All right. Well, thanks, everyone, for joining. Just to kick things off, my name is Jacob Biers. I'm the research analyst here at William Blair. That covers Vertex. For a full list of our research disclosures, please visit our website at williamblair.com. But with that, really excited to have John Schwab here, Chief Financial Officer of Vertex, and Joe Crivelli, who is Head of Investor Relations. We're going to kick off the presentation session with John sharing some slides, and then whenever he wraps up, we'll jump into a fireside chat to go a little bit deeper into the business. But with that, John, I'll turn it over to you.
Perfect. Thanks very much. Appreciate everybody coming. Thank you for attending the session. I'm going to go through this probably pretty quickly. We'll leave some time for questions at the end, and hopefully we'll get to some of that. Let's see. Let's just get right into it. I think, just to give you a little bit of an overview, first of all, Vertex, we're a leader in the growing indirect tax market. And so what's that mean? That's sales tax, sales tax, use tax, VAT tax, mission-critical software for companies that are transacting business on a day-to-day basis. So really important there. One of the things to take away is we're a very big land and expand motion company. We are solving a problem that companies have typically when they call us in.
So when you think about reasons that we might be called in, companies are having a tax problem in a certain area. They need to bring us in, and we need to solve an issue that's out there. So think of us as an aspirin, not as a vitamin to grow things. We're coming in to solve a piece of pain that they have. We typically fix the problem that they have, and then we expand the operations. We fix something in the Southeast division. We move to the Northeast division. We get things through. We've demonstrated that through really strong metrics. If you look at our NRR growth, NRR has been at 112%. So we feel very good about the ability to continue to maintain customers, but also to grow those customers over longer periods of time.
And so they've demonstrated that, and we continue to put great products in front of them that they continue to buy. One of the things, and one of the real key differentiators, and the reason that customers keep coming back to us is because really of the comprehensive content library that we have. The content library is very important. While they're buying the software, what they're really buying is the over 900 million rules and regulations out there that determine taxability on certain products in certain jurisdictions. That's what the companies are after. They need to have that information so that they can accurately file their tax returns. That's tremendously important. So we really focus on that. That's a big differentiator. That's why we win in the market on a very regular basis. So maybe turning to it by the numbers, I'll touch on a couple of these.
As you can see, roughly $600 million of trailing 12-month revenue through the month of March, $117 million of adjusted EBITDA. I think it's very important for you to know, if you're not familiar with the story, that we've been involved in an investment phase since we've gone public. So we went public in 2020, and for the last three years or so, we've been investing in, I'll talk to this a little bit more deeply later, but we've been investing in new products, go-to-market, and certainly some internal infrastructure that's out there. And so a lot of that investment that had been going on ended in the middle of, give or take, the middle of last year.
And then what you've been able to see from us from a reporting standpoint is that our adjusted EBITDA margins have grown from 15% to 17% to 20% at the end of the year, and in the first quarter, we're north of 20%. So the earnings leverage that we anticipated that we'd be getting out of that is coming through. We're seeing that. We're right where we thought we'd be when we went through that investment phase. So we're excited to kind of talk through that, and I'll talk through that in a couple of minutes. 60% of the Fortune 500, we'll cover that in a little bit. And at the bottom on the left side, you can see our gross revenue retention is at 95%. It's a world-class number because the importance of this software is it's line-item invasive into the companies.
If you think about ERP systems, we touch every line of every invoice of every customer that the companies have. Once we get installed, once we get incorporated into the network and into their systems, it's very hard. People aren't going to pull out. There's no reason to rip and replace us in lieu of a competitor. That said, we also don't get opportunities to go in that and to do that with some of our competitors because once you're installed and it's working properly, there's no reason to move along. That 95% gross revenue retention, it all starts there. I talked a little bit about our net revenue retention. The bridge from gross revenue retention to net revenue retention is a real important one because what we see is, again, I talked about land and expand.
That land and expand, that additional module purchasing that goes on encapsulates about 50% of that bridge, which is very important. Again, those customers will continue to buy products. They continue to want to invest and fund the R&D budgets to ensure that we're developing products because our customers have demonstrated that they will continue to buy. The next 25% of that bridge really comes from same customers buying more products. Again, we solve a problem in one area, then they say, "You did a great job for us in this area. Now come over and solve the same problem in this other area and move it along." That's where we see real great uptake from our software. So that occurs. And then the final 25% are price increases. We've been around for over 45 years.
