Vertex, Inc. Q3 FY2024 earnings call

• Vertex delivered strong financial results in Q3 2024, including revenue growth, adjusted EBITDA, and free cash flow. • Completed acquisition of ecosio, a fast-growing EDI and e-invoicing company in Austria, which will boost growth in international markets. • Previewed new AI capabilities like Copilot and smart categorization at customer events. • Had record customer and partner attendance at annual conference, highlighted enhancements to support and partner enablement programs. • Notable wins included new logos with a major electric vehicle manufacturer, a large fast food restaurant chain, and European companies, as well as expansions with existing customers. • NRR was 111%, GRR was 95%, ARR was $563 million, up 16.1% YOY, and cloud revenue growth was 28.5%.

In the third quarter of 2024, Vertex's revenue was $170.4 million, up 17.5% year-over-year. Subscription revenue increased 20.6% period-over-period to $146.3 million. Services revenue grew 1.8% to $24.2 million. Cloud revenue was $71 million, up 29.9% from the third quarter of the previous year. Ecosio contributed $1 million to revenue during the quarter. Annual recurring revenue (ARR) was $576.8 million at quarter end. Net revenue retention (NRR) was 111%, gross revenue retention (GRR) was 95%, and average annual revenue per customer (AARPC) for Vertex standalone was $132,422, up 17.5% from the third quarter of the previous year.

• Fourth quarter 2024 total revenue expected in the range of $175 million to $178 million, with ecosio contributing approximately $3 million. Adjusted EBITDA expected $33 million to $37 million. • Full year 2024 total revenue expected $663.3 million to $666.3 million, representing 16.1% growth at midpoint. Adjusted EBITDA expected $146.8 million to $150.8 million, with a full year adjusted EBITDA margin of 22.4%. Full year cloud revenue growth expected 28%. • ecosio's 12-month revenue for 2025 expected approximately $16 million, and expected to be dilutive to adjusted EBITDA by $3 million to $4 million per quarter through 2025.

• Regulatory changes and audit pressure could impact business operations. • Integration of acquisitions like ecosio may face challenges affecting financial performance. • Dependence on key customers and the impact of their business changes on Vertex's revenue.

Q: How to characterize current ERP migration projects vs a few years ago and acceleration in leads?

A: David DeStefano said activity from Oracle, OCI, and SAP migration programs continues to drive success, and regulatory pressures globally continue to drive demand.

Q: Any specific countries for e-invoicing mandates in 2025 and urgency?

A: David DeStefano said France and Germany are in the queue, and go-to-market activity is full force starting Q1 2025.

Q: Follow-up on SAP ecosystem migration timing and impact?

A: David DeStefano said migration cycle has some delay with large enterprises taking longer, but there's runway for growth in 2025 and beyond.

Q: AI use cases and ROI in Vertex?

A: David DeStefano said smart categorization for indirect tax departments to stay current and minimize audit risk is a key use case with good ROI.

Q: Invoicing opportunity impact on RFPs?

A: David DeStefano said e-invoicing is creating a new dynamic where customers see value in unified platforms integrating tax determination, invoicing, and compliance.