Welcome, everybody, to our next session at the Citi Technology Conference. I'm Steven Enders, part of the software research team here. And with us for the next session, we have the team from Vertex, David DeStefano and John Schwab. So I want to thank both of you for being here.
Appreciate it.
Thank you.
Appreciate the opportunity to talk to everybody.
Yeah. So maybe just to start off, for maybe some people who might be a little bit newer to Vertex, can you just give us the quick history, quick overview of Vertex and what it is that you all do in the-
Sure.
... in the software space?
Sure. 45-year-old company, went public in 2020. Family-held up until that point in time. We serve indirect tax solutions for the Global 5,000. So by VAT, sales tax, use tax that these companies pay on every transaction or have to process, we're the software engine behind most of the largest companies in the world.
Okay. All right, great. And maybe we can just talk a little bit about the macro at this point, 'cause it seems like really strong execution at this point out there. And so, yeah, can you just walk us through what you've been seeing, where demand is at this point for tax software, and just overall, what's going on in the landscape?
Sure. There's two key unique things about tax. One is, it's very horizontal, it's not vertical. So whether there's a lot of different industries we serve, whether it be oil and gas, retail, telecom, automobile, et cetera, and I think that diversity gives us great durability of our business performance. I think the second thing is, there's three distinct drivers of why a company who's been using an in-house solution would go to Vertex. And that's our largest competitor, is we're replacing in-house solutions that have been good enough. They could be a business model change. The company evolves its revenue stream in some way through M&A, adopting e-commerce, going into new jurisdictions, and that creates a tax problem for the in-house solution. The second will be the regulatory environment.
So you can increase audit pressure or complexity of rules that, again, an in-house provider can't keep up with, and so they'll turn to a third-party vendor. And then the third is infrastructure changes, system changes, like adopted a Coupa system or a CPQ. I'm using CPQ on Salesforce, or I'm upgrading my ECC platform to SAP. Any one of those three can cause complexity for a tax department, leading to an opportunity for us. And so even in a macro environment that's dynamic, you can look at those three. So now we see a lot of debt being created across global jurisdictions as they because of some of the economic challenges they're facing. Well, that debt has to be paid with tax, and corporate indirect tax is the largest form of tax.
It's like 3-to-1 versus income tax. So it's the primary way countries are going to pay their debt, or service their debt, and that works well for us because it creates demand inside of a tax department. If you go back to the early parts of the pandemic, when e-commerce took off, that became a new business model change that caused a lot of opportunity for us. And now as we look forward, some of the pipeline we're seeing build, SAP announced that they're going to retire the ECC platform in 2027. So that's going to create a wave of re-platforming of a lot of SAP users. They've got—there's like 8,000-10,000 ECC users. We only have 1,800 total SAP customers.
There's a great opportunity for us to now meet a whole new set of new logos that have been using in-house solutions.
Okay.
So those are the key drivers, those three areas.
Sure. Maybe if we could break into that a little bit more. You know, if we think about those drivers, I guess, how has maybe the mix shifted and evolved over, you know, over time? Like, is, you know, the SAP ecosystem updating, is that becoming a bigger driver for upgrades and people looking at Vertex? Just how should we think about maybe how that has changed-
Yeah
... over the past few years?
So again, if I go back to 2020, the e-commerce was the driver. And we actually saw, if you think about what happened right when the pandemic hit, most of the ERP implementations stopped because IT leaders were like: "I don't even know if I can run my business globally on a remote basis, worry about getting a new system." So that, we actually saw that really slow down, but we saw e-commerce fill in the void because of the new business model changes. I'd say right now, today, the demand drivers are actually pretty diverse across the three, maybe a little stronger in regulatory and system, and a little slower in IT, but relatively speaking, they're very... I think the, the upside is, for us, is coming, is more this ECC driver and SAP in particular.
I see that playing out in 2024, 2025, and 2026, because they're end of life-ing it in 2027. So that's sort of the ebb and flow where we are right now.
