Q4 2023 Vertex Inc Earnings Call

Joe Crivelli: Vice President of Investor Relations. Mr. Crivelli, you may begin.

Nations Mr. Crivelli, you may begin.

Hello, and thanks for joining us to discuss for Texas fourth quarter financial results I'm, Joe Crivelli, Vice President Investor Relations, David the stuff in our President and C. E O and John Schwab are CFO are also with us today <unk>.

Joe Crivelli: Hello, and thanks for joining us to discuss Vertx's fourth quarter financial results. I'm Joe Crivelli, Vice President, Investor Relations. David DeStefano, our President and CEO, and John Schwab, our CFO, are also with us today. During this call, we may make forward-looking statements about expected future results. Actual financial results may differ due to risks and uncertainties. These risks and uncertainties are described in our filings with the Securities and Exchange Commission.

During this call we may make forward looking statements about expected future results actual financial results may differ due to risks and uncertainties. These risks and uncertainties are described in our filings with the Securities and Exchange Commission.

Joe Crivelli: Our remarks today will also include references to non-GAAP financial measures. A reconciliation of these non-GAAP metrics to GAAP is also provided in today's press release. This call is being recorded and will be available for replay on our investor relations website. I'll now turn the call over to David. Thanks, Joe.

Ah remarks today will also include references to non-GAAP financial measures. A reconciliation of these non-GAAP metrics to gap is also provided in today's press release. This call is being recorded and will be available for replay on our Investor Relations website, I'll now turn the call over to David.

Thanks, Joe welcome everyone and thank you for joining us.

David DeStefano: Welcome, everyone, and thank you for joining us. The fourth quarter was our strongest quarter of 2023, wrapping up a year of outstanding execution across all areas of the business. I'm extremely proud of the entire Vertx team. Our employees' focus and commitment underpins our market-leading solutions and customer value, which, in turn, enabled our strong performance this year. Revenue in the fourth quarter was $154.9 million, up 18.1% year-over-year.

The fourth quarter was our strongest quarter of 2023 wrapping up a year of outstanding execution across all areas of the business.

I'm extremely proud of the entire vertex team, our employees focus and commitment underpins our market, leading solutions and customer value.

This in turn enabled our strong performance this year.

Revenue in the fourth quarter was $154.9 million up 18.1% year over year.

David DeStefano: This exceeds the high end of our fourth quarter revenue guidance by $7.9 million. Our adjusted EBITDA was $32 million, up more than 50% compared to last year's fourth quarter. This represents an EBITDA margin of 20.7%, our highest EBITDA margin in over three years. In addition, this quarter, ARR exceeded $500 million for the first time in our history, growing nearly 19% to $512.5 million. NRR was a record 113%, up two full percentage points from the third quarter.

Succeeds the high end of our fourth quarter revenue guidance by $7.9 million.

Our adjusted EBITDA was $32 million more than 50 per cent compared to last year's fourth quarter. This represents an EBITDA margin of 20.7%.

Our highest EBITDA margin in over three years.

In addition, this quarter air are exceeded $500 million for the first time in our history growing nearly 19% to $512.5 million.

Enron was a record 113% up to four percentage points from the third quarter.

David DeStefano: Average annual revenue per customer increased 19% year-over-year to nearly $119,000. Growth in scaled customer count was 13% year-over-year. As a reminder, this number represents our customers with annual revenues greater than $100,000 and demonstrates our ongoing success in the underpenetrated enterprise market. NGR was 95% in the fourth quarter, within our target best-in-class range of 94% to 96%.

Average annual revenue per customer increased 19% year over year to nearly $119000.

Growth and scaled customer count with 13% year over year.

As a reminder, this number represents our customers with annual revenues greater than $100000 and demonstrates our ongoing success and the Underpenetrated enterprise market.

And G. R. R was 95% in the fourth quarter within our target best in class range of 94 to 96 per cent.

Our strong financial results in 2023 were not unexpected.

David DeStefano: Our strong financial results in 2023 were not unexpected. We launched a strategic investment program in 2020 to pursue our vision to accelerate global commerce and fuel our growth to $1 billion in revenue and beyond. Since then, we have expanded our go-to-market team.

We launched a strategic investment program in 2020 to pursue our vision to accelerate global commerce and fuel our growth to $1 billion in revenue and beyond.

Since then we've broadened our go to market team.

David DeStefano: We enhanced our long-standing partnerships with Oracle and SAP while expanding into the Microsoft, NetSuite, Salesforce, and Workday ecosystems. We accelerated the breadth and depth of our market-leading tax content database. We increase the pace of new product launches by investing in research and development on our cloud platform. We built a customer success team from a standing start that is now a major contributor to our consistent growth in NRR. We completed several technology and tax content-focused acquisitions, and we also built the corporate infrastructure to support a large, more efficient organization. With this investment program largely complete in mid-2023, we saw accelerating revenue growth and strengthening profit margins in the second half of the year. But we believe we are just getting started.

[noise] enhanced our long standing partnerships with Oracle and S. A P. While expanding into the Microsoft net suite, Salesforce and workday ecosystems, we accelerated the breadth and depth of our market leading tax content database.

Increase the pace of new product launches by investing in research and development on our cloud platform.

We built a customer success team from a standing start that is now a major contributor of our consistent growth in N. R. R.

We completed several technology and text content focused acquisitions and we also built the corporate infrastructure to support a large more efficient organization.

With this investment program largely complete mid twenties twenty-three, we saw accelerating revenue growth and strengthening profit margins in the second half of the year, but we believe we are just getting started.

David DeStefano: This is because most enterprises and large middle-market companies are still handling indirect tax with either a web of spreadsheets or an in-house built software program that was purpose built when the company was less complex and kept running with the exceptional efforts of a number of in-house programmers. It may come as a surprise, but some of the most recognizable, respected, and sophisticated companies in the world still handle indirect tax in this fashion. For these companies, it's not a matter of if but when their in-house solution becomes insufficient to manage the business, and they need to implement a third-party software solution. This decision is most frequently driven by one of three factors. First,

This is because most enterprises and large middle market companies are still handling indirect tax with either a web of spreadsheets or an in house built software program that was purpose built when the company was less complex and kept running with exceptional efforts of a number of in house programmers it.

It may come as a surprise, but some of the most recognizable respected and sophisticated companies in the world still handle indirect tax in this fashion for these companies, it's not a matter of if but when they're in how solution becomes insufficient to manage the business and they need to implement a third party software solution.

This decision is most frequently driven by one of three factors first.

David DeStefano: Business model changes or expansion. This could be the adoption of new ways of doing business, such as multi-channel sales strategies, or mergers and acquisitions that necessitate a more scalable approach to indirect tax. Second, audit and reporting requirements demonstrate that an in-house solution is not delivering sufficiently accurate tax compliance.

Business model changes or expansion.

Be an adoption of new ways of doing business, such as multichannel sales strategies or mergers and acquisitions that necessitate a more scalable approach to indirect taxes.

Second audit and reporting requirements demonstrate that an inhouse solution is not delivering sufficiently accurate tax compliance.

David DeStefano: These situations quickly get the attention of everyone from the tax department to the C-suite and even the board of directors to deploy the necessary resources to fix the problem. Or, third, the company embarks on a digital transformation or system upgrade to the cloud. In these cases, it's typically not even financially feasible to refactor the homegrown software solution to run in the new environment.

These situations quickly get the attention of everyone from the tax department to the C suite and even the board of directors to deploy the necessary resources to fix the problem or third the company embarks on a digital transformation or system upgrade to the cloud.

In these cases, it's typically not even financially feasible to refactor the homegrown software solution to run in the new environment.

We are confident that all three of these tailwinds will drive our Texas growth for the foreseeable future.

David DeStefano: We are confident that all three of these tailwinds will drive Vertx's growth for the foreseeable future. Business changes, such as mergers and acquisitions, are constant, especially in the market segments where we focus. Audit pressure is only going to increase as governments grapple with ways to plug spending deficits and deal with the massive amounts of debt that must be serviced.

Business changes such as mergers and acquisitions are constant, especially in the market segments, where we focus.

A lot of pressure is only going to increase as governments grapple with ways to plug spending deficits and deal with the massive amounts of debt that must be serviced.

David DeStefano: An indirect tax is an important part of this equation, as governments generate 3.5 times more revenue from indirect tax than they do from corporate income tax. In addition, increasingly complex rules around digital businesses and marketplaces are driving new reporting and revenue transparency requirements. And we consistently see our ERP partners driving their customers to move to cloud-based solutions. For example, Oracle is encouraging customers to move to the Oracle Cloud. SAP is ending mainstream support for ECC in 2027, prompting customers to migrate to S4 HANA.

