Core Insights - The article highlights a shift in consumer shopping behavior, with 85% of consumers starting summer shopping earlier, indicating a new peak season for businesses and tax professionals [1][3] - The traditional peak shopping season has expanded beyond the holidays, with summer travel, back-to-school shopping, and Halloween contributing to increased consumer demand [2] - Automated tax technology is essential for businesses to manage the complexities of tax compliance during these new peak shopping periods [4][5] Consumer Behavior - 53% of consumers are purchasing items earlier due to concerns about price increases and product availability [3] - 55% of consumers prefer a blended shopping experience, shopping both in-store and online [7] - 69% of consumers take advantage of summer holiday weekend sales, which can challenge retailers in maintaining compliance [7] Business Implications - Businesses must prepare for peak shopping periods by implementing automated tax solutions to ensure compliance and accuracy [4][5] - The need for precision in tax operations is paramount, as 76% of consumers buy summer clothing and accessories, and 71% shop for summer hobbies [4] - Automated tax platforms help reduce errors and ensure accurate tax treatment across various sales channels [9][14] Tax Compliance Challenges - Seasonal shopping spikes introduce complex tax challenges due to varying tax rates and rules across jurisdictions [6] - Different fulfillment methods can trigger varying tax rules, complicating compliance for businesses [9] - Automated tax solutions are crucial for handling high volumes of transactions without disruption [14] Company Overview - Vertex Inc. is a global provider of indirect tax solutions, helping businesses manage tax compliance and operational efficiency [11] - The company offers tailored solutions for various industries, focusing on major lines of indirect tax [11]

Core Viewpoint - Vertex Pharmaceuticals has experienced a significant decline in its stock price, dropping 17% over the past year, despite previously strong performance and growth potential [1][2]. Financial Performance - In the most recent quarter ending June 30, Vertex reported a revenue increase of over 12% year-over-year, reaching just under $3 billion, and is on track to meet its full-year revenue guidance of around $12 billion, which would represent a 9% increase from the previous year [6]. - The company's net income for the last quarter was $1 billion, equating to a profit margin of 35% [8]. Product Portfolio and Market Position - Vertex is a leader in cystic fibrosis treatments, which account for nearly all of its revenue, but is expanding its portfolio with new products like Journavx and Casgevy [7]. - Journavx, recently launched, generated $12 million in revenue over the last three months, while Casgevy has brought in over $30 million [8]. Recent Developments - The stock price fell sharply following the announcement that VX-993, a treatment for acute pain, did not meet its primary endpoint in a phase 2 trial, leading to the decision not to proceed with further trials [4][5]. - Prior to this news, Vertex's stock was trading around $470 but has since dropped to approximately $396 [5]. Valuation and Investment Potential - Vertex's stock is currently trading at 22 times its projected future earnings, which is considered modest compared to the average S&P 500 stock trading at a forward price-to-earnings multiple of 24 [9]. - Despite the recent setback with VX-993, Vertex is viewed as a potential growth stock due to its expanding drug portfolio and strong profitability [10].

Group 1 - The article introduces "The Undercovered Dozen," a selection of twelve actionable investment ideas focusing on tickers with less coverage [1] - Inclusion criteria for the "undercovered" list include a market cap greater than $100 million, over 800 symbol page views in the last 90 days, and fewer than two articles published in the past 30 days [1]

Group 1 - The core investment thesis for Vertex Inc. (NASDAQ: VERX) has been upgraded to a buy rating due to intact growth drivers and a more reasonable valuation [1] - The investment strategy focuses on long-term investments while also incorporating short-term shorts to uncover alpha opportunities [1] - The approach is centered on bottom-up analysis, assessing the fundamental strengths and weaknesses of individual companies [1] Group 2 - The investment duration is medium to long-term, aiming to identify companies with solid fundamentals, sustainable competitive advantages, and growth potential [1]

Group 1 - Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) experienced a price decline of approximately 20% over the past month, which aligns with the anticipated correction [1] - The decline was expected, but the specific reasons for the correction were not detailed in the article [1] Group 2 - The article mentions the author's background as a macroeconomist with over 20 years of experience in investment management, stock broking, and investment banking [1] - The author runs a profile called Long Term Tips (LTT), focusing on opportunities in the green economy, and leads an investing group named Green Growth Giants, which explores deeper opportunities in this sector [1]

