Vertex Q3 2026 Earnings Call - VERTEX INC

Good morning and welcome to the Vertex third quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow at management's prepared remarks, and we ask that you please hold all questions until that time. I will then provide instructions for the question-at-answer section. As a reminder, this conference is being recorded. If you have any objections, please disconnect at this time. I will now turn the call over to Joe Crivelli, Vice President of Investor Relations, for introductory remarks. Hello, and thank you for joining us to discuss Vertex's third quarter financial results. As noted on slide 2, during this call, we may make forward-looking statements about expected future results. Actual results may differ due to risks and uncertainties. These risks and uncertainty are described in our filings with the Securities and Exchange Commission. Our remarks today will also include references to non-GAAP metrics. A reconciliation of these metrics to GAAP is also provided in today's press release. This webcast is being recorded and will be available for replay on our investor relations website. You can queue up for the question and answer session at any time by raising your hand in the bottom right corner of the open exchange portal. I'll now turn the call over to Chris. Welcome, everyone, and thank you for joining us. The third quarter was a very strong quarter for Vertex, and importantly, it demonstrates that we are delivering on the commitments we made earlier this year. We said our priorities were to stabilize the core business, improve our operating discipline and profitability, and create a stronger foundation for durable growth. Q3 provides tangible evidence of our progress against each of those priorities. Our revenue grew 11% and finished above the high end of our guidance. Adjusted EBITDA grew nearly 50%, exceeding the high end of our guidance by almost $8 million and driving adjusted EBITD margins above 30%. Customer retention is stabilized, our growth indicators are improving, and the value creation plan is delivering benefits ahead of the timeline that we originally anticipated. While individual quarterly results will reflect the timing of investments and other expenses, the actions we have taken to sharpen our focus and improve our cost structure have established a more efficient operating model. This, in turn, has materially increased the earnings and cash flow potential of the company. Now, turning to e-invoicing, we continue to see very strong momentum, with ARR up over 100% year-on-year. Growth in e-invoicing contributed meaningfully to the re-acceleration in cloud revenue we saw during the quarter as well. This reflects strong execution, the successful launch of the French mandate, and the contribution from Brinta. Both our Ecosio and Brinta teams continue to perform ahead of the plans that we established when we acquired each of those businesses, reinforcing our confidence in the long-term opportunity. As the business scales, we will not expect to sustain growth at this level every quarter, but we do continue to expect e-invoicing to grow significantly faster than Vertex overall. And the opportunity ahead remains significant. During the quarter, we strengthened our strategic partner ecosystem and were honored to be selected by Avanade as its e-Invoicing Technology Partner. This relationship reflects the growing demand for global e-invoicing solutions and further enhances our ability to support organizations navigating complex compliance requirements. Finally, several countries have mandates coming in 2027, including the next phase of Germany's e-Invoicing Mandate that takes effect on January 1st, and there are additional mandates through 2028 and 2029. These collectively provide another important set of catalysts as businesses prepare for the new requirements. More broadly, multinational companies need a partner that can combine tax determination, e-invoicing, and compliance across global complex operations. With the momentum we are seeing today and additional mandates still ahead, we believe e-invoicing can become an even stronger contributor to Vertex's overall growth. As I've shared for much of this past year, AI is becoming an increasingly important part of how we operate Vertex, and we're seeing measurable progress. Since the beginning of the year, engineering efficiency has improved more than 100%, and our teams are now delivering nearly twice the code contribution throughput. AI-assisted review now supports nearly 9 in 10 code contributions, helping our engineers move faster and improve consistency while retaining human oversight and accountability. And these gains are beginning to scale across engineering. We're also taking what works and applying it more broadly across teams, while extending AI beyond coding and other parts of the development lifecycle, including requirements, scoping, testing, and validation. The opportunity here is bigger than producing more code. It's about increasing our capacity to innovate while improving the efficiency of how we deliver. Over time, we believe that can become an important source of operating leverage. We're also adding AI expertise at our board level. We recently welcomed Dibanjan Saha, CEO of DataRobot, a proven leader in scaling AI, data, and cloud businesses to our board of directors. His perspective will be incredibly valuable as we continue building an AI-first Vertex. And that's the internal operating proof. At Vertex Exchange last week, we showed how the same AI-First approach is beginning to shape the experience that we deliver to our customers. Last week at Vertex Change, we unveiled a brand, a new brand identity, which you see reflected in today's presentation. It's an outward expression of the transformation underway at Vertex. We are building on nearly 50 years of tax expertise with new energy, greater focus, and a more connected approach to global indirect tax and compliance. That direction came together at Exchange through our decision to defense positioning, connecting the tax decision inside a transaction to the work and evidence that follow from determination and e-invoicing through compliance, reporting, and ultimately defense. Our ambition is to help our customers manage that lifecycle as a connected whole rather than as a series of separate activities. We also introduced Vertex Sol, our vision for a more connected AI-powered tax and compliance experience. Sol brings intelligence, workflows, decisions, and evidence together through a continuous governed record. The opportunity is to automate more of the manual work around