Q4 2021 Vertex Inc Earnings Call
[music].
Greetings and welcome to the vertex, Inc, fourth quarter and full year 2021 earnings conference call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation. If he would like to ask a question. Please press star one on your telephone keypad, 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 and kit hero Investor.
Relations at vertex. Thank you. Please go ahead. Thank you good morning, everyone and thank you for joining us for Texas Financial results Conference call for the fourth quarter and full year ending December 31 2021.
On the call today, we have <unk> CEO , David <unk> and CFO John swap.
Before we begin allow me to provide a disclaimer regarding forward looking.
These statements this call, including the Q&A portion of the call May include forward looking statements related to the expected future results for <unk>.
Company and are therefore forward looking statements our actual results may differ materially from our projections due to a number of restaurants certainties.
Risks and uncertainties that forward looking statements are subject to are described our earnings release and other SEC filings.
Today's remarks will also include references to non-GAAP financial measures.
Additional information, including reconciliations 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 through our Texas Investor Relations website.
IR Dot vertex, Inc. Dot com.
With that I'll now turn the call over to David.
Thanks, Tom and welcome everyone.
Our fourth quarter capped off a very strong year of results as we delivered more than $425 million in revenue and annual recurring revenue, 17% compared to fiscal year 'twenty each one or.
Well I think the entire vertex team around the world.
Exceeding our strategic playbook and exceeding our goals.
Our performance was fueled by full year cloud revenue 46%.
Cloud revenue per customer growing by 10% for the year.
Cloud solutions continue to dominate our new logo deal.
We continue to see our install base choose our cloud tax automation as they accelerate their overall cloud transformations.
Hundreds of six figure deals contribute to our revenue growth this year.
Across our software and services business as well as new logos and cross sell.
We have a growing customer base, representing the largest and most dynamic businesses around the world vertex has referenced customer depth and nearly every industry vertical due to our extensive content database and we have demonstrated consistently strong dollar based net expansion rate.
Our Q4 2021 net revenue retention rate was 108%.
Represents an increase from 106% we recorded both at the end of last quarter and year ago period Q4 2020.
We continue to lead in the enterprise space, while we invest in growing our mid market share.
We have multiple levers to pull when driving analog book.
Upsells.
Cross sell.
Loud migrations regional expansion.
Automation package types from sales use communications D. A T V.
Are you seeing in others.
As we said throughout the year, we continued to increase our investments to capitalize on the large and growing opportunities ahead, while our proven durability of our business model enables both accelerated growth and a strong balance sheet with sustained positive free cash flow.
So while we deliver short term performance, we continued to invest for the waterfall.
We believe we are still in the early stages of a renewed growth curve.
The sustained secular tailwind across the business technology and regulatory environments.
Our growth thesis remains very strong and our 2021 results demonstrate we're executing on all fronts.
Bringing new products to market with speed and scale.
Adding strategic acquisition.
Doubling down on our go to market motion.
Our partnerships, the new level and delivering exceptional value to our customers.
All in service to our vision to accelerate global Commerce.
We believe all of this positions us very well as we look towards 2022.
Let me dive into the a bit deeper.
From a product standpoint, we added new products and capabilities across the entire global portfolio, enabling connected end to end solutions for tax determination complying.
Data and document management.
For our customers. This means one truly global scalable platform for tax automation wherever and however, they do business.
Earlier in 'twenty or 'twenty, one do you watch cloud compliance to automate and simplify value added tax complexity.
Our customer design partner approach has created a nice pipeline of opportunities for the software.
In Q4, we rolled out our indirect tax intelligence.
Tax specific visualization planning and risk management tool that extracts insights from the mountains of transaction data flowing across I T systems and our tax engine.
As we add more business intelligence capabilities in 2022 we believe there's a terrific opportunity to serve our installed base even further.
Most recently, we launched edge.
True game changer for Omnichannel company like retailers.
Who can deploy containerized tax engine to their point of sale systems with speed and scale.
This solution came from our <unk> acquisition and represents the next generation of tax automation.
Overall, we're seeing strong pipeline for growth for all our new products, which strengthen our competitive advantage and market leadership.
Same goes for our concept, which gives us a unique differentiation in the market today and going forward.
Due to the demand and interest we're seeing across verticals like food and beverage and oil and gas we continue to expand the depth and breadth of our tax content database.
Now have over $500 million aided driven effective rates and rules covering 19000 jurisdictions around the world.
And we continue to make strategic acquisitions that strengthen our portfolio and open up new market opportunities globally.
The integration of our taxable acquisition in 2020 one is on plan.
