Great! Thanks everyone for being here. We're really excited to have David DeStefano and John Schwab, CEO and CFO of Vertex, here with us. Thanks so much for taking the time.
Great to be here.
Our pleasure.
Thank you very much for the invite.
Awesome. Yeah, so David, I guess for those in the audience who might be a little less familiar with Vertex, could you just talk a little bit about the business and what it is you're trying to build?
Sure, sure. So we focus very much on what we call indirect tax, which for most of us, we know as sales tax, use tax, and if you're abroad, VAT. And it's a highly complex, regulated space, where governments are consistently looking for how they're gonna generate revenue, and indirect tax is actually the largest form of corporate tax paid around the world.
So it is the primary, most dependable source of revenue for governments. And as we all know, our governments consistently create debt, which means they create new rules to fund that, and we're in the business of providing that compliance for businesses. We target the enterprise and mid-size companies to do that.
Awesome. David, you've been at the company now for 25 years, and, you know, the company has obviously evolved significantly over that time. Maybe just start a little bit with your journey at Vertex. What's kept you at the company, and then, in particular, what you've learned as CEO, you know, over the last 8 years or so?
What kept me at the company, clearly, actually, is the culture. Family-held business for forty years before we went public. A deep appreciation for investing in the business and growing the talent and the culture of the company. So that's what kept me around. I was afforded the opportunity to become the first non-family CEO in 2016, and basically was granted incredible permissions to grow the company, and we grew nicely.
I replaced a fair amount of the executive team during that journey, and the board's openness and the family's openness to allow me to do that was critical to me staying. We hit 2019, and we s- I basically approached the board and said, "We either need to continue to pay a lot of dividends out to you as family members, or we need to do something with our capital structure because we're missing M&A opportunities, we're missing growth in some key strategic areas."
And the family very bullishly said, "Let's go public, and go after what's possible, and really make this the multi-billion dollar business that we all believe it can be." So that's what's got me excited and keeps me going.
Awesome. That's great to hear. John, maybe just before digging in, I'd love for you to just touch on the most recent quarter. Revenue is in line. Some of the key numbers, like organic ARR and NRR, decelerated a little bit, yet you're still expecting, obviously, a very strong second half of the year. So just maybe walk us through what's driving that, your level of confidence, and then where we should be focused going into the end of the year from a financial perspective.
Yeah, we're very excited with the results. Again, real nice revenue growth - good revenue growth, a little slower, as you mentioned, but I think we had a slower start to the quarter. The quarter started a little slower. We saw some real good activity towards the back end from a revenue standpoint, and so the results there are - were very strong. So we're very pleased with how that came in. I think, you know, if you look at our guidance for the back half, sort of we, you know, said that, you know, we expect - we took it up.
We expect that things are gonna get better. We have good visibility into pipelines. And so I think we feel very good about sort of what we're seeing from, you know, a macro front from the front end. You know, one of the things that we're really pleased with is the, you know, the adjusted EBITDA and the growth that you've seen there. Again, getting through the investment cycle that we did about a year ago and seeing continued growth in our adjusted EBITDA was very exciting for us.
We said that that would happen. We saw that. We were able to demonstrate it in our P&L. And not only do we see the revenue growth, but we really see coming from that is free cash flow. The free cash flow coming out of that for the last, in the trailing 12 months is about a 60% conversion rate. Our target goal is about 65%-70%, so we're a little bit ahead of the plan that we had offered out there. And so we're excited about that.
Again, we wanna see this continue and see this continue to grow. But again, from an initial standpoint, from a top-line standpoint, from a revenue standpoint, from a guidance standpoint, Adjusted EBITDA and cash flow, we felt like we're kind of doing the things that we need to do in demonstrating that, you know, the discipline we have in the business and the durability that exists with it.
Yeah. And then, David and John, just for those in the audience who might not be as familiar, what was this investment cycle you're talking about? And you're obviously on the other side of it now. Why was that so important for the business? What did you learn through the process?
Yeah. So, when we went public, we talked about. You know, the family had rights as a privately held business, they had taken out a lot of money in dividends, and so it undermined our ability to invest in infrastructure, in go-to-market, and in R&D. And so the key thesis that we talked about when we went public was, we're gonna fix those three things in a very disciplined three-year cycle. And so we started in July of 2020, when we went public, and we finished it in late May of 2023, and we basically had replaced our ERP system.
