail in a moment. Increasingly, we're embedding AI across our portfolio and bringing AI solutions that wrap around all of the different elements of the Vertex compliance platform. And then finally, we're increasingly becoming the intermediary between companies and governments, particularly as it relates to continuous transaction controls and e-invoicing, where we actually remit the invoices on behalf of companies to governments, receive the responses, and then help them as part of that overall workflow. And that's the evolving aspect. It's one of the big evolving aspects of our business. It's a small box in the middle of compliance, but it is becoming a very important part of what our customers need to do and increasingly what they're turning to us to help them work on. Before I go into each one of those pillars, I want to talk about our proprietary tax content. This is a really important part of the value proposition that we bring to our customers. First thing I'll tell you is that we have over a billion rules that are codified in our tax engines across all of our customers, whether it's here in the U.S. or around the world. And that rule set is built up over years and years of interpreting legislative content and translating that into rules that then get used to determine taxation. Those rules cover the 20,000-plus global jurisdictions that we cover, representing 195 countries. Based on something I said earlier, you'll see the U.S. is the bulk of those global jurisdictions because we have the most complex indirect tax system in the world of any country, except for Brazil, which is close to the U.S., because we have national, state, and local taxing jurisdictions that we cover with indirect tax. We have a certified process. This is really important because oftentimes I get asked, well, isn't it really easy just to go pull a rate card off a website and you can see what the taxability is? No, in many cases, what we're doing is interpreting legislation that could be happening all the way down at the local level, and we use a certified process that we have to follow to turn that legislation into a rule. That rule is auditable. That rule is traceable. is something that matters if you're at the end of that process of needing to be able to prove that you determined and remitted tax appropriately when audited by a governmental entity. And we're amplifying our own capabilities with AI. Those tax experts that we've got, you know, we're making them more efficient. We're helping them go deeper. We're helping them go broader. We're helping them cover new content types as their world expands using AI to amplify everything that we do across Vertex. Let me dive into pillar one, intelligent or determination, first place our content actually flows to. Now, the challenge here for what we do here is really significant because if you think about it, tax determination for a large global multinational enterprise that, let's say, also does business across the U.S., is one of the most compute intensive processes that they will have in their enterprise because ultimately you've got to you've got to take these tax rules apply them to all the products let's say if you're a large retailer you may have hundreds of thousands of skews you're now calculating taxes for those hundreds of thousands of skews across tens of thousands of jurisdictions all that needs to happen in near real time because you have to you have to stay you have to keep pace with your with your commerce process. That's the kind of transaction capability that we support here at Vertex, which is one of the reasons why, you know, when we talk about our customers seeing us as trusted, our customers seeing us as accurate, this isn't something that happens out of band. We're in the flow of their transaction processes, whether that happens at point of sale in a physical environment, in a retail store, whether that's happening in an e-commerce context, whether that's happening in a B2B context. We cover that set of transactions from very high-volume kinds of environments to very high-value, low-volume kinds of environments, and we do it all very accurately. We do it repeatedly. The way to think about our determination engines is that they're autonomous at scale. We give you the same answer every time, 100% of the time. It's trusted. It's auditable. It's traceable, which is super important in the world that our customers live in. But we are amplifying and expanding our capabilities there. I'll talk a little bit more about this in detail later. But one of the most important things we're doing is we're building more AI capabilities in and around our tax determination engines. We're making it easier for our customers to use AI to write tax rules, as an example. You know, the setting up a tax rule actually takes some expertise, particularly in a complex environment. We're now using AI agents to help our customers do that. For customers that do business across, you know, all the jurisdictions or nearly all the jurisdictions in the U.S., as an example, when we give them a data update, which is something that is a continuous process, they could have literally thousands of pages of content that updates the rules in their engines. traditionally they've had to actually have people read those rules interpret it make changes in the engines we've created an ai agent to help them do that to simplify that process as an example built a co-pilot in our tool which is increasingly taking on a lot of the customer support burden for our customers but you know we'll continue to expand this to make it easier for our customers to be able to use our products and extend them you know beyond what they do today and the compliance pillar you know compliance used to be about filing at the end of a period at the end of a month at the end of a quarter at the end of a year you you know you calculated tax and then at the end of that period you filed the tax you remitted the tax to the authority and then you know later on they might show up with an audit and ask you to prove that you paid that you know you calculated appropriately you paid it appropriately that was the returns filing process We have not only products that support that for our customers and for our partners, we also have a managed service that does that. But increasingly, as I mentioned, now in countries around the world, and this is true very much