Q1 2021 Vertex Inc Earnings Call
Greetings and welcome to the vertex incorporated first quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. 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 it is now.
My pleasure to introduce your host.
Vertex Investor Relations. Thank you and Ken you may begin.
One moment, please while we share with some technical issues.
Yeah.
Yeah.
Yeah.
Thank you good morning, everyone and thank you for joining us from her Texas Financial Conference call for the first quarter ended March 31st 2021 on the call today, we have our tech CEO, David to step it up and see it.
Thanks, Bob 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 risks and uncertainties that Florida.
The statements are subject to are described in our earnings release and other SEC filings.
These remarks Walker good 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 from vertex in the Investor Relations website at IR Dot vertex, Inc. Dot com with that I'll now turn the call over to David.
Thanks packet I. Thank you all for joining us today we.
We had a strong start to the year and we're very pleased with our performance with strength across all of our key market segments product lines and vertical well.
We continue to execute on our strategy and focus on our customers.
Results another strong quarter outperforming our Q1 guidance.
We grew quarterly total revenue to $90 2 million in Q1.
Annual recurring revenue grew to $320 1 million.
Yeah outstanding efforts of our teams around the globe and the investments we are making to accelerate go to market deliver new products that enable great customer experiences are building strong momentum in our business as we move forward.
We believe that as tax revenues continue to be a key part of our global economic recovery.
<unk> critical role of our solutions to enable growth and reduce friction we will continue to increase.
The investments we are making in our cloud platform keep us well positioned to seize these opportunities and deliver innovative end to end solutions to companies wherever and however, they do business.
And we are incredibly excited about the acquisition of <unk>, which we announced earlier today, bringing new and differentiated capabilities to our portfolio and significant growth opportunities in E Commerce and marketplaces.
Our vision is simple, but it is bolt.
We intend to accelerate global commerce.
Why because it benefits everyone companies consumers.
And governments.
Because of our breadth of enterprise grade cloud and end to end product offerings. We are ideally positioned at the intersection of where most of the world's commerce happens and the compliance required in it.
What's so exciting is how fast this vision is playing out the.
The global fabric of commerce community credible opportunity and expansion across all channels.
But also comes with complexity from a tax perspective, it requires intelligent task technology throughout every aspect of the commerce transaction.
The enterprise back office applications to manage core procure to pay order to cash and front office applications like billing CRM and e-commerce as well as e-commerce platform and multi seller marketplace supporting both be to be a BDC.
We continue to pioneer the world's most trusted tax technologies for business to transact imply in growth and that is why we're so excited about the growth opportunities ahead.
As I have shared in previous quarters, we believe our unified platform multi cloud strategy and deep partnerships are a powerful trio that allows us to meet our customers where they are at and consistently differentiates us in competitive sales cycles.
Our win rate in the enterprise market remains dominant in.
And we've seen continued momentum of the value proposition and competitiveness that are cloud products offer middle market companies as they grow and take on increased tax complexity that other vendors are not able to address.
34% of our new sales in Q1, with new logos and of that 92% cloud deals.
We believe this will continue throughout the year as our customers continue to deal with an increasing pace of change in their business models, while they pursue global omni channel operations digital transformation, along with the continued and increasing regulatory change such as the new legislation around cross border transactions that'll be going live in Europe.
In July and are following what the UK initiated in January.
The highlights I will share in a moment reinforce this with a common scenario.
As companies shift their business model diversify their offerings expand globally or acquire new company their existing systems, whether homegrown or with another vendor are no longer able to meet their needs. The fact that we can deliver a single platform for all indirect tax types that interfaces with an infinite number of.
Systems is critical.
I've been in this business for over 20 years and I can tell you that while much has changed one thing has not changed customers big midsized global or local.
They need improved accuracy and their tax calculation and compliance violence.
Using vertex we support their tax complexity today, and we're moving to the cloud they have confidence that we are the premier cloud native solution that provide a precise tax result ever.
Ever changing tax rules, regardless of the application.
This process or region.
Keep in mind as I've said.
At our recent customer win examples demonstrate we often co exist with our customers in both cloud based front office and traditional back office applications.
For most companies moving to the cloud is not a like for like swap or full blown migration customers are adding pieces over time and not surprisingly the trusted foundation, we have built and the footprint. We have established makes it easier and far more logical for them to adopt our cloud solutions because they trust the data there.
Recede and can maintain consistency.
For us we have a great opportunity to grow our E. R. Within these accounts, sometimes significantly as they move from point solutions as we often experience when they go from one offering sales tax for example to a complete end to end solution across multiple pack types.
<unk> consumers views sellers use V T and communication services as part of their migration process.
Again, our single platform approach differentiates us in these scenarios.
Let me give you an example, one of our existing customers and the digital entertainment industry.
Who has been using our on premise tax engine to support their business found themselves ready to migrate to the cloud with.
With growth opportunities in front of them. They specifically wanted to provider with a single cloud platform to manage all of their tax compliance needs across sales use and communication tax and one who could also connects seamlessly to their front end CRM and billing systems.
Tax team also wanted to take control of their tax data and the ability to manage and maintain their solutions locally taking it out of the hands of I see this company has been with us for a long time, and it's been very happy with the support and enhanced accuracy and timeliness they receive.
As such.
When it came time to move to the cloud it was a natural progression to move there with us their preferred tax solution provider.
Because we were able to help them manage tax across multiple types.
With highly integrated and not cobbled together point tools.
And as a result of the value we deliver we were able to grow our <unk> by 300 per set with this customer.
