Q2 2020 Vertex Inc Earnings Call
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Thank you good morning, everyone and thank you for joining us for protection financial results Conference call.
Second quarter, ending June 30, 20, <unk> on the call today, we have protect CEO, David to Stefano and CFO job.
Before we begin lobby to provide us disclaimer regarding forward looking statements. This call it couldn't the Q and a portion of the call may include forward looking statements related to the expected future results for a company and are therefore forward looking statements.
Actual results may differ materially from our projections due to a number of risk and uncertainties the risk and uncertainties that public statements are subject to are described in our earnings release and other actually see filings. Today's remarks will also include references to non-GAAP financial measures additional information, including a reconciliation between non-GAAP financial information to the gap naturally improve.
Nation is provided in the press release this conference call will be available for replay via webcast to Vertexs Investor Relations website at <unk> Dot for Texas, Inc. Dot Com, David will begin with an overview of Rotex followed by a second our second quarter pilots. John will then take you through a review the financials before proceed acuity.
With that I'll now turn the call or David. Thank you, Okay and welcome to our first earnings call as a public company. It was great to meet many of you during the course of our IPO Roadshow in July and we look forward to getting to know all of you better as we go forward.
First.
<unk> acknowledged or borrow 1100 employees on delivering a great quarter I'm incredibly proud of our team and how quickly they were able to adapt to these unprecedented times, while maintaining their focus on serving our customers.
And then to see the pride in excitement as we became a public company nearly the entire team was able to participate virtually and celebrate the special milestone in our history. It was such a validation for the type of unique culture, we have which I'm grateful to lead.
At some of you may be new door story I'd like to spend a few minutes take you through a brief overview of who we are what we do and a growing market opportunity. We see in front of US. Please note that this overview well make todays call longer than we would typically going forward.
Ill then provide an overview of our recent progress in performance and then turn the call over to John for a financial review of the quarter, followed by our expectations for full year 2020.
About vertex.
We've been recognized leader of tax technology for over 40 years. Our mission is to deliver comprehensive talk solutions that enable global businesses to transact comply and grow with confidence.
Hey, our software enabled talks determination compliance and reporting.
Data management and talk to imagine with powerful prebuilt integrations to core business applications powering global commerce.
Our software is fueled by over 300 million data driven effective tax rules and supports indirect tax compliance it more than 19000 jurisdictions worldwide.
We pioneered the first indirect tax software over 40 years ago and since then have built innovative tuck software a marquee customer base any trusted Brad.
Our solutions can be deployed in the cloud on premise or both.
This has helped us create longstanding customer base of over 4000 customers, including some of the most complex and discerning multinational enterprises around the globe, our history and experience with complex tax challenges are difficult to replicate.
Our culture of innovation the name brand recognition of our customer base and the mission critical nature of our software for tax Department provides the leverage to our sales and marketing teams and able to us to successfully attract new customers our branded solutions, our trusted by customers as well as tax audit Advisory Committee.
Andy.
Which is made up the sought after thought leader in the industry.
Today, our customers include the majority of the Fortune 500, as well as the majority of the top 10 companies by revenue in multiple industries, such as retail technology and manufacturing in addition to leading marketplaces.
As these companies expand geographically pursue omni channel business model their tax determination and compliance requirements increase and become more complex.
Our trusted brand and strong relationships with our customers enable us to capitalize on these sustainable organic growth opportunities.
Partner ecosystem is a distinct strength to support both software development and our sales and marketing activities, we integrate with technology partners that span ERP CRM procurement billing Pos and ecommerce platforms. The majority of our integrations are designed tested and supported by us.
However, we also support partner developed integration as part of a rigorous certification program.
To give you. An example of the importance of these relationships we've been partners with Sep for over 20 years. Our teams are embedded at a deep technical level and we conduct joint road map development activities.
In addition, we collaborate with many major tax accounting and consulting firms, which not only complement our global tax and technology expertise, but also help us identify new growth opportunities. Many of these firms have built significant practices around our solutions, which greatly extends our reach.
