0001104659-26-019165
SEC filingVertex delivered solid revenue growth of 12.2% to $748.4M, with improved profitability as net income turned positive, despite lower retention rates and increased investments.
Vertex describes itself as a leading provider of enterprise compliance technology for global commerce. The company's software, data, and services help businesses automate and govern transaction-based compliance obligations, particularly indirect taxes such as sales tax, use tax, and value-added tax (VAT). Vertex has pioneered tax and compliance technology for more than 45 years and serves over 4,800 direct customers, including the majority of the Fortune 500, supporting compliance operations in more than 195 countries and territories.
Vertex organizes its solutions into four categories: Tax Determination Solutions, Compliance and Reporting Solutions, Audit and Planning Solutions, and Services Solutions. Tax Determination Solutions include real-time tax calculation, Vertex AI, pre-built integrations, industry-specific solutions, technology-specific tools like Chain Flow Accelerator, and document management. Compliance and Reporting Solutions cover returns and filings automation and e-invoicing. Audit and Planning Solutions provide tax data management and analytics tools. Services Solutions include implementation services and managed services for indirect tax returns outsourcing.
Key products and platforms include Vertex Cloud, a cloud-native platform for end-to-end tax workflow orchestration; Vertex AI, which embeds intelligence across the compliance lifecycle; Smart Categorization, an AI-powered solution for mapping product SKUs to tax categories; Chain Flow Accelerator for SAP environments; and a global e-invoicing solution operating in 38 countries. The company also offers pre-built integrations with major business applications such as Adobe/Magento, Coupa, Microsoft Dynamics, NetSuite, Oracle, Salesforce, SAP, SAP Ariba, Shopify, Workday, and Zuora.
Vertex licenses its software primarily through direct and indirect sales organizations, focusing on enterprise and mid-market businesses. The direct sales team is supported by technology partners (Oracle, SAP, Microsoft, Salesforce) and professional services firms (Deloitte, PwC, Ernst and Young, KPMG). Indirect sales include value-added resellers, service providers, and original equipment manufacturer relationships. Vertex's customer base includes the majority of the Fortune 500, 9 of the top 10 e-commerce sites in the U.S., and many of Europe's largest companies. No single customer represented more than 10% of total revenue for the years ended December 31, 2025 or 2024.
The industry is highly competitive and fragmented. Competitors include in-house practices using spreadsheets, native ERP capabilities with rudimentary tax determination, outsourced transaction tax compliance services from accounting and consulting firms, and tax-specific solutions from other vendors. Customers consider factors such as minimizing compliance risk, regulatory complexity, real-time tax determinations, ease of deployment and integration, ability to address multiple tax compliance functions, lower total cost of ownership, and continuously updated tax content.
Vertex's growth strategies include: retention and expansion of revenues from existing customers through new products and geographic coverage; acquiring new customers by targeting the large and underpenetrated market; broadening and deepening the partner ecosystem, including partnerships with emerging participants like Kintsugi; extending global footprint, particularly in Latin America and Europe; and sustained investment in new product innovation through an innovation lab and customer-driven roadmaps.
As of December 31, 2025, Vertex had over 2,100 full-time employees. Of these, 73% were based in the U.S., 17% in Europe, and 10% in other countries. Vertex received recognition in 2025 as a "Best Place to Work" from Built In and supports employee participation in Employee Resource Groups, community service, and philanthropy.
For the year ended December 31, 2025, Vertex reported total revenues of $748.4 million, a 12.2% increase from $666.8 million in 2024. The growth was primarily driven by software subscriptions, which rose 12.8% to $639.7 million, reflecting strong expansion from existing customers through cross-selling and price increases, along with contributions from new customers. Services revenue grew 9.2% to $108.8 million, supported by higher recurring managed services volumes and implementation services tied to subscription growth.
Gross profit increased 13.0% to $481.6 million, with gross margin expanding slightly to 64.3% from 63.9%, as software subscription cost growth (7.0%) lagged revenue growth. Operating income improved sharply from a loss of $2.2 million to a gain of $2.3 million, helped by a $17.0 million gain from the change in fair value of acquisition contingent earn-outs (ecosio). Excluding non-recurring items, non-GAAP operating income grew 4.4% to $136.7 million. Net income turned positive at $7.2 million compared to a net loss of $52.7 million in the prior year, largely due to the earn-out gain and a dramatic reduction in income tax expense ($0.4 million vs. $54.6 million) as the company maintained a valuation allowance against U.S. deferred tax assets.