We're seeing continued demand as we integrate their products on the vertex platform to capitalize on e-commerce opportunities in North America and Europe .
The combination of our collective capabilities is allowing us to clearly differentiate from our competitors.
We're seeing how the addition of tax the most solutions is opening the door to new opportunities.
An example, this quarter was with a leading digital services company.
Each month, they issue invoices to the patrons selling digital services on their site.
We were brought in to support global compliance invoicing with taxable advantage.
We've also extended our support for this customer with managed services to handle the registration filing across the variety of regions, where they operate.
In Q3, we announced the acquisition of LCR victim to expand our global tax automation portfolio for our safety.
The addition of the LCR tool and deep subject matter expertise of that team is already helping to increase our win rate and revenues tied to S&P deal.
We believe we have the most comprehensive solutions for our St. P of any tax software company.
Period.
We saw the impact this can have on our customers in Q4, the combination of the LCR tools with our tax engine chain flow accelerator and our teams extensive S E T expertise, but the game changer for one of our manufacturing customers.
It was feeling the pain of managing use tax manually and needed the robust functionality our solution provider to support their cloud transformation effort.
Deal illustrates the strength of our partnerships not only to get in the door to new opportunities, but also create cross sell opportunities.
I'm incredibly proud of the work our teams are doing to deliver best of breed tax technology for our customers and the industry recognition, we're getting along the way.
In the fourth quarter <unk> was named a leader in both enterprise and worldwide value added product categories, but the IBD market state.
We're also awarded Idt's 2021 SAP ERP customer satisfaction award.
We also doubled down on our go to market motion investor.
Investing in sales and marketing.
Making our strategic partnerships are stronger than ever.
We are driving an entirely new sales motion, but that's a T designed for growth.
We are not only working deals with them, but now our direct sales team are working in concert and engaging and account planning together.
We've made incredible strides in 2021 onboard 11, New channel partners, we will continue to build out the indirect sales force in 2022 to extend our reach into the vast and largely Underpenetrated S. P ecosystem.
Our Oracle business is as strong as it's ever been over the three plus decades, we've worked together.
Our increased investment in their OCI platform resulted in a record number of Oracle ERP cloud deals in the quarter.
We continue to have increasingly successful traction with our sales and go to market teams as part of the partnership with net suite.
And we continue to add new partnerships and take others to new levels of scale.
We added bolt commerce to our partner roster through our integration we are leveraging their checkout process to provide shopify merchants with vertex tax calculation. This is significant because it gives our omnichannel client single tax engine across all their invoicing touch point.
It also serves the largest shopify plus customers, who have more complex needs and need a consistent tax result from their front office and back office they were not getting otherwise.
We also announced.
First of its kind certification levels with axiomatic that to capture and scale in the mid market with this cloud ERP.
When I step back and I can see how all this comes together to deliver exceptional and differentiating value to our customers.
We believe we have a truly winning formula and then solutions.
Deep and wide content.
Scalable unified cloud platform across all major tax side.
Even with integration and consistent results across source system and partners that in house experts, who deliver rapid value and even the most complex environment.
Before I close let.
Let me share a few notable wins from the quarter that brings all of this together.
This past quarter, we were able to help one of the world's largest food service companies moved to our tax platform. The streamline tactical bias over 50 business exits.
This started out of the highly competitive sales cycle as they were running three distinct competitive tax platforms in various areas of their business already.
The company had simply states tax together as their Omnichannel business grew.
Vertex partnered closely with S E T and you off on this project to win this new logo.
I think this type of win emphasizes the importance of a single cloud platform for our customers to connect all of their disparate systems.
And it was this competitive differentiation that allows our cloud platform to replace the potpourri of existing system. They had from our competitors.
This capability gives them greater confidence in their tax results, which in turn will lower adverse results on audit.
And with the added benefit of ensuring they can scale on one platform as their business grows.
This is a common scenario.
<unk> today are managing applications and workloads across fragmented environment, our approach wins, because we offer a single platform for all indirect tax types with interfaces to the multitude of systems, our customers rely on each and every day.
Vertex customers can seamlessly what our tax calculation into their ERP.
C O N.
Sherman subs.
Subscription billing.
E Commerce platform payment gateway for marketplace solutions for a unified view of information against our competitors the.
The ability to sell systems complexity is one of our greatest differentiators.
Another example of how our cloud solution with winning in competitive sales opportunities.
Is after being divested from their parent company, a global health care provider transitioning to vertex moved their tax engine to the cloud our ability to connect seamlessly into S. E. T. S for hotter and Cooper played a significant role in the six figure deal as well as our relationships with E y.
