All good. Thank you all for being here today and for coming to Philadelphia for Vertex's first-ever Investor Day. I'm Joe Crivelli, Vice President, Investor Relations, and we've got a lot of really interesting material to share with you today. Those of you who have followed Vertex for a while know that I like to give you the story up front. I do this when I send out our quarterly earnings report with the key messages that I want you to take away from the quarter. Indulge me for a minute, and let me share with you the key messages that we're hoping you take away from Investor Day today. First of all, Vertex, this is a great business. We have the best customers, the best partners, and the best products and solutions to help those customers and partners make sense of the complexity of indirect tax.
We have a smart, talented management team pulling all of the right levers to drive long-term profitable growth. We have persistent, durable tailwinds that are going to drive profitable growth for this foreseeable future. A lot of you have heard me say since I got here three years ago that we believe Vertex is a multi-year compounder. What I want you to take away from today is that this is a multi-year compounder with literally no end in sight. The material that we've developed to share with you today, I think, will state this case very loudly. A few housekeeping items. Any forward-looking statements that we make today are covered by the customary safe harbor language that you see on the screen right now. A quick peek at the agenda. David, we'll kick things off with the big picture view.
We will do deep dives on strategy, product, and go-to-market. After that, we will be joined by two partners and a customer, EY, SAP, and Comcast, to give you the outside-in view of the indirect tax industry. John will wrap it all up with the financials and the financial path forward. We will conclude with about 40 minutes for open Q&A. We do ask that you hold any questions till the Q&A period. For those of you who are listening online, please feel free to enter your questions through the Q&A portal. We will take a break at 10:00 A.M., approximately 10:00 A.M. If you need to step out, by all means, please do so. With that, let's bring to the stage the captain of this ship, David DeStefano.
Appreciate it. Good morning, everyone. I hope everyone had a chance to get a little time with Brandon Graham, wonderful representative of Philadelphia. We invited Brandon this morning because not only are we huge Eagle fans here at Vertex, but also he's, you know, 15 years of an NFL player, pro bowler, all-pro, won two Super Bowls, came back from injury on numerous occasions. I think he demonstrates the type of resilience, consistency, and, quite frankly, ultimately success that Vertex believes we are. We thought we'd have a little fun having him here. Hopefully, you got your picture taken with him. You'll have a chance to get that when you leave this morning. We have a lot to share. I thought I'd start off a little bit with kind of why. Why Investor Day now? What's so important?
I think it starts with we've been public for five years. Since we went public, we set out on a very defined mission of what we needed to do. I think we demonstrated we would do exactly what we said we were going to do in the time frame we would do it. Over the last several years, we made important strategic investments. They've generated stronger financial performance. Ultimately, they've positioned us to continue to grow. Today, we wanted to reconvene, sort of reset expectations for how we're going to build on the track record that we have built for the past 45 years and ultimately take this business forward into the future.
I want to spend a few minutes talking about and helping you all understand why the depth and breadth of the opportunity that we see with customers is only going to continue and accelerate, and also why we are starting to expand our opportunities with new logos. We are going to highlight a little bit about the tailwinds that are the persistent tailwinds that have been in this business. I have had the good fortune of working at Vertex for 25 years. I can tell you these tailwinds have been persistent, whether it be in technology change, they be in regulatory change, or in just the fundamentals of how businesses continue to evolve in search of growth. All those things show no signs of abating and really have fueled the growth of Vertex.
We think about it, the current wave of ERP refresh that we're seeing between Oracle and SAP now creating a new wave of demand for Vertex. We have the new e-invoicing regimes that have just launched that are going to create an even stronger tailwind over time. Finally, we'll discuss a little bit about how we are bringing AI into our platform, how it will affect not only commercial opportunities that we see going forward, but will also help improve margins from the business. With that, I think it's important to start with how does a company go for 45 years and be as successful as we have been? It starts with having a very definitive rally cry that starts and drives the business forward and cascades all the way into the day-to-day activities. I can assure you we wake up at Vertex and we talk about this all the time. Are we crystal clear on what our vision is? Do we understand what our mission is? Our mission is essential to us because it drives our actions and starts with understanding our customers. We've spent time talking to our customers. We know the pain that they face as they try to grow their business and the challenge that indirect tax creates for them.
It has driven us to continually innovate with technology as well as continue to advance our tax content database to make sure they can operate and grow in any jurisdiction they choose to, creating a frictionless experience not only for them when they engage with us, but also a frictionless experience with their end customer, which is a part of the journey that indirect tax has to deal with. Why? The why is we exist at the epicenter between how commerce is conducted and the dynamism that is going on in commerce and the strict regulatory regime that is tax compliance. That has fueled our growth rate for years. From that position, we have earned an incredibly loyal customer base because of the mission criticality of what we're doing. We touch every transaction that goes through a business. We have to be line item invasive.
We have to ensure that it can operate in any jurisdiction. That is why the largest companies in the world rely on us. Not only do they rely on us, but they actually stand up and act as references to help us win new logos. We have consistently demonstrated by earning those new logos that we can actually expand revenue through a proven land and expand motion, which I'll talk about in a few minutes. I think a great example of this is the fuel we're seeing now in cloud transformations and how customers that have been with us for years on premise are now migrating 100% with us to the cloud. What is so important about indirect tax and why do we exist? We exist because indirect tax is the largest form of revenue that corporations pay around the world.
It's three times greater than what's paid in corporate income tax. The reason why? It's consumption-based. It's predictable. For a government, I can build my budget knowing how much revenue is going to occur versus income tax, which could be planned around in a given jurisdiction. That predictability ensures that governments who continue to expand their budgets and continue to take on debt can more and more find ways and introduce new regulations and new rules through indirect tax. The challenge is for business that creates complexity because no jurisdiction levies tax the same way. I can be selling goods in 5,000 different jurisdictions around the world between the States and the U.S. and globally. Guess what? They're not levying tax on those items in the same way, which means I have to deal with that complexity.
Just imagine billions of transactions are happening across millions of SKUs in thousands of jurisdictions. I have to calculate tax in real time on every invoice. In some cases, now report that invoice information in real time as well. E-invoicing is actually giving your tax information away in real time to the government. That is the complexity they face. It is not just a B2C issue. It cascades all the way through your global supply chain. It is B2B as well. That is the complexity that our customers face. I have been here for 25 years. What amazes me is that companies, so many of them, still solve this problem with internal capabilities. Why? Because, you know what, if it works, if you grew your business up over time and it was good enough, you are going to stick with that as your solution.
You're going to leverage native ERP. You're going to leverage Excel. You're going to leverage a lot of times very sophisticated IT teams building capabilities to customize a tax solution that works until they have a problem. There are three very distinct reasons we get invited to the table to solve that problem. The first is something that they're doing to run their business in the technology or the systems that they're running their business on change. We've seen this go from over the last several years from best of breed to cloud, how our company is choosing what to run platforms on. That causes complexity for a taxpayer because everything they have constructed to work in the current environment now suddenly changes and it's out in the cloud. The company adopts an Ariba procurement system and they adopt a Zuora Billing system.
They adopt different transaction processing systems and the tax department can't keep up. That disruption will create an opportunity for them to say, "We need to bring in a third-party solution, run a structured process, an RFP." That's when Vertex gets to compete. That's driver number one. Driver number two, the regulatory environment will change. As I said earlier, indirect tax is the primary source of corporate tax paid around the world, both in the U.S. at every state, local, county, city. It also applies federally outside the U.S. It's the number one source. Therefore, they're going to continue to look for modifying the rules, changing the way they can raise their revenue base. That serves Vertex well. They will also audit these companies.
Most of our large organizations can be battling anywhere from 5- 20 audits around the world at any point in time. That audit pressure can reveal less than accurate results, causing a company to say, "I need to change the way I've been doing this, solving this problem, and I'm going to go to a third-party solution." Lastly, the business itself changes. Businesses can move into new jurisdictions. They can create new products. They can do M&A that can create disruption to what was a well-defined solution. Now they need to move on and bring in a third party. Those things are our drivers.
The beauty from Vertex's perspective, what I've learned over 25 years is they are mutually exclusive, meaning regardless of the macro environment, government needs to raise revenue, companies continue to modify their technology platform, and businesses are always in search of growth. The beauty of working at the large complex market versus the SMB space is these are the businesses that are moving the economy. They are always dynamic and moving. That creates opportunity for Vertex. How do we do that? We've focused on developing unmatched solutions around the world by starting with looking at the end-to-end life cycle that customers are dealing with that our customers have to think about, and then bringing it together on a single end-to-end cloud platform that enables the company to solve a problem regardless of where they want to do business. It starts with frictionless integration.
It's so critical that we can deliver a solution that does not disrupt the flow of commerce. Think about when you're online and you're purchasing something and you bought 13 items online from your favorite e-commerce site. The last thing you want is that spinning wheel calculating what tax you have to pay on that item as you hit checkout. You need to know that every one of those items has been communicated to the Vertex software. It knows what you bought, where you bought it, and what the taxation is in real time. That's really the key. We are challenged by our customers for the reliability, the scalability, and the speed of processing. We're measured down to milliseconds in terms of the effectiveness and then underpin that with a content database and make sure it's at the accuracy that they require.
On this platform, we have also layered in an important element, which is a data layer. Sal and Uwe and all will talk more about this, but it's essential because what it does is it allows the company to have the tax department to have confidence that the data that comes in from all the different transaction processing systems that we attach to flows throughout the entire life cycle of the process. They have confidence in their tax data. They don't have to wrangle that data, which is a constant challenge for tax departments. Once it's in, that data layer can support all determination, all compliance, and then ultimately be there for those audits that can run out six, eight, 10 years before they're settled, needing to know the exact accuracy of the data, when it was calculated, what was calculated, and why.
Our upcoming panel is going to talk much more about this. I'm often asked, "Okay, so that's your broad-based solution. What are customers actually buying?" I wanted you to just get a quick visual of the diverse portfolio that we have in place. The takeaway here is that there are multiple points of entry that we can start to deliver value. Company A could say, "I have a compliance problem in my VAT area. I want to bring you in just to help me with VAT returns." In today's world now, "I have an e-invoicing challenge," and that's your starting point. The thing we've learned over our journey here for 45 years is customers invite us in only to solve one problem. It's the problem they have right now. I was doing it fine. Now I have a problem.
I'm not inviting you in to solve tax in seven different divisions around the world on 22 different ERPs that I'm running. That is not your invitation. The invitation is to solve this problem. If you solve it and you demonstrate the accuracy that I need and you demonstrate the services and the quality of capability of technology that I require, you are now in place to get the next opportunity and the next opportunity. When you look at the duration of some of our largest customers, that has proven out time and again. That is our proven land and expand model. I will go into that more in a few minutes. Now we are taking this platform one step further. How do we start to leverage in AI and with all the data we are capturing, bring data management capabilities to market?
We will talk more about that on the panel again in a few minutes. Technology, clearly proven, scalable, reliable, working in the largest companies in the world in real time. You cannot get there without content. Content is the lifeblood of Vertex tax content and the tax content database. It is actually what was the foundation of our company and something that we will continue to invest in with rigor. From our IPO in 2020, we had 300 million+ rules in our content database. We have now invested to drive that up over a billion. We will continue to add to that because our customers are constantly looking for more information down at the lowest possible level across more products used than ever before. It has created incredible opportunities for us. When we went public, we did not serve a vertical that was oil and gas.
We didn't have sufficient content to do that. We partnered with a great organization. We built out the content that we needed, and we now are competing and winning and building reputation in the oil and gas space. Adding content has allowed us to go deeper, to go into new verticals. Adding content, premium content like in Brazil or in leasing, has allowed us to expand wallet share with existing customers. There is part of our land and expand motion. Expanding content can open wallet share for customers in a given area. Lastly, it allows us to win new logos. It is a critical part of our success. We develop that content leveraging things like RPA and AI, as you would imagine. It is the final mile that actually matters the most. AI is a wonderful technology, but it is probabilistic and tax is a deterministic thing.
I got a one or a zero in the box. It's all I can have. I got to be confident you can be more accurate than I can do by myself. That's why we're invited in. We have over 100 experts who are looking at that, making sure they're interpreting the rules properly and then codifying it and connecting it to the algorithms that are unique to our software to make sure it's delivering the accuracy that our customers require. It's that harmonization of great technology and world-class content that is critical to our success. I mentioned earlier our success has landed us with the largest companies in the world. I think it's important to just take a look at this slide. We have over 60% of the Fortune 500 that rely on us because of the mission criticality of our software.
If you look at the depth in some of those verticals, it tells you that not only do we have the content they need, but we have the technology that can run at the speed and scale and volume that they require. When I talk about referenceability, imagine you're a company, you're not in the top 10, but you're number 11, 12, or 13, and you now have a tax problem. The first thing your CFO is going to ask you is, "Who else is using this software?" I can put you in touch with six people that are larger than you, more complex than you, but are in the same space that have the same problem. They're going to trust. They're going to give you as a peer the confidence you need to leave your in-house solution and come to Vertex.
The act is incredible references for our success and help us win a lot of new logos. If you look at the tenure of that customer base, of just this cohort, I think it's pretty clear how long they have entrusted us to be their mission-critical provider. Take a great example, though, of the importance of that referenceability. A few years ago, the food services delivery didn't really exist. We all didn't have to think about that. A global phenomenon happened. Now suddenly, food service delivery is the booming business. We were fortunate. We were invited into an early startup in that business, and we won that opportunity.
Because we won that, we had to develop special product and special content because you're picking up your salad and your pizza in one jurisdiction, you're dropping it off in another, you're doing it on a mobile phone. That's all got to be thought about in terms of what's the technology and the tax content needed to deal with all that in real time. We did that. We won one. Now guess what? We dominate the entire food services industry, food delivery industry, because of the capabilities that we created and then the referenceability that came and each other of the competitors as they've grown up have reached out to Vertex and we're now working with them. I think that's a really powerful example of what this base affords us.
I'm often asked, "So why do you win?" I want to talk about this from a number of elements because this is really, to me, one of the most proud things and the largest, excuse me, largest part of how we differentiate. It's the multitude of, excuse me, the multitude of capabilities that we have in place to deliver value. It starts with multi-cloud. Being able to meet the customer where they're at. You're running on Azure? We can deliver our solution on Azure. You want an OCI? We're there for you. AWS? We've got it. Being multi-cloud allows them to optimize spend and optimize performance. Also meeting them where they are in their IT journey. What if they are running on legacy platforms and they need on-premise for a period of time? We'll deliver our solution to you on-premise.
You might already be advanced and gone to SAP Cloud. Great. We can deliver our solution 100% in the cloud. You may be one of those companies that your retail business is in stores on-premise, but you adopted omnichannel and you need part of our solution to work in the cloud. We can meet you hybrid. As our GRR proves out, when you're ready to migrate, you're coming with us and we'll be with you and we'll get you to the cloud when you're ready. That's part one. I think part two is really nuanced, but it's important you understand that the customers we work with do not run monolithic platforms, meaning they're not a $30 million SMB business. I run my entire business on NetSuite. That's fine. That works for you if you're a small company.
When you become $10 billion, $50 billion, $100 billion in revenue, you've got 20, 30 ERP systems. You've got procurement systems. You run on Oracle. You run on SAP. You run on multiple platforms. The tax department wants a single answer that's consistent from everything. Being able to do a one-to-many and connect all those and create it into a single answer is a differentiator for us. We win a lot of large complex companies because we can do that. I highlighted the accuracy of our content database and the reason we invest in it. Rest assured, if you're leaving an in-house solution, the first thing you got to know is, "Am I going to get the same answer or a better answer than I was getting on my own?" Certainly the accuracy of our content database. The partnerships we form are critical to our moat.
We have worked to create those frictionless experiences inside of Oracle or SAP or Workday or Salesforce. That is critical. Then tied to it, working with the tax experts of our alliance partners. All of the alliance partners, top 10 accounting firms have all built the largest implementation practices of our software. In fact, many of them are customers of ours. They are influencers. They are sitting at the table with a tax leader saying, "What solution should I go with and why?" They are running the structured process for the tax leader at the large complex company, and they are often recommending and actually referring business to Vertex.
Once you've earned the right to work with that customer, if you want to win more business, you have to have great services, industry-recognized support like we do, and a great customer success function that helps you expand wallet over time. You build that loyalty, build that brand, and then get the opportunity to expand going forward. It is truly this multi-valued set of assets that we've accrued over 45 years that is why we win. Any competitor could come out and say, "Oh, I've got a differentiated relationship with an ERP than you do," or whatever. You need all of that, and you need the referenceability of the largest companies in the world who are going to say you're the best provider. That is what helps us win time and time again. Let me spend a minute and say, "I've talked a lot about this land and expand.
I want to go into our growth algorithm and help you understand how it drives our business. 70%, give or take a few %, every quarter of our new revenue comes from existing customers buying more. Think about that. 70%. That tells you land and expand is essential to our success. It starts with rock-solid GRR. We need to know that our customers were delivering on the here and now. That content database I talked about, we have to deliver and update that every month and make sure it's compliant in every jurisdiction around the world. That's where loyalty comes from. That's the mission criticality of our software. That's why our customers pay us regularly and so that GRR doesn't waver. How do we expand wallet share? There's a couple of ways.
First, let's just assume by way of example, you're a large automotive manufacturer and you invited us in to solve a sales tax problem in your automotive division, your car division. Vertex comes in, we're solving that problem, you're very happy with us. Three years later, you've got a sales tax problem in your truck division. That's what we call expanded usage. About 25% of the walk from GRR to NRR in our growth algorithm is going to be because customers have bought one solution, they're going to buy the same solution to serve other operating businesses.