Okay. Okay, that makes, that makes sense. Maybe, you know, shifting gears slightly on, on talking about the, the macro aspect of it, you know, how, how are you seeing sales cycles, you know, deals extension or downsize? And have you seen any of that activity, recently? I mean, it seems like that's been a big factor across other places and-
Yeah. So in North America, not at all. And the reason why is, again, the in-house solution that you're using, you're going to stay with that until you absolutely can't. That's what we're competing against. But once you make the decision you can't be as compliant as you need to be, you have to fix that problem. And so the sales cycles really haven't changed at all. Procurement pounds on pricing all the time, but the fundamental sales cycle, because you've got to deal with the compliance challenge, hasn't changed in North America. I think in Europe, we've seen a couple deals move from quarter to a quarter, but not—I don't think we're seeing a systemic change over there, again, because of the driver. If you've been compliant, you're not talking to us.
If you've got a compliance challenge, you now have to solve the problem, and there is a fuse on that, and so it sort of drives an inevitability of the, of the sales cycle.
Okay. Okay, that makes, that, that makes sense. I do want to ask about the SAP ECC opportunity.
Sure.
You know, understand end of life is 2027. You see a lot coming in the next kind of few years here. I guess, what is it about those upgrades in particular that might be triggering a new opportunity for you to step in and help them with it?
Yeah. So, ECC is an on-premise solution, so they have built whatever they're using around an on-premise solution. So when they move, if they're moving their whole platform to the cloud now, they have to determine whether their in-house tax solution that they built can work in a cloud-native environment. We have obviously, we have our cloud solution that we know can work for them. So that's the challenge they'll be facing. So they may find that the solution they have, while it is compliant, can't interface and work with the S/4 platform, and so that would create a demand opportunity for us.
Gotcha. Okay.
We've seen that play out, by the way. OCI, it's happening in the Oracle community right now with the OCI platforming, so it, it's not a new phenomenon. It's something. We saw it when Coupa had you know, accelerated their traction. A lot of in-house procurement systems couldn't work with the Coupa cloud solution, so they had to go to buy a, a cloud-based use tax solution. That drove a lot of demand for us. So this is a very common pattern we see.
Okay. No, it makes sense. Maybe if we think about, you know, your, your customers and how they're thinking about on-prem versus, versus cloud at, at this point. I know you've talked about, you know, cloud growing, I think, 27% this year in the outlook, but how are they thinking about where they want their tax solutions deployed? When does it make sense for it to be on-prem, and as you think about this upgrade cycle you're talking about, how does that math kind of shake out between on-prem and cloud?
Yeah. So 90% of our new logos are cloud. So we're clearly seeing, as customers are adopting a new solution, cloud is the preference. About 50% of our existing customers who are using on-prem somewhere in their business, when they buy a different module, about 50% of the time, they're buying cloud too. So it's certainly the bias of of activity is to move towards cloud. That said, there are unique fact patterns. We announced a deal in Q2, a very large deal we, we closed, where it was one of the largest cloud providers in the world licensed a new product from us, and they actually put it behind their firewall.
Mm.
So there they are, representing cloud as the future in terms of what they sell, but in using our software. It was because of the unique characteristics of their business and the infrastructure that they had set up around the rest of their procurement, or their order to cash process, that they wanted that connected directly in it, without having it, it go to a public cloud environment. So it, it's really driven by the IT infrastructure of the business that makes the decision. The tax buyer is actually less concerned about the platform they run on. They're much more concerned about the tax content we deliver. The reason we win and differentiate so much in the market is much more about the accuracy we give from our tax content.
The platform is sort of a lower-level decision in the process.
Okay. So I guess with that context, I mean, as you put it, I think it was a really strong past couple of quarters for on-prem and cloud is still kind of hanging in that 27% level. So I guess with, like, the flexibility of what you're talking about between on-prem versus the cloud, I mean, I'm sure you're pretty agnostic about where things actually get deployed, but, like, how do we put that in context for the actual cloud guide?
