管理層發言
Good morning, and welcome to the Vertex First Quarter 2026 Earnings Call. 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 thanks for joining us to discuss Vertex's first quarter results. Chris Young, our President and CEO; and John Schwab, our CFO, are with us today. 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 uncertainties 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 call is being recorded and will be available for replay on our Investor Relations website. I'll now turn the call over to Chris.
Welcome, everyone, and thank you for joining us. Vertex delivered strong first quarter results. Revenue was $196.6 million and adjusted EBITDA was $44.1 million, both above the high end of our guidance for the quarter. Notably, customer retention, usage patterns and buying behavior were all consistent with what we saw exiting last year, even as the macro environment remains mixed and IT spending scrutiny persists. But more importantly, this quarter reinforces the fundamentals of our business. Vertex is at the center of mission-critical, highly regulated workflows that our customers rely upon. We are building upon that foundation as we move forward and as we intentionally reshape Vertex for our next chapter. Over the past several months, I've spent significant time with customers, partners, our team members and investors. One message came through clearly. Vertex has extraordinary assets, including trusted data, deeply embedded integrations and a unique role in global compliance, but we need to operate differently to fully unlock that value in an AI-driven and increasingly real-time regulatory world. And that understanding is what is driving our change. That brings me to the value creation plan that we announced in April. I want to be clear that this was a deliberate leadership decision to reset how Vertex allocates capital, talent and attention. We took decisive action to improve our cost structure, free up resources to invest in growth areas and ultimately improve profitability and cash flow. The outcome was a targeted cost action that included a reduction in force and other efficiency measures to position us for the future. This is a reset to reinvest, which will enable us to continue investing behind the highest impact areas of our strategy, including e-invoicing and compliance, our AI roadmap, customer support and execution speed, all while also improving operating leverage. John is going to discuss the financial impact shortly. Our e-invoicing business continues to perform well in advance of upcoming mandates with very strong growth in both ARR and revenue that is materially above the overall corporate growth rate. Importantly, we expect revenue to ramp later this year after mandates are enacted in France and again in 2027 when mandates in Germany come online. To accelerate our e-invoicing product strategy, in the first quarter, we acquired Brinta, an AI-first compliance and e-invoicing start-up for e-commerce that's based in Latin America. With Brinta, we gain a very talented technical team that has creatively applied AI and a modern architecture to solve compliance and e-invoicing requirements for companies in countries like Mexico, who have had these requirements the longest. Brinta adds country coverage in Latin America, but it's far more than that. It brings an AI-native architecture built for the most complex real-time compliance environments in the world. That capability includes automation, control, speed and auditability, which is where global compliance is ultimately heading. Brinta's offerings are focused on eliminating manual work where it creates the most friction such as onboarding and data mapping, invoice data extraction and product classification. That combination of automation with control is critical in regions like Latin America, where accuracy, auditability and regulatory evidence are nonnegotiable. Now I want to spend some time on artificial intelligence and how we're approaching it at Vertex. I'd like to explain why I think AI expands Vertex's competitive advantage. There's been a lot of discussion about whether AI will disrupt enterprise software. Our view is that AI strengthens platforms that already function as trusted systems of record, especially in regulated environments like tax and compliance. A February 2026 study by EY-Parthenon entitled AI's Impact on the Software Economy confirms this. This study identifies deep vertical SaaS as one of the most defensible segments in enterprise software. These are companies with software built on domain-specific workflows, complex integrations and regulated use cases. Vertex squarely fits that profile with durability driven by embedded tax and compliance workflows, broad ecosystem integrations and long-standing operational data. In an AI-driven world, that foundation ensures AI enhances our platform rather than displaces it, strengthening a system customers already depend upon for mission-critical, highly regulated processes at scale. In enterprise tax, trust is the product. Tax answers must be 100% accurate, explainable, auditable and repeatable across tens of thousands of jurisdictions and constantly changing rules. That requires a deterministic core, authoritative content and a system that can withstand scrutiny, not a probabilistic black box. In addition, Vertex is not adjacent to the workflow. We're embedded in the order-to-cash transaction flow. When tax breaks, companies can't transact — that makes switching costs high, not because of licensing, but because the operational risk of disruption is unacceptable at enterprise scale. Finally, we are not standing still. We are moving quickly to embed AI more directly into our products and operations as well as build new ones, but in a way that preserves governed outcomes. To put a finer point on this, today, half the companies named in CIO Magazine's March 2026 ranking of the most powerful AI companies are using Vertex to calculate indirect tax. We believe this is a strong validation of our AI moat. Our AI product strategy will be transformational, yet pragmatic with targeted use cases driving measurable impact and responsible governance from day one. Our tax engine remains foundational as the deterministic