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Vertex Inc (VERX) Q1 2024 Earnings Call Transcript Highlights: Robust Growth and Strategic Insights

GuruFocus Research
·4-min read

  • Total Revenue: $156.8 million, up 18.1% year-over-year.

  • Subscription Revenue: $131.8 million, increased by 18.8%.

  • Cloud Revenue: $61.8 million, a 28.3% increase year-over-year.

  • Services Revenue: $25 million, grew by 14.8%.

  • Adjusted EBITDA: $36.5 million, representing 23.3% of revenue, up 80% from last year.

  • Free Cash Flow: Positive $4.5 million, improved from negative $10.6 million last year.

  • Annual Recurring Revenue (ARR): $525 million, up 17.5% year-over-year.

  • Net Revenue Retention (NRR): 112%, increased by two percentage points from last year.

  • Gross Revenue Retention (GRR): 95%, within the targeted range of 94% to 96%.

  • Average Annual Revenue per Customer (ARPC): $121,720, up 17% year-over-year.

Release Date: May 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Vertex Inc (NASDAQ:VERX) exceeded the high end of financial guidance for revenue and adjusted EBITDA in Q1 2024.

  • Total revenue increased by 18.1% and software subscription growth was 18.8% in the first quarter.

  • Cloud revenue growth reached 28.3%, slightly ahead of the target for the full year.

  • Adjusted EBITDA was $36.5 million, up 80% from the previous year's first quarter.

  • Vertex Inc (NASDAQ:VERX) delivered positive free cash flow in Q1, which is typically the lowest quarter for cash production.

Negative Points

  • Despite positive results, the company faces ongoing challenges in integrating multiple systems for new clients due to complex environments.

  • The company's gross revenue retention (GRR) was at the lower end of the targeted range (94% to 96%).

  • There are uncertainties in the regulatory environment that could impact future performance.

  • The company is still evaluating its options and developing partnerships in the e-invoicing space, indicating potential instability or lack of a definitive strategy.

  • Vertex Inc (NASDAQ:VERX) is dependent on the continuation of ERP migrations, such as SAP's ECC support phase-out, which could affect long-term sustainability if delayed or altered.

Q & A Highlights

Q: Can you discuss the pipeline conversion rates within the B channel, especially in light of SAP's recent push for migrations? A: David DeStefano, CEO of Vertex Inc, explained that larger companies typically initiate migrations first due to their complex ERP needs, with smaller companies delaying as long as possible. This results in a surge of activity closer to deadline, a pattern that is currently unfolding.

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Q: How should we think about free cash flow conversion for the rest of the year, considering Q1 is usually low? A: John Schwab, CFO of Vertex Inc, mentioned that while the company aims to return to a cash flow conversion rate of 65-70% of adjusted EBITDA, it will take some time. The first quarter showed positive signs, and they expect this trend to continue, improving over the next few years.

Q: Could you compare the current pipeline and visibility to previous periods to gauge confidence in 2024? A: David DeStefano highlighted the solid pipeline and progress in markets like Microsoft and European-focused platforms, which boosts confidence for the remainder of the year. The strong performance in the SAP and Oracle segments also contributes to this positive outlook.

Q: Can you provide an update on how new products are contributing to net new customer growth and competitive wins? A: David DeStefano noted that new products follow a typical adoption curve, requiring early adopters and referenceability before seeing significant uptake. Products released in the past 12-18 months are on this trajectory, and the customer success organization has significantly contributed to recent net revenue retention improvements.

Q: How are you thinking about inorganic growth opportunities, particularly in areas like e-invoicing? A: David DeStefano stated that Vertex Inc is strategically and disciplined in exploring inorganic growth opportunities, especially in e-invoicing. The company is actively engaging in partnership discussions to enhance their solutions in this area.

Q: What is driving the acceleration in revenue from on-prem solutions, and how does this align with your cloud-first strategy? A: David DeStefano clarified that while Vertex leads with a cloud-first approach, there remains significant demand for on-prem solutions, especially among large, long-term customers. The company continues to support on-prem solutions robustly, which remains a competitive differentiator.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.