Vertex Q2 Earnings Call Highlights

Key Points

• Strong Q2 profitability: Revenue increased 10.5% year over year to $204 million, while adjusted EBITDA rose 33% to $51 million, expanding the margin to 25%. Vertex raised its full-year adjusted EBITDA outlook to $206 million–$210 million.
• Cloud conversions remain a growth constraint: Retention stayed solid at 95% gross and 105% net, but slower cloud migrations, expansion within existing accounts and new-logo performance weighed on the growth outlook. Full-year cloud revenue growth is now expected to be 18%.
• E-invoicing and AI provide longer-term opportunities: Demand for e-invoicing is building ahead of European mandates, with revenue benefits expected to increase in the second half of the year. AI initiatives have improved engineering efficiency and reduced some onboarding times, though commercial revenue is still at an early stage.

Vertex NASDAQ: VERX reported second-quarter revenue at the high end of its guidance range and raised its full-year adjusted EBITDA outlook, as the tax technology company cited cost discipline, stable customer retention and growing demand for e-invoicing solutions.

Revenue rose 10.5% year over year to $204 million, while adjusted EBITDA increased 33% to $51 million. Adjusted EBITDA margin expanded by more than four percentage points from a year earlier to 25%, according to President and Chief Executive Officer Chris Young.

“Our second quarter results demonstrate two key points,” Young said. “First, the durability of the Vertex business. Second, we are beginning to translate greater operating focus and cost discipline into meaningful earnings leverage.”

Retention Remains Stable, While Expansion Needs Improvement

Vertex reported gross revenue retention of 95% and net revenue retention of 105% for the second consecutive quarter. Young said those results reflect a durable installed base and the company’s position in mission-critical tax and compliance workflows.

However, he also acknowledged that expansion within the installed base and new-logo performance “are not yet at the level we expect.” Cloud conversions have moved more slowly than anticipated this year, affecting the company’s growth outlook for cloud revenue.

Chief Financial Officer John Schwab said the slower cloud-conversion pace is primarily a timing issue rather than a loss of revenue or customers. Customers are continuing to use Vertex products in subscription or on-premise deployments, but are taking longer to move workloads to the cloud.

Young said customers are increasingly operating in mixed environments, with some Vertex products deployed in the cloud and others remaining in legacy systems. He said customer IT priorities, ERP migration timing and internal planning cycles have affected the pace of those conversions.

E-Invoicing Activity Builds Ahead of European Mandates

E-invoicing was among Vertex’s strongest areas of execution during the quarter, management said. Demand has been supported by approaching mandates in France and Germany, as well as broader customer interest in managing global compliance requirements.

Young said the company recorded several six-figure enterprise e-invoicing wins during the quarter, including a mid-six-figure expansion with an existing customer related to compliance requirements in France and Finland. Vertex is aligning its country roadmap with customer demand and integrating capabilities across Vertex, Ecosio and Brinta.

Management expects e-invoicing activity to contribute to cloud growth as customers prepare for mandates. Schwab said e-invoicing adoption should begin to affect annual recurring revenue in the third quarter, with a greater revenue impact expected in the fourth quarter as transaction volumes ramp.

While mandates remain the primary catalyst for purchases, Young said some multinational customers are beginning to consider broader consolidation of e-invoicing providers as country-level requirements proliferate. Vertex expects that customers initially adopting its products for one country may expand to additional countries after successful implementations.

AI Efforts Focus on Productivity and Future Product Value

Vertex said it is using artificial intelligence both to improve internal operations and to develop customer-facing tax and compliance capabilities. Young said AI-attributable revenue is not yet material, but the company is measuring progress through operational improvements, customer usage and the development of a commercial pipeline.

Active use of core AI tools across Vertex increased to 89% from 68% in January, according to management. The company said internal measures indicate a 34% improvement in engineering efficiency across most teams, while pull-request merge rates increased 30% from the January baseline.

Vertex also cited AI-driven improvements in customer delivery. AI-supported generation of e-invoicing business rules has reduced onboarding time by about 50% in applicable workflows, Young said. A country-expansion agent enabled the company to onboard roughly 3,500 rules across more than 50 formats, about 70% faster than the prior process.

The company is developing an AI-first connected tax platform and said it has seen early adoption of its Smart Categorization technology. Young said the near-term emphasis is on validating products with customers, moving appropriate capabilities into production and establishing commercial models. He expects more detail on product roadmap developments at Vertex Exchange in the fourth quarter, while characterizing 2026 primarily as a build year for AI products and 2027 as a potential commercial ramp year.

Guidance and Capital Allocation

For the third quarter, Vertex forecast revenue of $208 million to $211 million and adjusted EBITDA of $55 million to $57 million. The company narrowed its full-year revenue outlook to $825 million to $830 million and raised its adjusted EBITDA guidance to $206 million to $210 million, from its prior range of $202 million to $208 million.

Vertex now expects full-year cloud revenue growth of 18%. Schwab said management incorporated the slower cloud-conversion trend, e-invoicing activity and longer sales cycles into its outlook.

Subscription software revenue increased 10.7% in the quarter, services revenue rose 9.4%, and annual recurring revenue grew 10.5%. Cloud revenue increased 17.9%, bringing year-to-date cloud revenue growth to 19.3%. Average annual revenue per direct customer rose 9.2% year over year to $142,997, while scaled customer growth was 8%.

Free cash flow was $2.7 million, affected by severance and consulting costs related to the company’s value creation plan. On a pro forma basis excluding those costs, free cash flow was $13.2 million, representing a 6.5% margin.

Vertex repurchased $26.5 million of shares during the quarter at an average price of $13.17. Since launching its $150 million repurchase program in November, the company has repurchased $56.6 million in shares, leaving $93.4 million available under the authorization.

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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