Our customers rely on us for comprehensive indirect tax management solutions that improve efficiency mitigate audit and reputation with and enable them to expand their business, while ensuring they are meeting their indirect tax obligations in the jurisdictions in which they do business.
Well, we're proud of our accomplishments to date, we recognize there's still more to do to truly unlock our full potential.
We have a terrific opportunity in front of US we believe the total addressable market for solutions that enable global commerce and compliance is robust global and growing.
We estimate our addressable market among global enterprises, and other businesses with greater than 1 million an annual sales to be over 7 billion in the United States.
We believe this potentially understates, our total addressable market because it does not include businesses domiciled outside the United States.
So our growth strategy.
In fact, the rapid changes taking place in today's global business technology, and regulatory environments are having a compounding effect on the complexity of indirect tax management, giving us a significant growth opportunity and our recent performance speaks to the trust our customers, having us to help them continue to transact comply.
And grow with confident even in a challenging global environment.
As companies expand their business models enter new geography, and extend their distribution channels. They widen the aperture of indirect tax obligations.
Additionally, as they expand their core offerings to incorporate new digital products and services. They are increasingly impacted by new regulation and being pursued by jurisdictions. For example in the United States nearly 40 states have enacted marketplace facilitate a regulations requiring online marketplaces to collect and remit taxes.
As for first and third party sales on their web sites.
This complexity demands intelligence solution that enables businesses to satisfy tax obligations and support growth opportunities.
We believe today's global Commerce environment provides a sustainable growth opportunities for our business specifically in five key areas.
First is expanding customer revenues.
As we have throughout history, we will continue to invest in new solutions to support the ongoing retention and expansion of revenue from our existing customers.
Second is acquiring new customers, we will continue to invest in our sales and marketing teams in order to capture this demand coming from the growth drivers I mentioned earlier to acquire new customers.
Third is to broaden and deepen our partner ecosystem.
We believe expanding our strategic alliances with emerging participants who are fueling global commerce, such as payment and digital commerce platforms will create new value for our customers and new sources of revenue.
Fourth is to extend our global footprint.
We have significant opportunity to expand internationally and we expect to continue to invest in our software and solutions outside the U.S., most notably in Latin America in Europe.
Finally, we will sustain our investments in new product innovation.
With the pace of change in Commerce and compliance. We believe it is important to continue innovating and extending the functionality and breadth of our software and solutions.
Overall, we're excited about this forward looking road map that serves our growth strategy delivers differentiated value to our customers and partners and enables us to extend our leadership in the markets we serve.
With that as a backdrop.
I'd like to turned out to this quarter's performance and strategic progress.
Overall, we're pleased with our strong second quarter performance driven by revenue growth of 16.5 per se and a our growth of 16.4% versus the prior period.
We've also been able to effectively balance our commitment to growth and innovation with profitability by delivering adjusted net income growth of 47.7% to 18.9 million and adjusted EBITDA margin of 23.6% an increase of 380 basis points over the second quarter two.
2019.
The performance highlights.
Overall AOR growth came from a number of areas new customer acquisition, including a number of what I'll call New Academy companies, providing digital goods in online delivery services as well as more traditional companies, enabling their E commerce and Omnichannel strategies, we saw solid revenue expansion of existing customer revenues, which.
Showed up in our net revenue retention of 108% comparable to Q2, 2019, primarily driven by cross sell and up sell.
I'd like to highlight a sale we had in Q2 that reflects our land and expand motion and our customers movement cloud.
This is also why it's so beneficial to work with the largest companies in the world.
In Q2, we closed a new sale with a customer we've been working with since 2006. This customers a global retail operating in over 15000 retail locations around the world.
Over the years as its global supply chain operations grew indirect tax complexity increase for them in purchasing manufacturing and distribution.
By working closely with them as they grew they continued to purchase several new solutions from us beyond their initial sales tax places, including VT and consumer use tax and our data management offer.
More recently the company has strategically expanded its business through a new mobile offering to expand its sales channel vertex cloud was selected to determine and apply sales tax as part of the mobile ordering and payment process via their app in Q2, we completed a seven figure deal that supports it.
Their rollout and expanded use of vertex cloud.