Grant Thornton and Accenture.
Another new logo in the quarter showcase the value of our end to end offering.
Technical functionality the tax expertise and service we closed the deal at year end with a midsized company out of London, which offers a market leading platform for ground transportation management.
They were moving their business in the U S and found themselves in unchartered waters, managing sales and use tax.
They needed one global solution that would scale with them and meet their end to end needs. We were able to meet all of their requirements by combining our cloud solution for tax calculation with deep subject matter expertise and white glove managed services to support their U S returns filed needs.
Our performance in the quarter was also driven by expanding our revenues from existing customers as our customers expand globally diversify their offerings and accelerates our omnichannel strategies, we grow with them.
Growth of our leading food delivery platform through <unk>.
Usage expansion in Q4 this.
This existing customer needed additional support for countries in the EMEA and APAC region.
Our ability to scale with their business is one of the reasons. We were selected early on and win.
Now readying them for greater global utilization.
We've established a strong position in the high growth food delivery industry and today three of the top four delivery service providers in the U S are running on our cloud solutions.
Confidence in our ability to support the complex tax nuances of their industry that draws on the experience we have solving their challenges for similar organizations.
This gives us reference ability to accelerate wins in other related areas.
We are building from disposition capture the broader ecosystem surrounding this industry from retailers to restaurants.
We also continue to make strides to support the growing number of businesses, leading differentiated capabilities for growth opportunities that e-commerce and marketplaces.
We've seen tremendous growth opportunities as our enterprise customers stand up their own online marketplaces.
One of our long standing manufacturing customers selected our cloud solution for e-commerce in the fourth quarter for their marketplace platform to sell parts to consumers on behalf of their independent dealerships like.
Like so many of our customers having this cloud deployment in place perfectly positioned us for an easy migration to cloud for the rest of their tax infrastructure when theyre ready.
All of this highlights the progressive growth, we continue to drive across the business.
Well I'm so pleased to take a look back at an impressive final quarter of the year I'm, even more excited to look ahead to 2022 and beyond.
Opportunity in front of us is that.
The pace of change is not slowing down as companies adapt their business models to support revenue growth through e-commerce platforms, and marketplaces drive resiliency into their global supply chains and accelerate their move to the cloud.
This pace of transformation is driving constant investment and business infrastructure and increased regulatory change to match the changes in global Commerce.
It is these compounding forces across business regulatory and technology environment that provides sustained tailwind and momentum for our business and it's given me even greater confidence that we are investing in the right areas of 2022 to empower our customers with the technologies they need to.
Accessing navigate this highly dynamic environment.
Now I'd like to turn it over to John for a more detailed look at our Q4 results and our expectations for 2022.
Thank you David and good morning, everyone today, I'm going to review, our fourth quarter and full year, 2020 , one financial results and provide first quarter 'twenty, two and full year 'twenty two guidance.
Total fourth quarter revenues grew at 12, 2% year over year to reach $111 $7 million exceeding the upper end of our quarterly guidance by over $1.7 million.
Total revenues for 2021 were $425 $5 million up 13, 6% from 2020.
Our subscription revenues increased 13, 1% year over year to $358 $4 million.
And our services revenues grew at 15, 9% year over year to $67 $1 million.
Our annual recurring revenues were a RR grew to $372 million as of as of year end, representing approximately 17% growth over 2020.
Excluding the acquisitions of tax Melon LCR Dixon that were made during the year. Our AOR grew at 15, 1%, which is an increase from 13, 1% that we reported in the third quarter of 2021.
Our net revenue retention rate or <unk> was 108% at year end growing from 106% reported at both year end of 2020 in the third quarter of 2021, demonstrating our customers' ongoing commitment to our software and solutions.
For purposes of clarification N. Our our only includes those customers that were with us at the beginning of the measurement period. So these amounts do not include the tax in our LCR Dixon results.
Our gross revenue retention rate, where G. R. R was 95% at quarter end, which excludes internal migrations by customers to our cloud solution, which were approximately three 5%. This is consistent with prior performance, which has averaged between 94% 95%.
In addition to the AOR growth as mentioned above one area that I believe requires mentioned is our managed services outsourcing business.
Its returns processing business generated recurring services of over $20 million in 2021.
Processed over $10 billion.
Dollars of customer payments and posted growth of 20% from 2020.
This is a competitive differentiator and is a significant component of recurring revenue, which is not included in our a R. R.
At December 31st we had 4272 customers.
