Vertex Inc (VERX) 2021 Q2 法說會逐字稿

Greetings, and welcome to Vertex Inc. Second Quarter 2021 Earnings Conference Call. (Operator Instructions). Please note, this conference is being recorded. I will now turn the conference over to Ankit Hira with Vertex's Investor Relations. Thank you. You may begin.

Thank you. Good morning, everyone, and thank you for joining us for Vertex's financial results conference call for the second quarter ending June 30, 2021. On the call today, we have Vertex's CEO, David DeStefano; and CFO, John Schwab.

Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including the Q&A portion of the call, may include forward-looking statements related to the expected future results for our company and are therefore forward-looking statements. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward-looking statements are subject to are described in our earnings release and other SEC filings. Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information to the GAAP financial information, is provided in the press release. This conference call will be available for replay via webcast through Vertex's Investor Relations website at ir.vertexinc.com. With that, I'll now turn the call over to David.

Thanks, Ankit, and thank you all for joining us today. It was just over a year ago when we began our journey as a public company, Today, I'm pleased to share our results for the second quarter of 2021, which exceeded our guidance with total revenues up 15% year-over-year. Our strategy to connect business and government seamlessly across the fabric of global commerce with end-to-end tax automation has never been more critical. It's a strategy that is resonating with more and more with our global customers, prospects and partners.

Our accelerating growth in Q2 reflects the unwavering focus of the entire global Vertex team on executing our strategy. as we invest in delivering new products organically and through acquisitions like Systax, Tellutax and Taxamo, while extending our go-to-market and ecosystem strength. Our cloud revenues grew 59.5% year-over-year coming from both new logos and existing customers. Consistent with previous quarters, we continue to see an overwhelming majority of the new logos choose our cloud products for flexibility, scale and integration to the world's major business applications. And current customers are continuing to add our cloud products as part of their hybrid strategy as well as migrating fully to the cloud and expanding their transaction volumes globally.

Enterprise and mid-market businesses alike continue to choose Vertex as they expand their business models, drive global omnichannel strategies and continue their digital transformations. We believe our unified platform, multi-cloud strategy and deep partnerships are a powerful combination that allows us to serve an expanding addressable market and grow with our customers. This was proven once again in the quarter with multiple 6- and 7-figure deals and an overall average annual recurring revenue per customer of over $80,500. At the end of the day, though, it's about delivering great customer experiences with powerful solutions and trusted relationships. This is what drives our success.

We've talked before about our hybrid strategy and why that continues to differentiate us in the market and how we often coexist with our customers in both cloud-based front-office and traditional back-office environment. Today, many of our customers run our solutions, both in their own environment and also have a cloud deployment. So they are already on the cloud journey with us. I can't emphasize enough how important it is for a tax professional to have confidence and consistency in their tax outcomes across all their systems. And for the IT professional, confidence in enterprise scalability is essential. These requirements are why we continue to have such strong customer retention rate and why our customers continue to adopt our cloud product as they advance their IT road map.

To better illustrate the value we bring to our customers, I'd like to share a recent example within the retail space. Over the past year, businesses of all types have had to quickly pivot operations in response to supply chain disruption and a massive uptick in online sales. The retail industry, in particular, has felt these challenges. While other tax solutions emphasize solving problems solely in the e-commerce channel, Vertex has been able to support the unprecedented online growth, along with all the other aspects of their omnichannel solutions, consistently and seamlessly. This is a requirement for serving mid-market and large retailers.

Let me be more specific. Our team worked with one of the top athletic apparel retailers who was looking for a single solution to support 3 distinct business needs. The solution needed to support the back office, e-commerce and in-store transactions. This is a very common requirement for retailers that can't afford to lose a sale due to a disruption in Internet service or a spike in demand. This business imperative for retailers to the consistent reason the customer select Vertex over our competitors. Our ability to deploy and integrate deeply throughout all parts of the transaction infrastructure gives retailers confidence they can maintain optimal performance and reliability in all areas of their business. This is something they cannot get from native cloud-only solutions.

