Vertex, Inc. (VERX) Q3 2021 Earnings Report, Transcript and Summary

Greetings. Welcome to the Vertex, Inc. Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] And please note that this conference is being recorded. I will now turn the conference over to your host, Ankit Hira. You may begin.

Thank you. Good morning, everyone and thank you for joining us for Vertex's financial results conference call for the third quarter ending September 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 therefore, are 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 reconciliations 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. We delivered a strong third quarter in both our top line and bottom line performance. Total revenue growth outperformed our guidance again this quarter and was up 17% year-over-year. Cloud revenues also grew over 45% year-over-year. The value we're bringing to the market is resonating now more than ever as companies continue to scale tax automation across their operations. Through the focus efforts of our global team, we delivered great execution across all areas of the business. We are seeing positive impact from our continued investments in R&D, go-to-market and ecosystem expansion. I'd like to share some overall highlights from the quarter. First, we're seeing notable strength in our enterprise segment among both new logos and existing customers. Our win rate in this market remains substantial as the breadth and depth of our solutions help customers address the complexity of tax compliance brought on by the accelerating forces of digital transformation and e-commerce. Our ability to serve the largest companies on the planet has been adorable growth lever for us throughout the pandemic and continues to drive growth opportunity as budgets for finance transformation gain momentum. Among our existing customers, we saw the expansion of wallet share with our enterprise customers through up-sells, cross-sells and the addition of strategic products. And we continue to see a steady stream of customers migrating from posting our solutions in their environments to our cloud platform. Also in Q3, we added a number of notable new logos with the help of our partners. Our extensive ecosystem of technology, accounting and consulting partners is unmatched in our category and continues to get stronger. We continue to deliver the world's most trusted indirect tax technology solutions, which we do at a scale and complexity beyond any other vendor in the market. At the same time, we continue to make key acquisitions that position us for future growth. As I noted, we had continued growth in our cloud revenues in Q3. We're seeing more companies select our cloud products in the enterprise and mid-market where our unified platform, multi-cloud strategy and deep partnerships continue to differentiate us and drive strong win rates for our sales and partner teams. This was the case in Q3 with the multi-billion-dollar interactive entertainment company running on Workday. This company is experiencing rapid business growth with a continued rise in the popularity of online gaming. By the nature of their business they are contending with a high volume of micro in game purchases taking place all over the globe. This challenge their existing cloud solution and triggering a competitive takeaway. By moving to our cloud solution they're now able to scale with confidence. Like so many other customer stories I share with you, the depth of our IT and our integrations played a big role in this win. This highlights the strength of our integration and is indicative of other pipeline opportunities we see with Workday. We also continue to deepen our integrations in go-to-market motions with Microsoft and Salesforce ecosystem, as well as the major e-commerce providers. Today, we are firing on all cylinders with our SAP and Oracle partnerships, where we have incredibly strong relationships on business, technical and go-to-market levels. With continued investment in these longstanding partnerships, we have even greater visibility and competence as our enterprise pipeline continues to grow. Looking across our noble wins for both SAP and Oracle for the quarter, the advocacy of our consulting and implementation partners is a consistent element in these deals. In September, we announced the acquisition of LCR-Dixon to expand our global tax automation portfolio for SAP. We are very happy to welcome industry thought-leaders Suzy Soo, Jeff Bleacher and the extended LCR-Dixon team to Vertex. Our broader partner ecosystem, including big four consulting partners and accounting firms recognize the value of the deep knowledge in tax technology and the SAP ecosystem the LCR team brings to our organization. This acquisition with the natural extension of a partnership with LCR that has spanned nearly a decade and further strengthens our leadership in the SAP space. Let me give you an example of the power of our combined offerings as it relates to a recent opportunity with a Fortune 500 medical device manufacturer. The company was looking to automate tax end-to-end across multiple tax sites as part of their global SAP transformation. The seamless integration between our compliance solution, our chain flow accelerator for SAP and our