Vertex (VERX) Q3 2025 Earnings Call Transcript

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DATE

Monday, Nov. 3, 2025, at 8:30 a.m. ET

CALL PARTICIPANTS

• Chairperson — David DeStefano
• Chief Financial Officer — John R. Schwab
• Vice President, Investor Relations — Joseph J. Crivelli

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RISKS

• The bankruptcies of three large enterprise customers -- Big Lots, Party City, and Joann Fabrics -- led to license cancellations, negatively impacting retention metrics by approximately $2 million in fiscal Q3 2025 (period ended Sept. 30, 2025).
• Accelerated migrations by three large customers to the Vertex cloud platform resulted in earlier-than-anticipated subscription downsizing, reducing net revenue retention by over $2 million in fiscal Q3 2025.
• "Net revenue retention, or NRR, decreased to 107%, down one point from the second quarter for fiscal Q3 2025," according to David DeStefano.
• Guidance for full-year 2025 revenue and adjusted EBITDA (non-GAAP) was lowered to reflect the impacts of customer bankruptcies, faster-than-expected platform migrations, and muted entitlement growth from existing customers.

TAKEAWAYS

• Revenue -- $192.1 million, representing 12.7% year-over-year growth and aligning with company guidance.
• Cloud Revenue -- $92 million, growing 29.6% year over year.
• Subscription Revenue (non-GAAP) -- $164.8 million, increasing 12.7% over the prior year period.
• Services Revenue (non-GAAP) -- $27.3 million, growing 12.8% year over year.
• Annual Recurring Revenue (ARR) -- $648.2 million, up 12.4% year over year.
• Gross Revenue Retention (GRR) -- 95%, within the stated target range of 94%-96%.
• Net Revenue Retention (NRR) -- 107%, a one-point sequential decline from the previous quarter.
• Average Annual Revenue Per Customer -- $133,484, increasing 12.4% year over year (non-GAAP).
• Scaled Customer Count -- Increased by 14% year over year.
• Adjusted EBITDA (non-GAAP) -- $43.5 million for fiscal Q3 2025, a 12.7% year-over-year increase and $2.5 million above the top end of guidance, resulting in a 22.6% margin.
• Free Cash Flow -- $30.2 million for fiscal Q3 2025, as specifically highlighted by management.
• Operating Cash Flow -- $62.5 million for fiscal Q3 2025.
• Gross Profit (non-GAAP) -- $142 million, with a gross margin of 73.9% (versus $126.2 million and 74% in the prior year) for fiscal Q3 2025.
• Subscription Software Gross Margin (non-GAAP) -- 81.4% in fiscal Q3 2025, up from 80.5% in fiscal Q3 2024.
• Services Gross Margin (non-GAAP) -- 28.8%, down from 35% in the prior year's third quarter, due to increased automation investments.
• Research & Development Expense -- $16.8 million; $40.8 million including capitalized spend, equivalent to 21.2% of revenue, for fiscal Q3 2025.
• Selling & Marketing Expense (non-GAAP) -- $43.4 million, or 22.6% of total revenue for fiscal Q3 2025, up approximately 12.9% year over year.
• General & Administrative Expense (non-GAAP) -- $38.4 million for fiscal Q3 2025, $2.6 million higher than last year.
• Unrestricted Cash & Equivalents -- Over $313.5 million at the end of fiscal Q3 2025.
• Unused Line of Credit -- $300 million available at the end of fiscal Q3 2025.
• Share Repurchases -- The board of directors authorized the repurchase of up to $150 million shares in the open market.
• E-invoicing Revenue (Acozio contribution) -- $4.1 million in fiscal Q3 2025, an approximately 30% increase from the prior-year run-rate, driven by more than 100 new customer wins since March general availability.
• Guidance for fiscal Q4 2025 Revenue -- $192 million to $196 million, per statement from the CFO.
• Fiscal Q4 2025 adjusted EBITDA (non-GAAP) guidance -- $40 million to $42 million, with an implied margin of 21.1% at the midpoint.
• Full-Year 2025 Revenue Guidance -- $745.7 million to $749.7 million, with cloud revenue expected to grow 28% and adjusted EBITDA (non-GAAP) of $159 million to $161 million (21.4% margin at midpoint).
• Major New Business Wins -- Several cited, including SAP ecosystem expansions, AI-driven product sales in grocery and retail, and e-invoicing contracts with a global real estate investment trust.
• AI Product Initiatives -- Expanded smart categorization solutions and new agent-to-agent tax configuration capability for Microsoft (NASDAQ:MSFT) Dynamics 365 Finance and Supply Chain.
• Kintsugi Partnership -- Launch of Kintsugi powered by Vertex, targeting the SMB segment with AI-native compliance automation and real-time dashboards.
• R&D and AI Investments -- $10 million-$12 million dedicated in 2025 to productizing smart categorization and integrating AI technologies; similar spend in e-invoicing ($16 million-$20 million) through Ecosio acquisition.

SUMMARY

Vertex (NASDAQ:VERX) management lowered guidance for the full year and fiscal Q4 2025, citing the compounded impact of unplanned customer bankruptcies, earlier-than-expected legacy migration shutdowns, and ongoing entitlement headwinds. The board authorized a $150 million share repurchase, positioning this capital allocation as a signal of confidence in long-term growth drivers, particularly as mandates for e-invoicing in major European economies approach. Operating leverage improved, with automation driving incremental margin gains and tangible progress in AI-based product commercialization, as evidenced by notable wins in retail and manufacturing verticals.

• Vertex closed fiscal Q3 2025 with over $313.5 million in unrestricted cash and $300 million in unused credit capacity, offering substantial financial flexibility for continued investments and buybacks.
• Management asserted, "cloud first in everything we're doing," and reported that the cloud business now comprises approximately 57% of total revenue as of fiscal Q3 2025, reflecting the continued impact of cloud migrations.
• Several large SAP ECC to S4HANA customer transitions resulted in strategic revenue expansions and competitive displacement, indicating ongoing opportunity as the SAP migration deadline nears.
• Kintsugi powered by Vertex was launched to address SMB compliance needs using an AI-driven, scalable platform; this aligns product strategy tightly with distinct enterprise and SMB segment requirements.
• Executive succession was confirmed, with Chris Young joining as CEO the following week and David DeStefano remaining as nonexecutive chairperson to provide continuity through transition.