We continue to see strong growth in our cloud based solutions, among both existing and new customers year over year revenues from crowds cloud based solutions grew to $127 million an increase of 46%.
Excluding acquisitions cloud growth was 43% year over year exceeding our guidance by nearly 300 basis points.
In discussing the remainder of the income statement. Please note that unless otherwise stated all references to our expenses operating yourself 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.
On an overall basis gross profit for the fourth quarter was $79 million, representing 77% gross margin.
This compares with gross profit of $74 million and a 77% gross margin for the same period last year.
From a subscription software standpoint, our gross margin was 76, 9% as compared to 76, 8% in the prior year period.
Gross margin on services revenues increased to 39, 2% from 38, 4% due to increased utilization.
Our fourth quarter research and development spend which includes our capitalized software development costs and cloud based customer solutions was $22 million, representing 18, 1% of revenue.
Search and development spend for the year was $72 9 million, representing 17, 1% of revenues.
This reflects substantial investments in our cloud solutions integration of our acquired technologies and ongoing expansion of connectors and Apis to continue the integration of our Texas capabilities into customer software platforms.
These increases reflect an 18% increase in development personnel over 'twenty 'twenty through a more efficient and balanced use of our global development team and positioning us well for R&D growth in capacity as well as capability.
Fourth quarter, selling and marketing expense was $26 $6 million or 23, 8% of total revenues, an increase of $6 $9 million and approximately 35 or 35, 1% from the prior year period selling.
Selling and marketing expense for the year was $91 $8 million up 31, 8% from 2020.
These increases are due to the funding of additional go to market activities to drive future revenue growth.
We intend to continue to make additional investments in sales and marketing capacity to drive future growth.
Fourth quarter General and administrative expense was $23 million or 26% of total revenues, an increase of $1 $8 million from the prior period prior year period.
General and administrative expense for the year was $89 $6 million up 14, 1% from 2020.
This increase is primarily driven by planned strategic investments in information technology infrastructure business process reengineering integration costs and other initiatives to drive future operating leverage.
Adjusted EBITDA was $19 $3 million for the fourth quarter, an increase of $201000 over the prior year quarter and exceeded the upper end of our quarterly guidance by $2 $3 million.
For the full year, adjusted EBITDA was $78 million, a decrease of $412000 year over year.
Adjusted EBITDA for the fourth quarter and for the full year exceeded guidance due to the shift of certain research and development and sales investment initiatives that shifted into the first quarter of 2022.
Adjusted EBITDA margin for the full year of 2021 was 18, 3% a 260 basis point decrease versus the prior year, primarily due to our investments in go to market activities and new product development.
In the fourth quarter of 2021, we generated $26 1 million dollar should free cash flow due to strong revenue performance and cash collections, which represents a decrease of $4 $9 million compared to the prior year for.
For the full year, we generated $46 $9 million in free cash flow, representing a decrease of $2 $7 million compared to the prior year. Our free cash flow reflects reflects our continued investment in sales and marketing and research and development expenses to support our growth initiatives.
Turning to our liquidity and cash flows we ended the year with $73 $3 million of cash and cash equivalents.
Subsequent to year end, we amended our $100 million credit facility with a new five year $250 million facility, consisting of a $50 million term loan and a $200 million line of credit.
We expect to utilize the facility primarily to fund working capital capital expenditures permitted acquisitions and for general corporate purposes.
Turning now to guidance for the first quarter of 2022, we currently expect total revenues to be in the range of $112 five to $113 $5 million representing growth of 15% to 16% from the first quarter of 2021.
And adjusted EBITDA in the range of $16 million to $17 million, representing a decrease of $1 million to $2 million from the first quarter of 2021.
For the full year 2022, the company currently expects total revenue in the range of $479 million to $483 million, representing annual growth of 13% to 14% from our full year 2021.
The revenue guidance takes into account growth in software revenues and the strategic decision to manage growth in our services business to further our investment and the successes of our consulting partners, while enhancing our subscription revenue for the future. This decision to impact our total revenue growth by approximately 1%.
We expect adjusted EBITDA in the range of $72 million to $75 million, representing a decrease of $3 million to $6 million from the full year 2021, reflecting our support of acquisition integration as well as continued spend in research and development and selling and marketing expense to pursue opportunities for growth.
As we have previously stated we believe that continuing to invest in future growth initiatives now will drive future revenue growth towards our targeted levels.
We anticipate that cloud revenue for 2022 will grow by $42 million from $127 million, representing a 33% increase over 2021 at.
At the current time, we have no customers that are based in Russia or the Ukraine.
