VERX

Image source: The Motley Fool. Monday, Aug. 3, 2026 at 5 p.m. ET Vice President of Investor Relations - Joseph Crivelli President and Chief Executive Officer - Christopher Young Chief Financial Officer - John Schwab Operator: Good morning, and welcome to the Vertex First (sic) [ Second ] Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. If you have any objections, please disconnect at this time. I will now turn the call over to Joe Crivelli, Vice President of Investor Relations, for introductory remarks. Joseph Crivelli: Hello, and thanks for joining us to discuss Vertex' second quarter results. Chris Young, our President and CEO; and John Schwab, our CFO, are with us today. As noted on Slide 2, during this call, we may make forward-looking statements about expected future results. Actual results may differ due to risks and uncertainties. These risks and uncertainties are described in our filings with the Securities and Exchange Commission. Our remarks today will also include references to non-GAAP metrics. A reconciliation of these metrics to GAAP is also provided in today's press release. This call is being recorded and will be available for replay on our Investor Relations website. And I'll now turn the call over to Chris. Christopher Young: Welcome, everyone, and thank you for joining us. Our second quarter results demonstrate 2 key points. First, the durability of the Vertex business. Revenue grew 10.5% year-over-year to $204 million at the high end of our guidance range. Second, we are beginning to translate greater operating focus and cost discipline into meaningful earnings leverage. Adjusted EBITDA increased 33% to $51 million, above our guidance range and adjusted EBITDA margin expanded by more than 4 percentage points year-over-year to 25%. The second quarter provides tangible evidence that the actions we are taking to sharpen our priorities, improve our execution and operate more efficiently are producing results. That said, we still have work to do on growth. Expansion within the installed base and new logo performance are not yet at the level we expect, in part because cloud conversions have been slower than expected this year. Our customer metrics remain stable. Gross revenue retention was 95% and net revenue retention was 105% for the second consecutive quarter. The message in those numbers is straightforward. Our customer base remains durable, and our solutions remain deeply embedded in mission-critical workflows. At the same time, we need to improve expansion, cross-sell and the way we manage customer migrations. Those are important priorities for the second half. E-invoicing was one of the strongest areas of execution in the quarter. Momentum increased during the quarter across all geographic regions, supported by the approaching French mandate, upcoming German mandate and by customers taking a broader view of global compliance. This matters strategically. Global compliance is moving closer to the transaction itself. Customers increasingly need to determine the right tax outcome, execute the transaction in accordance with local regulations and report it to the relevant authorities and then finally maintain the evidence required to defend it. Vertex is well positioned to help our customers manage that entire life cycle from decision to defense. That is the broader opportunity we are pursuing across tax determination, e-invoicing, reporting, returns and compliance. Now as I mentioned, e-invoicing was one of the strongest areas of execution in the quarter. The business continues to perform well in advance of upcoming mandates with very strong growth in both ARR and revenue that's materially above the overall corporate growth rate. Importantly, we continue to see both new e-invoicing revenue and the number of our e-invoicing wins ramping considerably as we move throughout the year and towards the implementation dates for the upcoming French and German mandates. I'm pleased that we won several 6-figure enterprise e-invoicing deals in the second quarter, including a mid-6-figure win for an existing customer driven by mandates in just 2 countries, France and Finland. France was an important catalyst in the second quarter, and Germany and other country requirements will create additional demand over time. We are aligning our country road map to demonstrated customer demand and working to integrate our capabilities across Vertex, ecosio and Brinta. Q2 represented meaningful progress, but we are focused on consistent execution in this business to grow it into a material contributor to our overall growth. Now let me turn to AI. I've been clear that becoming AI-first has 2 dimensions for Vertex. The first is changing how we operate. We are using AI to improve the speed, quality and economics of work across engineering, customer support, tax research, IT and our managed services operations. The second is changing what we deliver to customers. Over time, we believe AI can make tax and compliance more proactive, more explainable and increasingly automated. We are making measurable progress on the first dimension. And while we are building capabilities required for the second, AI-attributable revenue is not yet material to Vertex. At this stage, the most relevant evidence is whether AI is improving how quickly we build, how efficiently we onboard customers and how effectively we are solving real customer problems. Across the company, active use of core AI tools has increased to 89%, up from 68% in January. Adoption is important, but it's only the starting point. In engineering, AI is now embedded across the development life cycle. Across the majority of our teams, our internal measurements indicate a 34% improvement in engineering efficiency with pull request merge rates increasing 30% from our January baseline. We are also applying AI to specific customer delivery bottlenecks. AI-supported generation of e-invoicing business rules has reduced onboarding time by approximately 50% in the applicable workflow. Separately, our country expansion agent has enabled the team to onboard approximately 3,500 rules across more than 50 formats, about 70% faster than the prior process. The next step is to translate these capabilities into customer-facing product value. In our product, we see a steady increase in adoption of our Vertex Intelligence embedded AI, which helps customers with everything from answering a basic question on tax treatment to translating a full set of tax updates into tax rules. More broadly, we are developing an AI-first connected tax platform that's designed to help customers move from reactive product-by-product work towards more proactive compliance workflows. Some elements of that platform are still in development and our immediate goal is to validate them with customers, move the right capabilities into production and establish clear commercial models. Early customer adoption of Smart Categorization has been encouraging with strong usage patterns helping validate the value proposition while providing important feedback that shaped our understanding of how customers will deploy the solution. Those learnings are informing our go-to-market efforts, and we're starting to see a pipeline of opportunities develop as additional customers evaluate the technology. Over time, we expect to measure our AI progress through customer adoption, customer outcomes and revenue, but we are not fully there yet. The operating improvements we are seeing give us greater confidence that AI will become both a meaningful productivity driver and an important source of product differentiation for Vertex. The customer activity in the quarter reinforces the durability of our core business and the opportunity to expand it. Across both existing customers and new logos, we saw 3 consistent buying patterns. Customers are expanding their use of Vertex as their transaction volumes and global complexity increase. They are standardizing on Vertex as part of broader SAP, Oracle and Microsoft Cloud transformations. And in competitive situations, they are choosing Vertex when they need the content, scale, integration and control required to manage complex tax and compliance environments. Let me give you some examples. First, we expanded our footprint with a leading mobility and delivery technology company. The customer continues to grow and broaden its operations, leading to significantly higher volumes. This entitlement expansion resulted in mid-6 figures of additional revenue for Vertex. Second, we secured a high 6-figure expansion with a consumer packaged goods company as part of its SAP cloud transformation. This win extended our relationship across multiple geographies and tax types, while also leveraging our best-in-class SAP software and Vertex Consulting. And third, we won a competitive displacement opportunity in the Oracle ecosystem with a major quick service restaurant operator. The customer was using Vertex in one area of its business while using a competitor elsewhere. The customer chose to standardize on Vertex to modernize and simplify its existing technology environment, resulting in a mid-6-figure expansion that includes multiple Vertex solutions and services. These are different customers in different industries, but the strategic pattern is the same. Business growth creates more volume and complexity, ERP modernization creates an opportunity to simplify and standardize and increasing compliance requirements make the breadth and reliability of the underlying tax platform more important. We saw the same demand drivers in our new logo activity. During the quarter, we won new customers that were replacing internally developed processes, moving through SAP cloud migrations and responding to increased transaction volume. Those wins across the Microsoft, Oracle and SAP ecosystems and included both focused initial deployments and broader platform engagements. The first example is a low 6-figure win with a telecommunications infrastructure leader. This is an example of an enterprise customer that outgrew a manual solution and needed to automate its indirect tax processes. The second example is a low 6-figure win with a global management and technology consulting firm. The customer was moving through an SAP cloud migration and selected Vertex for North America Sales Tax, Consumer Use Tax, SAP Accelerator and our Consulting services. The third example is a high 6-figure win with a building products distributor. In this case, transaction volume growth was the catalyst and the customer selected a broad set of Vertex capabilities. We consistently demonstrate through our execution that we can enter through a specific tax or compliance requirement and then establish the foundation for a broader relationship over time. That land and expand opportunity is important. Our Q2 retention metrics demonstrate the durability of the installed base, but our expansion performance is not currently where we want it to be. Improving the way we convert successful initial deployments into broader customer relationships is one of our clearest growth opportunities. Now before turning the call over to John, I'd like to spend a moment on a topic that's important to me. One of our top priorities since me joining Vertex has been strengthening our leadership team with executives who have successfully scaled enterprise software businesses through periods of transformation and growth. Allison Cerra joined as Chief Marketing Officer to sharpen our market positioning and brand and demand generation capabilities. Aneel Jaeel joined as our Chief Operations Officer to drive greater operational discipline, technology modernization and AI-enabled transformation across the company. In June, Chatelle Lynch joined as Chief People Officer to strengthen talent, organizational effectiveness and accountability as we move through this period of significant change. And today, we are pleased to announce that Bala Chandran has joined Vertex as Chief Product and Technology Officer, adding significant experience in product innovation, cloud modernization and AI leadership at a critical point in our evolution. These leaders bring the experience and leadership capacity to improve our execution going forward. We have a durable customer base, an important position in global tax and compliance, improving operating leverage and meaningful opportunities in e-invoicing and AI. We also have work to do to accelerate our growth, improve our expansion and turn our product vision into measurable customer and commercial outcomes. I believe we now have a stronger leadership team and a clearer operating agenda to do that work with greater focus and urgency. Now I'll turn the call over to John to discuss