Again, working in the market we get to choose, we've chosen to work with, you're going to have companies that have multiple divisions, and that gives you the opportunity to solve the problem in one area and then solve the same problem in multiple areas over time as you prove out the quality of your solution. Same automotive manufacturer could say, "I've got a problem with my European operation. You solved my sales tax problem, but now I have a VAT determination and compliance problem. I'm going to need your engine and your compliance solution for VAT." That's what we call a cross-sell. That's going to be about 50%. You're buying different products to serve different parts of your business over time. That'll be about 50% of the walk from GRR up to NRR. The last 25% will be standard industry price increases.
That's where we get to the core base. Then we get the ARR. The ARR comes from the new logos. We've invested heavily over the last several years to expand our go-to-market function, our channel function, such that we can actually fish in more ecosystems. Meaning we've expanded into Microsoft and Salesforce and Shopify and Workday and other areas, as well as expanding our relationships inside of SAP and Oracle, all creating the opportunity to expand our new logos. It's showing up, quite frankly, in those results. In 2024, we ended the year with a record number of new logos added to the business. Wallet share is so important. We're measured often as we think about our business internally in terms of scaled customers.
We view that as the mission-critical part of our success in terms of how many scaled customers are we getting and how much growth are we seeing from that. We have worked hard since we went public to try to expand wallet share. We talked about the investment needed in customer success, in tax research, and in product to give us more opportunities to bring more value to our customers. We have moved that from 75 up to about 135 through the last quarter. We see the opportunity, though, to go far further with things like e-invoicing, the ERP wave that is hitting us now, areas that we are now starting to invest in in the future, like data management and AI will add to that and allow us to expand wallet share far further in the future because digital transformations are not going to abate.
Regulatory change is going to continue to accelerate and be more complex. Businesses at the level we get to work with are in constant search of growth. That means change for a tax department. That gives us the opportunity to consistently drive revenue per customer up as we bring more value to market. Been on this journey for quite a while now since we went public, and I'm so proud of what the team has accomplished. We built out, as I said, customer success. We've added technology, and we've added content to be ready for the opportunity that's coming for us. We've advanced our go-to-market team. What we've learned is we got to continue to invest. We can't stand still because the world around us is not changing. Commerce is actually getting more complex.
The dynamism around commerce and the way commerce is happening is increasing opportunities and therefore increasing challenges for our customers. Things like e-invoicing, a regulatory mandated opportunity, is accelerating. We're seeing it now moving into the largest economies in the world and lowering the bar of how many companies have to comply, all creating demand opportunities for us. We're building our own capabilities, leveraging things like AI and data around data management, all to give us new opportunities for growth. How are we doing all this? I'm so proud of what the team has accomplished, and now we're taking on this new journey for growth. It's about the team. You're going to get to meet some of them here today. I have an incredible leadership team. Quite frankly, you'll realize the depth and breadth of them in a few minutes.
Deep industry experience, worked at far bigger companies, have seen what scale needs to be, understand tax at a level that's truly amazing, and know how to go to market with the efficiency and effectiveness that we need to be successful. Before I leave here, let me just summarize. I think you'll hear in a moment that, and I believe you should walk away from today as Joe teed up, we are clearly the market leader in the space we go after. We have a significant competitive advantage that isn't going to change. It's going to fuel the durability of our growth to not only expand wallet share, but also continue to accelerate new logos. As we've proven with our core business from the last investment round we made, you will see margins accelerate, and we'll be able to walk you through why. Ultimately, through the partnerships that we have, why we're positioned to grow into the future. With that, we're going to go a little deeper now into strategy. I'm going to invite Chirag Patel up to take you through the broader market opportunity and really double-click on some of the strategies we're putting in place. Thank you, Chirag.
Right. Thank you, David. All right. Thank you, David. Good morning, everyone. It's really nice to be here. I'm going to spend the n ext 20- 25 minutes talking about our enterprise strategy at a high level and why it's geared to set up to create long-term sustainable growth and competitive advantage. Before I do that, I want to highlight some of the points that David made that are so critical in understanding our industry and our business.
The first being, why is it that our customers view us as an absolute must-have versus a nice-to-have? Right? Our customers are selling more products to more places through more channels than ever before. Every buy-sell transaction that our customer makes must be evaluated for tax against millions, if not billions, of product and jurisdictional specific rules. These rules are in constant change. There are new rules being added all the time by the tax authorities to try and increase revenues from transaction taxes. It is also the best, and as David mentioned, sometimes the easiest way for them to fund their government programs. If the companies do not comply, not only do they run audit risk and penalties that you are all aware of, but they also run major operational risk. Imagine if they cannot calculate taxes accurately or at all on Black Friday. That translates into real revenue loss.
It also translates into brand and reputation risk. Right? It is not just an audit risk issue. It is a real business issue. This is why so many of the Fortune 500 companies choose Vertex, because they look at Vertex and what we do is mission-critical to their business. Let me talk about the size of the market. It is a massive market. It is a $30 billion opportunity today, growing to $35 billion by 2028. That includes indirect tax solutions and the new e-invoicing mandates that are out there today. I am just going to re-emphasize that this market is highly specialized. It is a vertical software industry. Okay? This is not a horizontal play. You really need deep subject matter expertise and experience and reputation and a brand to be successful capitalizing this market. Okay? Now, what is driving some of this market?
David highlighted a lot of this, but growing complexity in both domestic and foreign regulatory requirements. Okay? That is driving the need for a heightened need for more robust third-party indirect tax solutions, solutions that can scale at a global level. You think about the growth in commerce. E-commerce alone is growing at 29% CAGR. Excuse me. The emerging e-invoicing mandate, which you are going to hear a lot about today, and I am going to highlight some more in a minute. You know, over 200 VAT regimes are going to be requiring this mandate by 2030, according to PwC. That is a lot of mandate, a lot of countries out there. We will get into that. Let me describe to you one area of this market that, again, David highlighted, but I am just going to re-emphasize, is our unique competitive advantage. That is really around complexity.
We look at complexity as a driver to growth. Okay? Let me give you some examples. Our customers are some of the largest companies in the world, as you know. They have really complex business systems and compliance requirements. Many of our customers, most of our customers sell through lots of different channels, right? Bricks and mortar, online, mobile, social media. Each one of these point of sale systems, we have to integrate with each one of these point of sale systems, calculate tax at a transaction level in real time, and make sure all of these systems are coordinated. In addition, many of our customers might have 10, 20, sometimes hundreds of ERP systems that we have to seamlessly integrate with and orchestrate a set of aggregate data in order for our customers to be able to do their periodic and now real-time filings.
That's one area of complexity that we thrive. The second area is really around what we call product taxability, right? Which is highly variable. Maybe some of you know this, but maybe some of you don't. Not every product is taxed the same. Let me give you a simple example. I brought this up not because I needed water, but it's my example. A simple bottle of water. In Pennsylvania, if you buy this water, it's tax-exempt. You buy it in Arkansas, it's subject to sales tax. In Texas, if you buy it in a grocery store, it's tax-exempt. You can walk across the street and buy through a vending machine, and there's a sales tax. If this bottled water contains any flavors or coloring, it could be considered a soft drink, which gets taxed at a much higher rate.
In many cases, this bottled water is probably made out of plastic, right? Some states will charge a green tax on top of the regular sales tax. That is complex just for a simple bottle of water. Our customers, in many instances, have millions of product SKUs. They are a lot more complex than this bottle of water. They could be electronic components or electronics and highly engineered products that have lots of engineered components that sit inside that product. Oops. Imagine how complicated that could get. The tax rules associated with this are ever-changing. As David pointed out, and you are going to hear this a lot, we manage well over a billion tax rules today through our content and our software. It is going to continue to invest in growing it. This also highlights that complexity reinforces our 40-year moat.
It'll continue that way because tax is not getting simpler. Business is not getting simpler. It's just all getting a lot more complex. Now let's turn to our strategy. I describe it as a three-pillar strategy. It's really around growth, right? Three growth pillars. The first pillar is really about driving growth in our core enterprise segment, right? All the big companies that we work with today, continuing to really reinforce our value proposition and delivering more value to that segment. The second area is really around expanding the core. It's growing our geographic footprint, also growing into new segments or growing our new segments like the mid-market. Thirdly, it's really about scaling and differentiating through our platform. It's all about technology. Let's get into the first pillar. Excuse me. I think all of you have heard about the ERP migration opportunity that's looming.
This is going to be an important source of new opportunities for Vertex. I'm going to double-click on this in a second. It is a big opportunity for Vertex. The second area is really around cross-selling. You know, we work with so many multinationals. We have so many customers, U.S.-based, but multinationals. There's a lot more value that we can deliver to that segment. It's a real emphasis on cross-selling some of our products, whether it be use tax or VAT compliance offering for where they may have subsidiaries around the world, e-invoicing, which we're going to talk more about, certificate management. There's a lot more value we can bring to these customers, especially as their business gets more complex. The third area is really around strengthening our key influencer relationships.
What I mean by that is tax departments alone are not in a position to make large-scale technology purchases on their own. They typically partner up with their CIO organization, their IT department, or finance. We are strengthening that relationship, helping our customers who are the tax departments build the business plans to make the case for technology transformation. We are really engaging our customers on not just sales, but really helping them build their business plans. The fourth area is really around e-commerce. Many of our customers run e-commerce businesses. Most of them, or many of them, are separate lines of business, right? They operate in some ways independently of the core business.
We are emphasizing our brand and our reputation with those companies and with the tax departments that we work with to enter and penetrate their e-commerce line of business with our e-commerce and marketplace offerings. Let me double-click on the ERP opportunity. We look at the ERP migration opportunity as a $1.8 billion total addressable market through 2028. That includes both SAP and Oracle, who are encouraging their customers to get off of their legacy platforms and onto their modern-day cloud environment. We know, and we've heard through our alliance partners, but also directly from our customers, that they're starting to have to develop their business plans and their roadmaps and their financial plans to figure out how they're going to affect this migration. How are we poised to win? One, it's the strength of our relationships with our alliance partners and ecosystem partners.
We want to get in the middle of that business planning stage. Many of our alliance partners are helping these companies with their business plans. We want to emphasize, and you'll hear more about it a little bit later, our tight relationship and integrations with SAP and Oracle. We have a lot of proprietary embedded apps, not just integrations, but apps inside of this software. We also think that we will receive a premium, a 25% ACV uplift for moving companies to the cloud. The one thing I will say is many of these opportunities that come our way are more than likely going to be in the form of RFPs or formal requests for proposal. Many of the tax departments that are issuing these RFPs are actively taking this opportunity to rethink how they're actually performing their indirect taxes.
Just the way David described, a lot of these are homegrown solutions built on spreadsheets and duct tape. This is a unique opportunity for tax departments to make the case for acquiring a more robust third-party solution. In RFP situations or formal situations, Vertex really thinks we can, we have historically shown that we have successfully been able to win the majority of those situations. Okay. While ERP is unlocking opportunities in our core business, we're also focusing on expanding the core. What that means is growing our geographical footprint and growing our mid-market segment. Again, we work with lots of multinational companies. Many of these companies have subsidiaries and brands all around the world, particularly Europe, which is where we're really emphasizing our growth.
There is an opportunity for us to really highlight our VAT compliance and determination solutions to those subsidiaries. Now, e-invoicing is really a catalyst for growth in Europe and other parts of the world. E-invoicing is a must-have. It's a mandate. It's not a nice-to-have, right? Our ecosio e-invoicing solution is incredibly well-positioned to compete in that space. You'll be hearing a little bit more about that as we go. The second area, or the third area, is really around the mid-market. There are a lot of younger companies who are doing business globally, but also have the complexity profiles that are similar to that of these large enterprises. They are a perfect target for us in terms of being able to promote our tax solutions. It's a big market opportunity, this mid-market segment. Finally, it's really about deepening our region and segment-specific relationships.
We're starting to plant some early seeds with particularly our alliance partners who have customers in other parts of the world outside of North America and Europe, where these companies have U.S. tax and European VAT obligations. We're testing to see whether or not there's interest from these companies to acquire our software. So far, it's been very positive feedback. Let me double-click on e-invoicing. You're going to hear a lot more about e-invoicing as we go, but e-invoicing is, the way we look at it, it's a $7 billion market opportunity.
Now, what we're referring to when we talk about e-invoicing are the new global mandates that require every company doing business in a country that has that mandate in place to have to deliver an invoice, every invoice they produce in that country, which is, by the way, a tax that has a lot of tax data in it, an invoice in that country in real time to the tax authority. The tax authorities are going to use these real-time invoices to try and reconcile what the company is producing on a periodic basis to see if the numbers map out, if they're accurate. There are 200 of these VAT regimes that are going to be introducing this mandate through 2030.
This mandate does not only produce a burden on our customers to have to produce these invoices accurately, right, but it also introduces potential audits and risks if these numbers do not reconcile. Now, what is our opportunity? The companies that have the most invoices are the companies that are the most challenged. It just so happens that look at our customer list, large multinationals. They have the most invoices, do business globally, everywhere around the world. The market is also highly fragmented. I look at it still as an early market opportunity. Yes, there is a lot of noise. There are a lot of solution providers out there, but it is still an emerging market, and there is an opportunity for us to define that market. It is very fragmented. Today, there are lots of local country solution providers who are providing this service. Unfortunately, they are not scalable.
Our clients need scalable global visibility, but these local country solution providers are not scalable, okay? Secondly, there are lots of APAR automation companies that have entered the market to try and capture some of this revenue because they're struggling in APAR automation, let's be honest. They're jumping into this game using their technology. What they're quickly finding out is that this is not a technology-only problem. This is a tax problem. They don't have tax data or the tax experience to be able to compete in the long run. Our customers are starting to point that out and highlight that. Now, why is there an advantage for Vertex? We're in the tax business, right? We do VAT determination and compliance all day long. For companies that are using our VAT determination and compliance software, this becomes an easy decision.
As long as they understand the risk of not doing it, it becomes an easy decision. Bundling and acquiring our ecosio e-invoicing product only strengthens their ability to satisfy this mandate, but satisfy it in a way that's actually going to reduce some of their risk, right? We're going to be able to reconcile their numbers because we're using the same numbers for the periodic filings and for the real-time filings. For customers who don't use our VAT compliance and determination solution, this offers an opportunity to sell the bundle, right? Again, there's a heightened need now for more VAT compliance and determination engines. Okay. It's also the technology itself is built on a modern stack. I'm not going to spend too much time on it because I'll let my product and engineering teams talk more about it. Okay.
With all of that growth, all of that complexity with e-invoicing mandates, our customers are having to do more with less. They're requiring their solution providers to deliver world-class, modern-day platform and product experiences. That leads us to the third pillar of our strategy, which is really around scaling and differentiating through our platform. What we keep hearing over and over and over again is that indirect tax departments are just stretched too thin. They're having a hard time keeping up with all of this that's hitting them at once. All the global regulatory mandates, all the business complexity that's tied to it. They're also having a hard time hiring qualified CPAs and accountants. There's a shortage of these experienced people. Their expectations of their solution providers is that they'll be able to deliver technology that'll help them scale and meet the growing demands.
Our platform strategy, which again, we're going to spend a lot more time on in the panel, is really geared towards helping our customers manage risk at a global scale and do it as efficiently as we can, as efficiently as we can deliver. That means delivering products that service the end-to-end workflow of the indirect tax department. I'm not going to go into the details of the workflow, but think about a workflow. We deliver products that sit inside the entirety of that workflow. These products integrate seamlessly for our customers. Even if a customer purchases one product in the workflow, they can very easily click and provision the second product to make it easier. All of our ability to cross-sell becomes a lot simpler because it's through the platform.
We're also using AI to improve the workflow of our customers so they can focus more so on the most important tasks and not some of the mundane tasks that they typically have to perform. Our data management product, which is soon to be launched, is going to bring all of the necessary tax data that our tax departments need to be able to operate more efficiently, but also be able to do more tax planning to really kind of get ahead of the workflow and to be more ready for audits if and when they occur. Finally, the platform allows for a much superior customer care and overall customer experience. Being able to engage, we'll be able to engage our customers using technology in ways that we couldn't do before, increasing our touchpoints, increasing our cross-sell opportunities. Okay. I touched a little bit on AI.
When I think about AI, as we developed our AI strategy, we didn't look at AI as something that's like this big monolithic thing, right? We kind of looked at it as it's the future internet. It's going to be part of everything we do, right? It's going to be ubiquitous. It's going to be embedded in everything we do. Think about the four areas that we're actually applying AI. It starts with internal transformation that is driving margin and even deal velocity. For example, we're arming our salespeople and our marketing people with AI technologies to be able to better target and engage our customer prospects. The second area is around customer experience.
Touched on a little bit, but every one of our products will have copilots to be able to not only navigate the product, but all these complex content and complex rules that David talked about and I touched on as well. They need to know how these things got calculated. AI can help you do that. The third area is around commercial value. That's generating ARR, right? We recently launched a product called SmartCat. That water bottle example that I showed you and the millions of products that people have to categorize, where our GenAI-operated SmartCat is going to make that entire process a lot more efficient and hopefully, and we're seeing it already, a lot more accurate. This is an industry play here. This is industry first in many ways.
On the partner side, we're enabling our partner ecosystem, creating using AI to more seamlessly integrate with their platforms, but also leveraging our alliance relationships who have deep subject matter expertise in tax as our human-in-the-loop partners to help train and grow our models, right? Again, we don't look at AI as one thing. We look at it as an enabler to everything we do in our business, internally, all the way through our customers and our partners. Okay. Switching gears just a little bit, AI is an accelerator to our growth, but so is corporate development. We've demonstrated, certainly last year, that we can acquire a company like ecosio, bring it in-house, integrate it, take it to market, and become an incredibly competitive offering, which is what we've done.