With our customers, regardless of how they do business or how their business model and needs change. We believe we are uniquely positioned to help them by addressing multi cloud multi application multi tax side on one unified platform.
That makes us different and why we are trusted by so many companies worldwide.
And when we look at our addressable market today, and our core focus we see tremendous greenfield and expansion opportunities everywhere to land, new logos across middle and enterprise markets, but also within existing customer accounts. Many of our customers have multiple subsidiaries often with separate systems and dataset.
That required consistency from a tax perspective.
As we bring new offerings and capabilities to market. This gives us cross sell opportunities to support their business growth.
One of the new logos, we won in the first quarter replaced the competitor's cloud solution with ours to support the growing complexity of their business as they broaden their distribution of engineering software products and services to customers around the world.
One of their greatest challenges like many others was the need to ensure that the multiple front office and back office systems. They rely on day in and day out could connect and work in concert to support their omni channel business. This is where our experience working with complex companies in the mid market and the strength of our partnerships was so important.
In this case.
Customer depends on both Salesforce and Oracle systems.
So when we talk about the mid market. It's important to understand that we have been in this space for years in fact, nearly 35% of our customers are in the middle market already.
And what we have seen time and again is that many of these companies begin experiencing increasing tax complexity as they head towards being enterprise sized companies.
What distinguishes our entry point on mid market deal is often their starting point is.
They did not grow up with larger ERP. They may be starting with a front end solution for e-commerce or procurement, but when it comes to attack. They want the same level of trust consistency and scale that our larger enterprise customers demand.
And they need solutions that grow with their business frankly, some mid market company hit a wall when their current solution can't scale.
And that is sometimes the case with larger enterprise customers as well as shown by another one of our Q1 new logo deals.
As the largest travel retail in North America was continuing its omni channel growth. It reached a tipping point, requiring a more holistic approach to indirect tax management.
They needed to calculate tax down to a detailed item level and required a robust multifaceted solution as they were connecting into their Pos system.
And magenta Adobe for E Commerce, where we are the bundled tax provider.
Rather the complexity the retail locations are within airport terminals.
Meaning the ability to maintain the speed of transactions and improved accuracy of tax calculation at the local level, if and when the internet connections per week.
It is critical to their customer experience the breadth of our content.
Of our jurisdictional compliance and our ability to connect into multiple complex systems made the difference with this new customer.
Now, let me talk about how we're expanding our offerings organically to capture more of our Tam and deepen our customer relationships.
Todays tax department as one of the largest consumers of data in the enterprise because tax day to touches almost every key business application.
But none of those systems were built for tax.
And the delicate transfer from general Ledger to legal entity that's required for tax filing. This creates an insidious problem for tax teams. How do you get good clean data from the source and catch bad data as early as possible.
And that is what inspired us to create our new data integrity solution, which we announced in April this.
This is a cloud base tax specific solution automates the data validation analysis from transformation steps that increased data quality.
The solution helps our customers address their data challenges from two angles, one is providing timely data they have confidence in to support real time filing and helping customers who are pulling data from multiple sources to cleanse it prior to putting it into the form.
We also continue to build on the strength of our partner ecosystem to expand our capabilities to support the platforms that our customers run their businesses are.
As you May recall I spoke about the late year release of the chain flow accelerated from SAP ERP in Q1.
We've seen nice momentum this quarter as we extend this offering out to sap's extensive installed base once installed customers don't need to worry about coding scenarios. They can simply use the graphical interface to set up their supply chains.
We're already seeing how our customers value the accelerator and deal the accelerated what was the key factor for one of our consumer goods customers from an integration and reporting perspective, along with the fact, we had a cloud solution and a European data center to support their move to a global instance of S&P.
Our ability to leverage native ERP and improve the user experience is what we did with our new indirect tax accelerator for Oracle fusion cloud ERP, which we launched in Q1, the accelerator, which is hosted on Oracle cloud infrastructure makes it easier for customers to configure our solution to their needs.
And more granular transaction data to make their tax result, as accurate as possible.
It represents the natural evolution of our 25 year partnership with Oracle, enabling vertex to further differentiate its offerings and support a diverse set of customer requirements.
But these accelerators represents is our commitment to bring forward a differentiated customer experience, reducing the friction of tax compliance within those native applications that the customers are using every day.
You know we've been incredibly fortunate these past 40 years to work with the brightest minds in indirect tax technology to inspire insight and collaborate with us to inform products and capabilities, we're delivering to the market.
In fact, we just held our semiannual customer Advisory Board meeting.
Amazing to me they represent some of the largest innovators on the planet with some of the most complex global tax requirements and I'll tell you. The common theme coming out of the discussion was the desire for vertex to be not only their sole provider for indirect tax automation calculation and compliance, but also for E invoicing tax data.
And beyond there.
There was significant interest in how we're thinking of edge computing and our recent acquisition of <unk>, which I had mentioned in Q4.
Theyre also affirming the huge potential for us as their businesses continue their own digital transformation in the new digital economy, I'm going to highlight two areas where they are focusing.
First we've all been experiencing the explosive growth in e-commerce across traditional retailers manufacturers and E Commerce native alike.
As the business has to deal with both digital services and physical goods.
And the brick and mortar companies are continuing to innovate in response and.
And in doing so are taking their tax needs to the edge with field services and mobile handheld devices to run transactions in real time.
So now you have mobile applications being deployed by thousands to the locations who can't afford to degrade the customer experience with any latency or performance downtime.