the financials in detail. John Schwab: Thanks, Chris, and good afternoon, everyone. As Chris noted in his remarks, the second quarter results demonstrated stability in the business across revenue growth and customer metrics. In addition, we saw good results from our value creation plan announced in April, which drove significant earnings leverage in the second quarter. On Slide 13, our total revenue was $204 million, up 10.5% year-over-year and at the high end of our guidance for the quarter. Our subscription software revenue was up 10.7% and services revenue was up 9.4%. Our annual recurring revenue was up 10.5%, in line with expectations. And our Cloud revenue was up 17.9%, bringing the year-to-date Cloud revenue growth to 19.3%. Turning to customer metrics on Slide 14. Our gross revenue retention was 95% and net revenue retention remained stable at 105% compared to the prior quarter. Our average annual revenue per direct customer was $142,997 in the first (sic) [ second ] quarter, up 9.2% year-over-year. Our scaled customer growth was 8% in the second quarter, while overall customer count was up on both a year-over-year and a sequential basis. Now turning to profitability on Slide 15, where you can see the impact of the value creation plan beginning to take effect. Overall, non-GAAP gross margins increased 15 basis points year-over-year. This was driven by higher margins in the software business, as you can see on the slide. Adjusted EBITDA was $51 million, up 33% from last year's second quarter for an adjusted EBITDA margin of 25%. As noted on last quarter's call, we expect to see steady progression towards a high 20s adjusted EBITDA margin between now and the end of 2027. Our free cash flow was a positive $2.7 million but was impacted in the second quarter by costs associated with the value creation plan, including severance and consulting fees. Free cash flow was $13.2 million on a pro forma basis for a free cash flow margin of 6.5%. In addition, the second quarter pro forma free cash flow represents a free cash flow to adjusted EBITDA conversion rate of 26%. Likewise, we expect to see a steady upward march of this number over the next 6 quarters as the impact of the value creation program takes root, and we expect to exit the fourth quarter of 2027 with a conversion rate of approximately 70%. To give investors another view of the earnings and cash flow potential of the business, on Slide 16, you see adjusted EBITDA less capital expenditures over the past 6 quarters. Here, you can clearly see the earnings leverage in the business as quarterly adjusted EBITDA has increased 37% or $14 million during that time frame. Capital expenditures reflect investments we are making in the business in both our compliance business as well as in our Artificial Intelligence, both in our internal systems and product development. As you can see on the far right column, adjusted EBITDA less capital expenditures has more than doubled during this time frame. As I noted earlier, we expect that the value creation program will unlock even more earnings and free cash flow potential over the coming quarters. Turning to guidance. Given the performance of the business in the second quarter and the ongoing impact of the cost actions, we expect third quarter revenue of $208 million to $211 million and third quarter adjusted EBITDA of $55 million to $57 million. For full year guidance, we are narrowing the revenue range to $825 million to $830 million, and we're increasing the full year adjusted EBITDA guide to $206 million to $210 million from $202 million to $208 million previously. We now expect Cloud revenue growth to be 18% for the full year. Before I wrap up, I'll note that in the quarter, we repurchased $26.5 million worth of shares in the second quarter at an average price of $13.17. Since the $150 million buyback program was launched in November, we have bought back a total of $56.6 million of shares at an average price of $14.55 and have $93.4 million remaining under our authorization. With that, I'll turn the call back to Chris for closing comments. Chris? Christopher Young: Thanks, John. Let me close with 3 points. First, Q2 demonstrated the durability and earnings potential of the Vertex business. Revenue was at the high end of our guidance, adjusted EBITDA exceeded our expectations and customer retention remained stable. Second, we are seeing tangible progress from the actions we have taken to improve our operating model. We are executing with greater focus and discipline, expanding margins and creating additional capacity to invest in the areas that can strengthen our growth over time. And third, AI is improving the speed and efficiency of selected engineering and customer delivery workflows while we continue building customer-facing capabilities. Our next objective is clear: translate those operating gains and product investments into measurable customer adoption and over time, commercial value. We entered the second half with a stronger cost structure, ramping productivity, improving momentum in compliance and e-invoicing and a leadership team built to execute the next phase of our transformation. With that, we'll now take your questions. Operator: [Operator Instructions] Our first question will come from Christopher Quintero with Morgan Stanley. Christopher Quintero: I wanted to ask -- it was really great to hear about all the internal AI work that you all have been doing and working on. But from a customer perspective, just curious, typically, tax accountants have been a bit more risk averse and a bit slower moving. So curious from the Vertex perspective, what are you doing to enable your customers to be even more comfortable about adopting some of these AI technologies and solutions you're developing? Christopher Young: Chris, thanks for the question. One of the most important things we've had to do and we've learned a lot of this with Smart Categorization is we've really had to send people in -- almost in a forward deployed engineering model, which you hear a lot about in the AI world, to work with our customers to help them because what we -- look, one of the biggest learnings, I think I talked about this a little bit on the last call, but with Smart Categorization is you're not only offering your customers a tool, but you're changing the way they work. They've had a series of processes built up around how they categorize products. Sometimes there's different people from different groups, different functional areas in the company involved. And I think I've shared in the past an example of one of our customers with their marketing team was actually involved in some of the categorization because a lot of the upfront SKU generation for product starts there in that part of the business. And then obviously, finance and accounting gets involved later when you're actually getting down to a tax determination and reporting decision around that. And so we've had to work with a number of our customers to help them think through not only here's the tool and how well does it actually categorize a product, but then what's the change in operational model around that? How do you think about that? How do you staff for that? And we're seeing that in other conversations we're having. Now that has positives. It also just, in some ways, takes more time. One of the positives is I'm seeing opportunities for us to send engineers in to work with customers to solve upstream product problems that were different than ones that we've anticipated in the past, places where they might have had frustration, for example, with our products I think actually through AI, we can build bridges into the determination experience and actually improve our overall posture with our customer as well as the opportunity to sell them something additional. On the downside, which is something I know you've talked about is, in some cases, it takes a little bit longer to get them to make the decision. But as I'm talking to customers, the message is clear. They're getting messages from their CFOs, their CIOs. Obviously, those come from the CEO usually. And they are wanting to move in this direction. They are wanting to adopt more tools. When I look at just some of our Vertex Intelligence, our equivalent of a Copilot adoption where it's just a general AI capability in our product, we're seeing steady month-over-month, quarter-over-quarter increases in engagement with that tool, we're tracking monthly active users, daily active users. So we're seeing it. So long answer to your question, a lot of engagement there. And then obviously, we're hard at work on making sure that we're going to ship more AI capabilities to our customers as we get through the next few months and quarters of Vertex. Christopher Quintero: Got it. That's helpful, Chris. And then just as a quick follow-up on the Cloud revenue guide. You guys talked about slower Cloud migration. So just curious maybe what you guys are seeing in terms of the drivers behind those slower Cloud migrations? John Schwab: Yes. I guess, first of all, Chris, thanks for the question. When we put together the Cloud guidance, we felt good about kind of where we stood at the time. I think we did anticipate a higher level of Cloud conversions taking place -- and both in our installed base as well as in the new logo activity. And so in the first half, we didn't really see that happen and that pattern continued -- and that continued into the second quarter. So we reassessed our view on kind of where the guidance needed to be. That said, I think there's just an overall kind of elongation of people making decisions to make technology moves into other areas. Wherever it's going to require capital and further deployment, et cetera, I think people are really pushing and taking a thoughtful view of exactly how fast to move. And that impacted our business and the amount of conversion. I think when we think about it from our standpoint, it's -- from our standpoint, this is really a conversion timing issue. It's not a revenue issue. It's taking revenue that is not currently in subscription or on-prem and moving it into the cloud. And it's really a left pocket into the right pocket from an overall revenue standpoint. So I want to make sure that we call that out. And as you know, we continue to support our customers just -- in their deployments, whether they're on-prem or in the cloud, whatever meets their needs best. And we're going to continue to work to improve the cloud -- their cloud conversion expansion as well as new logo execution. Christopher Young: One thing I'll just add there, Chris, because I know this question is something that's come up is that there's -- we're seeing more -- again, more customers that have mixed environments. They have some cloud. As I talk to more customers, I'm finding more and more examples of customers that might have some element of the Vertex estate cloud deployed, they have more -- they have legacy Vertex deployments as well. Oftentimes, when I'm talking to them, one of my first questions is, why haven't you moved it all to the cloud? And I get a mixture of answers. There's IT, there's prioritization. So I just -- I give -- I share that with you to just give you a bit more color around what we're seeing and hearing from customers. It continues to be, hey, we really like Vertex. We're consolidating more on Vertex, but it may take us some time to get there. We still, as you know, are, to some extent, a recipient of what happens in the ERP migrations as well. So we end up being impacted by that. So as ERP migrations go to some extent, later on in that journey, the Vertex migrations happen as well. So we're managing through a mix of that. But as John said, the best -- the most important point here that we want to make sure everybody understands is these are not lost customers. These are just customers who are taking longer than we initially built out and expected and are planning than they would to get to migrating the cloud on the Vertex deployment. Operator: Your next question will come from Jared Levine with TD Cowen. Jared Levine: I was hoping to start here in terms of the demand environment. Can you talk about how that progressed over the quarter and what you're kind of seeing so far into 3Q here? Christopher Young: We've seen a pretty stable demand environment as I kind of look back out over where do we see the pipeline at the beginning of the quarter? What was it like in the first part of the year coming and going into Q3? I would tell you, we've seen a good mixture of cross-sell, upsell opportunity in our base, which, as you know, is an important part of our revenue model. We've seen new logo wins. I will point out that