0001104659-26-057207
SEC filingRevenue growth of 11.1% driven by software subscriptions, but GAAP net loss due to restructuring charges; non-GAAP profitability improved.
For the three months ended March 31, 2026, Vertex reported total revenue of $196.6 million, an 11.1% increase compared to $177.1 million in the prior year period. Software subscriptions revenue grew 10.9% to $167.1 million, driven by cross-selling, expanded usage, and price increases. Services revenue increased 12.2% to $29.5 million, supported by growth in managed services and implementation projects. Gross profit rose 10.5% to $124.9 million, while gross margin slightly contracted by 30 basis points to 63.5% due to higher depreciation and amortization costs in cost of subscriptions. Operating income swung to a loss of $10.6 million from profit of $4.5 million, primarily due to a $7.4 million in severance and restructuring charges associated with the Value Creation Plan and a $2.6 million execution costs. Net loss was $2.5 million compared to net income of $11.1 million. Adjusted EBITDA, a key non-GAAP metric, increased 18.4% to $44.1 million, with margin expanding from 21.0% to 22.4%, reflecting operating leverage from prior investments.
Software subscriptions remained the dominant segment at 85% of total revenue. Cloud-based subscriptions represented 58% of subscription revenue, up from 53% a year ago, indicating ongoing migration to the cloud. New customers contributed 6.0% of subscription revenue, down from 8.1%, suggesting a greater reliance on existing customer expansion. Services segment grew faster at 12.2%, driven by recurring managed services from regulatory changes and customer growth.
Management announced a Value Creation Plan to enhance efficiency and focus on AI-enabled growth. The plan includes a workforce reduction of approximately 170 employees and is expected to yield $14 million to $16 million in Adjusted EBITDA improvement in fiscal year 2026, with fully annualized cash savings of $60 million to $70 million per year starting in fiscal 2027. The company maintains ample liquidity with $252.5 million in cash and no borrowings under its $300 million credit facility. Net revenue retention rate softened to 105% from 109%, indicating slower expansion from existing customers, while gross retention remained stable at 95%.
As of March 31, 2026, Vertex held $252.5M in cash and cash equivalents, down from $314.0M at December 31, 2025. Total assets stood at $1.21B. The company's primary debt is $345.0M aggregate principal of 0.750% Convertible Senior Notes due 2029, with a net carrying amount of $338.0M after discounts and deferred financing costs. The fair value of the Notes was $299.6M at quarter-end. Stockholders' equity was $246.5M, including an accumulated deficit of $48.6M and accumulated other comprehensive loss of $7.8M. Deferred revenue totaled $398.4M ($393.1M current, $5.3M non-current).
The Notes detail significant contingent consideration liabilities from the ecosio acquisition: Cash Earn-outs of $66.7M and Stock Earn-outs of $7.4M, both classified as Level 3 fair value measurements. These are recorded as purchase commitment and contingent consideration liabilities, with $32.8M current and $41.3M non-current. The earn-outs are based on ecosio's achievement of monthly software revenue targets over a three-year period. During Q1 2026, the company paid $19.6M in cash and issued 324 shares valued at $6.1M for the Year 1 earn-out period ended November 30, 2025. Additionally, the company has a $300M revolving credit facility with no outstanding borrowings.
On October 30, 2025, the Board authorized a $150M stock repurchase program. During Q1 2026, Vertex repurchased 1.371M shares at an average price of $14.59, totaling $20.0M (excluding excise tax and commissions). No dividends were declared. Capital expenditures (property and equipment additions) were $24.7M, representing 12.6% of sales. The company also invested $5.7M in capitalized software additions. Debt remained stable with $0.6M in net change from amortization of deferred financing costs.
Vertex operates as a single operating segment. The CODM, the CEO, reviews financial information at the consolidated level, using net income (loss) and Adjusted EBITDA as performance metrics. For Q1 2026, total revenues were $196.6M, with approximately 11% generated from customers outside the U.S. No single customer represented more than 10% of total revenues. The company provides disaggregated revenue by major source: software subscriptions ($167.1M, comprising $70.4M licenses and $96.8M cloud subscriptions) and services ($29.5M).
Net cash from operations for the three months ended March 31, 2026 was $37,975K, a substantial improvement from $14,805K in the prior-year period, driven largely by favorable changes in working capital—notably a $23,396K decrease in accounts receivable and a $11,247K increase in deferred revenue. Net income was a loss of $2,510K in the current quarter versus income of $11,130K a year ago, indicating strong non-cash add-backs (depreciation, stock compensation, and fair value adjustments) and working capital management drove cash generation.
Capital spending remained elevated: property and equipment additions of $24,660K and capitalized software additions of $5,656K totaled $30,316K (vs. $27,055K in Q1 2025), representing an 80% cash capex-to-CFO ratio.
The company returned $20,041K to shareholders via share repurchases and paid $19,600K for an acquisition-related contingent earnout. No dividends were paid. Net cash used in financing activities was $53,328K, largely offset by operating cash flow, resulting in a net cash decrease of $68,142K for the period.
A large negative swing in accrued and deferred compensation ($10,562K use) and a $7,341K decrease in accrued expenses tempered CFO. The change in fair value of contingent consideration recovered $5,738K, providing a non-cash benefit. The investing outflows include $21,968K for business acquisitions, net of cash acquired.