Summary
Vertex reported second quarter 2024 revenue of $161.1 million, up 15.3% from the prior-year quarter. Gross profit was $102.7 million, up 19.7%, and gross margin improved to 63.7%, a rise of 2.3 percentage points. Operating income was $7.5 million, a swing to profit from a prior-year loss, and operating margin was 4.7%, up 7.6 percentage points. Net income was $5.2 million, also a swing to profit from a prior-year loss. Adjusted EBITDA reached $38.5 million, up from $22.0 million, and the Adjusted EBITDA margin expanded to 23.9% from 15.7%. Free cash flow was $36.9 million, up from negative $21.2 million. Operating cash flow was $57.7 million for the quarter, up from a negative figure a year earlier. Deferred revenue ended the quarter at $299.7 million, up 8.2%.
Annual recurring revenue was $548.4 million at June 30, 2024, up 17.3% year over year. That figure included $6.1 million from the Systax acquisition. Excluding Systax, ARR growth would have been 16.0%. The increase was driven by $48.6 million of growth from existing customers through expanded use and price increases, and $26.0 million from new customers. Direct customers totaled 4,438, compared with 4,284 a year earlier and 4,309 at March 31, 2024. Systax added 150 customers during the quarter. Indirect customers totaled 460, compared with 329 a year earlier and 433 at March 31, 2024. Net revenue retention was 110%, down from 111% a year earlier and 112% in the prior quarter. Gross revenue retention was 95%, compared with 96% a year earlier and 95% in the prior quarter.
For the six months ended June 30, 2024, revenue was $317.9 million, up 16.7% from the prior-year period. Gross profit was $198.5 million, up 19.0%. Gross margin was 62.4%, up 1.2 percentage points. Operating income was $5.98 million, a swing to profit from a prior-year loss, and operating margin was 1.9%, up 6.7 percentage points. Net income was $7.85 million, also a swing to profit from a prior-year loss. Operating cash flow for the six months was $82.3 million, up sharply from the prior-year period. Non-GAAP operating income was $33.3 million, up from $18.1 million. Non-GAAP net income was $25.0 million, and non-GAAP diluted earnings per share was $0.15. Non-GAAP gross profit was $118.8 million, and non-GAAP gross margin was 73.7%. Non-GAAP general and administrative expense was $30.6 million, down from $33.3 million.
The company completed a $345 million convertible debt offering during the quarter and repaid its outstanding term loan balance of $46.3 million. It acquired tax-specific AI technology for approximately $6.1 million and paid $9.6 million to acquire the remaining 20% equity interest in Systax. After quarter end, Vertex announced an agreement to acquire ecosio, with an upfront cash payment of $69.0 million, a targeted cash earn-out of $76.0 million, and a stock earn-out of up to $35.0 million. The company had no outstanding borrowings under its $200 million Line of Credit at June 30, 2024.
For the third quarter of 2024, management guided to Adjusted EBITDA of $33 million to $35 million. For the full year 2024, the company expects cloud revenue growth of 28% and Adjusted EBITDA of $139 million to $145 million. Management narrowed its full-year revenue guidance to the upper end of the range and significantly increased its full-year Adjusted EBITDA guidance. Risks include the ability to maintain and grow revenue, adapt to technological change, manage AI use, competitive pressures, global economic weakness, changes in tax laws, cybersecurity and data privacy risks, and indebtedness covenants.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $161.1M | $156.8M | +2.8% | $139.7M | +15.3% |
| Gross profit | $102.7M | $95.8M | +7.2% | $85.8M | +19.7% |
| Gross margin | 63.7% | 61.1% | +2.6 pp | 61.4% | +2.3 pp |
| Research & development | $14.6M | $16.8M | -13.2% | $12.7M | +15.3% |
| Sales & marketing | $40.5M | $40.5M | +0.1% | $33.5M | +20.9% |
| General & administrative | $35.9M | $35.5M | +0.9% | $39.4M | -8.9% |
| Total operating expenses | $95.1M | $97.4M | -2.3% | $89.9M | +5.8% |
| Operating income (loss) | $7.5M | -$1.6M | +582.1% | -$4.1M | +285.3% |
| Operating margin | 4.7% | -1.0% | +5.7 pp | -2.9% | +7.6 pp |
| Net income (loss) | $5.2M | $2.7M | +92.4% | -$6.9M | +174.9% |
| Net margin | 3.2% | 1.7% | +1.5 pp | -4.9% | +8.2 pp |
| Customers | 150 | — | — | 4,284 | -96.5% |
| Net retention rate | 110.0% | 112.0% | -2.0 pp | 111.0% | -1.0 pp |
Risks
Vertex announced a definitive agreement to acquire ecosio GmbH for an upfront cash payment of $69.0 million, plus a targeted cash earn-out of $76.0 million and a stock earn-out of up to $35.0 million, pending Austrian regulatory approvals. The company also completed the Ryan AI asset acquisition for approximately $6.1 million and acquired the remaining 20% of Systax for $9.6 million, increasing integration and execution risk.
In April 2024, Vertex issued $345.0 million of 0.750% convertible senior notes due 2029 and used $42.4 million of net proceeds for capped call transactions. The notes may be settled in cash, stock, or a combination, creating potential dilution, and interest expense (income), net increased to $0.5 million for the six months ended June 30, 2024 from income of $0.5 million in the prior-year period.
Net Revenue Retention Rate declined to 110% as of June 30, 2024 from 111% as of June 30, 2023, and Gross Revenue Retention Rate declined to 95% from 96% over the same periods. A continued decline could pressure future revenue growth.
Software subscriptions revenues derived from new customers averaged 5.8% of total software subscriptions revenues for the three months ended June 30, 2024, compared to 6.3% for the prior-year quarter, and 5.7% for the six months ended June 30, 2024, compared to 6.5% in the prior-year period. This declining contribution from new customers may limit growth if existing-customer expansion slows.
Vertex acquired tax-specific AI capabilities from Ryan, LLC for approximately $6.1 million to accelerate AI innovation in tax mapping. The market for tax software is characterized by rapid technological change, and there is no guarantee these AI solutions will be accepted, which could result in increased costs or impairment of capitalized development costs with no future revenue benefit.
SaaS KPIs
All quarters →Adjusted EBITDA
Adjusted EBITDA Margin
Free Cash Flow Margin
Free Cash Flow
Total customers
Non-GAAP operating income
Net Revenue Retention (NRR)
Non-GAAP Gross Margin
Direct customers
Average Annual Revenue per direct customer (AARPC)
Gross Revenue Retention (GRR)
Indirect Customers
ARR
Summary, forecast, risks and KPIs are extracted from Vertex, Inc.'s SEC filings for Q2 FY2024 (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.