We had expanded our go-to-market talent in Europe, built a customer success function from scratch, and also built a channel, indirect sales team to go after more of that mid-market, upper end of the mid-market, and then bring new product to market. And so those three areas all received significant investment. We're now ERP is implemented, and we're seeing G&A improvement coming off of it already. Our go-to-market teams clearly are.
The growth we've seen from when we went public till now in NRR and ARR has all been driven by those go-to-market investments, and the new products we've been able to bring to market. So that was the journey we were on. We will continue to invest in R&D, and just like the acquisition we recently made in Ecosio, we'll do it sometimes through acquisition, more likely through build.
But the fundamentals of what we had to get in go-to-market, customer success, and G&A infrastructure to build for scale are now in place, and so that's why you're starting to see the flow-through in margins that we are enjoying.
That's great. And then, now just taking a step back at the, at the products that you have, who is it within organizations you're selling to? How has that evolved over time? And, and maybe, you know, if there is any relationship that you have to processes like, ERP upgrades and things like that, would b e helpful.
Yeah, sure. So important to note, our number one competitor is actually in-house solutions. The ugly part of my business is, nobody ever grew their revenue or improved margins by buying my software. Like, you know, XYZ mega company doesn't announce better earnings or better revenue growth when they buy our software. But when they need us, we are that means they've exhausted their in-house solution, and now it's time for a third-party vendor.
And so there's one of two reasons we get brought in: one, the company can't be as compliant as they need to be with their in-house solution, or two, it's costing them too much to remain as compliant as they've been. So one of the, those are the only. And there's three fundamental drivers that cause that to happen, th ose two results.
One is something has changed in their business model. They've expanded to new geographical locations. They've launched new products. Perhaps they did an acquisition, and they're having problems with compliance in that new company, and they'll open the door for us. The second reason. A second reason they will bring us in is something has changed in the regulatory environment, where, as I said earlier, governments are in desperate search of revenue, so they're always changing the rules.
Last year, we had the largest number of changes in the US sales tax code than we've ever had. So there again, governments are all looking to drive more revenue, and that creates complexity for our customers. And then the third, as you know, will be ERP transformation. So any one of those three can drive demand opportunities for us.
We are currently getting some really nice tailwinds in the regulatory space. Obviously, we've all seen kind of M&A slow down in a volatile macro environment, but ERP has picked up. For those who are not aware, in the middle of 2023, SAP announced a large forced migration of 10,000 ECC customers to the HANA platform. And so that is a four-year cycle where they're gonna drive migration.
And we will have a chance to compete for those opportunities, because what will happen is, the customers that have been solving it on an in-house basis will make a decision in that journey: Do we want to replace? Do we want to not do it in-house anymore? Do we want to farm it out to a third-party vendor? And so it's a nice place to be right now from that perspective.
That's great. And where do you usually show up in the ERP process? Are you, you know, how long after they make an ERP-
Yeah, I use a terrible metaphor, but if you follow baseball, we kind of get involved in, like, the fourth inning of the game. So a customer makes a decision they have to make a migration, and the first few months, the first few innings, if you use my metaphor, they're focused on: How are we gonna build the project plan that deals with... You know, maybe they have fifteen different GLs around the world and different acquisitions they've made over time, and now they've got to consolidate this all onto one cloud platform.
So they're building out a roadmap. They're working with a large SI or you know, the Big Four to start the macro planning of that process and doing some of that work. Around about the fourth inning, what will happen is, they'll be like, the CFO will say, "Hey, how are we gonna get invoices out the door? Because we have to be compliant the day we turn this on. The day we go live, we have to know we can do business everywhere in the world." The order-to-cash process is sacred to the CFO.
We get in about the fourth inning. That's when they buy our software. That's when they pay full price, because they're gonna start to use it for the rest of the game, my metaphor, as they're testing out that they're compliant in all their jurisdictions and ready to turn it on at the end of the game. The good news is, we get in then.
What's changed for our business over the last several years is, we're now working with SAP salespeople who are bringing us into the game earlier, because they're getting quota relief if they sell our product along with the large ERP upgrade that they're doing. And so they have financial incentive to bring us into those deals, and that has now created a new opportunity set for us, to even get into the game a little earlier.
