Vertex(US:VERX)2023-11-09 15:51Financial Data and Key Metrics Changes - Revenue in Q3 2023 was $145 million, up 15% year-over-year [5][40] - Adjusted EBITDA was $26.6 million, a 30% increase compared to the same quarter last year, resulting in an EBITDA margin of 18.4% [5][46] - Average annual revenue per customer (AARPC) increased to nearly $113,000, up 16% year-over-year [6][41] - Non-GAAP gross profit for Q3 was $103.4 million, representing a gross margin of 71.3%, compared to 69.4% in the same period last year [42] Business Line Data and Key Metrics Changes - Subscription revenues increased by 14% to $121.3 million, while services revenues grew by 19.5% to $23.7 million [40] - Cloud revenue was $54.6 million, up 24.8% from the previous year [40] - Annual recurring revenue (ARR) grew by 17.8% year-over-year, with net revenue retention (NRR) at 111% and gross revenue retention (GRR) at 96% [41] Market Data and Key Metrics Changes - The company has seen nearly a five-fold increase in leads from the SAP channel in North America in 2023, indicating strong market traction [19] - The European market has been developed significantly since 2020, with a fully fleshed-out go-to-market team and a notable presence among enterprise customers [27] Company Strategy and Development Direction - Vertex aims to reach $1 billion in revenue by leveraging investments made in R&D and strategic acquisitions [7][8] - The company is focusing on enhancing its go-to-market channels and expanding its capabilities in the SAP ecosystem, which is expected to provide a multiyear tailwind [10][11] - Vertex is also investing in artificial intelligence and generative AI to optimize workflows and improve customer experiences [37][38] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's position, noting that tax compliance is essential for enterprise customers, making Vertex's solutions "must-have" [49] - The company anticipates continued strong performance driven by business model changes, regulatory complexities, and ongoing digital transformations [62] Other Important Information - Vertex has formed a partnership with Shopify, becoming the first global tax technology provider in their Tax Partner program, which is expected to open new market opportunities [34][65] - The company has also announced a partnership with Pagero to enhance its e-invoicing capabilities, addressing a growing need among multinational customers [32][74] Q&A Session Summary Question: What is the contribution of the SAP partnership to new customer additions? - Management indicated that the SAP partnership has been a strong tailwind, improving the pipeline and execution across various ecosystems [52] Question: Is the strong NRR sustainable? - Management noted that the investment in customer success functions and new product suites has positively impacted NRR, although they do not provide specific guidance on it [56] Question: What are the drivers behind customers increasing their entitlements? - Management explained that customers are expanding their use of Vertex solutions across different divisions, leading to increased annual charges as they move through pricing tiers [83][84] Question: How does the Shopify partnership change the customer base strategy? - Management highlighted that the partnership aligns with Shopify's strategy to move upmarket, providing opportunities to serve both mid-market and enterprise customers [65] Question: What is the outlook for cash flow and EBITDA conversion? - Management expects to return to a free cash flow conversion rate of about 70% from EBITDA as they move through investment cycles [75]