Dave, go ahead.
Yeah, I think, I think, you know, from a cloud guide perspective, again, as David said, it's going to move around a little bit. We've seen cloud revenue bounce around. You know, that, you know, we were 25 in Q1, 27 in Q2, and we saw the same phenomena last year. Things bounce around a little bit, but we feel very good about the opportunity that's coming down the road, as David described. I mean, with 90% of our, you know, new customers wanting cloud and many of the existing on-prem customers moving to cloud, as well as the general transformation, that 2%-4% of our base that just moves over naturally in the ordinary course. So we feel pretty good about how that operates, and we feel good about, you know, 27% for the full year.
Again, I think we'll see a little bit of strength in the back end to kind of support that. But I think, you know, we feel pretty good about where that stands.
One of the nice things we did, under John's leadership, that took place about 18 months ago, is we now price our on-prem solution at the same price as cloud. So it used to be on-prem was expensive in year one, and then it dropped, as most are familiar.
Mm-hmm.
We now price them both the same. So it's actually economically very lucrative for us if they still buy on-prem-
Mm
... and they're going to be with us for, the LTV is going to be, you know, quite long as well. So, we're in a very comfortable position.
Yep.
In fact, some of our competitors don't even offer on-prem, and many times, again, for certain customers, that's the only way you're going to win the deal.
Sure.
So it works to our advantage, is what I would tell you.
Okay. Okay, that makes sense. Maybe switching gears a little bit on the go-to-market front. You know, I know there's been a lot of attention on some of the partners that you work with, you know, SAP and Oracle historically, but now it's beginning to broaden out a little bit. How should we think about, you know, those investments you are making in the mid-market? Maybe how are the customers different based on the various partners that you're working with there?
Yeah. So there are three distinct segments to the tax buyer in our space. There's the S buyer, very small, $30-$40 million company. Very simple, they just want compliance at the lowest cost possible. There's a mid-market buyer, that's that $50-$250 million company, Microsoft Dynamics, Workday, Salesforce, NetSuite upper end of the NetSuite space. They're starting to experience complexity because their business model is, they're selling into multiple jurisdictions. They may have, like, a zero billing system, so they have multiple systems that they have to knit together in some way, and their jurisdictional footprint is accelerating. There may be, because of e-commerce, they're now selling into, you know, 20 states and six countries, and so there are regulatory challenges. And so they are, they are becoming like an enterprise buyer, but they are...
just have less zeros in terms of their revenue to solve for. Then you have the enterprise buyer, who is, you know, pick large company X, multibillion-dollar type company. They're going to be the most complex in terms of regulatory, business model and technology footprint. The mid-market strategy, what we've seen and the reason we've sort of accelerated from being just an enterprise customer into the Microsoft Dynamics, Salesforce, Workday, and NetSuite space, which is really our target, is those are the core platforms that mid-market companies are running their business on.
Right.
What we're seeing is the value prop of what we do, and the opportunity to both land and expand, that's a really critical part of our strategy. 70% of our new revenue comes from existing customers expanding wallet share. So being able to, being able to see land and expand opportunities are critical decision strategically for us. And so what we're seeing now as we target Microsoft Dynamics, is we're building new channel relationships. We've invested heavily in a channel, indirect sales, motion, and now we're starting to see the progress of that. And we've announced, I think, in the quarter, we had some really good growth in our mid-market unit count, so we're starting to see the payoff of doing that.
I guess any, as we think about that new ecosystem, any standouts so far across Workday, Microsoft?
I would say, the best opportunities for us are really going to be in Microsoft, especially will be on Azure. So right now, we're on AWS and OCI. We'll be fully integrated into Azure as well, and that giving them the platform-agnostic capability, but also leveraging the Azure, in the example, Azure capabilities enhances the customer experience. So, Dynamics and Workday are probably the two primaries, and then I would put, Salesforce and NetSuite further down in terms of, the opportunity set that we see in those spaces.