Vertex's vision to accelerate global commerce by delivering innovative global solutions and digital capability has never been more relevant. The explosion in e-commerce we've seen prior to and throughout the pandemic is not slowing, giving way to incredible growth potential across nearly every industry in both B2C and B2B markets. This growth goes hand-in-hand with an increase in cross-border sales as businesses maximize the new market opportunity enabled by e-commerce. The dynamic regulatory environment continues to add complexity to the mix for both enterprise and mid-market businesses.

This quarter saw land market legislation that will impact how businesses transact in the European Union in the years ahead, much like Wayfair in the U.S. The new laws under the EU VAT e-commerce package imposed additional compliance burdens with changes to rates, thresholds and remittance processes for B2C marketplaces, merchants conducting cross-border transactions and the supply chains that support them.

Last quarter, we announced the strategic acquisition of Taxamo, a cloud-native pioneer in tax and payment automation for global e-commerce and marketplaces. We expect sustained growth opportunities with these capabilities as the impact of this legislation plays out. This acquisition also creates a significant opportunity to reach a broader segment of the market, we are now delivering sellers an end-to-end turnkey solution that automates real-time bad calculations and reporting obligations to help enterprises, e-commerce providers in both B2B and B2C marketplaces reduce friction anywhere and everywhere transactions are done.

I'll share a couple of stories highlighting our Taxamo product and the unique value proposition they are bringing. The first relates to a win with a very successful European start-up that was growing close to 40% annually with no signs of slowing down. Like many other B2B e-commerce providers, they needed to better understand the customer journey on their website to better support their expansion into new regions and countries. We partnered with the CFO at this mid-market web services provider to provide a global solution to manage their worldwide compliance requirements. While other competitive solutions were considered Vertex with Taxamo capabilities was the clear choice for the company due to the breadth and depth of our compliance solution and our integration with their subscription billing application.

Another example this past quarter was with an e-commerce provider of an online membership platform for funding. This customer was growing at nearly 20% year-over-year, the pain of managing over 7 million invoices for their international customers each month across more than 20 regions had become too great. They wanted one global tax provider with capabilities to support international invoicing with speed and scale. Additionally, the company does significant business in Taiwan where every invoice or cross-border transaction must include a lottery number. The government has been very forceful in applying fees for noncompliance. So this was a critical business need, our ability to handle this and other complex e-invoicing requirements made the difference in this competitive win.

In addition to expanding our technical capabilities, we continue to strengthen our ability to support e-commerce and marketplaces by extending our relationships with top marketplace providers. Multi-seller marketplaces have exploded in popularity and usage but so has the complexity and associated regulatory requirements, putting a greater responsibility for tax on the marketplace when facilitating transactions between sellers and buyers.

In June, we announced our expanded partnership and new VAT integration with Mirakl, a key infrastructure platform for hundreds of marketplaces. With the changes in VAT regulations, we believe this partnership will be important to supporting our strategy to expand in both the EU and beyond as marketplaces all over the world face emerging regulatory pressures.

When we look at our performance throughout the quarter, one thing that stands out for me is the undeniable power of our extensive partner network, which includes technology leaders, channel partners and the broader tax consulting community. Our investment to expand the breadth and depth of these relationships fuels our growth, innovation and results. Looking across our notable wins for the quarter, the advocacy of our consulting and implementation partners is a consistent element in both new logo deals and cross-sell opportunities with existing customers. We are the go-to tax technology partner for the top 10 largest accounting and consulting firms in the world, not only because of the strength of the relationship we have built but because our solutions can solve the challenges their customers face and connect to the critical core business applications they rely on to compete in today's global commerce environment.