governed system of record that enterprises depend upon to transact, report and comply with confidence. Our focus with AI is to modernize how work gets done in and around the core systems, embedding intelligence into the workflows across tax determination and e-invoicing where most of the manual effort, cost and operational friction still lives. Processes like onboarding, data mapping, classification, configuration, reconciliation, exception handling and ongoing change management are adjacent to the core engine, but they determine how effectively that engine can be used at scale. Our AI strategy is about reshaping that operating layer, reducing manual work, increasing speed and allowing tax teams to operate proactively while keeping the core outcomes correct, explainable and auditable. And to make this more concrete, our first commercial AI product, smart categorization shows how this model works in practice. On our last earnings call, we discussed smart categorization, which automates one of the most manual and error-prone process workflows that sits around the tax engine — categorization of a company's product SKUs for tax. The data we see from live customers' usage of smart categorization as they have moved to production is very encouraging. Every active smart categorization customer is expected to send 100% of their catalog through the platform for categorization. Usage grows week after week and the productivity impact is substantial. Observed categorization time drops from more than 1.5 minutes per product to just a few seconds. Slide 11 provides a visual cue to help investors understand an example customer profile for smart categorization. Think about a large retailer with thousands of locations across the U.S. and tens of thousands of SKUs in every store. That retailer is subject to literally millions of iterations of tax rules across their product category. And the retailer SKUs and locations and the tax rules they are subject to are constantly changing. The key takeaway is this: smart categorization confirms that our AI operating model works in practice. It shows AI applied around the system of record, removing friction from critical workflows while preserving deterministic trusted outcomes. With production usage established, the next phase is ramping the commercial motion in a disciplined way. We are also using AI inside Vertex to change the way the company operates. A good example is our customer support and services organization. Support workflows sit alongside our core tax and compliance platforms. It requires deep domain expertise, consistent judgment and the ability to triage and resolve issues effectively, especially as our customer base and product portfolio continue to grow. We're using AI to augment that work by summarizing cases, surfacing relevant diagnostics and knowledge and helping route issues to the right teams more quickly. The goal is straightforward: allow our experts to focus on judgment and resolution, while AI handles the repetitive analysis and intake work. Early results indicate that analysts can manage meaningfully higher case volumes with better consistency without sacrificing quality, which has a direct impact on our operating leverage over time. The reason I highlight this is that it reflects the same operating model you've seen in our products: AI applied around the system of record, embedded in real workflows, improving efficiency while preserving accountability. I continue to be very energized by the high-quality blue-chip customers that depend on Vertex for indirect tax accuracy. First, notable wins with existing customers. On our February 2025 earnings call, we highlighted a win with one of the large leading players in the artificial intelligence large language model space. The initial relationship was for Vertex e-commerce, supporting tax determination for their digital marketplace operations. In the first quarter of this year, this customer expanded its partnership with Vertex to include e-invoicing across multiple jurisdictions as well as O-Series for global sales and value-added tax determination across several business units. This expanded relationship now represents annual recurring revenue in the multiple seven figures and reinforces the key point: even for one of the pioneers in the AI space, Vertex is the trusted choice for managing complex indirect tax requirements at scale. In the SAP ecosystem, we won a high six-figure new contract with one of the major airlines. This deal included expansion of their use tax volume, additional tools such as SAP Accelerator and Plus tools and engagement with Vertex Consulting as well as migration of all on-prem instances of Vertex O-Series to the cloud, and a leading social media company that is also a major player in artificial intelligence expanded their use of Vertex solutions in the Oracle ecosystem, resulting in mid-six figures of new annual revenue. Turning to new logos. A company in the health care industry switched from competition to Vertex for North American sales and use tax and also engaged Vertex Consulting to assist with the integration with their Workday ecosystem. This resulted in low six figures of new annual revenue beginning in the first quarter. We secured a mid-six figure new logo in the chemical manufacturing sector, driven by a customer's expansion into additional business segments and the adoption of Vertex for North American consumer use tax, SAP Plus tools, address cleansing as well as Vertex consulting services. And in the fashion and apparel industry, we won a high six-figure new deal driven by the customer's transaction volume growth. This engagement encompassed sales tax in North America as well as global value-added tax calculation. Before I turn the call to John, I'll wrap by saying that the first quarter was a strong start to the year. I'm encouraged that retention is stabilizing and that we delivered results that were above both investor expectations and our own guidance for the quarter. We are seeing good results from our e-invoicing business and believe that global compliance is one of the biggest opportunities that we have in front of us. With that, I'll turn the call over to John to discuss the financial detail. John?