LCR-Dixon tool enabled the true end-to-end solution to support the company's growth and led to another great six figure deal for us. In the quarter, we had another important milestone in the SAP ecosystem that will benefit our customers and partners. We achieved certification as built upon SAP business technology platform for Brazil. After building the first cloud integration for S/4HANA cloud a few years ago, this new integration will allow us to further extend our solutions to customers who must contend with the high complexity of doing business in Brazil. Similarly to SAP, we continue to expand our partnership with Oracle through the Oracle Cloud Infrastructure, enabling us to extend our penetration to new logos within the Oracle customer base. This quarter, we had a notable competitive win with one of the nation's leading energy providers. Even as a Fortune 100 company manual processes were still plugging the tax department. Partnering closely with Oracle and one of our big four alliances, we were able to support their business with an end-to-end solution. Our Oracle accelerator and seamless integration with OCI served as differentiators in the sales cycle to win this new logo. Digital transformation is gaining momentum in the back office ERP as evidenced by the key wins I've highlighted. But to truly achieve our vision to accelerate global commerce, our customers must couple solutions to support their front office transaction systems as well. Increasingly, they choose Vertex across their global operations for the ability to scale, deliver consistent tax results regardless of where transactions take place and to enable frictionless customer experience as they grow their omni-channel presence. We had an incredible opportunity this quarter to support one of our longtime retail customers, a Fortune 20 company, as they undergo a large finance transformation project to modernize their point-of-sale experience. This customer was already using our solutions for used tax in their ERP and procurement systems. But for sales tax, they had been managing taxability across nearly 10,000 stores with a custom solution that required significant manual effort. This was a seven figure deal that allowed us to expand our relationship across multiple tax sites and business systems. Globally, we continue to see increased demand for our solutions, as digital commerce continues to proliferate and companies are now able to reach any customer anywhere in the world at any time. This has created a truly global economy, bringing more and more businesses into new geographies and introducing the complexity of value-added tax and cross-border transactions. This quarter, we released our new cloud based solution to automate and streamline VAT compliance, supporting complex legislation requirements in the EU, Spain, Hungary, and other parts of the world. We are already seeing traction with some notable wins this quarter, along with the momentum in both Europe and the U.S. with accounting firms who are looking to enable tax automation for their customer base. While we've made these significant investments in new cloud products, our tax content database continues to be a critical decision factor for our customers and a key part of our land and expand motion. Our global tax research team continues to expand our coverage, leveraging ML and AI technologies, the new content at speed and scale across verticals and countries. Since our IPO last year, we have grown our content database to over 500 million data-driven effective tactual supporting indirect tax compliance. I'm so excited about the momentum we continue to see outside the U.S. Let me share a quick example of a global win that really stood out to me in the quarter. We were brought into a competitive sales cycle for an innovative new automotive business owned by one of the largest chemical manufacturers. Their new venture brings them into an entirely new industry, vehicle manufacturing. We were able to come in and demonstrate the value of our seamless integration to their SAP system, including our Chain Flow Accelerator product, which we had released earlier this year. The parent company manages 20 autonomous businesses. So as we deliver value to the startup, we also see the opportunity to leverage our proven growth model across the entire family of enterprise. I think this deal also highlights the strength of the Vertex brand. Companies of this caliber want to know that we've walked a mile in the shoes that they're stepping into. Building a brand of trust and integrity is an essential part of our leadership in the enterprise space. The fact that we have marquee customers willing to share their experience gives companies like this even greater competence in choosing us as a long-term partner. Across Europe, we're seeing increased demand for our solutions across segments and use cases. Earlier this year, we acquired Taxamo to advance our strategy to automate compliance and commerce across the entire value chain across border transactions. As e-commerce continues to open new avenues for business to sell-through the impact and complexity of taxes extending well beyond core ERP. In the global digital economy, transaction tax regulations are shifting to where customers are buying, as opposed