For those that do business in these regions, we believe that our pricing model gives us the confidence that this will not have a material impact on our operations.
Overall, we will monitor any impact to the global economy as a result of the ongoing war in the Ukraine.
We're very pleased with the solid fundamentals of our business, which delivered strong quarterly performance with revenue EBITDA and cash flow fueled by strong <unk> and <unk> and <unk> during the fourth quarter and for the year.
Thank you very much and now can we open the call up for questions.
Ladies and gentlemen, the floor is now open for questions.
If he would like to ask a question. Please press star one on your telephone keypad at this time.
Formation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys.
Once again that is star one if he would like to ask a question today. Our first question is coming from Samad Samana of Jefferies. Please go ahead.
Hi, Good morning, Thanks for taking my question. So maybe first just as I think about the guidance for 2022 John can you help us understand how we should think about.
Maybe organic cloud revenue expectations that are embedded in that guidance.
Yeah, I think when we think about organic I gave I gave the estimate that we think we'd be growing cloud at a at 33% on a year over year basis, I think as we think about organic cloud, we think that'll be if you take out the first couple of periods, where we didnt, where we didn't have the tax no activity and that's where the main driver is that's about to about 3%. So we're about.
30% organic.
Okay, great. Thanks for that clarity and then maybe stepping back David Yeah, I think that you sounded quite enthusiastic about what's going on with Oracle and SAP, he and and if I measure that against maybe the last couple of years, where we're ERP replacement activity had slowed down a little bit can you maybe just help us understand are you seeing.
An increase in the pace, there, especially as things maybe move a little bit closer to back to normal here in the U S. Just what are you seeing in terms of those replacement cycles and is that ultimately leading to an uptick in your own deal activity as customers look to make a switch at the same time.
Yeah No I appreciate the question I'll actually start with a more than just the accident more than just a technology refresh, but it's actually much more around the active collaborations we're now having with the OCI team at Oracle in the S. E. P team, where we're actually working deals directly with their account teams, which is which has been a new motion for us real.
Excited about the opportunity that's expanded both here in the U S and is taking hold in Europe . So that's the fundamental shift more so than just the normal as you noted the normalization of increased activity that we're seeing between the Oracle and SAP is they continue to grow their businesses.
Great and maybe just if I could squeeze one more in just on the Shopify integration that you just mentioned I wanted to make sure I understood. It correctly is is vertex now gonna be integrated natively into that from an OEM perspective.
Or is it going to be available the shopify App store, just trying to understand how the nature of that relationship changed yes. Its remember its through bolt commerce. That's are there a checkout are they worked with shopify on the checkout process and we have customers now that are anxious to work with our integration with bold as a way to work on the.
They're larger shopify opportunities, where they're dealing with having.
I wanted to get a consistent answer across the front office and back office and so we were seeing a lot of push by our customers to leverage the bold relationship.
Understood. Thanks again for taking my question guys I appreciate it.
Thanks, Bob.
Thank you. Our next question is coming from Joshua Reilly of Needham and company. Please go ahead.
Hey, guys. Thanks for taking my questions. So clearly here on E. Commerce is slowing this year globally, how would you characterize your exposure to e-commerce versus in store retail sales and with in store retail rebounding. This year, how much does that help you overall in terms of new business activity.
Yeah Josh.
We clearly benefit from the entire retail space, but we also don't it's important to note. We don't have an overdependence on any vertical so.
We've got breadth across oil and gas manufacturing.
Food delivery you picked the vertical well.
We've got a strong presence so we didnt probably get all of the run up in E. Commerce that maybe we could have in the past I see the continued growth in the in store activity as being nothing but continuing the relationships we enjoy across major retailers. So it will continue to be an element of growth for us.
Okay, Great and then the average revenue per customer kicked up nicely again in the quarter. How do you think about this metric over the next year as you begin to ramp mid market customers and then how should we think about the mix of custom.
Customers using more volume of the platform versus buying additional modules and in that in that pattern.
And then was this mix consistent throughout the year.
Alright, I tried to pay off a few different points that you asked Josh. So I think fundamentally we continue to expand our base of revenue baked within the existing customers, who brought out five or six new products last year, we've got a pipeline of new opportunities like what we've talked about with edge on the call here.
New edge computing, which was actually going to serve retail very heavily which was a point you asked a moment ago that'll allow us to continue to expand wallet share with existing customers and grow average revenue per customer by the same token as you know our activity in the mid market as we continue to increase our indirect investment indirect channel investment is well.
And typically at a lower price point, so I think there's actually a good balanced we've seen that progress and I would I would assume it's going to be fairly consistent.