But working with these large dynamic companies, we have a great opportunity to continue to expand our footprint of solutions as they grow through changes in their business model technology infrastructure or M&A through a highly efficient land and expand model.
And we haven't learned over 40 years that this ongoing pattern of constant change continues across our diverse customer base and drives our and our AR.
We also saw strong services performance in Q2, specifically in our implementation services, where we see both new implementations and existing customer upgrades and cloud migration is performing well.
We continue to invest in our go to market expansion and integrations to meet the needs of companies looking to automate indirect tax in their ecommerce and procurement applications as well as ERP and billing systems.
In Q2, we launched our new E Commerce integration with portal Commerce, and we expanded our procurement integration with S. apiary, but.
On the go to market side, we secured a relationship with avant day to support growth in the Microsoft ecosystem.
And finally, we were named a 2020 top workplaces by Philadelphia Inquirer for the six year in a row. This award is a testament to our employees, who are making their mark and embodying our values in service to our customers and fellow employees every day.
In closing, we are well positioned to capture the significant growth opportunities ahead by expanding revenues from existing customers acquiring new customers broadening and deepening our partner ecosystem and extending our global footprint.
Our recent IPO was a significant milestone for us.
Although we're very proud of all we have achieved so far we acknowledge that this is just the next step forward in serving our customers employees and shareholders with distinction.
Thank you for the time and continued support.
I'll now turn the call over to John to discuss our financial results for the quarter and guidance for the year.
Thank you David and good morning, everyone today Im going just to discuss our second quarter 2020 results and then our full year guidance.
Total second quarter revenue grew 16.5% year over year to reach $91.3 million.
Subscription revenues grew at 14.9% year over year to $77.3 million.
And our annual recurring revenue or a our grew to $294.6 million. This represents a 16 point, 0.4% growth year over year.
Services revenue grew to $14 million or 25.7% driven by the implementation related services associated with our growth and subscription revenues from new and existing customers.
We continue to see strong growth in our cloud based solutions, among both existing and new customers. Our cloud revenue grew by over 60% in the second quarter of 2020 over 2019.
We continue to believe that the shift the cloud represents a unique opportunity for the company to drive additional revenues at a our growth.
Sales to existing customers made up 72% of our software sales in the second quarter of 2020, and new logos made up 28% of new sales and as a continued area of focus for the company.
Our net revenue retention rate as David mentioned was 108% demonstrating our customers commitment to our software and solutions.
Our gross revenue retention rate in the quarter was 91%, which is consistent with many of the prior periods.
In discussing the remainder of the income statement. Please note that unless otherwise stated all references to our expenses operating results on per share results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings press release that was issued just before this call.
On an overall basis gross profit was $65.4 million in Q2, representing a 71.7% gross margin.
This compares with gross profit of 55.6 million and 70.9% gross margin in the same period last year. We're pleased with our gross margin improvement of of 80 basis points.
From a subscription software standpoint, our gross margin increased to 78.8% from 77.3% in the prior year driven by continued leveraging of our cloud infrastructure.
Our margin in our services business decreased to 32% from 32.5% in the prior year, we continue to see strong demand and productivity levels for our services from implementation of new software as well as existing customer projects.
Research and development expense was $9.4 million or 10.4% of revenues an increase of 140 basis points year over year, reflecting the increased spend on new solutions to address end to end data analysis and compliance needs.
Sales and marketing expense was 16.2 million in the second quarter or 17.8% of total revenue a decrease of 390 basis points year over year, which was primarily driven by a reduction in travel and marketing events due to the covet 19 restrictions.
In the second quarter General and administrative expenses was $18.1 million or 19.9% of revenue versus 20% of revenue in the second quarter of 2019.
The increases were driven by higher levels of information technology infrastructure process reengineering and other initiatives to drive future operating leverage.
GAAP net loss was $29.1 million compared to a GAAP net income of $7.1 million for the same period last year.
GAAP net loss per basic and diluted class, a and class B share was a negative 24 cents compared to a GAAP net income per basic and diluted class, a and class b share of six cents for the same period last year.
Non-GAAP net income was $18.9 million compared to a non-GAAP net income of $12.8 million in the same period last year.