and John mentioned this a moment ago, I do think it's important. We have seen some elongation in sales cycles. We've seen some situations where customers, we were expecting a deal to close in 1 month and then closing in the next month because they had to go through procurement cycles. We did have a new logo 7-figure deal that we were expecting to close in June that immediately came in, in July, but we didn't get it in for this past quarter, as an example. So we are seeing some of that where -- which is different than again as we expected. But at an overall demand level, pipeline level, there's a lot of activity out there. We're seeing a tremendous amount of new activity in and around our e-invoicing mandates and that part of our business. Obviously, that remains off a smaller base for us, but we're very pleased with that activity. And the 7-figure deal I just mentioned a minute ago, which has now come in, in the month of July. That's net new business. A lot of that's around more traditional tax determination. Jared Levine: Got it. Great. And then so far year-to-date, you have outperformed your 2 quarterly revenue guidance, but did affirm the annual revenue guidance here. Anything to call out in terms of guidance philosophy or visibility in terms of that approach here to affirm that guide midpoint? John Schwab: Yes. I mean what I would say is that our first half performance was good. We felt very good about that, and it gives us confidence in achieving our full year outlook, certainly. We had some good things that hit in the first half of the year, strong management of churn that we had talked about a lot last year and the early part of this year. And so -- but we wanted to make sure that we really balance some of that first side -- that first half upside with a more measured view of the second half, including the growth rate -- as you can see, the growth rate in the third quarter, as well as some of the continued variability in the revenue timing that Chris was talking about in terms of kind of the elongation that's going on as well as mix and some of those longer deal cycles. And so I think we just wanted to be thoughtful about all the things that we're seeing in the environment and to make sure that we kind of thoughtfully put together guidance that put us in a range that, again, that gives us good visibility into the achievement in the back half. So that's kind of the overall. And I think it really has to do with the first part of your question, which just was like what's the environment like and how are things feeling. And so we want to make sure we bake that all in. That's kind of how it came out. Christopher Young: Yes. And that said, we raised our guidance on EBITDA for the year, which is something we're very proud of. And obviously, we're working hard to bring in as much business as we can see out there for the back half. Operator: Your next question will come from Billy Fitzsimmons with Piper Sandler. William Fitzsimmons: Chris and John, I think it was clear that it sounds like the delta in the full year cloud revenue growth guide was more of a near-term blip than a, call it, a structural challenge. And just to double-click on this, based on what you both are saying, is it fair to say that some customers are maybe prioritizing other AI projects internally, which is maybe pushing out some of the blocking and tackling around the on-prem cloud migrations? And if so, when do you expect that to maybe fade or reverse? I know it's hard to say in real time, but I guess what's the catalyst to that kind of moving back to the pace you initially expected? Christopher Young: I think -- so there's several components of our cloud revenue, Bill. I think a couple of things. One, we do expect cloud revenue growth to see some acceleration based on our e-invoicing business. And as we get through actual invoices flowing through, French mandate is one that we'll see in September here, so at the end of this quarter. Obviously, we've got the Germany one coming up at the beginning of the year. And pre that mandate, we expect some improvement there in the number of invoices. So e-invoicing will be another -- and we had some good activity this quarter. So e-invoicing is one that will ramp. That's cloud revenue. So we expect that to be a positive in our overall cloud revenue growth rate going through the back half of this year and into 2027. So that's number one. Number two, on cloud migrations, it's hard for us to get a good read on what trade-offs are being made. So why -- where are they trading off timing, for example, in their overall set of IT projects. As you know, to some degree, we probably speak a little bit more to tax people than we do to IT people, generally speaking. But what we -- what I can say is, there's -- it is taking customers a little longer on deals. My sense is like across the IT franchise, a lot of different organizations are taking a look at where are they spending money, how are they spending money, where are they spending their resources. And so we do expect everything I'm hearing and what we expect to see is a continued move to the cloud. Like every -- again, just if I give you -- if I harken back to some of the examples I shared a moment ago, like whenever I'm talking to customers, more and more I'm discovering partial franchises in the cloud, a real desire to move more to the cloud. Part of what we need to do, this is where we still have work to do more as we go through the back half of this year and into next year is we're trying to give them more incentive to move to the cloud. More of our -- delivering more new features, more AI capabilities, that all creates a forward motion and a forward incentive for our customers who want to move more to the cloud. We started -- I think I may have mentioned this, when we first launched a number of our AI capabilities, many of them were really more focused on our cloud franchise. We started to broaden the availability of that to our on-prem customer base so that they can start to use more of our AI tools. I consider that a [ carrot ] to make it more attractive to customers wanting to move to the cloud. So this is something that we've got a lot of focus on. I will also point out a comment I made on the call. We've just brought in a new leader for our product and engineering team. He comes to us most recently, ran a large part of the business in the health care space at Oracle. So not only does he understand regulated industries, but as you know, really has spent a lot of time on how they bring their customer base forward from more traditional methods to cloud-based capabilities. And so I'm really -- I feel very good about our ability to get our customers migrated. And obviously, we'll have to work through their own internal planning and budgeting cycles, but doing everything we can to give them incentive on the Vertex side to move there. William Fitzsimmons: Perfect. I appreciate the color. And if I could sneak in a second one. It's now been a couple of months since you acquired Brinta that gave you an AI-native footprint in Latin America, arguably one of the more complex environments for real-time compliance globally. How has the integration progressed relative to your initial expectations? Christopher Young: I would say the Brinta team has done -- I mean it's been great to have them on the team. They have some really great customer relationships. We see more opportunity even in region than I would say we saw before Brinta became part of Vertex. So I would say, overall, it's going really well. As you know, integrating any different companies that come from different places, there's always -- there's always challenges. It always takes longer than you want. And we're trying to make sure that we bring this along at a pace where we keep the best of what Brinta brings to Vertex, but we also want to make sure that we don't -- we also want to get them to integration, but we also want to make sure we don't break what they've done really well. And so that's going to take us a little bit of time. But we're pleased with what they've done. We're pleased with the new business opportunities that they're bringing to us. They've come in and partnered really well with different teams across other parts of Vertex. And like I said, I'm even encouraged by some of the new business opportunities we see in Latin America because of it. So it's on a really small base. Primarily, we were -- we started our journey with Brinta because they helped us close some of the country-level gaps in our ability to meet a number of the mandates in Latin American countries. But I think what's been really positive is we're seeing a broader market opportunity environment that we're opening up because they're now part of Vertex. And so I think that's a really important opportunity for us. Operator: Our next question will come from Samad Samana with Jefferies. Samad Samana: I guess, first, just to follow-up on the guidance. John, is this -- do we now consider the guidance to be derisked on the cloud side? Is it -- should we extrapolate that the conversion activity you guys are seeing in the first half of '26 is probably the new normal? So both kind of in consideration of the 2026 guidance, would you say that you feel extremely confident or is that derisked? And then again, should we kind of use this as the conversion activity template as we think beyond the '26 outlook for cloud as well? And then I have one follow-up. John Schwab: Yes. From a cloud standpoint, Samad, I think we're calling what we see. What we're seeing there is a lower conversion ratio. And that conversion ratio -- just that conversion activity isn't happening at the pace that we thought. And so I mean, this is what we're seeing, and this is what's built in for the rest of the year. And again, I'm not sure I can sit here and call it, and I think we'll see it show up in the numbers, but that's how I'm thinking about it as it plays through. So that's what we wanted to make sure that we took into account and make sure everybody got -- felt good about where we ended and why we ended there. From an overall guidance perspective, I think as we look at the back half, there's still a decent amount of pipeline, as Chris said. And again, we are seeing -- there is some activity in the back half of the year around elongation of deals and other things. So I wouldn't say we didn't just set this up and say, all right, this is a risk-free plan by any stretch. There's always risk in everything that we do, and there's always a lot of deals that have to get closed to make the numbers. So I wouldn't necessarily -- I certainly wouldn't say that. But I think what we wanted to make sure is we took into consideration what we saw in the first half as well as kind of the pipeline for the activities that we're seeing now and sort of roll that through, and that's what we came out with. So that's the best I can tell you. Hopefully, that was helpful, but happy to take a follow-up if you have one. Samad Samana: Yes, that was helpful context. I appreciate that. And then maybe just on the -- just maybe again to get some better context around the quarter. If I think about the scaled customer growth, it's still growing high single digits, but it did decel quarter-over-quarter. Is there anything onetime in nature there that we should be aware of? Or is that maybe -- is the same thing that's impacting cloud conversions maybe impacting new scaled logo growth? Just help us understand what drove that slowdown? Christopher Young: Yes. I think, Samad, I think that, one, it's 1 quarter. So we're -- at this point, we're watching it closely. As I mentioned earlier, we did see some deals move between quarters. The one deal that I mentioned that slipped out is a 7-figure deal for us. It was a June deal and ended up coming in July. So that would factor into that percentage as an example. Certainly one we're very happy to close. So we are seeing some movement there. But we get scaled customers come to us in a variety of different ways. We have obviously net new logos. We have growth with existing customers. Again, some of we expect to see our e-invoicing customers, particularly as we start to ramp on these mandates, they are likely to move from smaller customers to more scaled. And so we think there's -- we don't see any trend here that would suggest we're going to trend down on this metric. We expect that we should continue to have good growth in this metric, but we didn't see it this quarter, and we certainly want to see it better as we look forward. And we'll keep -- we'll stay on top of it. Obviously, we'll keep reporting it. So it's certainly something that we pay attention to. Operator: Your next