to where the suppliers are, further increasing the burden of compliance for businesses. This quarter, we saw increased traction with digital native companies that are balancing this increased tax complexity with the need to support rapid business growth. This was the case in Q3 with a leading online learning platform and an internet hosting provider. In both cases, the strength of our end-to-end capabilities allowed us to support their global compliance requirements for multiple reasons. We also launched Taxamo Assure in Q3. This product allows a merchant to meet their obligations under the new EU VAT rules in the form of a turnkey pay-as-you-go solution. Taxamo Assure simplifies the entire process for merchants who are not equipped to handle remote seller obligations and prefer to focus on their core business. Marketplace has also continued to be an exciting area of opportunity and growth for us. Since launching our integration with the Mirakl Marketplace Platform in Q2, we are seeing pipeline growth in both Europe and the U.S. coming from existing customers and new logo demand for both B2C and B2B companies across multiple industries. As enforcement of EU VAT regulations ramp up, we expect this growth to accelerate. An example of this is a new customer we brought it on this quarter, that serves as the e-commerce engine, the one of the largest grocery retail groups. The depth of our tax content for the food and beverage industry drove the selection of our retail POS and exemption certificate management solutions. Earlier, I highlighted our cloud revenue growth in the quarter. I'd like to hover on this growth driver for our business for just another moment. We continue to win with our cloud capabilities. In fact, 94% of our new logos in Q3 selected our cloud solutions to handle their enterprise scale tax requirements. We continue to see increasing demand and preference for our solutions in the mid-market cloud opportunity, as part of our one-to-many strategy. Let me highlight our expansion with Acumatica. I was excited to share that in September we received the Fulfilled by Acumatica certification. We are the first and only tax technology provider to achieve this certification. And with it, we are creating a frictionless experience for Acumatica customers as a fully VAR-driven network. These are some great highlights from the quarter, but as I look to the future and the growth opportunity in front of us, one thing is clear. We can never stand still. As a team, we passionately push ourselves to continually innovate for the future. We're investing heavily to expand our offerings with enhanced AI, machine learning, edge computing and containerization, along with many other emerging technologies. While anchoring and building off of our powerful core, we continue to expand and evolve our end-to-end tax solutions with unrivaled tax content and the exceptional service our customers have come to expect from vertex. As these calls continue to reinforce trusted relationships we forge with our partners and customers remain a key element of our success and one we will focus on and continue to strengthen. Because we understand to power global commerce it will take a community of talent tax professionals and partners to drive the speed and scale of innovation. As I shared today, we have considerable opportunity to continue to serve customers at every stage of their journey and grow our revenues with them. Not only does it take advanced technical capabilities, deep business integration, but also trusted partnerships with our customers. And this is why we are deeply committed to an exceptional customer experience and investing in customer success throughout Vertex. I'd like to share a few quick examples of how this showed up in the third quarter. We recently hosted our exchange conferences in both the U.S. and Europe, bringing a record number of customers, partners, and prospects together to engage on the future of indirect tax. The conversations we have with our customers and partners at these events, affirms our strategies and the value we're delivering every day. The Vertex brand continues to reflect trust, integrity, and quality. And that is something I'm extremely proud of. This past quarter I've also seen an increase in Vertex University enrollment. We now have over 30,000 learners who get training, certifications and are part of a vibrant community of tax technologists. We believe we invest in their success. It further strengthens our brand and their advocacy of Vertex in the market. One area I don't get to highlight as often in these calls, but it's foundational to who we are as a company is the strength of our values driven purpose led culture. That purpose is to build trusted relationships at work, in business and in our communities. Our global team just completed our third annual global week of service. Our employees participated on three continents to make a difference and give back to the communities where they work and live. It's because of these outstanding efforts on the Vertex team, both in and outside of the office, that we will continue to drive business growth and impact around the world. Thank you for your time today. Now, I'd like to turn it over to John for a more detailed look at our Q3 results.