All right. That, that's helpful context there. I do want to ask on the some of the significant and wins you had, especially, I think you called it an eight-figure deal in this past quarter, and I think really good strength in some of those, you know, large upmarket opportunities. I guess, what is it that's driving those large customer outcomes? Is something changing in the marketplace? Is this something that, from, like, a timing perspective, or has something changed from a Vertex perspective to be able to go after that that opportunity?
Yeah, I think it's a combination of factors, to be honest, to not make it too complex. One is, we've expanded for the first time ever, after 25 years plus of working with Oracle and SAP on the technology side, we are now working with their sales teams. So we had never had that motion, where we... It was always they were two different- you know, we didn't have that access. We now work and do account planning and sales planning with SAP sales reps and Oracle sales reps, and that has been a value add to our experience because we're able to tell a better story to their prospects, and they're getting quota relief for doing that. So there's financial incentive for them, and so I think that's one piece of the experience that's gotten better.
I think the second piece is, if you think about the investments we've made and the products we've launched, like the Edge Computing solution, our Chain Flow Accelerator, and the LCR-Dixon, specific to the SAP space. So bringing new products to market is giving us a differentiated portfolio versus... And so it's solving additional problems for the tax buyer, making us more opportunistic in that space. And I think those two things are really that. But the three fundamental drivers of business model, regulatory, and systems are still the essence of the driver. Our ability to execute on it, which is why our ARR and NRR have gotten better-
Yeah.
is really because of those two things.
Okay. I mean, you've gone through a pretty big investment cycle in the past, in the past few years here.
Yes.
I guess, how are you thinking about the ROI and the productivity of those investments? And then, I guess, secondarily, how should we be thinking about the leverage that comes now that you've-- now that we're on the back half of back half of this?
I'll talk about the strategy, and then I'll let John speak to the numbers.
Sounds good.
So the strategy when we went public, we were very clear. We, you know, because we had paid significant dividends to our historical shareholders, we were shifting into a heavier investment mode, where we wanted to fund our build out our R&D, add new products. Again, best customers in the world, we should be able to sell more products to them, so we needed a broader product portfolio, number one. Number two, we wanted to really expand our sales and marketing motion in three dimensions. We enhanced our customer success function. We really didn't have a hunter-farmer model, so we built out now a true hunter-farmer model, and we're seeing our NRR accelerate because we're selling more through that model, number one. Number two was to build out an organic, and we had to build from scratch, essentially, a European sales staff.
We learned the hard way, you know, trying to send either North American salespeople or London-based salespeople, the few that we had, into Germany to sell large German conglomerates wasn't going to work. You needed a German sales team, spoke the language, native culture, and had to do that by region. So we've had to build that out and get them up to quota, and so there we're now maturing that nicely. And then the third area was we needed that indirect channels. Talked about the value prop accelerating in the mid-market. We really needed a different motion for ourselves there to penetrate Microsoft and Workday and those types of organizations and their sales and their customer base. And so those were the three go-to-market motions that we had to invest.
And then the last piece of our our investment cycle that we've just come out of was we really need to improve G&A by having an infrastructure that's scaled to, you know, $1 billion+ of revenue, and we didn't have that. And so just gone live with our new ERP system, and so the combination of those three has really been the journey we've been on. I'll let John speak to now the transition of performance against that.
Yeah, I think, you know, as, as David described, we are at the back end, and I think as we think about the back end and what that means to the P&L, I think as we gave, you know, our actual performance this quarter, we came in at about 15%, adjusted EBITDA margin. Our guidance would then indicate that, you know, 17% expected in Q3 and about 19 in Q4. And what you're seeing is you're seeing leverage really come out of the areas that are going to start to now slow, and G&A is really the leader of the pack there in terms of the investment spend that we've been making to get the ERP system up, running, and online as we had. So we're going to start to see that initially come out of there.
