Vertex, Inc. Q2 FY2025 earnings

Vertex's second quarter top line grew at a double-digit rate. Revenue rose 14.6% to $184.6 million. Gross profit increased 18.0% to $121.2 million, and gross margin was 65.7%, up 1.9 percentage points. The improvement at the gross line did not reach the bottom line. Operating income swung to a loss of $3.9 million, down 151.2%, and operating margin was negative 2.1%, down 6.8 percentage points. Net loss was $1.0 million, down 118.6%. For the six months ended June 30, 2025, revenue rose 13.8% to $361.6 million, gross profit rose 18.0% to $234.2 million, and net income rose 29.6% to $10.2 million.

Non-GAAP results show a similar split. Non-GAAP operating income was $32.2 million, compared with $33.3 million. Adjusted EBITDA was $38.4 million, compared with $38.5 million, and Adjusted EBITDA margin was 20.8%, compared with 23.9%. Non-GAAP net income was $24.9 million, and non-GAAP diluted EPS was $0.15. Free cash flow, a non-GAAP measure, was $19.6 million, compared with $36.9 million, and free cash flow margin was 10.6%, compared with 22.9%. GAAP operating cash flow was $46.0 million in the quarter, down 20.3%. For the six months, operating cash flow was $60.8 million, down 26.1%. Deferred revenue was $347.3 million, up 15.9%.

Operating metrics point to solid retention but slower expansion. Annual Recurring Revenue was $636.6 million, up 16.1%, including $10.8 million added from the ecosio acquisition. Excluding ecosio, ARR growth was 14.1%. Net Revenue Retention was 108%, compared with 110% at June 30, 2024 and 109% at March 31, 2025. Gross Revenue Retention was 95%, consistent with both June 30, 2024 and March 31, 2025. Vertex reported 4,862 direct customers, 504 indirect customers, and 5,366 total customers. Management tied the lower NRR to slower customer growth that kept accounts within existing usage bands and to delayed deal activity among large multinational customers because of the macroeconomic environment.

Vertex also invested in AI during the quarter. It completed a $15.0 million minority investment in Kintsugi AI, representing a 10% ownership interest, with an intellectual property sharing and commercial arrangement. That investment is separate from the $10.0 to $12.0 million of AI technology investments the company previously said it would spend in 2025. The company plans to use Kintsugi's intellectual property to advance those initiatives.

Guidance now reflects a tougher sales environment. For the third quarter of 2025, Vertex expects revenue of $190.0 million to $193.0 million and Adjusted EBITDA of $38.0 million to $40.0 million. For the full year 2025, it expects revenue of $750.0 million to $754.0 million, cloud revenue growth of 28%, and Adjusted EBITDA of $156.0 million to $160.0 million. The CFO said extended sales cycles and delayed customer decision-making affected the timing of new contract signings in the latter part of the second quarter. That timing issue, in turn, impacts full-year 2025 expected revenue, and the company reduced its full-year guidance. Vertex cannot reconcile forward-looking Adjusted EBITDA to net income without unreasonable effort because items such as stock-based compensation, depreciation and amortization, severance, acquisition contingent consideration, changes in earn-out fair values, and transaction costs may have a significant impact.

The quarter carried several risks. NRR slipped to 108% from 110%, and management pointed to delayed large-customer deals. The income statement also absorbed items tied to a pending legal claim, foreign currency transaction losses, and acquisition contingent earn-outs. Management says existing cash resources and its line of credit should fund operations for the next 12 months and longer-term liquidity needs. The main near-term question is whether delayed signings convert into revenue in the second half, or whether the slower sales cycle continues to weigh on the full-year outlook.