Summary
Vertex closed fiscal 2021 with fourth-quarter revenue of $111.66 million, up 12.2% from $99.54 million in the prior-year quarter. Full-year revenue reached $425.55 million, up 13.6% from $374.66 million. Gross profit rose 7.4% to $68.01 million in the quarter from $63.33 million, and full-year gross profit climbed 26.0% to $263.66 million from $209.28 million. The quarterly gross margin fell to 60.9% from 63.6%, a drop of 2.7 percentage points. For the full year, gross margin improved to 62.0% from 55.9%, up 6.1 percentage points.
The bottom line was uneven. Vertex reported an operating loss of $0.01 million in the fourth quarter, down from operating income of $2.49 million in the prior-year quarter. Net loss was $0.63 million, down from net income of $0.23 million. The full year looked much better. The operating loss narrowed to $2.94 million from $104.76 million, and the net loss narrowed to $1.48 million from $75.08 million. Lower stock-based compensation across the operating expense lines and 13.6% revenue growth drove that swing.
Recurring revenue metrics improved. Annual recurring revenue ended 2021 at $370.2 million, up $53.8 million, or 17.0%, from $316.4 million a year earlier. Net revenue retention was 108%, up from 106%. The customer count rose to 4,272 from 4,017, and average annual revenue per customer increased to approximately $86,700 from approximately $78,700. Cloud-based subscriptions produced 35.4% of software subscription revenue in 2021, up from 27.5% in 2020, while on-premise subscriptions still accounted for 64.6%. Management expects the cloud share to keep climbing, and it notes that hosting costs for those offerings could weigh on gross margin.
Cash generation held up. Fourth-quarter operating cash flow was $39.3 million, down 0.5% from $39.5 million in the prior-year quarter. Full-year operating cash flow was $91.97 million, up 54.5% from $59.54 million. Capital expenditures rose 58.8% to $9.49 million in the quarter from $5.97 million, and full-year capital expenditures rose 59.3% to $33.39 million from $20.96 million. Free cash flow was $46.9 million in 2021, compared with $49.6 million in 2020, and free cash flow margin was 11.0%, compared with 13.2%. Deferred revenue and remaining performance obligations were both $249.01 million at December 31, 2021, up 12.0% from $222.26 million a year earlier. Vertex had no outstanding bank debt at year-end.
Non-GAAP profitability was roughly flat. Adjusted EBITDA was $78.0 million in 2021, compared with $78.4 million in 2020. Stock-based compensation expense fell to $26.2 million from $147.9 million. Severance and $4.7 million of acquisition-related transaction costs were also excluded from that measure. Underneath, the company said its operating expenses broadly reflect expansion of go-to-market and partner and channel management personnel and promotion and branding activity, and it expects operating expenses to increase as it invests in the long-term growth of the business.
Vertex flagged several risks. COVID-19 had minimal impact on revenue in 2020 and 2021, but management said uncertainty could affect billings to new customers and collections in 2022. Significant increases in non-renewals or concessions to renewal customers would hurt revenue and cash flow. The migration to cloud subscriptions may lower gross margin because of hosting costs. The company completed several acquisitions during 2021, including Taxamo and LCR-Dixon, and it owes $40.0 million of deferred purchase consideration tied to LCR-Dixon, payable in installments through September 2023. In March 2022, Vertex amended its credit facility to $250 million, made up of a $50 million term loan and a $200 million line of credit. Seasonality matters too. Vertex historically signs a higher percentage of software subscription agreements in the fourth quarter, and renewals tend to cluster at year-end.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2021 | Q3 FY2021 | QoQ | Q4 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $111.7M | $110.7M | +0.8% | $99.5M | +12.2% |
| Gross profit | $68.0M | $66.8M | +1.8% | $63.3M | +7.4% |
| Gross margin | 60.9% | 60.3% | +0.6 pp | 63.6% | -2.7 pp |
| Research & development | $10.8M | $9.9M | +8.9% | $11.1M | -3.5% |
| Sales & marketing | $28.3M | $25.7M | +10.4% | $21.1M | +34.2% |
| General & administrative | $26.1M | $31.2M | -16.6% | $25.6M | +1.7% |
| Total operating expenses | $68.0M | $70.4M | -3.4% | $60.8M | +11.8% |
| Operating income (loss) | -$14.0K | -$3.6M | +99.6% | $2.5M | -100.6% |
| Operating margin | -0.0% | -3.3% | +3.3 pp | 2.5% | -2.5 pp |
| Net income (loss) | -$627.0K | -$3.9M | +84.1% | $230.0K | -372.6% |
| Net margin | -0.6% | -3.6% | +3.0 pp | 0.2% | -0.8 pp |
| Customers | 4,200 | — | — | 4,000 | +5.0% |
| Net retention rate | 108.0% | 106.0% | +2.0 pp | 106.0% | +2.0 pp |
Risks
MD&A says cloud-based subscriptions generated 35.4% of software subscription revenues in 2021 vs 27.5% in 2020 and warns that as cloud offerings increase as a percentage of total revenues, gross margin may decrease due to hosting costs. Q4 FY2021 gross margin was down 2.7 pp to 60.9% vs the prior-year quarter.