Non-GAAP net income per diluted class, a and class B share was 16 cents and 15 cents, respectively compared to non-GAAP net income per diluted class, a and class b share of 11, and 10 cents respectively. The same periods last year.
Adjusted EBITDA of $21.5 million is up 38.4% year over year.
The adjusted EBITDA margin of 23.6%, an increase of 380 basis points year over year.
Our most significant non-GAAP charges relate to stock based compensation given that the initial public offering occurred in the third quarter. We will continue to have ongoing chart charges related to the stock based compensation instruments that we will report to the public.
Turning for a minute to our capital structure.
Looking at our balance sheet and cash flow statement, we finished the quarter with approximately $47.3 million in cash and cash equivalents.
In the third quarter, we completed our initial public offering by selling 24.3 million shares at an IPO price of $19 per share racing raising proceeds net of underwriting fees of $423 million, which was used primarily to repay our $175 million term loan and offering expenses.
We generated $18.7 million and free cash flow for the quarter, which has an increase from $14.7 million in 2019.
Now turning turning to our guidance for the third quarter of 2020.
Total revenue, we expect to be in the range of $89 million to $91 million, representing annual growth of 8% to 10.4%.
Adjusted EBITDA in the range of $17.5 million to $18.5 million, representing a decrease of 10.7% to 5.6%.
Turning now to guidance for the full year of 2020.
We expect total revenue in the range of 362 to 365 million representing annual growth of 12.6 to 13 point, 0.5%.
And adjusted EBITDA in the range of $73 million to $75 million, representing annual growth of 7.5% to 10.5%.
Additional modeling details underlying our outlook are as follows.
Share count.
We currently have 120.417 million shares of class of class B outstanding.
At the time of the IPO, we issued 25.749 million shares of class a.
And we currently have common stock equivalents of 12.934 million.
Stock equivalents at a weighted average exercise price of $2 at 41 cents per share.
Our effective tax rate is expected to be 25%.
Overall, we're pleased with the progress we have made on our strategic initiatives and performance of the business and with that we're now happy to open the call for questions. Operator will you. Please open the line for Q1 day.
Thank you at this time will now be conducting a question and answer session.
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One moment, please what we poll for questions.
Thank you and our first question is from the line of Samad Samana with Jefferies. Please proceed with your question.
Hi, good morning, Thanks for taking my questions. Congrats on the first quarter as a public company.
Maybe first starting off on the on a new logo acquisition doesn't really healthy rate. Despite what say a challenging macro environment. I was wondering if maybe you can talk about what's driving new customers and if there's any new or different complexities in the current environment, that's driving new customer acquisition, and then just I've a follow up to that.
Most of mine. Thanks, good morning, and thanks for joining us today grade to connect with you again.
You know we saw fairly typical a response to our efforts in the field with new logos you know our deep tax concept really is a differentiator for us in it enables us to reach into many diverse industries are strong vertical strains really gives us the ability to go where the market activity is so.
I think the quarter really reflected that we saw great uplift in E. Commerce in retail we continued to do well there's companies are pursuing their omni channel strategy.
Well, we did well in manufacturing in many of the other technology that we focus on.
Great and then maybe just as a as I think about the post IPO.
Focuses in terms of investing how should we think about maybe the top priorities over the next three to six months, whether it's the sales go to market strategy or R&D, whereas the company investing new dollars to sustainable is a much better growth profile and adding many expected in this environment.
Thank you.
We continue to balance our investment innovation is so important to continue to bring new offerings to market. We've got a number of product I'm very excited about that weve teed up for the end of this year and into 2021 as it relates to our expansion internationally and we continue to drive our channel relationships and integrations as we move into the middle market where the.
Complexity is accelerating because of the fundamental drivers that we've talked about around business complexity technological complexity and regulatory complexity and thats really opening up the value proper vertex in the middle markets, we'll be expanding our investment.
In the into go to market space and to support our middle market opportunities.
Great and I apologize for their question, John if I could squeeze one for you as we think about Threeq guidance.
Any qualitative or quantitative thoughts are on what type of.
