Vertex, Inc. (VERX) Q4 2021 Earnings Call Transcript

Vertex, Inc. (VERX 0.55%)
Q4 2021 Earnings Call
Mar 09, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Vertex, Inc. fourth quarter and full year 2021 earnings conference call. At this time, all participants are listen only mode. A question and answer session will follow the formal presentation.

[Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Ankit Hira, investor relations at Vertex. Thank you. Please go ahead.

Ankit Hira -- Investor Relations

Thank you. Good morning, everyone, and thank you for joining us for Vertex's financial results for the fourth quarter and full-year ending December 31st, 2021. On the call today we have Vertex 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 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 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.

David DeStefano -- Chief Executive Officer

Thanks, Ankit, and welcome everyone. Our fourth quarter capped off a very strong year of results. As we delivered more than $425 million in revenue, and annual recurring revenue growth of 17% compared to the fiscal year 2020. I want to thank the entire Vertex team around the world for executing our strategic playbook and exceeding our goals.

Our performance was fueled by full year cloud revenue growth of 46% and cloud revenue per customer growing by 10% for the year. Cloud solutions continue to dominate our new logo deal, and we continue to see our installed base choose our cloud tax automation as they accelerate their overall cloud transformation. Hundreds of six figure deals contribute to our revenue growth this year, balanced across our software and services business, as well as new logos and cross-sell. We have a growing customer base representing the largest and most dynamic businesses around the world.

Vertex has referenced more customer deaths in nearly every industry vertical due to our extensive content database, and we have demonstrated consistently strong dollar-based net expansion rate. Our Q4 2021 net revenue retention rate was 108%, which represents an increase from 106% we recorded both at the end of last quarter and year-ago period Q4 2020. We continue to lead in the enterprise space while we invest in growing our mid-market share. We have multiple levers to pull when driving our growth upsells, cross-sell cloud migrations, regional expansion, and automating tax types from sales, use communications, VAT, leasing, and others.

As we said, throughout the year, we continue to increase our investment to capitalize on the large and growing opportunities to have. While our proven durability of our business model enables both accelerated growth, and strong balance sheet with sustained positive free cash flow. So while we deliver short-term performance, we continue to invest for the long haul. We believe we are still in the early stages of a renewed growth curve with sustained secular tailwinds across the business, technology, and regulatory environments.

Our growth thesis remains very strong, and our 2021 results demonstrate we're executing on all fronts. Bringing new products to market the speed and scale, adding strategic acquisition, doubling down on our go-to-market motion, taking our partnerships to new level, and delivering exceptional value to our customers. All in service to our vision to accelerate global commerce. We believe all of this positions us very well as we look toward 2022.

Let me dive into these a bit deeper. From a product standpoint, we added new products and capabilities across the entire global portfolio, enabling connected and end solutions for tax determination, compliance, data, and document management. For our customers, this means one truly global scalable platform for tax automation, wherever and however they do business. Earlier in 2021, we watched Cloud VAT compliance to automate and simplify value-added tax complexity.

Our customer design partner approach has created a nice pipeline of opportunities for the software. In Q4, we rolled out our indirect tax intelligence. It taxes specific visualization, planning, and risk management tool that extracts insights from the mountains of transaction data flowing across IT systems and our tax engine. As we had more business intelligence capabilities in 2022, we believe there's a terrific opportunity to serve our installed base even further.

Most recently, we launched Edge, a true game-changer for omnichannel companies like retailers, who can deploy containerized tax engines to their point of sale systems with speed and scale. This solution came from [inaudible] tax acquisition and represents the next generation of tax automation. Overall, we're seeing strong pipeline for growth for all our new products, which strengthen our competitive advantage and market leadership. Same goes for our content, which gives us a unique differentiation in the market today and going forward.

Due to the demand and interest, we're seeing across verticals like food and beverage, and oil and gas, we continue to expand the depth and breadth of our tax content database. We now have over 500 million data-driven effective rates and rules covering 19,000 jurisdictions around the world, and we continue to make strategic acquisitions which strengthen our portfolio and open up new market opportunities globally. The integration of our tax acquisition in 2021 is on plan, and we're seeing continued demand as we integrate their products on the Vertex platform to capitalize on e-commerce opportunities in North America and Europe. The combination of our collective capabilities is allowing us to clearly differentiate from our competitors.

We're seeing how the addition of taxable solutions is opening the door to new opportunities. An example this quarter was with a leading digital services company. Each month they issue invoices to the patrons selling digital services on their site. We were brought in to support global compliant invoicing with taxable advantage.