And over time, I think as we, you know, as we get through stabilization, get into optimization, we're going to really start to see that, those numbers come through. I would also point out that when we think about-
... additional spend that we've been making. David talked about the selling and marketing, you know, build that's been done. Again, a lot of that is behind us. So as I think about opportunity there going forward, I see that really flattening out over time. We've seen nice growth in those areas to build those, to build those functions up. But now that we've got that moving, the ads are just gonna be, you know, incremental, modest incremental ads to kind of target needs where they, where they arise. But I think as we look into the future, where I really see, again, opportunity coming out is really focused around G&A, the flatness around, the flatness around selling and marketing. R&D is another area that we feel very good about the spend and the investments that we've been making.
So I would say that's an area that, yeah, we're still gonna continue to invest in, because, again, product growth is what's gonna fuel that future customer and that future revenue growth. And with 70% of our new logo revenue opportunities coming from existing customers, we wanna make sure we can continue to drive the NRR forward.
Okay. Maybe to kind of follow up and build on that-
Sure.
You know, I think you've given long-term targets about what the margin profile could look like.
Mm-hmm.
I guess, how should we be thinking about, like, the glide path to some of those longer term margin targets?
Yeah, I think, you know, when I think about from a revenue perspective first, yeah, I think, you know, we talk and disclose our ARR growth. We're at, you know, $117 and change this past quarter. I think, again, that's a real, you know, leading indicator of what revenue looks like on a go-forward basis. So we feel very good about sort of that, that movement there. Again, we've talked about targeting 20% revenue growth rates, and I think, you know, organic, and I think we're kind of walking ourselves into that over time with some of the tailwinds that David talked about. So that's over the next, you know, year or two that, that we kind of get ourselves there. Again, the $117 this year turns into revenue next year, and then that builds from there. You know, from a...
You know, when you think about, you know, how to think about our future guidance around adjusted EBITDA, again, as talked about 15-17 to 19 in the quarter. Again, we're getting some big hits coming out of just the lack of implementation of an ERP system. But I think from that point forward, the expectation is we find ourselves into the 20s, in the low 20s, because, again, as a private company, we operated with low 20%-low- to mid-20% margins. The leverage we're gonna get out of the systems and some of the integration that we've done is gonna certainly put us in that same zone pretty quickly over the next couple of years.
Again, you're now into 25 or so, but again, we'll get a couple of big hits this quarter and early next year as that implementation is done, but then over time, you'll see some just incremental steps.
Okay.
Mm-hmm.
All right, that's helpful, helpful context there. I do wanna shift gears a little bit and talk about your AI strategy. But for those in the room, if you have a question, well, raise your hand and we'll make sure to get to it.
Yeah.
Yeah, up front here. Can you-- We have a mic coming. Can you just hold on a sec? Thanks.
Hi. I know you said that your largest competitor is in-house solutions, but I was wondering if you could speak more broadly just to your actual competitors, and specifically Avalara, which was taken private by Vista about a year ago. I was curious if you've seen any changes in competition with Avalara, perhaps with their strategy or with the win rates relative to them?
Yeah. So our primary competitor is a company called Thomson Reuters. So in the enterprise market, that's who we see in almost literally every RFP that we bid. And most of the deals at the enterprise level are run by RFPs by the Big Four, and that's really who our competitor is in the enterprise market. As we move overseas, these are very distinct because the buying behavior and the competitive dynamics are different in terms of third-party providers. In the U.S., North American enterprise market, it's Thomson Reuters. As we go overseas, we see a lot of Thomson and a company called Sovos. They're our primary competitors for VAT compliance solutions. And then, as we move. I talked about our mid-market strategy, moving into the Microsoft Dynamics, NetSuite, et cetera.