INDUSTRY GLOSSARY

• Entitlement: The contractual right for an existing customer to increase usage under their agreement, contributing to revenue "true-ups" as customers grow through usage tiers.
• Gross Revenue Retention (GRR): Annual percentage of recurring revenue retained from existing customers, excluding the impact of expansion.
• Net Revenue Retention (NRR): The annual rate of recurring revenue retained from existing customers after accounting for expansions, contractions, and churn.
• ECC to S4HANA: The transition by SAP customers from older SAP ERP Central Component (ECC) systems to SAP's next-generation S4HANA cloud platform.
• Agent-to-Agent Tax Configuration: An AI-enabled workflow in which Vertex's software agents interact directly with Microsoft Dynamics 365 agents to automate tax configuration.
• E-invoicing Mandate: Regulatory requirement for electronic invoicing in certain jurisdictions, obligating enterprises to standardize and digitize their invoice processing for tax purposes.
• Kintsugi powered by Vertex: Vertex's newly launched, AI-native compliance automation platform tailored for SMBs, offering real-time tax liability monitoring.

Full Conference Call Transcript

Welcome, everyone. And thank you for joining us. Our third quarter performance demonstrated continued momentum in core strategic areas while managing specific market and customer headwinds. The strength of our strategy was evident in our strong cloud revenue growth, the increased margin leverage driven by automation initiatives, and strong cash flow performance. We also saw accelerating traction in e-invoicing and improved SAP activity. However, offsetting this was the persistence of lower than typical growth from existing customer entitlements as previously discussed in our second quarter earnings call. In addition, the bankruptcy of three large enterprise customers as well as several accelerated migrations to our new cloud platform impacted customer retention metrics.

I will highlight the specifics of all of this and their impact on certain metrics in a moment. Our revenue results for the third quarter were in line with our guidance, while adjusted EBITDA exceeded expectations. Revenue was $192.1 million, up 12.7% year over year. Subscription revenue grew 12.7% and cloud revenue growth was 29.6%. Adjusted EBITDA was a record $43.5 million, exceeding the high end of our guidance by $2.5 million and representing an EBITDA margin of 22.6%. And free cash flow was very strong at $30.2 million in the third quarter. In addition, annual recurring revenue or ARR grew 12.4% to $648.2 million. Average annual revenue per customer increased 12.4% year over year to $133,000.

Scaled customer count grew 14%. Gross revenue retention or GRR remained at 95% in the third quarter within our targeted best-in-class range of 94% to 96%, and net revenue retention or NRR decreased to 107%, down one point from the second quarter. First and foremost, I want to provide more specific details into the items that impacted customer retention metrics. As we have discussed each quarter, we experienced moderate customer turnover at the very low end of our customer base, and discontinuation of legacy product usage by customers who have migrated to our new cloud solutions. In Q3, we experienced an unusual impact in these areas.

Certain enterprise customers, including Big Lots, Party City, and Joann Fabrics, canceled licenses due to bankruptcy. This impacted retention metrics by approximately $2 million. Additionally, we had three large customers who had previously migrated to our new cloud platform complete their own internal legacy ERP migrations faster than previously anticipated, which enabled them to downsize that portion of their subscription fees with us. This impacted NRR by another $2 plus million. Beyond these anomalies, management was encouraged by the progress achieved across several of our ongoing growth initiatives. On e-invoicing, Acozio had a strong quarter and contributed revenue of $4.1 million.

This is an increase of approximately 30% from their run rate in last year's third quarter when we acquired the company. We have landed over 100 customers since declaring general availability in late March. All fit nicely into our expected land and expand experience. Additionally, we are seeing success with our integrated product strategy which includes both e-invoicing and value-added tax compliance in one platform with full end-to-end documentation and audit support. In the third quarter, we continue to see an influx of new customers driven by upcoming e-invoice mandates, including Belgium, France, and Germany, which we expect to accelerate as those actual deadlines approach.

Ongoing cloud migrations with ERP vendors including our partners SAP and Oracle, remain solid with pipeline build improvements appearing. And the expense control initiatives we discussed last quarter are driving improving earnings leverage as demonstrated by our strong adjusted EBITDA and free cash flow results this quarter. This quarter's progress on our long-term growth initiatives validates we still have significant greenfield opportunity with enterprise customers that are currently using legacy homegrown or manual solutions for indirect tax compliance and are migrating to the cloud.

We continue to believe we have approximately three times opportunity with our existing installed base which we will penetrate by expanding usage throughout their organizations or by cross-selling additional products, and we have major tailwinds in front of us from the upcoming e-invoicing mandates in major countries like Belgium, France, and Germany. Demonstrating our confidence in Vertex's long-term growth today, announced that the board of directors has authorized the repurchase of up to $150 million of Vertex shares in the open market. Coupled with our progress on several growth areas, I'm excited with the number of AI initiatives the team advanced in the quarter.

We are executing on three fronts to commercialize AI which are focused on enabling new logo wins and wallet expansion with existing customers, driving enhanced customer retention through targeted ecosystem interoperability, and participating in new segments ripe for disruption. We are seeing ongoing traction with our smart categorization. And last week at our annual customer conference, we highlighted several new agented capabilities on our cloud platform. These are focused on workflow capabilities and data management. The customer conference was our largest yet, with strong attendance from Alliance and Tech Partners highlighting the energy around our customer segment and market opportunity. And the AI sessions were clearly the most oversubscribed sessions by attendees.

Additionally, at exchange, we shared some of the transformational work we are doing, including our pioneering of the first-ever agent-to-agent tax configuration capability for Microsoft Dynamics 365 Finance and Supply Chain. This is another step forward in creating a differentiated experience for Microsoft customers. Bringing enterprise innovation to the mid-market. In October, we also launched Kintsugi powered by Vertex, which enables SMBs to automate key compliance functions while providing real-time dashboards for jurisdictional liability and exposure tracking. Powered by the Vertex tax engine, it delivers the same trusted accuracy and global content that enterprises rely on in an AI-native experience built for agility and scale.

This is just the first of many such new products and new initiatives that we expect to launch in partnership with Kintsugi. Exchange was also a clear reminder of the stark difference in tax compliance precision requirements between the enterprise customer and the SMB segment where good enough is sufficient. These complex global multinational enterprises remain very cautious about how AI is being considered in their departments due to inherent limitations. Several points were clear from our discussions there. Enterprise customers know that our solutions operate in speed and on a scale they must have to support their business embedded in the workflow of the critical order-to-cash process. Our implementations are complex.

It's not uncommon for Vertex to be connected to multiple instances of SAP, an instance of Oracle in another division, a legacy ERP solution and still another, as well as multiple billing and CRM solutions. And we are providing tax answers across that architecture with no latency and enterprise-level accuracy. These enterprise customers cannot afford for a single customer to experience transaction delays as an AI engine spins through scenarios to deliver a tax answer. They rely on the accuracy Vertex provides in every transaction. Enterprise customers are audited constantly by taxing authorities and cannot afford any risk that a probabilistic AI-driven outcome subject to hallucinations delivers an inaccurate tax answer.

