Vertex, Inc. Earnings Call Highlights Strong Growth Amid Challenges

Vertex, Inc. ((VERX)) has held its Q1 earnings call. Read on for the main highlights of the call.

Vertex, Inc. Reports Strong Financial Performance Amidst Mixed Sentiments

The recent earnings call for Vertex, Inc. showcased a robust financial performance, characterized by significant revenue and annual recurring revenue (ARR) growth, strategic investments in artificial intelligence (AI), and successful customer acquisitions. However, the call also highlighted some concerns, including pressures on net revenue retention (NRR), decreased services margins, and negative cash flow.

Strong Revenue Growth

Vertex, Inc. reported impressive revenue figures for the first quarter of 2025, with total revenue reaching $177.1 million, marking a 12.9% increase compared to the previous year. Subscription revenue saw a growth of 14.4%, while cloud revenue surged by 29.6%, underscoring the company’s successful expansion in these areas.

Annual Recurring Revenue (ARR) Increase

The company achieved a 17.9% increase in ARR, totaling $618.5 million. This growth includes a 15.1% organic increase, excluding acquisitions, demonstrating Vertex’s ability to enhance its recurring revenue streams effectively.

Successful Customer Engagements

Vertex secured several significant customer wins across various sectors, including a notable 7-figure deal with a major electronic payments processor and a leading real estate investment trust. These engagements highlight the company’s strong market presence and customer appeal.

Investment in AI and Strategic Partnerships

Vertex made an equity investment in Kintsugi, an AI startup, aiming to enhance its sales tax compliance solutions for small and medium-sized businesses (SMBs) and explore AI applications for larger enterprise markets. This move aligns with Vertex’s strategic focus on innovation and technology.

E-Invoicing Solution Launch

The launch of a joint e-invoicing solution with ecosio has achieved general availability, positioning Vertex strategically for upcoming regulatory changes in major European markets. This initiative is expected to drive further growth and compliance capabilities.

Net Revenue Retention (NRR) Pressure

The company experienced a slight decline in NRR, which was 109%, down from 112% in the previous year. However, Vertex anticipates a rebound, expecting NRR to surpass 110% by the end of the year.

Decreased Services Gross Margin

Vertex reported a decrease in services gross margin to 31.1%, down from 40.5% in the previous year. This decline is attributed to higher compensation expenses and lower-margin services from ecosio.

Negative Free Cash Flow

The company faced a negative free cash flow of $12.3 million, primarily due to seasonal patterns, including annual bonus payments and accelerated investments. This reflects a temporary financial strain amidst otherwise strong performance metrics.

Impact of Ecosystem Migration

Vertex noted a decline in direct customers, particularly among low-end segments, as the company shifts focus towards scaled customers. This strategic migration aims to enhance long-term growth and profitability.

Forward-Looking Guidance

Vertex, Inc. provided optimistic guidance for the remainder of 2025, with expectations of continued growth supported by strategic initiatives such as e-invoicing and AI investments. The company anticipates revenue growth, with a focus on maintaining strong EBITDA margins and improving NRR to exceed 110% by year-end.

In summary, Vertex, Inc.’s earnings call reflected a strong financial performance with notable growth in revenue and ARR, alongside strategic investments in AI and customer engagement successes. Despite some concerns regarding NRR pressure, decreased services margins, and negative cash flow, the company remains optimistic about its growth trajectory for 2025, driven by strategic initiatives and market positioning.