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01/11 03:34
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary shows mixed signals. Financial performance and guidance are optimistic, but the Q&A reveals concerns about elongated sales cycles, delayed deals, and macroeconomic uncertainties. While the e-invoicing product shows promise, hiring pullbacks and SAP's market weakness pose challenges. Despite positive long-term growth outlooks and potential tailwinds, immediate uncertainties and conservative guidance suggest a neutral short-term stock reaction.
Revenue $184.6 million, up 14.6% year-over-year. The increase was attributed to growth in subscription and cloud revenues.
Subscription Revenue $157.8 million, up 15.7% year-over-year. Growth driven by increased customer adoption and retention.
Cloud Revenue $86.2 million, up 29.9% year-over-year. Ecosio contributed about 4 points to this growth.
Adjusted EBITDA $38.4 million, representing an EBITDA margin of 20.8%. This was roughly flat compared to the year-ago quarter, reflecting controlled expenses and efficiency measures.
Annual Recurring Revenue (ARR) $636.6 million, up 16.1% year-over-year. Ecosio contributed $10.8 million to ARR, with $600,000 of this increase due to favorable foreign currency translation adjustments.
Average Annual Revenue Per Customer (AARPC) $142,600, up 12.7% year-over-year. This reflects increased customer spending and expanded usage of Vertex solutions.
Gross Revenue Retention (GRR) 95%, consistent with the targeted range of 94% to 96%. This indicates strong customer retention.
Net Revenue Retention (NRR) 108%, down 1 point from the first quarter. The decrease was due to lower growth of additional entitlements and regulatory changes in Brazil causing delayed deal activity.
Gross Margin 75.9%, up from 73.7% in the same period last year. Subscription software gross margin increased to 83.2% from 80.4%.
Research and Development (R&D) Expense $18.1 million, up from $12.7 million last year. Total R&D spend, including capitalized software, was $38.9 million, representing 21.1% of revenue.
Selling and Marketing Expense $44.6 million, representing 24.2% of total revenues, an increase of approximately 20.6% from the prior year period.
General and Administrative Expense $38.1 million, up $7.4 million from last year, reflecting increased operational costs.
Operating Cash Flow $46 million, with free cash flow being positive at $19.6 million. This reflects strong cash generation and financial health.
E-invoicing Solution: Recognized by Gartner and driving growth in Europe, particularly due to the upcoming Belgian mandate in January 2026. Early adopters are expanding country coverage, indicating a land-and-expand growth model.
AI and Automation: Launched CoPilot for in-platform knowledge and product documentation. Collaborating with AI and cloud providers to integrate AI agents into workflows, enhancing customer value and stickiness.
European Market Expansion: Strong momentum in Europe, driven by e-invoicing mandates in Belgium, Germany, and France. Ecosio's ARR grew 33% to $10.8 million.
New Customer Wins: Secured new customers in industries like food delivery, gaming, and aerospace, with deals ranging from mid-6 figures to 7 figures.
Cost Control Measures: Reduced planned headcount growth and leveraged internal technology investments to improve expense trajectory for 2026 and beyond.
Revenue Retention: Gross revenue retention remained at 95%, while net revenue retention decreased to 108% due to macroeconomic factors and regulatory changes in Brazil.
Focus on Long-term Growth: Despite short-term challenges, the company remains confident in long-term growth drivers like cloud ERP upgrades and global tax compliance complexity.
Global Platform Investments: Investing in AI, automated workflows, and global compliance solutions to enhance product offerings and customer experience.
Macroeconomic Factors: Macroeconomic factors in 2025 have started to impact customer activity, leading to a reduction in full-year guidance. Customers are being more cautious about software spending, elongating deal cycles and slowing ERP migrations, which has downstream effects on pipeline building.
Regulatory Changes: Recent regulatory changes in Brazil have created compliance confusion for customers, delaying deal activity for large multinational customers. Additionally, global tax reforms and mandates, such as VAT and e-invoicing, are creating complexity and uncertainty for customers.
Customer Growth and Entitlements: Lower growth of additional entitlements due to customers' slowed annual growth has kept them within current usage bands, impacting net revenue retention (NRR). NRR decreased to 108% from 109% in the previous quarter.
ERP Migration Slowdown: A slowdown in ERP migrations has elongated deal cycles and delayed pipeline building, attributed to cautious software spending by enterprise customers in the current macroeconomic environment.
Expense Management: To control expenses and maintain adjusted EBITDA margins, the company has reduced planned headcount growth and leveraged internal technology investments. This may impact operational scalability in the short term.
Economic Uncertainty: Economic uncertainty, including inflation, global trade disruptions, and federal tax policy changes, is compounding challenges for customers and creating a cautious spending environment.
Revenue Guidance: For the third quarter of 2025, Vertex expects revenues of $190 million to $193 million. For the full year, the company anticipates revenues of $750 million to $754 million.
Cloud Revenue Growth: Vertex projects cloud revenue growth of 28% for the full year 2025.
Adjusted EBITDA: The company expects adjusted EBITDA of $38 million to $40 million for Q3 2025 and $156 million to $160 million for the full year 2025.
ERP Migration Trends: The company anticipates a slowdown in ERP migrations, which is expected to impact deal conversion and pipeline build in the short term. However, deadlines for ERP conversions over the next 2.5 years are expected to accelerate this motion.
E-Invoicing Growth: Vertex expects significant growth in e-invoicing driven by regulatory mandates in Belgium (January 2026), France (September 2026), and Germany (January 2027). Early customer adoption indicates a 'land and expand' growth trajectory.
Macroeconomic Impact: The company acknowledges macroeconomic factors affecting customer growth rates and software spending, leading to elongated deal cycles and reduced entitlements. However, Vertex has taken steps to control expenses and improve margins for 2026 and beyond.
Global Tax and Regulatory Trends: Vertex anticipates increased demand for its solutions due to global tax reforms, inflation, trade disruptions, and regulatory changes, particularly in the U.S., Europe, Asia Pacific, and Latin America.
AI and Technology Investments: Vertex is accelerating its AI roadmap and integrating AI capabilities into its platform to enhance product functionality, efficiency, and customer experience. This includes partnerships with Microsoft Azure and other ecosystem providers.
The selected topic was not discussed during the call.
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.
The earnings call summary shows mixed signals. Financial performance and guidance are optimistic, but the Q&A reveals concerns about elongated sales cycles, delayed deals, and macroeconomic uncertainties. While the e-invoicing product shows promise, hiring pullbacks and SAP's market weakness pose challenges. Despite positive long-term growth outlooks and potential tailwinds, immediate uncertainties and conservative guidance suggest a neutral short-term stock reaction.
Vertex's earnings call reflects strong financial performance with significant revenue and ARR growth. Despite a slight decline in NRR, the company demonstrates robust cloud revenue growth and a solid gross margin improvement. The guidance for 2025 indicates continued growth, and the strategic focus on e-invoicing and cloud migration is promising. The Q&A session highlights positive market sentiment, with analysts showing interest in product development and customer growth strategies. Overall, the company's financial health and strategic initiatives suggest a positive stock price movement over the next two weeks.
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