Vertex, Inc.

Good day and welcome to the Vertex Incorporated third quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Joe Crivelli, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thanks for joining us for Vertex's conference call for the third quarter ended September 30, 2022. I'm Joe Crivelli, Vice President, Investor Relations. David DiStefano, our CEO, and John Schwab, our CFO, joined me on the call today. As a reminder, This call, including the Q&A portion of the call, may include forward-looking statements related to our expected future results. Our actual results may differ materially from our projections due to risks and uncertainties. These risks and uncertainties are described in our earnings release and filings with the Securities and Exchange Commission. 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 on our investor relations website and with that i'll now turn the call over to david thank you joe welcome everyone and thank you for joining us the vertex value proposition of delivering end-to-end indirect tax determination and compliance capabilities was on full display in the third quarter total revenue was a record 126.2 million up 14% compared to last year's third quarter, and $2 million above the high end of our third quarter guidance. We have now delivered double-digit growth and outperformed our revenue guide in nine consecutive quarters since going public, and once again delivered strong profitability. Adjusted EBITDA was $20.7 million, which also exceeded the high end of our third quarter guidance by over $2 million. Finally, we saw solid growth across the key measures by which we monitor success in the market. ARR grew in the quarter to $411 million, up nearly 17% year over year. NRR was at 109%, up from 106% for the same period in 2021. And GRR held steady at 96%, up from 95% in the same period last year. We achieved these strong results in what was a challenging environment for most tech companies. With economic uncertainty, technology decision makers are scrutinizing their budgets more carefully and, in some cases, elongating sales cycles. We believe our third quarter results are proof of the durable, consistent, and profitable growth that Vertex has delivered for over 40 years and our ability to weather adverse economic cycles. It also reflects the inherent benefit of being the leading provider in the enterprise market, which is far more stable in recessionary times than the SMB segment. This is because our solutions are not just a nice-to-have, they are a must-have, especially for companies focused on business diversification and global expansion. Every time a customer adds new products or services and every new way of buying and selling they adopt creates additional tax impacts to the business. In addition, During challenging economic times, governments rely on the enforcement of indirect taxes to sustain their revenues. This leads to additional audit pressures on corporate taxpayers, which in turn leads to demand for Vertex solutions. Our third quarter performance underscores the value Vertex brings to our customers every day and confidence in our solutions to manage compliance at scale for global enterprises. It also speaks to the strength and durability of our partnerships, with leading technology providers and accounting firms. In October, we held the annual Vertex Exchange Conference in Las Vegas, where we welcomed a record number of customers, partners, and industry thought leaders representing the most dynamic businesses in the world. Attendees showed great interest in the new solutions we've introduced to the market and our recent acquisitions. And it was positive sentiment for our approach for a single, extensible global platform to deliver value to the business faster. With flexibility built in, we can support our customers as their business evolves. It's a key reason why customers remain so loyal to Vertex as they require new compliance capability and migrate to the cloud. At Exchange, customers confirm they need three things from Vertex's solutions, increase speed, improve compliance accuracy, and enhance value from their technology investments. As an example, in a conversation at Exchange with a new customer, from the oil and gas vertical, who remarked that since installing Vertex, he knows he has less audit risk and has enhanced the efficiency of the team to work on other challenges. This was a tremendous validation in an industry where we have made a significant investment over the past several quarters. These conversations reinforce the value of our strategy and the investments we have been making to build on our vast tax content database, deliver new solutions, and expand go-to-market capacity. Now let me shift to a few business insights from the quarter. We had another strong quarter in Europe, where we are replicating our formula for enterprise market success by combining strong partnerships, fit-for-purpose solutions, and customer referenceability. We understand to drive continued success, we must think global but act local, meaning that while companies are looking for global capabilities and solutions, it is still critical in these deals that we demonstrate a connection to and an understanding of the local environment. And that is why we are investing in the growth of our teams and partnerships in region. Our relationships with the world's leading technology platforms, consulting firms, and implementation partners often cement the decision to select Vertex in competitive deals. In Q3, we are in the business of a leading European-based Fortune 500 company in the food and beverage industry. We won this in partnership with SAP and Grant Thornton. This customer needed cohesive solution to support their global digital transformation. Their mission was clear, make it easier for the customers to do business with them. To get there, they're implementing the best of breed digital platforms for all their key business processes. Our certified connectors will allow them to seamlessly plug into the technologies they rely on each day including SAP, Microsoft D365, and Salesforce. We are uniquely positioned with a solution that can support all their systems simultaneously. Our connectors enable Vertex to be integrated into the integral systems where transactions are occurring in the business today. This creates seamless, intuitive, and intelligent experience for our customers. Throughout the year, we've been working closely with Microsoft to enhance our support for D365 And we recently released a new update with enhanced capabilities for e-commerce on this platform. We're seeing an uptick in interest and wins as a result. A great example in the third quarter was a leading diversified metal solutions provider managing over 100 entities across the nation. The company was looking to consolidate their business on one ERP platform. They needed an enterprise-scale solution to replace their manual in-house processes for tax management. Our understanding of the specific challenges metals companies face and the industry-specific solutions they need to connect with enabled this win. Another key area of differentiation is our single multi-tax type platform. That helps our customers to meet their end-to-end global requirements across a multitude of systems and enables scale. Let me now highlight a competitive cloud takeaway. In this win, customer experience is job one for this point-of-sale solutions provider. The end-to-end solution they selected from Vertex includes global tax calculation with deployment on the edge and multi-systems integrations to SAT, NetSuite, and their e-commerce platforms using Salesforce and their mobile app. The incumbent provider could not meet these requirements. This customer also selected our newly released test suite tool. On that point, I'm really excited about the new tools we released in the third quarter. Test suite, which is purpose-built for SAP, automates and expands the scope of testing for our customers. We also launched Flux Builder in Q3. Both tools are part of our suite of offerings that improve end-to-end processes and user experience for our customers running on SAP. After only one month in the market, we're already seeing pipeline growth for these tools. This quarter, we had multiple six-figure install-based deals tied to global expansion and cloud migration. A Global 500 healthcare company was one of them, moving from our on-premise solution to our cloud solution as part of their SAP S4 HANA initiative. Like most of our on-premise customers, they chose to stay with Vertex on their journey to the cloud thanks to our strong connection to their ERP and procurement solutions, but also our ability to support their consumer's use tax requirements. Their years of proven confidence in the results our solution provides made the decision to stay with Vertex a no-brainer because tax buyers value accuracy and risk avoidance far above their deployment choice of cloud or on-premise. Through these successes, we continue to see how our end-to-end platform, robust global tax content, and trusted partner ecosystem are differentiating us in deals and delivering value for our customers. Our relentless commitment to deliver exceptional customer experience was recognized this quarter. Vertex was rewarded IDC's 2022 SAS CSAT Award for Tax. This award recognizes the industry's leading SAS providers. What makes it even more meaningful is that winners are determined based on a survey responses from over 2,000 global companies of all sizes who were surveyed on 30 different metrics, including brand, user experience, and value. And in IDC's 2022 SaaS Path Survey, Vertex received the highest rating among SaaS tax vendors for overall customer satisfaction. This is a testament to the hard work of the entire Vertex team. Now I'd like to hand it over to John for a deeper look at this quarter's numbers, and then I will make a few closing comments before we transition to Q&A.