An indirect taxes, an important part of this equation governments generate 3.5 times more revenue from indirect tax.

They do from corporate income tax and.

In addition, increasingly complex rules around digital businesses and marketplaces are driving new reporting and revenue transparency requirements.

And we consistently see our ear P partners driving their customers to move to cloud based solutions. For example, Oracle is encouraging customers to move to Oracle cloud.

S. A T is ending mainstream support for E. C. C in 2027, prompting customers to migrate to as for Honda.

David DeStefano: And businesses are also advancing digital transformation initiatives organically. So to summarize, the fourth quarter results were excellent, but I'm very confident in how our business is positioned for consistent execution in the quarters and years to come. Now turning to notable wins in the quarter, one of the biggest sources of new revenue for Vertx and a sustainable driver of NRR growth is increased business with our existing customers. In the fourth quarter, we expanded our relationship with one of our long-standing customers, a large international conglomerate.

Businesses are also advancing digital transformation initiative organically.

So to summarize the fourth quarter results were excellent, but I'm very confident in how our business is positioned for consistent execution in the quarters in years to come.

Now turning to notable wins in the quarter one of the biggest sources of new revenue for vertex and a sustainable driver of enter our growth is increase business with our existing customers.

In the fourth quarter, we expanded our relationship with one of our longstanding customers a large international conglomerate, we have been on a multi year journey with them as they consolidate in transition their systems to the cloud.

David DeStefano: We have been on a multi-year journey with them as they consolidate and transition their systems to the cloud. The customer increased their usage tiers for their existing subscriptions, expanded their use of Vertx solutions into additional global markets, and licensed additional products, including ChainFlow Accelerator. This resulted in high six figures of additional recurring revenue for Vertx. It's noteworthy that this company has been a customer for over a decade and uses a wide array of Vertx offerings including sales tax, consumers use tax, and VAT tax calculation, premium oil and gas content, certificate center, the SAP ecosystem tools we acquired with LCR Dixon, and our tax return managed service, among others. This shows the growth potential of our existing enterprise customer base, even with a customer that has a comprehensive and long-standing relationship with Vertx.

The customer increase their usage tears.

For their existing subscriptions expanded their use of vertex solutions into additional global markets and license additional products, including chain flow accelerator.

This resulted in high six figures of additional recurring revenue for vertex it's.

It is noteworthy that this company has been a customer for over a decade and uses a wide array of vertex offerings, including sales tax consumers use tax and VAT tax calculation premium oil and gas content.

[noise] certificates center the S. A P ecosystem tools, we acquire with L. C. R Dickson and our tax return managed service among others.

This shows the growth potential of our existing enterprise customer base, even with a customer that has a comprehensive and longstanding relationship with vertex.

David DeStefano: With another customer, a leader in global digital imaging solutions, a cloud-first strategy implemented by new leadership drove a transition to our cloud solution in the fourth quarter. This resulted in a new five-year contract with mid-six figures of additional annual revenue for Vertx. The partnership we have built over the past 12 years, plus the value they have experienced over the years, provided us with the opportunity to win the business without having to compete in an RFP. We are currently working with them to move their self-hosted tax solution to the cloud seamlessly with tight connections to their Oracle ERP and other key systems. Similarly, another existing customer, one of the largest online marketplaces in the world, expanded its usage with us in the fourth quarter. During the renewal process, the customer consolidated several licenses, added new geographies, and increased its usage tiers. This resulted in high six figures of new revenue for Vertx. RSM, a top 10 accounting firm, partnered with us on this implementation. As I mentioned, ERP conversions are one of the primary factors for companies to reevaluate how they are handling indirect tax.

With another customer a leader in global digital imaging solutions, a cloud first strategy implemented by new leadership drove a transition to our cloud solution in the fourth quarter. This resulted in a new five year contract with mid six figures of additional annual revenue for vertex.

Partner should we have built over the past 12 years plus the value they have experienced over the years provided us with the opportunity to win the business without having to compete in an RFP.

We are currently working with them to move their cell hosted tax solution to the clouds seamlessly with tight connections to their Oracle ERP and other key systems.

Similarly, another existing customer one of the largest online market places in the world expand that their usage with us in the fourth quarter.

During their renewal process the customer consolidated several licenses added new geographies and increased its usage tears. This resulted in high six figures of new revenue for vertex.

R. S M. A top 10 accounting firm partnered with us on this implementation.

As I mentioned ERP conversions are one of the primary factors for companies to reevaluate how they were handling indirect tax.

David DeStefano: One example in the fourth quarter resulted in a high five-figure new contract with a global consumer products company. This company moved to Oracle Cloud and, in doing so, rebid their indirect tax solution as they were unhappy with their existing provider, one of our competitors. Vertx won this deal because of our ability to operate in a one-to-many environment and seamlessly integrate with both their ERP provider, Oracle Cloud, and their global instance of Salesforce Commerce. The customer also had peace of mind moving their tax engine to Vertx based on the valued experience one of their entities had with our returns outsourcing service. In the SAP ecosystem, we had a notable win with a global provider of equipment and services to the oil and gas industry.

One example in the fourth quarter resulted in a high five thank your new contract with the global consumer products Company. This company moved to Oracle cloud and in doing so rebid their indirect tax solution as they were unhappy with your existing provider one of our competitors.

Protects one this deal because of our ability to operate in a one too many environment and seamlessly integrate with both their ERP provider Oracle cloud and their global instance of Salesforce Commerce.

The customer also had peace of mind moving their tax engine to vertex based on the valued experience one of their entities has had with our returns outsourcing service.

And the S. A P ecosystem, we had a notable when with a global provider of equipment and services to the oil and gas industry for this customer and as for Hanukkah transformation drove a company wide initiative decentralize global tax compliance. This led to seven figures of additional revenue per vertex the support of our partners that S. A.

David DeStefano: For this customer, an S4 HANA transformation drove a company-wide initiative to centralize global tax compliance, leading to seven figures of additional revenue for Vertx. The support of our partners at SAP, as well as Deloitte, were also key to this new business win. In the Microsoft ecosystem, a global manufacturer of nutritional supplements selected Vertx to support its migration to Dynamics 365.

P as well as Deloitte, we're also keys to this new business when.

And then Microsoft ecosystem of global manufacturer of nutritional supplements selected vertex to support its migration two dynamics 365.

David DeStefano: And in the Workday ecosystem, we won several new deals, including one of the major stock exchanges, a regional healthcare system, and a provider of financial software for the healthcare industry. During the quarter, we also saw good examples of how audit pressure and compliance risk are driving business our way. As an example, we won a new deal with a mid-market business solutions company that was using its homegrown billing system as a platform to calculate indirect tax liability. The company's tax department was manually entering tax rates into this system. Inevitably, this approach led to inaccuracies for the customer, which in turn led to audit pressure and liability for back taxes and penalties.

And then the work the ecosystem, we won several new deals, including one of the major stock exchanges of regional health care system, and a provider of financial software for the health care industry.

The quarter. We also saw good examples of how audit pressure and compliance risks are driving business our way.

As an example, we wanted a new deal with a mid market business solutions company that was using its home grown billing system as a platform to calculate indirect tax liabilities occur.

Accompanies tax department was manually entering tax rates into the system.

Inevitably this approach lead to inaccuracy for the customer.

Which in turn led to audit pressure and liability for back taxes and penalties.

The company's tax Department, where quickly do you get the technology needed to update it systems and vertex prevailed and the results an RFP.

David DeStefano: The company's tax department worked quickly to get the technology needed to update its systems, and Vertx prevailed in the resultant RFP, in part due to its leading tax content database and ability to handle the vagaries of tax calculations across a product list with more than 5 million separate SKUs. As we noted in our Annual Sales Tax Rates and Rules Report last month, U.S. sales tax rate changes reached a 10-year high in 2023, in addition to hundreds of new taxes that were imposed. With over 20,000 taxing jurisdictions globally, keeping up with these regulatory changes and the escalating complexity of the tax environment, both domestically and internationally, is a massive challenge for any tax department. Now, I'd like to highlight a couple of wins on the international front that I'm very proud of.

Heart.

Leading tax content database and ability to handle the vagaries of tax calculations across a product list with more than 5 million separate S. K us.

As we noted in our annual sales tax rates and rules report last month U S sales tax rate changes reached a 10 year high in 2023.

In addition to hundreds of new taxes that were imposed.

With over 20000, taxing jurisdictions globally, keeping up with this regulatory changes and escalating complexity of the tax environment, both domestically and internationally as a massive tax for any tax department.

Now I'd like to highlight a couple of the wins on the international front that I'm very proud of we want a high profile new logo in the fourth quarter with a major luxury brand in the jewelry industry.