Thanks, Chris, and good morning, everyone. As Chris noted in his remarks, the first quarter results demonstrated stability in the business across revenue growth, customer metrics, and we also saw good early progress on earnings leverage. On Slide 17, total revenue was up 11.1% year-over-year to $196.6 million and above the high end of our guidance. This outperformance was driven in part by higher services revenue in the quarter. As you can see on the slide, software subscription revenue was up 10.9% and services revenue was up 12.2%. Our cloud revenue was up 20.7%. This was a bit lower in the first quarter than our full year estimate. However, the shift towards cloud revenue away from on-prem continues to advance with cloud revenue now approaching 60% of our total subscription revenue. We expect this transition to continue and that we will see acceleration as all of our e-invoicing and compliance revenue is cloud-based. Annual recurring revenue was up 11.2%, essentially flat compared to the growth rate in the fourth quarter. Turning to customer metrics on Slide 18. Our gross revenue retention was 95% and net revenue retention remained stable compared to the prior quarter. Our average annual revenue per direct customer was $140,464 in the first quarter, up 11% year-over-year. Note that the growth rate in AARPC has moderated. However, this is largely due to the continuing influx of new e-invoicing customers, which generally onboard at a lower initial contract amount than our tax calculation customers. Growth in our scaled customer count remained at 12% in the first quarter. Now turning to profitability on Slide 19. Overall, non-GAAP gross margins increased 50 basis points year-over-year. This was driven by higher margins in the services business, as you can see on the slide. Our adjusted EBITDA was $44.1 million, up 18.4% from last year's first quarter. As you dig into the income statement, remember that the first quarter expenses are impacted by our sales kickoff, which occurs in January as well as payroll taxes, which are seasonally higher in the first quarter. Free cash flow was positive $7.7 million. As a reminder, our free cash flow is typically negative in the first quarter due to the same seasonal expenses I just mentioned. This is only the second time that we've been free cash flow positive in the first quarter since we went public. I'll now discuss the April cost actions and how they will impact profitability going forward. Turning to Slide 20. On April 28, we reduced our workforce by approximately 9%. In addition, we are also significantly reducing the third-party spend across the company. As Chris noted, this decisive action was taken to improve our cost structure, free up resources to invest in growth areas and improve our cash flow and profitability. In 2026, we expect the following impacts. In the first quarter, we recognized a pretax charge of $6.2 million, consisting of severance and other benefits. These costs are included in the general and administrative expense line of the income statement and are reflected as severance expense in our adjusted EBITDA reconciliation. In addition, we incurred approximately $2.6 million of incremental costs to execute the action. These costs are also included in G&A expenses in our income statement and are reflected as transaction costs in our adjusted EBITDA reconciliation. Cash payments to execute this initiative are expected to be completed in 2026. And on a fully annualized run rate, we expect the cost action to save approximately $60 million to $70 million of cash savings per year beginning in 2027, again, net of reinvestments in the business. Obviously, this drives dramatic change in Vertex's income and cash generation profile. Let's discuss how this impacts guidance for 2026. Given the performance of the business in the first quarter and the impact of the cost actions, we expect second quarter revenue of $200 million to $204 million and second quarter adjusted EBITDA of $47 million to $50 million. And for the full year, we expect revenue of $823.5 million to $831.5 million, which is unchanged from our prior guidance. We are increasing adjusted EBITDA full year guide to $202 million to $208 million from $188 million to $192 million previously. And we continue to expect full year cloud revenue growth of 25%, driven in the back half by ramping e-invoicing revenue from newly launched e-invoicing mandates. Finally, I want to discuss the 2028 targets that were set at Investor Day in March 2025. The value creation program has accelerated the timeline for us to achieve the profitability and free cash flow targets that was set at the time. In fact, we now believe that we will achieve those targets in 2027. However, the business has changed significantly in the past year and revenue growth is now in the low double digits. We believe this is the growth rate investors should underwrite for the medium term. Before I wrap it up, I'll note that we bought back $20 million of shares in the first quarter at an average price of $14.59 per share. And with that, I'll turn the call back to Chris for some closing comments. Chris?