We've also demonstrated that we can buy a raw asset from a services company, Ryan, bring it in-house, train the model, get the system running, and launch it as SmartCat. We are going to continue to do that, look for opportunities to create either accelerate our market entry markets, but also to expand our product portfolio. The second area is around partnerships. We are becoming a little bit more aggressive about exploring and identifying partnerships that will create scale in our business, whether it's on the market side or on the capacity and the ability to scale our operational capability side. The third area is around investments. We know there's a lot of technology innovation going on all around us. We are exploring the potential of investing in either projects or projects with academia or even potentially young startups that we think will help accelerate our innovation efforts.
All right. That was a lot. Let me try to wrap it up. Hopefully, there are four things that you took away from my presentation and perhaps a lot of what David was describing as well. We are a leader and a must-have in our industry. We're not just a tax calculation company, right? We're a must-have. Companies cannot conduct commerce without our solution. We are mission-critical, okay? We not only help them conduct commerce, we help them manage operational risk and even potentially brand and reputational risk and financial risk. We have unmatched ability to address complexities. Nothing in tax is getting simpler, okay? Those simple things can probably be done through automation and AI, but nothing in tax is getting simpler. We have unmatched ability to address those complexities. We operate in a large $30 billion market.
I'll reemphasize, this is a highly specialized market. It's a deep vertical is the way I describe it. It's a vertical. It's not a horizontal SaaS play. It's a vertical, deep vertical SaaS play. That's why there are only a handful of viable players operating in this space. Finally, we have a well-defined strategy, one that's really focused on growth, maximizing and delivering the maximum value to our existing enterprise customer segment, growing our global brand and our mid-market segment, and finally, differentiating and scaling through our platform and technology capabilities. All right. With that all said, I am going to introduce Jeff Foucher, who is going to facilitate a product panel.
Thanks, Chirag. I am bringing up water to drink, not to reference in any way. Great. Awesome. Good morning. I am Jeff Foucher. I'm Vertex Chief Marketing Officer. I've been with the company for eight years. I want to also say thank you for all of you for joining us today and investing the time to learn more about our business and our growth trajectory as we go forward. I'll be hosting our first panel here, and we're going to touch on our overall product portfolio strategy. We'll touch on where we're accelerating some investments across our cloud platform. Then we'll highlight a couple of key investment areas that we've referenced already and go into a little bit more detail. These are areas we believe will further extend our market leadership position and capitalize on the growth opportunities that David talked about. Okay. Guys, thanks for joining us. With that, we'll do some intros and kick things off. Mike?
Sure. Yeah. Thanks, Jeff. Good to be with you all here today. As Jeff said, I'm Michael Bernard. I'm the Chief Tax Officer here at Vertex. Prior to coming to Vertex almost seven years ago, I actually spent most of my career in three large corporate tax departments. One was a construction and mining company. Another one was a major U.S. railroad. Most recently was at Microsoft for 28 years, where I essentially led three quarters of that tax department. Everything from indirect tax to direct tax to benefits to a lot of transfer pricing work. That was when I was at Microsoft, where I really implemented three large Vertex solutions. One was a tax engine for our European operations. Another one was a telecommunications tax engine for our Skype business and further services beyond that. Lastly was for Microsoft.com, our e-commerce website.
Prior, before you couldn't come to Microsoft.com and buy anything, but before I left, we actually implemented something like that. Today, where I work today is I work with these gentlemen here and trying to work with Chirag and trying to use some innovative things about what we can do to actually come and produce software and services for our business. A couple of key things that I do currently is one is we have a very rich environment for our customer community. We actually, our department actually serves up about 24 in-person webinars and in-person connections with those folks. It represents about 800-900 customers and about a third of our revenue base. We are tightly committed and connected to those individuals. The biggest advantage we get out of that is we build trust with them, but also we co-develop software and services around that. We also do a lot of work in the social media space. Those are some of the things that we're doing here today.
Awesome. Thanks, Mike. Sure. Hey, everyone. I'm Sal Visca. I have the privilege of being our Chief Technology Officer. I lead our product and tech teams for product management that Uwe leads, as well as our software engineering team, as well as our emerging tech groups. Within that, we have our customer support and tax research teams as well. I've been at the company four years now. I started off many years ago, almost four decades building technology, 12 years at IBM, did a bunch of startup stuff.
I was a CTO of a company called BusinessObjects in the analytics space. We sold to SAP for about $7 million back in 2007. I kind of helped drive the integration into SAP and became CTO of their overall platform team. Most of my career, I've been involved in building platforms that enable new applications to be built on top of it and to expand that out, which has been quite relevant here. After that, I kind of did a bunch of work in the e-commerce market, was working with private equity companies, did a bunch of board work, and then was thrilled to join here in 2021. Really excited. I've always known Vertex in the market, especially in the e-commerce market and all the things that were happening here. When I understood the vision forward, got super excited by where we could go. We have been investing quite heavily in building out this platform and all the capabilities around it. Really excited to be here.
Yeah. Good morning, everybody. My name is Uwe Sydon. I'm with product management and our tax research team. Before I joined Vertex, I had several executive roles in companies like Siemens, Nokia, and BlackBerry. I'm really more on the telecom side from my background. I was very fortunate that these countries really allowed me to drive business out of different countries like Switzerland, Canada, and the U.S. Now, second time in the U.S. I joined Vertex about six years ago. Really, the mission of MANET was to try to build a strategic product portfolio and a vision around products and also really to bring much more business rigor into the product management organization.
Excellent. Mike, I've gotten to know you over seven years. I truly appreciate all the knowledge that you've given me. You have a very unique perspective, having spent your whole career in indirect tax with some of the biggest companies on the planet. Maybe you could give us a sense for what does it feel like to actually be a global tax leader and the teams that they're having to manage and some of the challenges they're facing.
Yeah. Thanks, Jeff. You know I always love to talk about tax.
I know you do.
I really love it. A couple of things. I think it's important for the folks in this room to know a couple of things that are greatly impacting the indirect tax space. A couple of years back, Jeff, I actually kind of coined a term, which was, I consider this kind of the golden age of indirect tax. There's been more changes in the indirect tax space in the last seven, in the last five to six years, and for the foreseeable future than there has been in, say, the past, say, 70 years. Let me give you a few attributes around that. First and foremost, I think a lot of folks in this room are familiar with the Wayfair decision that was decided by the U.S. Supreme Court back in 2018. That revolutionized the reporting requirements that if you sold something or you bought something in terms of how you had to collect or remit sales tax. Previously, I think most of you remember those days before 2018 where you only had to collect and remit sales tax where you had a physical location, so maybe a brick-and-mortar store. After 2018, what happened was their geographic footprint expanded greatly.
It not only came where you actually had a physical presence, but if you met certain sales levels in other countries or other states, you had to collect as well. What we saw a lot of, we had a lot of customers who their footprint increased by three or four or five-fold. The other thing too is that that decision in Wayfair actually was accepted on a global basis. It was not just a U.S. state mandate, but it also became a global mandate. If you were here in the U.S. and you sold into Germany or Poland or any other place and you met certain levels of taxation, you had to collect or remit VAT tax, even though you may have no physical presence there. That is number one.
Number two, the other thing that happened was that corporate tax departments had to also expand their catalog that they supported. Previously, they might only have to support a brick-and-mortar catalog. What happened was with the mandates that occurred in March of 2020, particularly as it related here in the U.S. and other places where in-person contact was restricted, today, e-commerce websites are commonplace. Everybody knows that. Back then, they had to be actually built up and enhanced. What happened was if you were in a corporate indirect tax department, not only did you support brick-and-mortar, but you had to support third-party marketplaces, maybe a first-party marketplaces, and all the channels that Chirag had mentioned before. Mapping to our categories in a research group became rather just expanded algorithmically greatly. That happened.
They had to support a large market, a bigger product catalog. The third thing, and I want to underscore something that David said in his opening comments, and I think you should really kind of keep this in mind, is the indirect tax is the most consistent, reliable way for governments to actually fund their ongoing operations. There is a lot of data that shows over the last 40 or 50 years that indirect tax collections track very nicely with GDP, whereas income taxes and property taxes are not. They are much more variable. When the bad times hit, they actually do not come back as fast, and they are more greatly affected. That is a third thing.
The last thing I do want to mention is that talent, and I think David and Chirag both mentioned this, is that talent is at a premium today in indirect tax spaces. The accounting profession feeds the tax profession, and we're at a 17-year low just in 2024, the number of individuals who actually sat for the CPA exam. That's one thing. The other statistic is that about 75% of the CPAs today in this country will retire over the next 10- 12 years. That group of individuals who support that profession are lessening. I think today what we're going to see a lot from Uwe and Sal is this idea that we have to build these platforms and these automated systems that really support the fact that there is going to be a talent shortage in the future.
Excellent. Thanks, Mike.
Sure.
Yeah. I love the golden age of indirect tax.
It is.
The golden age of indirect tax technology.
It is.
With that, how's this informing and providing context for how we're responding from a platform and a roadmap standpoint, guys?
Maybe I'll start, and then our platform strategy is really there to enable this kind of end-to-end that we'll talk a lot about. My past has been around building scalable enterprise solutions that integrate with all the various tax, the various business flows. In indirect tax, obviously the business systems are where all the transactions are occurring. I think it was mentioned earlier, whether it's SAP or Oracle or Workday or Salesforce.com, all the ERPs are managing the accounts payable, the procurement, those kind of processes. E-commerce has brought on business to consumer, business to business, business to business to consumer, which is through marketplaces.
We have customers like a Best Buy. They obviously do all of that. They have their retail stores and their point-of-sale systems. They may have the Geek Squad guys that go out with their mobile devices and they're purchasing things. All of those transactions are occurring, and all of those need to funnel into a system to figure out the taxability. We obviously built up this huge tax determination capability. The rules, these billion rates and rules are things that are constantly being updated, especially at a lower county level and more grander level. Huge amounts of data in this rules system. All those transactional systems have to hit, literally hammer that tax determination engine to make sure that the calculation is done correctly and within milliseconds so it doesn't get in the way of the transaction. We're operating live, real-time in all of those systems.
Literally, you flip on a switch, our system gets hammered. We're collecting data. By the way, we have really strong connectors in each of those applications space. Our SAP connector is like a million lines of code. It's really significant. It's not just a connector that's grabbing a few fields. It works within the flow of the SAP systems. These are deep connectors that are collecting hundreds of fields, are able to process the transaction real-time. Our system is collecting in our data fabric all of the telemetry, all of what I call the data exhaust from the transaction, all of that gets pulled in. Because think about it, the tax department needs to make sure that the right tax is being determined and calculated and collected and then ultimately remitted. If you miss that and you have it wrong, it flows downstream.
Your audit process has to take care of all that and try to reconcile all of that downstream. Much, much more expensive to deal with there. If you get it right up front, you're able to kind of collect all that. Imagine when the auditors come along, you're able to show them exactly what happened, the data that was collected, the transaction. You're kind of recreating that transaction in real-time, and that goes a long way. Our whole strategy is really to enable those end-to-end flows. We'll talk about AI in a few minutes. We see lots of opportunities to leverage AI, generative AI in these areas. We have a really powerful deterministic engine, as you heard David talk about. It's a rules engine that can operate very, very quickly. The AI processes are around that. We're really excited about where we can go with all this. The data foundations are really critical, and we'll talk more about some of the data opportunities we have. Excellent.
Yeah. From a product point of view, of course, maybe let's start with that. We have a very rigor process that makes sure we look at everything we build from a customer lens. We're just not building some stuff. Of course, we think it's cool. We use people like, yeah, it's also cool. We use Mike and his team and our customers to really make sure we look through it through a customer lens and we focus on the value we're generating for the customer and actually for us as well.
If you look at it from a business point of view, of course, the portfolio really enables us to cross-sell by delivering new solutions, cross-sell to our installed base. You heard that before. Help us grow in Europe by making sure we have the right solution for the region. Obviously, it's VAT versus sales tax, so you have to have the right solution there. Open new market segments by, well, having the right content and also really making sure we're addressing the right ecosystems. We talk a lot about SAP and Oracle. That's ecosystems. If you go lower in the market size, not every small company has SAP. That's a big thing. There's Microsoft as well. How do we now make Microsoft the same as relevant as SAP is? We're focusing around that.
If you really look at it specifically, there's a couple of key investment areas. I think Sal said it. It's AI. Obviously, everybody looks into AI and we're just launching a product called smart categorization. I think Chirag talked about it. The other big thing is, of course, e-invoicing. You heard about that. It was really the missing puzzle piece that we had, and it's really now coming together. That's really super exciting. Content in general, we continuously invest in content. We expanded. David talked about oil and gas. We just also basically enabled medical devices, a huge area where I think we actually have there's really no competing content there. There is a greenfield opportunity. We talked a lot about data.
Data management for our customers is really something where, and Mike correct me if I'm wrong, but I don't think there's any commercial solution out there. All these tax departments trying to manage their data with Excel and all kinds of stuff. We think there's an enormous opportunity for us to have a commercial solution there to help them really manage the data. That's really the areas where we invest in here.
Awesome. Thank you, Mike. From a platform standpoint, right, how does that impact customer experience? What is the customer expectations when they interact with a platform? How do you and your teams view that?
Sure. I'll go back a little bit to our customer community when I mentioned we meet with all of these customers throughout the year. Really, what corporate tax departments really want, enterprise customers want is something that we term what's called the self-service model. I think when you think about the technology advancements that have been in terms of data, and when you think about the platforms that we're trying to build, the tax department, what they really want is they want a system where they can get all of the data that they want and then have a place like our platform where they can solve essentially all their issues, where they can do all their compliance work, their planning work, they can handle their audits.
They really, we've talked about this before, where they don't have to leave that. They never have to leave the Vertex platform. That's really kind of what we're looking for is that self-service model. There's certain attributes that they want to it. I think the self-service model is very, very achievable, particularly over the next several years, given the fact that our content supports them that, but also the platforms that we're actually building. Some really good opportunities there for us.
Very tech-savvy.
Exactly. Yes.
Let's move over a little bit. David talked on our last earnings call about accelerating some investments around AI in 2024, some very targeted investment areas there. Let's just step back and kind of get perspective on where we are with AI today and kind of where are we thinking about it in terms of going forward.
Yeah, maybe I can kick it off. We obviously are using AI as a technology company, getting great efficiencies and productivity from code generation, test bench management, all these kinds of things. Super powerful tooling that we can use for documentation of things that we're building. Really importantly, we're building AI into our offerings, that end-to-end platform. There's so much opportunity to really leverage agentic AI, large language models, small language models, retrieval augmented generation. We're doing some stuff around neural symbolic AI. There are really amazing things where we can kind of bring the best of what large language models bring along with deterministic models. We've been digging in on this for many years. Even before I joined the company, a lot of machine learning, more traditional machine learning has been done. I've been doing neural networks and deep learning and expert systems for years. Ultimately now, with all the capabilities we have and the capacities of these large language models, it's phenomenal. I'm super stoked, as you could probably tell, about the opportunity we have here.
The beauty is the combination of what we have in this kind of really heavy-duty rules capability and then being able to augment that with, for tax content curation, taking content in, being able to have reconciliation services, these Agentic AI componentry. We can connect to our partner ecosystem as they have specialty agents. Our agents can work together. We can orchestrate all of these. Really incredible opportunity for us. We have been building AI as a foundation within our platform. We keep talking about a platform. Platform is really a common set of services. It is a cloud container service that allows us to leverage all of the applications we have today, the ones we are buying and the new ones we are going to build in the future. All of them are going to benefit from the data fabric capabilities, the data governance, the AI models within this.
Copilot is starting to emerge through all of our interfaces to guide users through the interface. Over time, customers will be able to talk in a conversational way to their data for reporting, for saying, "I want to do sales in France," and let the system start to drive that. AI as the interface for the large language models is a fascinating area. We are investing heavily in all this. We are prioritizing within our envelope of investment more and more AI spend to go along with the work we are doing more traditionally.
Excellent. We have seen multiple use cases for commercial application. Neuro-symbolic AI, got to do a little research on that. A particular use case that we did identify was around product mapping and smart categorization. Let's dive into that. That is an area that we are going to be investing in. Maybe you can give us a sense for, to start off with, what is the problem that we're solving and how big is that problem?
Yeah, it's actually a very real problem in a sense. The CalcE ngine we have has actually solved the automation of determining the tax rate pretty well. This is a solution. There is no need even to replace it. Now, for the Calc ezngine to do that, you have to basically tell the engine, "Here's the product you're going to process." You have to map the product to what we call tax categories. That is a manual process today. I think, as Mike Turn pointed out, there might be thousands and thousands of products you have there. I think one thing that I learned in retail areas, some of our customers have thousands of new products a week.
Imagine you have to do that. It depends really on you have to understand the product very well. Obviously, you have to understand our Calc engine very well so that you understand what you map. Rules might change. It is a real problem. What we've done now is we have actually AI is it's actually a perfect problem for AI. If you train it in the right way, and once we got this human in the loop really figured out, it was really a breakthrough. Basically, what the AI will do, it will take a look at the product. It will make a recommendation where to map it to. It will also tell you why it made that recommendation.
It would also tell you, "Here's the probability, my confidence level." The human in the loop will say, "Well, 75% confidence level, not so good." We'll take a look at it, and you correct the AI. That is important because that's how you train the AI. You train the AI with tax experts. That is actually very unique in that process. I think that's an important part. That can actually—we're focusing on retail today. Obviously, we have a very rigorous process for how we bring things to market. Every customer will have that problem. Some larger, some smaller, but it is something that every customer has to deal with.
