Summary
Vertex reported fiscal 2022 second quarter revenue of $119.3 million, up 13.7% from the prior-year quarter. Year-to-date revenue was $234.3 million, up 15.3% from the first six months of 2021. The top line advanced while the company maintained a subscription-heavy model. Annual Recurring Revenue was $398.1 million at June 30, 2022, up 18.4% year over year. Organic ARR growth was 18.0%, an increase from 17.2% in the first quarter. Net Revenue Retention was 110%, an increase from 106% at June 30, 2021. Gross Revenue Retention was 96%. Direct customers totaled 4,242 at June 30, 2022, consistent with March 31, 2022. Indirect customers were 266 at June 30, 2022 and 239 at March 31, 2022. Management pointed to expansion from existing customers and new customer additions.
Gross profit was $71.1 million for the quarter, up 5.3% year over year, but gross margin fell to 59.6%, down 4.7 percentage points. The decline reflected higher costs associated with supporting cloud and on-premise subscriptions, including depreciation and amortization from capitalized software and acquired intangible assets. Operating loss was $4.3 million for the quarter, down from the prior-year quarter. Operating margin was -3.6%, down 2.2 percentage points. On a year-to-date basis, gross profit was $141.3 million, up 9.6%, and operating loss was $3.8 million, down from operating income in the prior-year period. Net loss was $5.5 million for the quarter, down from net income in the prior-year quarter. Year-to-date net loss was $5.9 million, down from net income in the first six months of 2021. The GAAP picture contrasted with non-GAAP results: non-GAAP operating income was $14.6 million, compared with $16.3 million in the prior-year quarter. Adjusted EBITDA was $17.8 million, compared with $19.2 million, and Adjusted EBITDA margin was 14.9%, compared with 18.3%. The company attributed the profit pressure to investments in research and development, selling and marketing, and internal infrastructure to support future growth.
Cash generation weakened. Operating cash flow was $12.0 million for the quarter, down 59.3% year over year. For the first six months, operating cash flow was $14.6 million, down 44.9% from the prior-year period. Capital expenditures were $13.95 million for the quarter, up 44.0% year over year, and $27.8 million year to date, up 75.1%. Free cash flow, a non-GAAP measure, was -$5.0 million for the quarter, compared with $16.8 million in the prior-year quarter. Free cash flow margin turned negative for the quarter, compared with a positive margin in the prior-year quarter. The company reported deferred revenue of $255.1 million, up 14.6% from the prior-year quarter. The cash flow decline came as Vertex increased investments in property and equipment and capitalized software, while operating assets and liabilities moved unfavorably.
Management issued guidance for the third quarter of 2022 and the full year. For the third quarter, Vertex expects revenue of $121.5 million to $124.0 million, representing growth of 10% to 12% from the third quarter of 2021. It expects Adjusted EBITDA of $16.5 million to $18.5 million, a decrease of $3.4 million to $5.4 million from the third quarter of 2021. For the full year 2022, the company expects revenue of $480 million to $484 million, growth of 13% to 14% from full-year 2021. Full-year cloud revenue growth is expected to be 33%. Adjusted EBITDA is guided to $72 million to $75 million, a decrease of $3 million to $6 million from full-year 2021, reflecting continued investments in research and development, selling and marketing, and internal infrastructure. The company noted it cannot reconcile forward-looking Adjusted EBITDA to net income without unreasonable efforts.