That's the space that Avalara seems to be moving into. When they used to talk about going upmarket, it was from the S to the M, and that's really where we see them. And that hasn't really changed in the time that Vista has owned them. It feels very much the same behavior in that space that we were experiencing prior to the transaction. We do have, you know, an anecdotal data point about our largest competitor when I joined Vertex in 1999 was a company called Taxware. Vista eventually owned them. They bought them, they eventually sold them to Sovos, and that's still a part of Sovos' business today.
Taxware was never the same tax competitor that they were prior to. And I think it's because Vista did a wonderful job of monetizing their investment, but they weren't the same tax competitor. So I don't know. We'll see what happens with Avalara in the long term, but right now, they haven't changed in their competitive dynamics at all. Is that helpful?
Cool.
Great.
Okay. All right, maybe go into the AI discussion.
Sure.
You know, I think, I guess, where does the AI strategy, you know, sit today at this point, and how has maybe your thinking shifted there? And I guess, how should we be thinking about what the biggest use case is that you're gonna be looking to go after for AI?
Yeah. So the good news is we've been using machine learning and AI for a long time in our content space, and generative AI creates the opportunity for maybe more in that space. And I think when you say AI, you really mean generative AI.
Mm-hmm.
I think content curation is a big part of what we're looking at and how we can leverage that. I think it's super important to realize that generative AI is a probabilistic technology, and tax compliance is a deterministic requirement, so I can't be probably right with my accuracy. I need to be deter- And that's one of the things our brand has been built on for 45 years now, is the quality of our tax content. So that's a critical part of what we're as we're doing our internal explorations around being more productive, to either build more tax content or-
... build or deliver the tax content we do have in a more efficient, cost-efficient manner, is can it give us the same deterministic quality that we can do right now? I think that's a big-- It'll be a key requirement that our customer base will look at, the enterprise customer will look at, number one. Number two, we touch the most sensitive data. Every transaction that we, our source system touches, you know, every purchase order, every line item, all the specific... So that data, it's a very rich data set that we touch to determine taxability. So we're certainly seeing now some commercial opportunities to look at how the data, we can bring more value to that data and bring it back to our customer to add more value, which could be a new commercial opportunity for us.
And then the third is around customer experience. I think AI is gonna be part of the UI of our offering over time. It'll be show up as copilots in the offering that we bring forward-
Mm-hmm.
allowing the customer to improve their user experience. And so I think those are the three big dimensions that we're looking at right now.
Okay. And then how are you thinking about monetization potential for those kinds of products? Does it help with, you know, price and help with kind of baking that into, you know, uplifts over time? Or is this kind of separate SKUs to potentially kind of cross-sell into the base?
So, I think on the one side, the content curation would be two-dimensional. Firstly, it'd be a productivity, which would be just a margin opportunity for us. It could be a commercial opportunity in terms of we're able to create perhaps unique content that we think is of value. We have premium content in certain parts of our business, like our Brazilian content is at a premium cost to the customer because of the complexity of that jurisdiction. So there could potentially be that, but I see that more on the productivity side. I think the area for revenue growth off of it would largely be either those Copilots being something that they turn on or access for improved user experience, that's sort of an upsell of something they're already buying.
And then the data, as I was describing, is really more of a true new offering. There'll be a new co-offering. In terms of the true economics of that, in terms of what's that going to do to revenue growth rate or margin, I think we're too early in the process to-
Yeah
... to give you a quote on that.
Right. Okay, all right. No, that's, that, that's helpful context, though. Maybe staying on the product side, you know, I think you have made quite a bit of M&A in the past couple of years and augmented the base. So I guess, one, how should we think about what's new, what's different in the product set today? And then, I guess, secondarily, how should we think about, like, the product roadmap and where things could potentially go, and how do you kind of broaden out the product set even further?
Yes. So the good news is commerce, forms of commerce continue to change. That drives regulatory change, that drives product opportunities, and it's a very clear cycle. So edge computing is a great example where infrastructure is moving to the edge because commerce is moving to the edge, and guess what? The regulators are saying you've got to be able to determine tax at the edge, at the point of mobile or, or IoT level. And so, edge is a big part of what we've launched here in the last year, that came out as a result of a small embryonic acquisition we made, that we then developed into the edge solution that we brought to market. And I, I'm really excited about that.