a tax decision, improve visibility, and help our customers act with confidence while keeping tax professionals in control. We are already building towards that vision. Our continuous compliance agents help tax teams identify potential exposures and prioritize follow-up before period close, while Vertex Intelligence connects users to specialized capabilities within their existing workflows. These are practical steps towards making tax and compliance more connected, proactive, and easier to manage. The customer perspectives shared at Exchange simply reinforce the importance of that foundation. Even as businesses adopt the latest technologies, the need for accurate, reliable, and defensible tax outcomes remains. Our approach combines AI with the tax content, technology, and domain expertise our customers rely on, helping connect and automate more of their work without compromising visibility or control. That same need is showing up in the business that we won this past quarter. Tax and compliance are playing a more strategic role in the broader transformation work that our customers are undertaking. They are not just buying a tax engine. They are modernizing ERP environments, preparing for new compliance and e-invoicing requirements, expanding into new markets, and automating increasingly complex business processes. In that environment, we're seeing enterprises turn to Vertex because of the breadth of our platform, the depth of our content, and our ability to support complex global operations. Let me provide a few examples. We continue to see significant opportunities to expand within our install base. A great example is a leading global technology hyperscaler where we completed a new five-year agreement representing a low seven-figure expansion across multiple Vertex capabilities in its SAP and Ariba environment. This highlights the opportunity to grow alongside our largest customers as their tax and compliance needs evolve. A leading global digital commerce platform completed a mid-six-figure expansion in ITSE invoicing deployment across several additional markets, supporting approximately 2.7 million invoices annually. This customer operates on its own internally developed technology platform, demonstrating that our opportunity extends beyond the major ERP ecosystems as global complexity and e-invoicing requirements increase. Internationally, a global food packaging company completed a mid-six-figure expansion as part of a broader ERP and tax modernization program. The development spans 18 entities across five countries in an Oracle environment and creates additional expansion opportunities as the transformation progresses. Together, these examples demonstrate the strength of our land and expand opportunity and our ability to grow alongside customers as their tax compliance and e-invoicing needs evolve. Turn it into new logos. We added a leading global athletic footwear and apparel company through a low seven-figure competitive displacement. The customer selected Vertex to support its e-commerce and point-of-sale operations, as well as its SAP ECC ERP, demonstrating our ability to compete and win in complex high-volume enterprise environments. We also added a global identity security software provider as it established an independent workday and Salesforce environment following its divestiture from a larger software company. The customer selected a broad set of Vertex capabilities to support its global tax requirements across multiple geographies and technology ecosystems. In Europe, a pharmaceutical company selected Vertex to automate VAT or VAT compliance across 23 countries as part of its SAP S4 HANA environment. The win is an example of our ability to combine tax determination, compliance automation, and ERP integration to simplify global complex tax requirements. Across these examples, what stands out is they are being driven by the same long-term trends that we continue to discuss with investors. ERP modernization, evolving compliance requirements, the growth of e-invoicing, and the need for greater automation in tax and finance functions. Whether customers are expanding their use of Vertex or selecting us for the first time, we continue to see demand for the content, the integrations, and scale required to support our customers' global operations. Combined with the operating changes we have made across Vertex, these opportunities give us greater confidence in our ability to drive growth while delivering significantly greater earnings and cash flow. Now, I'll turn the call over to John to discuss the financials in detail. John. Thanks, Chris, and good afternoon, everyone. As Chris said, the third quarter demonstrates that we are delivering against the commitments we established earlier this year. We have stabilized the core business while materially improving profitability, and this quarter highlights the significant earnings leverage delivered by the value creation plan and our increased operating discipline. Turning to revenue on slide 13, our total revenue was $213.3 million, up 11% year-over-year and above the high end of our guidance range. Software subscription revenue increased 10.2%, while services revenue increased 15.8%. Importantly, we saw encouraging momentum in our recurring revenue metrics. Our annual recurring revenue increased 11.7% year-over-year to $724.3 million, while cloud revenue growth accelerated to more than 20%. We view the improvement in ARR growth as an encouraging indicator of the underlying trajectory of the business as we move forward to 2027. it. Turning to customer metrics on slide 14, gross revenue retention was 95% and net revenue retention increased by one point sequentially to 106%. Our average annual revenue per direct customer was $145,793 in the third quarter, up 9.2% year-over-year. Our scaled customer growth was 9% in the first quarter, while our overall customer count was up on both a year-ever-year and sequential basis. Turning to profitability on slide 15, both overall gross margins and software subscription gross margins were the highest we've delivered as a public company. This reflects the hard work the team has done to reshape the Vertex financial profile over the past year. Overall non-GAAP gross margin was 77.6%, up 370 basis points year over year. Our software Our subscription gross margin was 84.6%, up 316 basis points, and our services gross margin was 37.7%, up 886 basis points. Earlier this year, we told you that the actions we were taking would materially improve the profitability of Vertex. We're now seeing those commitments reflected in the results. Adjusted EBITDA was $64.8 