Core Insights - Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) has been previously analyzed, indicating a consistent interest in the company's performance and potential [1] - The author emphasizes the importance of patient investing and the accumulation of high-quality assets, suggesting a long-term investment strategy [1] Company Overview - Vertex Pharmaceuticals is recognized for its commitment to improving the world through its business practices, aligning with ethical investment principles [1] - The company is involved in transformative technologies, which may present high-risk, high-reward investment opportunities [1] Investment Philosophy - The investment approach combines steady accumulation of quality assets with opportunities in underappreciated turnaround plays [1] - The author advocates for dividend reinvesting as a method to enhance wealth creation over time [1]

[Special Note Regarding Forward-Looking Statements](index=3&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) Forward-looking statements are subject to risks and uncertainties, with actual results potentially differing due to operational, technological, and economic factors - **Forward-looking statements** in this report are subject to risks, uncertainties, and assumptions, and actual results may differ materially from expectations[9](index=9&type=chunk) - Key risk factors include the ability to maintain and grow revenue, expand strategic relationships, adapt to technological change (including **AI**), manage **IT** risks, attract and retain talent, and navigate competitive and economic pressures[9](index=9&type=chunk) - Additional factors include risks related to failures in information technology, incorrect solution implementation, changes in tax laws, cybersecurity, legal proceedings, global economic weakness, and intellectual property protection[11](index=11&type=chunk) Part I - Financial Information [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Vertex's unaudited condensed consolidated financial statements for Q2 2025 and FY 2024, covering balance sheets, income, equity, cash flows, and detailed accounting notes Condensed Consolidated Balance Sheets (Amounts in millions) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :--------------------------------- | :------------------------ | :------------------ | | **Assets** | | | | Total current assets | $502.731 | $536.333 | | Property and equipment, net | $195.034 | $177.559 | | Capitalized software, net | $35.659 | $36.350 | | Goodwill and other intangible assets | $397.312 | $363.021 | | Long-term investment | $15.000 | — | | **Total assets** | **$1,198.189** | **$1,166.791** | | **Liabilities** | | | | Total current liabilities | $506.324 | $537.376 | | Debt, net of current portion | $336.349 | $335.220 | | **Total liabilities** | **$950.147** | **$987.439** | | **Stockholders' Equity** | | | | Total stockholders' equity | $248.042 | $179.352 | | **Total liabilities and stockholders' equity** | **$1,198.189** | **$1,166.791** | Condensed Consolidated Statements of Comprehensive Income (Loss) (Amounts in millions, except per share data) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $184.559 | $161.104 | $361.621 | $317.885 | | Gross profit | $121.200 | $102.688 | $234.194 | $198.480 | | Income (loss) from operations | $(3.864) | $7.545 | $0.622 | $5.980 | | Net income (loss) | $(0.961) | $5.164 | $10.169 | $7.848 | | Net income (loss) per share, basic | $(0.01) | $0.03 | $0.06 | $0.05 | | Net income (loss) per share, dilutive | $(0.01) | $0.03 | $0.06 | $0.05 | Condensed Consolidated Statements of Changes in Stockholders' Equity (Amounts in millions) | Metric | Balance, January 1, 2025 | Balance, June 30, 2025 | Balance, January 1, 2024 | Balance, June 30, 2024 | | :--------------------------------- | :----------------------- | :--------------------- | :----------------------- | :--------------------- | | Total Stockholders' Equity | $179.352 | $248.042 | $252.981 | $233.130 | | Net income (loss) (6 months) | $10.169 | $10.169 | $7.848 | $7.848 | | Stock-based compensation expense (6 months) | $30.325 | $30.325 | $24.769 | $24.769 | | Foreign currency translation adjustments (6 months) | $44.839 | $44.839 | $(7.346) | $(7.346) | Condensed Consolidated Statements of Cash Flows (Amounts in millions) | Metric | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $60.808 | $82.292 | | Net cash used in investing activities | $(59.262) | $(47.837) | | Net cash provided by (used in) financing activities | $(20.157) | $238.126 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(15.304) | $271.792 | | Cash, cash equivalents and restricted cash, end of period | $310.762 | $360.943 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed explanations for Vertex's condensed consolidated financial statements, covering accounting policies, revenue, investments, and other key financial areas [Note 1. Summary of Significant Accounting Policies](index=10&type=section&id=1.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) - **Vertex provides state, local, and value-added tax calculation, compliance, and analytics solutions through software license and cloud subscriptions, along with implementation, training, and tax-related services to U.S. and international customers**[24](index=24&type=chunk) - The company completed the acquisition of **ecosio GmbH** on **August 30, 2024**, and acquired the remaining **20% equity interest** in Systax Sistemas Fiscais LTDA on **June 5, 2024**, making both wholly-owned subsidiaries[26](index=26&type=chunk)[27](index=27&type=chunk) - New accounting pronouncements, **ASU 2023-09** (Income Tax Disclosures) and **ASU 2024-03** (Expense Disaggregation Disclosures), are effective for fiscal years beginning after **December 15, 2024**, and **December 15, 2026**, respectively, and are not expected to materially affect financial statements other than disclosures[32](index=32&type=chunk)[33](index=33&type=chunk) [Note 2. Revenue Recognition](index=12&type=section&id=2.%20REVENUE%20RECOGNITION) Revenue by Major Source (Amounts in millions) | Revenue Source | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Software licenses | $71.632 | $70.098 | $142.243 | $140.092 | | Cloud subscriptions | $86.212 | $66.345 | $166.362 | $128.181 | | Total software subscriptions | $157.844 | $136.443 | $308.605 | $268.273 | | Services | $26.715 | $24.661 | $53.016 | $49.612 | | **Total revenues** | **$184.559** | **$161.104** | **$361.621** | **$