David DeStefano: We won a high-profile new logo in the fourth quarter with a major luxury brand in the jewelry industry. The customer launched an online marketplace so its customers could have a secondary market in which they buy, sell, and trade its products, many of which have long waiting lists at retail stores. This customer quickly acknowledged that the tax complexities for a global marketplace were beyond their internal capabilities, as well as the compliance risks that this represented. This led to a search for a third-party provider.

Customer launch an online marketplace. So its customers could have a secondary market in which they buy sell and trade it's products.

Many of which have long waiting lists at retail stores.

This customer quickly acknowledged that the tax complexity for a global marketplace was beyond their internal capabilities as well as the compliance risk that this represented.

This led to a search for a third party provider. Thanks.

David DeStefano: Thanks to the trusted relationship we have built with the U.S. division of the company, we added this prestigious new client to our customer base. Additionally, Vertx was selected by one of the fastest growing middle market providers of software for the office of the CFO. Internal system changes to its billing platform resulted in an evaluation of its existing solution. VertxOne was chosen based on the ability to operate seamlessly in the company's new IT environment while providing the expertise to smoothly execute the migration process.

Thanks to the trust your relationship we have built with a U S Division of the company. We added this prestigious new clients, who our customer base.

Additionally, protests was selected by one of the fastest growing middle market providers of software for the office of the C. F O.

Internal system changes towards billing platform resulted in an evaluation of its existing solution for.

It takes one based on the ability to operate seamlessly and the company's new I T environment, while providing the expertise to smoothly execute the migration process.

David DeStefano: In addition, the customer determined that Vertx's tax content was more thorough and accurate than the competition. We are excited about this win because this new customer is owned by a private equity firm that also owns a competitor of ours that was included in the RFP process. Even so, the competitor could not successfully compete in solving the tax complexity of the portfolio company.

In addition, the customer determined that vertex as tax content was more thorough and accurate than the competition.

We are excited about this win because this new customers owned by a private equity firm that also owns a competitor of ours that was included in the R. F P process.

Even so the competitor could not successfully compete in solving the tax complexity of the portfolio company.

David DeStefano: They also did not enjoy the high level of confidence and trust to deliver that Vertx received from the advisory community that influenced our win. As I look to 2024, I'm extremely confident in the momentum we continue to build. I am excited about the rapidly growing pipeline from our recent partnership with Shopify and their move up market. And I am seeing tangible progress to drive margin improvements with our ongoing investments in generative AI to support tax content expansion, software development, and creation of new customer experience tools. Finally, let me say a few words about our Peguero tender offer. From the outset, we were well advised on the nuances of Swedish law for tender offers, which opened the potential for additional parties to join in the bidding.

They also did not enjoy the high level of confidence and trust to deliver that protects received from the advisory community that influenced our win.

As I look to 2024 I'm extremely confident in the momentum we continue to build I'm excited about the rapidly growing pipeline from our reach in partnership with Shopify and their move up market.

And I am seeing tangible progress to drive margin improvements with our ongoing investments and degenerative AI to support tax content expansion software development and.

Creation of new customer experience tools.

Finally, let me say a few words about our peguero tender offer.

From the outset, we were well advised on the nuances of Swedish law for tender offers which opened the potential for additional parties to join into bidding.

David DeStefano: We were prepared for what unfolded and determined to stay true to our disciplined investment philosophy. With our differentiated approach of combining our VAT compliance solution with e-invoicing capabilities through a single portal, we are solving a highly valued challenge for tax departments. We've been clear that the e-invoicing component could be solved via partnership or acquisition. And when Figueroa presented us with both options, we pursued it at the right price.

We were prepared for the weather and folded and determined to stay true to our discipline investment philosophy.

With our differentiated approach of combining our VAT compliance solution with Ian voice and capabilities through a single portal, we are solving highly valued challenge for tax departments.

We've been clear.

Always seen component could be solved the partnership or acquisition.

When the girl presented us with both options, we pursued it at the right price.

David DeStefano: Currently, our multi-year partnership agreement with Bagheera that we announced last October remains in place. We are comfortable with the strength of the terms of that agreement, so in the near term, that is how we will continue to handle e-invoicing opportunities. At the same time, we have considerable options with other e-invoicing companies that are attracted to our highly sought-after customer base. And with recent legislation delaying the implementation of e-invoicing in France and Poland, we will remain strategic in our actions.

Currently are multi your partnership agreement with the girl that we announced last October remains in place where.

We are comfortable with the strength of the terms of that agreement. So in the near term that is how we will continue to handle invoicing opportunities.

At the same time, we have considerable options with other invoicing companies that are attracted to are highly sought after customer base.

And was recent legislation delaying the implementation of Ian voicing in France, and Poland, We will remain strategic and our actions either.

David DeStefano: I look forward to sharing more about our plans for this market opportunity in the future. In conclusion, I remain very confident in the path ahead. The fundamentals of our business are strong, and we are well positioned to capitalize on the significant market opportunity in today's increasingly complex tax landscape. John will now take you through the financials for 2023 and our guidance for 2024.

Look forward to sharing more about our plans for this market opportunity in the future.

In conclusion I remain very confident in the path ahead. The fundamentals of our business are strong and we are well positioned to capitalize on the significant market opportunity in today's increasingly complex tax landscape.

John will now take you through the financials for 2023 and our guidance for 2024.

John.

Thanks, David and good morning, everyone. All now review our results in detail and provide financial guidance for the first quarter and full year 2024.

John R. Schwab: Thanks, David. And good morning, everyone. I'll now review our results in detail and provide financial guidance for the first quarter and full year of 2024. In the fourth quarter, revenue was $154.9 million, up 18.1% compared to last year's fourth quarter. And for the full year, total revenue was $572.4 million, up 16.4% from 2022.

And the fourth quarter revenue was $154.9 million up 18.1% compared to last year's fourth quarter and for the full year total revenue is $572.4 million up 16.4% from 2022.

John R. Schwab: As David mentioned, this exceeded the high end of both our fourth quarter and full year revenue guidance by $7.9 million. Note that in the fourth quarter, contract renewals with several major customers resulted in usage tier true-ups of approximately $3 to $4 million. For comparison's sake, last year's fourth quarter usage tier true-ups were in the $1-$2 million range. Subscription revenue in the fourth quarter increased 17.9% over last year's fourth quarter to $130.7 million. Full year subscription revenue was $480.8 million, up 15.7% year over year.

As David mentioned this exceeded the high end up both our fourth quarter and full year revenue guidance by $7.9 million.

Note that in the fourth quarter contract renewals with several major customers resulted in usage tier true ups of approximately $3 million to $4 million.

For comparison sake last year's fourth quarter usage tier true ups were in the one to 2 million dollar range.

Subscription revenue in the fourth quarter increased 17.9% over last year's fourth quarter to $130.7 million.

Full year subscription revenue was $480.8 million up 15.7% year over year.

Services revenue in the fourth quarter grew 19.7% over last year's fourth quarter to $24.2 million.

John R. Schwab: Dervis's revenue in the fourth quarter grew 19.7% over last year's fourth quarter to $24.2 million. Full year services revenue is $91.6 million, up 20.2% year over year. And cloud revenue was $60.6 million, up 29.9% from last year's fourth quarter. Full-year cloud revenue was $214.6 million, up 27.1% year-over-year and exceeding our full-year guidance. The higher-than-expected full-year growth was in part due to the usage-tier TrueUp revenue, which contributed about half a percentage point to the full-year cloud revenue growth. Annual Recurring Revenue, or ARR, was $512.5 million at the end of the year, representing 18.9% year-over-year growth. Net Revenue Retention, or NRR, remains strong at 113%. This was up from 110% in the comparable 2022 period and up from 111% in the third quarter. Gross Revenue Retention, or GRR, was 95% at quarter end, within our targeted range of 94 to 96%. Average annual revenue per customer, or AARPC, which is based on our direct customer count, was $118,910 in the fourth quarter, up from $112,690 in the third quarter of 2020.

Full year services revenue was $91.6 million up 20.2% year over year.

And cloud revenue was $60.6 million, 29.9% from last year's fourth quarter.

Full year cloud revenue was $214.6 million or 27.1% year over year and exceeding our full year guidance.

The higher than expected full year growth was in part due to the usage to your true up revenue, which contributed about half a percentage point to the full year cloud revenue growth rate.

Annual recurring revenue or a R. R was $512.5 million at the end of the year, representing 18.9% year over year growth.

Net revenue retention or N R. R remains strong at 113%.

This was up from 110% in the comparable 20 twenty-two period and up from 111% in the third quarter.

Gross revenue retention or G. R. R was 95% a quarter and within our targeted range of 94% to 96%.