million, up approximately 50% year-over-year and nearly $8 million above the high end of our guidance range. Adjusted EBITDA margin reached 30.4 percent, putting us well ahead of the timeline we had previously outlined to exit 2027 with margins in the high 20s. Looking forward, we expect to operate at approximately a 30 percent adjusted EBITTA margin levels during 2027. In addition, we believe we can expand margins beyond that over time. Additional benefits from the value creation plan are expected to phase in as we grow revenue on a more efficient cost structure, and we expect a greater portion of that incremental growth to flow through to earnings. That said, adjusted EBITDA margins will not be linear from quarter to quarter. Our free cash flow was $25.2 million, while pro forma free cashflow was $33.8 million, or 52% of adjusted EBIDDA. Turning now to slide 16, we also said that improving earnings needed to translate into significantly stronger cash generation, and that's exactly what we're beginning to see. Adjusted EBITDA less capital expenditures or cash EBITda increased to $36.7 million in the third quarter, up from $11.2 million a year ago. This reflects both the significant increase in adjusted EBITда and greater capital efficiency with more modest capital expenditures, even as we continue to invest in the longer-term growth of the business. the magnitude and pace of improvement are important the value creation plan has structurally improved our earnings profile and we are converting our increased earnings power into cash generation at a faster pace as an example in just two quarters our cash EBITDA has increased from approximately 14 million dollars to 36.7 million dollars we believe that there is additional opportunity ahead as we continue to realize the benefits of the value recreation plan and maintain discipline around both operating expenses and our capital investments. Now turning to guidance, given the performance of the business in the third quarter and the ongoing impact of the cost actions, we expect fourth quarter revenue of $215 to $217 million and adjusted EBITDA of $58 to $60 million, which includes marketing expenses associated with Vertex Exchange and targeted investments to support future growth. For the full-year guidance, we are raising the revenue range to $828.9 to $803.9 million, an increase of $2.4 million at the midpoint. We are increasing the full year adjusted EBITDA guidance to $217.9 to $219.9 billion, an decrease of $10.9 at the mid-point. And we now expect cloud revenue growth to be 19% for the full year. While we don't guide to GRR and NRR, I do want to call out that we expect both metrics to decline by approximately one point in the fourth quarter, reflecting the loss of an OEM in our payroll tax business. The financial impact of this loss is fully reflected in our guidance. Importantly, retention trends in our core determination business have improved throughout 2026, and we do not view the specific loss in payroll tax as an indicator of broader customer health. Despite the headwind, our Q4 guidance implies healthy revenue growth of 11% at the midpoint. Before I wrap up, I'll note that in the third quarter, we repurchased $27 million of shares at an average price of $13.26. Since the $150 million buyback program was first launched in November of 2025, we have bought back a total of $83.6 million worth of shares at an average price of $14.11 and have $66.4 million remaining under our authorization. With that, I'll turn the call back to Chris for some closing comments. Chris? Thank you, John. Let me close where I started. Earlier this year, we laid out a clear set of priorities for Vertex. Stabilize the core business, materially improve our profitability and cash generation, and position the company to return to stronger, more durable growth. We are delivering against those commitments. Customer retention is stabilized. We have materially changed the earnings and cash flow profile of Vertex. And the acceleration we saw this quarter in ARR, cloud growth, and NRR provides encouraging evidence that the underlying growth trajectory of our business is improving in the core. We also know the work is not finished. Our focus now is to build on this progress, continue to strengthen the performance of the business, and capitalize on the opportunities we see across e-invoicing, AI, and the broader Vertex platform. Q3 was a strong quarter, and importantly, it demonstrates our ability to execute against the commitments we make. We enter the fourth quarter from a position of greater operating and financial strength and with increasing confidence in our ability to build on that progress. Finally, our new brand identity, which you have seen reflected in the presentation this morning, is also an outward expression of the transformation underway at Vertex. We're proud of our history, but we're bringing a new energy, greater focus, and a different way of working to every part of this company, because Vertex is not standing still. We're moving forward faster than we've ever moved before. You can see that in the third quarter results, and we're just getting started. With that, we'll take your questions. Operator. Thank you. At this time, if you'd like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen inviting you to join as a panelist. Please accept and wait until you are promoted to panelist, then unmute your audio, turn on your camera, and ask your question. Your first question comes from the line of Jared Levine with TD Cowan. Please unmute and ask a question. Hi, this is Patrick Bryan from TD Cowan on for Jared Levane. I wanted to ask how the feedback was coming out of the recent Vertex exchange event in Las Vegas, especially from our technology partners and customers. thanks for the question we had a great week last week at vertex exchange and we were happy to welcome uh many of our customers partners several of our investors and analysts uh were there with us as well at the event and the feedback we've gotten universally has been extremely positive from you know the experiences that they had in the breakout sessions to what we shared in the keynote with Vertex Soul, where we're taking the product portfolio, the positive, the feedback's been positive across the board. And even as I think about what we saw on social around the event was just incredibly different than the energy we've seen in the past. And it's a testament to all the great work the teams have done, you know, to build our portfolio, to work with our customers, partners, and build out the roadmap. So we're very excited. We got a lot of great