Price increases have been a regular part of our business, and we continue to do that. So that really builds out that walk from $95 to $112, and then the rest that $112 to the $117, $118 is the new logo growth that we see. So the biggest competitor that we have, when people think about our business and what's out there, is really homegrown solutions. Vertex tax solutions, we've been around for over 40 years, but the majority of the companies that are out there are still leveraging internal solutions. That's who we're competing with.
And so that's a real important factor because, again, while you would think that many of these are much more, many of these companies are much more advanced, typically as it works out, companies implement ERP systems, they get everything up and going, they get tax working, and over time it just gets added to, and they added to, and they grow, and they grow, and over time it becomes a very big amount of activity. And when those customers decide to migrate to new software, new data platforms, that migration that takes place requires then either a refactoring or finding another way to solve tax. And typically that moves to a vendor solution at that time. So let me just switch page. Again, I've talked a little bit about what indirect taxes are. Sales, use, VAT, that's how I like to talk about them.
But I think the real important piece of this page, the only takeaway is that indirect taxes are 3x direct taxes. Direct taxes are income tax. That's income tax. When people talk about it, they're very surprised to see that. At the end of the day, where the real money is coming into state and local governments, it's really coming through indirect taxes. So a real great opportunity there for us to continue to drive things along because it gets a lot of attention. Again, complexity. Complexity is really important. That's what really drives our business. As I mentioned earlier, one of the real things that moves business along is that we need to touch every transaction, and it's in thousands of jurisdictions, and it's thousands of products. And you need to do it in real time.
If you think about it, when you're going to go buy something online, and you're sitting there, you've got your shopping cart, you're ready to go, you hit the button, you see it start to spin as it calculates tax. If that's going to spin too long, you're going to move away. Our customers are some of the largest companies in the world. They need this information happening in real time at scale. And that's what we deliver. Again, we deliver to the enterprise market, and it's served us very well over the years. And in addition, we also supply information that goes across their supply chains. Again, think about use tax and VAT tax and other things that are out there. So very important piece of the business. A quick touch on TAM, when you think about it, TAM is $22 billion.
That's across the globe, $7 billion in the US, $15 billion coming from the rest of the world. We typically focus at the enterprise and mid-market. That is where we do our best work. Again, complexity really rears its head in the enterprise market and the mid-markets. The SMB business, while they need to solve tax as well, especially coming out of Wayfair, that's not an area that we've played in because those are not customers that are going to land and we're going to be able to expand with. We are typically focused on customers over, think about when we think about ARR, $100,000 a year ARR customers. Those are the companies that fit into this mid-market and enterprise-sized companies that will have additional needs that will afford us the opportunity to grow with them over time. So that's how we think about it.
When I think about enterprise, I'm thinking about companies over $500 million in revenue. When I think about mid-market, that's $50 million-$500 million. That's how I think about sizing when we talk about our customers. I mentioned a little bit earlier, complexity is a great driver of opportunity for us. When we look at this chart here, one of the things that I really like to mention is that's the biggest driver, but there's really three tailwinds that drive that complexity, and they take place at different times and in different motions. The first is really around business complexity. Think about a company that's been operating along, they go and they do an acquisition. They do an acquisition overseas. All of a sudden, now they have something that they didn't have before, and they've got to go figure out how they're going to solve for tax for that.
Same thing, a company expands geographies. They do an acquisition in the States. They still have to figure out how to comply with tax on a regular basis. Then companies that move to omnichannel. We saw this in COVID. So many companies had in-store operations, and all of a sudden, the online marketplace just went through the roof. They needed to solve for tax. That disruption created a need for them in their businesses that they needed to go find a way to solve. And that's where we came in. So a lot of opportunity came our way during that time to get after some of those new business opportunities that were in front of them. The next is regulatory. I mean, we are in the market of ensuring that our companies are getting accurate and timely information to file their tax returns.