Average annual revenue per customer or a a R. P C, which is based on our direct customer count was $118910 in the fourth quarter up from $112690 in the third quarter of 2023.

For the remainder of the income statement discussion I'll be referring to non-GAAP metrics.

John R. Schwab: For the remainder of the income statement discussion, I will be referring to non-GAAP metrics. These non-GAAP metrics are reconciled to GAAP results in the earnings press release that was issued this morning. Gross profit for the fourth quarter was $109.6 million, and gross margin was 70.7%.

These non-GAAP metrics are reconciled to GAAP results and the earnings press release that was issued this morning.

Gross profit for the fourth quarter was $109.6 million in gross margin was 70.7 per cent.

John R. Schwab: This compares with gross profit of $94.4 million and a 72% gross margin in the same period last year. Gross margin on subscription software revenue was 76.8% compared to 78.4% in last year's fourth quarter and 78.3% in the third quarter of 2023. The decrease in gross margins was driven by increased cloud and hosting costs to support customers in the multi-cloud environment.

This compares with gross profit of $94.4 million and it grows and a 72 per cent gross margin in the same period last year.

Gross margin on subscription software revenue was 76.8% compared to 78.4% in last year's fourth quarter and 78.3% in the third quarter of 2023.

Decreasing gross margins was driven by increased cloud and hosting costs to support customers in the multi cloud environments.

Services gross margin was 38.2% compared to 36.8% in last year's fourth quarter and 35.3% in the third quarter of 2023.

John R. Schwab: Services gross margin was 38.2% compared to 36.8% in last year's fourth quarter and 35.3% in the third quarter of 2023. Turning to operating expenses, in the fourth quarter, research and development expense was $11.3 million compared to $11 million last year. For the full year, R&D was $52.2 million. With capitalized software spend included, R&D spend was $23.5 million for the fourth quarter and $100.7 million for the full year, which represents 15.2% of revenue for the fourth quarter and 17.6% of revenue for the full year. Selling and marketing expense was $34.4 million, up 3.5% from last year's fourth quarter. For the year, selling and marketing expenses were $129.2 million, up 12.1% from last year. And general and administrative expense was $31.4 million, up $2.6 million from last year. For the full year, general and administrative expenses were $124.9 million, compared to $112.7 million last year.

Turning to operating expenses in the fourth quarter research and development expense was $11.3 million compared to $11 million last year.

For the full year R&D was $52.2 million.

With capitalized software spend included R&D spend was $23.5 million for the fourth quarter and $100.7 million for the full year, which represents 15.2% of revenue in for the fourth quarter and 17.6 per cent of revenue for the full year.

Selling and marketing expense was $34.4 million up 3.5% from last year's fourth quarter.

For the year, selling and marketing expense was $129.2 million or 12.1% from last year.

In general and administrative expense was $31.4 million up $2.6 million from last year for.

For the full year general and administrative expense was $124.9 million compared to $112.7 million last year.

Both fourth quarter and full year adjusted EBITDA exceeded the upper end of our guidance.

John R. Schwab: Both fourth-quarter and full-year adjusted EBITDA exceeded the upper end of our guidance. With our growth investment program largely completed in mid-2023, we are seeing improved earnings leverage, which was apparent in the fourth quarter. Adjusted EBITDA was $32 million, an increase of $11 million, or over 52% year-over-year. In addition, the fourth quarter adjusted EBITDA margin was 20.7%. For the full year, adjusted EBITDA was $100.8 million, up $22.2 million from last year.

With our growth investment program largely completed in mid twenties twenty-three, we are seeing improved earnings leverage which was apparent in the fourth quarter.

Just that EBITDA was $32 million, an increase of $11 million or over 52% year over year.

In addition, the fourth quarter adjusted EBITDA margin was 20.7%.

For the full year, adjusted EBITDA was $100.8 million up $22.2 million from last year.

As you may recall or ear P conversion in the second quarter resulted in short term disruptions to billings, which in turn impacted our cash flow and the second and third quarters.

John R. Schwab: As you may recall, our ERP conversion in the second quarter resulted in short-term disruptions to billings, which in turn impacted our cash flow in the second and third quarters. However, this was largely resolved by the end of the fourth quarter as we delivered $28.8 million of free cash flow. Note that DSO remained at elevated levels in the fourth quarter, but we expect to resolve this by the end of the first half of 2020. However, the full year free cash flow was $6.1 million, compared to $3.4 million last year. We ended the fourth quarter with over $68.2 million in unrestricted cash and cash equivalents. Total bank debt was $46.9 million, and investment securities totaled $9.5 million.

This was largely resolved by the end of the fourth quarter as we delivered $28.8 million a free cash flow.

Note that D. S. O remained elevated levels in the fourth quarter, but we expect to resolve this by end of the first half of 2024.

For the full year free cash flow was $6.1 million compared to $3.4 million last year.

We ended the fourth quarter with over $68.2 million in unrestricted cash and cash equivalents totaled.

Total bank that was $46.9 million in investment securities totaled $9.5 million.

John R. Schwab: For additional liquidity, we also have $200 million of unused availability under our line of credit. With Vertx's strong execution, we have built a foundation for growth and profitability that we expect to be a shareholder value-creating engine for years to come. The growth investments we've made position us to deliver consistent revenue growth in the mid to high-single digits, which we, in turn, expect to drive earnings leverage and an expanding adjusted EBITDA margin. Reflecting this confidence, we are guiding above consensus for 2020. Accordingly, for the first quarter of 2024, we expect total revenue in the range of $152 to $156 million, which would represent 16% year-over-year growth at the mid- and adjusted EBITDA in the range of $29 to $31 million, which would represent an increase of approximately $8 million, or 45% at the bid.

For additional liquidity, we also have $200 million of unused availability under our line of credit.

With vertex as strong execution, we build a foundation for growth and profitability that we expect to be a shareholder value creating engine for years to come.

Growth investments we've made position.

To deliver consistent revenue growth in the mid to high teens, which we intern expect to drive earnings leverage and expanding adjusted EBITDA margins.

Reflecting this confidence weird guiding above consensus for 2024.

Accordingly for the first quarter of 2024, we expect total revenue in the range of $150 million to $156 million, which would represent 16 per cent euro per year growth at the mid point and adjusted EBITDA in the range of $29 million to $31 million, which would represent an increase of approximately $8 million 44.

Five per cent at the mid point.

John R. Schwab: For the full year 2024, we expect total revenue in the range of $650 to $660 million, representing annual revenue growth of 14% at the mid- While the full year revenue growth embedded in our guidance is slightly lower than what we delivered for the full year 2023, this is due to two factors. First, over the last two years, we have deliberately increased our focus and commitment to enabling and supporting our global alliance partners, who implement our software and help drive software subscription revenue for our business. As a result of this shift of focus, you are seeing, and will continue to see, a reduced growth rate for our services business.

For the full year 2024, we expect total revenue in the range of $650 million to $660 million, representing annual revenue growth of 14 per cent at the mid point.

While the full year revenue growth embedded in our guidance is slightly lower than what we delivered for the full year of 2023. This is due to two factors.

Burst over the last two years, we have deliberately increased our focus and commitment to enabling and supporting our global Alliance partners, who implement our software and help drive software subscription revenue to our business.

As a result of this shift of focus you are seeing and will continue to see a reduced growth rate for our services business. We expect services revenue to grow in the mid to single digits on a percentage basis in 2024.

David DeStefano: We expect services revenue to grow in the mid to single digits on a percentage basis in 2024. Secondly, we do not expect the high level of fourth quarter usage tier true up revenue that I mentioned earlier to reoccur in the fourth quarter of 2024. Offsetting this, in 2024, we expect cloud revenue growth to accelerate to approximately 28% and software subscription revenue to accelerate to more than 16%. For the full year of 2024, we expect adjusted EBITDA in the range of $130 to $135 million, representing an increase of $32 million, or 31% at the midpoint, and a full-year adjusted EBITDA margin of just over 20%. David will now make some closing comments before we open up for Q and A. David. Thanks, John. As I said at the start of the call, I'm very pleased with our execution in 2023. By any measure, it was a terrific year for Vertx.

Secondly, we do not expect a high level of fourth quarter usage tier true revenue that I mentioned earlier to reoccur in the fourth quarter of 2024.

Upsetting this in 2024, we expect cloud revenue growth to accelerate to approximately 28% and software subscription revenue to accelerate to more than 16 per cent.

For the full year of 2024, we expect adjusted EBITDA in the range of 132 $135 million, representing an increase of $32 million or 31% at the mid point and a full year adjusted EBITDA margin of just over 20 per cent.

David will now make some closing comments before we open up for Q&A David.

Thanks, John.