Retention assumptions are being made just from Twoq to Threeq you. Thanks again for taking my questions everybody.
Yet again, thanks. Some odd appreciate the question you I think as we think about our Q3 guidance. What we did see as a fairly consistent sort of move is fairly consistent kind of path from Q1 to Q2 in terms of what our GR and NR was and retention and so we do not anticipate significant change fluctuation either up or down from what from what we saw in the from what we saw.
On the second quarter.
Great. Thank you.
Yeah.
The next question comes from the line of Brad Sills with Bank of America, Let's see if your question.
Oh, Great Hey, guys. Thanks for taking my question I wanted to ask about some of the efforts and expanding the partner ecosystem. You mentioned some certifications. If you could just remind us kind of where you are with that effort and and maybe any.
New partners signed on during the quarter.
You are excited about.
Yes, Thank you Brett good to connect with you.
You know that part of our strategy remains an important area of growth for us. We see that is clearly an accelerating growth vector we've done some things and secured that exclusive relationship with CP dot com and that provides a great access to a new channel for us sort of a one diminished strategy that we believe can be success.
Additionally, I'm very excited about the avant day relationship, which was the new one in Q2, which is the Accenture Microsoft partnership as we continue to accelerate integrations in the Microsoft's space I think that go to market channel will continue to will be a new area for growth for us going forward.
That's great that's great. Thank you for that.
And.
With regard to international expansion Latam Europe, any any update on kind of where you are there from a product standpoint and go to market.
Helpful. Please sure, but so we did make the acquisition earlier this year down in Brazil, which I think we'll continue to enhance our content suite covering both complex jurisdiction in the world from an indirect tax perspective. Additionally in Europe, we've got a number of offerings that are coming to market here at the end of 20.
2020 and into 2021 that I think are really aligned well to the regulatory environment, that's changing over there.
And with a significant technology refresh that'll have to be happening around the Honda platform.
Safety is the dominant player over there I think those are well positioned to help us as we move into 2021 and beyond in Europe.
That's great. Thank you so much.
Welcome.
Our next question is from the line of Chris Merwin with Goldman Sachs. Please proceed with your question.
Hi, Thanks, so much and congrats you all in a great first quarter of execution.
I wanted to ask about the cross promotion is there anything you might be able to highlight for us with new modules being sold across indirect tax or other areas like document management or tax data management and then also how should we be thinking about with the high end of air our per customer can look like as you get more fully sold out in some of your larger customers. Thank you.
Sure good to connect with you Chris I'm happy to talk about the cross sell mostly I think we saw fairly consistent behavior.
In the quarter, we enjoy a very strong relationship in the advisory community and so even in the current pandemic between our direct access and longstanding relationships with a lot of customers that allow us to have the type of conversations where we can talk about where their business is headed where their technology infrastructure is going and how we can support that we were.
Able to partner very effectively with our with the Advisory Committee to help us make sure we're staying connected to the activities of our customers and those proved to be fairly successful.
In the quarter I would say that consistent behavior across sales tax consumers use tax NVC was experienced throughout throughout the quarter.
And from an era per customer standpoint, we continue to see growth in that area, we see that moving along in that and the second quarter were up over $70000 per customer, which is trending yoga again, continuing to trend north showing that strong.
That is strong and our flow through into the end of the size of the customers. So that continues to proceed upward and the anticipation is that yes with additional products and other things that may offer additional upside.
Great. Thank you and then maybe one quick follow up.
Wondering if you could talk a bit about that brought in demand environment here as we recover from cobot anything you can share about lengthening sales cycles close rates and just maybe adding some context for us about how those have improved since march. Thanks.
Yeah, I'll start for a little bit then maybe David can give some color to kind of what the motion is looking like these days, but what I would say is now as we came out of the first quarter anyway that visibility was very it was very unclear and I think as we saw the second quarter progress we started to kind of start improve the visibility and we felt comfortable that you are things that we initially thought might.
Be pushed out into Q4, and maybe even beyond started coming back in their name start when those name started to pop up again, I think as people got comfortable that kind of this work from home environment wasn't a couple of week or month type of thing it was going to be something that was going to be have a little more longevity.
