Vertex, Inc. (VERX) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A session highlight several positive aspects: strong cloud revenue growth, AI-driven product development, and a significant share repurchase program. Despite concerns about ARR growth deceleration and customer attrition, management's confidence in guidance, upcoming e-invoicing mandates, and AI integration suggest future growth potential. The company's proactive approach to challenges and focus on innovation support a positive sentiment. However, the lack of clear action plans for some issues tempers the outlook slightly, resulting in a 'Positive' rating.
Key Financial Performance
Revenue $194.7 million for Q4 2025, up 9.1% year-over-year. Full year revenue was $748.4 million, up 12.2% from 2024. The growth was impacted by a $10 million reduction in true-up revenue compared to 2024, which reduced the full-year growth rate by 2 percentage points.
Subscription Revenue $166.2 million for Q4 2025, up 8.9% year-over-year. Full year subscription revenue was $639.7 million, up 12.8% year-over-year. The growth was affected by lower true-up revenue, reducing the subscription revenue growth rate by 2 percentage points for the year.
Services Revenue $28.5 million for Q4 2025, up 10.2% year-over-year. Full year services revenue was $108.8 million, up 9.2% year-over-year. Growth was driven by increased consulting investments to support revenue growth.
Cloud Revenue $94.6 million for Q4 2025, up 23% year-over-year. Full year cloud revenue was $352.9 million, up 27.9% year-over-year. The decrease in quarterly growth was due to the lapping of the ecosio acquisition.
Annual Recurring Revenue (ARR) $671 million at the end of Q4 2025, up 11.3% year-over-year. Growth was supported by scaled customer growth of 12%.
Net Revenue Retention (NRR) 105% for Q4 2025, indicating healthy upsell and cross-sell activities.
Gross Revenue Retention (GRR) 94% for Q4 2025, within the targeted range of 94% to 96%. Attrition was concentrated in smaller accounts, with an average annual revenue per lost customer of under $50,000.
Adjusted EBITDA $42.5 million for Q4 2025, up 11.6% year-over-year. Full year adjusted EBITDA was $161.5 million, up 6.3% from 2024. The increase was driven by higher gross margins and controlled expenses.
Free Cash Flow $10.1 million for Q4 2025. Full year free cash flow was $47.6 million, slightly lower than expected due to lower collections in Q4, though $7 million was collected in early January 2026.
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Operating Highlights
Smart Categorization: Launched as an AI-driven product to reduce manual work in tax departments, securing several marquee 6-figure wins in the retail industry. Plans to expand functionality to cover the full retail customer base and additional industries.
Vertex Copilot: Expanded capabilities to better understand customer interactions and enhance product development. Helps customers address questions without needing direct support.
E-invoicing: Strong traction in its first year, with wins in Belgium, Poland, France, Germany, and other countries. Cross-sells increased ARR with existing customers by over 20%.
New Logos: Revenue from new logos increased by 20% in 2025, including competitive takeaways and customers switching from homegrown solutions.
Global Expansion: Landed one of the largest new logos in Europe with a healthcare provider, generating 7-figure revenue. Expanded in North America with a power utility and other enterprises.
Revenue Growth: Achieved double-digit revenue growth for the full year, with $748.4 million in total revenue, up 12.2% from 2024.
Customer Retention: Net revenue retention was 105%, and gross revenue retention was 94%. Attrition was concentrated in smaller accounts, with an average annual revenue of under $50,000.
AI Integration: Focused on transforming Vertex into an AI-first business, leveraging AI to improve workflows and customer interactions.
Customer Success Initiatives: Expanded customer success coverage and implemented analytics to predict potential attrition, including personal engagement from the CEO.
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Risk or Challenges
Customer Attrition: Vertex experienced higher customer attrition in 2025, driven by factors such as M&A and bankruptcy, which are largely uncontrollable. Attrition was concentrated in smaller accounts, with lost accounts averaging under $50,000 in annual revenue, compared to the overall average of $138,000 per customer.
Retention Metrics: Lower entitlement growth, moderation of upsell and cross-sell revenue, and slightly higher customer attrition impacted retention metrics in 2025. Net revenue retention (NRR) was 105%, and gross revenue retention (GRR) was 94%, at the lower end of the targeted range.