I said at the top of the call I'm very pleased with our execution in 2023 by any measure it was a terrific year for vertex vertex has always been a consistent durable profitable grower even back to our days as a privately held family run business, but the growth investments we made from 2020th through mid 2023 further energize the.

David DeStefano: Vertx has always been a consistent, durable, profitable grower, even back to our days as a privately held family-run business. But the growth investments we made from 2020 through mid-2023 have further energized the company from top to bottom. Accordingly, with continued strong execution, we see plenty of runway and opportunity to continue the standard of performance we set in 2023 in the years to come. With that, we will take your questions. We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key.

Company from top to bottom accordingly, with continued strong execution, we see plenty of runaway an opportunity to continue the standard of performance. We set 2023 in the years to come.

That we will take your questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys if at any time in your question has been addressed and you would like to withdraw. It. Please press Star then too at this time, we will pause my way.

Operator: If at any time your question has been addressed and you would like to withdraw it, please press star, then... At this time, we will pause momentarily to assemble our questions. Our first question comes from Chris Quintero of Morgan Stanley. Please go ahead.

Really to assemble our roster.

Our first question comes from Chris Quintero of Morgan Stanley. Please go ahead.

David DeStefano: Hey guys, congrats on the outstanding results here. Really, really impressive. You are all clearly seeing the benefits of this long investment cycle that you have just concluded. Just taking a step back as you look back on that journey and in all the areas that you invested in, from your perspective, what have been the key one to two needle movers for you that have really made the most impact today? Thanks, Chris. I would say that our investment in our partner ecosystem and alliances has really strengthened our growth vectors. And then when you couple that with the new products we brought to market around our customer success function, really focusing the customer success function to drive those new offerings and the products we acquired through acquisition, I would say the combination of those two things has really fueled and been an additive to our consistent growth story. I got it.

Hey, guys. Congrats on the outstanding results, Yeah, really really impressive you I'll just need the benefits of this long embarrassing cycle that you just concluded so.

Just taking a step back as you look back on that journey and and all of the areas that you invested in.

From your perspective would have been the key one to two neato movers for you that I've really made the most impact today.

Thanks, Chris I would say that our investment in our partner ecosystem and alliances is really strengthen our growth vectors and then when you couple that with the new products, we brought to market around our customer successful unction really labeling the customer successful function to drive those new <unk>.

Brings in the products, we acquired through acquisition I would say the combination of those two things is really fueled and the added into our consistent growth story.

Got it that's that's very helpful. And then <unk> really great to see that cloud growth kind of 28% for for for next year.

David DeStefano: That's really helpful. And then it's really great to see that cloud growth guide of 28% for next year. What gives you confidence in that guide?

What what what gives you the confidence and that Guy and where do you expect to see more of that growth to come from is it more migrations from beyond Pam version or just a testament to that you know really strong new logo across that you're saying.

David DeStefano: And where do you expect to see more of the growth to come from? Is it more migrations from the on-prem version, or just a testament to that really strong new logo growth that you're seeing? Yeah, I think the tailwinds of our business, if you think about the consistent regulatory pressure that our customers are facing, we had a record year for compliance changes last year, and you couple that with the ongoing digital transformations that are going on across the industry, both of those two things are, I think, are going to play out strongly in 24 and beyond. And I think that really is where we're going to see why we're so confident in our cloud I don't see any fundamental shift in the migration process.

Yeah, I think the Tailwinds of our business. If you think about the consistent regulatory pressure that our customers a face and we had a record year in compliance changes the last year and you couple that with the ongoing digital transformation that are going on across the industry. Both of those two things are I think we're going to play out strongly in 24 and beyond and I think.

That really is where we're going to see you know why we why we're so confident in our cloud growth I don't see any fundamental shift in migration process I think that will continue to be a a smaller part and again remember with our cross sales Chris a lot of our cross sales our customers who might have self hosted software and now I Wanna go to cloud software for the next.

David DeStefano: I think that'll continue to be a smaller part. And again, remember with our cross-sells, Chris. A lot of our cross-sells are customers who might have self-hosted software and now want to go to cloud software for the next offering. And so I think with that cross-sell motion and the NLR motion that we're enjoying, I think you'll see cloud growth there. So I think that's really the driver of that cloud success in 24.

Offering and so I think with that cross sell motion and the NR emotion that we're enjoying I think you'll see Glasgow. There. So I think that's really the drivers of that cloud success in 24.

Excellent Thanks, David Congrats again.

David DeStefano: Excellent. Thanks, David. Congratulations again.

David DeStefano: Thank you. The next question comes from Matt Pfau of William Blair. Go ahead.

Thank you.

The next question comes from Matt FA of William Blair. Please.

Please go ahead.

Yeah, great. Thanks for taking my questions and Great results guys. You wanted to follow up on the commentary related to eat and voice in and and take care of and I think given the bidding war that perspired. There. There's a view that big Arrow is a very unique asset in addressing Ian voicing, but you based on your car.

David DeStefano: Yeah, great, thanks for taking my questions and great results, guys. Wanted to follow up on the commentary related to e-invoicing and Pagaro, and I think given the bidding war that persisted there, there's a view that Pagaro was a very unique asset in addressing e-invoicing, but based on your comments, it seems like even if the Pagaro partnership doesn't work out, there' Is that correct, and is there any more detail you can provide on how you're thinking about addressing that opportunity for longer? Yeah, Matt. Thank you. You know, I definitely believe that Pagaro at the right price was an interesting asset for us, but the e-invoicing solution without the single portal combined with VAT compliance is not of such high value.

It makes it seem like even if the girl partnership doesn't work out there's other potential partnerships or perhaps acquisition options out there. So it is that correct in any more detail you can provide on how you're thinking about addressing that opportunity longer term.

Yeah, Matt. Thank you you know I I definitely believe that peguero at the right price was an interesting asset for us, but the Ian voicing solution without the the single portal combined with VAT compliance is not as high a value and so clearly what makes it what what's the differentiated value as our customer.

David DeStefano: And so clearly, what makes it, what's the differentiated value is our customer base combined with the way we've married up our VAT compliance solution and an e-invoice provider is really how we're gonna differentiate in the market. And so I'm very comfortable and confident that given the invoicing volume of our customer base, we have a lot of options about how we're gonna solve for that other piece. Pagaro at the right price was a wonderful asset, but it is clearly not the only game in town by any means.

Base combined with the way, we married up our VAT compliance solution and Ian voice provider is really how we how we were going to differentiate in the market and so I'm very comfortable and confident that given the invoicing volume of our customer base. We have a lot of options about how we're going to sell for that other piece figure out what.

The right price was a wonderful asset, but it is clearly not the only game in town by any means.

Great and just to follow up on the invoice and wanted to also clarify the comments around the timeline for implementation of that regulation and in some countries. It seems like perhaps.

David DeStefano: And just to follow up on e-invoicing, I wanted to also clarify the comments around the timeline for the implementation of that regulation in some countries. It seems like perhaps we're still a few years out from that opportunity becoming a more material driver, so you all have some time here to sort of formulate your strategy. Is that correct?

We're still a few years out from that opportunity, becoming a more material driver. So you all have some time here. It is sort of formulate your strategy is that correct is just wanted to confirm those kinda yeah. There's there's certainly activity in the market now that that's opportunity that we want to get after so but some of the bigger economies that are.

David DeStefano: I just wanted to confirm those comments. Yeah, there's certainly activity in the market now that's an opportunity that we want to get after, but some of the bigger economies that are looking at it have pushed out their dates, which just, again, affords us the ability to be very strategic and disciplined in what we do, which is something we've always tried to do to drive long-term shareholder value, and I see it playing out strongly again in this scenario. Okay, perfect. I appreciate you taking the time to answer my questions. Yeah, thank you, Matt. Our next question comes from Steve Enders of Citi. Please go ahead. Hi, thanks for taking the questions. This is George on for Steve.

At it have pushed out there are days, which just again it affords us the ability to be very strategic and discipline and what we do which is something we've always tried to do to drive long term shareholder value I see it playing out strongly again in this scenario.

Okay perfect I appreciate you taking my questions Yeah.

Yeah. Thank you Matt.

Our next question comes from Steve Enders of city.

Please go ahead.

Hi, Thanks for taking the questions. This is George on for Steve Maybe just first to start you know you guys laid out this investment plan that and you know obviously reaping the rewards of that.

David DeStefano: Maybe just to start, you guys laid out this investment plan and are obviously reaping the rewards of that. But when you think about the success that you're seeing in this acceleration of growth across a number of metrics, does that, you know, bring you back to the drawing table to maybe reconsider a more aggressive, you know, reinvestment posture going to 2024? George, thanks for the question.