The reality is digital transformation, that's happening everywhere and it's bringing us to the table with entirely new companies operating incredibly diverse business models.
Another Great example.
As their digital services footprint continues to grow we were able to support a leading global audio streaming and media services provider earlier this year adopt our tax engine to automate tax compliance.
This new cloud customer needed to ensure streamlined interactions at the point of sale and the flexibility to integrate with their front end systems.
It's on or off the shelf, including a homegrown system for ecommerce and net suite for billing.
Also a great example of the value of our deep and trusted relationship with the big four.
This sale was one of many in the quarter, where we teamed up with them to deliver customer value and how investments we are making in our ecosystem relationships are paying off in.
In March we expanded our partnership with Big Commerce, and our integration to their open SaaS cloud ecommerce platform.
<unk> thousands of B to B b to C retailers across 150 countries with our robust sales and use tax and <unk> solution as.
As big Commerce extends into the more complex enterprise market, we are scaling the partnership together and supporting their largest companies with global capabilities and industry specific solutions as their preferred tax technology partner in both the middle enterprise market.
Another key segment of our growth strategy is in marketplaces. We are all seeing business is leveraged third party marketplaces to extend their reach and we are investing heavily to support those marketplaces as part of our one to many strategy to serve the SMB market.
However, the growth opportunity with marketplaces does not end there for us.
In our core enterprise market, we have customers that are standing up their own marketplace.
These are companies big enough to be the center of gravity for their customers and suppliers and have infrastructures to do it and.
And we are uniquely positioned to support these large companies that are already using us in the back office as they open up a marketplace.
They need our solutions to onboard address that registration map products for taxability purposes, and for some offload the payment and double invoicing requirements that complete the transaction handshake for compliance purposes.
A good example of this is one of the worlds largest automobile manufacturers.
They are standing up their own marketplace to sell their expansive line of car brands online.
But also to create a marketplace for other relevant suppliers to sell in Q1. This represents our largest European marketplace sale.
And what I love about this deal and I can't say enough is that it again represents the importance of strong trusted relationships. This.
This opportunity came to us directly from our partners at Commerce tools the company needed to address the complexity tax compliance at the marketplace provider.
Our cloud solutions supported by the breadth and depth of our content.
The bill as they prepare to support this new area of strategic growth for their company. When we look at marketplaces overall, we're talking several trillion dollars in gross sales flowing through these channels every year and it's growing fast.
Especially in B to B, which is largely still offline and starting to come into the digital age.
About wholesale and logistics in vertical like grocery freight trucking autoparts and even dental supplies.
They are very fragmented with orders and payments being done manually through email fax and even paper checks.
Each vertical has a different buyer and seller AR and AP workflow.
And each represents incredible opportunity for growth for vertex.
From a client standpoint, some U S states are requiring marketplace facilitators to collect and remit tacked on behalf of their sellers.
And now that's happening in Europe, as well with similar regulations going into effect. This July for EU member countries.
So all of those are opportunities for us to take what we do really well enterprise tax automation at global scale.
Leverage and expand our content and expertise in use tax as well as <unk>.
And pursue those adjacencies expanding our cam to serve the Aggregators and access the F&B sellers through that one too many relationship.
This is why I'm, so thrilled with our acquisition of tack them out a cloud native pioneer in tax and payment automation for global E Commerce, and marketplaces, which was just announced this morning <unk> is a global company based in carry Ireland.
<unk> delivers a unified platform of integrated capabilities to manage D T GST and sales tax.
Our core focus on ecommerce payment.
Payments and E invoicing.
That's the most solutions were purpose built for today's global digital businesses, who need to automate compliance and commerce across the entire value chain from merchant to seller to payer and revenue authority.
Their solutions provide differentiating additions to our existing SaaS and content capabilities and we believe the addition of tax the most solutions gives us the greatest breadth of global capabilities to help enterprises e-commerce providers and both B to B and B to C marketplaces bring intelligent automation to reduce free.
Actions anywhere transactions are being done.
This acquisition aligns perfectly with our long term strategic roadmap, increasing our Tam and helping us accelerate all our key business growth drivers.
It will help us advanced e-commerce and marketplace growth that I've been highlighting as well expanding our mid market share in the U S Europe and beyond.
Also excited about the compelling cross sell opportunity this creates for existing customers of both companies.
With the new EU marketplace and E Commerce regulations scheduled to take effect in July bringing our companies together further supports our customers with these emerging compliance obligations.
Tailwind from adoption will begin later this year and into 'twenty 'twenty two.
<unk> E Commerce and marketplace taxation is just getting started with a number of other countries in Asia Pac and North and South America pursuing similar forms of cross border tax regulations. We are ideally positioned to address these complexities as the dominant provider to global multinationals and their diverse multi country supply chain.
Our companies share a common vision to accelerate global commerce and enable business growth centered around the needs of our customers supported by the strength of our ecosystem and driven by technology innovation.
We were driving to the same place and together, we will get there faster.
Synergy between our companies also extends to our culture and core values that drive our business.
I've gotten to know John Mccarthy <unk> CEO over the past several months and I'm thrilled he is bringing his passion vision and payments expertise to vertex. He will join our senior leadership role responsible for e-commerce payments and marketplace strategy and service deliberate.
Our success doesn't come without continuing to bring on great talent, we continue to expand capacity globally, particularly in R&D and our go to market organizations and adding exciting leadership talent like Samara 10 down from Citrix to expand our customer success management excellence.
Dr Revert Burton.