As we're exiting beta with that, we're entering general availability with that. The first vertical is retail.
Absolutely.
It's a horizontal problem that we're solving for multiple verticals, and that's the .
Yeah. Number one, obviously, we solve it for every customer we have. As I said, we have a very rigorous process in bringing new products to the market, specifically new, that new. We are really trying to make sure we are not just opening the floodgates and then we cannot deal with the number of customers. We are very focused. We focus around retail and make sure we take a limited number of customers on board. Everybody is happy it works, and then we open the floodgates in a controlled way. That is happening as we speak. The product goes to market now. Of course, that is actually a good example for how we commercialize new products. We have a consumption-based pricing around that. The more products you have, the more sort of you pay. It is actually very well received by our customers. It's a sort of a no-brainer use, really value proposition.
Great. That referenceability is really important because a lot of tax teams are pretty risk-averse, right, Mike? Getting that, doing it right and following the playbook for launching new products with our partners, with our customers, in this case, it's no different.
They definitely are. I want to pick up on something that Uwe said. In order to meet governance models that CFOs normally have, you actually can't place a product or sell a service into a geography until it's been properly mapped. When we mean mapped, we mean you take the attributes of that product and you map it against our tax content categories, right? If that's not done properly, then you can't sell something. If you can imagine, that's important because it actually slows sales down. But also, if it's not mapped correctly, then it's incorrect. The issue there then becomes that becomes either a 7% issue on the value of the product or in VAT regimes, it's 20%. It has to absolutely be correct at that point.
One thing that Mike told me when I started here was like, "If you're 99% right, you're actually 100% wrong," which was a great start for me to take it from there. Yeah.
I'm glad my academics didn't have that same rigor. Let's talk about e-invoicing now. We've heard a lot about it, but where are we really at with it? Let's again reinforce what's a market problem, and then we'll go into what is the tax problem that we're trying to solve here.
Yeah. Number one, let's be very clear. E-invoicing is a tax problem. Continuous transaction control. It's about really providing transparency to the government about your transaction, including your tax data. It is actually really a tax problem. The other thing is it is a global challenge, specifically for our installed customers. Every global multinational that is in every country has to deal with it. There are many countries that have it already, the mandate. As Chirag said, there are 200 countries that will implement it. It is definitely a global problem. It is very interesting. Of course, every country is different. They have different formats, different standards, and different data requirements. I think in Italy, they asked for about 400 data points for an e-invoice. That's quite a lot. If you go to Poland, they probably also ask for 400, but 300 different than from Italy. You have to figure out it is becoming a data problem as well.
Very, very, very high complexity. When we started to look into that, it was very clear we're going to do a network approach. We did not try, wanted to go country by country. Let's try to find a solution for Brazil. Then you've tried one for Mexico. We said we want a holistic approach with a network approach that is highly scalable. That was one thing. The other thing is integrated with periodic filing because at the end of the day, I think Chirag pointed it out, you're sending all these invoices per month in real time to the government, but then at the end of the month, you file the sum. That needs to somehow reconcile. That is, of cours, a big effort. It is a very, very, very important part here. It's a big problem, specifically for everybody who has a global business.
Yeah, it's important to note, if I can jump in, e-invoicing is not just electronic invoicing. It is a mandate. It's a business-to-government mandate. Usually you have a business-to-business transaction. Now it's a business-to-government-to-business transaction. The government is getting the same data. To Uwe's point, the reconciliation has to add up completely because now in real time, they're getting the data. When you're doing your periodic reporting, it all has to mesh as well. What we acquired with ecosio is an incredibly resilient network that can do point-to-point delivery of all of these messages. With CTC on top of this, we can do this in real time with low latency, with fast speeds. We have a very powerful network.
We're layering more and more capability on top of this as part of our overall network. The other thing I'd say is our connector framework that we talked about, all those connections into the business systems are able to collect the data that's also required all the way through to the invoice. This all fits in beautifully because we have the data for determination, but also for invoicing and driving all the way through to the end of the process.
Yeah. Jeff, if I could, just one other thing on AI besides the content creation. As you know, Uwe, the e-invoicing regime is not harmonized, right? You pointed that out. We'll need that to actually do that content creation. The other thing too that Sal mentioned earlier was about AI being exposed to our platform. Just one really quick example of that.
Let's assume that you're an indirect tax specialist and you're remitting sales tax, say, to Georgia every month. Normally those amounts are, say, $100,000. Now it comes up to like $80,000. What we'll be able to do with AI is those tax departments, based upon whatever their persona is, they'll be actually able to ask a series of questions anywhere from five to ten or deeper than that and say, "Did the rate go down? Were there a lot of things that we sold that were exempt? Did we miss a data set?" The corporate tax departments have told us, while they've used machine learning extensively over the last six, seven, eight years, they expect us to build all the AI capabilities into our platform to help them actually achieve their compliance goals and their audits as well.
Excellent. Thank you. A couple of minutes left before we move over to our break. Wanted to just, you know, leadership comes with looking at what's next. And we've been able to do that for many, many, many years. Wanted to kind of just get final thoughts from the panelists here on the next horizon and what excites you about that.
Okay. Maybe I can kick off with then. Clearly, we're giving the message of we're building a future-proof platform that enables us to not do just the core traditional business we've had and expanding into invoicing and compliance and data management solutions. We have a platform that's here for growth. We built it in the cloud. It's multi-tenanted. It scales beautifully. We have transaction capability that's frictionless. It doesn't get in the way of the business systems that need to run.
We're layering in AI where it makes sense. There are so many places it does make sense. To Mike's point, there's so many gaps in these end-to-end workflow processes where data can leak out or you don't, you know, things are mismatched. Looking for anomaly detection, reconciliation, we can deploy a whole army of agents that work within these tax processes, all orchestrated to work within our platform to connect into our partner ecosystems. The future is very, very bright for what we have, what we've built, and what we've invested in and where things are going. We're constantly looking at the next wave of capabilities. We're doing work in blockchain technologies. Down the road, blockchain will start to become important as governments want more things on the blockchains for immutability and transparency and all that. There are a lot of investments that we are kind of monitoring carefully as we go. We're very focused in on value add to the and working with our customers on that.
Yeah. What excites me? I think if I'm looking back, I said I started six years ago, it's actually super exciting how all the puzzle pieces come into place now. I think we built the data capabilities. We built the data fabrics. We added e-invoicing. We're adding a data management capability. We brought things to the edge. It's actually super exciting how we have all the puzzle pieces that really deliver the end-to-end capabilities now in place. I think that's super, super exciting for me to see how we worked over time here. It's really, really cool.
Excellent. Yeah, quick final thought. Just on the tax side, what I would say is that governments will continue to look for ways to actually continue to tax new work streams. Particularly, we're looking at things like in the bundling space, video and conferencing in those kinds of areas. I think the granularity that's going to occur, continue on tax content, will continue to increase as well.
Great. To wrap things up, I want to say thank you to the panelists for sharing your perspectives, your insights about where we're at and where we're headed from a product technology and tax technology perspective, and giving the audience a better sense for the investments that we're making and how those are going to continue to extend our market leadership and capitalize on the growth potential that we have in front of us. I'll bring Joe up for some final remarks before we go to break.
No final remarks, but I love when a plan comes together and we finish right on time, like on the minute. We'll take a 15-minute break. Refreshments outside. Refill your coffee. Hit the restroom. The men's room is a bit of a hike down to the other end of the floor. We'll reconvene here at 10:15 A.M. sharp with the go-to-market strategy. Thank you.
If you could take your seats, we'll get started again. I'm about to give them a loud whistle. All right, let's get started again. Now you've heard about the strategy and the product roadmap, and I'm pleased to bring to the stage Chris Jones, our Chief Commercial Officer, who's going to help you understand how we're bringing this to market. Chris?
Thanks, Joe. Hi everyone. Great to see you all today. I'm really excited to talk about our commercial model for growth and how Vertex is positioned to continue to win in the market. To build off some of the comments that you've heard from David and in the panel today, I've been with Vertex and in this industry for over 20 years, and I get asked all the time, like, how have you stayed in tax for 20 years? I never expected to be in tax for this long. What you've heard so far this morning is all these things are constant. Change is constant. There's constant regulatory change. Our customers are constantly changing the landscape of their systems and their business models. Along with that change comes demand from these companies for excellence. You've heard the joke that 99% is not good enough, and it's not.
The companies that we work with demand excellence, and that, combined with the constant change over the years, has created this fun, challenging opportunity for a very long time that Vertex has become the leader in. When you think about this complexity model that we keep talking about, that's one of the core pillars that you hear us continue to speak to is complexity. Our customers not only have complexity, but that puts Vertex in a position and an opportunity for us to deliver on that complexity. While we'll talk about our go-to-market model and our products, we've also built a company and a team with deep subject matter expertise in all of these areas. We have tax experts. We have Oracle experts, SAP, Microsoft, all the different partners you've heard us talking about.
We've built a stable and a team to be able to deliver the solutions to these complex customers in a way that allows them to derive value out of our solutions. While I'll talk about structure and our model and our strategy, there's also a key part of this that is the talent and how we go to market. You'll hear me talk about a few themes that are consistent with the morning today. We'll talk about complexity, complexity from a system standpoint, a business model standpoint, a geographic standpoint. You'll hear me talk about partnerships and the importance and the value of partnerships in the tax technology space. Vertex solutions work with other systems. We add value to order processing systems and the different systems you've heard us talk about this morning.
Finally, I'll talk about our go-to-market strategy and model and how we utilize that to take advantage of this great opportunity you've heard us talk about. I want to first start with some investment. Vertex went through an investment cycle that we just came out of in 2023, and it was all predicated on growth. How are we going to grow the pipeline? How are we going to grow the funnel? How are we going to get deeper and wider into the market with the offerings that we have? We put forth four key areas of focus. We wanted to build a customer success organization. We wanted to establish and expand the partner ecosystem. We wanted to put in place an indirect sales capability.
To be able to capitalize on all this, expand the sales organization to drive additional business that's being created from these new demand drivers. From a customer success standpoint, this was not really an area of focus for Vertex up until about 2020. We then went through an investment cycle to build out a full-blown customer success capability that's very focused on retention and, even more importantly, or equally important, expanding with our base and cross-selling. Our customer success organization is up and running and doing that. We also took our partnerships to another level. We had been partnering with Oracle and SAP for over 20 years. To take a little walk down memory lane, it was back in the early 1990s that Vertex partnered with Oracle and SAP to build the first-ever tax connectors and integrations for their customers.
They were doing business in the ERP era back in the 1990s, and there was a gap in the solutions around indirect tax. We actually were the first company to partner with them to build out these integrations. Those partnerships with SAP and Oracle were really product-centric for a long time. Within the last five years, we've now gone from just product-centric partnering to really focusing on business development and going to market together and driving business and driving the pipeline. We work within their programs however we can from a cross-selling and team selling and demand generation perspective. We also expanded our partnerships to go into the middle market and the complex middle market with companies like Microsoft, Salesforce, Workday, NetSuite. We approach these partnerships from both a product level and a go-to-market level.
We'll build integrations so it's very easy for their customers to plug Vertex into their system. We'll also work with them from a go-to-market standpoint to either get on their store, work with their sales teams, work with their VAR communities to make sure that Vertex is front and center when they're out in the market. Finally, we built an indirect sales capability. The indirect sales group works hand in hand within this partner ecosystem. They're working closely with our tech partners, our alliance partners, and our SI partners. They're helping generate demand and opportunities. They're supporting co-sell. They're involved in the sales motion, working with Vertex sales teams and the partners' sales and go-to-market teams. These folks are dedicated strictly to generating demand and feeding the funnel. Finally, sales.
All of this has to come; we manifest this by adding sales capacity as we grow the pipeline. As these three new functions generated more and more activity, we've constantly expanded our direct sales capability to be able to close the business. That's a little history on what we've done. This is behind us. We are operating at this right now at scale, and you're seeing it in the numbers that we put forward. You think back, you're like, why did we do this? Why would you invest in these areas? Why would you focus in these areas? It's really to take everything you heard this morning about the market opportunity from Chirag and everything we have from a solution product standpoint from the panel, they are married together. We have built specific solutions and products to address our market. We know our market very well.
We know the complexity they have. We know the challenges they have, and we've tailored solutions specific to that market. Now we have to layer in the right go-to-market model to capitalize on that. That is how these three pieces all fit together. I'm going to dive a bit into our go-to-market strategy and model. It all starts with generating demand, generating opportunities, feeding the funnel, as I say. We have a number of partners within the ecosystem to do this. We have tech partners. Tech partners are your e-commerce providers, ERP providers, procurement, subscription billing, CRM, CPQ. Any type of system where transactions are being processed, there can be a tax consequence. Many of our customers use different providers for all of these systems. A big part of our investment in our growth strategy is solid and fruitful partnerships with these tech partners.
We also have accounting firms and SIs who are involved in re-engineering projects with their customers. Whether that's a tax re-engineering project or a system re-engineering project, they're looking to improve their overall processes, and they look to tax as a part of that improvement. If you're going through a major finance transformation or you're looking at how to improve your tax process, tax technology becomes an important component of that. You can look at process, you can do advisory work, but at the end of the day, it's going to come down to how can I automate certain functions that I'm doing manually today. Our SI and accounting partner community work with clients, and Vertex becomes a piece of that puzzle. Finally, our customer community. I love how Chirag calls this a vertical. This is a niche market.
It's a very large market opportunity, but it's very specialized. People talk to each other. When Mike Bernard from Microsoft talks, his peers listen. They share information about what works and what does not work. Part of the reason we've been doing this for 45 years is exactly that. We have delivered what we say we're going to deliver. We're accurate. We're timely. We do all the things that are important to a tax department, and that's part of how we get this customer referral. We'll talk about some of our logos coming up here. Now we have to land the accounts. Now we generate opportunity and demand through all these partnerships and traditional sales and marketing efforts. Our goal is to land an account. As David said, we can land in a number of ways. We can land by helping them calculate tax better.
We can land by helping them comply and file their taxes. We can land with e-invoicing. We can land with exemption certificate management. There are all different parts of the tax lifecycle where companies have challenges that we can enter an account. We do that through a direct sales model that consists of inside sales who is working through the thousands and thousands of opportunities that we have with dedicated field sales teams that are segmented by geography, by customer complexity, and we even have some vertical specialization within those sales teams. Tying back to my earlier comments around subject matter expertise, we deploy very specialized teams for these pursuits.
When we're working with the biggest companies in the world, we have to be able to sit across the table with them and speak their language and understand their needs and their pain specific to their business from both a tech system standpoint and from a tax standpoint. We're able to bring those capabilities and that talent to the table as part of that sales and customer acquisition process. Finally, to land the account, now we need to get them up and running, live, and successful. We're not looking to have a customer for one or two years. We're looking for 10, 20, 30-year customers. We talk a lot about this content set and the billion rules that we have. Those billion rules are updated every month as changes occur.
We want a company to put this in place and use it for the next 30 years. That is where you really derive the value. Getting the software implemented in the beginning is just the beginning of the journey. We want long-time sticky customers. We put a lot of emphasis with our customer success group on getting on board it, getting up and running and live. If one of our accounting firm or SI partners is doing the implementation within our CS group, we provide partner enablement and support where we are training them and helping them with the implementation, with the ultimate outcome being, we want a successful go-live because we are not going to have that customer for 20 or 30 years. That is our overall model. Again, land an account, ensure success, expand it for a long period of time.
To dive a bit deeper in customer success, I mentioned this is an area of investment for us that we've just come out of, and it's really played a major role in our growth and our customer satisfaction and retention numbers. If you look at the chart on the left, you'll see that accounts that have a dedicated customer success resource are growing at a much higher rate than those that do not. Something we're very proud of, and we continue to work to get dedicated customer success resources to more accounts as it makes sense. You'll see in the middle that we've been able to do this and grow the number of opportunities coming from customer success without growing our expense.
You'll see the line through the charts that as we be able to keep headcount flat, leverage technology, AI, and other capabilities, but double the number of opportunities that are flowing through the customer success group. Finally, to the right, the ultimate outcome is, what is your revenue per CS resource? You see we've been able to double that in the last three years from $200,000 to $400,000. The net is we've put a very strong capability in place here. It's playing a very key role in the GRR numbers and the cross-sell numbers that you're seeing, and it's poised to take advantage of the opportunity that we've talked about moving forward. Another key part I've talked about was partnerships. You'll see logos here up on the left. We've only listed a smaller group of strategic partners here.
We have about 200 different partners that we work with. The tech partners, again, we go to market from a product and go-to-market standpoint. The accounting firms and the SI firms are implementing our product. They're building practices around helping companies select tax software, tax advisory, tax process re-engineering, which all comes together in tax optimization. These firms that we work with, they see a lot of value in Vertex, and they choose us, and they're willing to put their neck out for us a bit because of our track record.
If you're an advisory, if you're advising a client or you're going through a system implementation, to bring Vertex into that mix, you have to have some confidence that we're going to deliver and our software is going to work and our content is going to be accurate and we're going to support the implementation and we're going to be there to support that customer for a long time after they implement. All of these factors together give our partners confidence in Vertex, which helps them be in the market, advocate for us, and present them as an option to their clients. What's this all lead to? It leads to a phenomenal group of customers. We keep talking about 60% of the Fortune 500 and the logos that we have. The biggest companies in the world rely on Vertex 24 by 7 by 365.