question will come from Steve Enders with Citi. Steven Enders: I guess I want to ask on just the e-invoicing dynamics that you're seeing? And how is that maybe playing out versus how you're expecting those deals to kind of come through for the year? And how are you kind of thinking about when, I guess, the -- when like the bulk of customers will start to adopt and maybe move from a single country to expand and adopt more of a full platform opportunity over the next couple of years here? Christopher Young: So we saw our first examples. So I would tell you, Steve, and what we saw in the first quarter was lower than we would have wanted in terms of multiple countries and that sort of thing. We saw the activity we expected to see in Q2. We saw customers that were starting to not only just do the French mandate, but would add a second country as part of that. I think I mentioned one of the examples in the call, I mentioned France and Finland being the driver. We are now starting to see customers that would start in one country like Poland and then add a second. And so like when we think about the growth potential in our e-invoicing business as we get through this quarter into the fourth quarter, even beginning and going into 2027, that's where some more of the growth will come from. We're expecting the growth to come from is people that are going to move to do the mandate, meet the mandates that are out there, like France being the big one right now, Germany coming. There's Spain next year, which is another one. But amidst all that, the expectation is that we're going to have some of our more -- our larger customers that start to say, okay, now that I'm doing one country with you or a second country with you, as we deliver on that, let me add a third, let me add a fourth, and this becomes a growth opportunity for us. And so we're just starting to see that behavior in our customer base where you're seeing meaningful growth opportunities across more than one country. And then ultimately, that leads us into the motion that we want to get from this where customers start to say, great, I just want to consolidate everything with you. Like I -- maybe I made a decision in Mexico like 4 years ago, 5 years ago, now let's circle back. And that's an expectation that we have as we get into back half of really Q4 and probably '27 is where we expect to have more of those kinds of opportunities. And that's really what this business represents for us in terms of potential. Steven Enders: Okay. No, that's great to hear. And then maybe attaching that to the numbers a little bit. And I think we're still talking about revenue acceleration into Q4. It looks like ARR is still decelerating a little bit. Just how should we think about the timing between when these things start to impact ARR and we start to see the acceleration on that metric and then give us confidence on the revenue side going into Q4? John Schwab: Yes. I mean I think you'll see that start to play out here in the third quarter, again, because ARR is going to lead the revenue. And so that's going to start as adoption for the French mandates gets moving. There's more activity there. Again, we started to see activity in the second quarter. We're going to see a bit more of it now as we're getting closer and closer to the date. And as that occurs, we're going to start to see that show up in ARR. And then naturally, then that's going to turn into revenue soon thereafter. And again, it will start kind of working itself in ratably over the year because that's typically how people are buying and how they're thinking about it from an overall usage standpoint. So that's how to kind of think about it, and that's kind of the path that we have. And so we'll start to see it this quarter and then again, revenue inflects a bit more next quarter, the fourth quarter that is. Operator: Your next question will come from Brett Huff with Stephens. Brett Huff: Two questions from me. First one is a little bit of a follow-up on the e-invoicing. The original thesis, if I recall correctly, was definitely a lot of cross-sell into our big customers who should be using you all for e-invoicing, but also there was some new logo stuff that you had built in. Now that we're a little further down the pipe on that, is that all kind of coming out like you saw like new versus cross-sell, et cetera, leaving aside the adoption part. Christopher Young: We are seeing that, Brett, which is great. So both in Q2, we saw a growth in the overall number of customers at Vertex. And a lot of that growth is largely driven by the performance in the e-invoicing business. A lot of those customers come in at a smaller sort of ARR per customer number than our traditional tax determination customers. So we saw customer growth overall, which is good. And a lot of that we can attribute to what we saw in e-invoicing. But we also saw some of our -- I would say, some of our early 6-figure -- multi-6-figure cross-sell opportunities into our installed base for the e-invoicing mandate. So we saw a good mixture of both of what we want to see. Now look, from where I sit, Brett, I want to see more of those, particularly the latter example, where we're driving more multi 6-figure cross-sell opportunities into our installed base. But the activity that we saw in Q2 and what I expect to carry into Q3 in the back half of this year gives me good confidence that those 2 aspects of our thesis are happening. We're growing our overall customer base, selling to net new logos in this space, particularly in Europe. And then secondly, we are also driving cross-sell, upsell into the Vertex installed base, particularly for e-invoicing. Brett Huff: That's helpful. And one quick follow-up, again, still kind of a big picture one. Another angle on the AI question. Early on, when you and I were talking with clients, you set up the expectation that, look, this is a build year. Next year, we'll start to see some metrics or revenue or whatever. And I think that's still obviously going to happen. As we get into the fourth quarter, we're getting a little more into the brass tacks on things like that. What are the metrics that we should be looking for measurable or anecdotal to give us a sense that you're building that muscle and getting those products getting ready to go GA? Christopher Young: One, Brett, we've got -- for example, we have got our Vertex Exchange event coming up in the fourth quarter of this year. My expectation is that we'll be able to say a lot more about our product road map and strategy and even introduce some new capabilities at that -- in and around that event. So that's certainly a big milestone for us. We've got to have the product -- the way I like to think about it is like we have to have the product on the truck if we want our team to be able to sell it and bring it to customers. This is a virtual truck. It's an autonomous truck actually is the way to think about it since it's AI related. But we need our AI capabilities out there available to customers as we go into 2027. And I feel really good about the progress we're making there. As I mentioned briefly on the call, really building out a connected platform that's got a tremendous amount of AI capability with it. That's all in progress. But you said it well at the beginning, Brett, this is more of a build year with the expectation that we have those capabilities exiting the year, and we've got more for our teams to be able to sell to customers going into 2027. If we can pull in, if we can obviously go faster than our expected time lines, maybe we're starting to sell more in 2026, but we're really more focused on this being a 2027 event. Operator: Your next question will come from Joshua Reilly with Needham. Joshua Reilly: I wanted to get the latest update on the SAP, ERP, ECC transition outlook and what you're seeing in terms of capacity for these conversions in the next 2 years versus what's currently being done by consultants. And if enterprise buyers are simply buying the 2030 extended maintenance instead of making the migration right now, and did that have any impact on the lowered cloud revenue guidance? Christopher Young: Yes. So we haven't had any real change in the activity that we're seeing. We had good -- we look at our ecosystem, we had a good set of wins across the board, whether it's SAP, Oracle, Microsoft wins across the board. I would tell you we haven't seen a material shift in the velocity of migrations, but we do continue to see migrations. We continue to see them happen. I think -- I wouldn't say the velocity though has shifted. And so that's why I think you're seeing a little -- you're seeing a reasonably steady progression in our numbers as well. Like we're not seeing any material change in the way these migrations are happening one way or the other. It's just they're happening. We're continuing to move along with them. And so that kind of -- those expectations are built into how we're laying out our guidance for the quarter and for the year. Joshua Reilly: Got it. That's helpful. And then just one quick follow-up. On the NRR outlook, what are the puts and takes maybe we should be considering for the second half of the year here? You've got the e-invoicing volumes kind of kicking in as a tailwind. Is there any change that you're seeing in terms of mid-market customer churn maybe that's kind of burning off there that could also be a bit of a tailwind? Or anything else we should be considering? John Schwab: Yes. Thanks for the question, Josh. In terms of kind of the NRR componentry, again, I think you picked the real kind of tailwind, again, is some of the e-invoicing opportunities that Chris talked about and the opportunity to sell that into the existing customer base. There will certainly be something there something we can -- that we're excited about that's going to go on. There -- in terms of churn and kind of where things are, as I said earlier, I think we felt good about kind of some of the progress we've made in those accounts, whether they're middle market or even some of the larger ones from last year. I think it was the third and fourth quarter where we had some significant changes into the churn numbers that we had seen in the past. And so we feel good about the types of things we've done to improve that. And again, we feel like we're making good progress. And so perhaps there could be a little bit of upside as things play out. But again, I just -- we don't guide to it. And I would just say that we feel good about the work we've done through the first half, and we expect to continue that into the second half. So again, that will -- it will fall where it does, but we're pleased with what we've shown. Operator: Your next question will come from Rob Oliver with Baird. Robert Oliver: Chris, first one for you. The 6-figure opportunity with one of your core customers on just 2 geographies has to be pretty tantalizing when you think about the kind of global opportunity around e-invoicing. So I'm just wondering, as you've now been in the seat now for a few quarters, as you're talking to those customers, how are they thinking about e-invoicing? Are they thinking about it the way you talked about it in response to an earlier question, like we expect more consolidation. Did they want to consolidate that? Or is it still kind of viewed as maybe a fragmented market by region? And then I had a quick follow-up for John. Christopher Young: Rob, thanks for the question. In reality, the catalyst to buy is still based on mandate, right? That's still the #1 reason customers are making decisions. That being said, as the number of mandates increase and therefore, the number of countries that these customers have to cover increases, they're getting to a point where there's a lot of sprawl and complexity. And some companies, that's fine because those companies, like depending upon how a company is structured, they may actually be structured in a way where every regional or country-level finance department runs reasonably autonomously. And those are the companies that are not necessarily thinking about how do they consolidate. That being said, there's also a quite large cohort of companies that exist that operate at a global level. And so they are the ones that are starting to talk to us about, okay, how -- like even if where we've made decisions, we do want to be able to consolidate on Vertex because look, there's a lot of -- a tremendous amount of information for them. There's also a lot of risk, right? If they don't do this properly, if they've got some countries that don't work at the same level as other countries, they open themselves up for different regulatory risk to be audited, et cetera. And so