Competitive Pressures: While competitive losses were a modest component of attrition, Vertex continues to face competition in the market. However, the company claims to win more ARR from competitors than it loses.
True-Up Revenue Decline: True-up revenue in 2025 was approximately $10 million lower than in 2024, reducing the full-year revenue growth rate by nearly 2 percentage points and impacting subscription revenue growth.
Economic and Market Factors: Economic and market factors, including M&A and bankruptcy, were significant drivers of customer attrition in 2025, which are largely beyond Vertex's control.
Operational Challenges: Vertex faced challenges in moderating upsell and cross-sell revenue growth and addressing customer attrition. The company is implementing measures such as expanding customer success coverage and leveraging AI tools to mitigate these issues.
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Guidance & Outlook
Revenue Projections: For the full year of 2026, Vertex expects revenues of $823.5 million to $831.5 million. For the first quarter of 2026, revenues are projected to be $193.5 million to $196.5 million.
Cloud Revenue Growth: Vertex anticipates cloud revenue growth of 25% for the full year of 2026.
Adjusted EBITDA: Adjusted EBITDA for 2026 is expected to range between $188 million and $192 million, reflecting a margin of 23% at the midpoint. For the first quarter of 2026, adjusted EBITDA is projected to be $40.5 million to $43.5 million, reflecting a margin of 21.5% at the midpoint.
AI and Product Development: Vertex plans to transform into an AI-first business, leveraging AI to enhance customer workflows and internal operations. The company will expand its smart categorization offering to additional industries and broaden its AI capabilities to improve customer engagement and product development.
E-Invoicing and Compliance: Vertex sees significant growth opportunities in global compliance and e-invoicing mandates. The company plans to expand its e-invoicing solutions to cover more industries and countries, leveraging its unified platform for VAT calculation and compliance.
Customer Retention and Upsell: Vertex aims to mitigate customer attrition by expanding customer success coverage and leveraging AI tools. The company expects its new product offerings, including e-invoicing and smart categorization, to accelerate cross-sell and upsell revenue in 2026.
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Shareholder Return Plan
Stock Buyback: In the fourth quarter, we repurchased approximately $10 million of our shares in the open market under our stock buyback authorization at an average price of $20 per share. We have approximately $140 million remaining under our authorization.
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Key Q&A
Q:Can you elaborate on the losses to competitors at the lower end of the market? Was this price-driven or AI-related?
A:Christopher Young explained that the losses were not AI-related but were due to higher attrition in 2025, particularly among smaller customers with ARR under $50,000 per year. He noted that while some customers went to competitors, Vertex is winning more ARR from competitors than it is losing.
Q:How confident are you in achieving the 10%-11% growth guidance for next year? What sources of upside or surprises could be in store?
A:John Schwab expressed confidence in the guidance, citing a thoughtful approach to setting it. He highlighted e-invoicing mandates coming live in the back half of the year and the traction of the SmartCat product as potential growth drivers.
Q:What parallels can you draw from your experiences at Microsoft, McAfee, and Cisco that will help you lead Vertex?
A:Christopher Young highlighted his experience with generative AI at Microsoft and its potential to transform industries, including finance and accounting. He also drew parallels between Vertex's compliance landscape and the ever-changing threat landscape in cybersecurity, emphasizing Vertex's strength in delivering accurate and updated tax content.
Q:What are your expectations for net retention rates in the medium term, and how long will it take to normalize?
A:Christopher Young stated that Vertex is focused on improving net retention rates by introducing new product offerings like compliance and e-invoicing, engaging customers more directly, and addressing customer needs proactively to prevent attrition.
Q:Is winning SAP ECC customers the biggest swing factor for accelerating ARR growth in 2026? How is the pipeline shaping up?
A:Christopher Young acknowledged the importance of SAP ECC customers and noted steady growth in opportunities. He mentioned that while win rates remain strong, the timing of tax engine decisions in migration processes is harder to predict.
Q:What is the plan for expanding customer service or customer success to a wider group of customers?
A:Christopher Young emphasized the role of AI in making customer success teams more efficient, allowing them to spend more time with customers. He also mentioned plans to use AI tools to directly assist customers and improve customer satisfaction.
Q:How can Vertex innovate faster, and what is the philosophy around inorganic opportunities?
