Vertex(VERX) - 2025 Q2 - Quarterly Results

Vertex Second Quarter 2025 Financial Results Financial Highlights Vertex reported double-digit revenue growth for Q2 2025, with total revenues up 14.6% year-over-year to $184.6 million, driven by a 29.9% increase in cloud revenues, though profitability declined with a GAAP operating loss of $3.9 million compared to income of $7.5 million in the prior year, and a slight decrease in Adjusted EBITDA to $38.4 million Q2 2025 Key Financial Metrics (vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenues | $184.6 million | $161.1 million | +14.6% | | Software Subscription Revenues | $157.8 million | $136.4 million | +15.7% | | Cloud Revenues | $86.2 million | - | +29.9% | | ARR | $636.6 million | - | +16.1% | | Loss from Operations (GAAP) | ($3.9 million) | $7.5 million (Income) | - | | Net Loss (GAAP) | ($1.0 million) | $5.2 million (Income) | - | | Net Loss per Share (GAAP) | ($0.01) | $0.03 (Income) | - | | Adjusted EBITDA | $38.4 million | $38.5 million | -0.3% | | Adjusted EBITDA Margin | 20.8% | 23.9% | -3.1 p.p. | - Annual Recurring Revenue (ARR) grew 16.1% YoY to $636.6 million, with organic ARR growth at 14.1% excluding the $10.8 million contribution from the ecosio acquisition[5] Management Commentary Management highlighted that Q2 results were in line with expectations, citing strong underlying demand and long-term growth drivers like ERP cloud conversions and e-invoicing mandates, but the CFO noted that extended sales cycles and delayed customer decisions late in the quarter negatively impacted new contract signings, leading to a reduction in the full-year 2025 financial guidance - CEO David DeStefano expressed optimism, stating that growing indirect tax complexity, ERP cloud conversions, and global e-invoicing mandates are durable long-term growth drivers[2] - CFO John Schwab announced a reduction in the 2025 financial guidance due to extended sales cycles and delayed customer decision-making that impacted the timing of new contracts in late Q2[8] Financial Outlook Third Quarter 2025 Guidance For the third quarter of 2025, Vertex projects total revenues to be between $190.0 million and $193.0 million, with Adjusted EBITDA expected to be in the range of $38.0 million to $40.0 million Q3 2025 Financial Guidance | Metric | Guidance Range | | :--- | :--- | | Revenues | $190.0 million - $193.0 million | | Adjusted EBITDA | $38.0 million - $40.0 million | Full-Year 2025 Guidance The company has lowered its full-year 2025 guidance, now expecting total revenues between $750.0 million and $754.0 million, cloud revenue growth of 28%, and Adjusted EBITDA between $156.0 million and $160.0 million Full-Year 2025 Financial Guidance | Metric | Guidance Range | | :--- | :--- | | Revenues | $750.0 million - $754.0 million | | Cloud Revenue Growth | 28% | | Adjusted EBITDA | $156.0 million - $160.0 million | - The reduction in full-year guidance is attributed to delays in new contract signings experienced in the latter part of the second quarter[8] Key Business Metrics Revenue Retention and Customer Value In Q2 2025, Net Revenue Retention (NRR) was 108%, a slight decrease from 110% a year ago and 109% in the previous quarter, while Gross Revenue Retention (GRR) remained stable at 95%, and the Average Annual Revenue per direct customer (AARPC) increased to $130,934 from $123,570 in the prior year Key Performance Indicators (as of June 30, 2025) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | NRR | 108% | 109% | 110% | | GRR | 95% | 95% | 95% | | AARPC | $130,934 | $126,534 | $123,570 | Customer Count As of Q2 2025, Vertex had a total of 5,366 customers, including 4,862 direct customers, a slight decrease from the previous quarter, and 504 indirect small business customers, which saw continued growth Customer Count Trend | Customer Type | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Direct | 4,862 | 4,888 | 4,438 | | Indirect | 504 | 481 | 460 | | Total | 5,366 | 5,369 | 4,898 | Financial Statements Consolidated Balance Sheets As of June 30, 2025, Vertex reported total assets of $1.20 billion, up from $1.17 billion at year-end 2024, while total liabilities decreased to $950.1 million from $987.4 million, and total stockholders' equity increased to $248.0 million from $179.4 million over the same period Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $284,386 | $296,051 | | Total current assets | $502,731 | $536,333 | | Total assets | $1,198,189 | $1,166,791 | | Total current liabilities | $506,324 | $537,376 | | Total liabilities | $950,147 | $987,439 | | Total stockholders' equity | $248,042 | $179,352 | Consolidated Statements of Comprehensive Income (Loss) For the three months ended June 30, 2025, Vertex's total revenues grew to $184.6 million from $161.1 million in the prior-year period, but despite higher gross profit, increased operating expenses led to an operating loss of $3.9 million and a net loss of $1.0 million, a reversal from the net income of $5.2 million in Q2 2024 Income Statement Highlights - Three Months Ended June 30 (in thousands) | Account | 2025 | 2024 | | :--- | :--- | :--- | | Total revenues | $184,559 | $161,104 | | Gross profit | $121,200 | $102,688 | | Total operating expenses | $125,064 | $95,143 | | Income (loss) from operations | ($3,864) | $7,545 | | Net income (loss) | ($961) | $5,164 | Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by operating activities was $60.8 million, a decrease from $82.3 million in the same period of 2024, while net cash used in investing activities increased to $59.3 million, and financing activities used $20.2 million, with the company ending the period with $284.4 million in cash and cash equivalents Cash Flow Highlights - Six Months Ended June 30 (in thousands) | Account | 2025 | 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 (decrease) in cash | ($15,304) | $271,792 | | Cash and cash equivalents, end of period | $284,386 | $325,535 | Non-GAAP Financial Measures Summary of Non-GAAP Results On a non-GAAP basis, Q2 2025 operating income was $32.2 million, compared to $33.3 million in Q2 2024, with non-GAAP net income flat at $24.9 million, resulting in a Non-GAAP diluted EPS of $0.15, consistent with the prior year, while Adjusted EBITDA was $38.4 million, with the margin contracting to 20.8% from 23.9%, and free cash flow significantly decreased to $19.6 million from $36.9 million year-over-year Q2 Non-GAAP Financial Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Non-GAAP operating income | $32,182 | $33,303 | | Non-GAAP net income | $24,891 | $24,991 | | Non-GAAP diluted EPS | $0.15 | $0.15 | | Adjusted EBITDA | $38,369 | $38,515 | | Adjusted EBITDA margin | 20.8% | 23.9% | | Free cash flow | $19,587 | $36,944 | Reconciliation of GAAP to Non-GAAP Measures The report provides detailed reconciliations of GAAP to non-GAAP financial measures, with key adjustments to reconcile GAAP operating loss to non-GAAP operating income for Q2 2025 including adding back $12.0 million in stock-based compensation and $16.7 million in depreciation and amortization of software and intangible assets - To reconcile GAAP Net Loss to Adjusted EBITDA for Q2 2025, major adjustments include adding back stock-based compensation ($12.0 million), various depreciation and amortization charges (totaling $23.4 million), and transaction costs ($3.0 million)[42][44] - Free Cash Flow is calculated by subtracting property/equipment additions ($21.5 million) and capitalized software additions ($4.9 million) from cash provided by operating activities ($46.0 million) for Q2 2025[44]