there is a real driver for -- again, for some -- for a number of companies that we're talking to. And so while I don't necessarily think that we're going to have the same buying behavior driven by that as we do by the mandate where you just have to be compliant, that we are seeing that as an increasing lever in the conversations that we're having. And look, we're still early. So a lot of customers, they're saying, "Hey, look, show me you can deliver -- once we get through that, then we can start to talk about adding another country and adding another country. And look at the places where we've got customers that have already added more than one country, several of them have done that with us. They said, okay, prove it in one place. We've proved it then they add the next one. We proved that they add the next one. And then I think then it just kind of open up for us into more opportunities. So we think that thesis is strong. We think it's a good opportunity for us as we look forward. Part of our planning as we look into 2027, we're going to have to really take a step back and take that into account. This year has been more about just really focusing on getting it sold, getting it delivered, making sure we can operate well. Next year, we start to turn our attention more to how do we really scale this thing beyond what we're doing today. Robert Oliver: Great. Really helpful. Thanks, Chris. John, for you, just going back to the change in the cloud growth, obviously, pretty meaningful change. And I know in response to an earlier question, you did say that, hey, you're calling them as you see them kind of today. I guess another way to ask would be relative to the new 18% target, how should we think about kind of that -- the roll-in of the e-invoicing mandates and the impact on that? Because that's going to be all cloud. And clearly, that's going to be important to making that number in the back half of the year. So in light of sort of Chris' comment about, hey, we're trying to win those mandates. In terms of visibility, just help us get comfortable on how you were able to project some of that. John Schwab: Yes. Thanks. I appreciate the call -- the question, Rob. I think as Chris talked about, we do have visibility, the activity in the back half of the year around e-invoicing and what the mandate is going to drive. And so we factored that into kind of the activity we're seeing in the back half. Again, keeping in mind that a lot of the activity that we're going to get in Q3 and Q4 as those things are just getting up and going is not going to be at its full potential when it's fully out there and moving. Again, as Chris talked about, there's obviously the land and expand that you see. But even still as companies are just kind of coming on to the platforms and whether that's September or a little bit later, we're seeing a little bit of delays in terms of how customers are behaving towards bringing things up and getting them moving. The mandates are going to be effective, but I think there is a little bit of latitude there, but we are seeing a big press even still as we sit here in August of customers that are wanting to make sure that they're ready on time. So we're going to get less of an impact in revenue from that in the third and the fourth quarter perhaps because of the volume that's really going to kick through, and that's really more of a fourth quarter thing. So we took that into consideration when we built out the revenue forecast. That's embedded in there certainly. And again, offset by some of the headwinds that we saw around cloud conversion from our existing customers that are on-prem moving to cloud and then some of the new logo activity. Robert Oliver: Great. Thanks, John. Appreciate it, Chris. We've noticed Allison's impact already in terms of your presence and the changing in the branding and stuff like that, creating a broader attack zone for you guys. So I just wanted to call that out as well, some great hires for you guys. Operator: Your final question will come from Andrew DeGasperi with BNP Paribas. Andrew DeGasperi: I just wanted to touch on one of the comments you made earlier in the prepared remarks, Chris, in terms of the competitive displacement with an existing customer that was using a competitor. I think it was a quick-serve restaurant example. And I just wanted to maybe understand like how many of those customers do you have that are potentially using multiple solutions for tax compliance? And do you see a potential move in either direction in terms of ideally to Vertex, consolidating to Vertex on that front? And should we see more of that in the next few quarters? Christopher Young: It's hard to put a percentage on it, Andrew, because some of it is driven -- some of it happens in a dynamic way. Like M&A determines a lot of that, for example, you may have one company that's using Vertex and then they acquire another company. Now they're using Vertex plus somebody else. It could go the other direction. And that's kind of constantly changing and happening. So what I would say is there's always a persistent percentage like of our customers that have multiple solutions. Oftentimes, they have a lead solution, but they might have a business unit or a smaller group that's using a secondary solution. But I will say it's not uncommon when I'm out there talking to customers, and I have a steady cadence of these customers I'm talking to, it's not uncommon to run into customers who are Vertex customers, but they're using somebody else or they -- I'll talk to -- I just talked to a company the other day, a customer the last week, she told me, they're an advertising agency. They were merged with another relatively large one, and that's a consolidation opportunity for us, but they were using a mixture of the ERP, they were using some other third-party tools. And that's just a good example of M&A creating that opportunity for us. And that's where we're always going to see some mixture of Vertex-only shops, but other Vertex shops that have third-party tools there. And also where we ultimately end up in some of these places that happens in the reverse as well. So it's reasonably common not pervasive and usually not the desired -- it's never the desire to stay with the people I talk to. Andrew DeGasperi: Got it. And then, John, I had a question. I know in the past, we talked about entitlements in terms of how you kind of expected a certain number to ramp up over time. Just curious to know, has that changed in terms of your expectations relative to last quarter? I know you talked about deal slippage or something like that, but I'm just curious to know like within your existing customer base, are we seeing any improvement there? John Schwab: Yes. Maybe slightly, Andrew, nothing that I would call -- that was worthy enough to call out as a big driver of opportunity in the quarter. But it was -- it was something -- it's certainly something we were focused on last year. I started to see a little bit of stability in it over the last couple of quarters, and I saw the same this quarter. So I'd say it feels a little bit better than it has in the past, but I'm not -- again, not ready to kind of stand up and say we're past that. I think there's still some time to go there. But again, our customers are going to continue to build their businesses and drive their businesses and that presents opportunity for us. So we're about a year out from when we started talking about this last year. And I think time will tell here over the next couple of quarters if we start to see that change, we'll certainly call it out. Operator: There are no more questions at this time. I'd now like to turn the call back over to Joe Crivelli for closing remarks. John Schwab: This is John Schwab, but thanks, everybody, for joining us today. If you have any follow-up questions or want to schedule some additional time with the team, please reach out to Joe at [email protected]. Thanks a lot, and have a great day. Before you buy stock in Vertex, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vertex wasn’t one of them. The 10 stocks that made the cut are built for long-term growth and could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $399,832!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,374,595!* That performance is why people listen. With a track record of beating the S&P 500 by 4x, Stock Advisor offers a distinct advantage. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built for the long haul. See the 10 stocks » *Stock Advisor returns as of August 10, 2026. This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Vertex (VERX) Q2 2026 Earnings Call Transcript was originally published by The Motley Fool

Find winning stocks in any market cycle. Join 7 million investors using Simply Wall St's investing ideas for FREE. Vertex (VERX) is back in focus after reporting quarterly revenue and earnings that came in ahead of expectations. The company lifted its full year profitability guidance and highlighted ongoing e invoicing adoption and AI driven efficiency gains. See our latest analysis for Vertex. Despite the solid quarterly beat and raised profitability guidance, Vertex’s recent momentum has been weak, with the share price down 15.5% over 90 days and the 1 year total shareholder return declining 54.3%. This mix of improving operations and softer returns suggests investor sentiment is still catching up to the company’s e invoicing and AI execution story. If Vertex’s AI and automation focus has your attention, it can be useful to see how other companies are using similar themes. Take a look at the 68 profitable AI stocks that aren't just burning cash Vertex looks like a stronger operator today, yet the share price has fallen sharply over the past year. The next step is to see whether that disconnect leaves the stock looking expensive or offers value. Vertex’s most followed valuation story currently points to a fair value of $18.54 versus the last close at $12.39, with that gap resting on detailed assumptions about future growth, margins and returns. Read the complete narrative. Want to see what sits behind that margin uplift story? The narrative focuses on recurring revenue, a higher cloud mix and a future earnings profile that assumes meaningful operating leverage. Curious which specific growth and profitability paths are doing the heavy lifting in this fair value. Result: Fair Value of $18.54 (UNDERVALUED) Have a read of the narrative in full and understand what's behind the forecasts. However, the Vertex story still carries clear risks, including slower ERP cloud migrations and tougher competition that could pressure margins and delay the expected AI and e invoicing payoff. Find out about the key risks to this Vertex narrative. The mix of improving fundamentals and clear risks around Vertex might leave you on the fence. To better assess the balance of potential upsides and concerns, review the 4 key rewards and 3 important warning signs If Vertex has sharpened your interest, do not stop here. The screener can quickly surface other stocks that match the kind of opportunities you care about most. Spot potential bargains early by scanning the screener containing 18 high quality undiscovered gems before they move onto everyone else's radar. Prioritize resilience and aim to sleep easier at night by focusing on the 82 resilient stocks with low risk scores that score well on stability. Zero in on balance sheet strength and financial discipline using the solid balance sheet and fundamentals stocks screener (49 results) so you are not caught holding weaker companies if conditions change. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Companies discussed in this article include VERX. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]

