Vertex, Inc.

Greetings and welcome to Vertex Inc. first quarter 2022 audience conference call. At this time, all participants are in listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. And I'd like to turn the conference over to your host, Ankit Hira, with Investor Relations at Vertex. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us for Vertex's Financial Results Conference Call for the first quarter ending March 31, 2022. 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 risk 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. With that, I'll now turn the call over to David.

Thanks, Ankit. Thanks, David. Welcome everyone. 2022 has started off incredibly well at Vertex with solid growth and positive progression across many dimensions of our business, resulting in total revenues of $115 million, up 17% year over year. Our teams continue to execute well and drive momentum in the markets we serve, accelerating ARR growth to 18.9% in the first quarter, while maintaining strong EBITDA margins of 16.6%. We're seeing strong adoption persist from both new and existing customers. Our NRR grew to 110% this quarter, which speaks to the efficacy of our increased go-to-market investments and our ability to build trusted, lasting relationships through a differentiated customer experience. These are cornerstones of our sustained success. Our first quarter results also demonstrate the progression of our cloud revenues and the expansion of our install base, whether that is through regional expansion, product cross-sell, sustained platform migrations, and increased transaction volumes. Cloud revenues continue to increase as a percent of total software subscription revenues from both new and existing customers. In Q1, 96% of our new logos were cloud, and overall, cloud now represents approximately 40% of total subscription revenues. Overall, I'm excited about our strong performance out of the gate and how well it sets us up for the remainder of the year. First, our core enterprise segment remains healthy and continues to widen. These are the most dynamic companies in the world spanning every industry. They are at the heart of global commerce growth, and their performance durability is proven even in the most challenging of economic conditions. Second, we consistently leverage our market leading position by providing a mission critical service in a large and growing global market. And now we are replicating our formula for enterprise market success into Europe by combining strong partnerships, fit for purpose solutions, and customer referenceability. We are extending the power of our platform by delivering enhanced capabilities and expanding the breadth of our tax content. The market is responding well to our accelerated investments. Throughout the quarter, we experienced strong interest in our new edge and exemption management solutions. And we've made huge investments in our content database, in turn, expanding our differentiation. In fact, since our IPO, we have doubled the size and scale of our content database from 350 million in effective rates and rules to over 700 million today. This includes expanded verticals, as well as global support and expansion in areas like Europe and Brazil. Our content now supports tax determination in 195 countries around the world. The strategic investments we have made over the past 18 months are allowing us to extend both our addressable market and the value we can deliver to our customers. With the acquisition of LCR Dixon, we have the most complete and differentiated tax automation solution for SAP. Again, this quarter, we saw how this acquisition is paying off by helping to increase our win rates and revenues tied to SAP deals. We have a vision to accelerate global commerce. To achieve this, it will take a community of talented and aligned partners who come together as a seamless network focused on customer experience. And it's why we're building our solutions into all the major platforms powering global commerce. backed by the largest community network of tax technology experts and partners. In the first quarter, we continue to see momentum and energy building in our go-to-market motions, thanks to our focused approach with key partners. We continue to see tremendous market opportunity, and we believe Vertex is in a unique position to connect business and government seamlessly across the entire fabric of global commerce. Our first quarter results underscore the durability of our business, the strength of our customer and partner relationships, as well as our ability to deliver sustainable, profitable growth. I am thrilled with how our strategy is coming together as cross-border transactions and real-time compliance become more course of business, the adoption rates of multi-cloud strategy are on the rise for complex organizations, and the convergence of payments and tax is accelerating, which will expand our addressable market even further. All of this takes scale, a proven track record, and an end-to-end platform. We are delivering intelligent automation with end-to-end capabilities, content, and insights to enable trusted transactions and confident decisions. I'd now like to provide a closer look at the progress we're making in these areas and share a few examples from the quarter. In our last call, I announced the release of O-Series Edge. This next generation solution moves tax content and applications to the edge of the cloud and beyond. Our solution enables a frictionless customer experience regardless of where and when a transaction occurs. Already in the quarter, Vertex Edge is creating a buzz with companies looking for next generation solutions to support business growth. In fact, our first win emerged out of a conversation in an industry forum where a current customer recommended us and our solutions to a prospect. The result was a seven-figure net new logo win with one of the largest healthcare retailers in the U.S. This Fortune 25 company was reimagining their in-store technology infrastructure. They saw value in moving away from their homegrown system to our tax engine and edge solution to ensure accurate tax calculation as well as up-to-date rates and rules. I think this deal reflects the incredible growth potential that still exists with enterprise and Fortune 500 companies. Many still maintain the manual processes, which up until now have been good enough, but with increasing complexity gives us additional white space to further penetrate this highly valued area of our addressable market. I'm also proud