I want to touch on that because I think-
Sure
... it's been one of the most impressive evolutions of the business. You know, you talk about partners like SAP, Microsoft, Workday, NetSuite, Salesforce. I know you work with them all in different ways. They all have different end customer bases. But just in broad terms, what's driving their willingness to work with you?
I think the broad terms are, number one, the regulatory environment has just gotten so complex. They know it's a pain point for their customers. You know, take, like, a Coupa or somebody. You know, they launched a great product, but procurement use tax is an enormously complex area, and their customers were suffering, and so they want to partner with us now. I think Workday Financials wants to get traction, but they couldn't solve for tax on their platform.
So I think that's part one. I think the other thing is, you know, we have been Oracle and SAP partners, excuse me, for 25, 30 years, and so we've perfected sort of the elegance of our frictionless technology integration, but what we never got to do is work with their go-to-market teams.
And I think they're seeing now where the pain points for their customers in moving to an OCI, OCI cloud platform or an SAP HANA platform without having tax solved for it, is a real problem for their customers. And so their go-to-market teams have much more incentive, from just a customer experience, to want to do it, and now they're getting financially rewarded for it, so that combination is working really well here.
Okay, that's really helpful. And then, David, and John as well, on the financial side, once you have somebody, what, you know, what does the typical journey of a customer look like, from an upsell and a cross-sell perspective?
Yeah, it's a grea t question. I mean, it's a challenge to answer because I think when you see these customers come in, and we really focus on scaled customers or the hundred thousand plus ARR customers that come in, because there's a great opportunity to grow them. They typically, when we get brought in, we're brought in to solve a problem, depending on where that is in the organization. But as an example, we'll go in, and we'll solve a sales tax problem in the Southeastern United States.
We get through that problem, and then over time, the company says, "You know, we have the same problem in the Northeast. Why don't we bring you here?" And so there's a lot of activity around that.
But each one of the customer journeys is a little bit different in terms of exactly how it plays out. But the one thing that they all have in common is these are large enterprises with very complex organizations that require a lot of additional work and support. And so again, once we get in there, demonstrate what our product does-
... the ability to continue to sell within that customer base is very, very strong, and we've continued to see that. And whether it's, again, sales tax, the use tax, or just further expansion of sales tax or other products, there's a real nice pathway to success. So there's not. I wouldn't say there's really one way people go. I don't know, David, if you want to-
No, it's very rare, you know, we work with 60% of the Fortune 500, and we don't have full wallet share on any of them yet.
No.
Because they're not single monolithic entities. They're made up of so many different operating businesses that they've bought over time.
Mm-hmm.
And so, our opportunity is to expand wallet share, and you've seen us, since we're in public, go from $75,000- $126,000-
That's right
... in ARPC. Just as we're starting to get after that, we still have, like, upper three hundreds to get after. So there's still, for an average-sized customer, continued wallet share that we need to find, but they won't just... If there's no pain, if they're solving it in-house, they will not just give it to us 'cause we're good guys, and they trust us.
And so the point of it is, that's why our LTV is so important to us, because over time, we know that complexity will show up, and the pain will show up. We just need to be there. And so our customer success function, to John's earlier comments, is really critical to ensure that that NRR is gonna continue to grow.
I was gonna ask a follow-up to that. Just on the customer success piece, how much of it is push versus pull, right? You mentioned complexity, obviously, is the...
Yeah
... big driver, but how, how important is that customer success function, understanding the way your customer operates and then saying, "Hey, you know, you have this, maybe, maybe take this as well?
It has-
How important is it?
You know, I will say one of the learnings of my 25 years, you commented, I probably even pay off as well, is educating the customer even further of all of our product set, has proven to be a key part of our NRR driver, and I think previous to having a customer success function, we were just not getting to some of the low-hanging fruit that was in front of us.
And so now we've got a customer base that's far more informed about the products we're bringing to market and what we already have, to then make sure if there's even the inkling of pain, we're there to go after it then.
Right.
That's been part of our success lately.
Let's talk a little bit about competitive differentiation. You obviously have competitors that operate on the large end of enterprise, and then folks that are a little bit further down market and, you know, are trying to move up market. How do you think about your competitive position? And then just broadly, when you think about maintaining competitive advantages versus other companies, what are sort of the calculuses internally you think about?
