Vertex, Inc. (NASDAQ:VERX), a leading global provider of indirect tax software and solutions, has delivered another impressive quarter, exceeding the high end of its financial guidance for both revenue and adjusted EBITDA. The company's unwavering focus on execution and strategic investments have positioned it for continued success in the rapidly evolving indirect tax landscape.

Financials

Vertex's Q1 2024 revenue came in at $156.8 million, up 18.1% year-over-year, driven by strong growth in both software subscriptions and services. The software subscriptions segment grew 18.8% to $131.8 million, while services revenue increased 14.8% to $25.0 million. This performance reflects the company's ability to consistently deliver value to its growing customer base, as well as its success in cross-selling new products and expanding the use of its solutions.

The company's annual recurring revenue (ARR) reached $524.5 million at the end of Q1 2024, up 17.5% year-over-year. This metric highlights the strength and sustainability of Vertex's business model, as the majority of its revenue is derived from recurring software subscriptions. The company's net revenue retention (NRR) rate also remained strong at 112%, up 2 percentage points from the prior year's first quarter, demonstrating its ability to expand within existing customer accounts.

Vertex's gross margin continued to impress, reaching 72.5% on a non-GAAP basis, up from 71.8% in the same period last year. This improvement was driven by the company's focus on delivering high-value solutions and its ability to leverage its scalable infrastructure. The company's subscription gross margin was 78.6%, while services gross margin was 40.5%.

On the profitability front, Vertex's adjusted EBITDA for the quarter was $36.7 million, representing a remarkable 82% year-over-year increase and an adjusted EBITDA margin of 23.4%. This strong performance was driven by the company's operational efficiency, as well as its strategic investments in research and development, sales and marketing, and customer success.

Liquidity

Vertex's cash flow generation also improved significantly, with operating cash flow of $24.6 million and free cash flow of $4.5 million in Q1 2024, compared to $3.5 million and negative $10.6 million, respectively, in the prior year's first quarter. This positive cash flow performance is a testament to the company's disciplined financial management and its ability to convert its strong profitability into tangible cash flow.

The company's balance sheet remains robust, with $56.1 million in unrestricted cash and cash equivalents as of March 31, 2024. Additionally, Vertex recently raised $345 million in convertible debt, further strengthening its financial flexibility and positioning it to capitalize on growth opportunities, whether through organic investments or strategic acquisitions.

Business Overview

Vertex's strategic focus on delivering end-to-end capabilities for indirect tax has been a key driver of its success. The company's ability to seamlessly connect systems, solutions, and data empowers its customers to navigate the increasingly complex indirect tax landscape with confidence. This unified approach has resonated with the market, as evidenced by the company's strong new logo wins and expansion within its existing customer base.

One notable example is the company's partnership with SAP, which has been a significant growth driver. Vertex's differentiated solutions and tight integration with SAP's ecosystem have enabled it to capture opportunities arising from the wave of ERP migrations to S/4HANA. The company's sales team collaboration with SAP's direct sales force has also been a valuable asset, allowing Vertex to get an early look at customer infrastructure and tailor its solutions accordingly.

Vertex's international expansion efforts have also gained traction, with the company seeing increased brand recognition and pipeline growth in Europe. The company's focus on addressing the evolving regulatory landscape, particularly around e-invoicing, positions it well to capitalize on the growing demand for comprehensive indirect tax solutions in global markets.

Outlook

Looking ahead, Vertex has provided guidance for the second quarter of 2024, expecting total revenue in the range of $159 million to $162 million and adjusted EBITDA between $31 million and $33 million. For the full year 2024, the company continues to expect total revenue of $650 million to $660 million and adjusted EBITDA of $130 million to $135 million. The company also anticipates that its cloud revenue growth will accelerate to approximately 28% in 2024.

Conclusion

Vertex's consistent execution, strategic investments, and strong customer relationships have positioned the company for continued success in the rapidly evolving indirect tax market. With a robust product portfolio, scalable infrastructure, and a talented team, Vertex is well-equipped to capitalize on the significant growth opportunities ahead and deliver value to its shareholders.