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VI

Vertex, Inc. (VERX)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $178.46M, up 15.2% YoY, and exceeded the company’s Q4 guidance high end by $0.5M; Adjusted EBITDA was $38.06M (21.3% margin), ahead of guidance and up from $32.04M in Q4 2023 .
  • Non-GAAP diluted EPS was $0.15; GAAP diluted EPS was $(0.43) driven by a deferred tax valuation allowance and ecosio earn-out valuation effects .
  • ARR reached $603.1M (+17.7% YoY; +15% organic), NRR was 109% (expected to rebound >110% in 2025), GRR held at 95%, and cloud revenue for the full year rose 28.6%, now exceeding on-prem for the first time .
  • 2025 guidance: revenue $760–$768M, Adjusted EBITDA $161–$165M, cloud growth 28%; management is accelerating e‑invoicing coverage (+$4M to $16–$20M in 2025) and investing $10–$12M in AI initiatives (Smart Categorization, agentic AI, internal tools) .
  • Stock-relevant catalysts: proof-point beats vs guidance, general availability of e‑invoicing, expected NRR rebound, and Investor Day (Mar 19) where the team will detail growth drivers and strategy .

What Went Well and What Went Wrong

What Went Well

  • “Cloud revenue growth for the full year was 28.6%, and… total cloud revenue now exceeds on‑premise revenue for the first time,” supporting strategic mix shift to cloud .
  • Record new logos in Q4 (dollar and unit), strengthened SAP/Oracle pipelines; SAP referral deals up >20% and pipeline up >20% YoY—“we are not seeing any indications of a slowdown” .
  • Strong profitability momentum: Q4 Adjusted EBITDA of $38.06M (21.3% margin), above guidance; FY Adjusted EBITDA $151.94M vs $100.85M prior year (22.8% margin vs 17.6%) .
  • Quote: “Vertex’s strong execution continued in the fourth quarter… Cloud revenue now exceeds on‑premise… NRR was 109%… GRR was 95%” (CEO) .

What Went Wrong

  • NRR declined to 109% (from 111% in Q3 and 113% in Q4 2023), impacted by mix (more new logos) and tough prior-year comp; management expects rebound >110% in 2025 .
  • 2025 margin headwind: Adjusted EBITDA margin guided ~21.3% due to accelerated e‑invoicing and AI investments; excluding these, margin would be >25% (core leverage intact) .
  • Q4 GAAP loss and $(0.43) GAAP diluted EPS reflect a deferred tax valuation allowance and ecosio earn‑out valuation (fixed share component sensitive to stock price) .

Financial Results

Consolidated Results vs Prior Periods and Guidance

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$154.91 $170.44 $178.46; +15.2% YoY; beat high-end guidance by $0.50M
GAAP Diluted EPS ($)$0.09 $0.04 $(0.43)
Non-GAAP Diluted EPS ($)$0.13 $0.16 $0.15
Adjusted EBITDA ($USD Millions)$32.04 $38.62 $38.06
Adjusted EBITDA Margin (%)20.7% 22.7% 21.3%
Non-GAAP Gross Margin (%)70.7% 74.0% 75.0%

Notes:

  • Q4 2024 revenue exceeded the company’s Q4 guidance ($175–$178M) by ~$0.5M; Adjusted EBITDA also above the high end .

Revenue Mix

MetricQ4 2023Q3 2024Q4 2024
Software Subscriptions ($USD Millions)$130.70 $146.25 $152.60
Services ($USD Millions)$24.22 $24.18 $25.86

Additional highlights:

  • Cloud revenue: $76.9M in Q4 2024 (+27% YoY); $71.0M in Q3 2024 (+29.9% YoY) .

KPIs

KPIQ4 2023Q3 2024Q4 2024
ARR ($USD Millions)—$576.8 $603.1; +17.7% YoY; +15% organic
NRR (%)113% 111% 109%; expected >110% in 2025
GRR (%)95% 95% 95%
AARPC ($)$118,910 $118,800 $122,706 (incl. ecosio & Systax); Vertex stand-alone $136,475
Direct Customers (count)4,310 4,855 4,915