Risks remain. Vertex faces potential effects from COVID-19, including economic uncertainty that could slow billings to new customers or pressure existing customer spending. The company says significant increases in non-renewals or concessions to renewal customers would materially affect revenue and cash flow. It also depends on attracting new customers cost effectively, renewing and upgrading existing subscriptions, sustaining revenue growth, maintaining profitability, managing growth, integrating acquisitions, and preserving strategic relationships with third parties. The tax treatment of research and experimental expenditures could increase U.S. federal and state income tax expense if capitalization requirements are not deferred or repealed. Foreign currency movements affected interest expense, and the company has debt outstanding under its credit agreement. Vertex won the 2021 Oracle Change Agent Award and was named a finalist for the 2022 SAP Pinnacle Award, but the investment cycle continues to weigh on margins and cash flow.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $119.3M | $115.0M | +3.7% | $104.9M | +13.7% |
| Gross profit | $71.1M | $70.1M | +1.5% | $67.6M | +5.3% |
| Gross margin | 59.6% | 61.0% | -1.3 pp | 64.4% | -4.7 pp |
| Research & development | $10.3M | $9.6M | +7.0% | $11.9M | -13.6% |
| Sales & marketing | $32.0M | $27.5M | +16.5% | $24.9M | +28.6% |
| General & administrative | $30.1M | $28.8M | +4.6% | $24.9M | +21.0% |
| Total operating expenses | $75.4M | $69.7M | +8.3% | $69.0M | +9.3% |
| Operating income (loss) | -$4.3M | $468.0K | -1017.9% | -$1.5M | -194.7% |
| Operating margin | -3.6% | 0.4% | -4.0 pp | -1.4% | -2.2 pp |
| Net income (loss) | -$5.5M | -$334.0K | -1552.7% | $808.0K | -783.2% |
| Net margin | -4.6% | -0.3% | -4.3 pp | 0.8% | -5.4 pp |
| Net retention rate | 110.0% | 110.0% | ±0.0 pp | 106.0% | +4.0 pp |
Risks
Gross margin declined to 59.6% in FY2022 Q2 from 64.4% in FY2021 Q2, down 4.7 pp, as cost of software subscriptions revenue rose 35.0% to $36.2 million, including a $6.4 million increase in depreciation and amortization from internal-use software and acquired intangibles. This pressures profitability even as revenue grew 13.7%.
Operating loss widened to $4.3 million in FY2022 Q2 from $1.5 million in FY2021 Q2, and net income swung to a $5.5 million loss from $0.8 million income. Year to date, operating income swung to a $3.8 million loss from $0.7 million income and net income swung to a $5.9 million loss from $3.1 million income.
Operating cash flow declined 59.3% to $12.0 million in FY2022 Q2 and 44.9% to $14.6 million year to date, while free cash flow fell to negative $5.0 million for the quarter and negative $19.2 million year to date. The decline was driven by lower operating cash and higher property and equipment additions, which rose 44.0% in the quarter and 75.1% year to date.
MD&A notes COVID-19 uncertainty could impact billings to new customers and existing customers' budgets, and significant increases in non-renewals or concessions to renewal customers would materially affect revenues and cash flows.
The Tax Cuts and Jobs Act capitalization requirement for research and experimental expenditures effective after December 31, 2021, if not deferred or repealed, is expected to increase current U.S. federal and state income tax expense.
Amortization of acquired intangible assets increased, including $6.4 million in cost of software subscriptions and $1.9 million in selling and marketing in FY2022 Q2, and acquisition contingent consideration added $0.7 million year to date. Integration and related charges can weigh on margins.
MD&A states continued significant R&D capitalization for cloud and connector solutions may not be accepted by the market, which could result in increased costs or an impairment of capitalized development costs with no future revenue benefit.
The Second Amendment increased the credit facility to $250.0 million and added a $50.0 million term loan with variable rates; $49.5 million was outstanding at June 30, 2022. Higher rates or additional borrowings could increase interest expense.
Interest expense in FY2022 Q2 increased $1.1 million to $0.7 million net expense, including a $0.8 million increase from a decrease in valuation of foreign currency forward contracts tied to the Systax future purchase commitment liability.
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
Direct customers
Average Annual Revenue per direct customer (AARPC)
Gross Revenue Retention (GRR)
Indirect Customers
Cloud revenues
Summary, forecast, risks and KPIs are extracted from Vertex, Inc.'s SEC filings for Q2 FY2022 (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.