Software subscriptions remain the dominant segment, contributing 85.5% of total revenue in 2025 (up from 85.1%). Cloud-based subscriptions now represent 55% of software subscription revenue, up from 49% in 2024, reflecting a continued shift to cloud deployments. Annual Recurring Revenue (ARR) reached $671.0 million, up 11.3%, with $31.8 million from existing customer expansion and $36.1 million from new customers. Customer count slightly decreased to 4,867 from 4,915, while Average Annual Revenue Per Customer (AARPC) rose to $137,867 from $122,706, indicating higher spend per account. Net Revenue Retention (NRR) declined to 105% from 109%, and Gross Revenue Retention (GRR) slipped to 94% from 95%, due to slower customer usage growth and slightly higher attrition among smaller accounts.
Services revenue grew 9.2%, with recurring services (managed tax returns) up significantly due to regulatory changes and customer business expansion. The segment's cost of revenue grew faster (21.4% vs. 9.2% revenue growth), compressing services gross margin.
Management highlights several strategic priorities: investing in innovation (AI-based Smart Categorization, new products), expanding the partner ecosystem (including the Kintsugi minority investment), and continuing the migration of customers to cloud solutions. The company expects cost pressures from infrastructure and headcount investments to persist, with operating expenses anticipated to increase in absolute dollars. No specific quantitative guidance for future periods is provided in this MD&A section. Key metrics to monitor include NRR trends, cloud mix, and free cash flow generation, as capex is expected to remain elevated to support product development and internal initiatives.
As of December 31, 2025, Vertex held $314.0 million in cash and cash equivalents, up from $296.1 million at year-end 2024. Funds held for customers were $24.3 million. Total assets were $1.27 billion, with stockholders' equity of $258.9 million. The company had no marketable securities as of December 31, 2025, having fully liquidated its available-for-sale portfolio during the year. A long-term investment of $15.0 million in Kintsugi AI, Inc. was recorded.
Total purchase commitment and contingent consideration liabilities were $105.5 million, comprising $25.9 million current and $79.6 million non-current. These relate entirely to the ecosio acquisition earn-outs: Cash Earn-outs at $86.6 million and Stock Earn-outs at $18.9 million, measured at fair value using a Monte Carlo simulation. The Tellutax contingent consideration was fully settled during 2024. Deferred revenue totaled $388.0 million, with $382.8 million expected to be recognized within one year.
During 2025, Vertex repurchased 504 thousand shares of Class A common stock for $10.1 million. No dividends were paid. Capital expenditures were $96.2 million, representing 12.9% of total revenues. Debt, net of current portion, was $337.5 million, essentially unchanged from $335.2 million at year-end 2024. The company's convertible senior notes had a fair value of $327.0 million at December 31, 2025. No new debt was issued or repaid during the year.
The company operates as a single operating segment. No segment-level financial information is disclosed in the Notes to Financial Statements. Revenue is disaggregated into software subscriptions ($639.7 million) and services ($108.8 million) for the year ended December 31, 2025. No single customer accounted for more than 10% of revenues.
Vertex's risk factors are dominated by its dependence on customer retention and expansion in a competitive market. The company faces intense competition from other tax software vendors, ERP-native functions, and accounting firms, which could pressure pricing and market share. Additionally, the recent success may not be indicative of future performance due to an inability to accurately forecast customer usage and retention.
Technological change presents both opportunities and risks. Vertex has launched a generative AI product and plans further AI investments, but faces significant costs and potential inaccuracies or biases that could lead to liability. The expansion into e-invoicing, especially under mandatory clearance models, increases dependency on government infrastructure; any downtime could stall customer supply chains. Cybersecurity remains a top concern, with AI-enabled attacks and reliance on third-party providers creating exposure to data breaches.
Tax law changes are a critical risk. The U.S. Supreme Court's Wayfair decision and the upcoming EU ViDA package (2028) may require substantial software modifications and could alter the role of third-party compliance providers. Regulatory compliance risks also extend to money transmission laws, data privacy regulations (e.g., GDPR), and anti-corruption laws, which could impose significant costs and operational changes.
Vertex carries $345M in convertible notes and has a $150M share repurchase program. High indebtedness could limit cash flow for operations and strategic investments, while the repurchase program may increase stock price volatility and reduce liquidity. The capped call transactions related to the notes could also affect stock price dynamics.
Vertex's operating cash flow (CFO) of $219.6M in 2025 comfortably exceeded net income (not explicitly stated but implied by retained earnings improvement), indicating strong cash generation from core operations. CFO grew 12.4% year-over-year from $195.3M in 2024, outpacing revenue growth of 12.2% (from $666.8M to $748.4M). Capital expenditures (capex) of $67.9M represented 9.1% of revenue, up from 8.3% in 2024, reflecting continued investment in property, equipment, and capitalized software. Free cash flow (CFO minus capex) was approximately $151.7M, providing ample coverage for the company's minimal financing outflows (primarily $10.0M in treasury stock repurchases). No dividends were paid. Working capital changes were modest, with deferred revenue growth of $43.5M contributing positively to CFO. The company's cash and equivalents increased by $18.0M to $314.0M, supported by strong operational cash flows and disciplined capital allocation.