I mentioned over 900 million rules and regulations that are out there. We update this on a monthly basis. It is a tremendous amount of effort to keep this going, but that's what customers are interested in. It's one thing to be able to calculate tax. It's another thing to be able to track all the rates and the rules that are out there. 2023, we saw the largest number of rule changes that we've ever seen in state and local taxation in the U.S. And a lot of that, again, our customers are relying on us to stay in front of that to make sure that that's there. So those changes are a really big thing for us, and we'll continue to drive the information there and continue to find more content.
The content is a real big driver, and we've spent a lot of time and a lot of money upkeeping that content. We use a number of different things. We have a group of 125 people that really maintain and keep that content going. We leverage a lot of machine learning and some other activities and other technologies that are out there to help identify change, find out where change has occurred in all these different jurisdictions. We leverage that change along with keeping a human in the loop to ensure that we're getting the proper tax interpretation. While AI is a predictive technology that's out there, we need to. Taxes are deterministic. We need to know the exact number. Our customers, what they're really buying from us, they're buying tax information, but they're buying trust.
They're buying trust that we've got the right taxation so they can file their taxes accurately and timely. And then the last piece is technology. So one of the tailwinds we see is as companies, and we talked about this, are managing through ERP systems and ERP systems and all their IT systems. As they migrate those systems, you have an ERP system that's on-prem, we're moving to the cloud. As they move that, all of the activity that they have built, if they're solving this in-house, now has to be considered on how they're going to solve this when they adopt the new technology that's coming to market. And so that brings us a great opportunity. Think about ERP, think about purchasing systems. All different types of system conversion and system changes bring an opportunity because someone has to answer the question, how are we going to decision tax?
How will that get done? Will we continue to do it internally, or will we create new software, or will we go to a vendor solution? That's the real important thing. So the combination of these three tailwinds are really what drive the business. And what we see is they many times operate, they operate independently of each other. And in some things, we think back to COVID, business changes were very rampant. Technology changes were not. ERP implementations virtually stopped. IT directors were trying to figure out how everybody's going to work from home in the next world. And so they got that figured out. Again, we've seen that start to move up.
Again, as regulatory, as we've seen, regulatory now with federal funding slowing down to the states, more regulatory audits are taking place, more changes in tax rules are changing place, and that is manifesting itself in the changes that I talked about a minute ago. When it gets down to why customers choose Vertex, we probably covered a couple of these things, but at the end of the day, I look here and I say it's enterprise software. It's very important to ensure that we keep that tax content up and running and that the content that's there is continuing to be updated and leveraged by our groups as well as our customer groups to get the tax filings done accurately. That is the most important thing that drives a customer decision to come our way. It's tax content.
We have the largest tax content database of all of our competitors, and we're able to charge for it. We leverage that. We use that to ensure that customers are getting the right answers, and that's something that we'll continue to invest in. When we went public, we had 350-ish million rules and records. That number has grown in 4 years to over 900 million. There are areas that we continue to look and invest in. Down the bottom on the left, there's a concept down there, Alliance Partner References. We think about our business. We have a direct market, direct sales team that's out there selling our software. We leverage that with not only a number of the ERP vendors, the SAPs, the Oracles, the Microsofts of the world. They've been technology partners for years and years, all of them, over 20+ years.
In addition, we also leverage kind of the tax community. Think about the Big Four accounting firms. All the accounting firms, frankly, have built their largest tax technology practices around implementing our software. They not only are the trusted advisor for corporations in terms of their tax filing, but they're also technology. They have big technology implementation teams that are out there. So we leverage both the technology teams, not only from the SAP, Oracle, and Microsoft, not only from their technology partnership we have, they also, SAP and Oracle go to market and get quota relief for selling our product.
So that's a new motion that's happened in the last couple of years that we see great value from because this gives us the opportunity to understand what's coming down the market, and we can leverage our direct team to work and partner with those teams to ensure that we are staying attuned to what the opportunities are in the market and, again, use everything we can to ensure that we get access to it. Then finally, I think, again, as I did mention, the big accounting firms, they are a tremendous reference source for us. They bring us opportunities. Customers go to them when they've got a problem. When a problem shows up, they're the first person they turn to.