Mission critical, one line item at a time. B2B invoices going back and forth with thousands of line items on them, and we're being called at a millisecond level for every single one. We are deeply embedded in these systems. Mission critical. It cannot go down. They rely on us for that. As again, Chirag describes us as a vertical, I like to say tax is horizontal. If you buy or sell something, you're subject to tax. You have to deal with indirect tax if you buy something or if you sell something. From that sense, to me, it's very horizontal, but there's also very deep vertical niches within it. Industries like retail, oil and gas, leasing, telecommunications, they're so nuanced when it comes to indirect tax. We've had to build specific solutions just for those industries. It's not just a different rule set.
It can be a different technology deployment. In the retail space, we have to run on cash registers and handheld devices and their main servers. We have built specific products in these four industries, and they are unique in the industry. We have products we bring to market in those areas that are extremely unique to Vertex that provide differentiated value to those customers. This all results in referenceability. To have 8 of the 10 business service companies, to have 8 of the 10 manufacturers using Vertex kind of speaks for itself as far as the quality of our product and our company and companies' willingness to refer us to their peers. I'm going to talk a bit about two core markets and some of the similarities and the differences between those markets. The U.S. market is a phenomenal opportunity for us.
You've heard us talk about the companies that are still doing this manually. They're doing it with in-house methods. They're doing a combination of a point product with Excel and in the ERP system. This is a space that we go after from a new logo standpoint day in and day out. We also have our install base to cross-sell to. I'll cover some slides here in a minute where you'll see the type of expansion we can do with accounts. Within North America, we have both a new logo opportunity for companies that are doing it manual or using competing solutions as well as the cross-sell opportunity. We have many competitive advantages. I think David said it really well. It's not just one thing. We have a superior product.
When we talk about having a billion tax rules and being able to calculate tax for water differently than food, different than a plastic bottle, I hope you all leave here today. Next time you look at an invoice, when you get your coffee in the morning and you see coffee, water, and a breakfast sandwich, you think of Vertex. That's one thing I want to leave here with today, when you will never look at an invoice the same again because of the role we play in calculating tax. To be able to support that, you need end-to-end capabilities. You do not just need great content. You need great software. We can have the best rules in the world, the best tax rates in the world, but how the tax is calculated is not always that straightforward. It's not always $100 times 6% is $6.
are different rules as far as how the tax is calculated. We have the most flexible software combined with this billion rule set that allows us to support the most complex transactions in the world. We have had the biggest companies in the world throw the most complex transactions at us, and we can handle it within our system. Finally, the go-to-market strategy. I have talked about leveraging the partner ecosystems and leveraging our customer success group for the cross-sell side. Ecosystems are driving a lot of our new logo opportunity and customer success to build out the cross-sell opportunity. Shifting to Europe, there are some similarities, and there are also some differences. In Europe, utilizing vended solutions for tax is newer than it is in North America. Many companies in Europe use their ERP system for tax determination and for reporting.
SAP, having a large presence in Europe, is predominantly used by a lot of companies to handle their tax. The adoption of tax engines and tax add-ons like a Vertex is in a newer stage than it is in North America. There is focus on compliance reporting, e-invoicing, and determination, with tax determination being not as complex as it is in the U.S. This is a great opportunity for us to pursue given the newness of the market. You also have companies that are outside of the U.S. selling into the U.S. Back to the Wayfair discussion we had earlier. If you're not in the U.S., but you sell into the U.S., you could be subject to jurisdictional requirements across all the areas you're selling into. We could sell our products into non-U.S. companies that are selling into the U.S.
The e-invoicing mandate is a catalyst that comes along once every 20 or 30 years in an industry like this. That is a mandate. Companies have to deal with it, and it is driving pipeline and market activity for us. From a competitive standpoint, our end-to-end story is what resonates and how we differentiate in Europe. We are not trying to solve one piece of the tax lifecycle for our European customers. We are looking to solve the entire end-to-end. A lot of times that starts with e-invoicing or compliance because the reporting is very challenging in Europe. Ultimately, they decide, wow, we are reporting better now. We are reporting more timely, but we are reporting the wrong numbers. That leads to a cross-sell opportunity to our determination software to make sure you are charging the proper taxes on your transactions.
We leverage our large US install base to get warm entries into the accounts in Europe, whether that's their counterparts, their subsidiaries, affiliates, part of their company tree. We take the success we've had with the North America business into the Europe business to open that door and expand our business with European companies. Finally, the go-to-market approach is very similar. It's very partner-driven. We work with the ecosystem at both a technical and an accounting SI level to drive opportunity through the process. Finally, e-commerce is a unique piece of our opportunity in Europe. I mentioned companies selling into the US. You could be anywhere in the world. It doesn't even have to just be Europe, but selling into the US in an e-commerce world creates certain requirements that you have to follow that our solutions can help address for companies.
In the e-commerce world, we have a unique value proposition. We have a series of offerings that not just calculate tax as part of e-commerce, but we actually process wider elements of the e-commerce transaction into the shopping cart. We bring that expanded value prop to customers that have an e-commerce requirement. We do this globally. Companies in the marketplace space, we have a unique offering just for marketplaces. It seems every day a new marketplace pops up. You can be working with a company and not even know it that you're on a marketplace. You think they're on their website and you're actually on a marketplace. We built specific capabilities to address marketplaces. They have unique requirements beyond just a company-to-company transaction. When you're operating as a marketplace, there's unique requirements that we have built specific products to address.
We have specific partnerships in e-commerce with the partners that we feel fit our segment the best. From an enterprise standpoint, e-commerce used to be more of an SMB play. There were small companies doing their own e-commerce, and it has evolved over time to now the biggest companies in the world have an e-commerce part of their business. That is where we have seen this opportunity really increase for us because they are all our customers already. They are looking for this omnichannel approach. They sell in many different ways, e-commerce being one of those, and then they want to plug Vertex into every part of their transaction flow. With that, we have partnered with companies like Adobe, SAP, Salesforce, and Shopify to make sure we can bring easy solutions to our customers. Shopify is an interesting partner in the sense that they are coming up market.
They started more in the SMB space. They are now selling more into the enterprise space. As they do that, they're finding that either A, the company already uses Vertex, or B, they now have a complexity factor where Vertex makes sense. We're leveraging that in our partnership with Shopify, and that's going very, very well. We have pipeline building in Shopify twofold compared to this time last year. New logos. New logos are so important to us. We drive new logos from a number of sources. We focus on the complex middle market and the enterprise space for new logos. We do that through ecosystem partners as well as general sales and marketing demand account-based programs. Technology evolution, again, cloud migrations, people changing their ERP, people upgrading their ERP system is another opportunity for new logos.
That's when a company says, "I'm budgeting for a large project. Let's start looking at the add-on projects within that project." Tax is typically one of those. Geographic expansion. Sometimes people think of tax as a compliance thing and something we just have to do to comply. I would argue that it's a business enabler. If you want to expand into Brazil as a company, you can't go there if you can't handle their tax regime. While it is a compliance and something you need to do, it's also a business enabler to help you grow and be a support mechanism for you to be able to grow your business. Finally, new offerings with e-invoicing being the current that we're really focused on, and data management is coming down the road.
A couple of specific examples from last year that pay off multiple of these catalysts. One is a major electric car manufacturer that their business evolved and complexity grew to a point where they revisited their current solution, went through an evaluation process, and selected Vertex as their end-to-end provider for tax. We also had a manufacturer that was going through a Hana migration and also expanding into Brazil. When they looked at their current methods and the way they were handling their taxation, they decided that Vertex would allow them and help them grow into Brazil and also support their Hana project. Finally, we had a company that was driven by the German mandate for e-invoicing. This was a mid-market company. The original catalyst for our discussion was e-invoicing.
Once we had e-invoicing in the process of being implemented, they quickly realized that, "Wow, we also have to comply, and I'm not calculating tax properly." They have since added our VAT compliance tool and our tax determination tool, and they're now looking at this as an end-to-end solution as opposed to just a point product to solve their e-invoicing need. This is a trend that we're seeing in the market. We talk about e-invoicing as the initial discussion, but it quickly evolves into how are you handling your reporting? How are you handling your compliance? How do you handle tax determination? How many system feeds do you have? How do you bring all this data together?
That's the trend we're seeing, and we see pipeline growing nicely in the space of what we consider global e-invoicing management as opposed to managing it one country at a time. The new logo part of this is a huge focus for us, but we also put a huge focus on our current customers and that expansion cross-sell motion that we've talked about. I'm going to walk through three specific customer examples. There's a lot of commonality across these three. You're going to see geographic expansion. You're going to see system change and system expansion, and you're going to see organic growth within these accounts. The first account's a manufacturer where you'll see we took their ARR from $185,000 to almost $1.9 million over this period. They were a longtime Vertex customer just using us for sales tax. Then a couple of change catalyst events happened.
They started to go through an ERP consolidation project. They had multiple systems, including SAP and Oracle. They also decided to expand their business globally. If you look at the chart, you'll see the dark blue grows as they bring on additional business units as part of their ERP transformation project. You'll see the light blue grow, which is our VAT product when they went global. We were supporting them for US for a period of time. In the 2021 timeframe, you'll see the light blue start to feather in where we started supporting them for their global taxation. As part of that ERP transformation, they identified gaps in their SAP system, and you bring in the yellow bar, which is our SAP toolset that we acquired through the LCR Dixon acquisition. That now adds another layer of ARR.
The green bar that goes throughout is consumer use tax. Many companies clean up and address their sales tax collection using our sales tax products, but you also have to tax on your purchase transactions for indirect tax. It is very common for a company to first clean up their sales tax because that is where your customers are impacted. Your customers get inaccurate invoices, and you really do not want that. Sales tax many times is the priority. Once you have that in order, there is a lot of exposure on the purchase side of your business where our consumer use tax solution solves for that. That is actually an area Mike Bernard would tell you where the auditors focus even more than sales tax many times because they know companies do not automate their consumer use tax.
You'll see the consumer use tax in the green bar feather in, and this is a really perfect example of how we can. This customer is just using us for sales tax for many, many years, and then all these change events occur that created opportunity for us. The second case study is a retail grocery chain. This to me is a really cool story. I remember every step of this process and how we worked with this client. They have a complex data system, complex. They have SAP for their ERP and multiple POS systems. This all started with they gave us an opportunity to be on their app for purchasing prepared foods. When you go into a supermarket, you can buy prepared foods to just have a quick dinner. That started as a $32,000 ARR.
We just were on their app calculating tax online for prepared foods. That worked well. After a couple-year period, we're like, "We want to be in compliance. We want to make sure we're addressing this properly." We wound up putting Vertex on all of their cash registers and their point of sale. We went from starting on handheld device, just an app, to now expanding into all their retail stores on their cash registers handling their point of sale transactions. Again, similar to the prior case study, you see the green consumer use tax start to feather in. We got the sales tax in order. We're calculating properly. We're charging our customers properly. Now the auditors are going to focus on what we're buying. Are we calculating tax properly in our purchase transactions?
We bring the green consumer use tax into our overall spend with this customer. The light blue is a really interesting piece as well. That's our edge technology. This company changed and went through a transformation of their point of sale system. As part of that new technology, our edge solution fit perfectly into their system landscape. We were able to add a technology element too that increased the ARR. You see here we went from $32,000 to over $700,000 ARR with this customer. Our last case study is a consumer food delivery company building off David's comments earlier. This company was going IPO, and it was very important for them to get controls and governance around this tax concept. This started right out of the gate as a nice $803,000 ARR to calculate sales tax on their delivery services.
You'll then see in the light blue bar, this started to go global. They went from just U.S. to adding our VAT into the mix to increase the ARR. You'll just see organic volume growth over time. You'll see as this bar grows, we've gone from $800,000 in ARR to just under $4.7 million ARR with this client as a result of going global and their overall increase of their growth in organic volume. These stories are intended to pay off and give some real-world context too. We have a great set of products in our stable. Different catalysts can drive growth and customers expanding their spend with us, and we have the go-to-market model to be able to deliver on that. In closing, hopefully you leave here with a few points.
One is we have a model and a team and the talent and the subject matter expertise to be able to execute on this space. There are very unique factors in this space. It is nuanced. Tax and technical have some very difficult aspects to it. We have the right talent and SME to deliver on that. We have a strong partner ecosystem that triangulates technical along with advisory, along with implementation. We nurture and build and expand those relationships to ensure our customer success. We are focused on many growth drivers, new logo opportunities through ecosystem, current customer cross-sell through our customer success motion. We really believe we have the company that stands behind the implementation. We are the only company that has certification on our support practices, and we take very seriously getting companies onboarded live and realizing the value we told them they would realize in the sales cycle.
That is why we have companies for 20, 30 years and the average tenure of the 19 of the top 50 we talked about. With that, looking forward to the rest of the day here this afternoon. Hopefully that gives you a good context on how we go to market, why we do it the way we do, and what some of the outcomes are. I am going to transition to our customer and partner panel. We are thrilled and very lucky to have some key folks. If you guys want to come up and please join on the screen and on the stage, I am sorry. I am going to monitor our discussion. We thought it would be good for you to hear this from somebody else. We've been talking at you here for a few hours this morning, and it's great to hear about Vertex from Vertex people, but I think it's way better to hear it from others, people that are either using our products, implementing our products, or using them in a partner capacity. Y'all grab a seat, and we'll do some introductions and go through. Got you guys some waters over there if you want.
I'm good. Sure. To have. Thank you.
Great. Okay. We'll just start with some intros. Our team here kind of looks and works with Vertex through some different lenses. I'll ask you each to introduce yourself and maybe with a slant on how you interact with Vertex. Jeff, in your case, how you've gotten to work with Vertex and partner and what you know about is Dom. From your case, your background in indirect tax and your company landscape, and then Maria more around your practice and how you guys work with tax technology. Why don't you could start?
Sure. Absolutely. First of all, thanks for having us here today. Just a couple of words on SAP. Most people may know or hopefully know SAP, but if not, we are a multinational based in Walldorf, Germany, founded by four former IBM engineers in 1972 who recognized not only the need for automation, but actually for integrated automation across the enterprise. That became the basis for the flagship product, which is S/4HANA. SAP has expanded into other areas like cloud computing, AI, business analytics using tools like the SAP Business Technology Platform. I personally have been an employee at SAP for the past 27 years.
During that time, I've really had the opportunity to work in a lot of different areas within the company. I would say primarily I would break it into two parts. The first part was me as an internal-facing employee working on the implementation of our own systems within SAP, implementing SAP solutions. It gave me a good hands-on experience with working with the applications. In the second half of my time at SAP, I've been working in more customer and partner-facing roles where I've had the opportunity to work with partners like Vertex. I guess it's worth noting that Vertex actually has more seniority within SAP than I do. SAP has been a customer of Vertex since, I think, 1990. As a critical solution for SAP, it was only natural that we extended the partnership that we have with Vertex. We have had the opportunity as our partner programs have matured, particularly over the last five to ten years, we have had the opportunity to expand the relationship to a more strategic relationship with Vertex during that time.
Great. Thanks, Jeff.
Hi, my name is Dom Zambrano. I'm an Associate Vice President of Indirect Tax at Comcast. Comcast is a leading provider of connectivity services as well as entertainment services. In our family of companies, we have the Xfinity brand you might be familiar with for broadband, video, voice services, mobile services. We also have NBC, the broadcaster, as well as Universal Studios and the theme parks, Universal. Pretty diverse organization. I have been with the company in excess of 23 years. The company's relationship with Vertex precedes me. We run any number of applications and solutions from Vertex and have expanded in my tenure the different parts of the business that leverage Vertex solutions. Partnership with Vertex over that 23-plus year period, and happy to be here today.
Okay. Hi, everyone. This is Maria Hevia. I'm a partner in EY. I lead the global indirect tax practice in EY. I've been working with clients in order to support them how to automate their indirect tax obligations for a long time. I've been with EY for the past 25 years. I started when I was 12, want to make that clear. I came here to the U.S. I started in Spain, where indeed, and you were mentioning that in your presentation before, but where tax engines and things like Vertex are a little bit less known than they were in the past, right?
Obviously, since we are here in the U.S., that's a massive tool that we help our clients with. Within our global practice, we have around 7,000 people that we are implementing indirect taxes, and we are helping our clients with that. Within that, there's a subgroup of people that we focus on automating our clients, helping our clients how they can further automate their indirect tax obligations globally. That will be from a determination perspective, from a reporting perspective, compliance perspective. Of course, Vertex is a big component of that, right? We have been together for a long time. We work from vendor selection solutions, right? How to make a decision on what to implement to also the implementation phase and then even manage services now on how to maintain some of the aspects we implement.
Excellent. Thank you. We have been talking a lot this morning about what we see in the market, the trends, the system changes, tax changes, regulatory. I would love to hear from you all your lens through that. Maybe I will start with you, Maria. What trends are you seeing in the indirect tax market?
Yeah, you were mentioning some of them before, right? The first one that we see is definitely digital. That is coming from everywhere and at a very rapid pace, right? We see that pretty much every week we have a new country, new region, someone, one government that is telling us that there is a new obligation in digital. That means real-time reporting obligations. That means, of course, that people have to be ready in order to have their data very accuracy, right? That they have to be accurate in order to be presented to the tax authority.
I think that other trend that we see is data management. Everything related to data management, to data accuracy is key. There's not going to be time after the submission or after the end of the month in order to manipulate data and change the data and be able to submit that. You will need to get data right from the beginning. That's definitely something that is impacting big time what we do from an indirect tax perspective, from a technology perspective. The other trend that we see a lot is new transformations, right? New technologies as AI, right? I think we did a survey to our clients, our TFO clients, compliance clients two years ago where we asked whether they thought that AI was going to be critical in order to their day-to-day business operations.