in Latin American countries like Mexico, Brazil, Argentina, but increasingly now true in European countries, e-invoicing has been inserted into the middle of that process between determination and filing so that governments are in the flow. So e-invoicing is very much a compliance discussion because it's part of real-time compliance that governments around the world are trying to drive, and that puts an added burden on our customers to be able to manage that complexity, and that's something that we're doing on their behalf. I'll double-click down here for a moment because Vertex is a newer entrant relative to some of the other players in the market as it relates to e-invoicing. But here's the reason why we're very competitive and why we believe this is a really important place for us to play in the market. Because e-invoicing is part of that end-to-end process. We start the process in many cases because we're the leader in tax determination. But the continuous transaction controls require that the e-invoice gets sent. And then at the end, there's a compliance, which is something we support with our Vertex VAT compliance capabilities where a return gets filed. And so that's an end-to-end process. And if you're in a situation, I'll talk about audit and planning in a moment, but if you're in a situation where you've got to prove all of this, the ability to trace a transaction all the way back through that chain of events is really, really important. Traditionally, the e-invoicing for a lot of our customers have been fragmented. They use EDI vendors. They might use different vendors in different countries. If you're a global multinational, you've got to have one place. You've got to have one way that you can track all of this, manage all of this, because you create more audit risk for yourself if you're not able to track these transactions end to end. This is one of the value propositions that Vertex brings into this market. It's one of the reasons why our global multinationals are increasingly starting to look to us to help them manage this problem and start to think about how we can work with them end-to-end across everything that we're doing. And this is an important part of the evolution of Vertex. You know, obviously the company started in tax determination, but we're continuing to add capability through continuous transaction controls, e-invoicing, and our compliance capabilities. I'll go into the third pillar, which is about auditing and planning, document retention, certificate management. One of the most important things that we do in calculating is actually calculate tax exemptions in a transaction. This is a laborious process. Our customers' customers have a myriad of different exemptions. Those certificates expire. They have to be managed. We have now a capability that allows our customers to be able to do that. We manage a lot of that for them. And this is all part of being there at the end of the process when you've got to come back through and be able to prove it all, that you've calculated tax properly, you've reported it properly, and ultimately you've paid the appropriate amount to the government. So let me, just in the interest of time, I want to double click down into AI because I've talked a lot about it, but I want to make sure we spend some time on it since this is the question that's top of mind for many of us. You know, we see AI as both an offensive opportunity for Vertex to create more, you know, business for us, as well as a defensive opportunity for us to just get better in the capabilities that we deliver today. Now, I talked about this a little bit a moment ago. But, you know, what we're doing is building AI into a lot of today's existing products across those three pillars. On the determination side is where we spent the most time. It's the biggest part of our business. So obviously we started there with co-pilots, you know, the data update agents, the text to tax assist. Like I said, we can help you write a rule there. We've extended that in the certificate management. We're extending that into the compliance part of our business. But where we see opportunity to go even beyond that is in extending our capabilities into the ecosystem and the workflows that exist in and around everything that Vertex does today from a determination, compliance, audit, and planning perspective. Smart categorization is the first instantiation of that where, you know, for our customers, they've got to categorize products before they can be mapped to the engine and ultimately calculated. Increasingly, however, we see opportunities to help our customers with the indirect tax close process, the reconciliation process, where we see the ability to help them with reverse audits and some of the planning that they would do, looking for anomalies, for example, in their transaction flow. These are all areas where we can bring agentic capabilities to bear to help our partners and our customers support our, sorry, help our customers and our partners support our customers in delivering against some of these highly labor-intensive kinds of workflows that exist in their environment. You know, if I double-click down into smart categorization, it's very simple. If I just use a retail use case, you know, you have literally hundreds of thousands of SKUs if you're a large retailer. Thousands of those turn over all the time. You've got teams of people trying to figure out, how do I classify this SKU? We've actually built that and built an AI tool that allows us to do that on behalf of our customers. And for some of the customers that are starting to put this into production, they're eliminating the work of teams that have to go out and do this right now, and that allows them to focus on many other things. And so we're seeing dramatic productivity improvements for them. We're learning a lot around what it takes to change a workflow for our customers, And we'll continue to dig a lot deeper there to help our customers with workflow capabilities like smart categorization, but in some of the other categories that I mentioned as well. So I'll spend just a few more minutes. You know, what makes our moat wider, not narrower? If you start on the left-hand side of the slide, you know, the first two columns are really about, you know, how we operate, the context in which we operate. You know, we're a deterministic engine that is