You know when you think about the success that you're seeing this acceleration of growth across a number of matrix. You know does that you know bring you back to the drawing table too maybe reconsider a more aggressive you know reinvestment posture going to 2024.

George Thanks for the question I will tell you that we continue to invest.

David DeStefano: I will tell you that we continue to invest heavily in our R&D function to bring new products to market. The investment strategy we embarked on over the last three years was really to build out a much more mature go-to-market approach across Europe, the U.S., and the middle market, advancing our ecosystem profile, all so that we had more tentacles in the market to deliver value as we bought companies, acquired companies, or added new products to our portfolio. And so I don't see any slowdown in the R&D function at all.

Heavily in our R&D function to bring new products to market. The investment strategy, we embarked on over the last few years was really to build out a much more mature go to market approach across Europe U S middle market advancing our ecosystem profile also that we had more tentacles into the market to deliver value.

As we brought either.

Companies acquired companies or added new products to our portfolio and so I don't see any slowdown in the R&D function at all we can be much more tactical now when we add in the in the go to market areas, because we've got the base and the quality of talent and team ready to execute on that and so I think that's really and then I would want to highlight the back.

David DeStefano: We can be much more tactical now when we add in the go-to-market areas because we've got the base and the quality of talent and team ready to execute on that. And so I think that's really important, and then I would want to highlight the back-office efforts we've put in place around our ERP system really give us the scalable infrastructure to really drive margin over time through our G&A operations. Okay, super helpful. And then the record high NRR was great to see.

Office efforts, we've put in place around our ERP system really give us a scalable infrastructure to really drive margin over time through our G&A G&A operations.

Okay Super helpful. And then the you know a record high and are are was great to see maybe you could just talk a little bit about you know break that down a little bit what's been resonating is there any CPI component to that and you know is there anything you can CPI component baked into twenty-four that might that might look a little different just kind of any help on breaking apart basically there's base.

David DeStefano: Maybe you could just talk a little bit about, you know, break that down a little bit, what's been responding to it? Is there any CPI component to that? And, you know, is there any CPI component, you know, baked into 24 that might, that might look a little different? Just kind of any help on breaking apart NRR?

David DeStefano: Basically, there are basically, George, there are three components to what drives our NRR. About 50% of it comes from the cross-sell of new offerings into our install base. About 25% comes from selling more of an existing product to the customer. We call it entitlements where they're going through revenue bands, and we end up, it costs them more.

Quickly George there's three components to what drives our in our our about 50% of it comes from the cross cells of new offerings into our installed base about 25% come from selling more of an existing product too in the customer we call them entitlements, where they're going through revenue bands and we ended up it cost them more than.

David DeStefano: And then the last 25% comes from price increases. And I think the execution in Q4 really reflects consistent performance across all three with a little bit of an uptick in the cross-sell and entitlements areas, but nothing unique in the price area. We're pretty disciplined in our price increases. That's really not fueling, you know, the bulk of this at this point.

The last 25% comes from price increases and I think the execution in queue for really reflects consistent.

Performance across all three with a little bit of uptick in the in the cross sell and entitlements area, but nothing unique in the in the price here, we're pretty disciplined in our in our price increases that's really not fueling the bulk of this at this point.

Okay, great, Thanks, and congrats on the corner.

David DeStefano: Okay, great. Thanks, and congrats on the quarter. The next question comes from Adam Hotchkiss of Goldman Sachs. Please go ahead.

Thanks George.

The next question comes from Adam Hotchkiss of Goldman Sachs. Please go ahead.

David DeStefano: Great, thanks for taking the questions. David, you mentioned some of the new logo wins in Europe. I'm curious how you view the competitive environment there, given it seems there's a lot of interest across the Office of the CFO to get involved with some of the new e-invoicing regulations. Are your go-to-market teams seeing any of this? And are RFPs, companies, looking to get ahead of this today?

Great. Thanks for taking my questions. David you mentioned some of the new logo wins in Europe and carrier.

The competitive environment, they're given it seems there's a lot of interest across the opposite of CFO I've been getting involved with some of the new voice and regulations go to market theme seeing any of this and an RFP. His company is looking to get ahead of this today or do you think.

David DeStefano: There's going to be a little bit more of a reactive type of focus from companies in Europe given some of the delays in regulation. I appreciate that. You know, the beauty and the benefit and the pain of working in the indirect tax space is that unless there's true pain, there's not an advanced budget for it.

There's going to be more a little bit more of a reactionary type of focus from companies in Europe, given in terms of the delays and regulation I. Appreciate it. Thank you Adam for the question you know the the beauty and the benefit of Ah and the pain of working in the indirect tax space is unless there is true pain, there's not advanced budget for it so.

David DeStefano: So one of the things we've learned over the years is you want to have the right solution just in time to solve the problem, but getting there too soon doesn't always generate additional revenue because there's not a lot of discretionary spend, and so I think we see that consistently playing out here, and that's why I feel like we can be very strategic with our decision-making as we move forward here. Our Europe team has done a great job of building a very strong customer reference base, which is essential in the indirect tax community, and certainly with some of the offerings we brought forward like ChainFlow Accelerator, which is really differentiated in the SAP space, and if you think about, again, one of our larger ecosystems along with Oracle is SAP, and we're enjoying some really nice positioning inside of the SAP customer environment right now, so I still feel like we're very well positioned in that space.

One of the things we've learned over the years as you want to have the right solution just in time to solve the problem, but getting there too soon doesn't always doesn't always generate additional revenue because there's not a lot of discretionary spend and so I think we're.

We see that consistently playing out here and that's why I feel like we can be very strategic with our decision, making as we move forward here are your team has done a great job of building a very strong customer reference base, which is essential in the indirect tax community.

And certainly with some of the offerings. We brought forward like Jane flow accelerator, which is really differentiated in the sappy space and if you think about again.

Largest one of our larger ecosystems, along with Oracle is S a P and and.

And we're enjoying some really nice positioning inside of the S. A P a customer cussing.

Customer environment right now so I still feel like we're very well positioned in that space.

David DeStefano: Great, that's really helpful, Keller. And then, John, on margins, just curious if there's anything you're contemplating this year from an incremental investment perspective, given the evolving e-invoicing environment around Bagheera, or, you know, those considerations would be beyond this year. Yeah, I think, as you know, from a margin perspective, we talked a little bit about where we sit, where we stand, and kind of what we feel about the future. I don't anticipate anything significant coming in that's not already contemplated in our guidance.

[noise], great. That's really helpful color and then John on margins just curious if there's anything you're contemplating this year from an incremental investment perspective.

Evolved as all the voicing environment around panero or.

Considerations I mean beyond this year.

Yeah, I think as you know from a margin perspective, again, we talked a little bit about where we where we stand and kind of what we feel about the future I don't anticipate anything significant coming in that are not already contemplated in our guidance I think we feel good about the investments we've made heretofore in R&D and kind of bringing things together and I think we feel like we're gonna.

John R. Schwab: I think we feel good about the investments we've made heretofore in R&D and kind of bringing things together. And I think we feel like we're going to, you know, stay that path and continue to work with the partners that we've kind of been talking to, certainly from an e-invoicing standpoint, but we've got real good, real good momentum and traction regarding some of the R&D efforts and some of the other areas for additional new products and things going forward. So I don't anticipate a big wholesale change in terms of how we're thinking about investment to get after additional, additional spend. Okay, really helpful.

Stay that path and continued to continue to work with the partners that we've kind of been talking to certainly from any and boosting standpoint, but we've got real good real good momentum attraction regarding some of the R&D efforts and some of the other areas for again additional new products and things going forward. So I don't anticipate a big wholesale change in terms of how we are thinking about investment to get after edition.

And all the additional spending.

Okay really helpful. Thanks, David Facedown.

John R. Schwab: Thanks, David. Thanks, John. Thank you. The next question comes from Samad Samana of Jeff... Please go ahead. Hi, good morning.

Thank you thanks Adam.

The next question comes from some odd seminar of Geoffrey's. Please go ahead.

Hi, Good morning, Thank you for taking my questions and Yeah, I think that's a great numbers at first one maybe John for Yeah, If I just left.

John R. Schwab: Thanks for taking my questions and congrats on the great numbers. First one, maybe, John, for you, if I just look, you guys have seen growth get much, much stronger, but OpEx has been very, very limited in terms of expansion since December 22. So should we think about the company being kind of at the right level of OpEx?

You guys have seen growth forget much much stronger.

X has been very very limited in terms of expansion since December of 2002. So should we think about the company being kind of at the right level of Opex, how should we think that maybe that going forward I know you've given margin guidance for just.

