Vertex(US:VERX)2024-11-06 15:12Financial Data and Key Metrics Changes - Vertex reported revenue of $170.4 million in Q3 2024, representing a 17.5% year-over-year increase [10][34] - Adjusted EBITDA was $38.6 million, reflecting a 45.1% year-over-year increase and an adjusted EBITDA margin of 22.7% [11][42] - GAAP net income was $7.2 million, or $0.04 per diluted share [11] - Free cash flow for the quarter was $18.4 million, with a trailing 12-month free cash flow margin of 13.8% [43][44] Business Line Data and Key Metrics Changes - Software subscription revenue grew by 20.6% to $146.3 million, while services revenue increased by 1.8% to $24.2 million [36] - Cloud revenue reached $71 million, up 29.9% year-over-year, with ecosio contributing approximately $1 million to this growth [10][37] - Annual recurring revenue (ARR) was $576.8 million, with ecosio adding $8.1 million and Systax adding $5.9 million [37] Market Data and Key Metrics Changes - Net revenue retention (NRR) was 111%, up from 110% in the previous quarter, while gross revenue retention (GRR) remained at 95% [12][38] - Average annual revenue per customer (AARPC) for Vertex standalone was $132,422, up 17.5% year-over-year [38] Company Strategy and Development Direction - The acquisition of ecosio is expected to enhance Vertex's offerings in e-invoicing and indirect tax solutions, particularly in international markets [6][7] - Vertex aims to leverage its extensive tax content database to address the complexities of indirect taxes, which are critical for enterprises [15][16] - The company anticipates a super cycle of ERP conversions and a wave of e-invoicing regulations to drive future growth [17][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's position as a market leader and highlighted the importance of maintaining strong customer relationships [48][49] - The regulatory pressures and the upcoming ERP migration projects are expected to continue driving demand for Vertex's solutions [54][60] - Management noted that the company is well-prepared for upcoming e-invoicing mandates in countries like France and Germany [56] Other Important Information - Vertex's strong customer engagement was demonstrated through record attendance at customer events and positive feedback on new AI capabilities [8][9] - The company has over $279 million in unrestricted cash and cash equivalents, providing a solid liquidity position [44] Q&A Session Summary Question: Can you characterize the current set of ERP migration projects driving your business? - Management noted that visibility into good activity for Q3 and Q4 was raised due to ongoing ERP migration programs, particularly with Oracle and SAP [54] Question: Are there specific countries enacting e-invoicing mandates in 2025? - Management highlighted that France and Germany are in the queue for e-invoicing mandates, and Vertex is actively preparing for these changes [56] Question: How do you expect the SAP migration cycle to play out? - Management indicated that while the migration cycle has been slower than expected, there is potential for increased demand as more companies begin their transitions [58][59] Question: What is the impact of the partner ecosystem beyond SAP and Oracle? - Management reported solid activity with partners like Microsoft, Workday, and Shopify, indicating a broadening of the partner ecosystem [61] Question: How long does it typically take for Vertex to be brought into ERP migration projects? - Management explained that tax considerations typically lag a few quarters behind the initial migration decisions, but Vertex is involved early in the process [66] Question: What are the early use cases for AI technology? - Management discussed the development of smart categorization tools to help customers manage tax categories effectively, minimizing audit risks [70] Question: What percentage of customers will be impacted by e-invoicing rules? - Management stated that most multinational customers will be affected, especially as larger economies adopt e-invoicing mandates [75] Question: What are the assumptions for ecosio's revenue in 2025? - Management indicated that the initial guidance assumes ecosio will run at its normal pace with minimal synergy activity in the first year [95]