They say, "Who do you use?" Again, as mentioned, most of the largest accounting firms are actually users of our software for their own internal purposes, but all of them, as mentioned, have big tax practices around the implementation of our software. We leverage those relationships to ensure that we are staying in front of opportunities that are out there. They're the number one key reference item that we have. I think I've talked a bit about the tax content database. Again, the ERP connections are very strong. As mentioned, SAP, Oracle, Microsoft, others, really the systems that the big companies use are the ones that we leverage the most and access the most. We're focused on enterprise companies, as mentioned earlier, and they're using the biggest. Let's go to this next page. When looking at our customers, we have over 4,300 customers. It's a marquee customer base.
60% of the Fortune 500 are our customers. And as you can see, we've got real nice kind of penetration across the different verticals that exist within the Fortune 500: business services, manufacturing, retail, you name it, we're typically there. And that's a really important thing for a tax buyer. The tax buyer is looking to get the right tax content in place to get everything filed on a timely basis, but they also don't want things to be messed up. So inevitably, we get the question, "Who else in my industry is my size that uses you?" And we've got lists and names of companies on here that we send forth to those people, and we can very easily get them over that hump of the ability.
So referenceability is very, very crucial for us to ensure that we ensure winning opportunities because, again, the software is delighting our customers. Our customers are some of our biggest advocates for it, and putting other tax directors in touch with the other tax directors at other companies always gives us additional opportunities. So we're really pleased with the base that we have. I mentioned a little bit ago some of the key investment areas that we undertook between 2020 and 2023. I think, as mentioned, there's a couple of areas here that we wanted to—I want to make sure that I kind of talk through. First of all, new product. We were a private company for over 40 years. We were focused on growth and profitability and cash flow to pay dividends to our shareholders. Over time, we were underinvesting in some of the product that was out there.
Again, seeing what the NRR looks like at 112% really demonstrates that if we have more product, we can likely sell it into more of these customer opportunities. However, we were not advancing as quickly as we should have been some of the new product opportunities. We expanded the go-to-market opportunities. We expanded our European sales team. We got French salespeople in France. We got German salespeople in Germany. We really built that out with the opportunities there. Traditionally, international is about 10% of our market. That has been, that is really because VAT tax is not as complex as U.S. sales and use tax. And so the lack of complexity, some of the European teams were able to solve that with some of the native functionality, but more and more what we've seen is there's a lot more complexity coming to play in the market over in Europe.
And so VAT tax is getting more complex, and we're there ready to attack the opportunities. Related to the go-to-market team is we built a customer success organization. Again, we built this hunter-farmer dynamic with the customer success team that really allows us to stay in tune and in touch with the teams that we have out there. So that's worked out very well for us, a real big factor in growing our net revenue retention from 108 when we went public to 112 where we are today. Again, we talked about extending the global footprint, and there were some corporate infrastructure initiatives that we certainly got after because, again, we're a smaller company now growing to be a—we anticipate being a billion-dollar company in the not-too-distant future. We had a few things to get after there.
The beauty of this slide is all of these things we are past, and we're moving on. And again, as I mentioned earlier, the leverage we're seeing in our P&L has been really demonstrated very efficiently and with a nice march across the back half of 2023 and into 2024. When I take a look at this slide, it really demonstrates sort of where we were at the time we went public: $350 million of revenue, now growing to almost $600 million, that 15% growth, demonstrating the activity and the things that we've done, those investments that we've made on the prior page are really manifesting themselves in some of the results that you're seeing here. ARR from about $300 million to $525 million, 16% growth. Subscription revenue, it's the name of our game. That's what we do. I mean, we are a SaaS company.
We do have a services business. It's about 15% of our overall revenue, but a lot of it is in support of the implementation of our software and a small piece around managed outsourcing of tax filings. I mentioned earlier the net revenue retention. You can take a look, 108%-112%. I think a lot of that, again, driven by new product announcements that we did, as well as this customer success team, really just staying in front of our customers. And the AARRPC, grown from $73,000 at the time we went public to over $121,000 now, really evidenced by that NRR growth, growth with existing customers, as well as some new products that we've been able to sell as we've grown it. So that is something that we really feel good about. There is continued opportunity to expand with the existing customers.