Yeah. So, this is an important point to understand about our space. There are very distinct personas of the tax buyer. So if you're a mid small business, let's say you're a $40 million-$50 million business or less, you have a controller, you don't have a tax department, and you're solving this problem with:
What's the lowest cost, get this off my desk solution, problem I can come up with? That's not where Vertex plays. We can't compete there because there's no value in that. It's all about low cost, quick turn. But we have a competitor there named Avalara, and that's their market. If you go to the far end of the extreme, and you call it the enterprise market, which we believe is everything over $500 million for us, that's where we really see where complexity is valued and the buyer is buying to address risk and value, not cost.
And so we're oftentimes two to three times our competitor in pricing, and we still win 70% of the deals we bid on because of that. And so I think the point there is, that is gonna be a CIO, a head of tax, maybe a business leader, and there'll be a team of like, you know, in some tax departments, 30 or 40 people, we'll be touching 15 of them as part of the sales process. So very complex decision process.
And then you have the middle market, which depending upon the size of the business and where their jurisdictional footprint is, they could have a CFO and maybe two people in the tax department. Some are gonna be complex, and some are not. So upper market is Thomson and Vertex.
Thomson, a division of Thomson Reuters, and Vertex is the primary servicer of the enterprise market. The mid-market is where Avalara is trying to move up into, and that's where we run into them in, like, the Microsoft Dynamics and NetSuite world. And then abroad, we will see a company called Sovos, primarily as our competitor.
Great. And then you mentioned sort of a high-level win rate, but just taking the number aside for a second-
Sure
... how do you think about the evolution of that win rate over time? Is it, does it feel like you just need to keep that stable? Obviously, it's a, it's a great number, and everything will be fine, or are there opportunities for you to grow that?
Yes. You know, it's funny, and then as that comes down to the ecosystem. So if I were to cite it by the Microsoft ecosystem, when I go back two years ago, our win rate was probably 30% or 40% at best. If I go to the SAP space, our win rate two years ago was probably 70%. It's now moved to about 75% or 80% because we've brought very specialty products out to serve the SAP community. We now have this sales relationship where they're getting rewarded, and so it's accelerated.
In Microsoft, we're now trying to run the same playbook. So we're bringing specialty products into the Microsoft community. We're now gonna go live on Azure this year, so we can start to improve our win rate there. There is opportunity to improve our win rate by bringing more product, and more capability sets to you know continue to drive that. I definitely don't think we've maxed that out.
That's great. You recently announced your acquisition of e-invoicing solution of Ecosio, and I know that deal just closed, so congratulations.
Yeah. Thank you.
And that was concluding what was obviously a lengthy process of evaluating targets in the e-invoicing space. So maybe just talk a little bit about where your interest in the space came from in general, why you see this as an important thing for you?
Mm-hmm.
What drove your interest in Ecosio, and then what your vision is for those products going forward?
Sure. So, e-invoicing, actually, the key part is what's called CTC, Continuous Transaction Controls, is the part of a larger movement where we are creating digital invoicing and, you know, for AR and AP that's been underway for years. It's been largely paper-based, and it is now moving. And what governments realized was, wait a minute, if you're digitizing all of your invoices.
If we could get that data as part of the time of the transaction, then we would be able to assess whether all the business you're doing in our jurisdiction, you're actually giving our fair share. 'Cause there's a large thing out there called the VAT gap, which is the difference between what countries are receiving in VAT collections and what they think they should be receiving, receiving.
It's public information, and it's estimated to be $80 billion-$100 billion. Governments are desperate to close that gap. E-invoicing has become the new compliance pain, which fits very well in our domain. Historically, we didn't have to deal with this, and over the last several years, larger and larger economies are adopting this new requirement. A few years ago, we decided we were gonna get into this space via partnership. We looked at a number of companies. We narrowed it down to a few.
We actually formed a partnership with a company called Pagero. We tried to buy them, the end of last year. The deal fell through because we were outbid by a staggering amount, and I'm really happy. They can have that business, candidly, given what's happened since.
And we have now, we went to our next in line, and we started a partnership with Ecosio in February this year. During the journey of that partnership, we had great alignment with their technology and their culture, when we made a bid to buy them, and as you noted, we just closed that.
