Vertex, Inc.

Greetings and welcome to the Vertex, Inc. Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host and Kit Hira, Investor Relations at Vertex. Thank you. Please go ahead.

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, 2021. 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 are 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 lease 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. With that, I'll now turn the call over to David.

Thanks, Don Kitt, and welcome, everyone. Our fourth quarter capped off a very strong year of results as we delivered more than $425 million in revenue and annual recurring revenue growth of 17% compared to fiscal year 2020. I want to thank the entire Vertex team around the world executing our strategic playbook and exceeding our goals. Our performance was fueled by full-year cloud revenue growth of 46% and cloud revenue per customer growing by 10% for the year. Cloud solutions continue to dominate our new logo deals and we continue to see our install base choose our cloud tax automation as they accelerate their overall cloud transformations. Hundreds of six-figure deals contributed to our revenue growth this year and balanced across our software and services business, as well as new logos and cross-sells. We have a growing customer base representing the largest and most dynamic businesses around the world. Vertex has referenceable customer depth in nearly every industry vertical due to our extensive content database, and we have demonstrated consistently a strong dollar-based net expansion rate. Our Q4 2021 net revenue retention rate was 108%, which represents an increase from 106% we reported both at the end of last quarter and a year ago, period Q4 2020. We continue to lead in the enterprise space while we invest in growing our mid-market share. We have multiple levers to pull when driving NLR growth, upsells, cross-sells, cloud migrations, regional expansion, and automating tax types from sales, use, communications, VAT, leasing, and others. As we've said throughout the year, we continue to increase our investments to capitalize on the large and growing opportunities ahead, while our proven durability of our business model enables both accelerated growth and a strong balance sheet with sustained positive free cash flows. So while we deliver short-term performance, we continue to invest for the long haul. We believe we are still in the early stages of a renewed growth curve with sustained secular tailwinds across the business, technology, and regulatory environments. Our growth thesis remains very strong, and our 2021 results demonstrate we're executing on all fronts, bringing new products to market with speed and scale, adding strategic acquisition, doubling down on our go-to-market motion, taking our partnerships to new levels, and delivering exceptional value to our customers, all in service to our vision to accelerate global commerce. We believe all of this positions us very well as we look towards 2022. Let me dive into these a bit deeper. From a product standpoint, we added new products and capabilities across the entire global portfolio, enabling connected end-to-end solutions for tax determination, compliance, data, and document management. For our customers, this means one truly global, scalable platform for tax automation wherever and however they do business. Earlier in 2021, we launched Cloud VAT Compliance, to automate and simplify value-added tax complexity. Our customer design partner approach has created a nice pipeline of opportunities for this offering. In Q4, we rolled out our indirect tax intelligence, a tax-specific visualization, planning, and risk management tool that extracts insights from the mountains of transaction data flowing across IT systems and our tax engines. As we add more business intelligence capabilities in 2022, we believe there is a terrific opportunity to serve our install base even further. Most recently, we launched Edge, a true game changer for omnichannel companies like retailers who can deploy containerized tax engines to their point-of-sale systems with speed and scale. This solution came from our teletax acquisition and represents the next generation of tax automation. Overall, we're seeing strong pipelines for growth for all our new products, which strengthen our competitive advantage and market leadership. Same goes for our content, which gives us a unique differentiation in the market today and going forward. Due to the demand and interest we're seeing across verticals like food and beverage and oil and gas, we continue to expand the depth and breadth of our tax content database. We now have over 500 million data-driven effective rates and rules covering 19,000 jurisdictions around the world. And we continue to make strategic acquisitions which strengthen our portfolio and open up new market opportunities globally. The integration of our tax demo acquisition in 2021 is on plan, and we're seeing continued demand as we integrate their products on the Vertex platform to capitalize on e-commerce opportunities in North America and Europe. The combination of our collective capabilities is allowing us to clearly differentiate from our competitors. We're seeing how the addition of Taximo Solutions is opening the door to new opportunities. An example this quarter was with a leading digital services company. Each month, they issue invoices to the patrons selling digital services on their site we were brought in to support global compliant invoicing with Taximo Advantage. We've also extended our support for this customer with managed services to handle their registration and filing across a variety of regions where they operate. In Q3, we announced the acquisition of LCR Dickson to expand our global tax automation portfolio for SAP. The addition of the LCR tool and deep subject matter expertise of that team is already helping to increase our win rate and revenues tied to SAP deals. We believe we have the most comprehensive solutions for SAP of any tax software company, period. We saw the impact this can have on our customers in Q4. The combination of the LCR tools with our tax engine, chain flow accelerator, and our team's extensive SAP expertise was a game changer for one of our manufacturing customers. They were feeling the pain of managing use tax manually and needed the robust functionality our solution provided to support their cloud transformation effort. This deal illustrates the strength of our partnerships, not only to get in the door with new opportunities, but also create cross-sell opportunities. I'm incredibly proud of the work our teams are doing to deliver best-of-breed tax technology for our customers and the industry recognition we're getting along the way. In the fourth quarter, Vertex was named the leader in both enterprise and worldwide value-added tax categories of the IDC marketscape. We were also awarded IDC's 2021 SAS ERP Customer Satisfaction Award. We also doubled down on our go-to-market motion. investing in sales and marketing while making our strategic partnerships stronger than ever. We are driving an entirely new sales motion with SAP designed for growth. We are not only working deals with them, but now our direct sales team are working in concert and engaging in account planning together. We made incredible strides in 2021 to