We've also extended our support for this customer with many services to handle the registration filing across a variety of regions where they operate. In Q3, we announced the acquisition of LCR-Dixon to expand our global tax automation portfolio for SAP. The addition of the LCR tool and deep subject matter expertise of that team is already helping to increase our win rate in revenues tied to SAP deal. We believe we have the most comprehensive solutions to SAP of any tax software company, period.

We saw the impact this can have on our customers in Q4. The combination of the LCR tools with our tax engine, chain flow accelerator, and our team's extensive SAP expertise was a game-changer for one of our manufacturing customers. They were feeling the pain of managing use tax manually and needed a robust functionality are solution provided to support their cloud transformation effort. This deal illustrates the strength of our partnerships, not only to get in the door to new opportunities but also create cross-sell opportunities.

I'm incredibly proud of the work our teams are doing to deliver best-of-breed tax technology for our customers, and the industry recognition we're getting along the way. In the fourth quarter, Vertex was named a leader in both enterprise and worldwide value-added tax categories of the IDC market state. We're also awarded IDC's 2021 SAP ERP customer satisfaction to work. Also doubled down on our go-to-market motion, investing in sales and marketing, or making our strategic partnerships stronger than ever.

We are driving an entirely new sales motion with SAP designed for growth. You're not only working deals with them, but now our direct sales team are working in concert and engaging in account planning together. It made incredible strides in 2021, was on board 11 new channel partners. We will continue to build out this indirect sales force in 2022, to extend our reach into the vast and largely unpenetrated SAP ecosystem.

Our Oracle business is as strong as it's ever been over the three-plus decades we've worked together. Our increased investment in their OCI platform resulted in a record number of Oracle ERP cloud deals in the quarter. We continue to have increasingly successful traction with our sales and go-to-market teams as part of the partnership with next week. And we continue to have new partnerships and take others to new levels of scale.

We had it full commerce to our partner luster. To our integration, we are leveraging their checkout process to provide Shopify merchants with Vertex tax calculation. This is significant because it gives our omnichannel client single tax engine across all their invoicing touchpoints. It also serves larger Shopify plus customers who have more complex tax needs, and need a consistent tax result from their front office and back office they were not getting other one.

We also announced the first of its kind certification levels with acumatica, to capture and scale in the mid-market with this cloud ERP with. When I step back, I see how all this comes together to deliver exceptional and differentiated value to our customers, we believe we have a truly winning formula, and then solutions, deep and wide content, scalable unified cloud platform across all major tech sites, seamless integration and consistent results across source systems, and partners at in-house experts who deliver rapid value in even the most complex environment. Before I close, let me share a few notable wins from the quarter that brings all this together. This past quarter, we were able to help one of the world's largest food service companies move to our tax platform to streamline tax compliance over 50 business entities.

This started out as a highly competitive sales cycle as they were running three distinct competitive tax platforms in various areas of their business already. The company had simply stitched tax together as their omnichannel business grow. Vertex partnered closely with SAP and UI on this project to win this new logo. I think this type of win emphasizes the importance of a single cloud platform for our customers to connect all their disparate systems.

And it was this competitive differentiation that allowed our cloud platform to replace the potpourri of existing system they had from our competitors. This capability gives them greater confidence in their tax results, which in turn will lower adverse results on audit. And with the added benefit of ensuring they can scale on one platform as the business grows. This is a common scenario, companies today are managing applications and workloads across fragmented environments.

Our approach wins because we offer a single platform for all indirect tax site with interfaces to the multitude of systems our customers rely on each and every day. Vertex's customers can seamlessly collect our tax calculation into their ERP, CRM, procurement, subscription billing, e-commerce platform, payment gateway, or marketplace solutions, for a unified view of information. Against our competitors, the ability to sell systems complexity is one of our greatest differentiators. Another example of how our cloud solution is winning in competitive sales opportunity is after being divested from their parent company, a global healthcare provider, transition to Vertex move their tax engine to the cloud.

Our ability to connect seamlessly into [inaudible] played a significant role in the six-figure deal, as well as our relationships with UI, Grant Thornton, and Accenture. Another new logo in the quarter showcased the value of our end-to-end offering, some technical functionality, the tax expertise, and service. To close the deal at year end with a mid-sized company out of London, which offers a market-leading platform for ground transportation management. They were moving their business into the US, and found themselves in unchartered waters, managing sales and new staff.

They needed one global solution that would scale with them and meet their end-to-end needs. We were able to meet all their requirements by combining our cloud solution for tax calculation with deep subject matter expertise, and weight club managed services to support their US returns final needs. Our performance in the quarter was also driven by expanding our revenues from existing customers, as our customers expand globally, diversify their offerings, and accelerate their omnichannel strategies, we grow with them. The rapid growth of a leading food delivery platform through usage expansion in Q4, this existing customer needs additional support for countries in the EMEA and APAC region.