Growth in that area because of the amount of work, we're doing with our customer success management investment and the new products, we're bringing to market that allow us to go broader and deeper with our existing customer base.
Got it that's super helpful. Thank that sure.
Sure Josh.
Thank you. Our next question is coming from Matt Stotler of William Blair. Please go ahead.
Hey, good morning, guys. Thanks for taking the questions I think maybe one to start with on the development roadmap I mean, you guys have put together.
It's a pretty compelling pieces with you now.
Obviously, our cross border increasing searches guys I guess, a P E B S forgetting solution.
Forward and there's obviously a lot of things that are early in terms of ramping in a it sounds like great pipeline developing but as you think beyond that I mean, one of the most compelling additional opportunities that you see to continue to expand our product portfolio and what are you doing in terms of feedback from your customers in terms of what they're looking for and how that's informing your roadmap here.
Yeah.
We rolled out the tax V. A T compliance product last year through a design partner program and what we actively do with our customers is bring them in to help co design offerings.
One of the things, we're looking at now leveraging AI and ml as being very much driven by some of the conversations we're having with them.
And where they are the ITI product that we rolled out in the fourth quarter, which is really around visualization data analytics.
Also driven off of them will be adding a lot of functionality to that throughout the year. So those are two key initiatives with that really are driven actually by customer our customer design programs that we run and the beauty of that is it also affords us to start to create a pipeline as we bring those products out because the customers are active in the workflow and.
And design of the product.
Got it that's helpful.
And then maybe one from a high level you know something that we've seen.
Kind of a you know across across the market over.
Over the first several months of this year as some you know some issues obviously there supply chain issues. There's you know kind of labor tightness of labor market tightness has been impacting you know some people in terms of implementation cycles.
Clearly from our results doesn't seem to be impacting.
Impacting you guys in a particular way, but would love some color on what you're seeing.
From that perspective, you know specifically with implementation capabilities and head count you know both as it pertains to what you can do internally and what you're seeing from your partners and your customers as you're progressing through the year here.
So it's a great question, Matt and I think we're really fortunate because of the alliance partner network that we've built.
And the amount of work they do around our our product the ecosystem around our products is significant across you know the top 15 to 20 implementation firms and so that's a really powerful capacity for us to help our customers win implementations are needed plus our own internal stuff as we continue to you know to manage that.
So I'm very comfortable from an implementation perspective, while we have a nice pipeline of activity to be implemented in our cost and our partners do as well I think fulfillment in time is not an issue where were overly focused on right now given the current labor.
The challenge you know.
Great. Thanks again.
Sure.
Thank you. The next question is coming from Andrew <unk>.
Barry a fair <unk> capital markets. Please go ahead.
Thanks, Good morning, I just.
Wanted to expand on the on the S. E. T sales relationship that you mentioned that as a it's a.
Expanded I was just wondering is have the salesforce can incentivize them you know had their incentives change with regards to vertex.
I don't have visibility to that directly we have been partnering with us for 20 plus years I think they'd become so comfortable with our methodology, our product integration, which is so important to them and the quality of who our customer bases and that sort of that reference ability that we get.
When you look at that all combined and then some of the new offerings. We brought together like chain flow in LCR Dixon, all giving us a unique perspective into the into supporting the S&P base. They have become very open to engaging with the quality of the collaborations are great. It's really helped us and account planning and I think it will allow us to serve.
The customer base far better than we ever had.
Thanks, and then on the new customer growth I mean, it's one of the strongest quarters ive seen so far I just wondered how much what partners involved in those efforts.
Yeah, Andrew we've continued heavily to invest in our sales and marketing last year I think we grew almost 20% and our investment in that capacity and capacity in that area and a lot of it was was focused on that mid market channel. We continue we expect to do more of that this year and so they were certainly a driver of a part of that I would high.
Again back to some of the OCI and a S. A P success that we enjoyed also those partners being critical to some of the new logos, we were able to add there's a there's a vastly underpenetrated base within Oracle and S. E. T that don't have automated tax solutions. They have hundreds of thousands of installs and obviously, we don't have that many customers. So.
There was an opportunity for us to continue to grow just within that ecosystem that we're really excited about.
That's helpful. Maybe for the last one on the credit facility Amendment clearly extending that just wondering if and should we expect some additional M&A this year given.
Valuations more appealing in the market for some of the assets you might be interested in.
Yeah, Thanks, very much Andrew appreciate it.