of this win because it exemplifies why we put so much emphasis on delivering an exceptional customer experience. We know it sets us apart, and moreover, it's not easy to replicate. These relationships and this level of trust are not built overnight and must be earned continually. It requires people who get tax and technology and care enough to make it work in our customers' environments. This is what the talented Vertex team brings to the table each and every day. When it comes to tax compliance, complexity is rapidly emerging from multiple angles for our customers. Not only are they having to keep up with changing regulations, but as companies undergo business and digital transformations, they also are contending with complex IT systems. And that's why tax technology is growing in value and demand. The ability to address tax automation across multi-cloud and multi-tax type environments is where Vertex excels, and it's showing up in new logo and customer expansion deals. We saw this in Q1. with a global data analytics and technology company. Our ability to support multi-system integration, multi-region, and multi-tax type requirements will enable one source of truth for their business across North America, EMEA, and Asia-Pac. Key to this win was our cross-application capability connecting their Salesforce and Workday solutions to one central tax engine. We also enjoyed a great competitive takeaway with one of our existing customers. With a heavy M&A strategy, the company was managing 10 entities across multiple ERPs, and because of the various acquisitions, they were running three competitive tax solutions along with ours. It was our ability to support multi-system environments which made the decision to standardize with Vertex easy. This savvy enterprise software provider truly understands tax complexity and saw Vertex as the best solution to support their business growth. Because in fact, we are the gold standard of the enterprise market. Enterprise customers also greatly value our vertical expertise to support the complex tax nuances specific to their industries. Looking at key verticals across the S&P 500, we have a dominant position in the manufacturing sector broadly, as well as technology, retail, and wholesale. We also furthered our leadership in our leasing and telecom verticals in the first quarter with a handful of key wins. The depth of our tax content, the expertise of our teams, and our end-to-end tax automation capabilities were a powerful combination for these customers. And we had a large Q1 win in oil and gas, where we significantly expanded our content database. Beyond the content, what stands out for me in this deal is the tight collaboration with the SAP go-to-market team, and our alliance partner. By working in concert with their sales team, we're able to unlock increased value for our customers. This is just one example of how we are taking our partner ecosystem to the next level. Let me now pivot to our ecosystem growth. We've expanded our global footprint with Oracle Cloud Infrastructure to provide increased support to meet data requirements outside of the U.S. And as a result, we're seeing increased interest and solid growth with both Oracle and NetSuite. I've highlighted some of the work we are doing with SAP. I'm also proud to share that we were recognized as an SAP Pinnacle Award finalist for being one of the top three ISP partners in terms of driving revenue and opportunities through the SAP store. And in Q1, our retail solution was approved as a solution for the SAP Industry Cloud for Retail. and has been added to the SAP Store listings. Combining our ecosystem-specific offerings with the continued adoption of both OCI and S4 HANA platforms has created sustained opportunity for us to grow our addressable market within their ecosystem. And now, through closer alignment with their sales teams, we are able to provide increased value for customers. We continue to invest in expanding our mid-market share as tax complexity is not limited to the largest organizations. As mid-market companies increase their digital presence, complexity comes with it. Our solutions are helping companies of all sizes access new markets and reduce the friction between commerce and compliance. These companies are turning the vertex to ensure a single platform for tax calculation that tightly connects into a multitude of systems from front office applications like billing and CRM, and extending through back office ERP and procurement systems, as well as e-commerce platforms. Another area I'm excited to highlight is the performance we experienced in Europe this quarter. The strength of our capabilities with SAP and the depth of our global content enabled a six-figure deal with a European chemical leader looking to streamline their tax process. Our cloud solution, coupled with the SAP accelerator and the LCR tools, gave this new customer the confidence to automate tax calculation. The beauty for us in competitive deals like this one is that no one comes close to the breadth of our solutions for businesses running on SAP. We've been making disciplined investments to propel our growth in Europe and through digital commerce platforms, and we continue to build momentum around our acquired Taximo solutions with digital natives and e-commerce companies in rapidly growing sectors like gaming, fitness, and education. Just as we are focused on building strong and lasting relationships with our customers and partners, we are also focused as an organization on strengthening our communities. This support is more important than ever as we continue to face the global humanitarian crisis in Ukraine. The people of Ukraine are demonstrating incredible courage and our hearts go out to all who are affected. The Vertex team stands united with the global community in protecting our fundamental human rights. It is core to who we are and what we value, guided by a deep respect for all people. As I close out my comments today, I could not be prouder of the contributions of our global Vertex team. We remain laser focused on our strategy. We continue to accelerate our go-to-market motions and bring product enhancements to market with speed and scale. and we never lose sight of the importance of delivering exceptional value to our customers and continuously innovating for the future. We are on course for another strong year, and I'm incredibly encouraged by the opportunity we see for continued growth. Now I'd like to hand the call over to John for a look at this exciting quarter by the numbers.