Our ability to scale with their business is one of the reasons we were selected early on, and we're now readying them for greater global utilization. We've established a strong position in the high growth food delivery industry, and today three of the top four delivery service providers in the US are running on our cloud solutions. There's confidence in our ability to support the complex tax nuances of the industry that draws on the experience we have solving their challenges for similar organizations. This gives us reference the ability to accelerate wins and other related areas.

And we are building from this position capture the broader ecosystem surrounding this industry, from retailers to restaurants. We also continue to make strides to support the growing number of businesses needing differentiated capabilities, the growth opportunities in e-commerce and marketplaces. We've seen tremendous growth opportunities as our enterprise customers stand up their own online marketplaces. One of our long-standing manufacturing customers selected our cloud solution for e-commerce in the fourth quarter, so their marketplace platform to sell parts to consumers on behalf of their independent dealerships.

Like so many of our customers, having this cloud deployment in place, perfectly positioned us for an easy migration to cloud for the rest of their tax infrastructure when they're ready. All this highlights the progressive growth we continue to drive across the business. Well, I'm so pleased to take a look back at an impressive final quarter of the year, I'm even more excited to look ahead to 2022 and beyond. The opportunity in front of us is that.

The pace of change is not slowing down, as companies adapt their business models to support revenue growth to E-commerce platforms and marketplaces thrive resiliency into their global supply chains and accelerate their move to the cloud. This pace of transformation is driving constant investment in business infrastructure, and increased regulatory change, to match the changes in global commerce. It is these compelling forces across business, regulatory, and technology environment that provide sustained tailwind and momentum for our business. And it's given me even greater confidence that we are investing in the right areas of 2022 to empower our customers with the technologies they will need to successfully navigate this highly dynamic environment.

Now, I'd like to turn it over to John for a more detailed look at our Q4 results and our expectations for 2022.

John Schwab -- Chief Financial Officer

Thank you, David, and good morning, everyone. Today, I'm going to review our fourth quarter and full year 2021 financial results and provide first quarter 22 and full year 22 guidance. Total fourth quarter revenues grew at 12.2% year-over-year to reach $111.7 million, exceeding the upper end of our quarterly guidance by over $1.7 million. Total revenues for 2021 were $425.5 million, up 13.6% from 2020.

Our subscription revenues increased 13.1% year-over-year to $358.4 million, and our services revenues grew at 15.9% year-over-year to $67.1 million. Our annual recurring revenues for ARR grew to $370.2 million as of year-end, representing approximately 17% growth over 2020. Excluding the acquisitions of Tax and LCR-Dixon that were made during the year, our ARR grew at 15.1%, which is an increase from 13.1% that we reported in the third quarter of 2021. Our net revenue retention rate for NRR was 108% at year-end, growing from 106% reported at both year-end of 2020 and the third 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. So these amounts do not include the tax or LCR-Dixon results. Our gross revenue retention rate or GRR was 95% at quarter-end, which excludes internal migrations by customers to our cloud solution, which were approximately 3.5%. This is consistent with prior performance, which has averaged between 94% and 95%.

In addition to the ARR growth, as mentioned above, one area that I believe requires mentioned is our managed services outsourcing business. This returns with processing business, generating recurring services of over $20 million in 2021, processed over $10 billion of customer payments, and posted growth of 20% from 2020. This is a competitive differentiator and is a significant component of recurring revenue, which is not included in our era. At December 31st, we had 4,272 customers.

We continue to see strong growth in our cloud-based solutions among both existing and new customers. Year over year, revenues from cloud-based solutions grew to $127 million, an increase of 46%. Excluding acquisitions, cloud growth was 43% year over year, exceeding our guidance by nearly 300 basis points. In discussing the remainder of the income statement, please note that unless otherwise stated, all references to our expenses, operating result, 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 fourth quarter was $79 million, representing 70.7% gross margin. This compares with gross profit of $70.4 million and a 70.7% gross margin for the same period last year. From the subscription software standpoint, our gross margin was 76.9% as compared to 76.8% in the prior-year period.

Gross margin on services revenues increased to 39.2% from 38.4% due to increased utilization. Our fourth quarter research and development spend, which includes our capitalized software development costs and cloud-based customer solutions was $20.2 million, representing 18.1% of revenue. Research and development spend for the year was $72.9 million, representing 17.1% of revenues. This reflects substantial investments in our cloud solutions, integration of our acquired technologies, and ongoing expansion of connectors and APIs to continue the integration of Vertex's capabilities into customer software platforms.