I think we're in the very early days of, of significant use cases around that. Chain Flow Accelerator, SAP data visualization tool, targeted specifically because of our growing, relationship inside of SAP between the technology and the sales team relationship we now have. Having differentiated product between the LCR-Dixon acquisition and our own organic build of this thing, this Chain Flow Accelerator, which is sort of a inside the supply chain, giving them visualization to all the the VAT compliance process across their supply chain, a large enterprise supply chain, is a real differentiator for us, and it's going to improve our, our win rates. As I look forward, we're really excited to announce, this quarter, we'll be bringing forward our e-invoicing solution, which we've got a, a...
E-invoicing is a new emerging compliance challenge for companies where they are being asked to deliver, at the time of the execution of the invoice, they have to deliver that data to the government. Just send the data to the government. But what happens is, you have to send a certain amount of data, and many countries, there's 58 of them, the large countries that have adopted it so far, you have to send different data sets. So from a complexity perspective, that's good for us. We'll be launching a product at the end of this quarter that will merge the data set requirements for e-invoicing with the VAT compliance solution through a single portal, all connected on our tax platform.
So from a customer's perspective, I can solve my e-invoicing challenges in different jurisdictions and not have to touch that data again to have it flow into my VAT compliance solution. So I'm really excited about where that will take us. That'll be a nice tailwind as we start moving into 2024 and beyond. You won't see a lot of revenue recognition on that in 2023, but as we move forward with the growing requirements around e-invoicing, I think that's a nice part of our roadmap as we move forward.
Okay, interesting. And so when we think about this solution coming to market, does it just get baked into your VAT solution, or is it kind of a separate-
No, it'll be. It's sort of a nice augmentation, but it's standalone significant enough that it'll be this. We'll be talking about it on earnings calls. It'll be called-
Okay
... at some level.
Okay, helpful. And maybe for John, as we think about M&A and how that has kind of come into the fold here to help kind of broaden out the portfolio, how are you viewing kind of the landscape today for that, and how are you thinking about where it makes more sense to, you know, maybe buy versus build out that functionality?
Yeah, historically, we've built rather than bought. And I think as you described, we did four acquisitions over probably a 12- or 13-month period, and so, which was a nice, you know, nice way to augment some of the gaps that we had in things. Yeah, we continue to be very thoughtful about acquisitions. We look at opportunities that are out there, and there's always things where we can enhance in a very close adjacency to our portfolio offering, things that are out there. And so we've been paying particular attention over the last, I'll say, 18 months, but I would say there's been a bit of a dislocation between kind of the prices that sellers are willing to sell and the prices at which buyers are willing to buy.
I think we've seen that gap start to narrow in the last, you know, nine months or so. I think the opportunities are out there. I think there's just an opportunity. The question just is: Is there gonna be something out there that's gonna fit us right at the time we need it? And I think David's talked a little bit around the invoicing and things that are out there, the things that are out there in that realm. We've looked at a lot of different things that are out there, and so we'll continue to keep our eyes open. But I don't think there's anything out there right now that we are itching to get, that need to have to kind of move ourselves to the next level. But you never know.
Those things change very quickly.
Sure, yeah.
Yeah, but it's nice to see that pricing has sort of gotten a little bit more back in line.
Okay.
Yeah.
Okay, that makes sense. And you mentioned, you know, the ERP implementation coming in, and being finalized this past quarter, and that led to a bit of an increase on G&A.
Mm-hmm.
How should we be thinking about, you know, the further G&A progression after here? How do you think about, you know, the core kind of leverage pulls that would come into the model here?
Yeah, I think as we talked about earlier, I think you're really gonna see again the progression of the adjusted EBITDA margin kind of working into those low twenties is largely gonna find its, you know, way through G&A.