Thank you, John. So to close, the first quarter results were strong and represent a good start to 2026. We are encouraged by the stability we saw in the business across revenue growth and customer metrics. In addition, I'm pleased that profitability is already inflecting even before the results of our April cost actions take effect. But it's important to understand that Vertex is changing deliberately and with urgency. We are reshaping the company to be more focused, more profitable and better positioned to lead as compliance and tax move closer to real time and as AI becomes embedded in everyday enterprise workflows. The actions we've taken improve our financial performance, but they also enable reinvestment into the highest impact opportunities in front of us. I'm confident that this reset will produce a stronger Vertex, one that delivers both durable growth and meaningful returns for shareholders over the long term. Thank you for your time today, and we will now take your questions. Operator?
分析師問答
Your first question will come from Chris Quintero with Morgan Stanley.
I'm liking the new format. Maybe first question on the value creation plan. You guys mentioned cutting some third-party spend. So can you just provide a bit more color around where you're actually cutting and how you're thinking about doing that?
Yes, Chris, thank you very much for the question. Appreciate it. The third-party spend is a combination of spend within the organization as well as contract labor and other costs of things we use in our day-to-day operations. Keep in mind, we continue to use external labor to support the activities of our personnel, and that's a piece of it as well.
Got it. And then the change around the 2028 targets, you mentioned that the business has changed significantly. So can you just break that down? What does that exactly mean? And how does that perform the new low double-digit growth rate you're talking about?
I'll start and Chris can add. As we've looked at the business since we gave guidance about a year ago, the macro environment has changed. We were looking at growth rates then in the mid-teens with acceleration opportunities in front of us. We've seen that soften a bit in the back half of last year. We feel good about the progress we're making on the targets we've set, but we wanted to make sure we address the long-term targets that were out there which pointed to high-teens revenue growth. We want investors to underwrite the business as it is today with the opportunities in front of us. We still see e-invoicing demand and AI opportunities that can drive growth, but we wanted to put numbers out there that we felt comfortable with and that the Street could have confidence in.
Chris, thanks for the question. I want to add a couple of points. We're focused on execution for the year. That's paramount. We want to give you a sense of what we're seeing. There's really strong performance on profitability and cash flow, which should allow us to arrive at some of those Investor Day targets more quickly. On the revenue side, we want to give you a picture of what we're seeing right now in the business with e-invoicing and compliance still to mature because that revenue starts to come to us later. Think of our e-invoicing as design wins in some respects, with revenue to come online as mandates happen. And then as we build out our AI roadmap longer term, we have expectations for growth there as well.
Your next question will come from George Kurosawa with Citi.
Okay. I'm on for Steve Enders here. Maybe just to start on the cloud revenue guide. You maintained the 25% target. I think you delivered 21% this quarter. So obviously, a fairly steep acceleration implied for the rest of the year. If you could help just disaggregate some of the drivers there, what gives you confidence in delivering on that?
Maybe, John, I'll start, and I'll ask you to add anything I missed. The way we thought about cloud revenue growth for the year is the following. You start with your e-invoicing design wins. A big part of our growth in cloud will happen as compliance and the e-invoicing sales ramp and revenue ramps as transactions flow through the systems later in the year. So while we start a little bit lower on cloud revenue growth, which is what we started to see in Q4, we expect and we can see line of sight to our 25% target for the year as e-invoicing and compliance sales ramp and transaction revenue ramps through the course of this coming year.
Okay. Great. And then I did want to touch on the value creation plan. I think you called out $60 million to $70 million in cash savings on a run rate basis. You raised the EBITDA guide here by $15 million. Maybe just to help bridge the gap there in terms of maybe there's some timing component, maybe there's conservatism, and it sounds like there's a level of reinvestment as well. If you could just help us understand the moving pieces.