These increases reflect an 18% increase in development personnel over 2020, through a more efficient and balanced use of a global development team and positioning us well for R&D growth and capacity, as well as capability. Fourth quarter selling and marketing expense was $26.6 million, or 23.8% of total revenues, an increase of $6.9 million and approximately 35.1% in the prior-year period. Selling and marketing expense for the year was $91.8 million, up 31.8% in 2020. These increases are 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 growth. Fourth quarter, general and administrative expenses, $23 million, or 20.6% of total revenues, an increase of $1.8 million from the prior-year period. General and administrative expense for the year was $89.6 million, up 14.1% from 2020. 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 $19.3 million for the fourth quarter, an increase of $201 thousand over the prior-year quarter, and exceeded the upper end of our quarterly guidance by $2.3 million. For the full year, adjusted EBITDA was $78 million, a decrease of $412 thousand year over year. Adjusted EBITDA for the fourth quarter and for the full year exceeded guidance due to the shift of certain research and development, and sales investment initiatives that shifted into the first quarter of 2022. Adjusted EBITDA margin for the full year of 2021 was 18.3% to 260 basis point decrease versus the prior year, primarily due to our investments in go-to-market activities and new product development.

In the fourth quarter of 2021, we generated $26.1 million in free cash flow due to strong revenue performance and cash collections, which represents a decrease of $4.9 million compared to the prior year. For the full year, we generated $46.9 million in free cash flow, representing a decrease of $2.7 million compared to the prior year. Our free cash flow reflects our continued investment in sales and marketing, and research and development expenses to support our growth first initiatives. Turning to our liquidity and cash flows, we ended the year with $73.3 million in cash and cash equivalents.

Subsequent to year-end, we amended our $100 million credit facility with a new five-year $250 million facility consisting of a $50 million term loan, and a $200 million line of credit. We expect to utilize the facility primarily to fund working capital, capital expenditures, permitted acquisitions, and for general corporate purposes. Turning now to guidance, for the first quarter of 2022, we currently expect total revenues to be in the range of $112.5 to $113.5 million, representing growth of 15% to 16% from the first quarter of 2021, and adjusted EBITDA in the range of $16 to $17 million, representing a decrease of $1 to $2 million from the first quarter of 2021. For the full year 2022, the company currently expects total revenue in the range of $479 to $483 million, representing annual growth of 13% to 14% from the full year 2021.

The revenue guidance takes into account growth in software revenues, and a strategic decision to manage growth in our services business to further our investment in the successes of our consulting partners while enhancing our subscription revenue for the future. This decision to impact our total revenue growth by approximately 1%. We expect adjusted EBITDA in the range of $72 to $75 million, representing a decrease of $3 to $6 million from the full year 2021, reflecting our support of acquisition integration, as well as continued spend in research and development, and selling and marketing expense to pursue opportunities for growth. As we have previously stated, we believe that continuing to invest in future growth initiatives now will drive future revenue growth toward our targeted levels.

We anticipate that cloud revenue for 2022 will grow by $42 million from $127 million, representing a 33% increase over 2021. At the current time, we have no customers that are based in Russia or Ukraine. And for those that do business in these regions, we believe that our pricing model gives us the confidence that this will not have a material impact on our operations. Overall, we will monitor any impact to the global economy as a result of the ongoing war in Ukraine.

We are very pleased with the solid fundamentals of our business, which delivered strong quarterly performance with revenue EBITDA and cash flow fueled by strong ARR, NRR, and GRR during the fourth quarter and for the year. Thank you very much. And now can we open the call up for questions.

Questions & Answers:

Operator

Ladies and gentlemen, the floor is now open for questions. [Operator instructions] Our first question is coming from Samad Samana of Jefferies. Please go ahead.

Samad Samana -- Jefferies -- Analyst

Hi, good morning. Thanks for taking my questions. Maybe first, just as I think about the guidance for 2022, John, can you help us understand how we should think about maybe organic cloud revenue expectations that are embedded in that guidance?

John Schwab -- Chief Financial Officer

Yeah, I think about organic, I gave the estimate that we think we'd be growing cloud at 33% on a year-over-year basis. I think, as we think about organic cloud, we think that'll be if you take out the first couple of periods  where we didn't have the tax, no activity, and that's where the main driver is. That's about 3%. So we're about 30% organic.

Samad Samana -- Jefferies -- Analyst

OK. Great. Thanks for that clarity. And then maybe stepping back, David, I think that you sounded quite enthusiast about what's going on with Oracle and SAP.

And if I measure that against maybe the last couple of years where ERP replacement activity had slowed down a little bit? Can you maybe just help us understand, are you seeing an increase in the pace there, especially as things maybe move a little bit closer to back to normal here in the US? What are you seeing in terms of those replacement cycles? And is that ultimately leading to an uptick in your own deal activity as customers look to make a switch at the same time?