Mm-hmm
... as well as selling and marketing. I think they're the two hotspots that I would focus on, because, again, the leverage we're gonna get out of the systems, the leverage we're gonna get out of our ability to kind of manage at scale. Again, you know, for years and years, we've operated on an older system that didn't allow us to expand and get the visibility into the business. And I think it's gonna give us not only sort of cost savings on the back end, but it's actually giving us additional visibility into our business and customer opportunities that are out there. So I think we'll see a little bit of top-end growth that will, you know, that'll kind of work through the regular ARR progression.
But I think what we're really gonna see is savings, kind of the flattening out of SG&A, selling and marketing. You're gonna see the decrease from a G&A standpoint. Again, that'll just keep ticking... I expect that that will just keep ticking across the board as we find ourselves into 2024 through 2025, et cetera. Again, modest progression this next couple of quarters, 'cause again, the big spend's out of the way.
Okay. We only have a few minutes left, so want to see if there's any questions in the room. No? Okay. I do want to ask about, you know, NRR. You know, really strong this past quarter, a new high at 111%. So I guess, first of all, congrats on that. How should we be thinking about the drivers of that? And as we think about moving forward, I know that there were some price increases baked in from inflation, but how should we kind of be viewing where NRR can trend and the factors underlying that between new use cases and pricing?
Do you want to do the walk?
Yeah.
That might be the easiest way to tell.
I think that the best way to kind of start the conversation off and the question off is saying it all starts with the really strong GRR that we have.
Yeah.
The 96% GRR is just, you know, world-class. I mean, we, we really don't see customer attrition happening, but for isolated incidents where customers are selling off divisions, selling themselves, selling units, et cetera, which create a little bit of a downdraft. But again, it all starts with 96, and then that we work ourself into that 111 this past quarter. And there's, there's really three key components that kind of bridge that 96 to the 111. 50% of that, 50% of that bridge is really made up of existing customers buying, you know, cross-sells, so us selling sales tax to a use tax customer, or vice versa. So same, same customer, additional product offerings, modules. 25%'s gonna come from the same customer buying additional, additional usage or additional entitlements of the same product that they have.
So they used us in division A, they move over to division B, and as they move to division B, that means more revenue for us, so that's 25% of it. And finally, the last piece, the final 25%, is our regular price increases that we give to our customers. We've always given price increases to customers, just a normal part of our business, the cost to curate and gather the content that David talked about earlier, and I think that's just a normal part of the business. So they've been contributing about the same amount over the last 12 months as they had in the previous 12. But it's been. It's, you know, it's nice to see that progression go and to see the growth driver really continue.
Okay. Maybe in the last minute here, you know, just think about a five-year vision for Vertex. I guess, what is, what does that look like? How does the company evolve? And, you know, if we think about being here at Citi 2028 tech conference, like, what will we be talking about then, and what will Vertex look like?
Yeah, I think the global regulatory—I mean, there's 10,000 tax jurisdictions in the US alone, so the complexity here is proven, and it's why we're so—I think the global regulatory environment is accelerating. I think you look at the behavior in jurisdictions in VAT, et cetera, and I think that now E-invoicing, which is a new reporting requirement, is expanding into multiple countries. I think you're gonna see the revenue mix and the global scale of Vertex be far larger than it is now, number one. Number two, I think the...
And it ties a little bit to generative AI, but just in general, the data sets we're touching and the richness of what we can do with that data, I think there'll be a stronger data profile in our business, not just the compliance. So go from a system of record-type company to being a system of information. So I think we'll be moving up the value scale, if you will, I think over time, just again, because we have not done a lot yet in the monetization of data. So those would be the probably the two primary things that I think will evolve between now and 2028. I don't know if you want to add anything to that.
No, I think you hit it.
Those would be the two biggest ones I would see moving forward.
Okay. All right, great. I think we're running up against time here, so I want to thank everybody for being here-
Thank you, Steve.
... and more, I want to thank Vertex-
Appreciate it
... for being here.