Core Insights - Vertex reported revenue of $184.56 million for the quarter ended June 2025, reflecting a 14.6% increase year-over-year, and EPS remained stable at $0.15 compared to the same quarter last year [1] - The revenue exceeded the Zacks Consensus Estimate of $184.25 million by 0.17%, while the EPS surpassed the consensus estimate of $0.14 by 7.14% [1] Financial Performance Metrics - Annual Recurring Revenue (ARR) was reported at $636.6 million, slightly below the estimated $639.12 million [4] - The Net Revenue Retention Rate was 108%, which fell short of the average estimate of 109.5% [4] - Revenue from Services reached $26.72 million, exceeding the estimated $25.58 million, marking an 8.3% increase year-over-year [4] - Revenue from Software Subscriptions was $157.84 million, slightly below the estimated $158.73 million, but represented a 15.7% increase compared to the previous year [4] Stock Performance - Vertex shares have declined by 8.5% over the past month, contrasting with a 0.5% increase in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the broader market in the near term [3]

Financial Data and Key Metrics Changes - For the second quarter, revenue was $184.6 million, up 14.6% year over year, with subscription revenue growing 15.7% and cloud revenue increasing by 29.9% [6][27] - Adjusted EBITDA rose to $38.4 million, representing an EBITDA margin of 20.8% [6][30] - Annual recurring revenue (ARR) grew 16.1% to $636.6 million, with average annual revenue per customer increasing 12.7% year over year to $142.6 thousand [6][28] Business Line Data and Key Metrics Changes - Subscription revenue increased to $157.8 million, while services revenue grew 8.3% to $26.7 million [28] - Cloud revenue was $86.2 million, up 29.9% from the previous year, with Ecosio contributing approximately four points to cloud revenue growth [28] - Net revenue retention (NRR) decreased to 108%, down from 110% in the previous year, attributed to lower growth of additional entitlements and regulatory changes in Brazil [7][29] Market Data and Key Metrics Changes - The company noted a slowdown in ERP migrations, elongating deal cycles, which is consistent with trends observed in publicly traded ERP providers [8][9] - In Europe, annual recurring revenue for Ecosio reached $10.8 million, a 33% increase from the prior quarter, driven by upcoming e-invoicing mandates [14] Company Strategy and Development Direction - The company is focused on leveraging internal technology investments and controlling expenses to maintain adjusted EBITDA margins while navigating macroeconomic challenges [9][10] - The ongoing cloud ERP upgrade cycle is expected to accelerate over the next two and a half years, with increasing demand for solutions due to global tax complexities [11][12] - The company is investing in AI and automated workflows to enhance its global compliance platform, which is expected to drive future growth [15][16] Management's Comments on Operating Environment and Future Outlook - Management acknowledged macroeconomic factors impacting customer activity and necessitating a reduction in full-year guidance, but expressed confidence in long-term growth expectations [5][10] - The company highlighted strong underlying demand and customer commitment, with churn lower on a dollar basis compared to previous quarters [13] - Management remains optimistic about the long-term growth drivers, including e-invoicing mandates and cloud migrations [34][50] Other Important Information - The company ended the second quarter with over $284.4 million in unrestricted cash and cash equivalents, along with $300 million of unused availability under its line of credit [32] - The guidance for the third quarter is expected to be between $190 million to $193 million in revenue, with full-year revenue guidance adjusted to $750 million to $754 million [33] Q&A Session Summary Question: Impact of macro factors on guidance - Management indicated that the macro impact is primarily affecting on-premise and services revenue, while cloud revenue guidance remains intact [37][38] Question: E-invoicing adoption rates - Management noted that the end-to-end offering is differentiating and that early customers are expanding their coverage, indicating a strong land-and-expand model [42][43] Question: Long-term growth outlook - Management expressed confidence in long-term growth due to strong transactional volume in e-invoicing and ongoing cloud migrations [49][50] Question: Changes in hiring plans - Management stated that most hiring pullbacks are in non-strategic areas, focusing on efficiency and core strategies related to e-invoicing [51][52] Question: Deal progression in Q2 - Management observed a softness in deal activity towards the end of Q2, with elongation in sales cycles impacting revenue [56][57] Question: Delayed deals from Q2 to Q3 - Management clarified that delayed deals are not indefinitely postponed but are tied to customer migration processes [63][64] Question: Guidance philosophy - Management confirmed that guidance adjustments reflect observed trends in the second quarter without changing their overall conservative philosophy [66][67] Question: SAP comments and visibility - Management noted that the softness is primarily in the US market, impacting their larger market opportunity, while European performance remains strong [74][75] Question: E-invoicing competition in Europe - Management highlighted that the mid and enterprise market seeks a single provider for multiple jurisdictions, which aligns with their strategy [97][98]