We feel very good about the progress we've made, but over time, as we have been building new products, we have also been increasing the size and the ability to expand into our customers. So a very good chart. I always like seeing the metrics going in the direction they are. Let's see. The growth opportunity continues to remain compelling. We will continue to extend our leadership in indirect tax content. That is what our customers are looking for. They are always looking for us to get deeper, to get broader, to look for additional areas, additional products that we can serve. And as long as we can continue to do that and continue to offer them new products, we'll be able to drive opportunity going forward.
The maturation of our customer success team, again, we announced that we brought it forward probably in the middle of last year. I think they really got some good momentum moving. The maturation of that is only going to continue to bring more opportunity, and we'll continue to see nice sell-through with existing opportunities. When I think about existing revenue opportunities, 70% of new revenue opportunities, 70% of them are coming from existing customers, and the other 30% are coming from new logos. So we've got a very good group focused on the base, and we've got a great group focused on what we're going to get in the future. Over time, as we've demonstrated in our P&L, we're going to be able to enhance the earnings leverage as we continue to see that spend that we've been made and that is now past us.
It has subsided, and we'll continue to see rate of inflation increases for selling and marketing and G&A expenses. Nothing big there. A lot of that's behind us. And I think we'll be mindful of incremental growth opportunities, whether there's selective M&A. Since we've been public, we've done four acquisitions, some around content, some around technology, some around geography. And so each of those, in their own way, has contributed to the success that you saw on the prior page. We're going to continue to keep our eyes open for opportunities that are out there and continue to grow. I will spend just a minute or so on financials, just to really quickly go through this. I don't know where we are in time. How are we doing? We've got about seven or eight minutes for. Okay. I think we probably covered the majority. You're good with that?
We probably covered the majority of what we need to cover here. Maybe we'll turn it over to the team. We can talk about some questions here for Q&A. Yep. Sounds great. Well, thanks, John. Appreciate you kicking off with that. I guess just to level set in terms of the profitability profile that you could see on a go-forward basis. So you talked about the investment journey you've been over the past few years, but you were fairly profitable before starting that investment cycle. So maybe talk about where you see EBITDA margins heading post this transition. Yeah, that's a great question. When we were a private company, we operated at roughly low 20s, mid-20s in terms of adjusted EBITDA percentages.
Again, the thesis was to try to make some investments, slow the adjusted EBITDA down a little bit so we could make the investments so we could then get some sustained top-line revenue growth in and around the high teens, kind of that high teens, kind of maybe touching 20% zone. That's what we've been doing. That's what we've been getting after. That's from a revenue perspective. We see that being up there. But from an adjusted EBITDA perspective, we anticipate that we'll be back into that kind of mid-20s zone over the next 18 months or so. We feel very good about our ability to leverage the infrastructure that's there. We've seen it show up, so we feel good about that, that it's translating into the P&L. But that's how we think about that.
And then what follows from the adjusted EBITDA, roughly at about a 65%-75% conversion rate is the free cash flow. That follows through. So again, that'll be coming as well. And so we've started to see all of that come through our P&L in the last nine months. Yeah, that's helpful. And then just thinking about some catalysts in the business, I think one of the more attractive things about selling into the office of the CFO is just how little companies have actually digitally transformed in that office. I mean, there's still 75%-80% of companies have yet to move their ERPs to cloud. So thinking about your very tight partnership with SAP, how big of a catalyst is that whenever customers start migrating their ERPs from ECC up to S/4HANA into the cloud?
Yeah, I think just to kind of top it off on our numbers, about 55% of our revenue is coming from on-prem software. The other 45% is coming from the cloud. So the opportunity is there. As I mentioned, we typically are attaching to a host system wherever those host systems are going to be. If that's an ERP that's on-prem, that's how we're selling our product. Over time, what we see is a like-to-like conversion when people move to the cloud, a like-to-like increase of about 30% that comes with that. So the opportunity is there with that install base. But I think the digital transformation is coming. I mean, we've talked about the SAP opportunity a couple of times on our earnings calls, and it's out there.