The amendment to the credit facility something we needed we wanted to do to make sure that we put ourselves in a position to do so to the extent that opportunities become available. We've got we've got a significant amount of a war chest available to kind of pursue something so we'll.
I will say, we're opportunistic we're thoughtful about what's out there and we've got our eyes open to see what's going to happen, but right now theres nothing nothing to report nothing that's certainly plan, but we'll always be looking.
Thank you.
Uh huh.
Thank you. The next question is coming from Patrick Wall Ravens of JMP Securities. Please go ahead.
Oh, great. Thank you and.
Congratulations you guys its really nice to hear the e&ps.
The improved tone.
Just very big picture, so if I, if I look at your business decelerated.
For four quarters in a row.
And then since then you now.
And this is on air on Aravosis and then since then it's gone.
The 13%, 14%, 15% and 17% so just very big picture what has been going on that's been driving that.
Yeah, Pat I really appreciate the question and thanks for the comment about or are you really proud of what the team delivered.
When we think about the market in general and we've talked about as we went public our SAP and Oracle, where a big part of that as we hit the pandemic in towards at the beginning of mid year 2020, we saw a slowdown for Oracle and SAP.
Going to a lot of the CIO is that our larger customers that they were focused very much on can we keep our business running remotely we're not going to focus on new investment in automating tasks.
As we got to the second half are near the end of 'twenty and into early 'twenty. One we started to see that cycle begin to change. They were all proving they can run their business successfully and there was an opportunity to address.
Concerns that hadn't been done like automating tasks, we typically follow two to four quarters behind a decision due to acquire a new technology platform and move to the cloud the way our customers are moving more with OCI in S. E T Hot as for and so we're following that very naturally which is what gives us confidence as we look forward in 'twenty two.
The pipeline of activity that we're seeing come in and these new advanced relationships, we're building with S. A P M.
And Oracle.
Alright, that's super helpful and John for you can.
Can you just sort of remind us what what the drivers are in terms of the difference between.
Revenue in error, because you know revenue decelerated, but a R accelerated with 20th that's a better metric I think we'd probably have to answer that but yeah. If you can just remind us.
Yeah, I'd like to remind you that we consistently pay attention very heavily to <unk> in the era of growth because <unk> revenue. We believe is sort of a lagging indicator of the AOR gives us that leading indication of kind of the efficiency of the sales team, what's getting sold how those things are going to turn into revenue in the future and with our strong metrics around.
<unk>, we're not we don't see any falloff there. So I mean, that's why we think it's a tremendously dependable dependable measurement to use to kind of evaluate how that's going.
Okay, great. Thank you both you bet.
Right.
Thank you. Our next question is coming from Daniel Jester of BMO capital markets. Please go ahead.
Great. Good morning, everyone, maybe just to build on Pat's first question about sort of the high level overview Dave.
David you've been retooling the business towards growth for a couple of years now can you just maybe philosophically help us think about where we are in that journey is 2022 is going to be the year in which the vast majority of those investments are fully in place and starting to contribute or is some of this is structural pivot of the business going to extend beyond the.
Sure.
It's a great question, Dan and Great to talk to you again, you know we are I think we are in an important year round those investments I'm really excited about what the team did accomplish in some of the investments we have made in R&D and the products, we're starting to roll out that put us in a really good position as we enter 'twenty two I think we come out of 'twenty two.
It will be a major we will the team will have accomplished a lot to position ourselves for the future growth that we're pursuing in the market. We will continue to invest in sales and marketing spend because the opportunities in front of us.
Are going to be there I think the R&D investment, we expanded our capacity, 18% last year, which I'm really proud of the team to have done that.
And we're going to continue to monitor that and but I think that will start to normalize after we get through this bigger you know the rest of this investment cycle here in 'twenty two.
Gotcha and then in the prepared remarks, there was a comment about.
Making some changes in your services business to maybe push it a little bit more of that to your partners could you expand on what exactly is going on there that's absolutely.
Absolutely.
We have consistently and always value the quality of our alliance relationships. They are essential to our success there often a referral source for that <unk> that John was just speaking about and we work very closely with them. So we've always sort of metered or growth in services to make sure that.
We're supporting that that alliance space and we made a decision this year that we wanted to.
We've been growing a little faster than we typically had over the past few years and so we're excited about the way the team performed but we also wanted to be thoughtful about sustaining that.
Quality These alliance relationships, because as we're accelerating with S. A P and OCI around deal flow it'll be we'll need to make sure. We can fulfill everything that it needs to be implemented and that'll really fall in that ecosystem. So we wanted to make sure we're doing the proper.
