Vertex, Inc.

Good morning and welcome to the Vertex's fourth quarter and full year 2020 conference call. As a reminder, today's call is being recorded and your participation implies consent to such recording. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. With that, I would like to turn the call over to Ankit Hira, Investor Relations. Thank you, sir. Please begin.

Thank you. Good morning, everyone. And thank you for joining us for Vertex's Financial Results Conference call for the fourth quarter and full year ending December 31st, 2020. On the call today, we have Vertex CEO David DiStefano and CFO John Schwab. Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including the Q&A portion of the call, may include forward-looking statements related to the expected future results for our company and therefore forward-looking statements. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward-looking statements are subject to are described in our earnings release and other SEC filings. Today's remarks will also include references to non-GAAP financial measures. Additional information including reconciliation between non-GAAP financial information to the GAAP financial information is provided in the press release. This conference call will be available for replay via webcast through Vertex's Investor Relations website at ir.vertexinc.com. David will begin with an overview of Vertex, followed by our fourth quarter and four-year highlights. John will then take you through a review of the financials before we proceed to Q&A. With that, I'll now turn the call over to David.

Thanks, Ankit, and thanks, everyone, for joining us on the call today. This year was remarkable in many ways, and we continue to see the pace of change in the global business, technology, and regulatory environments creating entirely new complexities and challenges in managing indirect tax. We believe our solutions will play an essential role as companies adapt their business models to support revenue growth through e-commerce platforms and marketplaces, drive resiliency in their global supply chains, and accelerate their move to the cloud. We are very pleased with our fourth quarter results as we close out the year. We continue to deliver strong fiscal year performance, which reflects the durability of our business, the strength of our customer and partner relationships, and our focus on driving sustainable, profitable growth. We grew our total revenues by 16.5% for the full year to $374.7 million, and our adjusted EBITDA was up 15.5% year over year. We ended 2020 with annual recurring revenue per customer of over $78,000, up from $65,000 at the end of 2019. Our performance was driven by the outstanding efforts of our Vertex team and partners around the world, whose dedication and focus to our customers during these extraordinary times was on full display every day. We are pleased with the continued growth of our cloud business For the full year, we grew our cloud revenues by 65% over 2019. And in Q4, we saw cloud revenue growth of 70% compared to 54% in Q3. We believe the pandemic may have accelerated the migration of customers' infrastructure and applications to the cloud, leading to increased adoption of our cloud solutions among our existing customers. Among our new logos, the vast majority of wins where cloud deals, especially in the middle market, where tax complexity continues to increase. Going forward, as we estimate our cloud-based subscription revenues to exceed $100 million in revenue in 2021, we expect a more normalized growth rate of 35% plus for the year. Our fourth quarter results also demonstrate that we continue to expand our revenues among large global multinational customers who, while they continue to move many of their applications to the cloud, still want to keep their order-to-cash applications behind the firewall, especially outside of the United States. We believe our hybrid approach to serving both cloud and on-premise customer needs gives us a differentiated competitive advantage going forward as we pursue our addressable market globally. Now I'd like to share some notable highlights from the fourth quarter. First, I'd like to start with our progress outside of the United States, which as I have discussed, remains a key vector of growth for us going forward. We continue to see increased demand for our solutions in both Europe and Brazil, where businesses face significant regulatory change and tax complexity. We continue to invest in these regions to further capitalize on emerging growth opportunities. In Q4, We had a strategic win with the world's largest industrial manufacturing company. They looked to us for an end-to-end solution for indirect tax management as part of their global SAP S4 HANA implementation. This win speaks to the differentiated value of our end-to-end capabilities, our strong relationships with global technology and accounting partners. This customer is a good example of challenges many multinational organizations face when they move their infrastructure to the cloud. They want to leverage the cloud as much as possible, but for either specific business or IT reasons, they want to keep their order-to-cash process behind the firewall. Without an on-premise option, this customer would have continued using native functionality and internal workarounds. In choosing Vertex, they can address their tax complexities today and have the confidence that we have an enterprise scaled cloud solution when they are ready to migrate. This customer is also implementing our chain flow accelerator for SAP, which we just released in the fourth quarter. As global enterprises continue to build resilient and dynamic supply chains, the cross-border shipping and moving of goods has significantly increased that compliance complexity and risk. We developed the chain flow accelerator to help companies address this challenge. This solution combines intelligent data visualization and data mapping within the SAP user interface to streamline the management of that complex scenarios associated with cross-border supply chain transactions without manual effort or modifications. This win is also notable because it leveraged our strong relationships with the tax technology advisory practices