Where I see great value there is we can take that new compliance requirement, which is showing up in fifty plus countries around the world, and go to the largest customers in the world, who have the largest invoicing volume in the world, and bring this solution to market at a time when those customers are telling us, "We want to have our VAT determination, our VAT compliance, and our e-invoicing compliance all from a single vendor."
And so the positioning is really great because we can take our US sales force, which is already in place, and have them take the Ecosio product and bring it to that customer base and start to develop credibility and brand in that, and now the e-invoicing within our customer base, as well as use it as a catalyst to expand our European growth rate.
To me, that's the key parts of our strategy here as we now take this acquisition forward, is accelerate the product into our core customer base, which our customer success function that we've been highlighting, is now gonna be a critical element to bring that forward.
And then also, expand our go-to-market efforts in Europe, based on this new compliance regulations, which will go live in Germany at the beginning of next year and France in two years. So the bigger economies are just coming online with requiring it, which is good timing for us because it's. We'll be ready for that now with this acquisition.
That's great. And how did you think about build, partner, buy-
Yeah
... for that, for that acquisition?
So, you know, we are primarily a build shop. Our DNA has really been building over the years. We've made a few acquisitions since we went public, which were very niche and strategic to what we're doing, but it hasn't been, like, the core, like some of our competitors, who made a lot of big acquisitions. We don't see that as the right way to go. But in e-invoicing, it came down to time to market, to have a product that was credible and proven. Because in tax, if you don't have a proven solution, the buyer won't buy.
Like, it's just because nobody wants to get tax wrong. It's just the, you know, the nature of the buyer. So, we made the decision we couldn't build the robust capabilities fast enough, given what was also on them. We just were on a big three-year investment cycle. We had a lot of other priorities we had to get right, and to add this on top was. It was just a bridge too far for us. So I felt like the best execution would be to find the right. You know, if we could partner or acquire and ultimately, you know, acquire, fortunately, has become the way we went.
Just to be clear for investors, what's the difference between what you're getting with Ecosio and what you would've gotten with Pagero? How did you think about that?
Yeah. So there, there's three distinct elements we looked at. So one, you know, and being all candid, you know, the go-to-market team in Pagero was far larger, and so they already had global coverage in ways that we didn't. And also they had, there's about 58 countries that require it. Ecosio has, like, 32.
So we still have some work to do there that Pagero would've given us, but what Pagero didn't have was a modern cloud tech stack. They had a legacy platform, and we never actually had got to this part of our transaction because we didn't, the deal didn't close, but all of their business was run on their own data centers, which had us concerned about how we're gonna get them to a modern platform cost-wise.
Mm.
Ecosio was built on both Google Cloud and AWS Cloud from the beginning, so it's highly scalable, highly redundant, which for our customers, is essential when you're dealing with the invoice volume, so I love the technology stack by a mile. We'll fortunately, with our US sales base, cover for a lot of the global coverage that Pagero would have had.
Okay, that's great. And, is e-invoicing becoming a bigger deal in terms of RFPs that you're in? Are people asking more about it? Is it a really important part of whether-
It is
... they're choosing you as a tax vendor?
It's growing as the big economies are now starting to come. So we've seen this wave sort of coming at us, where our customers were like, "We're solving this with local providers. We don't care about it," to, "Wait a minute, we want to have a single provider that does all the countries for us," because we see this as a global problem that's only going to continue, the dominoes.
Because what's happening is, you take a country like Italy, their tax, their VAT gap has closed dramatically because they're now getting full value for all the transactions that are happening in their jurisdictions that maybe they weren't in the past. And so other countries are watching that going, "Wait a minute, we have got a VAT gap. Can we close it with e-invoicing?" And so I think there's gonna be a continued wave here, and so I think it's where the consolidation is coming.
How much does timeline matter for a customer if that gets pushed out a year or two for any particular country?
You know what?
Does that really move the needle?
It's not gonna move the needle materially because we're in the long game here. This is... I mean, there's enough countries that already have it, that there's buying, there's a selling opportunity right now. And I think, you know, there's just gonna be a dominoes of more countries as we go forward.
Okay, great. And then, turning to AI, you made an acquisition recently of the AI tax-specific capabilities from Ryan, LLC. I know you've been using AI for a number of years now, so this is nothing new, but talk a little about, a bit about your AI strategy, how important it is in tax versus not important?