right 100% of the time. Our customers can't afford for us to miscalculate something. Like, we have to do it every time, 100% of the time. We're deterministic. You know, when I talk about us processing billions of transactions, no human checks those transactions. Like, that happens autonomously, and that's something our customers count on. That's something that's very important in what we do, and that's not how LLMs work, as an example. So you're not going to replace that with a non-deterministic, probabilistic engine that's guessing the answer versus calculating the answer. I mentioned a lot of the proprietary knowledge and the way that we work in our tax research process. In addition to that process, much of the tax content, and this is particularly true at very small localities, that information isn't even necessarily posted online. So, you know, we've built up the processes and the ability to collect this information, and that's built into what we do. We sit in the transaction flow, e-invoicing, an intermediary between companies and the government, and increasingly, that's becoming more and more important for our customers. We're also deeply embedded in our customers' environments. I talked about the integrations with ERPs, point-of-sale systems, procurement systems, commerce systems. Again, we're deeply integrated, and we're part of the mission-critical transactions for our customers. If we stop working, our customers have a problem because they can't transact effectively. And as I mentioned, we're not stopping there. Like AI is a tool for us to grow. It's a tool for us to help our customers do more, and that's why we're building new capabilities, smart categorization being the first one to make it a way for us to grow and help our customers be more efficient in how they run their operations. And I'll close with this. Not only are we trying to help our customers transform with AI, we're transforming Vertex with AI. Whether that's how we deliver managed services, which is a margin expansion opportunity for us, how we deliver top of funnel sales capabilities, so more productive and converting leads into revenue generating opportunities, how we do tax research in our organization, amplifying the expertise that we've already got, customer success and customer support. That's not unique to us, but it's important that we have that to be more efficient, more effective to get our customers the answers they need when they need them, make ourselves more efficient, make ourselves more effective. And finally, how we deliver our products, how we engineer and build our products. We're on the journey to do a lot of our engineering work using AI-assisted tools. I would say we're earlier in that journey than some of the leaders in the marketplace, but I'm very encouraged by some of the early results that we're seeing as we've started to implement a lot of this. The value creation plan that we talked about in our last earnings call is tied to some of this work that we're doing. A lot of the reset to reinvest is to reinvest here, so we create a sustainable, continuous cycle by which we create value for our customers in which we become a more AI-first company so we can deliver on the future. so with that i think i've left john a very short period of time to talk we can but uh maybe john if you want to just talk for two or three minutes we can go a couple minutes if we can go a few minutes over that's fine but thanks everyone terrific thank you terrific chris thank you very much and thanks for the opportunity to be here today i'll just quickly kind of knock through
a couple of these slides we'll have some more dialogue after this in the breakout session but But, you know, when I think about Vertex, you know, durable revenue growth is what really comes to mind. You can see over the long haul, this is a 20-year picture of our growth trajectory. And you can see through thick and thin, the company continues to deliver. We deliver on revenue, and we're able to do it in a very consistent manner. You know, when I think about, you know, some of the financial highlights, you know, we talked a little bit about the revenue growth there. You know, that growth at scale is tremendously important. You can see that scale growth is driven by our cloud growth, which is operated at over 20% for a long period of time. And we continue to see great opportunity within our customer base. We truly exemplify the land and expand capability. 70% of all of our new revenue opportunities come from existing customers, and that really demonstrates the strength that the business has as we move through. Just moving on really quickly, Chris mentioned the value creation plan. We wanted to make sure that we were leveraging our earnings to ensure that we can invest in those growth areas that are so important. AI, e-invoicing, and others continue to be those that require additional investment. We did that through conducting a reduction in force to allow us to spend and invest more heavily in those areas. And so the results we can talk about in a little bit. We'll talk about it at the breakout session. But at the end of the day, we reduced our workforce by 9%. We reduced a lot of our contract labor spend and other spend over the same period of time, which will generate $60 to $70 million of cash savings in 2027. So it's got nice opportunity in the short term in the fact that we have increased our earnings guidance by $14 to $16 million in 2026. And again, we'll see the full impact of that in the following year. So a very important activity there. And I think the growth tailwinds that Chris talked about, global transaction compliance is only becoming more and more important as companies continue to drive global expansion and drive their businesses into the future. That global transaction expansion is going to be driven by e-invoicing that Chris talked about. And that e-invoicing is where we are well positioned to capture significant market opportunity for our existing customers as well as new customers that need us in those areas. so maybe in the spirit of time I think we'll probably probably should wrap it there I'm happy to take more questions in in the breakout session but thank you very much awesome yeah thank you Chris and John we'll be doing the breakout in Richardson in 10 minutes or so so we'll see you guys up there thank you very much for being here thank you