Vertex Inc., a name not often whispered in the bustling hallways of Wall Street, might just be quietly building a tax tech empire. On the surface, their Q1 2024 earnings call paints a picture of steady, consistent growth, the kind that soothes investor anxieties and delivers predictable returns. But beneath this placid surface, a fascinating trend emerges, one that seems to have escaped the scrutiny of even the most seasoned analysts.

Vertex, it appears, is leveraging a unique strategy, a blend of old-school customer loyalty and savvy new-age partnerships, to establish dominance in a market most haven't even recognized exists. They're not just riding the wave of digital transformation, they're becoming the preferred life raft for companies swept up in its current.

While everyone's focused on Vertex's cloud growth (an impressive 28.3% year-over-year, mind you), the real story lies in their approach to the less glamorous on-premise market. Here's where things get interesting: Vertex's on-premise revenue saw a surprising surge, growing at over 10% for the first time in years. This, at a time when most competitors are abandoning the on-premise landscape, deeming it antiquated and unprofitable.

What's Vertex Seeing That Others Aren't?

The answer lies in understanding their customer base. While new logos are overwhelmingly cloud-focused (over 90%, according to CEO David DeStefano), Vertex recognizes that their long-standing, high-value enterprise customers are often expanding through on-premise additions. It's a classic case of knowing your customer, understanding their needs, and adapting your strategy accordingly.

Vertex isn't just passively supporting the on-premise market, they're actively capitalizing on it. By aligning cloud and on-premise pricing, they've turned a segment often perceived as a drag on profitability into a source of growth and robust margins. It's a smart, counter-intuitive move that speaks volumes about their understanding of the complex tax tech landscape.

This customer-centric approach extends beyond pricing. Vertex is going above and beyond to support their on-premise customers, often hosting software in dedicated cloud environments tailored to specific client needs. They're not just selling software, they're building lasting relationships. This is further evidenced by their impressive Net Revenue Retention (NRR) of 112%, up two percentage points from the previous year.

Strategic Partnerships: Amplifying Reach and Influence

Vertex's strategy, however, isn't solely about cultivating customer loyalty. They're also forging strategic partnerships with key players in the ERP ecosystem, creating a powerful network that amplifies their reach and influence.

Beyond the established partnerships with giants like Oracle and SAP, Vertex is making inroads into the burgeoning ecosystems of Microsoft, NetSuite, Workday, and even the rapidly growing Shopify. This proactive approach to partner development positions them at the forefront of the digital transformation wave, ready to capture new customers as they upgrade their systems and grapple with increasingly complex tax requirements.

The Shopify partnership, in particular, is worth noting. As Shopify continues its aggressive move upmarket, attracting larger, more complex businesses, Vertex is perfectly positioned to capitalize on the growing need for robust tax solutions. It's a symbiotic relationship that could drive significant growth for both parties in the years to come.

A Dual-Pronged Strategy: Cornering the Market?

The implications of Vertex's dual-pronged strategy are significant. By catering to both cloud and on-premise markets, they're effectively cornering the enterprise tax tech landscape, leaving competitors to fight over scraps. This, combined with their strategic partnerships and a pipeline fueled by ERP migrations and regulatory change, suggests a future of sustained growth and profitability.

Hypotheses & Numbers

On-premise resurgence: If on-premise revenue continues to grow at 10%+, it could add an additional $6.5 million to $13 million in revenue for 2024, beyond current guidance.

Shopify partnership: Assuming Shopify's upmarket strategy continues, and Vertex captures a significant share of their new enterprise customers, the partnership could drive an incremental $5 million to $10 million in revenue over the next two years.

Market share expansion: Vertex's dual-market strategy, combined with their partner network, could result in a 2-3% increase in market share over the next three years.

Vertex's Revenue and Adjusted EBITDA Growth

Vertex Inc. might not be making headlines, but their quiet, strategic approach is yielding impressive results. They're not just another SaaS company chasing the latest trends; they're a seasoned player with a deep understanding of their market, their customers, and the evolving tax landscape. And that, in the world of business, is a truly mind-blowing combination.

Key Financial Data

Revenue: $156.8 million (up 18.1% year-over-year) Source: Vertex, Inc. (VERX) Q1 2024 Earnings Call Transcript

Software Subscription Revenue: $131.8 million (up 18.8% year-over-year) Source: Vertex, Inc. (VERX) Q1 2024 Earnings Call Transcript

Cloud Revenue: $61.8 million (up 28.3% year-over-year) Source: Vertex, Inc. (VERX) Q1 2024 Earnings Call Transcript

Adjusted EBITDA: $36.7 million (up 82% year-over-year) Source: Vertex, Inc. (VERX) Q1 2024 Earnings Call Transcript

ARR: $524.5 million (up 17.5% year-over-year) Source: Vertex, Inc. (VERX) Q1 2024 Earnings Call Transcript

NRR: 112% (up 2 percentage points year-over-year) Source: Vertex, Inc. (VERX) Q1 2024 Earnings Call Transcript

Average Annual Revenue Per Customer: $121,720 (up 17% year-over-year) Source: Vertex, Inc. (VERX) Q1 2024 Earnings Call Transcript

"Fun Fact: Vertex Inc.'s revenue has exceeded the high end of their guidance for 14 out of the 15 quarters they have been a public company. Their Adjusted EBITDA has also exceeded guidance for 11 out of the last 15 quarters. This demonstrates their strong understanding of their business and their ability to consistently deliver on their promises. Source: Vertex, Inc. (VERX) Q1 2024 Earnings Call Transcript"