feedback. and yesterday was a great week and now we're on to delivering everything. Thank you, Chris. If I could add a follow-up, I just wanted to ask how the new branding of Soul changes your approach to pricing. The branding and the pricing will be different. Soul is, as we shared last week, Soul is really an end-to-end set of capabilities that we've introduced. Some of those capabilities will be part of the core product portfolio as is. Others will be extra relative to what customers choose to purchase from Vertex. A good example would be some of our AI capabilities today, like Vertex Intelligence, are embedded in the product experience already. There is no additional charge for that for our customers. But we have other capabilities like smart categorization, which are extra based on the value that they bring and the way those products operate. Vertex Sol will have similarities to that, where there will be aspects of Vertex sol that are part of the overall purchase platform, what customers get. But there will the elements of VertEx sol, which will have separate charges associated. Appreciate it. Your next question comes from the line of Brett Huff with Steven Inks. please unmute your audio and video and ask your question good afternoon guys nice to see you um likewise brian two questions one the the french launch i think is something we've all been looking forward to and while i know it's early days can you give us anecdotes or conversations or you know early returns or anything that just to give us a little insight into how that's going i know that it went off well and there was you know no big hitches but any sort of you know feedback you're getting from the teams and the customers? We were very pleased with the French mandate launch. It was a mandate that many people watched very closely because it was one of the more complex mandate requirements. And I think even as I mentioned to some of you, like that mandate, there was aspects of that that were changing even up to the week prior to going live at the beginning of September. We were able to execute very successfully with our customers, help them through the testing phase, bring them live. And that success was reflected in the growth numbers that we shared earlier in the presentation. We saw 100% ARR growth in our e-invoicing business. And again, that will ramp because we're bringing customers live and September was only partway through the third quarter. So we feel really good about how that went. Our customers are very pleased. We're tracking that work very closely. The implementation work that led to ultimately going live with customers. We continue to see transactions ramp. And so we're very happy with our execution around that mandate. Great. Second question for me is a little bit bigger picture. I know you and the team have spent a lot of time trying to kind of compress the feedback loop between customers and the team to get the right products out. Can you talk a little bit about how that feedback, you know, fed into the sole launch and some of those sort of nuances that I think you really hit the nail on the head with I think the process is something that you guys are really getting down. I just want to hear how that went. You know, as I've shared with many of you, one of the priorities I set for myself personally when I came into the company was to engage deeply with our customers and to really go out and talk to customers, you know, ones that are happy with Vertex, ones that might have been less happy with Virtex. It didn't matter. Like, I really wanted to talk to a variety of customers, and that focus has really translated into how our team has been engaging with customers. And so what you saw last week with Vertex Soul is, you know, I wouldn't call it a culmination. It's the first phase of our engagement, really, as we're changing how we engage, how we learn from customers, how we bring their feedback into what we're developing. At Vertex Exchange, we had some specific breakout sessions with customers who are really providing us more detailed feedback, particularly with certain features of our products, like the AI capabilities that we're bringing. And so we are absolutely changing how we engage, how we think about our customers, and we're really just getting started there as well, Brad. That's a place where we believe we can use AI to scale our listening systems to really make sure that we're feeding all of that into our product capabilities, our product roadmap in ways that are going to help us go even faster than we're already starting to move. Great. That is what I need to do. Congrats some of the results. Appreciate it. Your next question will be audio only with Patrick Will Ravens with Citizens. Please unmute and ask your question. Oh, great. Thank you so much. And congratulations, Chris. It's great to see it working. Can I drill down on two things that you guys brought up on the call? First of all, the athletic footwear displacement. You said that is sap ecc chris was that on-prem um but there there are elements of it that are on prep that is that is correct and as as well as other pieces of it but there are moments that are on-prep okay and so the point of that is is that is that still a competitive advantage for you guys that you can do on-prim and a lot of others can you know our our view all along pat has been while we we want our customers to be on our cloud platform and we've talked about that a lot you know we that's where they get the best capabilities that's what they get our newest features first that's obviously where you know most of our investment is placing we're migrating customers to the cloud we do support customers that run the product on-prem and that we stay true to that commitment. But we are focused on driving cloud growth with our business and having our customers on that platform. All right, got it. And then can we hear a little bit more about the loss of the payroll OEM? I didn't quite understand what was going on there. What exactly happened there? So we lost an OEM in our payroll tax business. It's a discreet loss. We specifically know what it was about. We understand what it means. It's reflected in our guidance. But it was meaningful enough that we wanted to call it out for everyone, disclose it. But we do not see it as any evidence of a broader deterioration in the business. As John pointed out, it will be reflected in GRR and NRR metrics. And so we just wanted to get ahead of that, share that. We understand it. But again, you know, we're at the midpoint of our Q4 guidance. We'll grow 11%. We're going to deliver on the year and then some. And