Partner relationships there for the long term, it's served us well for the past 30 years, and we want to continue to do that.
Got you and if I could sneak one more in if I recall last year. There was some churn in your client base at the very very low end of the market.
Obviously clients are growing again, so is that are we past that or is there still.
Something that we should be taking into consideration for the year ahead. Thank you.
Yeah.
Thank you Dan as we think about it that that will continue to be a little bit of churn at the very very low and again I think that the thing that I think is important to emphasize here as you look at our average <unk> per customer growing over time, I mean, it's growing in the face of kind of these.
Minor minor very small customer movement that we've seen at the very very low and so theres still a little bit left but I wouldn't anticipate it is very much at all and I would just build on that to stay down and you look at our G are our quarter in quarter out it doesn't change it's rock solid and you know the ones, we lose really are largely Emma.
<unk> driven actually the bulk of what what disappears from US is there's much more off of M&A. We're.
We're not seeing any cloud migrations are losses at all.
Okay. Thank you very much.
Once again, ladies and gentlemen that is star one if he would like to ask a question today.
The next question is coming from.
Dan Lusky of Morgan Stanley . Please go ahead.
Hi, guys. This is Ben <unk> on for Stan.
Thank you for taking my question.
I would love to start out with.
You just have more down market you guys see yourself going as we move forward and then just the additional impact that's having on your go to market strategy.
I know you earlier referenced sort of indirect method that you guys are utilizing but would like to tap into sort of direct impact. That's also having an yourselves.
Yeah, so as far as our market segments.
We're pretty clear with our team to through the indirect channels that we're building we're investing in we're engaging with customers typically in that 50, you know $40 million to $50 million at the low end revenue and growing that as our mid market space up to four or $500 million. The that and then the rest of that would be what we would call enterprise anything bill.
So that you know, we're able to access through the relationships like <unk> CPA Dot com, which is much more of a one to many where we only have to deliver to <unk> and they're selling and supporting those customers. So we're actually growing our customer base, we only count axiomatic as one customer but in fact.
There are significant number of users on that space and through the C. P. Dot com relationships that are that continue to use our software, but we only bill the source not all of the individual customer. So we actually don't count them. So that's how we support the low end of the market without having to distract our sales teams or invest in you know a number of.
Panel relationships that really wouldn't be as profitable to us and wouldn't be as cash flow strong to us as what the mid market and enterprise market is.
So I think that was the first part of your question could you repeat the second part.
Yeah, just trying to better understand your go to market strategy that and the direct impact that's having on your sales and marketing team.
Yeah, Okay. So I think I hit most of them are our strategy is very clear again across those three segments direct sales serving the enterprise market very closely with either our partner sales teams like S E T and OCI or working directly with our alliance partners and the mid market, it's more of an indirect motion directly into <unk>.
The channel and we continue to build out capacity and relationships. There and then lastly that down market will be much more of a one to many and there are a number of relationships, we're forming there too to just be the cloud provider, but not have to have the salesforce requirements. So all of that capacity spend I talked about in sales and marketing, which we grew our <unk>.
Ultimately sales mark in about 20% in capacity last year is all really focused on the mid market and enterprise market, we don't need to tie up that capacity to pursue the downmarket.
Got it. Thank you and then just one more additional question for me.
From.
A geographic perspective, how are you guys accounting for that in terms of our vector route and started the growth potential that you see going forward.
Yeah, you know Europe is a very largely untapped market, it's really because of the complexity. The regulatory complexity, that's been going around V. T and some of the regulations that had been rolled out is making it more complex, it's creating a accelerating opportunity, but it's a very.
Automated space, meaning if you remember our largest competitor is the in house solution. That's been good enough and we're seeing that start to fracture as E. Invoicing real time requirements. Some of the compliance changes and even tax determination changes are showing up in the EU, our new SAP.
Our expanded relationship that I was referring to is really going to allow us to accelerate growth in Europe , because that's a P is the largest platform for enterprise customers over there. So I feel like we're really well positioned as that market continues to grow and then there is Latin America, where we.
Content is king down there we made an important acquisition <unk> a couple of years ago that we're really pleased the way that's performing we're going to look to continue to support that investment and expand going forward because you know its great opportunity in that market.
Thanks, so much.
Yes sure. Thank you Ben.
Thank you at this time I would like to turn the floor back over to Mr. Distefano for closing comments.
Thank you I'd like to thank everyone for their time today and I look forward to coming back together with you in May this year more around the advancements we are already making in 2022.
Ladies and gentlemen, thank you for your participation and interest in vertex Inc. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
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Okay.
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