After her years at Lockheed Martin IBM, and Deloitte consulting to lead our global workforce strategy.
I will now turn it over to John swapped to share more on our Q1 performance.
Thank you David and good morning, everyone. Today, I will discuss our first quarter 2021 results and then I'll wrap up with comments on our capital structure and provide Q2 and full year 2021 guidance. Our guidance will include the results of our recently announced acquisition of tax amount.
First on the Q1 financial results.
Total first quarter revenues grew 10, 1% year over year to reach $98 $2 million exceeding the upper end of our quarterly guidance by 176 basis points or $1 $7 million in aggregate.
Our subscription revenue component expanded nine 9% year over year to $83 $3 million.
Our services revenue grew 10, 9% year over year to $15 million.
Our annual recurring revenue.
<unk> grew to $321 million as of the end of March 2021, representing approximately 13% growth year over year.
Our net revenue retention rate or <unk> was 105 per cent for the headquarter and demonstrating our customers' ongoing commitment to our software and solutions.
Our gross revenue retention rate or <unk> was 95% at quarter end, which excludes the impact of existing customers migrating to our cloud solutions, which was approximately 4%. This is consistent with the quarterly performance throughout 2020.
We continue to see strong growth in our cloud based solutions, among both existing and new customers in the first quarter of 2021 cloud based revenues grew 42% year over year and it's directionally aligned with the guidance. We shared in March as previously mentioned, we expect our cloud revenue base to exceed over $100 million for the full year.
In 2021 and are targeting annual growth rate of approximately 35 per cent.
We continue to believe that our customers shift to cloud presents a unique opportunity for us to drive additional revenues and IRR growth.
We believe the approach to serving both cloud and on Prem customer needs continues to be essential for us to meet the complex needs of those customers.
Now some statements on expenses.
In discussing the remainder of the income statement. Please note that unless otherwise stated all references to our expenses operating results and per share results are on a non-GAAP basis, all non-GAAP financial measures are detailed and reconciled to our GAAP results in the earnings press release that was issued this morning.
Okay.
On an overall basis gross profit for the first quarter was $68 $4 million, representing 69, 7% gross margin. This compares with gross profit of $63 $1 million and the 76 gross margin in the same period last year.
The year over year 90 basis point change in overall gross margin reflects our substantial investment in our cloud infrastructure as well as our customer service areas.
From a subscription software standpoint, our gross margin was 77% as compared to 78, 1% in the prior period.
Well variance driven by continued investment in cloud infrastructure as well as our customer service group.
Gross margin on services revenues declined to 28, 1% from 29, 3% in the prior period as we mentioned in March we expected services margins to moderate to these levels based on the normalization of our staff utilization range.
First quarter research and development expense was $10 9 million or 11, 1% of revenues an increase of 40 basis points year over year.
Including our quarterly cash investments in capitalized software, our actual R&D product investments approximated 17% of revenues in the 2021 period, reflecting substantial investments in our new solutions to address customers' end to end.
Analysis from compliance needs.
Our first quarter, selling and marketing expense was $18 8 million or 19, 1% of total revenues a decrease of 30 basis points on a year over year basis, which was primarily driven by a reduction in year over year travel and marketing events due to COVID-19 restrictions.
First quarter General and administrative expense was $20 6 million essentially flat compared with $27 million from the prior year, reflecting incremental cost from becoming a public company, but that was mostly offset by expense reductions attributable to COVID-19 restrictions.
Operating income was $15 $4 million compared to $12 $4 million per the same period last year at 23, 6% increase.
Net income was $11 million compared to $11 $6 million from the prior period.
And net income per diluted class, a and class B share was <unk> <unk>.
Compared to nine for the same period last year down <unk> <unk> year over year, as we issued $24 3 million.
New shares at our IPO.
Adjusted EBITDA was $18 2 million, an increase of $2 9 million on a year over year basis.
Seeding the upper end of our quarterly guidance by $700000 in the aggregate.
Adjusted EBITDA margin was 18, 5% in the current quarter of 140 basis point improvement versus the prior year.
Turning now to our capital structure and liquidity.
We soundly ended the first quarter with over $278 million in cash and cash equivalents and no indebtedness.
During the first quarter of 2021, we can send to $11 $4 million from free cash flow, reflecting our investments in our research and development and selling and marketing initiatives.
Our first quarter free cash flow represents an improvement of $4 $4 million as compared to the prior year.
Historically, our cash flows from the first quarter are lower than the remaining calendar quarter since they're heavily influenced by variable compensation payments.
Turning now to our guidance for.
For the second quarter of 2021, we currently expect total revenues in the range of $99 million to $100 million.
Representing growth of eight five to nine 6% from the second quarter of 2020.
And adjusted EBITDA in the range of 15, five to $16 $5 million, representing a decrease of $6 million to $5 million from the second quarter of 2020.
The <unk> acquisition was announced and closed on May 12 2021, our.
Our guidance for the second quarter of 2021 includes the impact of the acquisition, which includes a contribution of $500000 of revenues and $500000.
A decrease to adjusted EBITDA.
For the full year 2021, the company currently expects total revenue in the range of $410 million to $414 million, representing annual growth of nine 4% to 10, 5% for the full year 2021.
Adjusted EBITDA in the range of $66 million to $70 million, representing a decrease of $12 four to $8 $4 million for the full year of 2021.
The full year 2021 guidance reflects the impact of the tax net acquisition for the remainder of the year, which includes a contribution of $9 million of revenues and $2 million decrease to adjusted EBITDA. The reduction in EBITDA is primarily related to integration costs in connection with the acquisition.