I think everybody got back to it and started pursuing the projects and things that have been on there that on their task less to to get done for the year and so we did see some of that come back and we feel pretty good about how that improved throughout the throughout the quarter. We'll continue to see it will continue to see how this kind of shapes up into the third quarter. As we're a couple of months then but again I think we still we feel that there is some and.
Proving visibility as we as we've kind of March down even into the third quarter here.
Alright, thanks, so much.
[music].
Thank you as a reminder, you May press star one to ask a question at this time.
The next questions from the line of stand Sasaki with Morgan Stanley. Please proceed with your question.
Okay, perfect guys and congratulations on your first quarter as a public company.
A couple of questions from from my end, maybe just following up on the on the macro discussion you guys. Just you mentioned.
Some of the deals that were initially thought were.
We're going to be happening and as a Q4 Q3 type of phenomenon.
Was there anything meaningful as far as pull forward into Q2 that the clothes that we should be mindful of.
No there wasn't any particular, one or two things stand at that really came through that would kind of impact what Q3 would look like I think as you can see from our guidance, we still believe that theres that theres ample demand out there and there will be to the rest of the year, but there wasn't anything that.
Artificially bumped us up for the second quarter.
Okay awesome.
I wanted to dig into the cloud migration sorry.
How are you guys thinking about it.
60% growth of a of cloud revenue slight decel versus what we what we saw last year in Q1, but just overall you know how are customers thinking about the moving to the cloud in in the current environment.
Yes, great question Great question.
I will say that we import remember we always lead cloud first and every discussion we have with our our customers and our new then you know new prospects that we're bringing in overwhelming majority of our new logos. Our cloud clearly that is where they lead first are are we remain committed to our hybrid strategy, though.
So existing customers who are on the journey typically what we'll see as in the cross sell where we're selling them and new module oftentimes. They will look to cloud because we're leading cloud first they will look to see if they can begin to move that portion of their business into the cloud.
It's a slower migration from if you're an on premise customer depends where the c. The CIO is in their journey with with their infrastructure roadmap, whether they're ready to make that leave as we sort of see it in that progression new logos predominantly cloud the up sell we lead cloud and we see we see good we see good movement there from it.
From a cross sell to an existing customer and then.
We are possible the full migration of the of the organization to cloud.
Got it got it and then May just one quick one for John John cash collections in the quarter were much stronger than than we expected what drove the strength. If there is there anything to call out.
Yes, again, I I would go back Stan and probably looking and think about again as we got through the end of the of the first quarter. There was some uncertainty and we did see a little bit of pullback in the second quarter. We start we started to get some of that back and again as we got some of that back focused on our ability to collect cash from our customers and ensure that we were staying in front of things as renewals.
We're coming up we are getting on front of that to a much more proactive approach and I think that pay benefits, but again I think again the timing at the end of the first quarter. We've created a lot of uncertainty and people sort of froze I think we saw a little bit a catch up in Q2.
Perfect. Thank you yep.
The next questions from the line of Brad Reback with Stifel. Please proceed with your question.
Great. Thanks, very much David you guys are in a pretty unique position given the amount of transactional data you see on a daily basis, especially to the cloud.
Aside from your E commerce customers can you give us a sense of how volumes have trended over the course in Threeq you just for an overall economic health check. Thanks.
Yes, sure, but thanks.
Great. The question I think we saw really good balance it was interesting we I think like a lot of us we expected to see certain concerns in certain pockets, we do not have any dominant customer concentration, which gives us a lot of.
Durability and sustainability of our model and we saw good volume across many sectors as customers.
Pivoted their omni channel strategy in different areas to try to move ahead, so in retail and technology, we those sectors that continued to perform very well.
Great. Thanks very much.
Welcome.
The next questions from the line of Pat Walravens with JMP Group. Please proceed with your question.
Oh, great and congratulation on your course on your first quarter guys. So sensitive. The first went out if you don't mining and asked a couple of questions on on things I think people are interested in so first of all on the cloud business and I know you don't.
Breakout specifically, but can you give investors some idea what what the margin profile is like that that business and how you expect that to trend overtime.