David DeStefano -- Chief Executive Officer

Yeah, I appreciate the question. I actually start with a more than just the accent, more than just technology refresh, but it's actually much more around the active collaborations we're now having with the OCI team at Oracle and the SAP team, where we're actually working deals directly with their account teams,  which has been a new motion for us, really excited about the opportunity that that's expanded both here in the US, and is taking hold in Europe. So that's the fundamental shift, more so than just the normal. As you noted, the normalization of increased activity that we're seeing between Oracle and SAP as they continue to grow their businesses.

Samad Samana -- Jefferies -- Analyst

Great. Maybe just if I could squeeze one more in. Just on the Shopify integration that you just mentioned, I wanted to make sure I understood it correctly. Is Vertex now going to be integrated natively into that from an OEM perspective or is it going to be available the Shopify App Store? just trying to understand how the nature of that relationship changed.

David DeStefano -- Chief Executive Officer

Yeah, it's never through bold commerce that's out, there's a check out. They worked with Shopify on the checkout process, and we have customers now that are anxious to work with our integration with bold as a way to work on their larger Shopify opportunities, where they're dealing with having to want to get a consistent answer across the front office and back office. And so we're seeing a lot of push by our customers to leverage the bold relationship.

Samad Samana -- Jefferies -- Analyst

Understood. Thanks again for taking my question, guys. Appreciate it. 

David DeStefano -- Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from Joshua Reilly of Needham and Company. Please go ahead.

Joshua Reilly -- Needham and Company -- Analyst

Hey, guys, thanks for taking my questions. So clearly, your e-commerce is slowing this year globally. How would you characterize your exposure to e-commerce versus in-store retail sales? and with in-store retail rebounding this year, how much does that help you overall in terms of new business activity?

John Schwab -- Chief Financial Officer

Yeah, Josh, we clearly benefit from the entire retail space. It's important to note we don't have an overdependence on any vertical. So we've got breadth across oil and gas manufacturing, we food delivery vertical, we've got a strong presence. So we didn't probably get all the run up in e-com that maybe we could have in the past.

I see the continued growth in the in-store activity as being nothing but continuing the relationships we enjoy across major retailers, so it will continue to be an element of growth for us.

Joshua Reilly -- Needham and Company -- Analyst

OK, great. And then the average revenue per customer ticked up nicely again in the quarter. How do you think about this metric over the next year as you begin to ramp mid-market customers? And then how should we think about the mix of customers using more volume of the platform versus buying additional modules in that metric? And then was this mix consistent throughout the year?

John Schwab -- Chief Financial Officer

I mean, try to pay off a few different points in the US, Josh, so I think fundamentally we continue to expand our base, our revenue base within the existing customers who brought out five or six new products last year. We've got a pipeline of new opportunities like what we talked about with edge on the call here, the new edge computing, which was actually going to serve retail very heavily, which was the point you asked a moment ago, that will allow us to continue their wallet share with existing customers and grow average revenue per customer. By the same token, as you note, our activity in the mid-market as we continue to increase our indirect investment, indirect channel investment is low and typically at a lower price point. So I think there's actually a good balance.

We've seen that progression. I would assume, is going to be fairly consistent growth in that area because of the amount of work we're doing with our customer success, management, investment, and the new products we're bringing to market that allow us to go broader and deeper with our existing customer base.

Joshua Reilly -- Needham and Company -- Analyst

Got it. That's super helpful, thanks.

John Schwab -- Chief Financial Officer

Sure, Josh.

Operator

Thank you. Our next question is coming from Matt Stotler of William Blair. Please go ahead.

Matt Stotler -- William Blair -- Analyst

Good morning, guys. Thanks for taking the questions. I think maybe one to start with on the development roadmap. I mean, you guys have put together, some pretty compelling pieces with obviously, cross-border increasing guidance, I guess SAP, the edge computing solution.

As you think forward, and there's obviously a lot of things that are early in terms of ramp, and it sounds like great pipeline developing. But as you think, beyond that, what are the most compelling additional opportunities that you see to continue to expand that product portfolio? And what are you doing in terms of feedback from the customers in terms of what they're looking for and how that's informing your roadmap here?

John Schwab -- Chief Financial Officer

We rolled out the tax VAT compliance program last year through a design partner program, and what we actively do with our customers is bring them in to help co-design offerings. Some of the things we're looking at now leveraging AI and ML is being very much driven by some of the conversations we're having with them, and where they are. The IPI product that we rolled out in the fourth quarter, which is really around visualization, data analytics, also driven off of them, we'll be adding a lot of functionality to that throughout the year. So those are two key initiatives that really are driven actually by customer design programs that we run in.

