Summary
Vertex reported third quarter revenue of $145.0 million for the period ended September 30, 2023, up 14.9% from the prior-year quarter. Software subscription revenue of $121.3 million rose 14.0%, and cloud revenue of $54.6 million climbed 24.8%. Services revenue added $23.7 million. Year-to-date revenue reached $417.5 million, up 15.8% from the first nine months of 2022. Annual recurring revenue was $484.9 million, up 17.8%, and the direct customer count grew to 4,303 from 4,230. Indirect small business customers reached 373, up from 268. Cloud subscriptions provided 45% of software subscription revenue in the quarter, against 41% a year earlier.
Growth came with a wider loss. Gross profit rose 16.6% to $88.2 million, and the gross margin of 60.8% expanded 0.9 percentage points. Yet the operating loss widened to $2.0 million from $0.9 million a year earlier, and the operating margin slipped to -1.4% from -0.7%. The net loss widened to $3.4 million from $1.1 million. The nine-month net loss reached $28.4 million compared with $7.0 million in the prior-year period. Research and development expense rose 62.0%, while general and administrative and selling and marketing costs grew as well. Those increases, plus a shift in income tax expense, more than offset the revenue gain.
Non-GAAP results held up better. Non-GAAP operating income was $22.8 million against $17.8 million, and Adjusted EBITDA was $26.6 million versus $20.7 million. The Adjusted EBITDA margin improved to 18.4% from 16.4%, and non-GAAP diluted EPS was $0.10, up from $0.08. Operating cash flow was $27.6 million in the quarter, up 83.8%, while the nine-month total of $26.7 million rose 13.1%. Capital expenditures of $13.5 million were 15.3% higher, and capitalized software additions also increased. Free cash flow was $9.1 million against negative $1.1 million a year earlier, though nine-month free cash flow was negative $22.7 million. Deferred revenue finished the quarter at $266.8 million, up 5.2%.
Management guided to fourth quarter 2023 revenue of $145 million to $147 million and Adjusted EBITDA of $27.5 million to $29.5 million. For the full year 2023, the company expects revenue of $562.5 million to $564.5 million, cloud revenue growth of 25%, and Adjusted EBITDA of $96.3 million to $98.3 million. Vertex said it raised its full-year outlook for both revenue and Adjusted EBITDA, citing year-to-date results.
Retention stayed solid. Net revenue retention was 111%, up from 109% at September 30, 2022, and gross revenue retention was 96%, unchanged from a year earlier and from the second quarter of 2023. Average annual revenue per direct customer rose on expansion of usage by existing customers and the addition of new customers. Subscription revenue from new customers averaged 6.5% of total software subscription revenue, down from 7.5% a year earlier, so expansion within the existing base carried most of the growth.
The main risks sit on the cost side. Spending on research and development, cloud infrastructure, ERP modernization, and partner programs is running ahead of the revenue it supports, and the widening net loss shows operating leverage has not yet arrived. The company also depends on attracting new customers, renewing and upgrading subscriptions, integrating acquisitions, and keeping strategic relationships with partners such as SAP, Oracle, Microsoft Dynamics, and NetSuite. A global pandemic or endemic could still disrupt demand. Management said existing cash resources and its bank line of credit should fund operations for the next 12 months, and the full-year guidance assumes conditions do not deteriorate.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $145.0M | $139.7M | +3.8% | $126.2M | +14.9% |
| Gross profit | $88.2M | $85.8M | +2.7% | $75.6M | +16.6% |
| Gross margin | 60.8% | 61.4% | -0.6 pp | 59.9% | +0.9 pp |
| Research & development | $16.8M | $12.7M | +32.3% | $10.4M | +62.0% |
| Sales & marketing | $33.9M | $33.5M | +1.1% | $30.3M | +12.1% |
| General & administrative | $35.4M | $39.4M | -10.1% | $31.7M | +11.7% |
| Total operating expenses | $90.2M | $89.9M | +0.3% | $76.5M | +18.0% |
| Operating income (loss) | -$2.0M | -$4.1M | +50.4% | -$871.0K | -131.7% |
| Operating margin | -1.4% | -2.9% | +1.5 pp | -0.7% | -0.7 pp |
| Net income (loss) | -$3.4M | -$6.9M | +50.7% | -$1.1M | -197.9% |
| Net margin | -2.3% | -4.9% | +2.6 pp | -0.9% | -1.4 pp |
| Customers | 4,303 | 4,284 | +0.4% | — | — |
| Net retention rate | 111.0% | 111.0% | ±0.0 pp | 109.0% | +2.0 pp |
Risks
GAAP operating loss widened to $2.0 million in FY2023 Q3 from $0.9 million in FY2022 Q3, and to $15.0 million for the FY2023 year to date from $4.7 million prior year, while net loss widened to $3.4 million from $1.1 million in the quarter and to $28.4 million from $7.0 million year to date. MD&A attributes higher spending on research and development, selling and marketing, and general and administrative initiatives.
Software subscription revenues from new customers averaged 6.5% of total software subscription revenues in FY2023 Q3 versus 7.5% in FY2022 Q3, and 6.5% for the FY2023 year to date versus 8.0% prior year. This indicates growth is increasingly reliant on expansion from existing customers and price increases rather than new customer additions.
MD&A states research and development expenses increased significantly due to personnel costs for new solutions and expanded connectors and APIs. It cautions there is no guarantee these solutions will be accepted by the market, which could result in increased costs or impairment of capitalized development costs with no resulting future revenue benefit.
MD&A reports higher income tax expense, driven by changes in state income taxes, differences in tax rates on foreign jurisdiction income or loss, limits on deducting certain employee compensation under Internal Revenue Code Section 162(m), and valuation allowances on net deferred tax assets for certain foreign jurisdictions.
MD&A states that if existing cash resources and the bank Line of Credit are insufficient, the company may need to raise additional equity or debt. Equity issuance could dilute stockholders, and debt financing may involve covenants restricting operations or additional borrowing, with no assurance that financing will be available on acceptable terms.
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)
Direct customers
Average Annual Revenue per direct customer (AARPC)
Gross Revenue Retention (GRR)
Indirect Customers
Summary, forecast, risks and KPIs are extracted from Vertex, Inc.'s SEC filings for Q3 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.