Yes, I think as we disclosed in the release and got in my prepared remarks again, we do disclose the margin of the overall business. The cloud business itself, we don't break the cloud out specifically, but the cloud margin is one that continues to make progress and we continue to advance the ball in terms of what that margin percentage that has been so that can that has been rising.
We haven't broken out that specifically between cloud and on Prem at this point.
But we do see and we have seen the improvement in the margins on you saw that come through on an overall basis, but really the driver there was our ability to leverage infrastructure and cloud.
Yeah, and then just some people understand what it what's the what's the additional cost on the cloud that would you do for the hosting.
Well again, the large piece of it is that as some of the hosting that goes on and keeping the security and everything else. The in there that needs to be needs to be there to maintain.
That is security with our our customers information. So I think thats one of the big things. There. There is some yeah. There are some cost to maintain and ensure the connectivity continues to remain there in the redundancy that needs to be there I.
I think there a couple of the big ones again, mainly focused on IP related activities.
Okay, great. So that's one area then I think the other big area people want to understand is just sort of what is what is the we're obviously in the tough environment now, but stepping away from.
This environment in a normalized environment what is the growth profile of this business. So if you look at your are over the last four quarters at Wynn, 90%, 90%, 17% 16 and that right. So just what are you targeting in a normal environment, how should people think about the growth profile of this business.
Yes, I think as we think about the gross profit profile and as we think about growth of the company. We've talked about are a our growth over time as David mentioned, we're going to be making additional investments in the sales and marketing in the go to market channel and so we're looking to increase that increase that over periods of time, but it's something that doesn't occur immediately take some time to grow build out there.
Infrastructure and so we like that we'd like seeing those kind of mid to upper teen. They are our growth. That's there we think theres opportunity to grow that further we would like to consider ourselves somebody that can get ourselves close to that 20% kind of regular way growth. We think we have the ability to do that but again, it's going to take some additional investments some additional additional time to get us there but thats.
Where we are targeting over a longer term Pat Pat I would guess build on that Pat I would just build on that and say I think as the market continues to complexity continues to accelerate both outside the U.S. and in.
The the lesser smaller 100 to 500 million dollar companies that weve historically couldn't deliver a significant value to I see those as opportunities to build on.
The payoff John's point about how we moved from the historical to acceleration.
Awesome, great. Thank you very much.
We're talking here.
The next question comes from the line of Avant Sir you with William Blair. Please proceed with your question.
Hey, David John Thanks for taking my question and let me Echo my congrats really solid job.
Sorry for the company.
I wanted to touch quickly on the international option that little bit here, obviously attached complexity in Latin America, Brazil. It's Great example, I'm really really complex and so so to see the value there, but when you think about Europe and some of the I guess the 80 relative simplicity just through the use of Brazil, how do you view the competitive environment out there your ability to kind of.
Grow that business, you, obviously investing they'd love to incentive conducted by management and then the bottom at where maybe doesn't feel.
Complex us or.
The great question, Bob and good to connect with you.
I think what's happened in Latin America, quite frankly, and Brazil, you highlighted at the little bit of a precursor of what starting to happen over in Europe. So Ian voice is an example of part of the end to end suite of talked that has started to accelerate in Europe. We've seen the advent of digital taxes and marketplaces.
Second place taxes that are now accelerating in Europe. So I think the simplicity of the VHP environment that existed for years is starting to be disrupted you're starting to see different countries applying different.
Approaches to address their debt crisis through taxation indirect tax VC and that complexity is where we think is going to the good enough solution is going to begin to break down and that's why we're trying to get in front of that with some of the new offerings, we're bringing to market and expanding our go to market footprint in Europe.
Gotcha Gotcha, well, then really quickly just you touched on some of this high teens growth rate normalized growth rate.
You get a little more color sort of how that breaks down. So you sort of a price increases maybe highlight just remind us what those price increases are each year I think you've got a nice net dollar retention rate, let's just say you know close to low double digit and the rest of the made up new customers and sort of how to break out between ups on call. So just just on bridge of how we get that high teens, given the various pieces will.
We really helpful. Thank you.