And they need accountable traceability for tax positions they take in their compliance. In addition, we estimate that as many as 70% of the tax rules in our content database are not easily mined by AI-driven web scraping. In The United States, below the level of state and county tax rules for municipalities and tax overlay districts are hard to curate sometimes embedded in meeting minutes that are not easily sourced on the Internet. And in some districts, finding the latest tax rules requires a person-to-person phone call. And all of this requires human judgment and professional curation to codify into the tax content database. In addition, these tax rules are constantly changing at a historic pace.

And this is likely to get worse with reduction federal funding to states as a result of the recently approved tax legislation. I'll now highlight a few business wins. We saw improved momentum in the SAP ecosystem this quarter driven by ECC to S4HANA conversions. These transitions created meaningful opportunities for Vertex to expand our footprint with existing customers and win new logos. In the third quarter, we partnered with an existing specialty retail customer on a major ECC to S4HANA transformation. As part of this initiative, the customer advanced their plan to standardize on Vertex transitioning additional tax functions from a competitor to our cloud platform.

This expansion resulted in mid 6 figure of new revenue and our role as a strategic partner in their modernization journey. Another long-standing customer in the manufacturing industry launched a company-wide transformation project this year. Including a migration from ECC to S4HANA. As part of their transformation, the customer added VAT calculation across its operating regions and added several SAP tools resulting in mid 6 figures of new revenue for Vertex. This is an example of how our business grows during migration. In addition to receiving a significant like-for-like increase many customers use this as an opportunity to license additional capabilities.

An existing customer that is a leading North American energy services company expanded with Vertex to cover two companies it recently acquired. This customer, which is currently operating on a legacy Oracle ERP solution, selected our private cloud solution and will eventually migrate its entire to the cloud as part of an Oracle cloud transformation. This customer expansion drove low 6 figures of new revenue. While our AI-based smart categorization product still in limited availability, we added a major grocery store chain to our customer base this new product. The customer staff was struggling with the labor-intensive nature of tax categorization in its delivery business, is excited about the ability to automate this process.

This cross-sell resulted in 6 figures of new revenue for Vertex. This gives you an idea of the magnitude of sales opportunities with this AI-driven application. At present, we are focusing on the retail industry hence the new business win. But over time, we will expand our capabilities to cover other industries. A leading aerospace and defense contractor recently selected Vertex as its preferred indirect tax solution for one of its consumer-facing subsidiaries, fully displacing a competitor across its global operations, including Brazil and India. This competitive win underscores the strength of Vertex's tax content coverage in complex jurisdictions and is expected to generate mid 6 figure annual revenue.

In addition, a global pharmaceutical company selected Vertex as its first external indirect tax provider to support its S4HANA transformation. This new logo win was driven by Vertex's proven global tax coverage deep expertise in the pharmaceutical industry, and ability to manage complex requirements. This new business win which was brought to us by our partner, will also drive mid 6 figures of new revenue for Vertex. During a cloud transformation initiative, a global marketing services company replaced an incumbent competitor with Vertex, citing concerns about scalability and infrastructure flexibility. The customer valued Vertex's agnostic deployment model, which aligned with the CIO's preference for private cloud, an option the competitor did not support.

This strategic win sourced through our partner, Grant Thornton, represents a 6 figure new business opportunity. Finally, during the quarter, we won an e-invoicing opportunity with a global real estate investment trust which is preparing for upcoming mandates in Belgium, France, and Germany. We will also cover Italy and Spain for this customer. Of note, this customer was driving mid 6 figures of revenue for Vertex prior to this new business win. E-invoicing will drive high 5 figures of new revenue. Before I turn the call to John, let me address my succession that we announced in October. I approached the board of directors in early 2025 and told them of my plan to retire after 26 years at Vertex.

However, I did not set a specific timeline as we wanted to make sure we had the right candidate in place. We launched a comprehensive search process led by renowned management recruiting firm Spencer Stuart, and considered both internal and external candidates. Ultimately, we found an exceptional new CEO in Chris Young, who will officially join the company next week. Our search surfaced outstanding candidates from top companies around the world, but Chris stood out as the clear choice. His strategic vision, experiencing our ecosystem through his prior role as executive vice president of business development at Microsoft, and deep familiarity with global enterprises all point to his ability to drive growth and value creation.

What truly sets Chris apart, however, is his commitment to a positive performance-driven culture grounded in respect for people, a quality that aligns closely with our values and leadership philosophy. In addition, Chris was at the vanguard of Microsoft's push into AI and helped shape Microsoft's investment agenda in artificial intelligence and other frontier technologies. His forward-thinking perspective in that regard will be extremely valuable to Vertex and our shareholders. As for me, I'm not going anywhere. I'm merely transitioning. I will stay on as nonexecutive chairperson of the board, I will bring all my energy in the months ahead to support Chris his transition. John will now take you through the financials.

John R. Schwab: Thanks, David, and good morning, everyone. I'll now review our third quarter financial results and provide guidance for the fourth quarter and full year of 2025. In the third quarter, revenue was $192.1 million, up 12.7% year over year. Our subscription revenue increased 12.7% to $164.8 million. Services revenue grew at 12.8%, to $27.3 million. And our cloud revenue was $92 million in the third quarter, up 29.6%. Annual recurring revenue, or ARR, was $648.2 million at quarter end, up 12.4% year over year. Our net revenue retention, or NRR, was 107%, compared to 108% in the second quarter. This was impacted in the third quarter by factors David noted in his prepared remarks.

Gross revenue retention or GRR remained at 95%, quarter end, within our targeted range of 94% to 96%. Our average annual revenue per customer or AARPC was $133,484, up 12.4%. For the remainder of the income statement discussion, I will be referring to non-GAAP metrics. These non-GAAP metrics are reconciled to GAAP in this morning's earnings press release. Gross profit for the third quarter was $142 million and gross margin was 73.9%. This compares with a gross profit of $126.2 million and a 74% gross margin in the same period last year.

Gross margin on subscription software revenue was 81.4% compared to 80.5% in last year's third quarter, and 83.2% in the 2025. was 28.8%, and gross margin on services revenue compared to 35% in last year's third quarter and 33.1% in the 2025. The lower margin was due to investments in automation that are expected to drive higher margins into the future. Turning to operating expenses. In the third quarter, research and development expense was $16.8 million compared to $12.9 million last year. With capitalized software spend included, R and D spend was $40.8 million for the quarter, which represents 21.2% of revenue. Selling and marketing expense was $43.4 million or 22.6% of total revenues.