Thank you, David and good morning, everyone. Today, I'm going to review our third quarter of 2021 financial results and provide an update on the fourth quarter and full year 2021 guidance. Total third quarter revenues grew 17% year-over-year to reach $110.7 million, exceeding the upper end of our quarterly guidance by $4.7 million. Our subscription revenues expanded 15.7% year-over-year to $92.3 million. Our services revenue grew 24.4% year-over-year to $18.4 million. Our annual recurring revenues, or ARR, grew to $352.9 million at September 30th, 2021, representing approximately 15.1% growth year-over-year. This amount includes approximately $1.9 million of ARR from the acquisition of LCR-Dixon that was completed in September of 2021. Excluding the acquisition of LCR-Dixon and Taxamo, our ARR grew at 13.2% on a year-over-year basis, which is an increase from 12.8% that we reported in the second quarter of 2021. Our net revenue retention rate, or NRR, was 106% at quarter-end, consistent with the second quarter, 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 Taxamo or LCR-Dixon. Our gross revenue retention rate, or GRR, was 94.5% at quarter-end, which excludes internal migrations by customers to our cloud solutions, which were approximately 4%. This is consistent with prior performance, which is average between 94% and 95%. At September 30th, we had 4,258 customers demonstrating growth, as well as the impact from Taxamo and LCR-Dixon acquisitions. The September 30th number includes 72 net new customers from the LCR-Dixon acquisition. We continue to see strong growth in our cloud-based solutions among both existing and new customers. In the third quarter of 2021 cloud-based revenues were $33.3 million, representing 45.6% growth year-over-year. Excluding the impact of acquisitions, cloud growth was 41% for the third quarter. We anticipate that our full year 2021 organic cloud revenue growth will exceed 40%. And discussing the remainder of the 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 earlier this morning. On an overall basis, gross profit for the third quarter was $78.9 million, representing a 71.3% gross margin. This compares with a gross profit of $67.5 million and the 71.4% gross margin for the same period last year. From a subscription software standpoint, our gross margin was 77.7% as compared to 78%, with a slight decline driven by continued investment in customer experience tax content and our cloud infrastructure. Gross margin on services revenues increased to 39.4% from 35.4% due to increase utilization in the third quarter. Our third quarter research and development spend, which includes our capitalized software development costs and cloud-based customer solutions, was $17.4 million, representing 15.7% of revenues. This reflects substantial investments in our cloud platform, our new cloud offerings, integration of acquired technologies, and ongoing expansion of connectors and APIs to continue the integration of Vertex's capabilities into customer software platforms. The third quarter selling and marketing expense was $23.1 million or 20.9% of total revenues, an increase of $6.7 million and approximately 350 basis points from the prior year period. This increase is due to the funding of additional go-to-market activities to drive future revenue growth. We intend to continue to make additional investments in sales and marketing capacity to drive future opportunities. Third quarter general and administrative expense was $24.9 million or 22.5% of total revenues, an increase of $6.5 million from the prior year period. This increase is primarily driven by planned strategic investments in information technology infrastructure, business process reengineering, integration costs and other initiatives to drive future operating leverage. Adjusted EBITDA was $21.4 million, a decrease of $1.2 million on a year-over-year basis. Adjusted EBITDA exceeded the upper end of our quarterly guidance by $4.4 million due to some spend initiative shifting into the fourth quarter. Adjusted EBITDA margin was 19.3% in the current quarter, a 450 basis point decrease versus the prior year due to the investments in our go-to-market activities and new product development. Now, turning to liquidity and cash flows. We ended the quarter with $47.5 million in cash and cash equivalent. This reflects the use of cash on hand during the quarter for the LCR acquisition in September. During the third quarter of 2021, we generated $15.4 million in free cash flow. The third quarter free cash flow represents a decrease of $400,000 compared to the prior year. Turning now to guidance. For the fourth quarter of 2021, we currently expect total revenues in the range of $108 million to $110 million, representing growth of 8.5% to 10.6% from the fourth quarter of 2020; and adjusted EBITDA in the range of $15 million to $17 million, representing a decrease of $2.1 million to $4.1 million from the fourth quarter of 2020. For the full year 2021, the company currently expects total revenues in the range of $422 million to $424 million, representing annual growth of 12.6% to 13.2% from the full year of 2020; and adjusted EBITDA in the range of $74 million to $76 million, representing a decrease of $2.4 million to $4.4 million from the full year 2020, reflecting additional spend in research and development, as well as selling and marketing expenses to drive growth. These expectations -- the expected guidance takes into consideration the seasonal slowdown in our services business in the fourth quarter, and assumes a minor contribution from the LCR-Dixon acquisition to the revenue recognition rules. We are very pleased with the solid fundamentals of our business, which delivered strong quarterly performance with revenue, EBITDA, ARR, NRR, and cloud revenue during the third quarter, which resulted in our upwardly revised guidance. We continue to believe that the investment in our selling and marketing, and product development is warranted, given the opportunities that are in front of us, and we will continue to invest in our business to drive growth. Overall, we're very pleased with the progress we've made in our strategic initiatives and with the performance of the business. And with that, we'll open it up for questions. Operator, can you please open the line for Q&A?