so we feel good about the trajectory of the business. But, again, that was meaningful enough to call out. Great. Thank you. Your next question will come from Andrew Degasperos with BNP Paribas. Please unmute your audio and video and ask a question. Yes. Hi. Sorry, I can't go on video for some reason. Oh, here we go. Um, so my first question would be related to the, um, Vertex exchange conference you had. And I was really impressed with the customer list that you had on stage. I think I've heard open AI from Amazon and DoorDash among others. And I think one of the things that I was surprised is that how some of these customers were asking you to extend your, your service and new geographies that you weren't part of before. And I was just curious to know, how important is it to expand in these new markets as it relates to content? And should we be seeing some progress going forward on that front? So we've, Andrew, that's been an important focus for us over the course of not only this year, but the last several years. A lot of the country level expansion is related to e-invoicing, but not exclusively. We also have expanded content coverage. One of the big deliverables we've had over the course of this year is to expand our coverage for content in Brazil, which relates to our core tax determination business there in that country. And so we continue to expand where we're building and covering. I also mentioned, we've talked about this previously, we acquired a company called Brenta earlier this year. They brought to us nine additional countries in Latin America. They give us an end-to-end capability across our e-invoicing needs. And so we'll continue to expand. There are other geographies that are going to come online with mandates. Like in Europe alone, as I mentioned earlier on the call, we've got mandates. Germany, for example, Norway, Slovakia, scheduled for January of 2027, but further mandates coming in 2027. Spain is on the docket. Beyond that, you've got mandate in 2028 and even in 2029. where you start to see countries like the UK. And we expect further expansion, further mandates to come in other parts of the world, Middle East, Africa, parts of Asia. And our objective is to be able to expand around the world with our customers, be their end-to-end partner for this, irrespective of where they need to be the global mandate for tax and tax compliance. Thank you. And that's really helpful. And then as a follow-up, I wanted to maybe get an update on the current macro environment. I know last year, it was a bit of a tough period as related to entitlements. So just curious to know, maybe, John, if you could give us a sense of where we are on that front, and if we're finally turning a corner there. Yeah, what I would say is, Andrew, thanks for the question first. But what I Would say is we continue to see a normal environment there. Entitlements have made a bit a bit of a comeback from where they were a year or so ago. I think we spent a lot of time talking about that. We are seeing an improvement in some of that activity, which is good. I think it's never exactly where we want it to be, but we are seeing some nice movement there. We aren't seeing the big kind of true ups that we have talked about in the past. I mean, this quarter was a very, very small number that was there. So we're not seeing a lot of activity like we had in 24 and a little bit in 25, in the early part of 25. So I just wanted to call that out. We're not seeing that. That's not really changing the game at all. However, again, it is nice to see a little bit of a resurgence in the entitlement area. Great. Thank you, sir. Your next question will come from Chris Quintero with Morgan Stanley. Please unmute your video and your audio and ask your question. Hey, Chris. Hey, John. Congrats on the nice set of results here. um maybe first on kind of what are you guys seeing in terms of cloud migrations you know we heard from sap recently talking about some really good migrations especially as it relates to kind of ai helping drive some of those customers wanting to move over to the cloud and so curious if you're also kind of seeing that dynamic too in chris we are continuing to see cloud migrations uh that that's uh that's been a as you know a big area of focus for us um i would say trends are continuing um we still we saw a healthy movement in q3 those trends are continueing um but where we see the biggest movement in cloud is in our e-invoicing business, right? That's all cloud. And that's where we're seeing one of the biggest drivers. But we do continue to see migrations. We do continue to participate in those. Some of the customers I highlighted are in that consideration set. So we will continue to work with customers on it. Obviously, one of big sets of conversations or categories of conversations that we were having last week at Vertex Exchange was with customers moving to the cloud so they can take more advantage of the new capabilities we're delivering, like all the greatness, the great new things we're going to deliver with Vertex. So having access to the Cloud and being on that path is going to be really part and parcel of their ability to get the most out of it. So we're working with customers around it. As you know, large, complex multinationals have a variety of different priorities they're often balancing. And I think as I've shared on previous calls, you know, cloud, on-prem, you might have a mixture of that depending upon the company itself. Inside the company, they have different deployments on different timelines. So we continue to drive that. And every customer I've talked to is on the path at some point. It's just, you Know, different timelines, different priorities there. Yeah, that's great to hear. And then maybe as a follow-up, Chris, you've been in the seat for about a year now. you've talked to customers, you've talked to investors. I'm curious from your perspective, what do you think investors today are underappreciating about the Vertex story? I think investors are starting to appreciate the business and really what we've got here. I think somebody mentioned earlier the blue chip customer base that we've Got. I think what investors are also starting to appreciate is how we're delivering against our commitments. Now, I've only been here a year. We need to prove to you that we can deliver against our commits. So you saw that in our revenue growth. You saw that in our profitability growth. Those were all things that we said we would deliver, and we've been delivering that, and will continue to do that. The underlying growth picture is improving. You saw