We expect the tax and then we will have a more significant impact on our 2022 revenues due to the timing of the acquisition close as well as tailwind from the new marketplace and E Commerce regulations in Europe.
Notably such regulations are already effective in the United Kingdom and are expected to go into effect throughout the European Union in July.
Yes.
Additionally, modeling details underlying our outlook are as follows.
Regarding our share share count at March 31st we had $120 million 117000 shares of class B common stock outstanding and approximately $26 million 972000 class a shares outstanding.
Additionally, we had $12 six.
64000 shares of common stock equivalents with a weighted average exercise price of $2 91 per share.
Overall, we're very pleased with the progress we have made on our strategic initiatives and business performance.
Excited about the <unk> acquisition and the growth opportunity that presents and look forward to providing an integration update during our next call.
Now we're happy to open up this call for questions. Operator, Please open up the line for Q&A.
Thank you we will now be conducting a question and answer session I would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line. It in the question queue.
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One moment, please while we poll for questions.
Thank you. Our first question comes from Samad Samana with Jefferies. Please proceed with your question.
Hi, good morning, and thanks for taking my questions. Maybe first one David for you when I think about M&A and it seems to be picking up.
The most recent deal this morning, and then another one earlier this year netting some of your competitors in the market have also been acquisitive, just how should we think about that the consolidation and how that factors into your intent for Texas strategy, maybe but for this year and kind of maybe on an intermediate term basis.
Yes, Mike Great to talk to you and thanks for the question as we said all along we see a balance of opportunity in Greenfield that we can grow with what we have in the market and what we're building organically, but we also see the opportunity and the need to make acquisitions in particular in certain tuck in areas that will complete our end to end capabilities.
Acquisition of taxable was wonderful because it expands our presence in Europe.
Increase our mid market and enterprise opportunities and also it really will accelerate our U R.
E Commerce and marketplace growth and I think those are the areas. We're going to continue to look for opportunity as we continue to expand our portfolio.
Great John and then maybe one for you when I think about.
<unk> revenue I know the company isn't going to guide to that every quarter, but how should we think about how that looked in one Q and is it on track to do kind of better or consistent with that 35% outlook provided for for the full year.
Yes. Thanks for the question <unk> I think again as we mentioned we did about 42% in the first quarter or our full year expectation as we mentioned on the call was about 35%.
We expect that it's somewhat in line, we may see we may see some improvement there, but I wouldn't you know we're not planning it right now so so we standby the 35%, but we think theres opportunity to perhaps increase that.
Great and then just I guess you know when I think about the NRI, we definitely appreciate the disclosure downtick just.
A point in the quarter ending.
If I missed this but was that more as a result, our gross retention changing our cloud conversions or.
Or was it just maybe less upsell activity.
<unk> in the quarter, you just help us maybe unpack I know its one point, but just trying to triangulate better there yes.
Our <unk> was consistent with where it has been throughout the throughout 2020, so that hasnt really changed it really is about the opposite the upsell activity with existing customers. So that was really the driver there.
Great. Thank you so much for taking my questions no problem.
Thank you. Our next question comes from Brad sales with Bank of America. Please proceed with your question.
Oh, Great Hey, guys. Thanks for taking my question I wanted to ask also about net revenue retention the 105 I guess.
Given the current penetration in some of these larger accounts.
For your footprint.
And from the traction Youre seeing with the cloud could the cloud potentially accelerate that net revenue retention is in other words, our cloud customers.
Propensity to buy more and expand more is that greater or are you seeing that type of.
Signed within that within the cloud installed base and if so why or anything that could get that net revenue retention perhaps.
Accelerating.
Yeah. Thank you Brad appreciate the question this is David.
Yes, I think Theres a few dimensions to your question I think the first is as we continue to bring new products to market.
The accelerator products, we brought the data integrity offering those things are all designed to expand our customer experience and improve our customer experience, which will increase <unk> as we deliver more value I think the second thing is oftentimes the migrations, we see the demand driver behind most migrations of an on premise solution are typically going to be.
The complexity of their tax environment. So they were using one solution sales sales tax and now they're starting to have consumers use tax challenges where V. T challenges and so what they are looking to address an upgrade or a migration at that point in time. It allows us to expand our multi dimensional it's not just moving to the cloud, which will improve our <unk> and <unk>.
For the <unk>, but it will also allow us to sell other other product. An example that was what I talked about earlier in the quarter. We drove one client up 300 per cent in there or just because of their migration process. So I think those are sort of tipping points and then obviously as customers move their infrastructure to the cloud our relationships with SAP and Oracle, which was a.
A larger platforms that we support when they are moving to the cloud that's a very logical expansion opportunity for us. So I think you have to think about it and all of those dimensions as we as we grow our MLR.
Great. Thanks, So much and then and then one more if I may just on tax the Moe.
Will this accelerate the the adoption if you will market places for.
Digital tax solutions for their merchant base like yourself I know for example, you have certain large marketplace providers as customers.
But what would it take to get them to sign on as a partner and more materially.
Resell essentially vertex and.
And if you could remind us also kind of what are they offering to customers today for sales tax automation. Thank you.
Yeah sure. So Mark every marketplace has a different approach on how they're solving tax.
The tailwind that are coming from the legislation in in July.
In the U K in January around the marketplace requirements are going to be significant and I think that's where we see immediate opportunity the <unk> has well positioned themselves.