So one of the most critical elements of the moat that we enjoy competitively is what we call our tax content database. We have over a billion rules that take the 20-plus thousand jurisdictions mapped against thousands and thousands of product SKUs, to provide a compliance database that every month gets shipped to our customers. Because with indirect tax, you have to file either your sales tax or your VAT tax every month.
So you need that constant update of that database to know, in every jurisdiction you're doing business, is my content accurate? So we've been applying AI and machine learning in that space to build the database and to keep it maintained every quarter or every month, excuse me.
With generative AI, we see a number of things we can do that will accelerate that area, where we can go faster in creating more content, which should get us into more verticals, which will give us more customer opportunities that maybe we couldn't compete with, and it also gives the ability to do what we call product categorization. So one of the biggest challenges our customer faces, I'm buying this item in San Francisco, and it's considered, you know, it's a bottle of water, and this is...
Excuse my touching your coffee cup, but this is a different form of a beverage. How is it taxed? And so that product categorization, they have to do inside their ERP system to make sure everything they're selling is positioned properly, is enormously complex.
Generative AI gives them the ability to start to identify what is that product type, down to even the specifics of what are the characteristics of the product itself? How much plastic is used in it, or if it was a soda beverage, how much sugar is in the product? All of which governments are starting to design specific taxes for.
And so generative AI gives us the ability to accelerate their ability to do that, which I think will be a big value add to our customers. Here's the reality, though, of generative AI: It is a probabilistic technology, meaning it's probably right. Tax is a deterministic requirement. I got to get my taxes right, not probably right.
There's still a mission-critical requirement for us to marry our human in the loop, our expertise that we built our brand on for 45 years with this capability. It's not like it could disrupt it, and you could just do it without, because of that reality.
Yeah. John, let's quickly touch on the-
There's someone in the back. There's someone I don't see.
Oh, yeah, please go ahead.
Just to add on that. So, Dave, when you talk about content, what, maybe if you just, I don't know how you want to address this, whether it's U.S. or globally, but what % of tax, I don't know how you say, jurisdictions, taxable items, taxable things, do you have in your database that you can address? So some clients might come to you, but maybe you don't have their content, is I guess what I'm trying to get at.
Yeah.
Is it 50%? Is it 70%? Is it 80%?
It's a fair question. The jurisdictions, there's about 22,000, I think, roughly, give or take, jurisdictions around the world. There's a little over 10,000 here in the U.S. We cover all the U.S. jurisdictions, and we cover all the major economies of the world, down to 140 countries or something. So we have good global jurisdictional coverage. It's the product SKUs that we don't have.
Partially, it's because sometimes the regulations aren't applied to them. So for instance, like, medical supplies, a few years ago, didn't have a lot of complex or any tax on them. There's been an acceleration of tax requirements added on medical supplies, so we recently launched a vertical with very specialty content for medical supplies, and we're now actually seeing some really nice growth as a result.
So some of it is what type of commerce is happening and how the regulatory environment is happening, but I, you know, as a standard, I'd probably say our general coverage is probably in the 75% range of product SKUs. And that's a ballpark. I don't. Like, you can't ask me next quarter, "Is it at 78%?" Because I wouldn't. We can't discern it, though. But here's the thing, we designed our software to be configurable such that the customer can actually overwrite the rules we have or add their own individual.
So if there's a product they're selling that we don't cover, they can research the rules and put it into our software. That is really critical because these companies get audited all the time, and being able to document where the rule came from, that decided that the taxability of this product, we charge 7% in San Francisco for this water, is essential to winning an audit. Being able to write that feature in is one of our key differentiators that helps us win in the market. Yeah, good question.
Great. John, I just wanted to touch a little bit about on the underlying environment. I think we've been hearing from folks that the percentage of sort of ERP transformation budgets that are going to tax seems to be coming up, and you know, obviously, there, there's some macro challenges that a lot of other companies and software are facing. So where do you sit today, and where do you see that going?
Yeah, again, a lot of it has to just do with what the environment's out there. Again, tax is one of those areas that's not gonna get a lot of attention until there's a real big problem. And I think that's something that's been driving our business for a long period of time. But I think what is also very important for us is, we talked a little bit about them earlier, was some of the tailwinds that we're seeing coming out of the ERP conversions that are out there.