This article first appeared on GuruFocus. Revenue: Total revenue was $204 million, up 10.5% year over year, at the high end of guidance. Subscription Software Revenue: Increased 10.7% year over year. Services Revenue: Increased 9.4% year over year. Annual Recurring Revenue (ARR): Up 10.5%, in line with expectations. Cloud Revenue: Up 17.9% in Q2, with year-to-date growth of 19.3%. Adjusted EBITDA: Increased 33% to $51 million, above guidance, with margin expanding to 25%. Gross Revenue Retention: Stable at 95%. Net Revenue Retention: Stable at 105% for the second consecutive quarter. Average Annual Revenue per Direct Customer: $142,997, up 9.2% year over year. Free Cash Flow: Positive $2.7 million, impacted by value creation plan costs; $13.2 million on a pro forma basis. Share Repurchases: Repurchased $26.5 million worth of shares in Q2 at an average price of $13.17. Q3 Guidance: Revenue expected between $208 million and $211 million; adjusted EBITDA between $55 million and $57 million. Full Year Guidance: Revenue narrowed to $825 million to $830 million; adjusted EBITDA increased to $206 million to $210 million. Warning! GuruFocus has detected 3 Warning Signs with VERX. Is VERX fairly valued? Test your thesis with our free DCF calculator. Release Date: August 03, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Revenue grew 10.5% year over year to $204 million, at the high end of guidance, demonstrating business durability. Adjusted EBITDA increased 33% to $51 million, with margin expanding by more than 4 percentage points to 25%, showing strong earnings leverage from cost discipline. e-Invoicing was a standout performer, with strong ARR and revenue growth materially above the corporate average, driven by upcoming French and German mandates. AI adoption is improving operational efficiency, with a 34% improvement in engineering efficiency and a 50% reduction in e-Invoicing onboarding time. Customer retention metrics remain stable, with gross revenue retention at 95% and net revenue retention at 105% for the second consecutive quarter. Won several significant enterprise deals, including a mid-six-figure e-Invoicing win and a high six-figure expansion with a consumer-packaged goods company. Cloud convergence and migration have been slower than expected, leading to a lowered full-year cloud revenue growth guidance to 18%. Expansion within the install base and new logo performance are not yet at the expected level, indicating a need for improvement in cross-sell and migration management. Sales cycles are elongating, with some deals slipping from one quarter to the next, such as a seven-figure deal that moved from June to July. AI-attributable revenue is not yet material to Vertex, and the company is still in the build phase for customer-facing AI products. Scaled customer growth decelerated quarter over quarter to 8%, reflecting some one-time deal timing issues and slower new logo acquisition. Free cash flow was impacted by costs associated with the value creation plan, including severance and consulting fees. Q: What is driving the slower-than-expected cloud revenue growth, and how should we view the updated 18% full-year cloud growth guidance?A: CFO John Schwab explained that the company anticipated a higher level of cloud conversions from both the install base and new logo activity in the first half, but this did not materialize. He characterized this as a "conversion timing issue" rather than a revenue issue, noting that it involves moving revenue from on-prem to cloud. CEO Chris Young added that customers are taking longer to migrate due to IT prioritization and broader ERP migration timelines, but emphasized these are not lost customers. The revised guidance reflects this slower conversion pace, partially offset by expected e-Invoicing revenue ramping in the back half of the year. Q: How is Vertex enabling risk-averse tax customers to adopt its new AI technologies, and what is the early adoption signal?A: CEO Chris Young detailed a "forward-deployed engineering" approach, where Vertex engineers work directly with customers to help them adapt their operational workflows around AI tools like Smart Categorization. He noted that while this approach can lengthen sales cycles, it builds stronger customer relationships. He highlighted steady month-over-month increases in engagement with Vertex Intelligence, the company's AI copilot, tracking both monthly and daily active users. The company is seeing customers pushed by their CFOs and CIOs to adopt AI, creating a strong pull for these capabilities. Q: Can you provide more detail on the e-Invoicing momentum, specifically regarding new versus cross-sell wins and the ramp-up ahead of the French and German mandates?A: Chris Young confirmed the company is seeing a healthy mix of both new logo wins and cross-sell opportunities into the install base. He highlighted a mid-six-figure win driven by mandates in just two countries (France and Finland) and noted that customer growth in Q2 was largely driven by e-Invoicing. He expects the ramp to accelerate as the French mandate takes effect in September and the German mandate approaches in early 2027. The strategy is to land with customers on one country mandate and then expand to additional countries, with larger consolidation opportunities expected in Q4 2026 and into 2027. Q: What is the company's philosophy behind maintaining the full-year revenue guidance despite beating Q2 expectations, and how should we view the risk to the plan?A: CFO John Schwab stated that while first-half performance was good, the company wanted to balance that upside with a "more measured view" of the second half. This accounts for continued variability in revenue timing, elongated deal cycles, and the slower cloud conversion trend. He clarified that the guidance is not "risk-free," as there are still many deals that need to close, but it incorporates the current pipeline and environmental factors. The company did raise its full-year adjusted EBITDA guidance, reflecting confidence in the cost discipline and value creation plan. Q: How is the integration of the Brinta acquisition progressing, and what opportunities is it unlocking in Latin America?A: Chris Young reported that the integration is going well, with the Brinta team bringing strong customer relationships and new business opportunities. He noted that while integrating companies always takes time, they are being careful to preserve what Brinta does well. The acquisition was initially made to close country-level gaps for Latin American mandates, but it has opened up a broader market opportunity in the region. The team has partnered well with other parts of Vertex, and the company is encouraged by the new business pipeline it is creating. Q: What is driving the deceleration in scaled customer growth, and should we view this as a new trend?A: Chris Young attributed the slowdown to deal timing, citing a seven-figure new logo deal that slipped from June into July. He stated that the company does not see a trend suggesting this metric will decline, expecting e-Invoicing customers to move into the scaled category as mandates ramp. He emphasized that scaled customers come from both net new logos and growth of existing customers, and the company remains focused on improving this metric in the coming quarters. Q: Are customers prioritizing other AI projects internally, which is pushing out on-prem to cloud migrations, and when might this reverse?A: Chris Young acknowledged that it's difficult to read the exact trade-offs customers are making, but noted that deals are taking longer. He expects the continued move to the cloud to persist and is using AI capabilities as a "carrot" to incentivize migrations, broadening their availability to the on-prem customer base. He also pointed to the new Chief Product and Technology Officer, Bala Chandran, who has experience bringing customers from traditional methods to cloud-based capabilities at Oracle, as a key asset in accelerating this transition. Q: What are the key metrics investors should watch to gauge progress on the AI product strategy as we approach 2027?A: Chris Young pointed to the upcoming Vertex Exchange event in Q4 2026 as a major milestone where the company will detail its product roadmap and potentially introduce new capabilities. He emphasized that the goal is to have AI products available for sale entering 2027, with 2026 being a "build year." The company is focused on developing a connected AI-first platform and expects to translate operating gains into measurable customer adoption and commercial value over time. Q: How is the SAP ECC-to-S/4HANA migration trend impacting the business, and are customers opting for extended maintenance instead of migrating?A: Chris Young stated that there has been no material change in the velocity of SAP migrations, with the company continuing to see a steady progression of wins across the SAP, Oracle, and Microsoft ecosystems. He did not indicate that customers are significantly choosing extended maintenance over migration, but rather that migrations are happening at a steady, expected pace. This stable activity is built into the company's guidance for the quarter and the year. Q: What are the puts and takes for the Net Revenue Retention (NRR) outlook in the second half of the year?A: CFO John Schwab identified e-Invoicing cross-sell opportunities into the existing customer base as the primary tailwind for NRR. He also noted that the company feels good about the progress made on reducing churn, particularly from the challenges seen in the third and fourth quarters of the previous year. While not guiding to a specific number, he suggested there could be a little upside as the company continues its strong churn management efforts through the second half. For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Management attributed the 10.5% revenue growth to the durability of the core business, though they acknowledged that expansion within the installed base and new logo performance have not yet reached internal expectations. The significant expansion in adjusted EBITDA margin to 25% was driven by a new value creation plan focused on cost discipline and sharpening organizational priorities. Cloud revenue growth of 17.9% was impacted by slower-than-expected cloud conversions, which management characterized as a timing issue rather than a loss of customers or structural demand shift. E-invoicing emerged as a high-growth segment, with momentum accelerating across Europe as customers prepare for upcoming regulatory mandates in France and Germany. Strategic leadership changes, including new heads of Product, Marketing, Operations, and People, were implemented to scale the business through its current transformation phase. AI adoption has reached 89% internally, resulting in a 34% improvement in engineering efficiency and a 50% reduction in customer onboarding time for specific e-invoicing workflows. Management emphasized that while AI is driving internal productivity, AI-attributable revenue remains immaterial as the company works to establish commercial models for customer-facing tools. The company raised its full-year adjusted EBITDA guidance to $206 million–$210 million, reflecting confidence in sustained operating leverage from the value creation plan. Full-year cloud revenue growth expectations were moderated to 18% to account for the continued elongation of customer decision cycles and ERP migration timelines. Management expects a steady progression toward high-20s adjusted EBITDA margins and a 70% free cash flow conversion rate by the end of 2027. The second half of 2026 is expected to see an inflection in e-invoicing revenue as the French mandate takes effect in September, followed by German requirements in early 2027. Strategic focus for 2027 will shift toward scaling the e-invoicing business globally and transitioning AI capabilities from internal productivity drivers to customer-facing product value. Free cash flow was impacted by one-time costs related to the value creation plan, including severance and consulting fees associated with restructuring. Management noted an elongation in sales cycles, citing a specific 7-figure new logo deal that slipped from June into July due to extended procurement processes. The integration of Brinta is focused on closing country-level gaps in Latin America, though management cautioned that full integration of different operating models takes time. A $150 million share buyback program remains active, with $93.4 million in remaining authorization as of the end of the second quarter. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management is using a 'forward-deployed engineering' model to help risk-averse tax departments rethink their operational workflows for AI adoption. While CFOs and CIOs are pushing for AI tools, the decision-making process is slowed by the need to change legacy categorization processes. The slowdown is attributed to customers prioritizing capital and resources elsewhere, often waiting for broader ERP migrations (SAP, Oracle) to trigger the move. Vertex is attempting to incentivize cloud migrations by broadening the availability of its new AI tools to its on-prem customer base, serving as a carrot to encourage future moves to the cloud. Current growth is driven by regulatory mandates, but management sees a long-term opportunity to consolidate fragmented regional solutions into a single global Vertex platform. Early success includes winning multi-country deals where customers prove the solution in one mandate (e.g., France) before expanding to others (e.g., Finland or Poland).