I think only 10% or 20% said that, yeah, that could be critical, but they did not see a big change. We asked the same question last year, and I think 90% said that yes, it was going to be critical and it was going to be impacting all their operations. Another one.
Yeah, that makes a lot of sense. Dom, I am thinking about it from more of a customer lens. Do those concepts resonate with you thinking about it as a user? I am curious, within your organization, I think you have some systems that do not use Vertex. I am curious how you think about that with those trends.
Yeah, absolutely. Some of these trends do resonate absolutely. I think you probably heard Mike talk this morning how governments just are increasing the scope of taxes, the percentage of taxes, and when they're done raising the taxes, they impose new fees. These are all things, complexities that we need to manage. I think that's a trend that's very prevalent these days as states are hard-pressed for their revenue. Vertex, through their content, helps us obviously keep up with those changes so that they're a trusted partner to help us stay compliant. If we're not compliant, obviously we have issues. I'll just post Wayfair that I know we mentioned this morning, that was mentioned this morning. My technical partners internally, I'm not a technologist, I'm a tax person, but my technologists now know post Wayfair, they need a tax solution to go live with their project.
It's no longer a, hey, we can deal with that later. It's a day-one obligation. In my practice, I see more proactiveness on the part of the business, on the part of our technology partners internally as they're setting up their platforms or migrating or upgrading their platforms. Those are some trends that I've seen as well. Yeah, that makes sense.
I guess a little different, Jeff, from an SAP standpoint, but when do you see a company decide to use a Vertex for something like this? Or what type of companies do you see use a Vertex and why?
Yeah, I mean, I'll go back to the complexity again here as well, right? I mean, complexity is inherent in the DNA of every large enterprise that needs to run applications. There's just no way to get around it. You can look at operating in multiple geographies across the enterprise, across industries, global, state, local, federal. There are just so many different complexities that are there. You lay your taxes on top of it, and it just compounds it. SAP, we have an industrial strength application, but the fact is we can't be everywhere all the time and know everything. It's important for us to have partners that we can trust and lean into that provide a core competence in taxes and help us address some of the critical challenge that our customers have and to do it in a really secure and reliable way.
Yeah, Dom, you had mentioned that your new business initiatives now, you look to make tax a part of that decision. Can you say how did you do that before? What led to that point?
You know, been in the game a little bit, been to a few rodeos, and oftentimes, pre-Wayfair, I would say, was like an 11th-hour thing. Oh, we have to do tax, call the tax guy, he'll fix it, right? These days, we continue to build out our relationships internally and bring partners like Vertex, like EY, or other consultants into our business partners early, as early as we can. We have those relationships internally that we can leverage to ensure a seat at the table as we move those projects forward. From there, over time, as I mentioned, we have expanded relationship with Vertex, implemented new solutions, which over time, our business partners see, Vertex becomes synonymous with tax in our organization.
They know they can dial us up, they can message us and tell us, hey, look, we're launching a project, we need a tax solution. To Vertex's credit, we have a very, it's not a monolithic organization, as you can imagine. We have different SAP here, SAP there, maybe another ERP in another division. Each vested with the interest in advancing their project and getting their platform up and running. To Vertex's credit again, I can swivel to Vertex and say, hey, we've got an integration for this particular e-commerce platform that the business is looking, yes, we've got that. That's a huge component, a huge win if we can turn around that process quickly, platform, scale our platforms accordingly to meet the business need and so on.
Helpful. Maria, does that resonate with you in your practice? Are you seeing expansion within a company where they're using tax technology for one division or entity or business line and then look at others?
Yeah, absolutely. What I see a lot, and because I focus a little bit more on global VAT, right? What I see a lot is that companies, they normally have a solution like Vertex for the U.S., and because you get so comfortable and you understand everything, all the benefits that they bring to the table, they want to explore how to implement that outside the U.S.. We see that geo expansion very big. I think there are two components when they're got to through the decision. One is around complexity, what you were mentioning, right?
It gets very difficult to be able to track every single rule in every single country and make sure that it's compliant and make sure that you are going to be making the changes. You also have to go and make the changes everywhere. That gets tricky and is much easier when you have someone like Vertex that is going to be giving the rules and doing that monthly updates. What we also see is that some companies, even if they think they can get everything in track and they can everything done in another way, they realize because of course they can do it through SAP and have a very sophisticated way of customizing their indirect tax there. That becomes very costly because you have to maintain it, right?
If you are going to customize your ERP in order to put every single rule that applies in every single country, at the end, you will need to maintain that yourself. That is where it gets very costly and it gets very risky. We see that as a massive driver because of expanding.
Yeah, that makes a lot of sense. Okay, I am going to pivot to ERP cloud migration. Big topic for all of us, and we have talked about it this morning here quite a bit with Oracle moving their clients to Oracle Cloud, SAP moving clients to Hana. I would like to spend some time on that. Before we do that, though, let me ask you, Jeff, Vertex is a part of your endorsed program and is part of this Hana opportunity that we are all pursuing together. I was wondering if you could help the group understand what SAP endorsed is and what it means to be a part of that program and what opportunity that affords us.
Sure, absolutely. SAP offers a wide range of partnering options. The endorsed apps program is for our ISV partners, and it builds on top of the standard partner offerings that we have. I would say there's a couple of things that are really relevant and worth knowing. Number one, it's a by-invitation-only model, which means a partner can't come to us and opt their way into that program. SAP, it's the opposite, right? SAP has to reach out and say, hey, we think you're a relevant solution. We'd like the functionality. It complements our solution. We want you to be a part of it. That's the first step.
As part of that invitation, we're doing things like security code scans to make sure that the solution is not susceptible to vulnerabilities. We do integration testing between the SAP application and a third-party solution. I can't tell you how important that is because we have to ensure and our customers require that critical applications are running 24/7 on a global basis. We have to ensure that as companies are upgrading either their Vertex solution or their SAP solution, it continues to run in a seamless fashion. That integration testing is a big piece of it on the product side. If we flip over to the go-to-market side, and Chris, I think you had touched on a lot of this as well. There are a lot of things that we do together. As a strategic partner, we work on demand generation, pipeline generation, participation in activities, management of joint pipeline, working on opportunities hand in hand, some Vertex-led, some SAP-led, but there is a big go-to-market component that complements it. Bringing those two things together makes it a really valuable solution for those partners that we invite into it.
Yeah, great. Thanks for that context. I just thought it'd be good to lay that foundation. It's one thing for me to talk about Vertex and SAP, but I thought it'd be good to hear from a program standpoint from there. Thinking about the Hana migration, I'm curious, we'll start with maybe Maria. How does EY and you and your practice, how do you think about that and what role does that play in your business?
Yeah, so obviously we have thousands of companies that they are going to go through that migration pretty soon, right? A lot of them, they are already there or even then, yeah, I know, no one. We have pretty much every client going through that, right, in one way or the other. What we always try to convey with the clients is that this is the perfect moment in order to reevaluate the indirect tax technology you have, right? Because of course, you can have whatever you have today, but you know that there are errors, you know that there are issues you need to fix, you know there are things that could be better, you know that technology evolves as well, right?
We always want to try to bring value to our clients and understand this for S/4HANA as a value prop scenario and a transformation scenario where you can rethink what you have and what you really need. That's the perfect opportunity in order to rethink, okay, what do we want to do from indirect tax determination? Do we want to have a tax engine? Do we want to expand what we have in the U.S.? Do we want to put it in the other geos? What do we want to do from a compliance perspective? Do you want to put any sort of technology in-house as well? What do we want to do for digital? Right? We always try to have that value prop conversation with them.
I think something you mentioned resonated with me pretty well, which is we try to also make our clients understand that tax needs to be at the table, but also needs to be at the table before we kick off the project, because by the moment they kick off the project, they already think we know what we want. You having able to do that analysis before and understand what is needed, understand your requirements and why a particular solution is going to be good for you, you may miss that boat, right? You want to make sure tax is at the table and all these kind of tax technology discussions, you have them with time.
Jeff, does that resonate with you? When SAP is taking a company through a Hana migration, does tax come up? From your view, is that also a good time to be looking at tax?
100%. Migration is basically just a starting point, right? It is very, very narrow. It starts the process. From our perspective, it is really about getting our customers on the latest version of our technology, including AI and other innovations that we are able to bring forward. That becomes the basis or the starting point for a true digital transformation within those companies. They have the opportunity then to leverage the new technologies, reevaluate business processes, and then set themselves up for success in trying to gain a competitive advantage in really a very difficult business environment.
Yeah, makes sense. Okay, really appreciate that. Great insight. Before we move on from the SAP topic, Jeff, I would just like to ask, what's SAP's current view on Hana and the progress against the end of life?
Yeah, so it's been a big topic for SAP. SAP considers it a very strategic focus to get customers from where they are today on the latest version, the S/4. We talked about the migration as being the starting point, and that puts them in the position to work on the digital transformation. It's been a focus. We do not expect any slowdown, if anything, possibly an acceleration of those migrations to S/4 to enable that digital transformation.
Okay, great. Thanks for that. Okay, I want to shift to our last topic, a topic of the day today quite a bit is e-invoicing. Again, multiple lenses of how we might think about e-invoicing. Maybe start with you again, Maria, from your perspective. As a consulting advisory firm, how do you look at it? What are your clients bringing to the table and how are you helping them?
Yeah, so e-invoicing, digital reporting obligations, as I mentioned before, that's a massive issue for our clients, right? Because we see a new obligation every day coming up. There are two things to consider, at least two things. There are probably many more to consider, but the first one is how you are going to be able to track everything that is coming your way and how you are going to be confident that you know what is coming about the time it is coming. That's one, and I think everything supporting on those sort of trackers with that is always helpful.
Of course, it's what do you want to implement and how are you going to handle those obligations, that technology obligations? What we have seen in the past is because the pace was a little bit slower and we had some indirect tax obligations in relation to e-invoicing or digital, one particular country here, one particular country there. It was slower. Clients were focusing on identifying those local solutions that were going to give them what they needed for that particular obligation for that particular moment. Now that this is really growing and expanding, they realize that's not sustainable, right? You need to have one solution that addresses all your obligations in the world.
Maybe it's not one solution, maybe it's two or three, because I think it's difficult to find that magic solution that addresses everything, although I know everyone is working in order to get to that, right? That's the first thing that I think clients need to understand, what could be that solution that will help them manage most of their obligations. What would be ideal, if it's just the ultimate goal, that that solution is connected to everything that is connecting your whole indirect tax process. It's not only the digital reporting piece, but from determination, that goes to the invoice, that connects to invoicing, and then that connects to the reporting piece. You have end-to-end indirect tax process totally automated through the same solution.
You mentioned companies that are using multiple kind of low-cost point products per country and the challenge that creates. Can you just say a little bit more about that?
Yes, I think, and this is something that is normal because of how it evolved, I think. Clients are starting seeing these operations, these obligations in countries here and there, and they just went for this cost-efficient at that time solution for a particular country quickly to implement, and we have it done, and now we are done with this one, let's go to the other one. I think clients, they are realizing, companies are realizing that that's becoming pretty expensive at one point, right? Because it's very difficult to maintain when you have 50, 60, 100 solutions up there. It becomes costly and it becomes risky. It was normal that they were following that path, but I think clearly everyone is understanding that's probably not the way to go.
Okay, very helpful. Tom, from a customer, again, user standpoint, how does Comcast think about this problem, solve for it, or anticipate solving for it?
Yeah, I think I'm going to echo a lot of the things Maria just said, which is, you know, we have an obligatory sort of build-by analysis. We quickly got to the buy end of the determination just because of the complexity and the ability to keep up with the changes and so on. When we're maintaining that, that introduces a level of risk that just isn't acceptable.
In our organization, it's looking for a vended solution, evaluating vended solutions that do integrate with other parts of the tax lifecycle, if you will, and entertaining solutions that would serve that need, evaluating where sort of midstream here, managed service offerings and so on. Definitely, like Maria said, when you have a patchwork of sort of solutions, that's super complicated to keep on top of. Making sure you're checked in and everything's coordinated with those multiple vended solutions or solution providers is a challenge. We're working diligently with our VAT team to kind of get to a place where we can get to a more unified kind of solu
tion. That's our goal. Great, ma kes sense. Okay, we have a few minutes left. I'm going to close us out here with just a kind of a generic question for each of you from, again, your lens. Looking ahead, what do you see ahead? Do you see any of this getting easier? Do you see it getting more difficult? What's your outlook as far as the tax technology space next few years?
I hope not. That's my job, so sorry. Hopefully it continues getting more and more complex. That's where we drive, all of us probably. No, I don't see this getting more easier, right? I see that governments are discovering that by implementing these kind of new rules and legislation, right, it's better for them to avoid fraud, it's better for them to be more on top of revenue, it's better for them to get more revenue. I don't think this is going anywhere else.
It's difficult to track this without the proper technology. I think this trend will continue and we will see more and more how companies need to use technology in order to be able to be on top of their indirect tax obligations globally. We are even considering that maybe at one point there won't be returns, right? Because the tax authorities will get all the information already through the reporting, real-time reporting obligations. What do we do with that?
Yeah.
I'll again echo Maria a little bit on this, but as I mentioned before, you know, state and local governments, that's kind of the space that I work in primarily, but you know that revenue base, the sales tax and direct taxes represent such a substantial portion of the revenue base. It represents an area that, you know, will likely be an area where they continue to increase the tax rates, increase the taxes and the fees that I mentioned. That introduces more complexity in terms of compliance and keeping that compliance risk down. You know, we'll be looking for, you know, solutions to help us minimize that risk. I think the Vertex solutions will help us do that.
Jeff, you may not be from a pure tax view on this question, but just thinking ahead, partnering to solve problems like this, how do you think about it?
Absolutely. The one thought that just popped into my head, we keep talking about complexity and for some reason I remembered something I learned in college in the previous century, which was that the universe tends towards disorder. I think it applies in the case of taxes. Complexity just keeps on growing. I know, Maria, you want it to continue. I prefer that that didn't happen.
Please.
We're not going to violate the laws of the universe, right? I do expect it to happen. I think it's in customers' best interest to work with the top companies to tackle that complexity and to do it using proven systems, proven partners, proven applications. You know, that's kind of my view going forward. We really need to work with our customers and to try to bring the latest technologies to those customers to help them manage the complexity.
Great. Thank you for that. I'd like to thank you all very much for spending your time with us today. Hopefully we accomplished our goal here to hear about this industry and this opportunity from different views and from different lenses. And we thank you all for the time. We're going to transition to John Schwab as our next section. Thank you very much.
Thank you.
Thank you very much. Terrific. Thank you very much. That was a great panel. How about it? That was very good. Nice to get them here and hear from the third parties how things impact tax. First of all, great to see everybody. Thanks so much for those of you that turned out in Philadelphia today to see this. Great to see you in person. For those of you that are participating online, thank you very much for joining today. You know, I'm going to get into a whole lot of information here.
We'll cover a lot of numbers as you would expect that we would in my presentation. Before we get there, I'll first get to the right slide. Terrific. Before we get there, I want to make sure that I leave you with one message. That is, you know, that this is a very consistent and repeatable business with durable revenue growth. I think a lot of people have discussed that today, and I think you've seen that, but I want to be very clear. This team believes that we can continue this growth for years to come. You know, with that, I love this chart. It's one of my favorites. It really demonstrates that this is true. What you can see, it's 20 years of history. For 20 years, Vertex has continued to grow the business year in and year out.
We have never gone backwards. It is very, I think it is very impressive. Even through challenging times, the global financial crisis down there on the left, through regime changes in D.C., through upcycles, through downcycles, one thing is consistent, we have continued to grow. If you look to the right side of the chart, in the more recent years, we have only accelerated that growth. That is because the senior leadership team here adopted an agenda for growth, and we have been able to deliver on that. It is an impressive track record, no doubt. The team has been here today to explain and to articulate the story of why we believe we can repeat this for 20 years to come. Why are we positioned for durable, well-positioned for durable growth? I mean, I think it all starts really with the recurring nature of our revenues.
85% of the revenue that we have is subscription-based. When you combine that with that 94-96% gross revenue retention that leads the industry, it really demonstrates the very sticky nature of the solutions that we have. You know, and by and large, once we get installed in customers, we do not get taken out. I think rather, as you have seen and as Chris demonstrated on the slides there, they are such powerful slides, those customer expansion slides. Customers expand their usage with us. Customers buy new tax types. They buy more modules and leverage that out. You have seen that in a number of different examples that the team has presented today. At the end of the day, this translates, you know, into strong earnings and cash flows, which we can then reinvest back into the business.
We have shown that when we invest in the business, the expected returns manifest themselves in our financial statements. As you have heard today, certainly our growth opportunities are robust and they are sustainable. I want to just spend a minute and dive a little bit deeper into the resilient recurring revenue that we have. On the top of the chart, you can see our ARR. You know, annual recurring revenue, it is a key, it is a leading indicator to our revenue growth and how that is going to perform over time. We are very pleased to see the strength that this has exhibited over these years. That really, again, demonstrates the resiliency that we are here talking about.
A lot of the reason for the strength that you've seen, you know, it's driven by a lot of activity, that transition to the cloud, you know, the transformation that the panel just talked about that is taking place all over enterprises around the world, that's here to stay. You know, it was interesting to hear the panel describe that, you know, indirect tax is becoming much more of a conversation in companies as they draw their attention towards it because they can, because of the complexity that's associated there with. At the end of the day, we're seeing it in our pipelines and in the opportunities that are out there. Evidencing this, you know, when you look at our 2024 results, our cloud revenue grew at 29%, which is very impressive.