An increase of $5 million and approximately 12.9% from the prior year period. And general and administrative expense was $38.4 million up $2.6 million from last year. Adjusted EBITDA was $43.5 million up 12.7% compared to 38.6% for the same period last year. And exceeding our quarterly guidance. This represents an adjusted EBITDA margin of 22.6%. As a reminder, adjusted EBITDA margins are being impacted in 2025 by accelerated investments to the two acquisitions we made in 2024 related to e-invoicing and artificial intelligence. On the former, we are investing in Ecosia, which we acquired in August 2024, to accelerate country coverage and broaden our go-to-market infrastructure. This represents an investment of approximately 16 to $20 million in 2025.

On the latter, we're investing 10 to $12 million this year to productize our smart categorization product, and adopt AI technologies in other areas of the business. In the third quarter, operating cash flow was $62.5 million and free cash flow was $30.2 million. We ended the third quarter with over $313.5 million in unrestricted cash and equivalents. And $300 million of unused availability under our line of credit. As David mentioned, the board has authorized the share repurchase of up to $150 million. Now turning to guidance. Reflecting the factors mentioned earlier, including customer bankruptcies and faster than expected legacy platform migrations, we now expect fourth quarter revenues of $192 million to $196 million.

And for the fourth quarter, we expect adjusted EBITDA of 40 to $42 million reflecting an adjusted EBITDA margin of 21.1% at the midpoint. For the full year of 2025, we now expect revenues of $745.7 million to $749.7 million, cloud revenue growth of 28% and adjusted EBITDA of $159 to $161 million reflecting a margin of 21.4% at the midpoint. David will now make some closing comments before we open up for Q and A. David?

David DeStefano: Thanks, John. I've been in this industry for 26 years, I've seen it go through countless economic, regulatory, and technological cycles. The enterprise segment customer has remained very consistent in their approach to solving their needs for effective tax compliance due to the mission-critical nature of their role. They don't buy on hype, they seek proof. They are focused on mitigating risk and delivering accuracy. They make purchase decisions for the long term based on value.

So while we have noticed some very specific headwinds to short-term performance the past two quarters, we remain confident that the fundamental drivers for our long-term growth are strong and growing and that Vertex will benefit from them with improved performance as we move into 2026 and beyond. My recent experience at our customer conference reinforced my belief in the strength of our alliance partner relationships, as we continue to lean into our partner-first strategy. Our leadership position in the enterprise segment certainly requires continued investment given the pace of accelerating regulatory and technological changes, and in doing so, we are positioned to reward our investors as a result.

It is this confidence that is the primary driver for our board's authorization of the $150 million stock buyback program announced today. I'm thrilled to now have Chris Young join our team and work side by side with him in our respective roles to ensure the company realizes the full potential of our opportunities and deliver strong financial for years to come. With that, we will take your questions.

Operator: Thank you. We will now begin the question and answer session. To ask a question, press star and then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and 2. At this time, we'll pause momentarily to assemble our roster. We have the first on the line of Joshua Reilly from Needham. Please go ahead.

Joshua Christopher Reilly: My question wanted to get your latest thoughts on how you expect the SAP ERP cycle to kind of play out from here. Clearly, there's a lot of companies that still need to migrate to S4HANA to hit the 2027 deadline. Seems like that's a bit of a stretch. Curious, what's your thoughts in terms of the capacity out there to manage these migrations? In the industry? And are you hearing maybe that improve the deal flow that this quarter versus the last couple of quarters?

David DeStefano: Yes, Josh. Thanks for the question. I think competitive industry-wise, I should say, I think the industry's been preparing for this for several years. So I know, you know, in talking to a number of our partners, they have a they've been ramping up staff in anticipation of sort of a back-end process. For the migrations that are ahead. So I that's what I know. I can't speak to anymore in terms of the likelihood any deviation in the deadline as if he keeps reinforcing it. So I don't fundamentally see there's a reason changing. You know, I think the we've talked about this. The pipeline has remained solid.

It's been more the efficiency getting through the pipeline as deals occasionally at a customer level have been slowed due to their own migrations. Slowing down. I think we saw a little bit of the break in that. In the quarter, and that's why we, you know, we had are able to highlight a number of SAP wins in the quarter primarily.

Joshua Christopher Reilly: Got it. That's helpful. And then, maybe a bit more color on the on was it two customers migrating to their own homegrown solutions and is that a portion of their business, with you migrating to the homegrown system or full system? And was that built into your prior guidance, or did you find about out about that after you put up your prior guidance? Yeah. No. This came out, these are customers that didn't go to their homegrown system. They migrated to the Vertex next generation cloud platform.

As you know, any custom any company that are going through a cloud you know, leading a cloud migration like we are, there's always a moment where you're paying two mortgages, where you're paying mortgage on the new you've already relicensed with Vertex. We've gotten the uplift from them, and they're shutting down their old system. Usually lags on for a short period of time.

These were two companies that were extremely large customers of ours that had already migrated to our cloud at a significant price increase that also were able to shut down their system faster than we had built into our into our guidance be because they made some internal progress on their systems that we were that they had not forecast when we had our direct engagement with them. So, yes, we do factor that into our guidance. As we look at our numbers going forward. But it just these two happen to get things done faster than they had previously guided to us.

Joshua Christopher Reilly: Understood. Thank you. I'll pass it on.

Operator: We have the next question from the line of Christopher Quintero from Morgan Stanley. Please go ahead.

Christopher Quintero: Hey guys. For taking the questions. And, David, let me say, I know you're still gonna be around, but been a pleasure working with you. And I wish you all the best in this next part of your life here. Maybe on the on the guidance, think this is the second time in a row you guys have cut the guide, which I can't remember the last time. Vertex has done that. And so just at a high level, has the guidance philosophy changed at all? And how are these kind of custom forming your assumptions that you're putting into the Q4 guidance here?

John R. Schwab: Yes, Chris, thanks for the call. No, we have not done this before. You're right. You know, in terms of our philosophy around guidance, this hasn't changed our guidance philosophy one bit. We continue to, you know, we continue to be thoughtful as we think through guidance. And, again, as David had mentioned, there was a couple of things, obviously, this quarter that impacted us a little bit. Some of this b k and migration activity certainly had an impact. Certainly had an impact from some of the timing of deals that closed in the third and what we're expecting to see in the fourth quarter.

And, again, we continue to focus on that services strategy where we're trying to lead partner for where we're trying to go partner first and sort of deemphasize that. And so there were three the three kind of bigger contributors to what happened what why the change for guidance in the fourth quarter. But, there been change in philosophy from our standpoint.

Christopher Quintero: Got it. Thanks for that, John. And then, it seems like the entitlement growth has been kind of one of the main headwinds on your net retention rate and growth from expand from expanding customers. I'm curious. Like, are there any lessons in terms of, like, or, anything we should keep in mind as it relates to, I don't know, renewal cohorts as some of these customers you know, have been have been renewing over the past few years.