You hit some of the big pieces. The second quarter doesn't get the full benefit of personnel reductions since the action was at the end of April. We'll see more of the savings in Q3 and Q4. The contractor reductions are a phased approach that will phase in throughout the year. We have line of sight to each of those and how they'll roll through, but it will take time for that to fully map through the year. That timing is part of why we have the confidence in achieving the $65 million midpoint for the run rate. Also, when we talk about cash savings, some spend typically gets capitalized, so the cash impact is outside the realm of adjusted EBITDA. I wanted to make sure we called out that component of the $65 million.
I do want to add one piece since you mentioned it, George. We are reinvesting in certain areas of the business. The Brinta acquisition represents one of those reinvestments. We're investing in our AI roadmap and the internal transformation. So while we expect improved financial performance, that includes investments baked in for e-invoicing, compliance and AI, as well as efficiency gains from changing how we work inside the company.
To put a finer point on phasing: we expect roughly about $4 million of the benefit in Q2, then $4 million, $5 million and $6 million in subsequent quarters to take that implied $15 million uplift in adjusted EBITDA midpoint across the year.
Your next question will come from Joshua Reilly with Needham.
As you think about infusing more AI into your business, one area I was curious about is implementations. That's still a pretty time-consuming and complex process. How can you use more AI in the implementation process to unlock more of the TAM that's still in that kind of custom, homegrown solution area and hasn't wanted to shift because of complexity around making a change?
Joshua, thanks. The AI opportunity for implementations and across our services business is high. In our managed services organization, AI will help us unlock a lot of backlog because the human, process-oriented onboarding mechanism takes longer today. As we automate more of that, we'll move revenue through the pipeline more quickly. For implementations and consulting, there's many places to use AI to get more efficient. Think about the upfront work of gathering requirements and understanding system components of a very complex customer infrastructure — that's massively time-consuming. We can automate a lot of that upfront process using AI, compressing early meetings. Second, AI can prebuild much of the connector work required for ERP integration. We are building agents on ERPs themselves; we announced one for Microsoft and are working with other major ERP partners. Those agents allow a more front-loaded view of what's in the ERP system and how that flows into tax determination. These approaches will help customers get up and running faster across the tax engine, e-invoicing, or both.
Got it. Very helpful. And then just one quick financial question. How should we think about the conversion of EBITDA to free cash flow now following the value creation plan? There are obviously some moving parts with that. Is there going to be a quarterly impact with those costs as well?
From a free cash flow standpoint, we feel we're significantly improving our position because of the cost takeout and how that's going to relate. We feel good about the targets we've established. I mentioned earlier that we expect to convert closer to the 70% range we've put out there as a target. In the near term, we have costs to execute these transactions, but overall we're significantly improving EBITDA margin and free cash flow because the $65 million midpoint is true cash savings. That is a full-year run rate, so not all will impact this year, but you'll see improvement on margins as the year progresses.
Our next question will be audio only from the line of Patrick Walravens with Citizens.
I don't know why it's audio only. Sorry about that. So a few questions, Chris. Congratulations on the start here. So Vertex bought Ecosio in 2024. They made the investment in Kintsugi in 2025, and now you have Brinta in 2026. I spent a fair amount of time on this company, and I'm a little confused. If you could walk me through how those things are different, and maybe how the environment changed where those investments made sense, I think that would be really helpful.
Pat, thanks for the question. The way I think about it: Ecosio, acquired about two years ago, was to enter the e-invoicing market. We saw mandates coming, particularly in Europe, and that was complementary to our value-added tax calculation business. Ecosio was the foundation — they started as an EDI company and e-invoicing is an expression of that core use case: taking an invoice, submitting it to the government, getting a response back to prove compliance. Governments are moving toward near real-time access to transaction data to reduce the VAT gap, and that was our initial driver. Kintsugi is different. Our investment was partly to stay close to AI-driven start-ups in the market. Many new entrants target the lower-end SMB market. Kintsugi plays in that space and we have partnerships with them, such as with cpa.com and NetSuite where Kintsugi works with our tax determination engine to serve NetSuite customers. That investment was about keeping close to what's happening among start-ups in AI-driven tax solutions. Brinta is another step: as we talked to global customers, they asked for country coverage beyond Europe — Latin America, Mexico in particular. Brinta solves compliance for challenging environments like Mexico and Brazil with real-time reporting requirements, and they bring significant AI expertise and a talented team. So Brinta brings country coverage, technology, ecosystem expertise, and AI talent. All of these moves are complementary: Ecosio gave us e-invoicing capability in Europe, Kintsugi connected us to emerging AI-driven SMB solutions and partnerships, and Brinta expanded country coverage and advanced AI-native architecture for complex compliance environments.
