Vertex Q2 Earnings Call Highlights

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. “Our second quarter results demonstrate two key points,” Young said. “First, the durability of the Vertex business. Second, we are beginning to translate greater operating focus and cost discipline into meaningful earnings leverage.” Retention Remains Stable, While Expansion Needs Improvement Vertex reported gross revenue retention of 95% and net revenue retention of 105% for the second consecutive quarter. Young said those results reflect a durable installed base and the company’s position in mission-critical tax and compliance workflows. However, he also acknowledged that expansion within the installed base and new-logo performance “are not yet at the level we expect.” Cloud conversions have moved more slowly than anticipated this year, affecting the company’s growth outlook for cloud revenue. Chief Financial Officer John Schwab said the slower cloud-conversion pace is primarily a timing issue rather than a loss of revenue or customers. Customers are continuing to use Vertex products in subscription or on-premise deployments, but are taking longer to move workloads to the cloud. Young said customers are increasingly operating in mixed environments, with some Vertex products deployed in the cloud and others remaining in legacy systems. He said customer IT priorities, ERP migration timing and internal planning cycles have affected the pace of those conversions. E-Invoicing Activity Builds Ahead of European Mandates E-invoicing was among Vertex’s strongest areas of execution during the quarter, management said. Demand has been supported by approaching mandates in France and Germany, as well as broader customer interest in managing global compliance requirements. Young said the company recorded several six-figure enterprise e-invoicing wins during the quarter, including a mid-six-figure expansion with an existing customer related to compliance requirements in France and Finland. Vertex is aligning its country roadmap with customer demand and integrating capabilities across Vertex, Ecosio and Brinta. Management expects e-invoicing activity to contribute to cloud growth as customers prepare for mandates. Schwab said e-invoicing adoption should begin to affect annual recurring revenue in the...