Can you hear me? Everyone hear me all right? All right, great. I guess we get started. My name's Carl Fantasia. This is Austin Cole with Citizens. Happy to have Chris and John from Vertex here. Just get started quick. Chris, love to just sort of hear. You have a great background. I think people here really wanna understand sort of your background and all your roles at Microsoft, McAfee, and Cisco. Love to just hear sort of what your roles there were, and then get into a few more things.
Excellent. Thank you. Thank you both for having us. Appreciate it. As you point out, Carl, I'm relatively new to Vertex. Just hit about the 100-day mark here at Vertex. But long time in the technology industry, over 30 years as a technology industry person. I spent time a lot of my career in cybersecurity. I ran cyber at Cisco. I was at RSA Security when we got acquired by EMC that many years ago. It's over 20 years at this point. Spent time at VMware, and then ultimately went to Intel and then spun McAfee out of Intel when I was there, and then led McAfee as CEO for a number of years when we were a private company.
After a little bit of time off and a little bit of pandemic, I made my way to Microsoft, where I spent time leading a lot of our partnerships and investing. I spent a lot of time with many here in the AI space as part of that stint at Microsoft. Last year, I was, you know, in another, in another period where I was focusing more on investing and came across Vertex and got really excited about the opportunity that we have in the company. As many of you know, we have an incredible customer base.
The company has done phenomenally well, I really felt like, you know, with so much that's changing in the industry, you know, Vertex was really well positioned to take advantage of some of that transition. I decided to come on board to lead it.
Mm-hmm.
That's why I'm here.
That's great. I guess, been there, what? three months, end of November.
That's right.
Early findings, you know. Sort of from the outside in and then from the inside, sort of early findings and challenges.
Yeah.
Environments all over the place, but love to just get sort of your feel on what you see so far.
Early findings, customers validated a lot of what I saw on the outside. Very trusted. The accuracy and the reliability of Vertex is something that they highlight with me. A number of customers have said to me things like, you know, "Hey, I am able to run a leaner tax department because of you at Vertex." You know, they use us in countries around the world. There's a lot of, a lot of just many great things that I'm hearing from customers. They also offer some opportunities for us to get better. They think we can move faster in some places. They think our opportunity to innovate with our product portfolio is there. I talked about some of this on our earnings call.
Mm-hmm.
A few weeks back, that just the pace and with which we're bringing new capabilities to market, I think has there's an opportunity for us there as well. Our customers have said so much to me, which is, you know, I see that as all opportunity for us to grow, get better as a company. That's, that's a big part of what I'm focused on. I think AI, you know, being one of those categories, in particular. I think we exist in a place in our customers' infrastructure, you know, where, you know, we're integrated deeply in the ERP systems, point of sale, e-commerce, human capital management. We're deeply well embedded. The accuracy that we bring is really, really important to our customers.
Around the work that around the data that we deliver, you know, our customers still do a lot of manual task effort, right? They, you know, they're processing returns. They're, you know, doing pre-close processes. They're, you know, preparing for audits and the like. We have so much opportunity to offer them more AI tools to help their lives get better, and I see that as a big growth opportunity for Vertex. On top of all the things that we're doing today, even with, you know, global compliance mandates around e-invoicing, which is a big part of where we've been focused over the last few years in our investment strategy, as well as some of the growth prospects of the company. It's exciting time to be here. There's a lot happening. Our customers are changing.
Governments are putting additional pressure on them to do things differently. All of which, you know, we feel well prepared to help them with.
Mm-hmm. Great.
Maybe I'll jump in here. You touched on so many topics, so there's plenty of pieces to dive into. Thank you, John and Chris, for being here again for me. I guess thinking about Vertex today, and you mentioned, reported a couple weeks ago, I'll maybe just open it up with my boss's signature question, actually. How's business?
The business is good. I, you know, again, whenever I talk to a customer, I feel really, really positive about the business and what we're able to do. You know, as you, as you heard on the call, we had a strong new business quarter at the very end of 2025, which is a great example. You know, the business grew overall. Our ARR is growing. Our cloud, you know, business is growing. You know, we saw obviously some changes to the nature of the business if you kinda look back over the course of the year. Overall business is good. There's work for us to do on the customer retention side. We talked about that on our call. That's a place where I'm digging in pretty heavily right now.
I see again, with our global compliance and e-invoicing mandates, with, you know, some of the opportunities that are out on the horizon for us, you know, I see a lot of positives in place for us in the business as I look ahead.
Yeah. maybe I'll ask John, 'cause since you.
Yeah.
relatively new to Vertex as well, like maybe take us through maybe, you know, into 2025, last year and, you know, some of those challenges, and then what your kind of priorities are going into 2026 to address those.