And so, as those ERPs come up, and again, as David said, the majority of our of our competition is really in-house. So people are using homegrown solutions, they're using, you know, programs that they wrote on top of their ERP systems for long periods of time and are using them.
They are now not gonna work. They're not gonna be able to be refactored in a new ERP environment. So we're gonna have the opportunity, or the customers are gonna have to make the decision of how they're gonna solve tax. That's gonna give us an at bat, that's gonna give us an opportunity to get in there and pitch our wares. And again, with the, with the close rate that we've, you know, we've demonstrated, we feel like we're in a real good spot there. So from that standpoint, we feel like we're in a pretty good spot.
But again, it's, it's those types of things. It's the regulatory drivers, it's the, it's the ERP drivers, and it's the business drivers. Those three things that David talked about earlier are the key things that keep it coming up.
... That's great. And one more from me, and then I'll see if anyone in the audience has a question. But, just on the company's philosophy around growth and profitability and the trade-off. Obviously, now you're expanding margins and you're, you know, maintaining, if not accelerating, growth rates on a trailing twelve-month basis. You know, how do you think about that calculus going forward?
Drop the mic, isn't that all you want to do?
Yeah.
You're top lining and accelerating bottom line. Isn't that every-
How sustainable is it?
Yeah, no, I-
Where do you get comfortable?
It's a very fair question.
Yeah, sure.
You know, the DNA of the company prior to going public, because we had family shareholders, was all about profit-driven growth. Like, can we continue to drive margin and fund the dividends? The fundamental of the business model is exactly built to do that, especially for the enterprise market. And so I think we're very well positioned to continue to drive margin leverage.
The things we got after with our investment cycle give us the infrastructure for scale at the back end for G&A, and then the go-to-market team is now very well positioned for that. I think with the new regulatory requirements, like e-invoicing, I see the opportunity to continue to move the needle on growth. I don't see this ever being a 30%-35% growing business. Tax doesn't get that kind of opportunity 'cause they don't get budget.
It's sort of like, "If I don't have a problem, we're solving this in-house," period, full stop. You know, again, so I see it getting... You know, I think our management plan that we talk about is trying to get into that mid to upper teens, pushing 20, margins moving above where we are now for sure, is kind of where I see the sweet spot of this business on a sustainable basis.
Where because we have strong NRR and we have a strong wallet share opportunity that I highlighted within the customer base, I see that being a very steady thing that gets into that mid to upper teens, and then margins pushing, you know, north of where we are. I'll just say that.
Great. Any other questions from the audience?
Just, you touched on the potential impact of AI tools on maintaining the content database. Of course. You touched on the idea of AI tools impacting the cost of maintaining a content database. Do you think that fundamentally changes over 3-5 years, both, like, on an opportunity for your company to change its cost structure or to change the way you think about your moat?
Yeah, I think it's both dimensions, to be honest with you. I think there's an opportunity to expand addressable market because we'll be able to create new verticals that we can get deep enough coverage in. If you don't have deep coverage, like oil and gas two and a half years ago, we could not compete in oil and gas at all. We went out and we did some things to build an oil and gas content set that was compelling enough to go to that industry. I think generative AI gives us the ability to build some more of that out.
I also see it as a way to look at the core that we have to update every month and see if we can drive any more cost out of that side of it. We have been using a lot of AI and machine learning in that side of the business for a while, so it's probably a little bit of a margin enhancer, more about getting into new verticals more than anything, I think.
Great. Any other questions? David, last one. What are you most excited about over the next five years? What does this platform look like in five years?
Most excited. You know what? Indirect tax is only getting more complex, and what excites me is we now have across what I call the 12 steps of indirect tax, we have all the areas covered. So there's a huge execution focus across our management team of optimizing and leveraging the assets we've put in place against the market opportunity we see.
And that to me is great, and I think that will drive this business to be far more global in 3-5 years than we are right now, 'cause a lot of jurisdictions around the world are accelerating complexity, which will create more demand for us outside the U.S. It's largely been a North American business, and so I see us being far bigger over time in that space.
Fantastic. David, John-
Yeah.
Thanks so much for being here.
Thank you, Adam.
All right.
Thanks. I appreciate the opportunity.
Thanks so much. Great job.
Thanks, sir.