Yep No Thats a great question appreciate it and again I think as we think about sort of where we go you're right front. There's three real main pieces of growth that are taking us from our gross revenue retention to our net revenue retention in the three pieces are made of the items that you mentioned you know first is really the you know the cross sell the migrations and the Upsells that exist and that's about 50% of the growth.
It really comes from when you think about what that bridge looks like.
Thats going to give you about 50% of that growth and then if you think about the other two pieces that one will be the additional entitlements. So as customers run more volume through the systems that we offer that additional volume will result in additional revenue for us as we move forward. So that's good and an equally balancing that out as the the price increases on an annual.
Basis, we offer price we have price increases on our software averages around fiber so per cent per year. So that is something that thats important to what the to keep in mind and remember as we have customers that are there. Some migration as there are some migration that goes on there continues to be an up sell for us that we get when customer.
As moved from on Prem to the cloud and then I guess finally, I guess as you get out of then our our and look into IR, you're always going to have those new logos that come in and as David talked about we had some nice new logo growth in the quarter and it's an area of focus for us to continue to continue to ensure that we're advancing the ball in that regard.
Awesome, that's really helpful. Thanks, Jim and a nice job. Thank you.
Thank you all right.
Thank you.
Your next question is from the line of Daniel Jester with Citi. Please proceed with your question.
Yes, great. Thanks for taking my question and good morning, everyone.
So just sticking to the international piece can you just talk about how important do you think acquisition are going to be in terms of fueling international growth.
They had one in Brazil, maybe if you can just speak to that specifically and then may more broadly your acquisition philosophy that'd be helpful. Thank you.
Thank you Dan good to connect with you I.
I think as we think about our growth opportunities right now we've we've historically grown very organically by building products and adding value in a very thoughtful way to deliver value to the customers. What we see now with the again because of the acceleration of change that's happening outside the U.S. that drove our behavior down in Brazil, and I think we're looking at the same opportune.
Cities over in Europe, and elsewhere, where we think we could begin to expand our footprint in inorganic ways to complement the fundamentals we've already put in place and so I think that's going to be a nice balance between that which we already have delivered the products. We have the pipeline as I mentioned, we've got some nice.
Things, we think we're bringing to market here at the end of 2020 and into 2021 to support the European market and then looking at and being aware of several opportunities that may exist in.
That to support some of the end to end requirements for the VP space.
In Europe, and Latin America.
So it will be a conscious part of what we do going forward.
Great and then just a quick follow up on the the online marketplace opportunity I think you've talked about the past about having pretty good penetration is very high end up of the marketplace.
You know, where where do you see that going over time. It are there specific initiatives, you're trying to to an act to expand your presence online market places. Thanks.
Sure Yeah, we've been fortunate to have some longstanding relationships with the largest marketplaces that really dominate the space and those we consider a key part of our one diminished strategy, where we were able to access a plethora of small customers that we otherwise wouldn't find value in serving by serving but marketplace and really dealing with.
The new marketplace facilitator regime, that's being put in place and being adopted by now over 40 states and over in Europe. There is additional rules being applied to marketplaces about how they're gonna have to deal with both calkin compliance and so I think those are our opportunities for a new growth vector for vertex because as these regulations are really being absorbed and.
In advance of we think there can be opportunities as that as the revenue volume accelerate through marketplaces to really drive some of our license license offerings.
Great. That's helpful. Thanks, a lot.
Thank you.
Thank you at this time, if reach and have a question answer session and I'll turn the call over to David the Stefano for closing remarks.
Thank you you know in summary, really pleased with the quarter's performance and excited for the opportunities ahead. Our recent IPO was a significant milestone for the company and we recognize though it's just another step forward as part of a longer journey, we have a great company and we'll continue to be focused on maximizing shareholder value as always I'd like to thank my vertex colleagues for their access.
Optional efforts and our clients for their strong partnerships and are extraordinary partners that we collaborate with and work seamlessly with to deliver value to the market. Thank you for your interest in vertex and for joining us on the call today.
Thank you everyone. This concludes today's conference you may disconnect. Your lines at this time and we thank you for your participation.