Vertex, Inc. Q4 FY2024 earnings call

• Vertex's strong execution continued in Q4, with revenue and adjusted EBITDA growth.
• Cloud revenue exceeded on-premise for the first time.
• ARR, NRR, and GRR metrics were highlighted.
• Average annual revenue per customer and scaled customer count grew.
• Record new logo additions from expanded ecosystem efforts.
• E-invoicing solution gaining traction, with general availability announced and investment acceleration.
• Competitive wins in various regions and industries, including with AI research pioneer, energy utility, and cybersecurity training company.
• Up-sell and cross-sell wins with existing customers, such as a global fashion brand and specialty chemical manufacturer.

In the fourth quarter, Vertex delivered revenue of $178.5 million, up 15.2% year-over-year. Adjusted EBITDA was $38.1 million, up 21.3% YOY. ARR grew nearly 18% to $603.1 million. Cloud revenue growth for the full year was 28.6% and exceeded on-premise revenue for the first time. NRR was 109% (lower than recent quarters due to tough comp but expected to rebound above 110% in 2025). Average annual revenue per customer for Vertex standalone increased 14.8% YOY to $136,000. Scaled customer count grew 15% YOY. Fourth quarter GRR was 95% within targeted range of 94%-96%.

• For full year 2025, total revenue expected in range of $760 million to $768 million (14.6% growth at midpoint), adjusted EBITDA $161 million to $165 million (21.3% margin), cloud revenue growth 28%.
• Q1 2025 total revenue expected $175 million to $178 million, adjusted EBITDA $33 million to $36 million.
• Accelerated e-invoicing investments to $16 million to $20 million full year, and incremental R&D investments of $10 million to $12 million across major initiatives.

• Indirect tax regulatory environment is increasingly complex with new sources of revenue.
• Macro environment impacts, but Vertex's focus on indirect tax compliance minimizes risk from changes in U.S. federal income tax system.

Q: Rob Oliver asked about ERP migrations and pipelines, specifically SAP's impact.

A: David DeStefano stated strong relationships with Oracle and SAP, no slowdown in SAP activity, and SAP's 2033 opportunity providing tailwind.

Q: Rob Oliver followed with margin questions.

A: John Schwab said margins benefited from true-ups, and strategy is to minimize services growth for durable ARR growth.

Q: Chris Quintero asked about gross margins and services.

A: John Schwab discussed margin leverage and David DeStefano mentioned flat services growth for customer experience.

Q: Joshua Reilly asked about AI investments.

A: David DeStefano said smart categorization will be in market, with AI investment focused on external customer opportunities.

Q: Samad Samana asked about ecosio and AI.

A: John Schwab said majority AI investment is external product-focused, and David DeStefano mentioned smart categorization as commercial offering.

Q: Steve Enders asked about AI and pipeline.

A: David DeStefano discussed AI's role in workflow and ecosystem, and confidence in pipeline for growth.

Q: Daniel Jester asked about ecosio and new logos.

A: John Schwab said majority ecosio spend is product-related, and David DeStefano mentioned broadening ecosystem relationships driving new logos.

Q: Jacob Roberge asked about ecosio geography and demand.

A: David DeStefano discussed focusing on greenfield and high activity jurisdictions, and John Schwab on visibility and processes for true-ups.

Q: Alex Sklar asked about competitive takeaways and migration.

A: David DeStefano said it was on-premise replacement with cloud potential, and win rates due to flexibility.

Q: Patrick Walravens asked about salesforce and e-invoicing coverage.

A: David DeStefano mentioned confident sales team and acceleration in e-invoicing coverage.

Q: William Jellison asked about AARPC and investments.

A: David DeStefano said investments drive AARPC growth.

Q: Adam Hotchkiss asked about adoption curve and NRR.

A: David DeStefano discussed linear vs S-Curve, and John Schwab on NRR mix components.