These partners are not just serving the enterprise market. They also have mid-market clients that have reached a level of complexity that requires the technical capabilities, business integrations and partnerships that we provide for a consistent and accurate answer. I want to share 2 examples of competitive takeaways that show how we are serving as the hub for tax and compliance, connecting data across multiple systems and leveraging the strength of our partner network. You'll hear commonalities in these scenarios with one representing a mid-market win and the other involving an enterprise customer, but the challenge remains the same.

First, I'll start with a competitive takeaway that exemplifies the strength of our integrated platform to support the growing operating system complexities for companies in the mid-market and how our capabilities to support omnichannel business and the trusted relationships we have built allow us to dominate in these sales cycles. The company was looking for a global solution with enterprise performance and scalability that cut across multiple systems. Today, they are running NetSuite OneWorld and Salesforce in addition to Zuora. Partnering up with their accounting team and Zuora, we were able to show the advantage of our connected platform to support their expanding business needs.

I think this win exemplifies something that is easy to talk about doing, but it's exceptionally harder to deliver, which is being able to efficiently and effectively team with the customer's SI partner to enable multiple source operating systems to work with a single tax solution at enterprise-grade and scale. Our partner relationship and team of experts continue to differentiate us and deliver a sought-after customer experience.

The same scenario holds true for the enterprise companies who often rely on a web of systems to run their businesses. My second example is with a global manufacturing company who have grown through numerous acquisitions over time, some of which were running on competitive tax engines. In addition, they were dealing with a high volume of exemption. They approached us with a need to connect data across back-office ERP, leasing and procurement solutions. Our ability to seamlessly connect across multiple systems and drive performance in such a complex environment enabled a sizable takeaway from their existing on-premise legacy provider. The company moved to our cloud solution for tax determination and exemption certificate management. This was also a great example of the growing connection between tax and procurement. In Q2, we released our certified integration to the Coupa Business Spend Management Platform to further support businesses as they put a greater focus on procurement and spend optimization.

Additionally, I'd like to highlight how we continue to strengthen our leadership and differentiation within complex industry verticals. In June, we announced the integration of our solution for lease tax with Alfa Start. Alfa is a best-in-class technology provider that powers some of the world's biggest names in automotive finance. The fact that we deliver a single platform for all indirect tax types that interfaces with a multitude of systems is critical. We continue to focus on building these integrations and expanding our partnerships to reduce the inherent friction that our customers experience between commerce and compliance. When I think of the complete value proposition we bring to our customers, it's the confidence in our technology, our deep commitment to their success and the true partnership that we formed together, and that's something we're very proud of at Vertex.

The business and regulatory environments are changing fast. Every new way to produce, procure and sell creates tax complexity, technology not only has to keep pace, it needs to be a step ahead, and that's where Vertex comes in. This is the connecting point between commerce and compliance that I continue to talk about. And that's why we are significantly increasing our R&D investments in cutting-edge cloud-native technologies, challenging professionals who get both tax and technology and expanding our co-innovation efforts with our customers and partners. This is enabling us to deliver more products and expanded capabilities to our customers.

Last quarter, we announced the release of the Vertex Indirect Tax Accelerator for Oracle Fusion Cloud enterprise resource planning. Since the accelerator was released in April, we are already seeing rapid adoption from new companies as well as existing customers. This reflects the value of co-innovation and shows how delivering end-to-end capabilities is strengthening the overall stickiness of our solutions. We have significant opportunity to further expand internationally, and we continue to invest in our software and solutions outside of the U.S., most notably in Latin America and Europe. As the global regulatory environment continues to grow in complexity, we continue to provide new and expanded tax content to increase coverage in Brazil, which is one of the most complex tax environments. Our work there is enabling some of the world's largest companies to expand their business in Latin America.