With a true end to end solution they handle registration filing all the qualified tax payments.
Really the whole the whole end to end process through seller validation liability invoicing and payment. So that comprehensiveness of suite allows for acceleration. It also allows us to now bring those those capabilities to our as you noted to our install.
Marketplaces, where we already have a presence. So we now have a larger opportunity a portfolio of solutions to bring to that market. So we definitely see it as an opportunity to bring to both new marketplaces that tax from was well positioned with as well as our stable of marketplace are already working with.
That's great. Thanks, so much David.
Sure.
I appreciate the question.
Thank you. Our next question comes from Pat Walraven with JM JMP Securities. Please proceed with your question.
Oh, great. Thank you I actually have two and by the way congratulations on the results.
I mean, David it sounds like things are going are going really well, but when I look at the <unk> over the last five quarters at Scone, 17, 16, 15, and 14 and now 13.
So can you just help us unpack, what's going on under the covers that that's leading to this.
Consistent deceleration over the last year that'd be really helpful. Sure I think when you look at the slowdown that SAP Oracle and workday have all been talking about are now starting to see their pipeline build we're following the exact pattern I think we saw the same trend play out for our business is very slow down during the pandemic.
It has a lag effect on us so it hit us a little later into the year, but now as they're starting to talk about and we're seeing through our pipeline activity. The demand drivers beginning to pick up with the acceleration there all experiencing were seeing the same follow on discussions now starting with our customer base as they start to plan for the <unk>.
The activities, there that they're being driven through their organizations and so it's actually following the pattern I think we've been trying to lay out Pat that as those larger companies are moving the S&P oracle's workdays of the world, we sort of follow that trend I think the second part of it is.
Heavy investment, we've now been making in channel and E Commerce, and now with marketplaces around taxes, though is the other side of the equation, where the front office side and the acceleration. We're now we now start to expect to see they're moving forward in the back half of this year and into 2022.
Okay. That's super. Thank you and then can you just touch it and you mentioned the changes in the tax rules in Europe and.
In cross border would you mind, just touching on on sort of what the biggest issue is around cross border and how those changes fit in.
Sure.
I think fundamentally.
Governments are trying to get their fair share as the economy is moving into a new dimension, meaning that commerce is happening in places they historically have not been able to.
Pursue.
Legislate comp.
Compliance it and so what we're seeing is now a great opportunity because they are pursuing that fraud. They are pursuing more accurate filing so they really want to shift the burden to marketplaces and e-commerce vendors as the way too.
Or logistics companies, even we're seeing logistics.
Supply chain companies, having to deal with a new form of compliance all following this legislation thats comfortably that's being brought out in July and so those are now new demand drivers much like we've seen here in the U S with the marketplace facilitators, where some states are starting to pursue liability exposure to the marketplace for third party sellers.
I think it's going to happen and we know what's happening in Europe Theres other countries. Both in North America, Latin America, and actually around the world that we're now seeing opportunities to exploit.
Great. Thank you.
Awesome.
Sure.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question Kim.
Thank you. Our next question comes from day, one theory with William Blair. Please proceed with your question.
Hey, Dan Thanks for taking my question and nice job on the quarter. There I guess I wanted to touch on something you mentioned really briefly but.
The idea that you might be moving into payments with taxable I'd love to understand just a little bit more clarification, there and sort of as you think about that and E invoicing.
There is the ability to moving to payments right. So buildup calmness AP <unk> and has a take rate around transactions too is that something you're exploring is that something thats further afield, how should we think about that because obviously that layers in a totally different type of revenue stream with a different margin profile.
Absolutely correct, Bob and that was a key part in.
Natural adjacency for us and it's something we've been looking at for a while so as we've been working through our strategy and <unk> brings those capabilities and an active solution in the market for that.
Also partner with other payment providers already I mean stripe as a partner of ours and we're thrilled to have them as a partner. So we've been working in this space for a while the tax from <unk> acquisition, and the capabilities move us closer and deeper into the E invoicing and payment payment partnering.
Pete.
And it is a different model and it's one we're very excited about looking forward.
Gotcha Gotcha.
So I guess, what I'd love to understand sort of how big is that business today.
Sort of any sense of I know it's.
Too early to sort of give us any guidance, but some sense of how big that might you think that could be say in two or three years.
And what your expectations are for that payment as part of the business specifically.
And then maybe the competitive environment, there is very different right, it's a different buyer.
It's not necessarily it may not be treasury, maybe made up in tax rate, it's sort of an operations, maybe or e-commerce fire and the competitors are different from maybe how that go to market also shifts with you guys and the investment you might make there. So a couple of questions in there, but loved understand that a little more color. Thank you.
Yeah. Thanks for the question, Bob and I'll start with it and maybe David you can.
We have some other commentary, but I think from an overall standpoint as you saw from some of the guidance that we provided you can kind of get a feel for the magnitude and the size of where where the guys are tax MLR now in terms of kind of the revenues and how they've been operating in so I think theres an opportunity there as we think and we look into 2022, and we think about what that's going to look like we do our apps.
Pollute, we see the opportunity for significant growth there obviously, we're buying at mid year. So we'll get the full year next year, but with the regulation and everything thats going on now.
Now ish in this mid year timeframe, that's going to only accelerate growth in their business and it's going to accelerate growth in the businesses that touch on payments as well as the areas of their business that are focused around the market places. So I think it's a combination of all of the above that are going to really.
Really.
The growth that we're going to see from them and Bob and I would just add.
