Vertex NASDAQ: VERX reported first-quarter 2026 results above its guidance range and raised its full-year profitability outlook as management outlined a cost-reduction program intended to fund investments in e-invoicing, compliance and artificial intelligence.
The tax technology company posted first-quarter revenue of $196.6 million, up 11.1% year over year, and adjusted EBITDA of $44.1 million, up 18.4% from the prior-year period. President and CEO Chris Young said revenue and adjusted EBITDA both came in above the high end of the company’s quarterly guidance.
Young said customer retention, usage patterns and buying behavior were consistent with trends seen exiting last year, despite a “mixed” macroeconomic environment and continued scrutiny of IT spending. He said the quarter reinforced Vertex’s position in “mission-critical, highly regulated workflows” used by customers for tax and compliance.
Cost Actions Aim to Improve Profitability and Cash Flow
Management spent a significant portion of the call discussing a value creation plan announced in April. Young described the plan as a “reset to reinvest” and said it was designed to improve Vertex’s cost structure, free up resources for growth areas and improve profitability and cash flow.
CFO John Schwab said Vertex reduced its workforce by approximately 9% on April 28 and is also cutting third-party spending across the company. He said the company expects annualized cash savings of about $60 million to $70 million beginning in 2027, net of reinvestments in the business.
In the first quarter, Vertex recognized a pre-tax charge of $6.2 million related to severance and other benefits, as well as $2.6 million of incremental costs to execute the action. Schwab said cash payments tied to the initiative are expected to be completed in 2026.
Schwab said the savings will phase in during 2026 because the workforce reduction occurred late in the second quarter and reductions in contractor and other third-party spending will take time to flow through. In response to an analyst question, he said the midpoint of the expected cash savings already reflects reinvestment.
Full-Year Revenue Outlook Unchanged, EBITDA Guidance Raised
Vertex maintained its full-year 2026 revenue guidance of $823.5 million to $831.5 million. The company raised its adjusted EBITDA guidance to a range of $202 million to $208 million, up from its prior outlook of $188 million to $192 million.
For the second quarter, the company expects revenue of $200 million to $204 million and adjusted EBITDA of $47 million to $50 million.
Schwab said the value creation program has accelerated Vertex’s expected timeline to reach profitability and free cash flow targets previously set at its March 2025 investor day. He said the company now expects to achieve those targets in 2027. However, he also said the business has changed over the past year and that revenue growth is now in the low double digits, which he said investors should use as a medium-term assumption.
During the question-and-answer portion of the call, Schwab said the company’s longer-term revenue growth framework is in the “10% to 13%” range. He cited a changed macro environment compared with the prior investor day outlook, which had contemplated mid-teens growth and potential acceleration.
Vertex generated positive free cash flow of $7.7 million in the first quarter. Schwab noted that free cash flow is typically negative in the first quarter because of seasonal expenses such as the company’s sales kickoff and payroll taxes, and said this was only the second time Vertex has been free cash flow positive in the first quarter since becoming public.
The company also repurchased $20 million of shares during the quarter at an average price of $14.59 per share, Schwab said.
Cloud, E-Invoicing and Compliance Remain Key Growth Areas
Vertex said software subscription revenue rose 10.9% year over year in the first quarter, while services revenue increased 12.2%. Cloud revenue grew 20.7%, below the company’s full-year target, but Schwab said cloud revenue is now approaching 60% of total subscription revenue.
Management reiterated its expectation for full-year cloud revenue growth of 25%, driven by e-invoicing and compliance revenue in the back half of the year. Young said e-invoicing design wins are expected to convert into revenue as transactions flow through Vertex’s systems following government mandates.
Young said Vertex expects revenue from e-invoicing to ramp later in 2026 after mandates are enacted in France and again in 2027 when mandates in Germany come online. In response to a question about the company’s geographic coverage in e-invoicing, Young said Vertex believes it has “adequate country coverage” for global multinational customers, including Europe, Latin America and parts of Asia.
Vertex acquired Brinta, an AI-first compliance and e-invoicing startup based in Latin America, during the quarter. Young said Brinta adds country coverage in Latin America and brings an AI-native architecture designed for complex real-time compliance environments such as Mexico and Brazil.
Young also discussed prior moves in e-invoicing and tax automation, including the acquisition of ecosio and the company’s investment in Kintsugi. He said ecosio provided Vertex with a foundation in e-invoicing, while Kintsugi helped the company stay close to AI-driven tax startups serving less complex parts of the market.
AI Strategy Focuses on Workflow Automation
Young said Vertex views AI as a way to strengthen its position rather than disrupt its core business, because the company’s tax engine is embedded in regulated workflows where accuracy, auditability and repeatability are essential. “In enterprise tax, trust is the product,” he said.
Management emphasized that Vertex plans to apply AI around its deterministic tax system of record, rather than replacing that system. Young said AI can reduce manual work in areas such as onboarding, data mapping, classification, configuration, reconciliation, exception handling and change management.
Young highlighted Smart Categorization, Vertex’s first commercial AI product, which automates product SKU categorization for tax. He said live customer usage has been encouraging, with active customers expected to send their full catalogs through the platform. Observed categorization time has dropped from more than a minute and a half per product to a few seconds, he said.
Vertex is also using AI internally, including in customer support and services. Young said AI is being used to summarize cases, surface diagnostics and route issues more quickly, with early results indicating that analysts can handle higher case volumes with better consistency.
In response to analyst questions, Young said AI could also help improve implementation processes by automating requirements gathering and assisting with connector work for enterprise resource planning integrations. He said Vertex is working on agents within ERP ecosystems, including one previously announced for Microsoft.
Customer Metrics and Deal Activity
Vertex reported annual recurring revenue growth of 11.2%, essentially flat with the fourth-quarter growth rate. Gross revenue retention was 95%, and net revenue retention remained stable compared with the prior quarter. Average annual revenue per direct customer was $140,464, up 11% year over year.
Schwab said growth in average annual revenue per direct customer has moderated because of the continued influx of new e-invoicing customers, which generally start with lower initial contract amounts than tax calculation customers. Scaled customer count grew 12% in the quarter.
Young cited several customer wins and expansions, including an expansion with a large player in the AI large language model market that added e-invoicing across multiple jurisdictions and Vertex O Series for global sales and value-added tax determination. He said that expanded relationship now represents annual recurring revenue in the multiple seven figures.
Other deals included a high six-figure contract with a major airline in the SAP ecosystem, an expansion with a leading social media and AI company in the Oracle ecosystem, and new logo wins in healthcare, chemical manufacturing, and fashion and apparel.
Young closed the call by saying Vertex is reshaping the company to be more focused, more profitable and better positioned as tax and compliance become more real time and AI becomes embedded in enterprise workflows.
About Vertex NASDAQ: VERX
Vertex Energy, Inc NASDAQ: VERX is a specialty refiner and marketer of transportation fuels and petrochemical feedstocks in the United States. The company collects and processes a variety of waste petroleum products, including used motor oil and industrial lubricants, which it converts into ultra-low-sulfur diesel, asphalt, and other refined products. By leveraging proprietary re-refining technologies and strategic feedstock sourcing, Vertex Energy aims to deliver cost-effective, lower-carbon fuel solutions to wholesale and retail customers across the country.
Headquartered in Houston, Texas, Vertex operates a network of refining and blending facilities in key regions, including the Central, Northeast and Mid-Atlantic markets.
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