Vertex(US:VERX)2025-05-07 13:30Financial Data and Key Metrics Changes - In the first quarter, revenue was $177.1 million, up 12.9% year over year, with subscription revenue growing 14.4% and cloud revenue increasing 29.6% [5][21] - Adjusted EBITDA was $37.2 million, representing an EBITDA margin of 21.3%, which was above the high end of the guidance range for the quarter [5][26] - Annual recurring revenue (ARR) grew 17.9% to $618.5 million, with net recurring revenue (NRR) remaining strong at 109% [5][22] Business Line Data and Key Metrics Changes - Subscription revenue increased to $150.8 million, while services revenue grew 5.4% to $26.3 million [22] - Cloud revenue was $80.2 million, up 29.6% from the previous year, with Ecosio contributing approximately 3.5 points to cloud revenue growth [22] - Average annual revenue per customer for Vertex standalone increased 16% year over year to $141,000, with a 15% growth in scaled customer count [6][22] Market Data and Key Metrics Changes - Gross recurring revenue (GRR) was 95%, within the targeted best-in-class range of 94% to 96% [6] - The company noted that the proliferation of e-invoicing mandates globally is expected to be a significant tailwind for the business in the coming years [6][19] Company Strategy and Development Direction - The company announced an equity investment in Kintsugi, a startup focused on applying AI technology to indirect tax in the small business sector, indicating a strategic move towards AI integration [4][14] - The company aims to provide a single solution that combines VAT compliance and e-invoicing, which is expected to be a game changer for companies facing e-invoicing mandates [6][7] - The ongoing cloud migration cycle and business changes from mergers and acquisitions are seen as persistent tailwinds for growth [19][20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the balance of 2025, noting no signs of a change in buyer behavior or a slowdown in indirect tax momentum [30] - The company highlighted that it has never experienced a year-over-year revenue decrease, even during recessionary periods, due to the consistent demand for automated tax solutions [17][20] - The management emphasized the importance of maintaining a strong pipeline and monitoring it closely as the year progresses [20] Other Important Information - The company ended the first quarter with over $270.4 million in unrestricted cash and cash equivalents, along with $300 million of unused availability under its line of credit [27] - For the second quarter of 2025, the company expects total revenue in the range of $182 million to $187 million, representing 14.5% year-over-year growth at the midpoint [28][29] Q&A Session Summary Question: What is driving larger customers to migrate to packaged software solutions? - Management noted that the increasing complexity of e-invoicing and audit pressures are prompting customers to seek more sustainable solutions [35][36] Question: Why did direct customers decline sequentially? - The decline was attributed to lower-end customers migrating away, while the focus remains on scaled customers, which grew by about 15% [38][39] Question: What is the impact of macroeconomic conditions on buyer behavior? - Management indicated that there has been no change in buyer behavior, and indirect tax discussions are becoming more strategic as companies move to the cloud [43][44] Question: How applicable is Kintsugi's technology to the Vertex tax business? - Kintsugi's technology is seen as a potential fit for small and mid-sized businesses, and there are opportunities to apply elements of their technology to Vertex's offerings [46][47] Question: What is Vertex's position on tariff-related products? - Vertex does not focus on tariff solutions as it is primarily an indirect tax provider, but discussions around supply chain changes have led to increased interest in e-invoicing and compliance [51][52] Question: How has the Ecosio product's general availability performed? - The general availability of the Ecosio product has been positive, with strong scalability in transaction processing being a key differentiator [55][56] Question: How is the competitive environment in e-invoicing compared to indirect tax? - Vertex differentiates itself by offering both e-invoicing and VAT compliance, which many competitors do not provide [70][71] Question: What is the outlook for new logo growth? - New logo growth has been diverse across key ecosystems, with a focus on enterprise customers, particularly in the SAP and Oracle ecosystems [78][80]