The founders of taxable came out of the payment space, that's where their expertise is actually lives and they backed in the tax.
As a short term opportunity, but that connection for them as a very natural one and so that go to market motion that you asked about what would be different than our historical go to market motion is actually very native to the taxi book team because thats, where they grew their that's where they grew their chops over the years. So I think that's again the synergy we see in the natural connection between their business and ours.
<unk>.
Gotcha Gotcha interesting acquisition.
It sounds like a bunch of different areas are nicely expense within the channel. Thanks for taking my questions guys.
Yes, it's definitely going to be increasing our Tam very excited about that.
Thank you. Our next question comes from Brad Reback with Stifel. Please proceed with your question.
Great. Thanks, very much John on 35% cloud growth does that include tax amount or is that on top of that.
Well.
So the 35 growth first of all for the first quarter. We came in at 42 and when we gave that growth estimate out that was that was at the beginning of the that was at the beginning of the year for the first quarter and we said that was for the full year that did not include that does not include the <unk> growth. So that was excluding that.
But it's a 35% yeah, that's 35% guide for the year should we think of that is inclusive of tax from that that did not know that did not that's a great question. Thanks for clarifying that Brad. It did not include that so tax them or will increase it will certainly increase increase that to the extent that the majority of their activity is cloud based.
Okay, and then on the cloud revenue specifically for <unk>. The sequential dollar increase was pretty modest compared to.
What you saw for <unk>, which is running at about $2 5 million plus per quarter.
Is there seasonality in <unk> or are there some other things going on that weighed on that sequential absolute growth.
No I think again as we've talked a little bit about we still offer a hybrid solution right. We have the opportunity for customers to buy both cloud and cloud and on Prem and as we've talked about I think at the end of the at the end of the year in our March call.
On occasion, we will have customers that come in and want a real big real big opportunity in on Prem and that will kind of move things around a little bit. So we're not seeing anything unusual happening in the business Thats kind of as we had anticipated that we would say so theres no real big movement going on there, but again the fact that we offer both of the products customers can choose to go on Prem and that impacts a little bit of what's going in.
The cloud revenue growth, yeah, and in fact, as we talked about in Q4, our fifth largest deal in the history of the company was an on Prem deal and then this quarter. We had some very large Brazil deals that we're all on Prem. So again, it's just the nature of the buyers sometimes at the larger enterprise level will want to keep it behind the firewall and that's something we can differentiate with when we need to.
Even if we're leading cloud and everything we do at the end of the day.
We're about customer experience and giving them what they need to support their tax operations.
Got it thanks very much.
Thank you.
Thank you. Our next question comes from Joshua Reilly with Needham and company. Please proceed with your question.
Hey, guys, a nice job on the quarter.
So if you if you look at the pipeline of increased Oracle in S. E. P activity is that primarily an on premise installations going to cloud or on premise customers buying more solutions or.
Just generally how should we think about that and the implications for our growth later in the year, because obviously if you.
Converting migrating them the impact would be greater.
Absolutely and you're right so.
The growth is but remember, it's both new logos and and.
And existing customers migrating, but yes, certainly the SAP.
As for Hana platform is beginning to gain more traction and we're in a much more pipeline discussions there than ever before some new logos. Some migrations and then I think OCI with Oracle is doing has been really a solid partner for us for 25, plus years and Theyre seeing really nice traction there and we continue to support that.
Very fortunate to work with them. The way we are so I think both organizations candidly are seeing this type of cloud lift we would expect.
As they move year to year coming that will be coming out of the pandemic now and fueling stronger about the economy I think the businesses are getting more bullish on it and we're seeing that in our pipeline discussions as well.
Okay, great. So it sounds like a mix so.
If you.
Just a follow up.
If you look at the sales go to market kind of post COVID-19.
Pre COVID-19 you guys were heavy in person sale type process, obviously, you've moved to virtual.
What do you see as a post COVID-19.
Sales dynamic in terms of hybrid versus in person.
In terms of the sales I think our obviously our sales team is anxious to get back in front of our customers and continue to support them and build the trusted relationships that we've enjoyed for all these years. So I would definitely expect it will very very least be a hybrid I think every customer is going to be different though I think some customers don't want people onsite, yet and they may not want them on site for a considerable.
At a time, where they may not be having their tax team in the office anymore in which case it would limit our ability to go meet them in person. So I think it will really be driven by what our customers are doing consistent with our practice for 40 years of working meeting our customer where they're at I see that following suit with our sales organization. If our customers are in will be there.
If our customers are working remote then we will have we work with them in the virtual environment we've been.
Okay, great. Thanks.
Sure.
Thank you Josh.
Thank you. Our next question comes from Daniel Jester with Citi. Please proceed with your question.
Great. Thanks for taking my question good morning, everyone.
Maybe another one on tax and no answer the VAT rule changes you mentioned that the U K went live with those changes already earlier. This year. So we've got maybe four months of data like how did tax benefit.
Benefit from that can you quantify at all and just as a point of clarification is this going to be a driver of new logos like I E people don't have something for this compliant change they have to get something or is this going to be a situation in which many customers already have but they need to provide an additional service in order to cash.
Net into compliance as the year progresses.
Yes so.
On the latter question I mean, obviously, we see this as an opportunity we're expanding our new logos around the e-commerce capabilities, they bring as well as the marketplace from the marketplaces right now having to deal with this Dan. This is new this legislation is just coming on stream here in July so, it's really just new dot new new conversations.