And just this morning, we announced the lease of our advanced cloud-based solution to simplify that compliance. The Vertex Cloud VAT compliance solution provides the advanced features to support the changing tax environment across Europe and other countries that require digitization of value-added tax and goods and services tax. The solution centralizes and streamlines compliance as companies enter new territories and indirect tax filings become more complex. This new solution was developed through our design partner program and enables us to accelerate customer time to value with capabilities and a modern user experience that truly differentiates this solution from other products on the market. Feedback I received from the customers who participated like National Instruments highlight workflow automation and advanced data management and validation capabilities as the key to driving better accuracy and efficiency in their returns.

As we look ahead, I'm extremely excited about our product pipeline, highlighted by standing content and capabilities for marketplaces, AI and ML-driven product categorization edge technology as well as new insights and analytic capabilities. I look forward to reporting on that in upcoming calls. Now I'll hand it over to John for a more detailed look at our second quarter results.

Thank you, David, and good morning, everyone. Today, I'm going to discuss our second quarter 2021 financial results and provide an update on our third quarter and full year 2021 guidance. Our total second quarter revenues grew 15% year-over-year to reach $104.9 million, exceeding the upper end of our quarterly guidance by $4.9 million. Our subscription revenues expanded 15.9% year-over-year to $89.6 million. Our second quarter subscription revenues were benefited by an annual tier-based subscription amendment contributing approximately $2.1 million in additional revenue in the second quarter. Our services revenue grew at 9.8% year-over-year to $15.3 million.

Our annual recurring revenue, or ARR, grew to $336.2 million at June 30, 2021, representing approximately 14.1% growth year-over-year. Excluding the impact of tax amount, the ARR increased over the first quarter of 2021. Our net revenue retention rate, or NRR, was 106% at quarter end, growing from 105% in the first quarter of 2021 demonstrating our customers' ongoing commitment to our software and solutions. For purposes of clarification, NRR only includes those customers that were with us at the beginning of the measurement period, which does not include tax amount.

Our gross revenue retention rate, or GRR, was 94.3% at quarter end, which excludes the internal migrations by customers to our cloud solutions, which were approximately 4%. This is consistent with prior performance, which has averaged between 94% and 95%. At June 30, we had approximately 4,175 customers, demonstrating organic growth as well as the impact from the Taxamo acquisition.

We continue to see strong growth in our cloud-based solutions among both existing and new customers. In the second quarter of 2021, cloud-based revenues were $32.1 million, representing 59.5% growth year-over-year. This amount reflects $2.1 million from the tier-based subscription amendment previously noted. Excluding that amount, cloud revenue growth was 49.1%. We have continued to see growth from our cloud-based solutions, and we anticipate that our 2021 full year cloud revenue growth will exceed 40%. We believe our hybrid deployment approach is essential for us to meet the complex needs of our customers and is a competitive differentiator. While new logos predominantly favor our cloud solutions, many of our existing customers deploy our solutions in their own environments and in the cloud to manage their business needs.

Now some statements on expenses. In discussing the remainder of our income statement, please note that unless otherwise stated, all references to our expenses, operating results and per share results are on a non-GAAP basis. All non-GAAP financial measures are detailed and reconciled to our GAAP results in the earnings press release that was issued this morning. On an overall basis, gross profit for the second quarter was $74.7 million, representing a 71.2% gross margin. This compares with gross profit of $65.4 million and a 71.7% gross margin in the same period last year. From a subscription software standpoint, our gross margin was 77.3% as compared to 78.8% with the unfavorable variance driven by continued investment in our cloud infrastructure and our customer support. Gross margin in our services revenues increased to 35.3% from 32% due to increased utilization during the second quarter of 2021.

Our second quarter research and development spend, which includes our capitalized software development costs, was $19.5 million, representing 18.6% revenues. This reflects the substantial investments in our cloud platform and new cloud offerings as well as continued expansion of connectors and APIs to integrate Vertex's capabilities to many customer software platforms. Research and development expense net of capitalization was $11.4 million or 10.8% of revenues, an increase of 40 basis points year-over-year. Second quarter selling and marketing expense was $23.3 million or 22.2% of revenues as compared to 17.8% in the prior year period. This is an increase of $7.1 million to fund additional go-to-market activities and drive future revenue growth. We intend to continue to make additional investments in sales and marketing capacity to drive further opportunities.