Yeah, I think you know, Austin, you hit upon some of the things that drove the business. We did see about a 5% drop in our NRR. As Chris said, about 1% or so was really related to some of the customer churn, customer activities. We spent a lot of time looking at that. That's an area of focus for sure for 26, as we're trying to make sure we understand what was controllable, what's not controllable. At the end of the day, a lot of it was out of our control, bankruptcies, M&A, things that go away from us. There were some things that we can control and do better at, you know, which is making sure we're managing and being in touch with all those customers on a very regular basis.
We made a lot of progress there, getting that figured out, and I think we feel like we're well-positioned for, you know, for 2026 to get ourselves sorta back on track with getting the connectivity we need to make sure that we're first not churning, but then also, you know, looking to expand those customers. About 70% of our new revenue opportunities come from existing customers, and so it's really an important thing that we shore it up to begin with and then drive the opportunities that come through that. Adding customer success team members to allow us to expand within those customers. Also getting in front of to the extent that people haven't fully implemented or aren't necessarily using the volumes that they used to, that will help out.
We did see a little bit of a slippage in that NRR, so the other four points really come from the additional entitlements, which is the spend and some of the cross-sell and upsell activities that were there. Again, having that, having people in front of that from a customer success standpoint really helps us drive those metrics and put us in front of things rather than playing a little bit of catch-up. I think we're in a real good spot as we think about 2026.
Right. As we think about 2026, and I know AI is going to be just a continuing theme, and Chris, you've kind of talked on the earnings call about some of the opportunities that you see there. Maybe we could double-click on that. I mean, we could probably spend the whole session talking about it, quite frankly.
Mm.
You do have some products. I mean, you have the Copilot, you have Smart Categorization. Those seem like really good initial use cases. What are some other opportunities that you see to kind of leverage AI to add value to your customers?
Think of it to start as really categories of AI capability that we're bringing. One category is the just augmentation of the product experience the customers have. That's what the Copilot does. Makes it easier. If you're having a problem, you ask it a question, it gives you the answer. If you wanna dig deep into something, understand why a calculation was made in a certain way, you can ask it. Gives you the answer. These are all things that are all use cases where a customer might otherwise call us to answer the question. We can just augment that experience right in the product. Or when you're, you know, updating a rule set, you know, again, building that capability into the product using AI.
Those are, you know, those are all elements of AI that are just gonna make our products better for our customers. The experience will be better, and so we see that category as a, you know, it's a rich place for us to just continue to add more value, you know, reduce the amount of time customers have to spend, working in and around the product. The second category, however, is, you know, taking other work off the customer's plate that they normally would do with, you know, with their own tools, maybe with Excel spreadsheets or other tools. Smart Categorization is the first example of that. You know, one of the, one of the big pieces of work that goes into any, you know, determination exercise is, you know, you have...
You know, you think about a retail environment. You have potentially thousands of products. Every time you update a SKU, every time you update an offer, every time you update the vendor or supplier of a product, or even the ingredients of a product can change how the tax is determined, where you sell the product. There are many parameters that go into determining how to categorize a product for determination. Traditionally, a lot of our customers are doing that in a relatively manual way.
We've built an AI tool that allows us to just learn based on the history of the way that's been done and categorize these products so that, you know, as pricing or SKUs get updated, as ingredient, product ingredients get updated, packaging gets updated, we're able to then, you know, automate the process of putting that into the determination engine for it ultimately to be calculated. That's gonna save our customers time, it's gonna save them a lot of effort, and we, you know, we're gonna see that, you know, we're seeing that in the retail space today. We had our first paying customers for that in Q4 of last year. We had some real marquee retailer wins in that particular category.
We think that's a place where we've got a real opportunity to build as we look out over the course of the year. We're starting to build other capabilities like that will help our customers with how they do the filing of returns or how they execute a pre-close process. There are many different places like that where we believe AI products are gonna help our customers save time, save energy, improve accuracy, and that's really what we're focused on. You know, again, on the side of the piece here where it's giving additional value to them that goes above and beyond the product that we deliver today.
Right. Yeah, that's kind of all hitting on a lot of people are talking about AI kind of on the offensive versus defensive. I'd love to hear from you just why, you know, tax is obviously mission-critical, right? It's gotta be done 100% right. You know, there's a whole, you know, AI narrative, disintermediation in software. Where does Vertex kind of-- where do you see Vertex fitting in or, I guess, out of that narrative?