John R. Schwab: How should we think about maybe that going forward? I know you've given margin guidance, but philosophically, help us understand if we're at the right place in terms of headcount and maybe where expenses should trend, and then I have a follow up question for you, David. Yeah, thanks, Samad, for the question. I think, you know, as we've talked about it before, a significant amount of our investments took place in the years leading up to 2023. In the middle of the year of 23, we did see an inflection point, we felt, with the go-live of the ERP system and a number of other areas, really getting to the level that we had anticipated when we undertook the journey. So I feel very good about where that is.

Topically help us understand if for at the right place in terms of head count and maybe we're expenses should trend and then add the follow up for for you David.

Yeah. Thanks for the question I I think you know as we've talked about it before a significant amount of our investments took place in the years, leading up to 2023 middle of the year of twenty-three. We did see an inflection point, we felt with the go live of the ERP system and a number of the other areas really getting to get getting to the level that we had anticipated.

When we undertook the journey so I feel very good about where that is I think we will continue to expand from a head count standpoint, because again, there's growth opportunities and things that are out there that will get after but we do anticipate and and as you would see from our guidance getting leverage out of our our cost infrastructure again, we've talked about G&A, we've talked about some level of selling and mark.

John R. Schwab: I think, you know, we will continue to expand from a headcount standpoint because, again, there's growth opportunities and things that are out there that we'll get after. But we do anticipate and, as you would see from our guidance, get leverage out of our cost infrastructure. Again, we've talked about G&A, we've talked about some level of selling and marketing expenses, and we see that there. And we're always being opportunistic from an R&D standpoint. So, you know, we feel good about where we are now from a headcount standpoint, from an expense standpoint, but there is some level of growth built into it. But, again, you'll start to see that leverage really come through now that those big investment dollars are passed.

Getting expensing that they're in.

We're always being opportunistic from an R&D standpoint, so we feel good about where we are now from a head count standpoint from an expense standpoint, but there is some some level of growth built into it but again, you'll start to see that leverage really come through now that those big investment dollars our past us.

David DeStefano: Great. And then David, just on the partnership side, especially the big ones like SAP and Oracle, how are you seeing the joint go-to-market efforts there? Is it doing as you expected, or is it doing better than expected?

Great and then David just on the partnership side, especially the big ones like S. A P and Oracle how are you seeing the they joined go to market efforts. There is it is it.

Getting as you as you expect anything better than expected and maybe actually thinking about partnerships will contribute to that strong 2024 cloud revenue growth.

David DeStefano: And maybe, how should we think about how partnerships will contribute to the strong 2024 cloud revenue growth? Yeah, thank you, Samad. You know, we continue to see really solid performance across the base there. And I think you really have to marry it well with the Alliance community because it's the combination of the two that is really differentiated for us and supports the strong win rate we have. And I think the pipeline of activity as we look forward, you know, a lot of what we as a team accomplished in 2023 didn't even benefit from some of the ECC migration efforts that we think are going to play out in 24, 5, and 6.

Yeah. Thank you so.

We continue to see really solid performance across the base there and I think when you you really have to marry it well with the alliance community because it's it's the combination of the two that is really differentiated for us and and supports the the strong wind right, we have and I I think the.

The pipeline of activities, we look forward.

A lot of what we the team accomplished in 2023 didn't even benefit for some of the E. C. C. Migration efforts that we think are going to play out in 24, five and six and so I think the team has done a good job of positioning insider positioning of inside of those ecosystems and our conscious effort now to slow down our services growth to really reward R. R.

David DeStefano: And so I think the team has done a good job of positioning us inside of those ecosystems, and our conscious effort now to slow down our services growth to really reward our partner ecosystem further, I think, is really aligned to what we want to envision growing this business as we go forward here. Great. I appreciate you taking my questions.

Our ecosystem further I think is Ah is it is it really aligned with what we want to envision growing this business as we go forward here.

Okay. I appreciate you taking my questions. Thank you.

David DeStefano: Thank you. The next question comes from Alex Sklar of Raymond James. Please go ahead.

The next question comes from Alec Sklar of Raymond James.

Go ahead.

Great. Thank you.

David DeStefano: Great, thank you. David, you've talked about high teens growth and targeting upwards of kind of 20% growth in some recent quarters. You just delivered on 19% ARR growth. Has anything changed in terms of your belief in the organic opportunity ahead for Vertx? Thanks, Alex. No, I still see, again, you have to look at the tailwinds.

You've talked about hiking growth and targeting upwards, it's kind of 20 per cent growth in some of the recent quarters. You you just delivered on 19% are our growth has anything changed in terms of your belief on the the organic opportunity head or perfect. Thanks.

Thanks.

Thanks, Alex No I'd see the I still seek again that you have to look at the tailwind I really look at what are the macro events that are driving opportunity to go out and I think you know business model changes and mergers and acquisitions at the enterprise space continue to play out the regulatory environment is only getting more complex and.

David DeStefano: I really look at what are the macro events that are driving opportunities for us, and I think business model changes and mergers and acquisitions in the enterprise space will continue to play out. The regulatory environment is only getting more complex and painful.

David DeStefano: And again, we're competing largely against in-house systems that ultimately need to be replaced. And so I think when you take those two and add in ongoing digital transformations and ERP upgrades, the strength of what we've envisioned happening and what we embarked on over three years ago in our investment strategy is really playing out quite nicely. And I don't see that changing in the near term at all.

Painful and again, we're competing largely against and how systems that ultimately needs to be replaced and so I think when you take those two and add an ongoing digital transformations and ERP upgrades the strength of what we've envision happening and what we embarked on over three years ago. When our investment strategy is really playing out quite nicely and I don't see that changing in the near term.

John R. Schwab: Okay, great color there. And maybe one for you, John, just in terms of guidance philosophy and how we look at the 2024 outlook, I think in previous years, you've spoken to not being kind of a huge embedded beat and raised cadence until you get later into the year. I'm just curious if anything's changed in terms of how you approach this guidance. Now, it's a great question. No, I appreciate it very much, Alex.

At all.

Okay, great great color, there and maybe one for you John just in terms of guidance philosophy, and how we can look at the 2024 outlook I think in the past year, you've spoken to not being kind of a huge embedded beaten raised.

<unk> until you get later in the year I'm just curious if any change in terms of how you approach the guidance this year.

Yeah now that it is a great question, though I appreciate it very much Alex I think we are very consistent and thoughtful about our guidance methodology and I think we can we expect that will continue with that same as we move forward I think we feel it's it's done as well to kind of be thoughtful and conservative about how we set that and then the way that we approach it is not anticipated the change.

John R. Schwab: I think we are very consistent and thoughtful about our guidance methodology, and I think we expect that we'll continue with that as we move forward. I think we feel it's done us well to kind of be thoughtful and conservative about how we set that, and then the way that we approach it is not anticipated. All right. Great. Thank you both.

Alright, great. Thank you both.

David DeStefano: Thank you all. The next question comes from Daniel Jester of BMO Capital Mining. Please go ahead. Yeah, great. Good morning, everyone.

Like.

The next question comes from Daniel gesture of BMO capital markets.

Go ahead.

Yeah, great. Good morning, everyone. Thanks for taking my question, David U a U.

David DeStefano: Thanks for taking my question. David, you gave us a little bit of an update about your efforts around AI in the prepared remarks. I'd love if you could expand on the areas of opportunity in 24.

<unk> gave us a little bit of update about your efforts around AI and they're prepared remarks, I'd love to if you could expand on the areas of opportunity in 24, and how are your customer of conversations progressing along those lines.

David DeStefano: And how are your customer conversations progressing along those lines? Yeah, so thanks for the question, Dan. We continue to be really disciplined in our investment here. We've made a conscious effort to look at ways to improve productivity and drive more efficiency in our business, and we're seeing some really good seeds of opportunity.

Yeah. So thanks for the question that we continue to be really disciplined in our investment here. We've made a conscious effort to look at ways to improve productivity and drive more.

Efficiency in our business and we're seeing some really good sprouts of opportunity I think I'm the customer funds probably in the long run more exciting because obviously, we I think we can drive more revenue from the business I'm one of the things our customers have always valued in our brand is around trust and its trust in the weekend.

David DeStefano: I think on the customer front, it's probably more exciting in the long run because, obviously, I think we can drive more revenue from the business. One of the things our customers have always valued in our brand is trust. And it's trust that we can be more accurate than they can do on their own. And so the conversations, and the reason we're inviting our customers into the dialogue early in the process, is to make sure they retain that confidence. And so we've set up a number of design programs and labs to sort of engage them in that journey to make sure we're meeting their expectations and not undermining trust in the process. Great, that's a great color. And then maybe one for you, John.