Second quarter general and administrative expense was $20.8 million or 19.8% of total revenues, a decrease of 10 basis points year-over-year. Our adjusted EBITDA was $19.2 million, a decrease of $2.3 million year-over-year, exceeding the upper end of our quarterly guidance by $2.7 million in the aggregate. Adjusted EBITDA margin was 18.3% in the current quarter, a 530 basis point decrease versus the prior year.

Turning to liquidity and cash flows. We ended the second quarter with $101.6 million in cash and cash equivalents and no indebtedness. This reflects the use of cash on hand during the quarter of approximately $200 million for the Taxamo acquisition in May. During the second quarter of 2021, we generated $16.8 million in free cash flow. Second quarter free cash flow represents a decrease of $1.8 million compared to the prior year, reflecting an increase in investments in research and development and selling and marketing activities during the quarter, as previously discussed.

Turning now to guidance. For the third quarter of 2021, we currently expect total revenues in the range of $104 million to $106 million, representing growth of 9.9% to 12.1% from the third quarter of 2020, and adjusted EBITDA in the range of $15 million to $17 million, representing a decrease of $5.5 million to $7.5 million from the third quarter of 2020. For the full year, the company expects total revenues in the range of $414 million to $417 million, representing annual growth of 10.5% to 11.3% from the full year of 2020; and adjusted EBITDA in the range of $68 million to $72 million, representing a decrease of $6.4 million to $10.4 million for the full year 2020, reflecting additional spend in research and development as well as selling and marketing expenses to drive growth.

We are very pleased with the strong fundamentals of our core business, which delivered sequential quarterly growth in ARR, NRR and cloud revenue during the second quarter. We expect the positive momentum in our core business to continue as we progress through the year, which is reflected in our upwardly revised guidance. Note that our revised guidance includes an adjustment to our expectation for the timing of revenue contribution from the Taxamo capabilities for the balance of the year. This is driven primarily by 2 reasons.

First, we have decided to accelerate the integration of Taxamo capabilities with the Vertex capabilities because the market feedback is that our combined capabilities provide the best customer experience in addressing the new regulations. We are 6 weeks into the regulatory compliance challenge, and we want to ensure that we are properly positioned from the start to maximize our potential with respect to this opportunity and minimize potential product migration disruption in the future. And secondly, the predictability of revenue timing around the adoption of new tax technology surrounding landmark legislation can be uneven as we saw with Wayfair.

We continue to believe that Taxamo will have a meaningful impact on our 2022 revenues and beyond due to the timing of the acquisition and the tailwinds from the recently enacted marketplace and e-commerce regulations mentioned above. We continue to believe that our investments in our selling and marketing as well as product development is warranted given the opportunities that are in front of us, and we will continue to invest in the business to drive growth. On an overall basis, we are pleased with the progress we have made on our strategic initiatives and the performance of our business. And with that, we'll open the call up for questions.

(Operator Instructions) Our first question is from Pat Walravens with JMP Securities.

Great. And congratulations on the reacceleration of the business. David, can I just go really big picture to start us out, which is you had 5 quarters where the business is decelerating and now you have this really nice reacceleration. And during the period of deacceleration, one of the things that you were pointing to was, hey, if people aren't implementing ERP, that is a headwind for us. How has that environment changed?

Thanks for the feedback and the question. We've clearly seen a shift in our pipeline activity with Workday, SAP and Oracle as their businesses have begun to ramp back up. And we are seeing -- we have good visibility to what's coming in the second half of the year as well. So that's clearly changed for the favor, and I would also just acknowledge our progress both in the middle market and in the e-commerce space. Both continue to progress well.

And then can I ask just one more, which is when you look at the competitive environment and sort of the demand levels overall domestically versus internationally? How are they different?