Interested in Vertex, Inc.? Here are five stocks we like better. 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. Tax Software Specialist Vertex In Buy Zone After Base Breakout 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. → Lost in Space: Why Aerospace Valuations Are Plummeting Right Now 3 Small Financial Software Makers Showing Strong Chart Action “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.” 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. → MarketBeat Week in Review – 07/27- 07/31 Vertex Should Benefit From a Renewed Focus on Globalization 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. → GE HealthCare Stock Climbs on Vital Diagnostics Demand 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 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. 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. 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. 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. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "Vertex Q2 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for August 2026.

Vertex (VERX) came out with quarterly earnings of $0.2 per share, beating the Zacks Consensus Estimate of $0.19 per share. This compares to earnings of $0.15 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of +5.26%. A quarter ago, it was expected that this company would post earnings of $0.16 per share when it actually produced earnings of $0.17, delivering a surprise of +6.25%. Over the last four quarters, the company has surpassed consensus EPS estimates two times. Vertex, which belongs to the Zacks Internet - Software industry, posted revenues of $203.97 million for the quarter ended June 2026, surpassing the Zacks Consensus Estimate by 0.98%. This compares to year-ago revenues of $184.56 million. The company has topped consensus revenue estimates four times over the last four quarters. The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call. Vertex shares have lost about 35.4% since the beginning of the year versus the S&P 500's gain of 9.4%. While Vertex has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock? There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately. Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions. Ahead of this earnings release, the estimate revisions trend for Vertex was mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. It will be interesting to see how estimates for the coming quarters and the current fiscal year change in the days ahead. The current consensus EPS estimate is $0.21 on $211.19 million in revenues for the coming quarter and $0.79 on $827.05 million in revenues for the current fiscal year. Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Internet - Software is currently in the bottom 44% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Arteris, Inc. (AIP), another stock in the same industry, has yet to report results for the quarter ended June 2026. The results are expected to be released on August 6. This company is expected to post quarterly loss of $0.05 per share in its upcoming report, which represents a year-over-year change of +54.6%. The consensus EPS estimate for the quarter has been revised 7.7% lower over the last 30 days to the current level. Arteris, Inc.'s revenues are expected to be $23.45 million, up 42.1% from the year-ago quarter. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Vertex, Inc. (VERX) : Free Stock Analysis Report Arteris, Inc. (AIP) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

KING OF PRUSSIA, Pa., Aug. 03, 2026 (GLOBE NEWSWIRE) -- Vertex, Inc. (NASDAQ: VERX) (“Vertex” or the “Company”), the Decision-to-Defense™ global indirect tax and compliance company, today announced financial results for its second quarter ended June 30, 2026. “Vertex delivered solid second-quarter results, with revenue at the high end of our guidance and adjusted EBITDA exceeding our expectations,” said Christopher Young, President and Chief Executive Officer. “The quarter demonstrated the durability of our business and the earnings leverage we can generate through greater operating focus and discipline. Customer retention remained stable, and e-invoicing momentum improved as enterprises prepare for expanding global mandates and seek more comprehensive compliance solutions.” “We are making tangible progress in the transformation of Vertex. Our “AI-First” strategy is beginning to improve the speed and efficiency of selected engineering and customer-delivery workflows, and we have strengthened our leadership team to accelerate product innovation, operational execution, and growth. While we have more work to do, we enter the second half with a stronger operating foundation and clear opportunities to create additional value for customers and stockholders.” Second Quarter 2026 Financial Results Total revenues of $204.0 million, up 10.5% year-over-year. Software subscription revenues of $174.8 million, up 10.7% year-over-year. Cloud revenues of $101.7 million, up 17.9% year-over-year. Annual Recurring Revenue (“ARR”) was $703.4 million, up 10.5% year-over-year. Average Annual Revenue per direct customer (“AARPC”) was $142,997 at June 30, 2026, compared to $130,934 at June 30, 2025, and $140,464 at March 31, 2026. Net Revenue Retention (“NRR”) was 105%, compared to 108% at June 30, 2025, and 105% at March 31, 2026. Gross Revenue Retention (“GRR”) was 95%, consistent with June 30, 2025 and March 31, 2026. Loss from operations of $4.4 million, compared to $3.9 million for the same period in the prior year. Non-GAAP operating income of $44.3 million, compared to $32.2 million for the same period in the prior year. Net income (loss) of $9.0 million, compared to $(1.0) million for the same period in the prior year. Net income per basic and diluted Class A and Class B shares of $0.06, compared to net loss per basic and diluted Class A and Class B shares of $0.01 for the same period in the prior year. Non-GAAP net income of $33.3 million and Non-GAAP diluted earnings per share (“EPS”) of $0.20. Adjusted EBITDA of $51.0 million, compared to $38.4 million for the same period in the prior year. Adjusted EBITDA margin of 25.0%, compared to 20.8% for the same period in the prior year. Definitions of certain key business metrics and the non-GAAP financial measures used in this press release and reconciliations of such measures to the most directly comparable GAAP financial measures are included below under the headings “Definitions of Certain Key Business Metrics” and “Use and Reconciliation of Non-GAAP Financial Measures.” Financial Outlook For the third quarter of 2026, the Company currently expects: Revenues of $208.0 million to $211.0 million; and Adjusted EBITDA of $55.0 million to $57.0 million. For the full-year 2026, the Company currently expects: Revenues of $825.0 million to $830.0 million; Cloud revenue growth of 18%; and Adjusted EBITDA of $206.0 million to $210.0 million. John Schwab, Chief Financial Officer added, “Our second quarter performance reflects solid execution against our strategic and financial objectives. The consistency of our first-half results and the strength of our operating model increased our confidence in the full year, allowing us to narrow our revenue guidance range while raising our adjusted EBITDA outlook. We continue to focus on balancing growth investments with operating discipline, which we expect to result in expanding profitability and stronger cash generation in the third and fourth quarters.” The Company is unable to reconcile forward-looking Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure, without unreasonable efforts because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact net income (loss) for these periods but would not impact Adjusted EBITDA. Such items may include stock-based compensation expense, depreciation and amortization of capitalized software costs and acquired intangible assets, severance expense, acquisition contingent consideration, changes in the fair value of acquisition contingent earn-outs, amortization of cloud computing implementation costs, severance expenses, acquisition-related retained employee compensation, transaction costs, and other items. The unavailable information could have a significant impact on the Company’s net income (loss). The foregoing forward-looking statements reflect the Company’s expectations as of today’s date. Given the number of risk factors, uncertainties and assumptions discussed below, actual results may differ materially. The Company does not intend to update its financial outlook until its next quarterly results announcement. Important disclosures in this earnings release about and reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are provided below under “Use and Reconciliation of Non-GAAP Financial Measures.” Conference Call and Webcast Information Vertex will host a conference call at 5:00 p.m. Eastern Time today, Monday, August 3, 2026, to discuss its second quarter 2026 financial results. Those wishing to participate should register in advance for the live event at https://vertex-earnings-q2-2026.open-exchange.net/registration. A live webcast of the event will also be available at the Company’s investor relations website at https://ir.vertexinc.com. An audio-only replay of the conference call will be available on the investor relations website for one year. About Vertex Vertex is the Decision-to-Defense™ global indirect tax and compliance company. Vertex helps enterprises bring control to indirect tax and compliance across the full transaction lifecycle — from tax determination and e-invoicing through reporting, filing, and audit defense — to make outcomes easier to prove and improve over time. Trusted by more than 60% of the Fortune 500, Vertex combines decades of tax expertise, deep global tax and compliance knowledge, and embedded integrations to help organizations operate globally with confidence. With headquarters in North America and offices in South America and Europe, Vertex's purpose is to ensure businesses and communities thrive through trusted transactions. For more information, visit www.vertexinc.com or follow us on X and LinkedIn. Forward-Looking Statements Any statements made in this press release that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies, and our stock repurchase program. Forward-looking statements are based on Vertex management’s beliefs, as well as assumptions made by, and information currently available to, them. Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected. Factors which may cause actual results to differ materially from current expectations include, but are not limited to: our ability to maintain and grow revenue from existing customers and new customers, and expand their usage of our solutions; our ability to maintain and expand our strategic relationships with third parties; our ability to adapt to technological change and successfully introduce new solutions or provide updates to existing solutions; risks related to failures in information technology or infrastructure; risks related to our reliance on government infrastructure to support our e-invoicing services; challenges in using and managing use of Artificial Intelligence in our business; incorrect or improper implementation, integration or use of our solutions; failure to attract and retain qualified technical and tax-content personnel; competitive pressures from other tax software and service providers and challenges of convincing businesses using native enterprise resource planning functions to switch to our software; our ability to accurately forecast our revenue and other future results of operations based on recent success; our ability to offer specific software deployment methods based on changes to customers’ and partners’ software systems; our ability to continue making significant investments in software development and equipment; our ability to sustain and expand revenues, maintain profitability, and to effectively manage our anticipated growth; our ability to successfully diversify our solutions by developing or introducing new solutions or acquiring and integrating additional businesses, products, services, or content; our ability to successfully integrate acquired businesses and to realize the anticipated benefits of such acquisitions; risks related to the fluctuations in our results of operations; risks