Our next question will come from Brett Huff with Stephens.
Chris, I'll give you my congratulations, too, on getting off to a strong start. Thanks for the clarity and the pragmatism on getting after some of the efficiencies. Two quick questions. One is just a confirmation. Did you all say that the $65 million midpoint cash saves were already net of investment? Or should we haircut that by some amount to think about '27 EBITDA?
Yes, Brett, they're net of investments. That's already taken out.
And Chris, when we were talking before, you had talked about — you didn't give us a percentage, but in our minds, how much of whatever the gross are you now reinvesting? Do you have a sense of that yet?
We're still working through specifics, but we've earmarked a good portion. I would say we've earmarked more than 10% of the savings back to investing in the business. The key areas are e-invoicing and compliance — Brinta is an example. We've been increasing staff and technology investments in that space throughout the year, even prior to Brinta. Our AI roadmap is also a big piece; we're bringing in new people and resources to lean in on AI. The third piece is investments to become a more AI-first company internally, which should create more efficiency long term. It's not an immediate benefit, but it positions us so that as we enter 2027 and 2028, efficiencies flow through operations.
Great. Second question is on revenue. One of the things you've talked about is the cadence of AI new products. In my mind, it's probably building this year and starting to sell next year, but correct me if that's incorrect and give us a sense of how that cadence will come out and when you guys see some material gains.
Brett, that's an important question. Think of our AI product portfolio in three categories. First, AI used internally to make Vertex more efficient. Second, AI capabilities that enhance the existing Vertex product experience — copilots for configuration, tax rules and handling data updates. We shipped several new agents in the first quarter to make the product experience better. Third, AI solutions that unlock new addressable market opportunities by augmenting customer workflows — smart categorization is the first example. It reduces customer time spent on manual workflows around tax determination and compliance. Smart categorization is in production and customers are seeing real-time savings, moving entire catalogs through the system and increasing usage week over week. We'll ramp these commercial motions toward the end of this year and into 2027.
Our next question comes from Adam Hotchkiss with Goldman Sachs.
I'll ask Brett's question in a slightly different way. How should we think about AI and AI monetization within the context of the revenue targets you laid out today? Is there much baked in there? Or would material monetization of current and near-term products generally be upside? And how should we expect you to benchmark AI ROI for investors? Should we think about this through pricing power, aiding retention, or could you start to break out an AI ARR?
Adam, a few ways to think about this. Using AI internally we expect to get more efficient. From a product perspective, there are AI augmentations of existing products — copilots that improve customer experience, simplify configuration, and reduce time to value. Those are harder to quantify but improve competitiveness and customer satisfaction. The next category is solutions like smart categorization that augment customer workflows and reduce their manual effort. That's nascent but production usage is established and customers are seeing real savings. We're learning how to scale and attach these offerings with our go-to-market motion. Material monetization from AI-driven products is upside to the current guidance; much of what's in the guidance is based on the core business and e-invoicing ramp. Over time, as AI solutions scale and attach more broadly, we can better quantify revenue impact and how to present it to investors.
Okay. Great. That's helpful framing, Chris. And then, John, international revenue is a relatively smaller portion today, but you've got exposure to multinationals. I'd be curious how, if at all, macro dynamics in the Middle East have impacted actual deals or volume-related things like true-ups?
We have not seen a significant impact from developments in the Middle East on our business to date. It hasn't impacted true-ups or pipeline activity meaningfully. We'll keep everyone posted on any developments, but for now, we haven't seen a significant impact.
Our next question will come from Daniel Jester with BMO Capital Markets.
Maybe to go back to the 2028 prior targets and wrap up the conversation there. With the lowered growth rate you suggested today, can you help us think about software subscription growth rate and cloud subscription growth rate in the new framework on that longer-term perspective?