The beauty of that is it also affords us to start to create a pipeline as we bring those products out because the customers are active in the workflow and design of the product.

Matt Stotler -- William Blair -- Analyst

That's helpful. And then maybe one from a high level,  something that we've seen kind of across the market over the first several months of this year is some know some issues obviously are supply chain issues. There is, kind of labor tightness, labor market tightness that has been impacting,  some people in terms of implementation cycles. Clearly, from the results doesn't seem to be impacting you guys in a particular way, we would love some color on what you're seeing from that perspective, specifically with implementation capabilities and headcount.

Both as it pertains to what you can do internally, what you're seeing from your partners and your customers as you're progressing to the year here.

John Schwab -- Chief Financial Officer

Yes, it's a great question, Matt. And I think we're really fortunate because of the Alliance Partner Network that we've built in the amount of work they do around our product. The ecosystem around our products is significant across the top 15 to 20 implementation firms. And so that's a really powerful capacity for us to help our customers when implementations are needed.

Plus our own internal staff as we continue to manage that. So I'm very comfortable from an implementation perspective, where we have a nice pipeline of activity to be implemented, and our partners do as well, I think fulfillment in time is not an issue where we're overly focused on right now, given the current labor, the capacity challenge.

Matt Stotler -- William Blair -- Analyst

Great, thanks again. 

Operator

Thank you, the next question is coming from Andrew DeGasperi of Berenberg Capital Markets, please go ahead.

Andrew DeGasperi -- Berenberg Bank -- Analyst

Thanks. Good morning. I just wanted to expound on the SAP sales relationship that you mentioned, but as it's expanded, I was just wondering is have the sales force been incentivized? had their incentives changed with regards to Vertex?

John Schwab -- Chief Financial Officer

I don't have visibility to that directly. We have been partnering with SAP for 20 plus years. I think they become so comfortable with our methodology, our product integration, which is so important to them, and the quality of who our customer base is and the sort of that reference ability that we get. When you look at that all combined and then some of the new offerings we've brought together, like Chain Flow and LCR-Dixon all giving us a unique perspective into supporting the SAP base, they have become very open to engaging with us.

The quality of the collaborations are great. It's really helped us in account planning and I think it'll allow us to serve the customer base far better than we ever had.

Andrew DeGasperi -- Berenberg Capital Markets -- Analyst

Thanks. And then under new customer growth, I mean, it's one of the strongest quarters I've seen so far. I just wondered how much more partners involved in those efforts.

John Schwab -- Chief Financial Officer

Yeah, Andrew. We've continued heavily to invest in our sales and marketing last year. I think we grew almost 20% in our investment in capacity in that area. And a lot of it was was focused on that mid-market channel.

We expect to do more of that this year. And so they were certainly a driver of a part of that. I would highlight again back to some of the OCI and SAP success that we enjoyed. Also, those partners being critical to some of the new logos we were able to add.

There's a vastly unpenetrated base within Oracle and SAP that don't have automated tax solutions. They have hundreds of thousands of installs, and obviously, we don't have that many customers. So there's an opportunity for us to continue to grow just within that ecosystem that we're really excited about.

Andrew DeGasperi -- Berenberg Capital Markets -- Analyst

That's helpful, maybe for the last one. The credit facility amendment clearly extending that. Just wondering it should we expect some additional [inaudible] given their valuations more appealing in the market for some of the assets you might be interested in?

John Schwab -- Chief Financial Officer

Yeah, thanks very much, Andrew, appreciate it. The amendment to the credit facility is something we need, we wanted to do to make sure that we put ourselves in a position to the extent that opportunities become available. We've got a significant amount of war chest available to kind of pursue something. So yeah, we'll say we're opportunistic, we're thoughtful about what's out there, and we've got our eyes open to see what's going to happen.

But right now, there's nothing to report or nothing that's certainly planned but we'll always be looking. 

Andrew DeGasperi -- Berenberg Capital Markets -- Analyst

Thank you.

Operator

Thank you. The next question is coming from Patrick Walravens of JMP Securities please go ahead.

Patrick Walravens -- JMP Securities -- Analyst

Oh, great. Thank you, and congratulations, you guys, it's really nice to hear that the improved tone. And David, just very big picture. So if I look at it, your business decelerated for four quarters in a row.

And then, since then, this is on ARR basis, and then since then ARR is gone, 13%, 14%, 15%, 17%. So just very big picture, what has been going on that's been driving that.

David DeStefano -- Chief Executive Officer

Yeah. Pat, I really appreciate the question, and thanks for the comment about you really proud of what the team delivered. When we think about the market in general, we talked about as we went public, SAP and Oracle were a big part of that, as we hit the pandemic in the beginning of midyear 2020, we saw a slowdown for Oracle and SAP. Talking to a lot of CIOs' at our larger customers, they were focused very much on can we keep our business running remotely? We're not going to focus on new investment in automating tax.