that ARR growth. We saw, you've seen that in what we're doing at NRR and GRR, you know, again, And so, like, you can see the underlying movement, the e-invoicing growth in the business. You know, we've been talking about that, but we're showing that now. And so those are some of the drivers that we see that I think investors are starting to see now. And, you know, will continue to prove it. We'll continue to show you all. But that's what I want you all to see that trajectory. And, and, you Know, I think Q3 was a great demonstration of that. Excellent. Yeah, it's been great execution. Thanks for your questions. Your next question comes from the line of Daniel Jester with BMO Capital Markets. Please unmute and ask your question. Hey, good afternoon. This is Kyle Aberastrian for Dan Jester taking our questions. It looks like services revenue came in strong during pre-peak compared to our model. Could you provide a bit more color on what drove the strength in the quarter and how we should be thinking about services revenue for the rest of the year? yeah um you know services revenue did perform nice that we saw 15.8 percent growth on a year over year basis and i think a lot of it has to do with some of the implementation around the e-invoicing activity that's been going on again chris talked about france and the mandate coming there's activity that surrounds that in addition we had a nice quarter uh around our mso business and the tax filing business that we have and so those pieces both drove the growth there But when I think about the services business, strategically, it's not our goal to increase service business at all costs because we really spend a lot of time working with our partners, implementation partners, accounting firms, and others that offer that service. And we like to partner with them and make sure that they're sort of at the forefront of services activity. So while we're pleased with the opportunity that we saw there and the growth that we saw there in the third quarter, it's not in the area that we're really leaning into dramatically because we want to make sure that there's enough to go around for our partner community. Great. Helpful. And then just a quick follow-up with e-invoicing at our art growing roughly 100%. I guess, how should we think about the growth trajectory in 2027, especially as Germany ranks up? Thank you. I did not catch that. Yes. How about I start with it? I think the question was, you know, with the e-invoicing growth about 100%, what do we think about the future and the growth opportunity that's there? One of the drivers of the business that I see as even a bigger opportunity than I would have thought of a year ago is our e-Invoicing business. And much of what we're seeing in the trends, the mandates, the need for customers to have a global partner that help them. And we just see a lot of opportunity. So we, you know, while I don't expect that every quarter we'll have the exact same growth rate because of the high numbers, I do expect to significantly outperform the rest of Vertex from a growth rate perspective with this business. I also go back to, you Know, we brought on some really interesting new partners like Avanade that we announced this quarter. Again, we'll be helping us take that capability to market, which expands our reach, expands our coverage, expands the growth opportunities and then as we talked about a little bit earlier we'll have other countries coming online um that all creates opportunity for us so this part of the business we believe we believe has tremendous growth potential we are continuing to invest in this business for growth uh and we're pleased with our execution so far but there's still a lot more work for us to be done we'll move on to the next question with george caruso at city please unmute and ask your question. Hi, can you hear me? Now we can, George. Okay, great. Thanks for taking the questions here. I wanted to double double click on that payroll OEM situation. And you know, the Q4 guide came down a tick on the revenue side relative to what was implied from from last quarter. Are we right to think that excluding that isolated customer event, the Q4 revenue guide would have been maintained or possibly raised? I think that's about right. That's how we thought about it. Again, the payroll piece was probably about a million dollars or so for the quarter of an impact. Okay. Okay. Perfect. And then the French mandate going live, I wanted to double click on that. Maybe if you could compare the pipeline you're seeing for that for maybe new customers before the mandate went live to maybe now. I could imagine any customers that didn't opt for a modern solution may now be feeling the pain of that. So just get a sense of how long-dated a catalyst some of these mandate go-lives are. Yeah, so the French mandate was definitely a bigger driver of pipeline in the first part of this year than it is today, right? A lot of companies were going live with us, with other providers. But we do think there's going to be follow-on opportunity because, you know, there is a percentage of the market that picks a local provider. We expect, you Know, many of, like, anyone who's picked a local provide will likely want to consolidate over time. That's something we've talked about, that, you Now, because we service global multinational customers, you Know ones that over the years have picked the local providers for various countries, you Know that may or may not have been what they've done in France, but there could have been other countries for which they picked a local provider, they're going to want to consolidate. And I would tell you the conversations we've been having, even as recently as last week at Vertex Exchange, that opportunity is absolutely on the table to consolidate, to make sure, you know, because the global multinationals definitely see the need to have one global provider, or at least one main global provider where they have more of their EU voicing business. It just simplifies their operations, simplifies their ability to scale the management overhead and even just the procurement process across not having to have many, many different vendors they're dealing with in different countries. And that's an opportunity that is there for us. It's something our customers have told us for a long time. Now they're seeing us prove our capability and we're having those conversations. Okay, great color. Thanks for taking the questions. your next question comes from the line of alex clark with raymond james please unmute and ask your question all right can you hear me we got you okay great um