More accurate than they can do on their own and so the conversations and the reason we're inviting our customers into the dialogue early in the process is to make sure they retain that confidence and so we've set up a number of design programs in labs to sort of engage them in that in that journey to make sure we're meeting their expectations and not undermining trust in the process.

Great. That's that's great color and then maybe one for you John if I look at <unk>.

John R. Schwab: If I look at deferred revenue on the balance sheet in 2021 and 2022, that was kind of growing in the teens, but kind of exiting the year, we've kind of slipped to growth sort of in the mid single digits. So is there anything that we should be thinking about with regard to deferred revenue and the visibility you have on the growth algorithm for 24? Thank you. Thanks for the question, Dan. And there's nothing that's changed with respect to our visibility or how we think about the business in terms of kind of our confidence and ability to read into deferred revenue and what's on the horizon. I would tell you that, with the change back in 2021, we did change how we did some of our pricing for on-premise software. That's become a much smaller piece, but over time, that's come down.

Revenue on on the balance sheet, and 2021, and 2022 that was kind of growing into teen but kind of exiting the year, we've kind of slipped to growth kind of in the mid single digits. So is there anything that we should be thinking about with regards to deferred revenue and the visibility you have on the growth algorithm for 24.

Thank you.

Thanks for the question, Dan and there's nothing that's changed with respect to our visibility or how we think about the business in terms of kind of our confidence in the ability to read into deferred revenue and what's on the horizon I would tell you that with the change back in 2021, we did change how we do some of our our our pricing for on premise software that's become a much smaller.

Peace, but over time, that's come down and so that's why you see a little bit of a change relating to the deferred revenue over time. So that migration was it expected to take place and has but now from an overall standpoint, our ability to see to see into the future with our customers the contract length and the way that that's manifesting itself in deferred revenue.

John R. Schwab: And so that's why you see a little bit of a change relating to deferred revenue over time. So that migration was expected to take place and has, but now, from an overall standpoint, our ability to see into the future with our customers, the contract length, and the way that that's manifesting itself in deferred revenue has virtually been unchanged. Great, thank you very much.

Virtually unchanged.

Great. Thank you very much.

David DeStefano: Thank you. The next question comes from Pat Walravens of Citizens JMP Securities. Oh, great. Thank you. And let me add my congratulations on the Q4 result. So, David, and part of this comes from questions I've gotten from investors, but, you know, prior to Aguero, I would not have expected Vertx to be willing to pay nearly $600 million for an asset and to partner with someone like Silver Lake to get the financing. So how should we think about Vertx's future appetite for M&A? You know, how big a transaction are they willing to do?

Thanks to.

The next question comes from Pat Wall Ravens of citizens JMP Securities. Please go ahead.

Oh, great. Thank you and let me add my congratulations on the queue for results Fabulous.

So David and and part of this comes from some questions I've gotten from investors, but you know prior to Garo I would not have expected vertex to be willing to pay nearly 600 million for an asset and a partner with someone like silverlake to get the financing.

How should we think about <unk>, Texas future appetite for M&A.

You know how big a transaction are you willing to do.

David DeStefano: And should you maybe have more cash on the balance sheet to provide, you know, more flexibility around those kinds of things in the future? Thanks, Pat. You know, I think one of the things I enjoy with our board is its willingness to do what's necessary to support the long-term strategy of the company and the confidence they have in management to execute on that. And I think what happened over the last three years is the company has continued to perform better than expected, beating our own budget and guidance expectations. We've completed that investment cycle, and the board was supportive that there was an opportunity, and then at the right price, we would do what was necessary to make it happen. And so I don't think that philosophy will change at all, given the strength of our execution and the strength of the organization's performance.

And could you maybe have more cash on the balance sheet to provide more flexibility around those kinds of things in the future.

Thanks Pat.

I think one of the things I enjoy with our board is the willing to do what's necessary to support the longterm strategy of the company and the confidence they haven't management X two and then I think what happened over the last three years as the company has continued to perform better than expected, beating you'll be our own budget and guidance expectations, we've completed that investment cycle.

<unk>.

And the board was supportive that there was an opportunity in there at the right price, we would do what was necessary to make it happen and so I don't think that philosophy will change at all given the strength of our execution and the strength of the organization's performance if the right opportunity presents itself and it serves our customers long term needs you know our board will support doing what's necessary.

John R. Schwab: If the right opportunity presents itself and it serves our customers' long-term needs, you know, our board will support doing what's necessary to make it happen. What that is, you know, the world will be informed as we go forward. Rest assured, there's strong confidence across the board down through management on that. Great, thank you, and I think everyone does appreciate how you stayed disciplined. Thank you. As a reminder, if you have a question, please press the star then. Our next question comes from Brad Reback of Steve... Please go ahead.

To make it happen.

What that is.

The World will.

As we go forward, but.

Rest assure their strong confidence across from the board down through management on that.

Great. Thank you and I think everyone does appreciate how you stay disappointed on that.

Thank you.

As a reminder, if you have a question. Please press Star then one.

Our next question comes from Brad Reback Stifel. Please go ahead.

John R. Schwab: Great, thanks very much. Gentlemen, can you remind us about the true-ups and how that impacts ARR both in the quarter and going forward? Yeah, thanks for the question, Brad. The TrueOps, the way that it works is that the TrueOps is really for periods that have passed.

Great. Thanks, very much gentlemen, can you remind us with the true how that impacts a are are both in the corner and going forward.

Yep, Yeah. Thanks for the question Brad front the troops the way that it works is the Trump is really for periods that have passed so it it's a direct impact of revenue for the prior overages that took place, but what's typically happening at the same time, Brad has those same customers are renewing for a new contract going forward and typically that's coming in at a.

John R. Schwab: So it's a direct impact on revenue for the prior overages that took place. But what's typically happening at the same time, Brad, is those same customers are renewing for a new contract going forward. And typically, that's coming in at a higher tier. So you are getting a benefit from that customer renewing at a higher tier. So it's very similar to the amount that goes backwards, but ARR is the forward look.

At a higher tier. So you are getting better you are getting benefit from that customer of renewing at a higher tier. So it's very similar to the amount that goes backwards, but irr's to forward luck. Instead of forward look typically has an increase in it when you come out of a a customer entitlement upgrade like that.

John R. Schwab: And so the forward look typically has an increase in it when you come out of a customer entitlement upgrade like that. Great. And then as the cloud business gets bigger and bigger, can you also remind us sort of what the impact is on gross margin longer term? Thanks. That's a great question, Brad.

Great and then as the cloud business gets bigger and bigger can you also remind us sort of what the impact is on gross margin longer term. Thanks.

Yep Yep, that's a great question Brad. Thank you know over time, what we have seen is that customers are moving there is a migration toward the cloud. We have we have mentioned that our cloud revenue at our cloud margins. If you will were a little bit a little bit lower than our then are on prem margins, but a lot of that had to do with some of the leverage that we got in.

John R. Schwab: Thank you. Over time, what we have seen is that customers are moving. There is a migration toward the cloud. We have mentioned that our cloud revenue and our cloud margins, if you will, were a little bit lower than our on-premises margins. But a lot of that had to do with some of the leverage that we got.

John R. Schwab: And as more uptake in the multi-tenant cloud starts to take place, we are seeing those margins increase. So we feel very good about that. We feel that the margins, again, with the volume that we are getting, will find themselves just under where the on-prem margins were. Obviously, there is a cost there to host and keep the cloud costs going.

As more uptake in the Multitenant cloud started it starts to take place we are seeing those margins increase so we feel very good about that we feel that the margins again with the volume that we're getting that the margins will find themselves. You know just just under where the where are they on prime margins, where obviously, there's a cost there to host and and keep the cloud and keep the cloud costs.

Going but we feel very good that those margins will be able to kind of stay in that range of where they are where they are right now.

John R. Schwab: But we feel very good that those margins will be able to kind of stay in that range of where they are right now. Awesome, thanks very much. Thank you, Brad. Thanks, Brad. This concludes our question and answer session. I would like to turn the conference back over to Joe Crivelli for any closing remarks. Thanks, everybody, for joining us today. If you have any follow-up questions or if you'd like to schedule additional time with the team, please send me an email at investors at vertx.com. I'm sorry, investors at vertxinc.com.

Awesome, Thanks very much.

Thank you thanks bread.

This concludes our question and answer session I would like to turn the conference back over to Joh crevalle for any closing remarks.

Thanks, everybody for joining us today, if you have any follow up questions or if you'd like to schedule additional time with the team. Please send me an email at investors at vertex Dotcom I'm, sorry, investors that vertex Inc. Dot com have.

Joe Crivelli: Have a great rest of your day, and we look forward to speaking with you in the coming weeks. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Have a great rest of your day and we look forward to speaking with you in the coming weeks.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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