I mean, there's a lot of ECC customers, right, over 10,000-ish customers that are out there and are going to need to convert. We have about 1,000 ECC customers we estimate based on what we know from our customer technology platforms. So the opportunity there is pretty significant. And so the fact that we're selling with the SAP sales teams gets us a bit of a leg up on the opportunities when they're coming to market because those teams are planning for the ERP sales. We then are following in their footsteps to make sure that we're paying mind to the tax opportunity that comes with it. So one of the things that John mentioned is the size of the TAM at $22 billion. And we think when we look at us and the other players in the space, it's about 10% vended.
The other companies are doing this with either software that they've developed themselves in-house. Usually, it's 20- or 30-year-old code that they've updated and updated and updated. When they do a cloud conversion, that software, you can't spend enough to refactor that to run in the new environment. So that's one of the major catalysts that causes a company that's doing this with a homegrown solution to say, "We need a vended solution. It's time," and to move them towards Vertex. So that's why that's such a powerful tailwind. And then the ECC opportunity that John referenced, SAP has actually announced that their end-of-mainstream support for ECC, which is one of their platforms, in 2027. So there's industry analyst estimates out there that there's 10,600 customers on that platform that are going to need a new solution within the next three years.
We estimate we have about 1,000 of them today. So that says there's a large potential influx of new opportunities over the next three years around that platform specifically. Yeah, that stat, I think, is really important of just close to 9,600 companies that are going to, those solutions don't refactor to the cloud, and so they're going to have to look for vendor solutions over the next three or four years. So it should be a really interesting opportunity for you. One of the bigger questions that I get from investors is just around the European market and just the changes that are going on there with e-invoicing and that opportunity. So maybe just talk through—you tried to do an acquisition in the space with Pagero. Maybe talk through how you're thinking about the e-invoicing opportunity and when you need to get a product in place to address that.
Yeah, it's a great question. I think as we thought about the strategy behind e-invoicing for us is we have a VAT product today. We do VAT compliance, VAT determination, and VAT tax filing for our customers. The e-invoicing, the CTC opportunity that's out there is something that is requiring companies to, at the time that they are sending an invoice out to a person, that needs to go to a government authority at the same time. And so when that goes out, that information needs to get shipped off with certain information by each country, as it turns out. And then we'll still need to do some of the VAT filing that follow it.
So we envision the strategy around putting together each of those three components: the VAT calculation, the VAT determination, and CTC filing to allow that one smooth end-to-end solution for our customers. And so that is something that is really coming to market. We looked at an opportunity with Pagero, a partnership opportunity in the December timeframe. We announced a potential acquisition. We had a partnership going. They said for a number of reasons, they needed to sell their company. We put a bid on it. It went to another bidder. We put a business case together at $550 million. We felt very good about that case. We did not feel good about $800 million, and so we let that one go. So we're happy to do that. But the opportunity, though, is still real and relevant. And we have the opportunity with a number of other partners.
We named about 28 different other players that play in that market, many of which contacted us after that went in another direction and reminded us that they were available to help partner with us. And so while we still have a commercial relationship with the Pagero team, we are looking at other opportunities around partnership and whether they turn into acquisition or not, not sure. But it's something that's coming. The big countries, the big countries and their mandates are out there. They're going to be happening in 2025 and 2026 and 2027. And what that's going to cause is that's going to cause a lot of the companies to say, "Let me get control over all of the VAT filing, all of the invoicing that's going on." And that's where we really play very well.
Again, we offer the end-to-end solution, and we'll be able to offer it for a number of people, for all the countries that are needed out there. So we feel good about that. We're not too late to the market. Those mandates are out there, but they're out there a couple of years from now. But we believe that partnering with somebody or potentially buying somebody in that space is probably the right way to attack the market, given the dynamics that it's in. Yeah. Really helpful in taking a simple tax regime and making it a lot more complex. A big opportunity. That's why we're in business.
Well, I know we're up on time here. Thanks, everyone, for joining the audience. Thanks, John. Thanks, Joe. For those that are interested, we will have a breakout session for follow-up Q&A with John and Joe up in Richardson. That breakout session will start in 10 minutes. If you'd like to follow up, if you have additional questions or want to be on our distribution list, investors@vertexinc.com. I'll get that email and be back in touch. Thank you.
Awesome.