I think it's a more mature tax technology market in the U.S. They're more comfortable with third-party bolt-on solutions. Historically, the communities in Europe, in particular, have been reliant more on SAP native functionality, again, for the midsize and larger enterprises that we serve. And I think that has shifted as a result of some of the regulatory change, and that's the momentum we're seeing and the opportunities. But that's been the -- it's a maturity issue, I think, really with the comfortness of third-party bolt-ons versus trying to get by with native functionality and work arounds.

Our next question is from Samad Samana with Jefferies.

So maybe, John, just a couple of clarifying questions. The ARR contribution from Taxamo in the quarter, could you either give us what that was or maybe what the organic ending ARR dollar amount was?

Yes. We don't -- we weren't going to break out the ARR by customers. I think we did in our guidance for last year, we did say that there were going to be about $0.5 million worth of revenue, Samad, it's in that zone. In terms of the -- from an ARR standpoint, I think, as I mentioned, we were positive from an AR growth standpoint, including them. So it's under $5 million in that zone.

Okay. That's very helpful. And then -- Yes, absolutely. And then just as I think about the cloud guidance for above 40%, I just wanted to make sure I get a clarification. Is that organic cloud growth for 2021? Or does that include the contribution from Taxamo in 2021?

That's organic. It will have -- there will be cloud -- included in our cloud revenue will be the results of Taxamo. But that right that number, organic will be above 40% and with it will still be above 40%.

Okay. Great. And then maybe zooming out, David, the examples shared on the call today were very helpful. I'm thinking about deal activity picking up. It certainly sounds like you're more confident in the back half. I'm curious just as far as when you think about the pipeline, is it more -- is there a type of customer? Or is there a type of vertical that you're seeing more strength in? Just, maybe, help us understand the pipeline composition that's giving you kind of that added confidence looking into the back half of the year.

Yes, Samad. I appreciate the question. Complexity remains the primary segment driver more than anything. We just see continual regulatory and system complexity being our strongest play into the market. And it happens across pretty much all the verticals. I am very excited about the leasing opportunity. That's a very complex area that we just enhanced our capabilities in, but it applies to retail, it applies to manufacturing. It's really about complexity. That is the tipping point, and we continue to see that being the primary buying driver.

Our next question is from Joshua Reilly with Needham & Company.

Congrats on the strong quarter. If you look at the triggers for customers making a change on indirect tax here, how would you kind of rate the importance of ERP versus making a change in your procurement or billing system over the last couple of years? Has there been any change in what's driving customers to make a change on their tax platform?

Well, it's interesting. It's a great question. And what's interesting about that, Josh, there's a lot of times is we are already in the customer, let's just say, with their ERP. We were in there for years, and now they just make an upgrade to their procurement system. They've adopted Coupa as an example, or they bought -- they are now going to go omnichannel. And so we're adding our footprint there. It's much more about -- the adoption is much more driven by a change that will break an in-house system that they were using or where the native functionality is no longer going to be good enough more so than they have to do a big cloud lift and shift or a big lift in shift in their ERP that would be a buying driver. That does happen. But it's more just we're already in the space and they're looking to expand their footprint is typically the driver that we're going to grow off of.

Okay. Great. And then sales and marketing ramped pretty significantly here in Q2. How much of that is related to the Taxamo acquisition in the model here? I'm assuming that's a small portion of it versus organic investments increasing here? And then how should we think about the growth in sales headcount for the rest of the year?

Yes, I'll take that, Josh. I guess the first part, in terms of kind of where the spend is. The spend is really -- the majority of that is organic spend, really focused on the mid-market and the growth and the opportunity we see there. I think that's where our initiatives have been really focused, and that's what we've been driving towards. So that's where the majority of that comes from. And I think in terms of kind of personnel standpoint, we continue to grow in the sales and marketing group. I don't have a number in terms of the number of adds that we had in the last in the last quarter or so. But again, we continue to add personnel there because, again, the opportunity is in front of us, and we want to make sure we attack it while it's there.