A large portion of revenue depends on maintaining and growing revenue from existing customers, and customers have no obligation to renew subscriptions. NRR was 108% in 2021 vs 106% in 2020, but retention could decline due to customer dissatisfaction, decreased spending or transaction volumes, competition, or tax law changes.
The company handles significant amounts of customer money for tax remittance and stores confidential customer data, creating exposure to cyber-attacks, fraudulent payment rerouting, system failures, and errors or delays in remitting taxes. Internal controls over fund transfers may not be adequate.
MD&A states investments in sales and marketing and R&D occur in advance of revenue benefits and operating expenses are expected to increase. Q4 FY2021 operating income swung to a loss of $0.01M and net income swung to a loss of $0.63M, each from prior-year-quarter profitability.
MD&A states COVID-19 had minimal impact on 2020 and 2021 revenues but expects uncertainty could impact billings to new customers beyond those years and may see delays in collections in 2022 as the global resurgence continues. The company also notes elongated declines in customers' revenues could affect its ability to grow existing customer revenues.
MD&A reports some delays in signing deals due to prospects' ongoing adjustments to remote work and economic uncertainty, and notes quarterly results fluctuate with the timing of large subscriptions and Q4 seasonality, which can create revenue volatility.
The company faces significant competition from tax-specific software vendors, outsourced transaction tax compliance services offered by accounting and consulting firms, and a growing number of private eCommerce-focused transaction tax compliance businesses. Large enterprises in adjacent compliance or finance verticals may also become significant competitors.
The business depends on third-party relationships and integrations with ERP, CRM, eCommerce, POS and billing providers. Failure by partners to maintain or secure their platforms, or partners deciding to compete or withdraw support for integrations, could harm customer experience and results.
The filing discloses that the company has recently experienced efforts by a significant competitor to solicit its employees. Competition for tax-content specialists, software developers, technical support and R&D personnel is intense, and loss of key personnel could delay business objectives.
Cash and customer funds are deposited with financial institutions where deposits routinely exceed federal insurance limits. If a bank experiences insolvency or financial difficulty, access to cash could be limited and deposits could be lost, creating liability to customers.
Electronic payment of customers' taxes may be subject to federal or state money transmission laws. If regulators apply these laws to the business, the company could face enforcement actions, penalties, compliance program costs, and difficulty maintaining banking relationships.
The company previously identified material weaknesses in internal control over financial reporting in its 2020 Form 10-K, which have since been remediated, but additional material weaknesses or significant deficiencies may be discovered in the future.
Future acquisitions may not yield expected benefits, and integration may divert management attention. The 2021 period included $4.7 million of transaction costs associated with acquisitions, and failure to integrate could harm results.
SaaS KPIs
All quarters →Net Revenue Retention
Average Annual Revenue Per Customer (AARPC)
Summary, forecast, risks and KPIs are extracted from Vertex, Inc.'s SEC filings for Q4 FY2021 (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.