Summary
Vertex's fiscal 2024 third quarter revenue rose 17.5% to $170.4 million. Deferred revenue was $304.4 million at September 30, 2024, up 14.1% from a year earlier. Gross profit rose 25.4% to $110.5 million, and gross margin improved to 64.8%, up 4.1 percentage points. Operating income was $4.9 million, compared with a loss in the prior-year quarter, and operating margin turned positive at 2.9%, up 4.3 percentage points. Net income was $7.2 million, compared with a net loss a year earlier.
For the nine months, revenue rose 17.0% to $488.3 million, gross profit rose 21.2% to $309.0 million, operating income was $10.9 million, a swing to profit from a year earlier, and net income was $15.1 million, also a swing to profit. Year-to-date gross margin was 63.3%, up 2.2 percentage points, and year-to-date operating margin was 2.2%, up 5.8 percentage points.
Non-GAAP results showed leverage. Non-GAAP operating income was $33.4 million, compared with $22.8 million a year earlier. Adjusted EBITDA was $38.6 million, up from $26.6 million, and Adjusted EBITDA margin was 22.7%, compared with 18.4%. Non-GAAP net income was $27.1 million, and non-GAAP diluted EPS was $0.16. Operating cash flow was $41.4 million for the quarter, up 50.0%, and $123.7 million for the nine months, up 363.3%. Free cash flow, a non-GAAP measure, was $18.4 million for the quarter and $59.8 million for the nine months, with free cash flow margins of 10.8% and 12.2%.
Annual Recurring Revenue was $576.8 million at September 30, 2024, up 19.0% from a year earlier. That total included $5.9 million added from Systax and $8.1 million added from ecosio. Excluding both acquisitions, ARR growth would have been 16.1%. Net Revenue Retention was 111%, equal to 111% a year earlier and up from 110% at June 30, 2024. Gross Revenue Retention was 95%, compared with 96% a year earlier and 95% at June 30, 2024. Vertex had 4,855 direct customers and 448 indirect customers, for 5,303 total customers. The ecosio acquisition closed on August 30, 2024, with total purchase consideration of $169.0 million, net of $0.8 million in cash acquired, and earn-outs of up to $76.0 million in cash and $35.0 million in stock. Systax and ecosio added 574 customers to the third quarter direct customer count.
Guidance points to continued growth. For the fourth quarter of 2024, Vertex expects revenue of $175 million to $178 million and Adjusted EBITDA of $33 million to $37 million. For the full year 2024, the company expects revenue of $663.3 million to $666.3 million, cloud revenue growth of 29%, and Adjusted EBITDA of $146.9 million to $150.9 million. Ecosio is expected to contribute approximately $3 million to fourth quarter revenue and to be modestly dilutive to Adjusted EBITDA. The company does not intend to update its outlook until its next quarterly results announcement.
Risks include integrating ecosio and other acquired businesses, the ability to keep and grow revenue from existing and new customers, changes in tax laws and regulations, cybersecurity and data privacy exposure, reliance on third-party service providers, and global economic weakness. Vertex also said it cannot reconcile forward-looking Adjusted EBITDA to net income without unreasonable efforts because items such as stock-based compensation, depreciation and amortization, and transaction costs are hard to predict. The quarter showed GAAP profitability and cash generation, but the ecosio earn-outs and the expected drag on Adjusted EBITDA from the acquisition are worth watching.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2024 | Q2 FY2024 | QoQ | Q3 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $170.4M | $161.1M | +5.8% | $145.0M | +17.5% |
| Gross profit | $110.5M | $102.7M | +7.6% | $88.2M | +25.4% |
| Gross margin | 64.8% | 63.7% | +1.1 pp | 60.8% | +4.1 pp |
| Research & development | $15.6M | $14.6M | +6.9% | $16.8M | -6.9% |
| Sales & marketing | $42.1M | $40.5M | +3.9% | $33.9M | +24.2% |
| General & administrative | $41.5M | $35.9M | +15.7% | $35.4M | +17.3% |
| Total operating expenses | $105.6M | $95.1M | +11.0% | $90.2M | +17.1% |
| Operating income (loss) | $4.9M | $7.5M | -35.1% | -$2.0M | +342.6% |
| Operating margin | 2.9% | 4.7% | -1.8 pp | -1.4% | +4.3 pp |
| Net income (loss) | $7.2M | $5.2M | +39.8% | -$3.4M | +312.4% |
| Net margin | 4.2% | 3.2% | +1.0 pp | -2.3% | +6.6 pp |
| Customers | 574 | 150 | +282.7% | 4,303 | -86.7% |
| Net retention rate | 111.0% | 110.0% | +1.0 pp | 111.0% | ±0.0 pp |
Risks
The ecosio GmbH acquisition closed on August 30, 2024 for total purchase consideration of $169.0 million, with earn-outs of up to $76.0 million in cash and up to $35.0 million in stock. Integration of ecosio into the single operating segment and achievement of financial targets may not occur as planned.
Vertex issued $345.0 million aggregate principal amount of 0.750% Convertible Senior Notes due 2029 in April 2024, with net proceeds of $333.7 million, and used $42.4 million for capped call transactions. Conversion of the Notes may dilute stockholders, and interest and deferred financing costs increased.
Vertex acquired tax-specific AI capabilities from Ryan, LLC for approximately $6.1 million plus potential earn-out payments and referral fees over five years. If these AI solutions are not integrated or accepted by the market, the investment may not produce future revenue benefit.
Selling and marketing expenses increased 24.2% and general and administrative expenses increased 17.3% for the three months ended September 30, 2024, while research and development expenses decreased 6.9% due to higher capitalized costs. If strategic investments do not deliver expected operating leverage, margins could be pressured.
Managed services revenue increased due to returns processing volume increases tied to regulatory changes as customers expanded tax filings into more jurisdictions. Changes in indirect tax laws or compliance requirements could raise costs or alter customer demand.
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
Gross Revenue Retention (GRR)
Indirect Customers
Summary, forecast, risks and KPIs are extracted from Vertex, Inc.'s SEC filings for Q3 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.