Our next question is from Brad Reback with Stifel.

Could you guys go a little deeper on this tier-based pricing, what drove that and what the likelihood of that is repeating next year?

Yes. This is John. I'll take that, Brad. Yes, we did have -- we had one customer that exceeded its transaction volume thresholds, and it's somewhat of a unique contract. And the contract requires an amendment based on this new tier -- based on their tier structure. And then again, it resulted in additional revenue for the previous subscription period and then it resets them on a go-forward basis. It is a bit of a one-off thing. I know we had something, an unrelated matter in the fourth quarter of last year. But it's something that just had to do with the volume increase and again, more of a unique bespoke contract we have with one of our larger customers.

Got it. And then maybe just thinking a bit longer term on the cloud business. Obviously, a good -- well, a good uptick in the growth rate from 35% to 40% going forward. But we think longer term, how should we think about the sustainability of what the organic growth rate is for that business?

That's where -- everything we sell, all of our new products are built cloud. All of our efforts with the sales teams are to sell cloud first. So I would -- that will be the primary driver of all of our growth going forward.

Our next question is from Bhavan Suri with William Blair.

This is Matt Stotler on for Bhavan. Good to see the expanded VAT tax capabilities. I'd like to maybe double-click on the international opportunity more broadly, get your updated thoughts on kind of the road map and where you go from here and thoughts on how Vertex is positioned in those markets versus the domestic landscape.

Sure. Thanks, Matt. I appreciate the question. So clearly, continuing to bring new products and new content is a primary focus outside the U.S. as well as expanding our sales and marketing footprint. We have been targeting in Europe because of some of the landmark legislation, some of our strong partner and ecosystem presence over there. And so that's clearly a footprint. Latin America, we've really focused on content where some of the regulatory environments there are far more complex, and so we continue to invest there. And now as we're seeing with the Taxamo acquisition and this marketplace legislation, it will pull us into other jurisdictions. I mentioned opportunity that we closed in Taiwan. I think we're going to see more and more opportunities globally as we -- as the legislation continues to drive change around the world.

Got it. That's helpful. And then maybe just one more. On the partner front, I would love to get maybe just some updated thoughts on, at this point, what portion of revenue or what portion of the business is influenced by partners and then specifically looking at kind of pieces of the partner channel that include economic relationships with bars and maybe SI specifically, how progress is going there in terms of expanding the relationships as well.

I'll take the beginning of that, specifically on partners. And partners are an essential part of our relationship. If you think about the complex businesses, midsize and larger enterprises, anytime they're making a large technology purchase, they're going to typically run a process often with an RFP. And so that's going to be run by a partner in the process. And so we work very closely. We have the largest tax technology practices with the top 10 accounting firms -- We work very closely with the SI community, the broader SI community in the mid-market, and they continue to be a large influencer in our -- in all of our deals. From a go-to-market activity, they're a critical element of our success. I think on the economic side, we continue to expand our relationships. John, I don't know if you want to build on...

Yes. I think we're expanding our relationships down into the SI community, and some of those have a bit more of a -- there's some sharing that goes on down there. The bigger relationship at the higher end with the big 4 and the large accounting firms typically do not result in an exchange of cash or monetary things between the 2 -- between us and them. So -- but again, I think as we move down and again, that strategy to move down into that mid-market space, as we get more involved with some of those partners down there, the relationships are a bit different and will result in additional commissions, if you will, being paid.

Our next question is from Brad Sills with Bank of America Securities.

I wanted to ask just a follow-up to your comments earlier on investments in insights and analytics. What are those investments? Where do you see the opportunity? Is this something where you see an analytics layer embedded into the core application? Or do you see an opportunity for potential upsell to an add-on or premium addition, if you will, as you monetize analytics?

