Vertex, Inc. Q1 FY2026 earnings

Vertex entered fiscal 2026 with double-digit top-line growth but a swing to GAAP losses. Revenue for the first quarter ended March 31, 2026, was $196.6 million, up 11.1% from the prior-year quarter. Gross profit rose 10.5% to $124.9 million, while gross margin slipped 0.3 percentage points to 63.5%. The operating line moved sharply the other way. Operating income swung to a loss of $10.6 million from income of $4.5 million a year earlier, and operating margin fell 7.9 percentage points to negative 5.4%. Net income swung to a loss of $2.5 million from net income in the prior-year quarter. Operating expenses grew faster than revenue, and the swing included severance and transaction costs tied to the Value Creation Plan.

The non-GAAP view was stronger. Adjusted EBITDA was $44.1 million, up from $37.2 million, and Adjusted EBITDA margin improved to 22.4% from 21.0%. Non-GAAP operating income was $37.6 million, compared with $31.3 million. Non-GAAP net income was $28.7 million, and non-GAAP diluted EPS was $0.17. Cash generation also improved. Operating cash flow was $38.0 million, up 156.5% from $14.8 million. Free cash flow was $7.7 million, compared with negative $12.3 million a year earlier. Capital expenditures were $22.0 million. Deferred revenue was $398.4 million, up 12.3% from the prior-year quarter.

Operating metrics showed stable retention but slower expansion. Annual Recurring Revenue was $687.6 million, up 11.2% year over year. Net Revenue Retention was 105%, down from 109% a year earlier, while Gross Revenue Retention was 95%, flat with the prior-year period. Direct customers totaled 4,895, up from 4,888, and indirect small business customers rose to 530 from 481. Total customers were 5,425, compared with 5,369 at March 31, 2025.

Guidance points to sequential growth and higher profitability. For the second quarter of 2026, Vertex expects revenues of $200.0 million to $204.0 million and Adjusted EBITDA of $47.0 million to $50.0 million. For the full-year 2026, the company expects revenues of $823.5 million to $831.5 million, cloud revenue growth of 25 percent, and Adjusted EBITDA of $202.0 million to $208.0 million. Management tied the profit outlook to the Value Creation Plan announced in April, which includes a reduction in force of approximately 170 employees. The plan is expected to improve Adjusted EBITDA by $14.0 million to $16.0 million during fiscal 2026 and generate fully annualized cash savings of approximately $60.0 million to $70.0 million per year beginning in fiscal 2027.

Risks remain around execution and demand. Management described a mixed macro environment and said delayed deal activity among some large multinational customers weighed on Net Revenue Retention, which fell to 105% from 109%. The company also completed the acquisition of Brinta, a Latin American e-invoicing provider, for $22.0 million, net of $0.04 million of cash acquired. Integrating that business and executing the Value Creation Plan carry operational risk. Vertex also faces pending litigation tied to claims against a competitor, regulatory and government infrastructure dependence for e-invoicing services, and risks from using and managing artificial intelligence in its business. The company repurchased 1,370,948 shares of Class A common stock for $20.0 million during the quarter and had $119.9 million remaining under its authorization. It also carries convertible notes due in 2029 and a revolving credit facility, so debt service and integration costs remain part of the risk profile. Other named risks include failures in information technology or infrastructure, competitive pressures from other tax software providers, and the ability to integrate acquired businesses.