Financial Data and Key Metrics Changes - For Q2 2025, revenue was $184.6 million, up 14.6% year over year, with subscription revenue growing 15.7% and cloud revenue increasing by 29.9% [5][26] - Adjusted EBITDA rose to $38.4 million, representing an EBITDA margin of 20.8% [5][30] - Annual recurring revenue (ARR) grew 16.1% to $636.6 million, with average annual revenue per customer increasing 12.7% to $142.6 thousand [5][27] - Gross revenue retention (GRR) remained at 95%, while net revenue retention (NRR) decreased to 108%, down from 109% in Q1 2025 [6][28] Business Line Data and Key Metrics Changes - Subscription revenue increased to $157.8 million, while services revenue grew 8.3% to $26.7 million [27] - Cloud revenue was $86.2 million, up 29.9% year over year, with Ecosio contributing $3.4 million to revenue [27] - Ecosio's ARR reached $10.8 million, a 33% increase from the prior quarter [13][27] Market Data and Key Metrics Changes - The company noted a slowdown in ERP migrations, elongating deal cycles and impacting pipeline build [6][7] - In Europe, there was strong momentum driven by the upcoming e-invoicing mandates, particularly in Belgium, France, and Germany [13][20] Company Strategy and Development Direction - The company is focused on leveraging cloud ERP upgrade cycles and addressing regulatory changes globally to drive growth [8][11] - Investments in AI and e-invoicing solutions are prioritized to enhance customer experience and operational efficiency [15][16] - The company aims to maintain a strong position in the enterprise market, with a focus on expanding its global compliance platform [14][20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged macroeconomic factors impacting customer activity and necessitating a reduction in full-year guidance [4][6] - Despite short-term challenges, management remains confident in long-term growth drivers, including e-invoicing and cloud migrations [8][48] - The company is taking steps to control expenses and improve adjusted EBITDA margins while focusing on long-term strategic goals [7][25] Other Important Information - The company ended Q2 2025 with over $284.4 million in unrestricted cash and cash equivalents, along with $300 million of unused availability under its line of credit [31] - Guidance for Q3 2025 expects revenues of $190 million to $193 million and adjusted EBITDA of $38 million to $40 million [32] Q&A Session Summary Question: Impact of macro factors on guidance - Management indicated that the macro impact primarily affects entitlements and deal activity, leading to a cautious revenue outlook [36][37] Question: E-invoicing adoption rates - Management noted that the end-to-end offering is differentiating and that early customers are expanding their coverage, indicating strong adoption [40][41] Question: Long-term growth outlook - Management remains confident in long-term growth despite short-term deceleration, citing strong regulatory tailwinds and customer durability [46][48] Question: Changes in hiring plans - Management is adjusting hiring plans to focus on strategic areas while leveraging internal efficiencies [49][50] Question: Progression of the quarter - Management observed a strong start in Q1, but noted softness in May and June, impacting deal cycles [55][56] Question: SAP deal activity - Management indicated that uncertainty in the macro environment is causing delays in cloud transformation decisions among customers [57][58] Question: E-invoicing opportunities in Europe - Management highlighted the competitive landscape and the importance of being a single provider across multiple jurisdictions [99][100]