of the major accounting firms in both the US and Europe to coordinate a truly global solution. These partners are a natural extension of our go-to-market motion, and we've closed a number of large deals this quarter and throughout the fiscal year due to the strength of these relationships. Another Q4 highlight is in Brazil, where we've expanded our content database to serve the global breadth and depth required by our multinational customers doing business in one of the most complex tax environments in the world. Our investment in Systax in 2020 has enabled us to deliver new and expanded tax content for some of the biggest companies on the planet. In Q3, we helped one of these companies expand into new states in Brazil, requiring additional content for tax compliance there. In the fourth quarter, we helped them expand even further by supporting five additional states in the country. I'm encouraged by the performance of our global teams and the significant opportunities we have ahead of us in those regions to support our global customers. In Q4, we also continue to broaden and deepen our global technology, channel, and partner ecosystem to strengthen our solutions and extend our go-to-market reach. We expanded our Salesforce integrations supporting their lightning B2B commerce and order management applications. We also added a number of new Microsoft Gold partners in the quarter. I'm excited about the investments we are making in these areas going forward as tax complexity continues to move into the front office, CRM, e-commerce, and procurement systems of today's global businesses. We also continue to build on our longstanding partnerships with SAP and Oracle. In particular, our cloud-to-cloud integrations and support for SAP S4 HANA, Oracle ERP Cloud, and Cloud Infrastructure. In Q4, we worked with an SAP Platinum partner who was implementing S4 HANA private cloud for a rapidly growing global healthcare company focused on innovative therapies. They chose us because of our ability to provide strong SAP tax integration with enterprise-scale capabilities for U.S. and global tax. We continue to see increased demand through our Oracle Cloud Infrastructure Partnership with prospects and customers, with several Q4 wins attributed to the benefits of our cloud-to-cloud solution. And we continue to build industry-specific content and partner relationships to support key verticals. We expanded our partner ecosystem in the fourth quarter with a global leader in the leasing industry, where managing tax continues to be highly complex, particularly with consumers and seller use tax. New logo acquisition remains strong in the fourth quarter among both enterprise and mid-market customers as growing tax complexity exceeds the capabilities of their native ERP or homegrown systems. This was the case with one of the world's largest quick service restaurant companies who chose our solutions as part of their global point-of-sale rollout. We're also enabling an online delivery service provider to scale tax automation within their payment processing systems to support the rapid growth of their business in the pandemic. And we signed a premier healthcare network in the U.S. because of the cloud-to-cloud integration with our solutions and their workday implementation. Average ARR among just our new logos grew to nearly 59,000 in 2020 versus 53,000 in 2019's demonstrating the continued market opportunity and value of our solutions in the enterprise and mid-market segments. Finally, our performance in the quarter was also driven by expanding our revenues from existing customers. As our customers expand globally, accelerate their omnichannel strategies, and adopt best-of-breed front office applications, we grow with them. In Q4, we expanded our revenues with a number of customers whose e-commerce growth has rapidly increased with the digital economy and in response to the pandemic, including a luxury fashion brand, an online food delivery service company, and one of America's largest sporting good retailers. We continue to see our customers migrating to the cloud as their business needs change, including a large specialty service provider and one of our longtime telecom customers. We believe this reflects the strength of our brand and our customers' confidence in us to support their hybrid IT environments now and in the future as they evolve. I'm so proud of what we accomplished in 2020 and our ability to effectively balance profitable growth with strategic investments in our technology and go-to-market scale. And I'm equally encouraged by what we've already accomplished in the first quarter of 2021. In January, we acquired Telutax Edge Technologies, which we believe represents the future of indirect tax technology. Its container architecture enables customers to deliver tax solutions seamlessly at what we call the point of need, wherever transactions are conducted, like mobile applications or connected device, and do this with tremendous scale and simplified management. We believe this acquisition can also enable us to extend our global capabilities into adjacent markets like next generation payment and IoT platforms for a truly connected commerce experience. The teams are actively working to integrate this technology into our solution roadmaps. In February, we announced that Sal Visca had joined our team as Chief Technology Officer. Sal is a recognized innovator and leader of global technology teams in e-commerce, business intelligence, and enterprise management software. I'm so excited about the strategic value and creative thinking that he brings to Vertex. In closing, our Q4 and full year results reflect the enduring strength of our business. The experience and brand we have built over the past 40 years remains an essential ingredient to our success. Despite the unique challenges of 2020, Our business growth validates our strategies and the global market opportunity that exists for us in 2021 and beyond. We are investing in the talent, technology, and partnerships needed to advance our vision to accelerate global commerce, and our team remains resilient and committed to our success and our customer. With that, I now turn it over to John to discuss our full year results and outlook for 2021.