As we got to the second half near the end of 20 and early 21, we started to see that cycle begin to change. They were all proving they could run their business successfully, and there was an opportunity to address concerns that hadn't been done, like automating tasks. We typically follow two to four quarters behind a decision to acquire a new technology platform and move to the cloud the way our customers are moving more with OCI and SAP Hot S4. And so we're following that very naturally, which is what gives us confidence as we look forward in 22 for the pipeline of activity that we're seeing come in and these new advanced relationships where we're building with SAP and Oracle.

Patrick Walravens -- JMP Securities -- Analyst

All right, that's super helpful. And, John, for you, can you just sort of remind us what the drivers are in terms of the difference between revenue and ARR, because revenue decelerated, ARR accelerated, which when you think a better metric?  I think you probably the answered that. But yeah, if you just remind us that great.

John Schwab -- Chief Financial Officer

Yeah, I'd love to remind you that, we consistently pay attention very heavily to ARR in the ARR growth because ARR revenue, we believe, is sort of a lagging indicator. The ARR gives us that leading indication of kind of the efficiency of the sales team, what's getting sold, how those things are going to turn into revenue in the future. And with our strong metrics around GRR, we're not, we don't see any falloff there. So I mean, that's why we think it's a tremendously dependable, dependable measurement to use to kind of evaluate how that's going.

Patrick Walravens -- JMP Securities -- Analyst

OK. Great. Thank you both.

Operator

Thank you. Our next question is coming from Daniel Jester of BMO Capital Markets. Please go ahead.

Daniel Jester -- BMO Capital Markets -- Analyst

Great. Good morning, everyone. Maybe just to build on Pat's first question about sort of the high-level overview. David, you've been retooling the business toward growth for a couple of years now.

Can you just maybe philosophically help us think about where we are in that journey? Is 2022 going to be the year in which the vast majority of those investments are fully in place and starting to contribute? Or is some of this structural pivot of the business going to extend beyond this year?

David DeStefano -- Chief Executive Officer

It's a great question, Dan, and great to talk to you again.  think we are in an important year around those investments. I'm really excited about what the team did accomplish, and some of the the investments we have made in R&D, and the products we're starting to roll out that put us in a really good position as we enter 22. I think we come out of 22, it will be a major. The team will have accomplished a lot to position ourselves for the future growth that we're pursuing in the market.

We will continue to invest in sales and marketing spend because the opportunities in front of us are going to be there. I think the R&D investment we expanded our capacity 18% last year, which I'm really proud of the team to have done that, and we're going to continue to monitor that. And but I think that will start to normalize after we get through this bigger the rest of this investment cycle here in 22.

Daniel Jester -- BMO Capital Markets -- Analyst

Gotcha. And then in the prepared remarks, there was a comment about making some changes in your services business, to maybe push a little bit more of that to your partners. Could you expand on on what exactly is going on there?

David DeStefano -- Chief Executive Officer

Absolutely. We have consistently, and always valued the quality of our alliance relationships. They are essential to our success. They're often a referral source for that ARR that John was just speaking about, and we work very closely with them.

So we've always sort of metered our growth in services to make sure that we're supporting that, that alliance base. And we made a decision this year that we wanted to, we've been growing a little faster than we typically had over the past few years, and so we were excited about the way the team performed. But we also wanted to be thoughtful about sustaining the quality of these alliance relationships because as we're accelerating with SAP and OCI around deal flow, we'll need to make sure we can fulfill everything that needs to be implemented and that'll really fall on that ecosystem, so we want to make sure we're doing proper partner relationships there for the long term. It's served us well for the past 30 years and we want to continue to do that.

Daniel Jester -- BMO Capital Markets -- Analyst

Gotcha, and if I could sneak one more in, if I recall last year there was some churn in your client base at the very, very low end of the market. Obviously, clients are growing again. So is that a repass thought or is there still something that we should be taking into consideration for the year ahead? Thank you.

John Schwab -- Chief Financial Officer

Yeah. I think, Daniel, we think about it. They will continue to be a little bit of churn at the very, very low end. Again, I think that the thing that I think is important to emphasize here is you look at our average ARR per customer growing over time.

I mean, it's growing in the face of kind of these minor, very small customer movement that we've seen at the very, very low end. So there's still a little bit left, but I wouldn't anticipate it very much at all. And I would just build on that to say, Dan, you look at our GRR quarter-in and quarter-out. It doesn't change.

It's rock solid. And the ones we lose really are largely M&A driven. Actually, the bulk of what would disappear from us is much more off of M&A. We're not seeing any cloud migrations losses at all.