Starting with marketplace that previously didn't have to deal with this liability. Good news is we've got our footprint in with a lot of the best marketplaces already given that we've been handling their first party sales. So this new third party liability and bringing these capabilities to bear is sort of a natural extension of what we've been doing.
I don't know if we have John if you have data on yes, we don't have data on sort of how the just that specific UK piece again keep in mind the effects in our lessors all of our sales tax solutions across the across the board and so they've had a revenue stream that's flowed in.
In addition to just the UK activity that took place that started in January so they have a nice strong business they've been growing at a very successfully over the last couple of years and we're excited about what adding the marketplace into what's going to really mean to us.
Okay, Great and then on <unk>.
Going back to your own business and the comment about 34%, 35% of new business new bookings in the quarter is from new logos can you just remind us like how does that compare to the last couple of quarters and if you think about sort of the guidance for the full year, how do you see sort of the new logo.
Implications.
The revenue growth strength. Thanks.
I think important to note. There again is at 92% of those new logos or cloud and I think thats consistent with our our go to market strategy and it's working very well I think as we continue to expand our investment in the middle market channels. We've been doing remember about 35% of our customers are already coming from the middle market. So we're very comfortable in that space and been working there for years.
<unk>.
We're now able to expand it and I think that because of the compliance challenges that are showing complexity challenges that are showing up in the middle market. That's really the greenfield that we're running to building from our base within that middle market and so I expect that to continue I think this quarter ran very similar to every other quarter.
In the last several and I just see I just see it solidly growing as we continue to expand our footprint in our channel and go to market investments.
Great. Thanks, a lot.
Happy to Susanne good talking to you.
Yes.
Thank you. Our next question comes from standard Slutzky with Morgan Stanley. Please proceed with your question.
Perfect. Thank you so much guys a.
A couple of questions from from my end, just going back to <unk> for a second.
So if I recall right you guys already have very strong capabilities and marketplaces. So is the right way to think for us to think about tax from O <expletive>.
It adds to your capabilities to really expand internationally.
And but the potential to add more payments capabilities is that is that the right way to think about it we already had strong relationships with the marketplaces and good and good capabilities. This expanded it to the third party seller regulations, even faster than our roadmap. So it was always on our roadmap with these new regulations that are hitting third party sellers tack.
<unk> was already there so they actually just get us further faster in our roadmap number one number two clearly expanding our European and rest of world presence, that's really their dominant position of their customer base as European and rest of world. So expanding our footprint, we've talked about the importance of Europe in our strategy.
And then as I mentioned on the call the ability to take our customers. We have large enterprise customers that are setting up their own marketplaces now and this is a new experience for the industry. So it's not just these third party marketplaces, it's our own customers as one of the largest auto manufacturers in the world did this past quarter with us and so having all of the.
Tax and <unk> capabilities to bring to that are additive and then as you noted appropriately Stan the connection to payments and the fact that they're handling that element of the business as well has been we see as a big upside going forward.
Okay, Perfect and then John.
Had a couple of just.
Just some high level questions.
If we look at guidance for the full year right and back out tax them all and then.
And then you figure in the beat that you guys put up in Q1 that implies that the guide for the remainder of the year. It was actually slightly lower than where you guys talked about on the Q4 call maybe help us to understand how are you thinking about the remainder of the year given those dynamics.
Yes, Dan from a from a guidance standpoint, we feel very good about the end of the year I think we had a very good quarter and we feel like theres opportunity there.
For us to increase over time that said, we didn't want to use one quarter's results to sort of influence what the rest of the year guideline. So we left it as is and we figured we would adjust as we got into the second quarter and have had more visibility into the back half of the year. So that's simply how we thought about guidance and Thats. What we felt we feel very good about the numbers that are out there and we feel very good about our ability to.
So that's kind of that was our thought process there.
Got it and.
Maybe I am maybe I missed it in the prepared remarks, but did you guys give us the <unk> per customer.
Metrics like you guys have done in prior quarters or maybe the just absolute comes from account number yes. We did that at year end, we did that at year end Stan I Didnt I don't think we provided this quarter, but I think from a from an overall customer count the customer accounts very consistent with where it was at the end of the year.
Within a handful of customers so it's a.
It's not a significant change either way.
Got it and then it stayed flat did it did it go up our day to continue to decrease slightly like what I'm showing here. It went up it went up slightly Stan Yep got it understood. Okay and then.
Uh huh.
Last one from from my end I am getting a lot of questions from investors right now as far as what the actual cloud revenue was in the quarter and I think.
If you kind of look back at some of the questions that they were being asked I think that's what people are trying to get to because depending on what people are assuming was the Q1 of last year cloud revenue. If you put 42% growth on it it either implies that cloud revenue was flat in the quarter or may be up something like 500000. So.
So I just wanted to see if we can get the just the raw cloud subscription number to help answer some of those questions.
Cloud revenue that drove the 40% to 42% was $26 nine.
Got it very helpful. Thank you guys.
Okay.
There are no further questions at this time I would like to turn the floor back over to <unk>.
David <unk> for closing comments.
Thank you very much and thank you for the questions today I. Appreciate I appreciate everybody's time as we move forward through the year, we will continue to execute on the important advancements we've talked about today from the acquisition, we're making to further expanding and building upon our capabilities and driving additional investments in our partner ecosystem.
We also continue to drive R&D investments to accelerate our innovations and coverage of our end to end solutions to be work to be wherever commerce is done we see tremendous opportunity ahead, and we are well positioned to capitalize on these opportunities. Thank you for your time.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.