onboard 11 new SAP channel partners. We will continue to build out this indirect sales force in 2022 to extend our reach into the vast and largely unpenetrated SAP ecosystem. Our Oracle business is as strong as it's ever been over the three-plus decades we've worked together. Our increased investment in their OCI platform resulted in a record number of Oracle ERP cloud deals in the quarter. We continue to have increasingly successful traction with our sales and go-to-market teams as part of the partnership with NetSuite. And we continue to add new partnerships and take others to new levels of scale. We added bold commerce to our partner roster. Through our integration, we are leveraging their checkout process to provide Shopify merchants with vertex tax calculations. This is significant. because it gives our omni-channel clients a single tax engine across all their invoicing touchpoints. It also serves larger Shopify Plus customers who have more complex tax needs and need a consistent tax result from their front office and back office they were not getting otherwise. We also announced first-of-its-kind certification levels with Acumatica to capture and scale in the mid-market with this cloud ERP leader. So when I step back and I see how all this comes together to deliver exceptional and differentiating value to our customers, we believe we have a truly winning formula. End-to-end solutions, deep and wide content, scalable unified cloud platform across all major tax types, seamless integration and consistent results across source systems, and partners and in-house experts who deliver rapid value in even the most complex environments. Before I close, let me share a few notable wins from the quarter that brings all this together. This past quarter, we were able to help one of the world's largest food service companies move to our tax platform to streamline tax compliance for over 50 business entities. This started out as a highly competitive sales cycle as they were running three distinct competitive tax platforms in various areas of their business already. The company had simply stitched tacks together as their omnichannel business grew. Vertex partnered closely with SAP and EY on this project to win this new logo. I think this type of win emphasizes the importance of a single cloud platform for our customers to connect all their disparate systems. And it was this competitive differentiation that allowed our cloud platform to replace the potpourri of existing systems they had from our competitors. This capability gives them greater confidence in their tax results, which in turn will lower adverse results on audit. And with the added benefit of ensuring they can scale on one platform as their business grows. This is a common scenario. Companies today are managing applications and workloads across fragmented environments. Our approach wins because we offer a single platform for all indirect tax types with interfaces to the multitude of systems our customers rely on each and every day. Vertex customers can seamlessly plug our tax calculation into their ERP, CRM, procurement, subscription billing, e-commerce platform, payment gateway, or marketplace solutions for a unified view of information. Against our competitors, the ability to solve systems complexity is one of our greatest differentiators. Another example of how our cloud solution is winning in competitive sales opportunities is after being divested from their parent company, a global healthcare provider transitioned to Vertex to move their tax engine to the cloud. Our ability to connect seamlessly into SAT, S4 HANA, and CUPA played a significant role in this six-figure deal, as well as our relationships with EY, Grant Thornton, and Accenture. Another new logo in the quarter showcased the value of our end-to-end offering, from technical functionality to tax expertise and service. We closed the deal at year-end with a mid-sized company out of London, which offers a market-leading platform for ground transportation management. They were moving their business into the U.S. and found themselves in uncharted waters managing sales and use tax. They needed one global solution that would scale with them and meet their end-to-end needs. We were able to meet all their requirements by combining our cloud solution for tax calculation with deep subject matter expertise and white-glove managed services to support their U.S. returns filing needs. Our performance in the quarter was also driven by expanding our revenues from existing customers. As our customers expand globally, diversify their offerings, and accelerate their omnichannel strategies, we grow with them. The rapid growth of a leading food delivery platform drove usage expansion in Q4. This existing customer needed additional support for countries in the EMEA and APAC regions. Our ability to scale with their business was one of the reasons we were selected early on and we're now readying them for greater global utilization. We've established a strong position in the high-growth food delivery industry, and today three of the top four delivery service providers in the U.S. are running on our cloud solutions. There's confidence in our ability to support the complex tax nuances of their industry that draws on the experience we have solving their challenges for similar organizations. This gives us referenceability to accelerate wins in other related areas, and we are building from this position to capture the broader ecosystem surrounding this industry, from retailers to restaurants. We also continue to make strides to support the growing number of businesses needing differentiated capabilities for growth opportunities in e-commerce and marketplaces. We've seen tremendous growth opportunities as our enterprise customers stand up their own online marketplaces. One of our longstanding manufacturing customers selected our cloud solution for e-commerce in the fourth quarter for their marketplace platform to sell parts to consumers on behalf of their independent dealerships. Like so many of our customers, having this cloud deployment in place perfectly positions us for an easy migration to cloud for the rest of their tax infrastructure when they're ready. All this highlights the progressive growth we continue to drive across the business. While I'm so pleased to take a look back at an impressive final quarter of the year, I'm even more excited to look ahead to 2022 and beyond. The opportunity in front of us is vast. The pace of change is not slowing down, as companies adapt their business models to support revenue growth through e-commerce platforms and marketplaces, drive resiliency into their global supply chain, and accelerate their move to the cloud. This pace of transformation is driving constant investment in business infrastructure and increased regulatory change to match the changes in global commerce. It is these compounding forces across business, regulatory, and technology environments that provides sustained tailwind and momentum for our business. And it's given me even greater confidence that we are investing in the right areas of 2022 to empower our customers with the technologies they will need to successfully navigate this highly dynamic environment. Now I'd like to turn it over to John for a more detailed look at our Q4 results and our expectations for 2022.