David DeStefano: Yeah, Chris. I think, you know, it's a fundamental of trying to assess where our companies our customers' growth rates are going to be as they grow through our revenue bands. Obviously, we don't have great visibility in each of our customers' forecast growth rate in terms of whether they're gonna continue to just expand usage due to their own growth or not. And I think that's been the headwind we've we've tried to highlight pretty clearly in the in the data we've determined from you know, we spoke to you in Q2, and so it is something we're trying to see if we can get closer to understanding our customers' actually growth guidance.

That they're giving to the market to see how that will flip to what we expect for revenue bands. It but, obviously, it's a little bit of a fine line of how much information we have there. And how that actually will show up in our revenue bands based on their own their own revenue their customer's revenue timing. Unfortunately, it's it's sort of like two separate move from us.

Christopher Quintero: Thanks, David. Thank you. We have the next question from the line of Alexander Sklar from Raymond James. Please go ahead.

Alexander James Sklar: Great. Thank you. David, I'll echo my congratulations on a fantastic career at Vertex. Here. Switching gears to I wonder you hired our new head of sales in Europe as well. Can you just talk about that process? What was behind the change in leadership? And in Europe? And then how are you thinking about kind of Europe as an as an opportunity heading into 2026? Versus maybe a couple quarters ago?

David DeStefano: Yeah. Thanks for the kind words. I'm I'm anxious to partner with Chris Young in the future of Vertex. And certainly, in my transition, I expect to be as nonexecutive chairperson of the board. I will be quite active in helping continue to pursue the strategy of this company. I think Europe, you know, it was timing of a just a leadership change. We're continuing to expand the complexity of operations. That we have over there with the acquisition of Acosio.

And as we push further into the whole e-invoicing plush marketplace, we had a very good quarter in terms of continued growth there by the Ecosia team and our and our team in general, and just the overall complexity of the opportunity increasing. Like we wanted somebody who had been there and done that at a at a high level and it's just an up level opportunity there. We really appreciate the gentleman that led that operation for years. But it was a great opportunity with someone we had good relationship connection to bring in, and so we capitalized on it.

Alexander James Sklar: Okay. Great. I don't know if you or John wanna take this one, but just as we think about the Q4 growth outlook, relative to the kind of the medium-term growth outlook that you spoke to earlier this year, how much of the headwinds, like the true ups, the bankruptcies, the early kind of shutting off of on-prem feel kind of one x in your standpoint versus anything different about the market you're operating in today in of just the pace of technology changes or the pace of that SAP transition or e-invoicing adoption kinda broadly? Thanks.

John R. Schwab: Yeah. Maybe I'll start. You know, I think I think the you know, from an overall guidance in the midterm, I think the b k migration stuff, again, is stuff that we typically you know, it was somewhat anomalous to the quarter. I don't think that's something that's gonna be a continual thing there. We have we have those types of things happen every quarter. What we saw though is just a real confluence of a number of real big ones happening in the quarter that really drove that. So I would say from that standpoint, I think that's a that to me is somewhat anomalous. You know, in terms of kinda other of other things.

And we look at the when we look at sort of how the quarter plays out look at sorta what next year looks like. Keep in mind as you compass out to some of our prior year numbers, that we did have a very large some very large true ups in the fourth quarter of last year. And, again, we're anticipating very little in the fourth quarter of this year. So it really drives you know, it drives certain, you know, certain revenue growth next it mutes a little bit of what the impact truly of this quarter is.

David DeStefano: Right. I mean, the actual growth rate for the quarter would be close to 13%. If you took out those entitlements. Mhmm. And I so I think that is notable. I and I do think as you look forward in the invoicing, I'm mean, obviously, we're just getting into the whole land and expand motion we've talked about. That we think is really know, setting us up well as those France and Germany deadlines come on in 2026. That's really what we've been pointing for, and I think timing of those adoptions are pretty much falling where we thought it'll it'll accelerate as we move into '26 pretty significantly.

Alexander James Sklar: Alright. Great. Thank you both.

David DeStefano: Thanks, Alex.

Operator: Thank you. We have the next question from the line of Adam Hotchkiss from Goldman Sachs. Please go ahead.

Adam R. Hotchkiss: Great. Thanks so much for taking the question. And David, echoing my best wishes to you. It's been great working with you. Wanted to touch on the comments you made in on your customer conference in AI. What was it that customers from your perspective were most interested in from an AI perspective, and where are they from exploratory to actually starting to put some of these things into practice. And I thought the smart cat call on the retail side was interesting. How quickly can you get into other verticals and just get up and running with more customers on that side?

David DeStefano: Yeah. Yeah. I think the approach we're taking with the thanks for the call the questions and the comments, certainly. The approach we're taking with AI with the human in the loop is an essential part of what the enterprise market is expecting because of the requirements for traceability when they get into audits and they have to justify the positions they took in the in on a tax position and understanding the logic that's actually inside of the decision making is really essential to their processes. So the fact that we're keeping the human in loop, number one, is critical.

I think some of the agent to agent work we're doing, we highlighted the encouragement that we're actually directly working with the systems that they run their businesses on. So I highlighted on the on the this quarter the and in Microsoft, the first ever agent to agent interaction between our platform and the Microsoft Dynamics 365 Finance and Supply Chain platform, is a really encouraging thing for our customers. Because it lets them know behind the scenes there will be certain things that will that will be going on to support their ongoing time to value requirements.

So I think that was a really well received component of what we're doing in the market with as opposed to just pushing out AI in terms of direct you know, like, like a chat GPT type, you know, a Copilot, but actually taking it to a next level where it drive efficiency and effectiveness, in the market. I think SmartCat as a offering is a is a really exciting one, and we started to see some of the green shoots we thought were available to us because of the challenges our customers face in categorization of products. And so now we're gonna start to focus beyond retail We have that product ready.

We're now moving that into, you know, trying to generate more in the retail space while we also start to ingest more data. And we'll look at that basically on a quarter to quarter basis to be honest, in terms of how much we can ingest and make it viable for our customer base. Certainly, there's a lot of interest across the customer base for us to do that.

Adam R. Hotchkiss: Okay. Great. That's that's really helpful color. And then, on investments, in e-invoicing and AI, just curious how those are tracking. I know that EBITDA did come in a little bit better this quarter. Are you still expecting that margin inflection? And I know that Chris isn't on the call, but just maybe reiterate your confidence level and when and sort of the magnitude of that margin inflection would be would be helpful. Thanks.