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Joshua Reilly with Needham & Co. You may proceed with your question.

Yeah. Thanks, guys. Nice job on the quarter. So, maybe starting out, when a customer migrates to the cloud, there's a pretty healthy uplift in terms of ARR I think it's like 40% to 50% upon conversion. If you look at the ARR growth year-to-date here, is there any color on how much has been a result of this uplift from conversions versus either cross-sell, up-sell, to existing customers or net new customer growth?

Yeah. Josh, this is John. Just in terms of sort of the customer migration, as we talk about, when we go through our GRR calculation, we sort of -- the migrations are about three to four -- 3% to 4% averaging of customers migrating over, and that's been fairly consistent over a period of time. So, I don't have a number of exactly what the increase is, but we've talked about that being -- that 20% to 40% at times we can see flow into the number. So, it’s not tremendously significant, but it certainly is a number that we are excited about when we see that conversion happen.

Okay. Great. And then maybe two quick model questions. Professional services gross margin in the quarter was above recent trends, anything to note there. And then, what are you assuming in Q4 guidance for LCR revenue? Thanks guys.

Yeah. Josh, I'll take those. In terms of sort of the increase in the services margin, really largely driven by utilization in the -- in services during the period. So, a lot of activity there, good activity and driving the -- driving utilization up and margins up. And I guess in terms of the LCR contribution in the fourth quarter, very much -- it's going to be very minor contribution. Again, due to the Rev Rec rules, it's a couple of hundred thousand dollars of product revenue, not lots. And then, obviously, we'll see that flow in next year, over time is that -- as that works through. And then from a services standpoint, again, it's a slower quarter for services, the fourth quarter that is, so a handful of hundred thousand dollars in there as well. Again, just reflecting that slower period, but that's kind of what we had assumed.

Great. Thanks guys.

Our next question comes from the line of Andrew DeGasperi with Berenberg. You may proceed with your question.

Thanks for taking my question. I guess, first on the LCR-Dixon acquisition. I mean, could you maybe elaborate a little bit, what does this do to your SAP relationship and what was the rationale behind the acquisition, you already had a partnership with them?

Yeah. Andrew, this is David. Thank you for the question. SAP is one of our most strategic partners and LCR clearly had some unique tools that we and other industry players were leveraging as they went to market to compete for SAP deals. So, acquiring the tools give us sole access as we compete for new SAP deals in the future. And given the growth rate we're seeing in our SAP pipeline, it became very strategic to make sure we had -- we continue to leading -- develop a leading share there.

Got it. And then, with -- in terms of Acumatica, I mean, this seems to be a kind of ERP solution for like very small businesses. I think they have like around 2,000 so far. But I just wondering, I mean, how kind of the -- I know you've mentioned your strategy of going at the lower end of the market, but just wondering how low -- like, what is your typical customer that you're likely to engage with at that level?

Well, again, one of the key things -- great question. One of the key things about that strategy is, it's one-to-many strategy for us. So, we will really -- Acumatica is really going to drive that. So, it really gives us that sell-through motion that we don't have. The burden -- we can continue to focus on our mid-market and enterprise market, but where we see unique opportunities where our cloud solution is being preferred for a vendor like Acumatica, we are happy to partner with them and allow them to drive the sales motion going forward. But I think it's going to be -- as you noted, it'll probably be in that -- they're small revenue customers, and it's probably going to be in that 20 -- under 25,000 size revenue opportunity, that'll flow through to us without the overhead of pursuit that we normally have for our more complex customers.

Got it. And then, lastly, on the -- with the acquisition of Taxamo CR, I mean, is there any impact to margins or the investment cycles you will make? I know you mentioned additional sales and marketing investments. Just curious to know, like how does this sort of play out in the numbers maybe in the near-term?

Yeah. From a number standpoint, I think we're going to continue down -- as you know, we've been continuing to ramp up spending in selling and marketing and certainly those areas we'll continue to focus on driving that now with some additional potential tools out there, as well as developing different go-to-market strategies for those products that we can bundle with our existing products. So, we're working on that. I don't know -- I don't expect to see a significant change due to the acquisition of LCR as we move forward. But I think it's really just a carry on of the real good progress we've been making.

Great. Thank you.

Sure.

Our next question comes from the line of Samad Samana with Jefferies. You may proceed with your question.

Hi. This is Jordan Boretz on for Samad. Thanks for taking my question. David and John, congrats on the strong results. So, I wanted to touch on Taxamo for a minute. Last quarter, you adjusted expectations around Taxamo near-term rev contribution as you accelerate its integration to Vertex. Can you give a quick update and how that integration is progressing?

