Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Vertex Inc (VERX, Financial) reported a 15.3% year-over-year increase in revenue, reaching $161.1 million for Q2 2024.
- The company achieved a record free cash flow of $36.9 million, significantly up from $4 million in Q1.
- Vertex Inc (VERX) completed the acquisition of ecosio, enhancing its e-invoicing and EDI capabilities, which is expected to contribute approximately $15 million in revenue in the first full year.
- The company saw a 14% year-over-year growth in scaled customer count, representing customers delivering annual revenue of over $100,000.
- Cloud revenue grew by nearly 30%, surpassing the full-year guidance and demonstrating strong demand for Vertex Inc (VERX)'s cloud solutions.
Negative Points
- Net Revenue Retention (NRR) decreased to 110%, down 1 percentage point from the previous year and 2 percentage points sequentially.
- The company experienced a planned strategic slowdown in implementation services, impacting overall revenue growth rate.
- There was a noted decrease in cross-sell and upsell activity in the first half of the year, affecting revenue growth.
- Gross margin on services revenue decreased from 40.5% in Q1 2024 to 36.8% in Q2 2024.
- The completion of the Systax acquisition impacted customer metrics, with ARR excluding Systax being slightly lower at $542.3 million.
Q & A Highlights
Q: David, on your commentary around lower cross-sell and upsell in the first half of the year, how would you sort of break that out between a lower renewal cohort in the first half versus sales execution?
A: (John Schwab, CFO) We saw some softness in cross-sell and upsell, partly due to a very strong Q4 last year. This led to a slower start in cross-sell and upsell activities this year. Additionally, there was a slight pullback in additional entitlements in Q2, impacting the NRR ratio.
Q: On NRR, it was down 1% year-over-year but down 2 percentage points sequentially. Was it the same issues impacting that, that impacted the lower cross-sell upsell?
A: (John Schwab, CFO) Yes, the main drivers were the softer cross-sell and upsell activities, influenced by the strong Q4 last year and depleted budgets. We remain confident in our full-year guidance.
Q: Congrats on the ecosio acquisition. What is the right number in terms of where most business and your customers are operating today? Is there any type of provision in the deal agreements that would allow another bidder to come in with a separate offer?
A: (David DeStefano, CEO) ecosio operates in about 30 countries, aligning well with our priority countries. There is no open bidding process; it's just regulatory approvals. We see great potential in expanding our business with ecosio's technology.
Q: It appears ecosio has an EDI solution, which would be a new market for you. Is that something you would invest in aggressively?
A: (David DeStefano, CEO) Our focus is on expanding CTC capabilities. While ecosio has great EDI customers, our primary focus will be on leveraging their scalable platform for e-invoicing, especially in larger economies like France and Germany.
Q: With your comments about the first half being slightly weaker on cross-sell and upsell, but June being the best cross-sell month of the year, is that a change in market dynamics or something internal?
A: (David DeStefano, CEO) It's more of a timing issue. We had a strong Q4, which took down a lot of budgets. Enterprise customers typically have stronger back halves of the year. June's success indicates positive pipeline visibility and strong execution expected in the second half.
Q: How should we think about the potential transition or unwind of the current Pagero partnership?
A: (David DeStefano, CEO) We will be unwinding the Pagero partnership. The technology we acquired from ecosio is more scalable and efficient, making it a better move for our customers.
Q: Is there any color you can provide on ecosio's growth rate and the $15 million revenue contribution expected over the next 12 months?
A: (John Schwab, CFO) The $15 million is primarily stand-alone ecosio revenue with modest synergies. ecosio's growth rate has been impressive, which attracted us to the business.
Q: How do you view the landscape of AI in tax compliance, especially with companies like Amazon building internal tools?
A: (David DeStefano, CEO) Our main competitor is often in-house capabilities. We focus on productizing tools that can scale and adapt to legislative and business model changes. Our recent AI acquisition positions us well to support our customers' evolving needs.
Q: Can you provide more context on the slower-than-expected SAP upgrade cycles and how you see that playing out?
A: (David DeStefano, CEO) The migration of midsize companies to SAP's new platform has been slower than expected. We anticipated more activity in early 2024, but it has been pushed out a couple of quarters. We still see strong activity and expect good execution in the second half.
Q: Do you feel you have the right team in place to address the invoicing opportunity in Europe with ecosio?
A: (David DeStefano, CEO) We have decent coverage in Europe but will make a few strategic hires. We are also focusing on supporting our US customer base with the right talent.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