says the the host needs to turn on my video but um maybe first one for you chris just the idea as you push further into selling a tax and compliance platform how does that influence your sales hiring plans any change in the persona that you're looking for and then And just maybe any color on what you've seen from a sales productivity standpoint to date? We've got a really strong go-to-market organization. I mean, Vertex has built, as I've talked about a lot, they've built a really incredible customer roster. And a lot of that is testament to the whole company. But the sales organization, the men and women who represent us in front of our customers every day have done a phenomenal job of building that book of the business. You know, that being said, you know, as we expand from being a tax, primarily a tax determination company to one that helps to drive more of an end-to-end compliance capability, the decision to defense end-To-end that we've talked about and what's represented in Vertex Soul, it is going to require that we got the ability to help our customers understand how to value that, how to think about that. And there will be places where I think growing our sales capabilities, our skill sets will be important. The good news is we sell really well. So global multinationals, I think we need to build on that. We need to go deeper with our customers. They're asking for it. And that's where we're leaning in. Okay, great color there. And then maybe just a follow-up on the e-invoicing. I don't know, Chris or John, if you want to take this. but I'm curious if the French mandates has helped drive customers to thinking about consolidating more of their e-invoicing requirements on Vertex or most of the success in quarter was just from landing the French ones. Thanks. I would say a lot of the 2026 motion has been about starting, getting to the mandate, meeting the mandate. But as we go forward, there's a lot more conversation with customers around consolidation. We saw some of that over the course of the year where, as I've talked about even on previous earnings calls, we have several large customers who are doing multiple countries with us and continue to add countries over time. And we expect that to continue. The French mandate, certainly because it's a large economy, is a catalyst for more of that, particularly where, like I talked about a moment ago, particularly where people have picked a local provider in a smaller geography, a smaller jurisdiction. You know, we have the opportunity to consolidate some of that and our ability to execute on the French mandate. And the French Mandate provides a lot more, I mean, gives customers confidence and momentum around that move. Awesome. All right. Thanks for the call. Thank you. Thanks, Alex. Your next question will be audio only from the line of Billy Fitzsimmons with Piper Sandler. Please unmute and ask your question. Hey, guys. Hope you're doing well. Good to see the results and the profitability upside. Apologies for not being on the line. A bunch of prints this night. I guess my question, the first one is just we cover SAP as well. And if I go back kind of a year for Vertex, there's a lot of excitement around the potential tailwinds from the 2027 deadline kind of pulling through extra demand for VertEx. How has that kind of progressed relative to your expectations, both, you know, a few quarters ago and call it over the last 90 days relative to maybe what you would have expected? yeah billy the um you know we continue to see a healthy set of migrations around sap a couple things i'll say about that number one um that like we aren't the front end of that process we tend to be further you know further downstream from that decision but a lot of the customer wins that we see, a lot of our migration activity is tied to an SAP modernization program, migration program that they're running themselves. We've seen a healthy clip there. I think the expectation setting relative to a 2027 deadline, that I think has become elongated for many people. As I've talked to partners of ours who are well embedded in the SAP ecosystem and do a lot the SAP work themselves. Even they will tell you there's extended timelines for a lot of customers. And so they feel as though the work that's flowing through to Vertex is in line with what they're seeing actually happening in the market. Your next question comes from the line of Jacob Zerbib with William Blair. Please unmute and ask your question. Hi, everyone. Congrats on the solid results um just one question for me um i wanted to follow up on something you spoke about at at exchange you mentioned that a goal um for you is to kind of elevate the vertex conversation into the c-suite um can you talk a little bit about that and how um those conversations are progressing yeah i think i think vertex you know as we talked about a lot and demonstrated i think at Vertex Exchange, we have so much more to offer customers than just pure tax determination, which is where kind of the company was founded. It's the end-to-end decision to defense where we're doing all of it, helping customers with their entire compliance lifecycle. That gives us, I mean, that broader view and that broader set of capabilities, more global footprint for our customers. It changes the dialogue around Vertex. This company was founded a little bit like almost 50 years ago and primarily focused on tax determination for a long time. And the company's done incredibly well around that. Now with e-invoicing, with what we're doing around compliance, with What We're Adding with Vertex Soul, we have an end-to-end set of capabilities to bring to our customers. We're more global today and we're getting more global every day in our business. And that's going to make us more strategically relevant to our customers, and it increases the kinds of conversations we're having at different levels in the organization. So it's a build from where we are, building on our source of strength, expanding what we can do, and that makes us something that's more relevant to different types of folks, different types OF leaders in our customer organizations. That being said, we're still very focused on making sure we service the customers. We've always dealt with super well. That's what builds the confidence and gives us the foundation to go help them do more. Just to follow up, do you anticipate kind of on the back of that any significant changes to the go-to-market org or the structure over there as it pertains to kind of driving that conversation further up? yeah the good news for us is we've done a great job of building out our enterprise