Summary
Vertex posted double-digit revenue growth in its fiscal 2023 first quarter but swung to a GAAP operating loss. Revenue was $132.8 million, up 15.5% from the prior-year quarter. Gross profit was $81.0 million, up 15.5%, and gross margin held at 61.0%, flat with the prior-year quarter. The operating line went negative. The company reported an operating loss of $8.9 million, compared with income from operations in the prior-year quarter, and operating margin was negative 6.7%, down from the prior-year quarter. Net loss was $18.1 million, and the loss widened from the prior-year quarter. Deferred revenue was $283.1 million, up 15.2%, which points to continued billings momentum.
Operational metrics held up. Annual recurring revenue was $446.5 million, up 17.3% year over year. Net revenue retention was 110%, consistent with March 31, 2022 and the fourth quarter of 2022. Gross revenue retention was 96%, also consistent with those periods. Vertex ended the quarter with 4,278 customers, compared with 4,242 a year earlier. Average annual revenue per direct customer increased from both the year-ago level and the fourth quarter of 2022, driven by expansion of usage by existing customers and new customer additions. Management said the quarter included several large new deals with high profile customers and that its key performance indicators all showed continued strength. The company also described its partner ecosystem, which spans ERP, CRM, procurement and e-commerce platforms, as a competitive strength.
Non-GAAP results were steadier. Non-GAAP operating income was $16.5 million, compared with $16.2 million in the prior-year quarter. Adjusted EBITDA was $20.2 million, compared with $19.1 million, while Adjusted EBITDA margin slipped to 15.2% from 16.6%. Non-GAAP net income was $12.5 million, and non-GAAP diluted EPS was $0.08. The wide gap between the GAAP loss and non-GAAP profit comes from large add-backs such as stock-based compensation, depreciation and amortization of capitalized software, and amortization of acquired intangibles. Cash generation improved. Operating cash flow was $6.8 million, up 160.3% from the prior-year quarter, while capital expenditures were $13.3 million, down 4.0%. Free cash flow was negative $10.6 million, an improvement from negative $14.2 million a year earlier. Free cash flow is a separate measure from operating cash flow because it also subtracts purchases of property and equipment and capitalized software.
Guidance points to continued growth. For the second quarter of 2023, Vertex expects revenues of $135 million to $137 million and Adjusted EBITDA of $21 million to $22 million. For the full year 2023, the company expects revenues of $550 million to $556 million, cloud revenue growth of 27%, and Adjusted EBITDA of $92 million to $96 million. The company cannot reconcile forward-looking Adjusted EBITDA to net income without unreasonable effort because it cannot predict items such as stock-based compensation, depreciation and amortization, severance and transaction costs with reasonable certainty. Those items could have a significant impact on GAAP net income. The outlook includes no GAAP net income or EPS forecast, and the company does not plan to update it until its next quarterly results announcement.
Cost discipline is the main risk to the story. Operating expenses grew faster than revenue, driven by planned investments in research and development, selling and marketing, and general and administrative functions, including information technology infrastructure and business process work. That pressure weighed on the GAAP operating result and on Adjusted EBITDA margin. The filings also flag the ability to attract new customers cost-effectively, renew and upgrade subscriptions, sustain and expand revenues, maintain profitability and manage growth, identify and integrate acquisitions, maintain strategic relationships with third parties, and the potential effects of a global endemic or pandemic. The company's 10-K risk factors, as updated by later SEC filings, describe these and other uncertainties.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $132.8M | $131.1M | +1.2% | $115.0M | +15.5% |
| Gross profit | $81.0M | $81.6M | -0.8% | $70.1M | +15.5% |
| Gross margin | 61.0% | 62.3% | -1.3 pp | 61.0% | +0.0 pp |
| Research & development | $15.9M | $11.6M | +36.9% | $9.6M | +64.7% |
| Sales & marketing | $35.7M | $35.7M | +0.2% | $27.5M | +30.2% |
| General & administrative | $34.3M | $31.1M | +10.2% | $28.8M | +19.3% |
| Total operating expenses | $89.9M | $85.0M | +5.8% | $69.7M | +29.1% |
| Operating income (loss) | -$8.9M | -$3.4M | -163.9% | $468.0K | -2007.9% |
| Operating margin | -6.7% | -2.6% | -4.2 pp | 0.4% | -7.1 pp |
| Net income (loss) | -$18.1M | -$5.3M | -241.5% | -$334.0K | -5328.7% |
| Net margin | -13.7% | -4.0% | -9.6 pp | -0.3% | -13.4 pp |
| Customers | 4,278 | 4,200 | +1.9% | — | — |
| Net retention rate | 110.0% | 110.0% | ±0.0 pp | 110.0% | ±0.0 pp |
Risks
GAAP operating income swung to a loss of $8.93 million in FY2023 Q1 from income of $0.47 million in FY2022 Q1, and net loss widened to $18.13 million from $0.33 million. Operating margin fell to -6.7% from 0.4%, down 7.1 pp.
Income tax expense increased by $8.7 million to $9.6 million for the three months ended March 31, 2023 from $0.8 million in the prior-year period, driven by state income taxes, foreign rate differences, Section 162(m) deduction limits, and a valuation allowance on certain foreign deferred tax assets.
Research and development expenses increased 64.7% to $15.9 million for the three months ended March 31, 2023 from $9.6 million in the prior-year period. MD&A notes there is no guarantee these solutions will be accepted by the market, which could result in increased costs or impairment of capitalized development costs.
Total operating expenses increased 29.1% to $89.9 million for the three months ended March 31, 2023 from $69.7 million in the prior-year period, led by selling and marketing expenses up 30.2% to $35.7 million and general and administrative expenses up 19.3% to $34.3 million. Total stock-based compensation expense increased to $11.4 million from $4.9 million, and Adjusted EBITDA margin decreased to 15.2% from 16.6%.
MD&A states that if existing cash resources and the bank Line of Credit are insufficient, the company may sell additional equity or debt securities, which could dilute stockholders, and debt financing may involve covenants restricting operations or the ability to incur additional debt.
The company had $48.6 million in bank debt outstanding at March 31, 2023 under a Term Loan, with interest accruing at a base rate plus margin (8.00% as of March 31, 2023) or SOFR plus margin (5.72% as of March 31, 2023), creating exposure to interest rate changes.
SaaS KPIs
All quarters →Adjusted EBITDA
Adjusted EBITDA Margin
Free Cash Flow Margin
Free Cash Flow
Total customers
Non-GAAP operating income
Annual Recurring Revenue (ARR)
Net Revenue Retention (NRR)
Non-GAAP Gross Margin
Average Annual Revenue per direct customer (AARPC)
Gross Revenue Retention (GRR)
Summary, forecast, risks and KPIs are extracted from Vertex, Inc.'s SEC filings for Q1 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.