Daniel Jester -- BMO Capital Markets -- Analyst

OK, thank you very much.

Operator

[Operator instruction] The next question is coming from Dan Slutsky of Morgan Stanley. Please go ahead.

Ben Uglow -- Morgan Stanley -- Analyst

Hi, guys, this is Ben Uglow on for Stanley. Thank you for taking my question. I would love to start out with understands how far down market you guys see yourself going as we move forward. And then just the additional impact they're having on your go-to-market strategy.

I know you earlier referenced the indirect method that you guys are utilizing, but would like to tap into sort of a direct impact that's also happening on your Cell C.

John Schwab -- Chief Financial Officer

Yeah, as far as market segments, we're pretty clear with our team that through the indirect channels that we're building, we're investing in, we're engaging with customers typically in that $50, $40, $50 million at the low-end revenue and growing, that's our mid-market space up to $400 or $500 million. That and then the rest of that would be what we would call enterprise. Anything below that, we're able to access through the relationships like Acumatica, cpa.com, which is much more of a one to many, where we only have to deliver to Acumatica and they're selling and supporting those customers. So we're actually growing our customer base.

We only count Acumatica as one customer. But in fact there are significant number of users on that space and through the cpa.com relationships that  continue to use our software. But we only build the source, not all the individual customer, so we actually don't count them. So that's how we support the low-end of the market without having to distract our sales teams or invest in a number of channel relationships that really wouldn't be as profitable to us, and wouldn't be as cash flow strong to us as what the mid-market and enterprise market is.

So I think that was the first part of your question. Could you repeat the second part?

Ben Uglow -- Morgan Stanley -- Analyst

Yeah, just trying to better understand your go-to-market strategy , and the direct impact it's having on your sales and marketing team.

John Schwab -- Chief Financial Officer

Yeah. OK. So I think I hit most of that. Our strategy is very clear.

Again, across those three segments, direct sales serve in the enterprise market very closely with either our partner sales teams like SAP and OCI, or working directly with our alliance partners in the mid-market. It's more of an indirect motion directly into the channel and we continue to build our capacity and relationships there. And then lastly, that down market will be much more of a one to many, and there are a number of relationships were forming there to to just be the cloud provider, but not have to have the sales force requirement. So all that capacity spend I talked about in sales and marketing, which we grew approximately sales marketing about 20% capacity last year is all really focused on the mid-market and enterprise market.

We don't need to tie up that capacity to pursue the down market.

Ben Uglow -- Morgan Stanley -- Analyst

Got it. Thank you. And then just one more additional question for me. From a geographic perspective, how are you guys attacking that for that in terms of vector growth, and sort of the growth potential you see going forward?

John Schwab -- Chief Financial Officer

Yeah. You know, Europe is a very largely untapped market. It's really because of the complexity, the regulatory complexity that's going around VAT, and some of the regulations that have been rolled out is making it more complex. It's creating accelerating opportunity, but it's a very un automated space.

Meaning if you remember, our largest competitor is the in-house solution that's been good enough, and we're seeing that start to fracture as invoicing real time requirements. Some of the compliance changes and even tax determination changes are showing up in the EU. Our new SAP, our expanded SAP relationship that I was referring to, is really going to allow us to accelerate growth in Europe because SAP is the largest platform for enterprise customers over there. So I feel like we're really well-positioned as that market continues to grow.

And then there's Latin America, where we content is [inaudible]. We made an important acquisition system a couple of years ago that we're really pleased the way that's performing. We're going to look to continue to support that investment and expand going forward because it's a great opportunity in that market.

Ben Uglow -- Morgan Stanley -- Analyst

Thanks so much.

John Schwab -- Chief Financial Officer

Yeah, sure. Thank you, Ben.

Operator

Thank you. At this time, I'd like to turn the floor back over to Mr. DeStefano for closing comments.

David DeStefano -- Chief Executive Officer

Thank you. I'd like to thank everyone for their time today, and I look forward to coming back together with you in May, this year more around the advancements we are already making in 2022.

Operator

[Operator signoff]

Duration: 55 minutes

Call participants:

Ankit Hira -- Investor Relations

David DeStefano -- Chief Executive Officer

John Schwab -- Chief Financial Officer

Samad Samana -- Jefferies -- Analyst

Joshua Reilly -- Needham and Company -- Analyst

Matt Stotler -- William Blair -- Analyst

Andrew DeGasperi -- Berenberg Bank -- Analyst

Patrick Walravens -- JMP Securities -- Analyst

Daniel Jester -- BMO Capital Markets -- Analyst

Ben Uglow -- Morgan Stanley -- Analyst

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