John R. Schwab: Yeah. Great question. Yeah. We continue to be on track with the investments that we talked about. The Ecosio investment investments of 4 to $5 million per quarter and then the AI investments, largely focused around some of the smart cat activities that David just talked through. They are tracking, tracking very well. So we feel good about that. We feel good about the, the progress that we've seen to date. Again, the plan is to largely have a lot of that behind us we get into the begin to the middle of next year. And I think that's you know, we feel like everything's pointed towards that, and it continues to be pointed towards that.

And we expect to start to see some of the, you know, some of that leverage and some of that realization start to show itself up. We did have a good quarter this quarter from an overall margin perspective, and I think we were pleased with the results that, that came through that. But a lot of that had more to do with some of the leverage we're seeing throughout the rest of our business. Just being thoughtful about spend as we entered the back half based on some of the conversations we had at the end of the second quarter. So again, think we feel very good about the investment programs that are in place. Expect to continue them.

We haven't had any significant changes in our plans in terms of timing or in terms of, or level of spend. And so I think everything continues to move along there nicely.

Adam R. Hotchkiss: Okay. Great. Thank you both.

John R. Schwab: You bet. Thanks.

Operator: Thank you. We have the next question from the line of Jacob Roberge from William Blair. Please go ahead.

Jacob Roberge: Yes. Thanks for taking the questions. And David, I'll echo my congrats. It's it's been great working with you over the past few years. Just on the invoicing solution, could you talk about how that product compares to some of your competitors out there just from a country? Coverage perspective. And as we start seeing some of the these larger countries like Germany and France go online next year, do you feel like that product ready for prime time?

David DeStefano: Yeah. Sure. Thank you for the kind words. Yes. Number one, France and Germany, you know, priority ones. The whole strategy from day one was always to make sure wherever there was a greenfield, meaning there was no competitive no competitor had already solved for a given country. That was our priority one in terms of where we've been investing. So we're ready for France, Belgium, and Germany to compete on those and very comfortable as those regulations are going into effect with Belgium here in two months and the other two as we move into the middle to back half of 2026. Excuse me. So, yes, feel very comfortable there, number one.

Number two, we continue to expand our coverage. As you know, when we made the acquisition, we didn't buy a company that had coverage everywhere. We've been focused on the primary economies. And continue to expand our coverage around the primary economies where the where e-invoicing is of greatest import to our customers. Primary economies meaning where large economies where our customers are doing a lot of business. Hence, the recent go-to-market partnership announced with Brinta to accelerate our coverage in some key Latin geographies like Mexico and Brazil, where a lot of our global multinationals have revenue. We wanna make sure we had coverage to be competitive in those in those regions.

So, yeah, that continues to be a steady part of our of our build out as we go forward. And that's the investment cycle that John was just highlighting that's gonna run through the middle of next year.

Jacob Roberge: Okay. That's helpful. And then there's obviously been some moving pieces over the past few quarters. But just thinking a bit longer term, could you double click into the competitive landscape and if you've seen any changes to win rates or competitors making more noise that might have been showing up at the edges this year?

David DeStefano: You know, it's funny. I literally just made sure like I always do before these calls, to check with my head of sales here at in The US in particular where whether we have, you know, a lot of competitors. And no change whatsoever in the competitive dynamics in terms of win rate.

You know, our strategy to continue to focus on the influencers that impact the market, our tight relationships with the big four, and other large accounting firms in the investment we're making to deemphasize our services revenue, which does impact short term revenue, we've noted that, is also paying off by its the win rates that we, you know, we've enjoyed in the past and we continue to see. And certainly, some of the investments we're now making in areas like AI and Microsoft, I actually think are gonna improve our opportunities in some new some of the, you know, new segments.

Jacob Roberge: Great. Thanks for taking the questions.

Operator: Thank you. We have the next question from the line of Brent Alan Bracelin from Stephens Incorporated. Please go ahead.

Brent Alan Bracelin: Good morning, and thanks for taking the questions. Two for me. I know you guys have been doing a lot of work given the entitlement changes on digging in and making sure you had more visibility in kind of those entitlement changes, how should we think about those as they roll forward? We've gotten some questions on we know these entitlements have slowed a little bit. Is there a continued couple of quarters sort of period that we have to through? Is there anything kind of bolus or timing wise that we need to pay attention to that this may last a little longer? Or how do you guys sort frame that up?

John R. Schwab: Yeah. Thanks for the question, Brett. Yeah, in terms of entitlements and how that plays out, I don't I don't think there's really any, you know, any time frame for which this is gonna this is gonna change. There's there's nothing out there that's gonna make turn this into a, you know, a quicker a quicker rebound or any or even a change to rebound too much. So I think it's gonna just take a little bit of time for that to play out. And in the normal course of business to the normal renewal process, we'll see that work out.

We try to you know, we do our best to get, you know, in front of some of this visibility and do our best to try to make sure that we have that built into our forecast. But I think as we talked about the last time, you know, some of this stuff comes up, you know, soon you know, only just before the renewal base takes place. Overall, generally, you know, this has, I think, a little bit more to do. Just with overall economic activity that's going on at customers. And then again, to a lesser degree, some of their ability to migrate other systems they're using into the into the Vertex platform.

So as they're doing other upgrades and other things, they're they're continually and moving additional systems and additional entities that they have work going through onto our software. And so some if that slows because of other of other activities that they're doing, sometimes that can take a little longer. But I don't think there's really anything out there that's really gonna drive or change this dramatically You know, it's just a method near the passage of time. And, as we said, we saw a little bit of that happen back around COVID.

And, again, as we got a little bit a couple of quarters through that, we started to see that snap back as activity picked up again, and I'm anticipating we'll see the same here.

Brent Alan Bracelin: Great. Thank you. And the second question around SAP. Thanks for the comments earlier, both prepared and answers to questions. Can you maybe just a little bit more unpack that? Any anecdotal kind of conversations change in tone, around SAP migrations. It sounds like they were a little bit better this quarter. What is kind of the anecdotal feedback that you've gotten? I'm sure you had a lot of conversations at your user conference Can you give us any more insight into how those decisions are being made or delayed?

David DeStefano: Yeah. I think the exchange was a really good it was just a exchange at our customer conference. It was just two weeks ago, a week and a half ago, and I was say that it was very supportive of what we would expect as we move into '26 at the between our conversations with the large accounting firms that we that are all there, the many accounting firms that are there, part of this is as well as SAP directly. I definitely think the that the activity in '26 is going to accelerate. As we look forward based on what customers are telling us and what influence are seeing in their growing backlog that they're gonna be processing.

Brent Alan Bracelin: Great. That's what I needed. Thank you so much. Thank you.

Operator: We have the next question from the line of Steven Enders from Citi. Please go ahead.