You know, when new customers come to us, over 90% of the time, they're looking for cloud solutions. This is no surprise. You know, we develop, we go to market, and we sell cloud-first all the time. It's very important, very important, and it's a great business driver. However, it's important to keep in mind that we still have a sizable on-prem business. About 50% of our subscription revenue is coming from that on-prem business. Those customers have demonstrated over time that when it's time for them to migrate to the cloud, they migrate with us, whether that's individual pieces at a time or the whole or the entire thing with an ERP transformation. They stick with us. The beauty of this is typically we end up with about a 30% like-for-like price increase when that occurs.
This revenue, the beauty of this is this revenue growth then translates into earnings growth. As I mentioned earlier in the, or as David mentioned earlier in the day today, you know, we invested heavily in the business when we came out of the IPO, that 2021 through the middle of 2023 timeframe. That is why our profit margins or our margins were lower in that timeframe. You know, during that time, we made a number of investments. You know, we invested in go-to-market, building out an indirect sales team, building out that customer success team that Chris talked about. Both of those things have allowed us to expand markets and geographies, and they demonstrate themselves in our numbers. We also invested in new products. We invested in products you have heard us talk about, like ChainFlow Accelerator, the Edge Products, the LCR- Dixon Tools.
All of those have contributed to our growth over time and new market opportunities and are going to continue to do that into the future. We also invested in some investments on our own infrastructure to build to ensure that we were capable of expanding and being this multi-billion dollar company that we aspire to be over time. Once those investments got completed in the middle of 2023, we saw significant leverage in our margins, and they demonstrated themselves through 2023 and through 2024. We were very pleased to see that happen because as those investments end, we see that immediate inflection point, and that inflection point translates into earnings and into cash flows.
You know, we were very pleased to see that when you, you know, when you exclude the dilutive impact of the ecosio's operating losses, the investments we're making in that today and some of the in 2025 and the investments in AI we talked about, that core Vertex is operating at about 25% margins. In summary, I think the important part here is we make prudent investment decisions and we deliver on those results. Those results then translate into free cash flow growth. You saw, you see that, and you can see that during those investment periods, that 2022 to 2023 period, that growth had slowed, that growth had slowed. 2024, as that inflection had occurred, was a record year for free cash flow.
Our free cash flow was almost $80 million, $80 million, and our free cash flow conversion rate was over 50%. We were very pleased with how that had turned out. You know, we did make the strategic decision to make some selective R&D investments in 2025 that we discussed on our most recent earnings call. You know, we saw the opportunity to step on the gas, make some investments faster into the business, the businesses that we acquired in 2024 to drive future opportunities. We think it's, we think there's going to, we think that this is going to be a significant investment that's going to drive opportunity. Once those investments are done, they all have defined periods. When those periods are done, you will see significant margin inflection as you did with the previous investment cycle.
We're very excited about the opportunity and very excited about the new products coming to market and the margins that they're going to drive. I just wanted to spend a quick minute and dig into some of the sources of revenue. Some of my colleagues have discussed this before, but I think it's really important when we talk about consistency. Consistency is one of the things that we pride ourselves after. Over time, we've been able to demonstrate that in the financial statements and outside of the financial statements. When I look at this, this really brings home the point, you know, consistency on the left side of the page, that new opportunities, 70% are coming from those existing customers, 30% are coming from new logos. That has happened roughly for the last five years. Take a look at that chart.
It moves a little bit, but generally speaking, the consistency holds true. Again, same thing, you move on to the right side of the chart. The existing customer rubric that exists to build up our NRR, 50% of opportunity is coming from those cross-sells, people buying new, people buying new modules of our software. 25% comes from expansion of the existing products that they have. And the final 25% that comes from the price increases. You know, price increases, you know, in that area, we certainly leverage on that tax content we deliver on a monthly basis, as well as the additional functionality that we deliver when we go to our customers with those price increases. At the end of the day, we get our price.
I want to spend a minute and talk a little bit about M&A because M&A has played a role in our growth strategy over time. However, we always want to be mindful and be very selective about the opportunities that are out there. We want to make sure that we're focusing on those opportunities that are in our lane of indirect tax or that we believe that we have the permissions to really leverage our customer base. Now, when I think about, Schwab did a great job of setting this up and discussing about how M&A rolls into strategy. You know, when we think about, when I think about M&A, you know, obviously we're looking for opportunities to expand our existing markets and then develop complementary products or solutions to our customers.
You know, two of the most recent examples, and we saw them this year, were the acquisitions we completed this year. First was the AI acquisition we purchased from Ryan in the middle of last year. You know, when you look, when you look at what we did there, the purpose of it was we invested in the acquisition to accelerate our AI innovation strategy to help companies that manage complexities around tax categorization. And then ecosio, certainly, you know, we've certainly talked about it from an e-invoicing perspective and a CTC compliance standpoint, a tremendously important asset to build out our end-to-end compliance solution. You know, when we think about ecosio, certainly it's a it's a European company. It opens up a tremendous international opportunity to us for all of the CTC activity that's taking place worldwide.
In addition, as we thought through the thesis, when we thought through the thesis of this, our belief is that we can leverage those existing U.S. multinationals that are our customers because those are the ones that are having significant impact from these new and evolving regulations that are out there. That is an area that we are very excited about for sure. You know, at the end of the day, we're also taking that ecosio solution, we're combining it with the Vertex VAT solution and going to market with a combined solution that is unique in the market today. We believe that's going to win in the long run, having that end-to-end solution, touch it once, get your compliance done, get your taxes filed at the end of the day, one version of the truth.
A very great opportunity for us to leverage in this very exciting market. You know, finally, I'll say before I turn off the M&A, this M&A page is that I want to be clear that I'm going to give some targets a little bit later on for growth and what we expect in 2020 by 2028, but any M&A would be supplemental to what's there. There's nothing baked in from an M&A standpoint. I do want to do a quick double take around the ecosio acquisition and talk a little about, excuse me, to talk a little bit about the investments and the discipline that we have when it comes to M&A. You know, we did have a number of options when it came to selecting an e-invoicing partner and focused on acquisition, and we believe we ended up in the right position with ecosio.
You know, but from a shareholder standpoint, I think it's really important to look at the total cost of the acquisition and what we got for it because when you factor in the upfront purchase price, you factor in the additional earnout that we're going to be paying, as well as some of the near-term operating losses and the investments we're going to make in 2025 and the first half of 2026, the total investment demonstrates sound financial discipline. You know, when we get this up and running, we anticipate that revenue from the ecosio and the ecosio and the e-invoicing solution is going to represent about 7-10% of our total revenues by 2028, which demonstrates strong growth and the significant opportunity.
While we may have looked at a number of other options when considering ecosio, we believe we demonstrated to investors that we do the right thing and we ended up with the right party to help us capitalize on the opportunity that's in front of us. I want to spend a quick minute and talk about R&D because we continue to enhance our platform through research and development. Again, like many other financial aspects of Vertex, there's been a lot of consistency that takes place across our spend areas, and it travels down into research and development as well. We look at research and development spend, and we consider that the amount that we have as expense on our P&L, as well as the amount we capitalize as part of our capitalization policy.
When you look at that, the total spend, that total spend for the last five years has averaged somewhere between 17% and 18.5% and 18.5% of revenues. That has been a consistent, another consistent performer across the board. While we expect this to be somewhat increased in 2025 due to the additional investments that we discussed, you know, we expect that over the long term, and that comes back to us, that we will continue to see ourselves operate in this kind of 17%-18.5% range from an R&D perspective. Just moving a minute to our guidance for the first quarter of 2025 and the full year of 2025.
This is the guidance that we initiated during our earnings call for the fourth quarter at the end of February, but today we're reaffirming that guidance. You know, for the full year, this represents revenue growth of approximately 15% and adjusted EBITDA margin of 21%. While the first quarter revenue growth was slightly lower than our recent quarters due to a challenging year-over-year comp, you know, we have confidence in the pipeline that's out there to deliver the results for our full year. I'm going to update our long-term financial targets today, as well as adding a couple of new additional, you know, long-term targets that we've not provided previously because I think it helps better understand the story.
Over the next four years, including 2025, our goals are to increase our revenue growth to the high teens. We anticipate that we can deliver this in the high teens on a consistent basis. It's really going to be driven by the continued momentum from the existing customers, as we've talked about today, that cloud migration that's being fueled by the ERP conversion, ecosio and the e-invoicing solution that we anticipate will be about 7%-10% of revenue by 2028, and some additional new product offerings. In order to get this, we do anticipate an acceleration of subscription software revenue. Subscription software revenue, just for clarity, includes both our cloud and our on-prem software. That's going to advance to over 20%. Our cloud revenue, we expect to be over 30%.
Again, the drivers here, steady migration to the cloud, continued focus on our software revenues from our ERP partners, as well as from our referral partners. Finally, making sure that we manage our services revenue to ensure that we're maximizing revenue opportunities from our partner relationships. Next, our goal is to drive adjusted EBITDA margins into the high 20s with adjusted EBITDA to free cash flow of over 70%. The growth is going to be driven by a number of factors. First, there's going to be a more normalized level of R&D spend contributing an additional 1%-3% of margin from our 2025 guidance. So that 21%, we anticipate that to be increased by 1%-3% from R&D spend.
Second, leverage in selling and marketing expense contributing an additional 1-3% of margin as we complete the build of the CTC and e-invoicing initiatives and see the benefit of those investments over time. Finally, from a general and administrative expense, we anticipate 3-4 points of additional margin improvement as those investments that we made historically will show value in the future as we can leverage that infrastructure to drive our business. The good news from this perspective is that from a business standpoint, we feel like we've got all the pieces in place to achieve these goals. I want to spend a minute and talk briefly about our capital allocation framework. I think we've demonstrated a disciplined capital allocation framework over time.
Our number one priority continues to be organic and reinvestment in the business, as has been our case through history. Now, as we mentioned in our recent earnings call in 2025, we're going to be making two significant investments along these lines to accelerate ecosio's go-to-market function, as well as country coverage, and to launch our AI-based SmartCat product. That is going to be certainly a priority. When we turn from that, in addition, targeted M&A debt repayment, including the ecosio earnout and convertible debt, as well as return of capital to shareholders or other potential uses of capital. In summary, you know, I want to leave you with the fact that this is a tremendously attractive recurring revenue model with tremendous consistency, as you've seen over the years.
We have, you know, we've accelerated growth in our core, plus a number of tailwinds coming from the ERP migration, the e-invoicing, and VAT opportunities that are going to allow us to deliver that high teens growth. We have proven financial discipline and continued demonstrated financial performance through leverage on the investments that we've made over time. We are focused on our priorities. We have our near-term priorities, as well as those our longer-term priorities that will add benefit for the company over time. The fact of the matter is, you know, the growth targets that we have are driven by demonstrated market opportunities that provide an acceleration of this growth. Thank you all very much. I appreciate the time, and we'll, I guess we'll move to the customer panel at this point or sorry, Q&A at this point.
We just need two quick minutes to get the riser here set up for the panel to come up for Q&A. I spoke too soon at the break. We're a little bit over time now. If we need to, we'll extend beyond 12 if there's enough questions. I think we're done with that right now. If you want to post a question to the Q&A section of the portal, please do so. We've got Dawn and Beth with microphones. They will acknowledge you, hand you the microphone, ask that you state your name and the company that you work for, and then your question into the microphone. Who'd like to kick us off? Samad, right next to Beth there.
Hi, I'm Jeff Rees. First, congrats on all the success post-IPO, and it's great to see both the progress that you've made as an organization and the future that's on the horizon. Exciting for the employees and for all of you guys. Congrats again on that. Maybe first, John, that 20% growth number for 2028, obviously it implies acceleration. There's a lot of investments in product and distribution, but how much confidence do you have in that number, especially as the dollars get bigger? I know you gave some of the embedded assumptions, but how are you thinking about how much of a role new product innovation is versus distribution versus ecosio getting to that 20%?
Yeah, great question, Samad. Thank you. Others can feel free to jump in on this. Feel free. You know, when we thought about it, you know, the opportunities are there in front of us. You heard about them today from a number of the people that were here on stage as we talked about the opportunities around, you know, the expansion and in migration to the cloud. Those activities and those tailwinds are there, and they're in front of us. We see that showing up. We talked about at our year-end in our year-end conference. We are seeing activity in our pipeline demonstrating itself, which is important, right? Those are going to be the drivers. We see the activity out there. Our sales team continues to be very busy with opportunities that are out there around that conversion.
Then again, when you add on to that, the opportunities we see from an ecosio and the Vertex e-invoicing solution, that growth opportunity we think is robust for sure. Again, that's only going to accelerate because we've got, you know, the mandates that are effective now, but the newer ones that are coming, and then the opportunity to leverage into those existing customers that are using other service providers for point solutions. We think it's there. It's there for a long time, and it's g oing to be very robust.
Don't worry, David, I got a follow-up for you. Okay. Look, a question that we get a lot from investors is for a company that's been around as long as Vertex has, the amount of logos that you have is actually probably not as big as you would think for a company that's as established and successful. I know you talked about the partnerships. I guess as you just take a step back, thinking as a CEO, what should the footprint of this business look like in terms of like with global corporates over that time frame, whether it's through the guidance horizons or just more broadly? Because if I think about something like Shopify, they alone have 20,000+ large customers on Shopify Plus, right? If I think about Salesforce's ecosystem, SAP, Oracle, I add all your partners up, there's this massive list, and your logo footprint's relatively small compared to that. What should this look like over the next several years, and how much line of sight do you have into that?
Yeah, I think it's a fair question. I think you have to historically, prior to the investments made coming out of the IPO, we really only fished in the ponds of Oracle and SAP. Now we're building channel relationships with Shopify. And so we're proving our brand inside of those communities and getting references inside of those communities, Microsoft being a great example, Shopify, Salesforce. That has started to give us, you know, to the question you asked, John, we're fishing in more ponds, which is giving us more opportunities for sustained growth at higher levels because of that. That's number one. I think two, and you heard on stage from Maria, the complexity outside the U.S. is accelerating with E and more.
Our ability to expand our brand and win logos, leveraging EY, PwC, others, and the great relationship we enjoy with the ERPs globally gives us a chance now to build our brand and start getting that reference base globally. We are seeing that in the DOC region, for example, where we have landed some of the largest companies in the world based in that region who are now showing up at our customer conference that we have coming up in a couple of weeks that pay off with new prospects why they should be working with Vertex. That flywheel is starting to accelerate because of all the go-to-market investment we made over the last several years.
Thanks, Samad. Josh was next. I do ask that you do not double-dip. I know we usually permit that on the earnings call, but let's try and get to as many people in the room as possible. Thanks. Josh, go ahead.
All right. Thanks, guys. Josh Riley from Needham. Thanks for all the great information today. I just wanted to touch on the depth of your tax content as a competitive advantage. Does AI impact that competitive advantage going forward here, or does it maybe even bolster your capabilities relative to the competition?
Mike, answer that.
Yeah, I can start with that. I think one of the things that tax departments know, and Dom reflected that as well, is that the granularity of tax, particularly here in the U.S., will continue to be there. I mentioned a couple of things in my comments was that I thought at the local level, we've seen record numbers of changes both for cities and for districts. David, you had mentioned that. The thing that you have to remember is that all of that information below the state level is not published anywhere. AI is necessary to kind of grab all of those thousands of jurisdictions to actually promote those rules. On top of that, to actually create a category that where people can actually map to those things. That's the first thing where we see AI and a competitive advantage.
The second thing I mentioned briefly too was that with the e-invoicing mandates, the fact that all of that work in the number of jurisdictions I think, Chirag, that you had mentioned is that it's not harmonized. There will be 30 common points that Poland may have and France may have and Romania may have, but the rest of it, they want this kind of they're creating their own ecosystem around transparency as they see it historically in the tax world. That would all have been harmonized, and we would have kind of one system in order to report into, but it's not going to be that way. I know there's initiatives to reach harmon ization by 2030 or 2032, but quite frankly, those are rather ambitious. AI is going to be needed to actually gather all that information, pull it together so that it's in a very accurate database where customers can actually map their products into that database and actually do compliant reporting.
Mike, we've talked about the nuance of it can get us close, but because of the interpretation of language, that still need that final mile expert in the loop that actually creates, especially for the en terprise market.
It is, particularly. Yeah. There can still be, David, you're right about that. There can be still special rulings. There can be things that are out there that simply AI just kind of can't detect the nuances in all of that. Tere is still the human in the loop piece of it. There is still, Ruby, you have a great organization of 100 researchers that really still need to review those things. All of that is important to get accurate reporting.
Just quickly, AI also can feed the engine. We talked about that deterministic engine. It can feed the pipeline of content and drive us quicker down to that level of granularity. You know, large language models are only as good as the training data. The training data can only be processed so many times as well. There are a lot of challenges in how you update the LLMs fast enough as well.
This is going to be a hit and run. Brad tells me he has to leave after he asks the question. Go ahead.
Great. Thanks very much, Brad Reback Stifel. John, if we think about the pacing of the 20%+ subscription growth, given kind of the commentary on the upfront investment, should we think about that at the latter part of 2026 or more into 2027 and exiting 2028?
Yeah, I would say, Brad, it's probably more into 2027 and into 2028 kind of time frame. Exactly for the reason you said, we're making a number of investments in areas, certainly around e-invoicing to grow that opportunity. Those investments will take some time. We will see it this year certainly start to show itself up in our, you know, in our or in our ARR. I think then the revenue will demonstrate a bit in 2026, but I think, you know, it'll get up and moving even more fast, at the end of 2026 into 2027. Thank you.
Adam.
