Summary
Vertex's fourth-quarter revenue was $131.13 million, up 17.4% from the prior-year quarter. Full-year revenue was $491.62 million, up 15.5% from the prior year. Gross profit in the quarter was $81.65 million, up 20.0%, and gross margin improved to 62.3% from 60.9%. For the full year, gross profit was $298.49 million, up 13.2%, while gross margin declined to 60.7% from 62.0%. Deferred revenue and remaining performance obligations both stood at $279.14 million, up 12.1% from a year earlier.
The bottom line deteriorated. Fourth-quarter operating loss widened to $3.38 million from $0.01 million, and operating margin fell to -2.6% from -0.0%. Full-year operating loss widened to $8.08 million from $2.94 million, with operating margin at -1.6% compared with -0.7%. Net loss widened to $5.31 million in the quarter from $0.63 million. For the full year, net loss was $12.30 million compared with $1.48 million. Cash generation was mixed. Fourth-quarter operating cash flow was $43.82 million, up 11.5%. Full-year operating cash flow was $76.85 million, down 16.4%. Capital expenditures were $15.56 million in the quarter, up 64.0%, and $58.53 million for the full year, up 75.3%.
Operating metrics showed healthy demand. Annual recurring revenue was $431.1 million at December 31, 2022, up $60.9 million or 16.5% from the prior year end. Net revenue retention was 110%, up from 108%. Vertex had 4,289 customers at December 31, 2022, up from 4,272. Cloud-based subscriptions generated 41% of software subscription revenues in 2022, up from 35% in 2021. Adjusted EBITDA was $78.7 million in 2022 compared with $78.0 million in 2021, and adjusted EBITDA margin decreased by 230 basis points.
Free cash flow was $3.4 million in 2022, down $43.5 million from $46.9 million in 2021. The MD&A attributes the pressure to higher cash used for cloud-based customer solutions and internal infrastructure modernization, plus lower cash from operations. Several risks remain. Vertex invests in growth before seeing the revenue benefit, and rising cloud adoption can pressure gross margin because of hosting costs. The business also has seasonality in the fourth quarter, when a higher percentage of software subscription agreements are typically signed, and customer purchase patterns can be sensitive to budget timing. The company notes that COVID-19 did not cause significant reductions in sales, revenues or collections through December 31, 2022.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2022 | Q3 FY2022 | QoQ | Q4 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $131.1M | $126.2M | +3.9% | $111.7M | +17.4% |
| Gross profit | $81.6M | $75.6M | +8.0% | $68.0M | +20.0% |
| Gross margin | 62.3% | 59.9% | +2.4 pp | 60.9% | +1.4 pp |
| Research & development | $11.6M | $10.4M | +11.9% | $10.8M | +7.7% |
| Sales & marketing | $35.7M | $30.3M | +17.9% | $28.3M | +25.8% |
| General & administrative | $31.1M | $31.7M | -1.7% | $26.1M | +19.5% |
| Total operating expenses | $85.0M | $76.5M | +11.2% | $68.0M | +25.0% |
| Operating income (loss) | -$3.4M | -$871.0K | -288.4% | -$14.0K | -24064.3% |
| Operating margin | -2.6% | -0.7% | -1.9 pp | -0.0% | -2.6 pp |
| Net income (loss) | -$5.3M | -$1.1M | -365.3% | -$627.0K | -746.7% |
| Net margin | -4.0% | -0.9% | -3.1 pp | -0.6% | -3.5 pp |
| Customers | 4,200 | — | — | 4,200 | ±0.0% |
| Net retention rate | 110.0% | 109.0% | +1.0 pp | 108.0% | +2.0 pp |
Risks
Vertex remits customers' taxes and may be subject to federal or state money transmission laws. If regulators apply these laws to its business, Vertex could face enforcement actions, need a costly compliance program, and have difficulty maintaining banking relationships.
Vertex holds significant customer funds in trust accounts at financial institutions where deposits routinely exceed federal insurance limits. Insolvency or financial difficulty at those institutions could limit access to cash, cause loss of deposits, and expose Vertex to liability to customers.
The risk factors disclose that Vertex has recently experienced efforts by a significant competitor to solicit its employees. It depends on tax-content specialists, software developers, and technical support personnel, and losing key personnel could delay business objectives.
A large portion of revenue depends on retaining and expanding existing customer subscriptions and adding new customers. Customers have no renewal obligation, and failure to retain or expand usage would harm revenue; NRR was 110% in 2022 compared to 108% in 2021.
Vertex handles customer funds and tax data, and the filing warns of improper re-routing of customer funds through fraudulent transactions. Remote working increases attack surfaces, and internal controls designed to prevent cyber-related fund fraud may not be adequate.
Vertex has launched a new ERP system implementation spanning multiple business areas, consuming significant time and resources. Issues with implementation or related controls could impair timely and accurate financial reporting or lead to material weaknesses or significant deficiencies.
Cloud-based subscriptions generated 41% of software subscription revenue in 2022 compared to 35% in 2021. MD&A states continued cloud growth may decrease gross margin due to hosting costs; FY2022 gross margin decreased 1.2 pp to 60.7%.
The filing cites substantial year-over-year increases in the consumer price index, exacerbated by oil prices and the Russia-Ukraine conflict. Vertex may not offset inflationary pressure through price increases, which could adversely affect operating expenses and results.
Vertex signs a higher percentage of software subscription agreements in Q4, and enterprise customers' purchase patterns are sensitive to budget timing. This seasonality and timing can create quarterly revenue volatility and periods that are less comparable.
Vertex faces competition from tax software vendors, accounting and consulting firms, ERP native functions, and eCommerce-focused transaction tax compliance businesses, some with greater resources. Increased competition may impair adding new customers and retaining or expanding existing customer revenue.
Vertex must continue significant capital expenditures and software development to support scalability, security, and cloud solutions. FY2022 capital expenditures rose 75.3% to $58.5 million, and if demand or returns fall short, fixed costs and capitalized development costs may be difficult to adjust or could be impaired.
Changes in tax laws or interpretations, including post-Wayfair economic nexus rules and potential federal legislation, could reduce tax complexity, decrease filing frequency, require substantial software modifications, or draw new competitors.
Future acquisitions may not yield expected benefits, and integration may divert management or require debt or equity that dilutes stockholders. FY2022 other operating expense included a $2.3 million increase to the Tellutax contingent consideration liability and a $2.0 million legal settlement.
SaaS KPIs
All quarters →Adjusted EBITDA
Total customers
Net Revenue Retention
Average Annual Revenue Per Customer (AARPC)
Summary, forecast, risks and KPIs are extracted from Vertex, Inc.'s SEC filings for Q4 FY2022 (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.