Vertex(US:VERX)2024-02-29 16:52Financial Data and Key Metrics Changes - Revenue in Q4 2023 was $154.9 million, an increase of 18.1% year-over-year, exceeding guidance by $7.9 million [6][28] - Adjusted EBITDA was $32 million, up over 52% compared to Q4 2022, with an EBITDA margin of 20.7%, the highest in over three years [6][34] - Annual Recurring Revenue (ARR) exceeded $500 million for the first time, growing nearly 19% to $512.5 million [6][30] - Net Revenue Retention (NRR) reached a record 113%, up from 110% in the previous year [6][30] - Average Annual Revenue per Customer (AARPC) increased 19% year-over-year to nearly $119,000 [6][30] Business Line Data and Key Metrics Changes - Subscription revenue in Q4 increased 17.9% year-over-year to $130.7 million, while full-year subscription revenue was $480.8 million, up 15.7% [29] - Services revenue grew 19.7% year-over-year to $24.2 million in Q4, with full-year services revenue at $91.6 million, up 20.2% [29] - Cloud revenue was $60.6 million in Q4, up 29.9% year-over-year, with full-year cloud revenue at $214.6 million, up 27.1% [29] Market Data and Key Metrics Changes - Growth in scaled customer count was 13% year-over-year, indicating success in the enterprise market [7] - Gross Revenue Retention (GRR) was 95% in Q4, within the target range of 94% to 96% [7][30] - The company noted a record high in U.S. sales tax rate changes in 2023, indicating a complex regulatory environment [21] Company Strategy and Development Direction - The company launched a strategic investment program in 2020 aimed at accelerating global commerce and targeting $1 billion in revenue [8] - Continued focus on enhancing partnerships with major players like Oracle, SAP, Microsoft, and Salesforce to drive growth [8][19] - The company is confident in the growth potential driven by ongoing digital transformations and regulatory pressures [12][25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning for consistent execution in the coming years, citing strong performance in 2023 [13][28] - The company anticipates continued growth driven by regulatory pressures and digital transformation initiatives [12][25] - Management highlighted the importance of customer success teams and strategic partnerships in driving revenue growth [9][19] Other Important Information - The company completed several technology and tax content-focused acquisitions to support growth [9] - Free cash flow for the full year was $6.1 million, compared to $3.4 million in the previous year [35] - The company ended Q4 with over $68.2 million in unrestricted cash and cash equivalents [35] Q&A Session Summary Question: Key needle movers from the investment cycle - Management identified investments in the partner ecosystem and customer success function as key drivers of growth [41] Question: Confidence in cloud growth guidance - Management cited regulatory pressure and ongoing digital transformations as reasons for confidence in the 28% cloud growth guidance [42][43] Question: E-invoicing and Pagero partnership - Management confirmed that there are other potential partnerships and acquisition options beyond Pagero [45][46] Question: Future appetite for M&A - Management indicated a willingness to pursue M&A opportunities that align with long-term strategy and customer needs [75][77] Question: Impact of true-ups on ARR - Management explained that true-ups impact revenue for prior periods but typically lead to higher future ARR due to customer renewals at higher tiers [78] Question: Cloud business impact on gross margin - Management noted that while cloud margins are currently lower than on-prem margins, they expect margins to improve as cloud adoption increases [80]