Trying to be diplomatic and work both sides of the room. Gre``at. Thanks so much. Adam Hotchkiss, Goldman Sachs. I wanted to ask on ecosio. I know when you acquired that solution, I think you had mentioned maybe relative to some of the other e-invoicing peers in the market, the go-to-market function was a little bit less built out, and you obviously paid a little bit less than some of the other assets were worth in the space. Could you maybe let us know six months into that acquisition where you feel competitively and what gives you confidence?
You want me to start?
No, Chris, I thought Chris went on. Thanks.
Yeah, ecosio actually does have some geographic presence and salespeople in places we did not. It has actually been additive by bringing them on. From a competitive standpoint, when we are in an account that wants and looking at this from a global standpoint, and they're not just looking for a point product, as Maria mentioned earlier, we're very competitive in that space. We will be looking to expand beyond the current footprint of Vertex and ecosio Europe in the second half of this year.
In the U.S. market, we've got more than enough coverage for it, correct, Chris? Yeah, it's from a sales coverage perspective.
Yeah, it's interesting. E-invoicing, while it's a European phenomenon, U.S.-based global multinationals have to deal with it. That fits very well within our current motion and coverage for North America.
Anyone here in the middle section? Yeah, Chris.
Hey, Chris Cantaro from Morgan Stanley. Thanks for doing such a great event here. It's been quite insightful. I wanted to ask on the install base, you had a slide in there that shows about a two- to three-times uplift on the install base once you get to full penetration. Can you help walk us through those building blocks to get you from, you know, today's current level to that two- to three-times uplift? What are the big levers there?
You want to start?
Yeah, sure. I mean, not to be repetitive, but it comes back to a lot of the catalysts you heard about today. One is tax type. We have companies that go from sales tax to adding use tax to adding VAT tax. You have a tax type expansion element to it. You have the geographic element to it. You may be using our VAT product just for Europe. You can expand to Asia Pac and South America and other parts of the world. There is a geographic expansion. There is a tax type expansion to it. Then there is a pure just add-on product set element to it. You are adding exemption certificate management or the Edge Products I referenced earlier and the various add-ons that we have. They are kind of the building blocks to go from a customer that is penetrated X percent today to what their real opportunity is.
Alex.
Thank you. Alex Sklar with Raymond James. John, just a quick clarification, and then I had a follow-up on ecosio, but the 20% software framework, is that intended to be a CAGR over the four-year period, or is that point in time kind of as we get to the end of the four years, we should see kind of the 20% growth?
That is the point in time when you get there. That's kind of what we expect growth will be. Okay.
For Chris or David, on ecosio and kind of following up on Adam's question, I just wanted to ask about adoption curve. We talked about kind of getting to 7%-10% of revenue implies a nice acceleration here. You said you're starting with your installed base. Like, how do you see the new logo opportunity manifesting from e-invoicing? What does the landscape look like in four years given some of these rules are rolling out now? Is it vended in five years and then it's kind of a replacement market? I'm curious how you think the landscape will evolve.
Yeah, I think the new logo opportunity is weighted a bit more to Europe while it does exist in the U.S. and Europe. For us, because of our large install base in the U.S., I see that as an install-based focus cross-sell opportunity with Europe being more of a new logo opportunity. I think part of how it manifests itself over multiple years is the behavior we're seeing in the market is companies wanting to start with two, three, four countries and then adding countries over time. If you compound the adding of countries over time with their invoice volume increasing, it is a big contributor to how e-invoicing grows over time. That is the phenomenon we're seeing in the industry. It's not a big bang. It's more of a grow over time type approach.
Yeah, I think that last piece is a really important one to appreciate. They're going to start with a few countries, which means their invoice volume might be a tenth of what they actually do globally. As more countries are adopting and we're building our brand in terms of they'll want to roll out in more countries, you'll see invoice volume accelerate. That's really when you start. That's why when John highlights it's more the back end, it's that phenomenon we're seeing pretty consistently.
Anyone from the left side of the room? Yeah.
Hi, this is Will Jellison from DA Davidson. You've spoken today about expanding into the complex customers within mid-market. I'm squaring that with in the past, you've also talked about how you've been successful in prior RFPs winning those deals even at a significantly higher price point because of the advantages you offer. As you expand into the complex end of bid market, do you expect that price differential to sustain because of the same advantages you offer, or would you expect slightly more price competition with that cohort of customers?
I actually expect it to stay and maintain because company size is just a proxy, really. You know, if you're a $100 million company or you're a billion-dollar company, they can have the exact same complexity and challenges. If you're a $100 or $200 million company, when you have multiple systems in multiple geographies and multiple lines of business, you really have the same complexity of a company much larger than you, and you're willing to pay to solve the problem. We have the unique solution to solve the problem. I really think we will be able to maintain price points in something that is simple where they do not have that complexity. I think price does become more important.
Yeah.
Oh, great. Thank you. Pat Walravens from Citizens. Great day. Thank you, David. Your team's hard work is appreciated. The long term, obviously, is super, super important, but it's also, especially when you time these investor days towards the end of your quarter, right? I think it's also really important that we talk about the near term. There are 11 days left in your quarter. What's it like out there? How's business?
Yeah. You know, as we said in our call a couple of weeks ago, the funnel is operating exactly as it has. We're not seeing any change from a macro perspective in terms of top of funnel or execution going through. Comfortable with the guidance we gave and comfortable with the trajectory, how it needs to set us up as ARR as we look at the acceleration for the back half of the year. No change.
Yeah, we're not seeing any abnormal behavior in the market. We're not seeing deals delay. We're not seeing stall. We're not seeing change. It's business as usual to David's point. We're not seeing any other dynamics.
All right, we're going to come up. We've got a bunch of questions on the front row here from our sell side. Let's just go down the line. Start with Dan.
Thanks for taking my question. Dan Jester, Bank of Montreal. In the slides, there was a $1.8 billion TAM from the cloud migrations. I think we've talked about the uplift a couple of times, 20-25-30% uplift, but maybe just double-click on some of the assumptions to get to that $1.8 billion and how we should be thinking about it. Thanks.
Yeah. First of all, it's from now to 2028. It includes both SAP and Oracle. There is additional value that can be created beyond 2028 because it's a longer horizon. We expect that a number of companies will reinvestigate or rethink their tax engine decision, as Maria pointed out and as I described. We think that we can earn or capture a fair share of those opportunities because historically, in these formal decision, you know, the RFP area, we seem to do pretty well in terms of capturing that market.
The $1.8 billion itself came from industry data tha t Oracle had.
Yeah, it's an industry. We use industry data to come up with that number.
Yeah. Yeah, that's what I think.
Yeah.
I think just to build on that a bit, in my organization, we love migration opportunities, right? Because if a lot of the clients that are using our legacy products, they did not handle VAT or consumer use tax. When we're working with a client, they may have had those requirements for quite some time, and they've been using either native ERP or some band-aid approach to that. Now, as part of the migration, we can bring sales tax, consumer use tax, and VAT into the conversation, and it's a phenomenal upsell opportunity for us. That's where you hear the 30% uptick that we get on a cloud.
George.
Hi, George Curtis out of Citi. I wanted to ask about the cross-sell opportunity. You gave some great slides showing kind of customer expansion over time. One of the things that stood out was sales tax for a few of those examples was the small minority of the total ARR stack. Can you guys just talk about your ability to proactively cross-sell kind of the breadth of solutions versus more reactive, like waiting for problems to come up with customers? Like, how has that muscle developed?
Yeah, we do constantly proactively sell and cross-sell. It's the external catalyst that sometimes gives us that extra push to get the sales motion actually going. A lot of it really depends on us. We profile the accounts to understand what they could or should be using in addition to sales tax. I've mentioned consumer use tax a couple of times. That's pretty much something any company that buys things would use it, but some of those offerings do not apply to all companies. We profile, we target, we are proactive an d that catalyst event is sometimes the extra push we get.
Jake.
Yeah, Jake Roberge with William Blair. I know there's been a lot of talk about the ERP and e-invoicing opportunities, but from the presentation, it sounds like you're starting to get more traction with the AI and smart categorization solutions. Two questions just on that front. I know it's starting in retail, but how quickly could you get it out to all of the industries across your customer base? When customers do adopt, what type of price uplift can they see for those smart categorization products against the core?
How quickly? Obviously, that depends really a little bit on the segment that we're addressing and the starting point. The reality is you have to train the model. I think we can do that relatively quickly in assigning resources. As we said, we have our own tax research people that would sort of start to be assigned and train the model together with the customer. Then it's also a question, will the customer put resources in or not? What we've seen actually is that the training of the model in some early experiments was actually very quick. Like as I described, you let this thing run. It suggested something. We think it's wrong. You correct it. And the more often you do that, the quicker this thing learns, and then it speeds up.
It's difficult to really qualify that in months or something, but we're actually very confident that we can roll it out relatively quickly. We really at the moment want to make sure we do it in a controlled way. If you really find a problem, you don't want to have 100 customers having that problem. I think we're very cautious around it. As I said before, I think we have a very, very focused process in doing that so that we really deliver high quality and high user experience. From a pricing perspective, I don't think how are we going to price it? We're going to price it based on consumption. You have a lot of products, you'll pay more. You have only a couple of hundred products, you don't pay a lot. It's really consumption-based, but we'll also expect since you're continuously using it, it will be generating a meaningful uplift.
Yeah. The beauty of AI is it's a gift that keeps on giving because it is growing and getting better and better. Our cost model is really, really strong now. We have an economy of scale that's getting better as well. You know, at some point, maybe 70% of the products will get auto-categorized and then over time, 75%, 80%, and there's going to be more and more consumption based on that. Anybody on the left side of the room? Right side went in, I think. Anyone else? How about Rob, Oliver?
Great. Thank you, Rob Oliver with Baird. Appreciate all the detail. Thanks so much. Two-part question for Chris. I guess the first is you mentioned and you guys have called out previously some of the success you guys have had, say, in oil and gas. I think you talked about some of the potential to allocate resources within the go-to-market opportunity around other verticals. I'd be curious to hear if there are other verticals right now that excite you as potential, you know, opportunities where, you know, given more of a focus with a vertical focus sales, maybe in a year or two, we'll be talking about that vertical and not oil and gas.
My follow-up question was just maybe a follow-up to Samad's question around Shopify. It does seem like we're at a little bit of a tipping point right now where Shopify is starting to expose some of the weaknesses of some of the, you know, incumbent legacy commerce marketplaces. I'd be curious to get a little bit more detail on your comfort level with your relationship with Shopify as they move up market. Thank you.
Sure. On the vertical front, we are in early stages with medical device. We've built out a specific content set for medical devices that we believe, to our knowledge, is unique in the industry. That's the current target. There is not some other big, shiny, unique vertical right now. Most of them are just content plays at this point. When I referenced leasing and retail earlier, they require actual different software and a different overall solution to address those markets. We really don't have any of those on the radar right now. We will pursue content expansion after medical devices for future verticals. As far as Shopify, really exciting relationship.
They are really trying to come up market and view us as a key piece to help them do that. We view it both ways. You are seeing that traction in the market. We are seeing that expansion. We are working with them in different ways. There is a referral agreement. There are some other different tighter ways that we are working together. It is nothing but positive. There have been questions about, are they a competitor potentially for us? They are not. They solve for the very simple down market, just like an Oracle or an SAP or any of our other partners can solve for a simple client. We are that value add when the complexity goes up.
Corey.
Hi, thanks for the information today. For ecosio, where do you see the incremental margins coming in after the investment period? Thanks.
Yeah, I will start. I think I anticipate seeing the margin come out of selling and, you know, selling and marketing because we are ramping up a go-to-market force that's there. And then also in the R&D and the R&D space, I think R&D is going to be an area that, you know, we have continued to invest in to make sure that we're getting the country that we're getting that country coverage. And we want to make sure that that, you know, that that gets where it needs to be.
That's great. Thanks. I was actually asking, like, where do you see operating margins shaking out when you get to the 2028 timeframe?
Oh, you know, we're not giving guidance on specific, you know, I'll say segments within the, you know, within our pie. But again, ecosio, as we talked about, is as, you know, negative adjusted EBITDA margins now. We continue. We expect that that will continue through 2025 as we make further investment in it. Again, we see that being EBITDA positive in that first half of 2026. That is when that turns. We did not give any further guidance, Corey, on where that all kind of fleshes out when it is all said and done. It will start contributing certainly in the middle of 2026. You know, again, we anticipate that it will share a similar kind of a similar view with what ours look like over time. I cannot say that that is by 2028.
Last call for questions. Yes, George. Can we hang on for the microphone?
Thank you, guys. Cannot miss the last opportunity. This is a wonderfully organized event. Thanks so much. A few quick questions. One is the tariff, which is the big elephant in the room. People call that a form of tax. Do you see that as a long-term opportunity? That's question number one. Question number two is the 20% top line growth at in 2028. Is that some kind of a peak and then it starts to slow down or you think it's sustainable over the next whatever, five to ten years? Thank you.
Why don't you address the tariffs as a tax expert?
On the tariff piece, I would say this. Tariffs have been in place, I think, for quite a while. Certainly they were in place in the first Trump administration when they imposed them. Those tariffs never came off in the Biden administration. The reason it's gotten a lot of press recently is because President Trump has made a policy decision that he feels that if you want to sell into the U.S. market, you are going to either it's going to be fair trade. It's not going to be free trade. In other words, if you tariff us in your country, we're going to tariff you. That's his kind of thinking. It's a way to bring about change in the way he kind of thinks about that. For us, as most of the people in this room know, tariffs are always paid by the importer of record. That normally goes into the base of it. It actually affects the calculation of the VAT or the sales tax. It's kind of embedded in already.
We do not see that as a business, David, to kind of grab onto. One thing I would point you to, there was a really good article in The Wall Street Journal on Monday about Walmart and Target, who are already, maybe you saw it, they are already trying to get concessions, particularly from their Asian manufacturers, to try and get those to share in the cost of those tariffs. There was a lot of pre-buying on tariffs too as well, particularly on the West Coast. We saw container traffic go up about 30% in November, December of 2024, and then January of 2025. A lot of companies have pre-bought already for that. I think they have kind of managed their ways around it.
The thing that we normally say is what we've told the indirect tax group is be prepared to work with different suppliers and where they come from. Normally what we're starting to see is some movement towards in-country suppliers here in the U.S., particularly if they're using different suppliers from, say, foreign suppliers. That's what we've kind of told them, that your obligations will change as it relates to the supply chain.
It could be a tipping point, meaning if they change their global supply chain, they may have to deal with new VAT regulations or e-invoicing they previously didn't, which could potentially have an impact for us. Given the volatility of tariff today, gone tomorrow, we're not building our business case of success based on that. Yep.
In terms of the guidance, George, thank you for the question. You know, we see opportunity for expansion, obviously, on the growth that we're seeing today and some of those drivers that we talked about. Brad asked that question about how do you see this happening. It's really towards the back end of that. I wouldn't say it's a peak. I don't, you know, I'm not going to guide anything further than 2028. I thought we were pretty good with 2028 today. What I would say is it's really dependent on those tailwinds that are out there. I think you heard today from a number of the different parties that were here, you know, the tailwinds around e-invoicing and CTC are there and they're going to persist.
The tailwinds around some of the, you know, some of the ERP migration activities are there and they are going to persist for some time. I am not going to call anything further. I do not anticipate seeing a peak and it fall off the cliff. Absolutely not. What I cannot tell you is where that goes into the future from there. We feel very good about those tailwinds that are there that are going to get our business up to that level for sure. Thank you.
One more. Cannot help myself. One more. Where did our other microphone go? We lost a mic runner.
Hi, guys. Thank you. If we were thinking about cross-sell for the business, putting aside ecosio and putting aside AI, the things that are kind of on the come in the core of Vertex today, what should we think about as either the products or the cross-sell that's carrying maybe the top two or three that are carrying the bulk of that weight and how you think that goes over the next year?
Yes. Sam, if you take I use the automotive company example. It's a great one in terms of it's a large automotive company. It's a logo we showed you perhaps, and you're like, oh, you guys are in there. We probably only got in on division A. It's like we can sell them sales tax in division B, C, and D over time because the nature of our customers are these conglomerates made up of a lot of operating $10 billion business. Nestlé has like 27 businesses in the U.S. alone. Like, I'm not saying we even represent all of them. Like, there's always opportunity to sell the same tax type to multiple divisions. In my automotive example, we work with a very large automotive mixture where they invited us to sell their VAT, our VAT solution.
Existing capabilities we already had, we were just expanding wallet share because the customer had a pain in a different part of their business. That's really been the driver of the team's success. We highlighted customer success, the leverage we're getting from that. That's what they're doing really well is they're educating our customer base more and more on all the capabilities that product management has already brought to market to make sure as these pains are evolving, they're picking Vertex. That's why you have seen that move up. We expect t hat to continue.
Yeah. All right. Oh, sorry. That was it. Thank you.
All right. Let's wrap it there. We do have food and drinks outside. Please feel free to join us for lunch or grab something to go. We do go into quiet period at the end of the month. If you have follow-up questions, do not waste your time reaching out to me because we take quiet period very seriously and go dark at that point.
I said a couple of things at the beginning of the day that I hope really came through loud and clear in the presentation. This is a great business with we heard from great customers and partners that were here with us today. You met the leadership team that's driving this business and making all the right decisions for shareholders. Clearly, you know, evident in the guidance, not the guidance, but the targets that John set that we set for 2028, we're very confident in the durability and persistence of the tailwinds and the opportunity to drive earnings and free cash flow leverage. Again, hope all of that came through loud and clear today. We look forward to keeping in touch with all of you, answering your questions and continuing to forge our relationship with you. Thank you.