• Revenue: $178.5 million in Q4, up 15.2% year over year; $668.8 million for the full year, up 16.5% from 2023.
• Adjusted EBITDA: $38.1 million in Q4, up 21.3% year over year; $151.9 million for the full year, up 50.7% from 2023.
• Annual Recurring Revenue (ARR): $603.1 million at quarter end, with organic ARR growth of 15%.
• Net Revenue Retention (NRR): 109% in Q4, expected to rebound above 110% in 2025.
• Gross Revenue Retention (GRR): 95% in Q4, within the targeted range of 94% to 96%.
• Cloud Revenue: $76.9 million in Q4, up 27% year over year; $276 million for the full year, up 28.6% from 2023.
• Subscription Revenue: $152.6 million in Q4, up 16.8% year over year; $567.1 million for the full year, up 17.9% from 2023.
• Services Revenue: $25.9 million in Q4, up 6.8% year over year; $99.7 million for the full year, up 8.8% from 2023.
• Gross Margin: 75% in Q4; subscription software gross margin at 81.4%.
• Free Cash Flow: $17.9 million in Q4; $77.7 million for the full year, a significant increase from $6.1 million in 2023.
• Research and Development Expense: $17.3 million in Q4; $56.4 million for the full year.
• Selling and Marketing Expense: $43.7 million in Q4, 24.5% of total revenues.
• General and Administrative Expense: $34.2 million in Q4.
• Cash and Cash Equivalents: Over $296 million at quarter end.

• Warning! GuruFocus has detected 4 Warning Signs with VERX.

Release Date: February 27, 2025

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

Positive Points

• Vertex Inc (NASDAQ:VERX) reported a 15.2% year-over-year increase in revenue for Q4 2024, reaching $178.5 million.
• Cloud revenue growth for the full year was 28.6%, with cloud revenue now exceeding on-premise revenue for the first time.
• The company achieved a Gross Revenue Retention (GRR) of 95%, within their targeted range of 94% to 96%.
• Vertex Inc (NASDAQ:VERX) has a strong pipeline fueled by Oracle cloud and SAP S4 HANA migration cycles, indicating future growth potential.
• The company has a robust competitive position with a 47-year heritage in the indirect tax software industry, offering sustainable competitive advantages.

Negative Points

• Net Revenue Retention (NRR) decreased to 109% from 113% in the previous year, attributed to a challenging comparison with a strong Q4 2023.
• The company is making significant investments in e-invoicing and AI, which will impact margins in 2025.
• Adjusted EBITDA margin is expected to decrease in 2025 due to strategic investments, despite core business leverage.
• There is a slower start to revenue growth in Q1 2025, with guidance indicating a 12.6% growth at the midpoint.
• The company faces challenges in expanding its e-invoicing coverage to meet global demand, requiring accelerated investment.

Q & A Highlights

Q: Can you provide more details on the ERP migrations around Oracle and SAP, and how these are impacting your pipeline? A: David DeStefano, CEO, explained that the relationships with Oracle and SAP remain strong, with no slowdown in SAP activity. The pipeline has increased as they entered 2025, and SAP's reinforcement of the 2027 deadline, along with the 2033 opportunity, provides a tailwind for Vertex. This allows Vertex to network with a broader group of SAP prospects before they make decisions on indirect tax solutions.

Q: Why are margins expected to be down this year despite your disciplined approach? A: John Schwab, CFO, noted that the acquisition of Ocosio and investments in AI and smart categorization tools are strategic moves to prepare for future growth. Excluding these investments, Vertex's core business shows an adjusted EBITDA margin of over 25%, demonstrating leverage from previous investments.

Q: What drove the improvement in gross margins in 2024, and what should we expect for 2025? A: John Schwab, CFO, attributed the margin improvement to leverage in the business and higher-margin revenue re-ups. However, he cautioned against extrapolating these margins over the long term, as some benefits were specific to the third and fourth quarters.

Q: How should we think about the services revenue growth for 2025? A: John Schwab, CFO, stated that the strategy is to minimize services growth to support more durable ARR growth. The focus is on using services to enhance customer experience and drive product innovation rather than being a primary revenue driver.

Q: Can you provide insights into the early adoption of Ecosio and the joint offering? A: John Schwab, CFO, mentioned that early adopters include a mix of competitive takeaways and existing customers expanding their offerings. The focus is on the U.S. market, but there have been wins in Europe as well. The strategy is to integrate Ecosio with core ERP systems to enhance wallet share and strategic relationships.

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