related to our expanding international operations; our exposure to liability from errors, delays, fraud or system failures, which may not be covered by insurance; our ability to adapt to organizational changes and effectively implement strategic initiatives; risks related to our determinations of customers’ transaction tax and tax payments; risks related to changes in tax laws and regulations or their interpretation or enforcement; our ability to manage cybersecurity and data privacy risks; our involvement in material legal proceedings and audits; risks related to undetected errors, bugs or defects in our software; risks related to utilization of open-source software, business processes and information systems; our ability to effectively protect, maintain, and enhance our brand; changes in application, scope, interpretation or enforcement of laws and regulations; global economic weakness and uncertainties, including the economic uncertainty created by the changing legal, regulatory, or taxation landscape in the United States, and disruption in the capital and credit markets; business disruptions related to natural disasters, epidemic outbreaks, including a global endemic or pandemic, terrorist acts, political events, or other events outside of our control; our ability to comply with anti-corruption, anti-bribery, and similar laws; our ability to protect our intellectual property; changes in interest rates, security ratings and market perceptions of the industry in which we operate, or our ability to obtain capital on commercially reasonable terms or at all; our ability to maintain an effective system of disclosure controls and internal control over financial reporting, or ability to remediate any material weakness in our internal controls; risks related to our Class A common stock and controlled company status; risks related to our stock repurchase program; risks related to our indebtedness and adherence to the covenants under our debt instruments; our expectations regarding the effects of the Capped Call Transactions (as defined in our Form 10-K) and regarding actions of the Option Counterparties (as defined in our Form 10-K) and/or their respective affiliates; risks associated with our Value Creation Plan; and the other factors described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 (“Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2026, as may be subsequently updated by our other SEC filings. Copies of such filings may be obtained from the Company or the SEC. All forward-looking statements reflect our beliefs and assumptions only as of the date of this press release. We undertake no obligation to update forward-looking statements to reflect future events or circumstances. Definitions of Certain Key Business Metrics Annual Recurring Revenue (“ARR”) We derive the vast majority of our revenues from recurring software subscriptions. We believe ARR provides us with visibility to our projected software subscription revenues in order to evaluate the health of our business. Because we recognize subscription revenues ratably, we believe investors can use ARR to measure our expansion of existing customer revenues, new customer activity, and as an indicator of future software subscription revenues. ARR is based on monthly recurring revenues (“MRR”) from software subscriptions for the most recent month at period end, multiplied by twelve. MRR is calculated by dividing the software subscription price, inclusive of discounts, by the number of subscription covered months. MRR only includes direct customers with MRR at the end of the last month of the measurement period. AARPC represents average annual revenue per direct customer and is calculated by dividing ARR by the number of software subscription direct customers at the end of the respective period. Net Revenue Retention (“NRR”) We believe that our NRR provides insight into our ability to retain and grow revenues from our direct customers, as well as their potential long-term value to us. We also believe it demonstrates to investors our ability to expand existing customer revenues, which is one of our key growth strategies. Our NRR refers to the ARR expansion during the 12 months of a reporting period for all direct customers who were part of our customer base at the beginning of the reporting period. Our NRR calculation takes into account any revenues lost from departing direct customers or those who have downgraded or reduced usage, as well as any revenue expansion from migrations, new licenses for additional products or contractual and usage-based price changes. Gross Revenue Retention (“GRR”) We believe our GRR provides insight into and demonstrates to investors our ability to retain revenues from our existing direct customers. Our GRR refers to how much of our MRR we retain each month after reduction for the effects of revenues lost from departing direct customers or those who have downgraded or reduced usage. GRR does not take into account revenue expansion from migrations, new licenses for additional products or contractual and usage-based price changes. GRR does not include revenue reductions resulting from cancellations of customer subscriptions that are replaced by new subscriptions associated with customer migrations to a newer version of the related software solution. Customer Count The following table shows Vertex’s direct customers, as well as indirect small business customers sold and serviced through the Company’s one-to-many channel strategy. Use and Reconciliation of Non-GAAP Financial Measures In addition to our results determined in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and key business metrics described above, we have calculated non-GAAP cost of revenues, non-GAAP gross profit, non-GAAP gross margin, non-GAAP research and development expense, non-GAAP selling and marketing expense, non-GAAP general and administrative expense, non-GAAP operating income, non-GAAP net income, non-GAAP diluted EPS, Adjusted EBITDA, Adjusted EBITDA margin, free cash flow and free cash flow margin, which are each non-GAAP financial measures. We have provided tabular reconciliations of each of these non-GAAP financial measures to its most directly comparable GAAP financial measure. Management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, and to evaluate financial performance and liquidity. Our non-GAAP financial measures are presented as supplemental disclosure as we believe they provide useful information to investors and others in understanding and evaluating our results, prospects, and liquidity period-over-period without the impact of certain items that do not directly correlate to our operating performance and that may vary significantly from period to period for reasons unrelated to our operating performance, as well as comparing our financial results to those of other companies. Our definitions of these non-GAAP financial measures may differ from similarly titled measures presented by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from, the financial information prepared in accordance with GAAP, and should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on February 24, 2026 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2026, to be filed with the SEC. We calculate these non-GAAP financial measures as follows: Non-GAAP cost of revenues, software subscriptions is determined by adding back to GAAP cost of revenues, software subscriptions, the stock-based compensation expense, and depreciation and amortization of capitalized software and acquired intangible assets included in cost of subscription revenues for the respective periods. Non-GAAP cost of revenues, services is determined by adding back to GAAP cost of revenues, services, the stock-based compensation expense included in cost of revenues, services for the respective periods. Non-GAAP gross profit is determined by adding back to GAAP gross profit the stock-based compensation expense, and depreciation and amortization of capitalized software and acquired intangible assets included in cost of subscription revenues for the respective periods. Non-GAAP gross margin is determined by dividing non-GAAP gross profit by total revenues for the respective periods. Non-GAAP research and development expense is determined by adding back to GAAP research and development expense the stock-based compensation expense and transaction costs related to acquired technology included in research and development expense for the respective periods. Non-GAAP selling and marketing expense is determined by adding back to GAAP selling and marketing expense the stock-based compensation expense and the amortization of acquired intangible assets included in selling and marketing expense for the respective periods. Non-GAAP general and administrative expense is determined by adding back to GAAP general and administrative expense the stock-based compensation expense, amortization of cloud computing implementation costs, severance expense, acquisition-related retained employee compensation, and transaction costs included in general and administrative expense for the respective periods. Non-GAAP operating income is determined by adding back to GAAP loss or income from operations the stock-based compensation expense, depreciation and amortization of capitalized software and acquired intangible assets, amortization of cloud computing implementation costs, severance expense, acquisition contingent consideration, changes in the fair value of acquisition contingent earn-outs, acquisition-related retained employee compensation, and transaction costs included in GAAP loss or income from operations for the respective periods. Non-GAAP net income is determined by adding back to GAAP net income or loss income tax benefit or expense, stock-based compensation expense, depreciation and amortization of capitalized software and acquired intangible assets, amortization of cloud computing implementation costs, severance expense, acquisition contingent consideration, changes in the fair value of acquisition contingent earn-outs, acquisition-related retained employee compensation, and transaction costs included in GAAP income or loss from operations for the respective periods, to determine non-GAAP income or loss before income taxes. Non-GAAP income or loss before income taxes is then adjusted for income taxes calculated using the respective statutory tax rates for applicable jurisdictions, which for purposes of this determination were assumed to be 25.5%. Non-GAAP net income per diluted share of Class A and Class B common stock (“Non-GAAP diluted EPS”) is determined by dividing non-GAAP net income by the weighted average shares outstanding of all classes of common stock, inclusive of the impact of dilutive common stock equivalents to purchase such common stock, including stock options, restricted stock awards, restricted stock units and employee stock purchase plan shares. Additionally, the dilutive effect of shares issuable upon conversion of the senior convertible notes is included in the calculation of Non-GAAP diluted EPS by application of the if-converted method. Adjusted EBITDA is determined by adding back to GAAP net income or loss the net interest income or expense, income tax expense or benefit, depreciation and amortization of property and equipment, depreciation and amortization of capitalized software and acquired intangible assets, amortization of cloud computing implementation costs, severance expense, acquisition contingent consideration, changes in the fair value of acquisition contingent earn-outs, acquisition-related retained employee compensation, and transaction costs included in GAAP net income or loss for the respective periods. Adjusted EBITDA margin is determined by dividing Adjusted EBITDA by total revenues for the respective periods. Free cash flow is determined by adjusting net cash provided by (used in) operating activities by purchases of property and equipment and capitalized software additions for the respective periods. Free cash flow margin is determined by dividing free cash flow by total revenues for the respective periods. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view these non-GAAP financial measures in conjunction with the related GAAP financial measures. Investor Relations Contact:Joe CrivelliVertex, [email protected] Media Contact:Simone SonnierVertex, [email protected]