Our view of the low double-digit growth is in the 10% to 13% zone. We didn't pull out a specific long-term cloud target now. Our guidance for this year is 25% cloud growth. Over time, cloud growth will remain a meaningful part of overall growth but may soften as the base grows. We don't see services becoming an outsized portion of revenue over time. We'll continue to work with our partner community so services support the software side. I don't expect a material change in that mix in the target period.
Okay. That's helpful. On e-invoicing, one competitor has expanded by rolling up geographically diverse acquisitions. With the Latin America acquisition, do you feel you now have the geographic footprint needed for customers, or should we expect more tuck-ins to fully build out e-invoicing capabilities?
We feel we have adequate country coverage for our global multinational customers. The Latin America footprint was a key area to move quickly so we can comprehensively respond to RFPs. We cover Europe, Latin America and countries in Asia. Based on customer conversations, we're able to meet their needs. We feel strong about our technology footprint, our network, AI capabilities and country coverage. The compliance landscape is moving toward continuous compliance outside the U.S. today. If needed, we'll act further, but at this point we feel very good about our ability to help customers manage global mandates.
Our next question will come from Rob Oliver with Baird.
You guys have been busy in a short period of time. Excited to see the changes. Two questions. Chris, you talked about cloud revenue approaching 60% and the growth of cloud driven by e-invoicing and compliance. Historically, Vertex has been agnostic toward cloud versus on-prem. How important are contract renewals over the next year or two? Does conversion to cloud become more important if cloud availability of things like compliance and AI become central to the value proposition? And then I had a follow-up.
Rob, great question. From a new business perspective, we're focused on cloud — we want customers on a modern platform so we can deliver more value faster, including new features and AI experiences. New customers are coming on as cloud customers and many existing customers are adding cloud instances even if they keep on-prem for a time due to internal IT requirements. A large pharmaceutical customer that has been with Vertex for over 10 years is adding a cloud instance now rather than decommissioning on-prem immediately. The direction of travel is toward cloud for new capabilities and end-to-end workflows that solve broader compliance needs. We're meeting customers where they are, but the cloud direction is what we want.
Helpful. Second question: philosophically, the industry seems to be hovering around low double-digit growth. Is that the right place to think about growth for this industry, or as AI becomes more infused, could we see higher top-line growth for tax and tax-related AI businesses?
Think of it this way: the core calculation and determination business is probably in that low-double-digit territory. But compliance requirements are expanding — e-invoicing and compliance are important adjacencies because governments are asking for more real-time access to transaction data, which creates higher growth opportunities in global compliance and e-invoicing. As we help customers automate manual effort around compliance and tax, that can unlock more growth. We want to level-set on where we see things today based on the bulk of our business being determination, while maturing these other higher-growth businesses within the portfolio.
Our final question will come from Andrew DeGasperi with BNP Paribas.
Back to comments earlier: philosophically, since you came on board, has the focus shifted more toward profitability versus top-line growth, or is this really due to the macro environment and potential for top-line acceleration when the environment improves?
Andrew, there is absolutely top-line growth potential. As we mature our compliance and e-invoicing business, that will be additive to growth. As we unlock AI opportunities, that will also be additive longer term. What we're doing is aligning expectations with where the business is today while investing in those growth opportunities. My focus has been to grow as fast as we can in the core, augment with new businesses so they become meaningful contributors, and be more efficient in spending so we can invest more in growth areas. That's why we made changes to the cost structure: to drive incremental value for investors and to free up resources to invest and go faster.
That's helpful. John, on the back half of the year, mathematically, if the cloud business accelerates relative to the first half and you delivered 11% top-line in Q1 with guidance for Q2 in the high single digits, should we still expect top-line acceleration in the back half of the year? The guidance for the year doesn't necessarily imply that, so do you feel confident about acceleration in the back half?
We do feel good about the 25% full year cloud growth target. We have line of sight: e-invoicing mandates ramping in France mid-year, Belgium for the full year, and Germany opportunities. There's a lot of activity focused on e-invoicing and that will drive cloud revenue in the back half, along with general improvements in retention and operations.
There are no more questions at this time. I'd now like to turn the call back over to Joe Crivelli for closing remarks.
Thanks, everybody, for joining us this morning. As always, if you have follow-up questions or if you'd like to schedule more time with the team, you can reach out to me at investors@vertexinc.com. With that, we'll adjourn. Thanks for joining us, and have a great rest of your day.