Steven Enders: Okay. Great. Thanks for taking the questions this morning. And, David, congrats as well. And I got the prior sentiments on the call. I guess just to start, I wanna ask or clarify, I think, a prior comment you made about seeing some you know, there's some timing of deals that closed in the quarter. That impacted things a bit. And just wanna get a little bit more clarity on you know, if there were if there were deal delays, you know, maybe how that is manifested in the pipeline or how you're kinda thinking about the future pipeline from here.

David DeStefano: Yeah. Appreciate the question and certainly the comments, Steve. The quarter closed largely at the back end of the Q3 largely closed at the back end, meaning September was a very large month. And I and think that's a behavior where we expect to see again. Good visibility. When we talk about pipeline in a quarter, it means stuff that's already through It's not caught up in that middle where, like, oh, could they get delayed? Because of their whole ERP process slows down? When we talk about guidance, when we're just thinking about guidance in the quarter, it's based on what he has visibility to that's already pretty far down the pipe of we've already been chosen.

It's more about, like, legal getting through their process and the normal, you know, purchasing process, if you would, to close. And so I think I think the process is laid out pretty consistent for the quarter as we look forward to what we expect to be a normal quarter in Q4. It's our largest quarter, and we're we're typically headed to that way with December being the largest month. And I would expect no difference to that whatsoever.

Steven Enders: Okay. And sorry. But to clarify, there were deals I got pushed out or things that didn't close as you originally expecting here.

David DeStefano: No. I think in q in Q3, we closed the deal we thought we were gonna close. They closed later in the quarter. Than we expected. For sure. That's why I said September was a very large month, which obviously us a little bit of revenue. That would have known normally been recognized in, you know, in the earlier months of the quarter. And as we look forward to Q4, I think we're seeing the same setup. Where December is going to be a very large quarter, but the pipeline of activity in the is where we forecast to be, and it is built into our thinking about guidance.

Steven Enders: Gotcha. Okay. That's that's helpful. And just on Ecosio, appreciate the revenue contribution this quarter, but it are you feeling like that is on track for this year now? Like, did you kinda see the catch up that you were expecting, I think, on track for the was it a 16,000,000 revenue number that you previously talked about? Is that still line of sight there?

John R. Schwab: Yeah. We absolutely. We still have line of sight for that. I mean, I think they've made some real good progress, and we've seen some nice upticks in the business. Activity over there as well as, you know, as well as the momentum that's that's underlying their pipeline. And so, we absolutely still have line of sight to that. And, again, between the combination of that and then the continued investment we're making, you know, we're making in that business, we have we're all in we're all in on e-invoicing so I think, yeah, we expect to see those results come through as anticipated.

And, Steve, I think that just dubs to the, you know, the deadline of Belgium is coming, and that's think that, you know, these are decisions that are being made, and that's why, you know, we have that kind of visibility. I think you're gonna see the exact same thing play out as we move next year. Into the larger economies of France and Germany. Where France goes live in September and I would expect to see a you know, a real increase in activities we get through. Through Q1, not so much, but certainly Q2 and into Q3, you'll see a real uptick.

And then the same thing as we think about Germany going live in you know, January '27 with back half Q4, which is pretty much consistent with what we've been telegraphing based on our experience.

Steven Enders: Okay. Perfect. Great to hear, and, thanks for taking the questions. Thanks, Steve. Thank you.

Operator: We have the next question from the line of Andrew DeGasperi from BNP Paribas. Please go ahead.

Andrew Lodovico DeGasperi: Thanks. And, David, I'll add my own words as well as great working with you over the years, and good luck in the chairman role. Just wanted to over the last, I guess, Q and A, I just getting a message that, between the e-invoicing opportunity the SAP migrations, And then if you add kind of the easier comps relative to this year, I mean, there any reason why your business shouldn't accelerate from a top line perspective next year? I know you don't give out guidance. Just trying to get a better get a better sense directionally where we're going.

John R. Schwab: Yeah. Andrew, I'll I'll take that. I'll start with that. Again, as we think about next year, you know, we don't give we're not giving guidance now. We'll do that when we have our call in, our call in February. Next year. But we do anticipate certainly top line revenue growth next year. I think there's a lot of fundamental that are contributing again, as David talked about. Invoicing activity continues to be strong. The SAP pipe the SAP pipeline and the activity that's there are gonna be big contributors to growth next year.

And so, absolutely, we anticipate revenue growth revenue growth into next year, significant revenue growth into next year because of those factors that are out there and that are still very prevalent in the business.

Andrew Lodovico DeGasperi: Great. And then, maybe just one on in terms of the, I think you mentioned some comments earlier about some customers are paying two mortgages. When they do these transitions. Just wondering, you know, how much of that customer base is right now doing that? Because if you look at your cloud versus on-prem revenue, obviously shoot. I guess the question I have is, do we see a much broader dislocation between those two? As we look into next year?

David DeStefano: No. Not at all. No reason to think that these first of we always have good visibility and, you know, we work hard to factor that into our guidance so that it doesn't come up as a surprise. In terms of what happened in Q3. So, no, number one, I don't think that and we only see typically we talk about two to 3% of our customer is migrating every year. And I've talked about you know, there's an on-prem base that's never gonna go away. Subscription revenue is gonna be around for quite some time. We're already up to close to 57 or so percent of our business is cloud. And that's where it's growing.

And I think we'll see a slower you know, we'll continue to the ones that haven't migrated are gonna be the longest to take the time to migrate just given the nature of those businesses that we know haven't migrated. So, no, I see absolutely reason to think we're gonna have that kind of a surprise that occurred. It's just these customers did their shutdown faster than normal, but I'm not I'm not worried about that actually at all.

Andrew Lodovico DeGasperi: Right. Thank you. Thank you.

Operator: We have the next question from the line of Patrick Walravens from Citizens. Please go ahead.

Patrick D. Walravens: Great. Thank you very much. David, I think you first came to our conference in 2007. So it's been it's been a pleasure working with you over the last eighteen years. It's probably for Joe, but, you know, the prepared remarks didn't address the 2028 targets. So can we can we just know, address it head on? Are you reiterating the 2028 you know, 20% plus subscription growth and 30% plus cloud growth today?

David DeStefano: Yeah. I think the I think the buyback is a signal by our board for its confidence in the future of this company, a 100%. And I certainly think, we continue to be cloud first in everything we're doing, so I see no reason to fundamentally think that's gonna that's gonna shift away from the growth we expect in the future. And certainly with what we're seeing in e-invoicing and what should pick up in '26 even more so from SAP as know, their deadline approaches. I don't see a reason to fundamentally shift anything we've said in our guidance.