Sure. Yeah. We're really pleased with the progress that we're making with the teams in terms of the e-commerce and marketplace elements of the integration that we talked about, as well as. As we noted in the quarter, we were able to release the Taxamo Assure product out into the market ahead of schedule, which I think is showing the progress we're making with the overall integration process. So, happy with the way things are moving there.

Awesome. Thank you. And then, just kind of pivoting a bit, many companies have called out the tougher hiring environment in the current and the prior quarter. So, in terms of your own sales in engineering departments, would you say hiring during the quarter was in line with expectations ahead or behind?

I'd say it was largely in line. There are certainly areas where it is more competitive, certainly from a talent perspective. I think as I've noted, the pandemic's been good for us and that it really opened up our talent aperture a lot broader than we've ever had before. And so, we've been able to find talent in unique places that historically might not have hired into. So that has actually helped us in certain ways in finding talent. But it's a -- obviously, it's a continual thing we focus on each and every day.

Great. Thanks for taking my questions.

Sure.

Our next question comes from the line of Bhavan Suri with William Blair. You may proceed with your question.

Hey. Good morning. This is Matt Stotler on for Bhavan. Just a couple of quick ones from me. Maybe first, ERP migrations and kind of replacement processes have obviously been a significant trigger for adoption of your solutions. Historically -- and you've talked -- obviously you're investing and the acquisition here seems very interesting. But you talked last quarter about kind of this lag, if you will, in terms of ERP replacement cycles of processes kicking back in and then Vertex, you're kind of getting pulled in those conversations. We'd love to just get an update on kind of the progress you're seeing there? How that's been playing both in terms of conversations and bookings as we've gone through kind of Q3 and towards the end of the year?

Sure, Matt. And thanks for the question. Clearly, the visibility we have and the confidence we have in our pipeline, given the work we've done with SAP and Oracle in UCI migrations that they're going through, both are giving us a strong belief that we continue to see progress and see the green shoots of growth that we've been talking about for a while. So, very pleased with the visibility we have, as well as even with Workday. I think those pipelines are all progressing nicely.

Got it. That's helpful. And then maybe just on international, obviously a very large and under-penetrated opportunity, launched the VAT compliance solution in the quarter. Any update just on -- I guess the -- either conversations you're having interest in that product early traction or, in terms of kind of contribution there. And then, as you're thinking about investments to drive further adoption and growth internationally, I would love to just get an update on those two.

Sure. So, one of the beauties of our business relationship with our customers is we bring in a lot of design partners to co-design the offerings. And that cloud product that we release is a great example of that, because what it enabled us to do was also begin to understand where the market opportunities were with existing customers. And so, we saw that fall through once we released the product with some of the key wins we enjoyed in the quarter, and now have a pipeline building off of it. So, I think that has served us well. And we look forward to that product continuing to progress as we move forward in 2022. Strategically, I think we've talked about -- obviously there are opportunities with the growing legislation around e-invoice, and real-time requirements that we continue to progress both in our R&D efforts as well as elsewhere to explore how we can capitalize on those for future growth.

Got it. Thanks again.

Our next question comes from the line of Pat Walravens with JMP. You may proceed with your question.

Great. Thank you and congratulations guys. It's nice to see us. The piece is starting to come in and the business accelerating. So, David first question for you is pretty big picture, as you look out to start to prep and build the foundation for next year, what are your top sort of two or three priorities?

I think doubling down, Pat, on our sales and marketing acceleration, investments we're making there and continuing to focus there, see opportunities because of the demand cycles. So, we want to make sure we're in front of. As well as, our product roadmap. We really made good progress this year in turning out new products. I'm excited for what's lined up for the early part of next year and really keeping a focus on those two things our top priority for our success in 2022 and beyond.

All right. Great. And then, my second question is, I just thought it was interesting the way you reeled off SAP, Oracle and Workday where you saw the pipeline progressing. I would just love to hear -- so, the big picture thought on each of those. So, I mean, in the case of SAP, I assume it's everyone moving to S/4HANA, but just what you're seeing with each of those and where you fit in, I think, would be really interesting for investors.