customer footprint and we have some very skilled senior reps who are who are capable of selling end-to-end you know the the people who cover some of the the folks that you saw on stage which are very large global multinationals have proven their ability to scale a relationship solve you know different problems for our customers and so i feel good about the sales team that we have i think there's opportunity to expand as we become more international you know we've brought in new leadership for example uh in our international business uh you know carlos mercuriali who leads our team there joined us earlier this year uh he's got a background in this world spent over 10 years at sap himself um so we're really we're excited about the opportunity, and we want to continue to grow in all parts of the world. Thank you. Your next question comes from the line of Patrick Schultz with Baird. Please unmute and ask your question. Hey, guys. I appreciate your time this afternoon. Just maybe starting with some of the e-invoicing mandates and appreciate all the call that you've provided so far. Just maybe talk about how much more upfront investment is needed to fully enter these markets as the mandates come online in 27, 28, beyond, and maybe just touch on the competitive landscape a little bit there, however your win rate's been, and what are you seeing in terms of competitiveness in there? Is it getting a little bit stronger? So, oh, a couple things, Patrick. I think, number one, the way we think about entering new companies now has become, like, we're faster at that, like we've got more process, and we'll continue to just add that. That's part of it. I really think of that less as an upfront one-time investment and it's more part of the run rate of business. Like as we, as we grow, the other thing is countries aren't necessarily static in their mandates. They, you know, they add pieces, there's multiple phases, you Know, Germany is in, youknow, a multiple phase, for example, France will have other phases. We expect that some countries, many countries will add different reporting type requirements. So he like e-invoicing may be the first, but then they may add SATs, they'll add other types of reporting requirements. And so we'll continue to grow with our customers to help them meet the breadth and depth of the mandates and the evolution of what will happen in any given country. And so that's going to be just become part of the business, part of The Cost of Delivering. As it relates to the overall competitive landscape, we feel very good. Again, given where we were a year ago, we feel very good about our growth. Our win rates are improving in that business. Again, reflected in the 100% ARR growth year on year, we're progressing really, really well. We're really pleased with how the Brinta team has added to our team, the performance of the team that came from Ecosio originally, how everybody's coalesced around one vertex to bring that to market on behalf of our customers. and uh there's more momentum to build there's more to be done and and you know we're going to continue to compete and win in these spaces but you know we we're we're still growing and there's still a lot more share out there to uh to gain on our behalf no perfect appreciate that chris and maybe john just to follow up on the on the margin side strong performance this quarter just want to get a little bit more on color on the durability of the new margin profile how much of the art performance is being driven by cost actions taken earlier this year versus what is still to come down the road? And maybe where are your top reinvestments for our folks on for next year to help re-accelerate growth? Yeah, I mean, a couple of things. We feel very good about the durability that you've seen. The numbers reflect real strong performance. The value creation plan is taking effect. We've seen it in the numbers. We felt good about the flow-through that we saw during the quarter. I mean I think it really demonstrates the fact that it's working. During the same quarter, we delivered very strong results from a go-to-market perspective, sales perspective. So I think it's really paying off the way that we thought it would. We feel good about it. I mean, the structural changes that we're making, the different ways that we'RE working in all the different areas of the business, whether it's development, whether it'S development, R&D, go-to-market, back office, all of those things are playing out and there's still more to come. I MEAN, the good news is, you KNOW, we did our action back in May. Costs have still continued to kind of flow through the business as we've kind of executed on that over time and we feel good about the fact that as we turn the page into next year that there's opportunity in front of us we're going to go get after it and so we feel very good about that i'm very pleased with it and again it is it is very durable there weren't any one-time items in there that were driving that you know driving things um you know driving those costs down for any reason so the opportunity is really in front to this we're going to get it and we're focused on that for 27. i'll just add there you know we're very focused on on productivity improvement like i one of my goals is that we just we get into this and we talked about this in the last earning cycle i i'm very focused on creating capacity in the organization capacity to move faster capacity to deliver more the only way we do that is just having like a relentless focus on being more productive being you know and that allows us to just take on more. And some of that we'll see show up in the financials. Some of that we should see in the form of product delivery, which over the long run drives more growth, more better competitiveness for us. And that allows us to invest, for example, as we continue to grow as fast as we are in the e-invoicing business, we're investing back in that business for further growth. Delivering Vertex Soul, we'RE investing in that part of the business because we believe that's part of our long-term growth trajectory. It's part our long term, you know, customer satisfaction and retention. So we see a lot of opportunity. And those are just two examples of places where we're reinvesting in the business. There are no further questions at this time. I would like to turn the call back over to Joe Crivelli for closing remarks. Well, thanks, everybody, for joining us. As always, if you have follow-up questions or would like to schedule more time with the team, please reach out to me at investors at vertexinc.com. Thanks and have a great week.