Yes. It's more of a new offering, Brad. It's certainly something -- if you think of the line item invasiveness that we have in our business with what indirect taxes, we touched every line item of every transaction that happens. And so the data that we are able to touch is significant and can provide great insight both to the tax department and to the broader business in terms of the way you dimensionalize it. So we see a lot of opportunity to expand there.

That's great. And in the past, you've mentioned fairly low penetration in the installed base is a big opportunity to expand within the existing accounts in these larger global organizations. Can you remind us kind of where you are with just expansion? And what is the catalyst here for accelerated -- potential accelerated expansion? Is it just simply as these firms departmentally upgrade ERPs, they add Vertex digital transformation cloud, those are a few key catalysts. Any just color on the key drivers of the expansion opportunity and where that could go from here?

Yes, we continue to invest in our CSM capacity in practice to kind of deliver and enhance customer experience as well as critical is our product development road map and the volume of products we're bringing to market. So that really gives more opportunity to go to that customer base, highlighting the analytics product as an example, and provide more value and further entrench ourselves across the organization.

Additionally, as you noted, there's great opportunity as we continue to work with the parent company to work with their divisions as they make acquisitions and continue to grow their businesses. to then provide our solution and extend it down into their divisions. And so it's really a 3-dimensional approach. I think it's expansion of our own CSM capacity and capability. It's continuing to further the number of products we bring to market to support them. And then lastly, continuing to follow them where they go through their acquisitions and their growth strategy. So as they're upgrading systems -- We continue to be the additional add-on it's procurement, it's e-commerce, it's omnichannel as they continue to digitally transform their businesses.

(Operator Instructions) Our next question is from Stan Zlotsky with Morgan Stanley.

You have Bernand on for Stan. Congratulations on the quarter. Can you please elaborate on what the 2.1 onetime benefit was to subscription revenue in Q2? And I also have one additional question.

Sure. Sure. We had one customer that exceeded the transaction volume thresholds, and it was a unique contract, as I mentioned earlier. And the contract required a quick an amendment, based on the new tier structure and it result -- and when we put them into that, it resulted in additional revenue from the previous subscription period and then reset them, so they can sort at the right level on a go-forward basis. So it really is something that couldn't have been anticipated entirely, and so we had to manage it through in the current quarter. I wanted to just call that out and make sure people have seen that, that was impacting our -- positively the results for the subscription revenues.

Understood. And then sort of on the beat in Q2 revenue was up by 5.3%, but for full year guidance, increasing by 3.5% and taking cloud growth guide by $4 million. So can you elaborate on why the conservative approach looking into the second half of the year?

Yes. I mean, there's a couple of pieces. Again, we do have the onetime sort of unique revenue thing there in the current quarter. But then I think as we look through the rest of the year, we feel good about everything that we've been seeing in the market. As mentioned, we did take down a little bit of our expectations around some of the Taxamo contribution, but we feel very positive about it, just more of a timing thing and then again, getting the product more fully integrated with our product. And so I think that was a piece. They were the kind of the 2 pieces that are there that I would say are the bigger drivers when you look at sort of what that guidance looks like. But we feel very good about the performance of the business. And again, I think it really reflects the strength and the good things that are happening and the metrics that we reported out.

We have reached the end of our question-and-answer session. I would now like to turn the call over to David DeStefano for closing remarks.

Thank you. 2021 continues to be an exciting year for Vertex, our markets and our customers that we serve. Momentum continues to build across all market segments and our cloud portfolio. Our strategy has us committed to deliver new products, expand our partner ecosystem, accelerate go-to-market investments and make strategic acquisitions. We are innovating across every aspect of our business and differentiating through our technologies, robust content trusted partnerships and exceptional customer experience. This mix will allow us to drive long-term sustainable growth and lead the markets we serve. I'm proud of the continued progress we are making and the tremendous efforts of the Vertex team to enable our customers to transact, comply and grow with confidence.

Thank you.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.