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q4 2024$175–$178 Actual $178.46 Beat high end (+$0.46M)
Adjusted EBITDA ($M)Q4 2024$33–$37 Actual $38.06 Beat high end (+$1.06M)
Revenue ($M)FY 2024$663.3–$666.3 Actual $666.78 Slightly above top end
Adjusted EBITDA ($M)FY 2024$146.9–$150.9 Actual $151.94 Above top end
Revenue ($M)Q1 2025—$175–$178 New
Adjusted EBITDA ($M)Q1 2025—$33–$36 New
Revenue ($M)FY 2025—$760–$768; cloud +28% New
Adjusted EBITDA ($M)FY 2025—$161–$165 (~21.3% margin) New
E‑invoicing investment ($M)FY 2025$12–$16 (prior) $16–$20 Raised by ~$4M
AI/R&D incremental investment ($M)FY 2025—$10–$12 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
ERP migrations (SAP/Oracle)Q2: migration benefits lag 2–4 quarters; mid-size SAP moves slower than expected . Q3: pipeline +20%, SAP referrals +20% .No slowdown; SAP pipeline >20% YoY; ECC support extension to 2033 reduces bottlenecks .Strengthening tailwind
Cloud mix shiftQ2/Q3: strong cloud growth near 30% .Cloud now exceeds on‑prem; full-year cloud +28.6% .Positive mix shift
E‑invoicing (ecosio)Q2: announced acquisition; plan to expand coverage; prioritize CTC jurisdictions .General availability; wins in US/EU; accelerating product & go‑to‑market; coverage focus on France/Germany and high-demand LATAM .Accelerating investment/adoption
AI initiativesQ2: acquired tax-specific AI; Smart Categorization roadmap .$10–$12M incremental R&D; Smart Categorization in market in 2025; agentic AI across platform .Expanding commercialization
NRR and pricing/entitlementsQ2: NRR 110%; softer cross-sell/upsell early-year timing . Q3: NRR 111% .NRR 109% (mix/comp); expected >110% in 2025; components ~50% cross-sell/migrations, ~25% price, ~25% entitlements .Near-term dip; planned rebound
Services strategyQ2/Q3: deliberate slowdown, shift to partners .Expect “pretty flat” services in 2025; emphasis on partner-led implementations .Stable/harvest role
GAAP/TaxQ2: GAAP positive; ERP AR collections improved FCF .Q4 GAAP loss due to tax valuation allowance and ecosio earn‑out valuation .One-off GAAP impacts

Management Commentary

  • “Our pipeline is more than 20% higher than it was last year at this time… referral deals from SAP sales reps increased more than 20%… we are not seeing any indications of a slowdown” (CEO) .
  • “Cloud revenue growth for the full year was 28.6%, and… total cloud revenue now exceeds on‑premise revenue for the first time” (CEO) .
  • “Our Adjusted EBITDA guidance for 2025 includes additional R&D investments… $4M in ecosio… approximately $10 to $12M across R&D for commercialization of our AI-based Smart Categorization product, other AI-related internal tools and new product initiatives” (CFO) .
  • “NRR was 109%… we fully expect it to rebound above 110% throughout the coming year” (CEO) .
  • “Q4 revenue… exceeded the high end of our fourth quarter guidance by $500,000… Adjusted EBITDA… ~$1.1M above the high end” (CFO) .

Q&A Highlights

  • Margins and investments: 2025 margins guided down due to accelerated e‑invoicing and AI investments; core margin ex-investments >25% (shows underlying leverage) .
  • Gross margin drivers: expansion aided by high-margin usage true-ups in Q3/Q4; not extrapolating outsized margins longer term .
  • Services outlook: 2025 services “pretty flat”; leveraging alliance partners to support durable ARR growth .
  • AI monetization: Smart Categorization to launch in 2025 with ARR lift; majority of AI spend focused on commercial products; some internal tools for efficiency .
  • E‑invoicing coverage and go-to-market: focus on greenfield mandates (France/Germany) plus major customer demand jurisdictions; primarily product investment with selective feet-on-street in EU/US .
  • Pipeline linearity: strong coverage ratios and broadened ecosystem support expected to drive back-half acceleration; NRR rebound to >110% .
  • NRR components: ~50% cross-sell/migrations, ~25% price, ~25% entitlements—unchanged mix .

Estimates Context

  • Wall Street consensus estimates via S&P Global were unavailable at the time of query; as a proxy, the company’s Q4 actuals exceeded its own Q4 revenue and Adjusted EBITDA guidance ranges (revenue beat by ~$0.5M; Adjusted EBITDA beat by ~$1.1M) .
  • Given unavailable SPGI estimates, we anchor to guidance and management commentary for beat/miss assessment (explicit SPGI consensus data could not be retrieved at time of report).

Key Takeaways for Investors

  • Q4 quality beat: Revenue and Adjusted EBITDA exceeded the high end of guidance; non-GAAP margins expanded; strong ARR and cloud growth underpin durability—constructive near-term setup .
  • Mix upgrade: Cloud now exceeds on‑prem; sustained high-teens subscription growth and 28.6% full-year cloud growth support re-rating of the business mix .
  • 2025 investment year: Near-term margin headwind is strategic (e‑invoicing coverage, AI commercialization); core margin >25% ex-investments implies operating leverage intact—watch for cadence of product launches and reference wins .
  • Pipeline strength: SAP/Oracle migration cycles and broadened ecosystem (Shopify, Microsoft, NetSuite) fuel record new logos and rising referrals; expect NRR to rebound >110% in 2025 .
  • Cash and liquidity: FY free cash flow improved to $77.7M; cash $296.1M with $300M undrawn revolver—funds strategic investments without stressing balance sheet .
  • Event catalyst: Investor Day on March 19 should clarify long-term ARR drivers, AI product roadmap, e‑invoicing coverage expansion, and margin trajectory—potential stock catalyst .
  • Watch items: NRR recovery pace, gross margin normalization post true-ups, e‑invoicing country rollouts (France/Germany), and AI monetization timing in 2025 .