Yeah. Look, I think, you know, certainly Vertex, because we're a software SaaS player, we have felt some of the effect of how the market is thinking about the broader landscape. You know, if you think about what Vertex does, you said a few things already that I think are really important to remind everybody of. First of all, our business model is a little different. We're not a seat-based model. Our model is based on transaction and revenue bands for our customers, right? It's more like a consumption-based model today, which I think lends itself well to the direction of travel the world is headed in. Second thing I would say, we're deeply embedded in our customers' infrastructure, the ERP systems, point of sale, e-commerce, HCM systems.
You know, so we're a deeply embedded part of our customers' landscape. Accuracy, you said that as well, Austin. I think that's a really important point because, you know, most generalized LLMs are, you know, they're probabilistic models. They're not, you know, determinate, you know, they're not determinative. I think that's an important distinction in terms of what we do. We actually, you know, we've got to get it right 1,000 times out of 1,000 or 100 times out of 100. The accuracy that our customers rely on is really important. You know, 'cause if they're, if they're wrong in a calculation, the downstream cost to them is significant. They've got potentially penalties they've gotta pay. They potentially find themselves in an audit situation. That all takes time, it takes resource, it takes energy.
Our customers really do rely on us to get that right. You put all those different pieces together, you know, it makes us very unique in terms of, you know, the durability of the Vertex business model as it currently exists. If you think about the opportunity then for us to lean into AI, additional AI capabilities that we'll bring to our customers, which is more on the offensive side of the ledger, that's where we think the growth algorithm, you know, pays dividends to us down the line as we start to bring new products like Smart Categorization into the mix.
Right. Then maybe for John, kind of as you set the guidance going into 2026, we're talking about these investments. How do you think about kind of that balance of growth and investment in the business at this point?
Yeah. No, we're certainly focused on, you know, a couple of big investment areas. 426 is getting behind the e-invoicing opportunity.
Right.
the expansion that's there, and making sure that we're growing that, getting the country coverage we need.
Yeah. I wanna talk about that more too.
We'll get back to it. Yeah.
Yeah.
We're getting the country coverage there.
Mm-hmm.
The investments in AI, again, we can't skimp on that. We're being very thoughtful about how we manage the business and how we run the business. 'Cause there is leverage that we can get internally out of leveraging more of those tools down into the organization. We are doing that, and we're finding ourselves with nice opportunity to better optimize the business across the, you know, across the board, not just in any one particular area. The savings that we'll see from that and some of the other activity that are out there are gonna allow us to invest in some of these other things that are out there. Again, it's just continuation of being very thoughtful about running the business and leveraging technology to allow ourselves to advance the business.
Yeah. That sounds good. Let's hit on the e-invoicing. Obviously, tax is very complex, right?
Sure.
I don't think most people actually know what is e-invoicing. Just at a super high level, maybe so we can actually understand. You know, country coverage is expanding, these mandates are happening, right? Customers need to find a solution. Just talk about that tailwind and kind of what that means for Vertex, you know, from a financial standpoint in 2026 and then even in 2027.
In countries around the world, a number of governments have basically said, "Look, you have to, as a transaction happens in your business, you have to transmit the invoice around that transaction directly to us, and then we will acknowledge that we've received that as a government." As opposed to, like, if you were to sell 50 widgets, and usually, you know, and traditionally the way things work, you sell 50 widgets, you calculate what you believe your tax liability is. At the end of the period, you file a return, and you tell the government, "This is what we owe you.
Right.
The government can, you know, sort of prove or disprove that if they actually have an audit against your business. With e-invoicing, what they're saying is, "No, don't just wait till the end of the period. Every time there's a transaction, we wanna see the transaction. We wanna see the cost associated with it. We wanna see the revenue associated with it. We'll also have our own view of what your tax liability is.
At the end of the period when you file, you know, you'll have your filing, we'll have our view of the business because we will have seen all the transactions, and we view that as a way for us to make sure that, you know, all the different, you know, tax that's owed to the government adds up. We have seen, I think, I think there's an example in Italy. You know, Like, when they went to an e-invoicing model, they saw an immediate, you know, significant bump up in just taxes, basically taxes paid to the government as a result of, you know, really being able to compare, you know, what was happening at the filing period with what they saw over the course of that transaction period. This is why e-invoicing is happening. It's, it's been.
It was started in Latin American countries. You know, for example, companies doing business in Mexico, this has been in place for a while. What we're seeing now is more of these mandates coming online in European countries. I mentioned Italy is already a mandate. Earlier this year, January, we just had Belgium come online. France comes online in September. Germany comes online after that. We're starting to see, you know, certainly across Latin America, in Asian countries, and now increasingly across many countries in the EU. We're seeing an increase in the number of electronic filing mandates that we see out there. That's essentially how e-invoicing works.