Sure. Certainly both in U.S. and in Europe, as you know, they're the largest platform in Europe as well. And so, we're seeing that -- those opportunities. And I would tie Ariba into that as well. We really enjoy a great relationship on the procurement side and having some differentiated capabilities there that we continue to see opportunities as both Coupa and Ariba are continuing to progress in the market. Oracle, they have been wonderful in partnering around the OCI platform and as they continue to -- we continue to get access -- what's interesting there on both SAP and Oracle is our relationships are expanding. We're getting access to a lot of new logos. Just paying off how under-penetrated the space is -- our customer base relative to the Oracle and SAP customer bases. And we continue to have good visibility to growing pipelines in both segments. Workday, again, I think we highlighted, a great win on the call. As customers are progressing with Workday, we're starting to see more and more progress because of the IP we put in our integration and our win rate continues to improve there.

All right. Great. Thanks very much.

Sure.

[Operator Instructions] Our next question comes from the line of Brad Reback with Stifel. You may proceed with your question.

Great. Thanks very much guys. As I look towards the 4Q guide beyond a fair amount of conservatism, any other reasons the business would be down sequentially after -- if you look back over the last three years, it's sort of grown about $4 million to $5 million in 3Q to 4Q.

Yeah. I'll take that Brad. In terms of -- as I thought -- we thought about the guide, a couple of things. I think, first, keep in mind, Q4 -- this Q4, we anticipate that would be a bit of a slowdown from a services standpoint. I kind of called that out in my prepared remarks. We do anticipate seeing a little bit of that -- a little bit of slowness coming in from that perspective. So, I think that's one thing. Do keep in mind, a year ago, same quarter, we did have a $2 million positive impact from volume play from one of our customers where we got to catch that revenue up. So that is in there when you kind of do a quarter -- Q4 to Q4 comparison, that piece is in there as well. So, I want to make sure I point that out. We did not anticipate a similar thing in this quarter, so they they'd be two big things I would point out. But I don't know that there's anything else you kind of big picture driving, anything other than the things you've mentioned.

Great. Thanks very much.

Our next question comes from the line of Stan Zlotsky with Morgan Stanley. You may proceed with your question.

Perfect. Thank you so much guys and good morning everybody. From my end, just maybe I'm a high level question. I think, we're all starting to hear more about cloud ERP migrations picking up this year. What are you seeing, as far as the -- like, this move of cloud ERPs -- ERP systems to the cloud this year, and what kind of effect is it having on your business? And then have a follow-up.

Yeah. Sure. I think -- Brad, thanks for the question. I think we continue to see what the market experience is -- what you're referring to. And it's giving us a lot of confidence because the cloud -- our cloud adoption and the new logo wins we're getting, the growth of our new cloud revenue shows the continued pace of acceptance and adoption of our cloud capability as customers are making those decisions to go to cloud. So that's actually working well.

Got it. Got it. And then I have a couple of house -- quick housekeeping items for John. Just on the organic cloud growth, 41%. So, you gave us -- if we kind of back into -- it looks like there's about $1 million in there from Taxamo. So, I guess, when you -- what I wanted to understand is, how you're thinking about the shape of Taxamo's contribution to the year versus the $9 million initially we're looking for, because it looks like there was $500,000 in Q2, $1 million in Q3. So does that mean that we're going to have about $7.5 million of revenue from Taxamo in Q4? And then, also on customer count, it looks like organic customer count went up by about 11 logos in the quarter. Is there anything that we need to be mindful of as far as us interpreting the Q3 results?

Yeah. Two things. First, Stan, let me hit on Taxamo. From a Taxamo standpoint, you're right. About $1 million was in the quarter. I anticipate there being some modest growth in that. I wouldn't say anything near what you had just described. I think as we talked about that bit of that delay is going to push things out into 2022, when we talked about that at the last quarter. So, I wouldn't anticipate a significant growth as you just had mentioned. So, I would kind of look modest growth on top of that $1 million that we just had in there. And then, as far as -- pardon.

Unit count.

As far as unit count goes, you're right. About -- it's about 11 customers on a net basis increase over the prior. And we feel pretty good -- we feel pretty good about that. Obviously, as you know, we do have churn sort of at some of the lower end and what we do see is that the -- certainly the new customers that we're getting in are far surpassing the amount of ARR that we're losing from some of the churn that we see in the business.

Perfect. Thanks guys.

Yeah. Terrific. Thanks Stan.

At this point, we have reached the end of the question-and-answer session. And I'll turn the call back over to David DeStefano for closing remarks.

Thank you. I'm so proud of the continued progress we're making and the tremendous efforts of the Vertex team this quarter. Thank you for joining us today. I look forward to our next call.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.