A:Christopher Young stressed the need to speed up AI integration into the product portfolio and deliver value more quickly. He mentioned partnerships like the one with Kintsugi and the focus on both internal and external innovation to enhance customer value.
Q:What is the trajectory of cash generation in 2026?
A:John Schwab expects continued improvement in free cash flow and conversion, with spending initiatives tailing off in the second half of the year, leading to better profitability and cash flow.
Q:What would a competitor need to do to be taken seriously by an enterprise customer in the tax calculation space?
A:Christopher Young highlighted the deterministic nature of tax calculation, Vertex's proprietary tax content, deep integration with customer infrastructure, and the complexity of compliance as significant barriers for competitors.
Q:What factors contributed to the deceleration in ARR growth from 17%-18% to 11%?
A:John Schwab attributed the deceleration to increased churn, slower entitlement growth, and softer cross-sell and upsell activities. He noted that new sales opportunities grew significantly in 2025, which was a bright spot.
Q:Has AI tech budget crowding out contributed to entitlement or ARR slowdown?
A:Christopher Young stated that Vertex has not explicitly seen AI tech budget crowding out in its business activities.
Q:What is the progress on expanding e-invoicing to more countries?
A:Christopher Young reported that Vertex is now in 39 countries and has a combined compliance and e-invoicing offering. The company is prepared for mandates in Belgium, France, and Germany, among others.
Q:What went wrong with Vertex's performance, and what is the root cause of the challenges?
A:Christopher Young identified slower entitlement growth, higher attrition among smaller customers, and the need for faster product innovation as key challenges. He emphasized the importance of moving quickly to deliver value and pivoting the product portfolio towards customer needs.
Q:Have customers adopted specific budgets for AI investments, and how is Vertex benefiting?
A:Christopher Young noted that customer responses vary, with some organizations having specific AI mandates while others do not. He emphasized the importance of demonstrating value to secure AI-related budgets.
Q:What is the outlook for net retention rates and pricing as growth levers?
A:John Schwab expects moderate growth in net retention rates and emphasized the importance of delivering value to customers to support pricing as a growth lever.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the root cause of the company's stock performance decline from $56 to $15 in a year. While Christopher Young acknowledged factors like slower entitlement growth, higher attrition, and the need for faster product innovation, the response lacked specific details or a clear action plan to address these issues comprehensively.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI opportunity
Belgium Poland
Copilot
Oracle ecosystem
Plus tool
SAP Plus
SAP SHANA
SHANA transformation
Vertex customer
Vertex mandate
Vertex opportunity
account customer
attrition Vertex
authorization
calculation figure
collection
customer attrition
customer base
enterprise Vertex
feature
globe
health care
industry opportunity
mandate Belgium
margin midpoint
payment Vertex
percentage point
point sale
rate percentage
return
selling marketing
solution Vertex
tax calculation
tax compliance
use tax
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The earnings call summary shows strong financial performance with revenue slightly above the projected range, but lacks details on other critical areas such as shareholder return plans, expenses, and market strategy. The absence of these key discussions, coupled with no additional insights from the Q&A, results in a neutral sentiment. The strategic plan indicates a positive outlook with AI and compliance initiatives, but without a market cap or specific guidance adjustments, the stock reaction is expected to be muted.
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Vertex, Inc. (VERX) Q4 2025 Earnings Call Transcript
Positive2-11
The earnings call summary and Q&A session highlight several positive aspects: strong cloud revenue growth, AI-driven product development, and a significant share repurchase program. Despite concerns about ARR growth deceleration and customer attrition, management's confidence in guidance, upcoming e-invoicing mandates, and AI integration suggest future growth potential. The company's proactive approach to challenges and focus on innovation support a positive sentiment. However, the lack of clear action plans for some issues tempers the outlook slightly, resulting in a 'Positive' rating.
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Positive11-3
The earnings call reflects strong financial metrics, optimistic guidance, and strategic investments in AI and e-invoicing, which are expected to drive growth. While there are macroeconomic challenges and ERP migration slowdowns, the company has strategies to mitigate these. The Q&A session reveals confidence in meeting revenue targets and strategic partnerships, supporting a positive sentiment. Despite some uncertainties in entitlement recovery and the impact of bankruptcies, the overall outlook remains positive with growth drivers in place.
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