The numbers that you've seen in entitlements pull back We saw this in COVID, and then, you know, it snapped back nicely. I see once again, just the fundamental nature of who the enterprise customer is. They're gonna grow through bands. And we're naturally gonna get those entitlements. And so, no, I have no data to suggest a shift in what we're we're fundamentally what we've said.

Patrick D. Walravens: Yeah. Terrific. Terrific. And then can I just ask about the bankruptcies? Because I just looked two of them up quickly. And Party City and Big Lots, both of those were announced in December '24. So Yeah. How does that play out? Like, yeah. How do you know, how does that work?

David DeStefano: So when companies file chapter 11, sometimes they continue to be in business. They continue to operate for years And as long as you're in business, you have to charge sales tax. We've had customers in the past who've gone bankrupt and we continue to collect license revenue. It may be on a reduced rate because their revenue's gone down. But we continue to collect revenue from these. These are ones that officially went away. And you don't know when that's gonna end. We have no way of knowing that just because they filed chapter 11 doesn't mean we're necessarily going to see an immediate end of that license. That license revenue.

Patrick D. Walravens: Okay. Great. Yeah. Sure. Thank you.

Operator: Thank you. We have the next question on the line of Robert Cooney Oliver from Baird. Please go ahead.

Robert Cooney Oliver: Great. Thank you, guys. Good morning. Thanks for taking the questions. David, first one for you is just one of the themes, I think, at the Analyst Day back in March was around you know, tax not just as compliance, but as business enablement. And as part of that, you talked about, not just the sort of the traditional enterprise channel, which has been a big focus of this call, but also some of the marketplaces like SAP Hybris and Salesforce Demandware. And, obviously, Shopify is moving up market, and there hasn't been any comment on the call this.

So I really wanted to hear your view on where you guys are today relative to that opportunity where there really seems to be a burgeoning opportunity. Within the tax software market? And then I had a quick follow-up for John.

David DeStefano: Yeah, sure. I had Shopify on stage with me at my customer conference. Really talking about the partnership and the work we're doing with them, really working in lockstep they continue to expand. They continue to expand, and they're rapidly succeeding upmarket. There's just a natural synergy between our two organizations. And so, you know, every quarter, I try to pick out a few wins that are notable. Coming out of Q2, there's a lot of questions about SAP pipeline. We had a really good quarter in SAP, wins, so I thought I would just highlight a few of those on the call. But, you know, we continue to make progress across the entire base.

Of our of our of our key technology ecosystem partners, number one. And number two, I see no reason that's not gonna change. And in fact, you may have noticed we launched our Kintsugi powered by Vertex offering I think is just gonna increase a new opportunity for us to generate growth in the future as we look at their ability to actually work at the lower end of the market, which is really highly suspect or highly appropriate for the type of solution that AI has you know, that AI can deliver through Konsugi.

Robert Cooney Oliver: Great. That's helpful. Thanks, David. And then, John, just you know, I know the it seems like that the challenge now is more about entitlements true ups than it is about the ERP opportunity. So just on that, topic, with kind of two quarters in a row of the guidance coming down, maybe talk a little bit more about how you factor those expectations into your guide for Q4 and how we might get comfortable with the thought that's now caught you guys by surprise, I think, a couple quarters here. So how to think about that headed into '26? Thank you very much.

John R. Schwab: Yep. Thanks, Rob. Yeah. Certainly, you know, we revised back in Q2 at entitlements was a big part of this or entitlements and true ups were a big part of the story. And that certainly was something we took into consideration when we set that guidance. We continue to look at those, monitor those throughout this quarter. Again, couple of the things that we pointed to this quarter that really impacted Q4, you'll have less to do with the entitlements and the true ups because I think we feel good about how we've captured that. But a little bit more had to do with, around timing and as well as some of this BK migration things that have moved along.

Again, I feel like the BK migration, as I mentioned earlier, was somewhat anomalous. The timing of the quarter certainly is something that we're gonna use and we'll continue to use as we think about you know, our continuing our forecast for 2026 and then beyond as we as we manage through that. So that's what I would say, Rob, in terms of kinda how we're thinking about guidance I don't think we've changed our we've not changed our philosophy in any in any way. So we'll continue to continue to put our best foot forward and try ensure that we are giving, you know, clear and accurate information out there.

Robert Cooney Oliver: Great. Much appreciated. Thanks very much. You bet.

Operator: Thank you. We have the next question from the line of Samad Samana from Jefferies. Please go ahead.

Samad Samana: Hi. Good morning. Most of my questions have been answered. But, if I just think about the bankruptcies, if they were all in the like, retail space. So that might just be probably coincidence more than anything else. But, John, can you just remind us where your biggest vertical are in terms of the book of business? And if you're at least within the retail sector taking a more conservative view given that's where the bankruptcies were? And then I have one follow-up.

John R. Schwab: Yeah. Good question, Samad. Thank you. Terms of kind of where our big verticals are, certainly manufacturing is our is our largest. Retail kinda comes in, soon after, and so they're they're bigger. They're bigger focus. You know, we certainly have taken a look at some of the rest of the customers within our in our vertical of retail. To anticipate if anything is out there. But, you know, at this point, there's really nothing in there that caused us, you know, caused us to pause or adjust our thinking in terms of kind of any exposures there. We feel like we're very well reserved, and we're in a good spot.

Samad Samana: Understood. And then maybe just on the long-term targets, I know I know Pat asked the question, but I'll ask you a slightly different way. I mean, with the management transition going on with the headwinds that the business is face, if I think about the four q guidance, kind of pointing to what looks like about like, high single digit growth, It seems like 20% is a very tough lift to get to by 2028. And so why not get rid of those targets and make it easier, especially as you go to managing transition. And just help us think about you know, what's the path to getting to 20%.

John R. Schwab: Yeah. I guess what I might start with, Samad, is again, we feel like all the under overall demand drivers of the business that we've talked about, as David mentioned, are still there, and we feel good about those. You know, there is, you know, there is some transition that's going on here and we'll kinda well, gonna certainly manage through that as David has articulated, over time. But I think, at this point, we still feel like that the all the things that got us to, you know, those expectations back in, you know, back in, the March time frame when we gave that are still in place and in play.

And we expect to see we expect to see some, you know, some additional progress towards that as we think about '26 and then '27 certainly as well. And so in terms of kinda what we do with respect to longer-term guidance, I think it's we feel like it's a bit too early. And, again, just given the demand that's in front of us, I don't know that it's it's the right time now to change anything.

Samad Samana: Great. Thank you for taking my questions.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Joe Crivelli for any closing remarks.

Joseph J. Crivelli: Thanks, everybody, for joining us today. If you have any follow-up questions, or if you'd like to schedule additional time with the team, please send me an email at investors@VertexInc.com. Have a great rest of your day, and we look forward to speaking with you in the coming weeks.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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