E-invoicing is really just foundational in many ways to what, you know, we start to see as a broader move towards, you know, what we'll call continuous audit compliance, right. You know, the goal here is that countries wanna make sure that they have a continuous look into the flow of commerce through, you know, through companies that operate in their countries, so they make sure that they're on top of taxes. They wanna make sure that they reduce the amount of fraud that they see. This is for many companies that are doing business, particularly larger companies that have complex, you know, global multinational operations, this is important to them, not just tactically that to send file, you know, to send e-invoices across.
They're taking a step back and really having a look at where am I in compliance, where am I out of compliance, how do I look at my, compliance, sort of posture across these different jurisdictions? They need to make sure that they stay on top of the compliance mandates, you know. What'll happen is governments will consistently change some of the information that they're looking for, and that's part of the reason why they rely on third parties, is to make sure that the formatting is correct, and they're staying on top of a lot of the changes that are happening in the broader landscape. This is an ongoing, sort of evergreen, opportunity/challenge, depending upon how you think about it.
it's one that, you know, we believe is gonna be really important for our customers to solve, and it's one of the ways we're working with them to solve.
Important growth lever there and something that's kind of a secular tailwind in a way. I do wanna leave some time for any questions that might be out there. I could go much, much longer on my own questions, yeah. Let's take from Jake.
Well, it's our interpretation, I guess, that, you know, a big part of the slowdown's been lack of visibility from the big ERP players. Their own visibility's decreased. How much is that, like, on your minds? How much of it is in your guidance? Is that something we should be really comfortable with now where it's been reset?
From a guidance perspective, it's certainly something we took into consideration when we set it for 26. We certainly looked at the activity in 2025. Although 25 was a good year, from an overall performance standpoint, SAP was up, Oracle was up, there was good activity there. We certainly There was an opportunity for us to see additional throughput if volumes increased there. Again, we tried to For guidance purposes, we took into consideration what we were seeing there. That is a, you know, that is a great opportunity for us because with the move to digital and the move to the cloud by many of the big customers, that presents an opportunity for us, whether it's an existing customer, to take that customer from an on-prem into the cloud, where there's an increase in ASP.
Where it's not a current customer, if there's an RFP that's run, which many times it is, going through the ERP implementation, that gives us a chance to kinda get into the game, and we have a very you know, a significant win rate when we go against our competitors there. I mean, that is good opportunity for us. Frankly, it probably went a little bit slower in 2025 than we would have anticipated. Again, we took that into consideration as we set our 2026 guidance.
Maybe a question, as you talk about competition, you know, disruptive time, I guess. I'm sure there's a lot of AI native type companies out there. You know, any holes, I guess, in the product lineup strata or areas that you maybe wanna invest in, either through acquisition or maybe give us a sense of sort of the environment and anything out there that's interesting or has changed, I guess?
We have a complete solution and across, you know, the different aspects of our business. I would say, I would tell you know, you'll continue to see us lean into e-invoicing and compliance and really bringing those two pieces together, right? It's like, again, the e-invoicing part is relatively tactical. The compliance mandate is the broader driver here. You'll continue to see us lean into that. That's an important, you know, growth area for us in 2026. So we're continuing to invest there. I'd say that number one. You know, what we see in the broader landscape as it relates to AI is really more on the low end of the market. You know, obviously far less complex tax scenarios there.
You are starting to see some startups that are in that particular that are in that landscape. Not something we see at, you know, the segment of the market where we serve. In fact, I was talking to a customer the other day, and he even said to me, he said, "I've sat through a lot of AI presentations, but I've not actually seen any of them that really have moved, you know, compelled me, to wanna do anything different." That's what we're seeing in the market right now.
On e-invoicing specifically, we had Sovos presenting here earlier. Is the kind of e-invoicing and then plus that compliance, like, is that a differentiator, having, like, the complete platform there?
We see it as a differentiator, and it's a big part of how we focus our go-to-market, is, you know, we're, you know, we have a large global multinational installed base and, you know, many of them use us for VAT determination. If you think about it, the VAT determination and the e-invoicing are part of a continuum that really fit into that broader global compliance mandate for these customers. You know, we've seen positive response to that. You know, we've actually, you know, a number of the folks that have joined our team over the last year are, you know, compliance and e-invoicing experts.
You know, this is, you know, this is work that we see happening across the board, you know, with a number of our customers and they're responding well to the solution we've got.
Awesome. All right. Well, we are coming up on time here, so I think we'll wrap it there. Thank you for joining us and, yeah, thanks everyone for attending this session.
Thank you.
Thanks.
Thanks. Thanks so much.