Vertex(US:VERX)2023-05-14 13:57Financial Data and Key Metrics Changes - Total revenue for Q1 2023 grew 15.5% year-over-year to $132.8 million, reaching the upper end of quarterly guidance [23] - Annual recurring revenue (ARR) was $446.5 million, up 17.3% year-over-year and 14.3% on an annualized sequential basis [24] - Adjusted EBITDA was $20.2 million, an increase of $1.1 million year-over-year [30] - Gross profit for Q1 was $95.3 million with a gross margin of 71.8%, compared to 70.2% in the same period last year [26] Business Line Data and Key Metrics Changes - Subscription revenues increased 14.3% to $111 million, while average services revenues grew 21.8% to $21.7 million [23] - The managed services business generated recurring service revenues of $7.4 million, up from $6 million in the prior year [25] - Cloud revenue was $48.2 million, up 26% from last year [26] Market Data and Key Metrics Changes - The company reported strong performance in the enterprise market, with a focus on partnerships with Microsoft, Workday, and Salesforce [10] - The services business showed steady growth, reflecting ongoing investments in tax technology by businesses [11] Company Strategy and Development Direction - The company is executing a multi-year growth strategy with focused investments in R&D, go-to-market, customer success, and corporate infrastructure [7] - There is optimism about earning leverage in the second half of 2023 as investments begin to taper off [7] - The company is leveraging intelligent automation to monitor tax code changes and streamline workflows [21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing demand for tax transformation solutions due to increasing compliance requirements and audit pressures [8] - The regulatory environment is becoming more complex, which aligns with the company's strategy to provide comprehensive tax solutions [60] - The outlook for the remainder of 2023 is positive, with expectations for revenue and earnings growth [35] Other Important Information - The company ended Q1 with over $68.6 million in unrestricted cash and cash equivalents, and total bank debt was $48.6 million [32] - Guidance for Q2 2023 expects total revenue in the range of $135 million to $137 million, representing 14% year-over-year growth at the midpoint [33] Q&A Session Summary Question: Growth in indirect customer base - Management noted that indirect customers are coming through partners, which helps market to mid-market and downsized customers [39] Question: Performance in international markets - Management reported strong performance in Europe, with a record attendance at their European customer conference and confidence in pipeline activity [40] Question: Progress with large technology partners - Management highlighted strong partnerships with Microsoft, Salesforce, and Workday, which are driving competitive differentiation [43] Question: Demand for managed services - Management indicated that demand is driven by the complexity of tax management and the need for efficiency in tax departments [46] Question: European marketplace laws enforcement - Management confirmed a shift in activity due to increased enforcement of marketplace laws, creating incremental opportunities [50] Question: Gross margin outlook - Management expects continued leverage in gross margin as product and cloud opportunities grow [52] Question: Inorganic growth opportunities - Management is exploring opportunities but remains cautious about valuations in the current environment [54] Question: Customers' willingness to undertake ERP projects - Management has not observed a significant change in momentum for ERP projects despite financial sector challenges [72] Question: Pricing dynamics - Management indicated that pricing increases are being implemented to address inflation and are expected to have a modest impact on revenue [78]