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VI

Vertex, Inc. (VERX)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 was in line to slightly ahead: revenue $177.1M (+12.9% YoY) and Non-GAAP EPS $0.15; Adjusted EBITDA of $37.2M (21.0% margin) exceeded the high end of Q1 guidance, setting up H2 acceleration amid AI and e‑invoicing initiatives .
  • Cloud revenue grew 29.6% YoY to $80.2M, ahead of the full‑year cadence, while ARR reached $618.5M (+17.9% YoY; +15.1% organic), underscoring durable subscription growth and upsell momentum in scaled enterprise accounts .
  • FY25 guidance was maintained (revenue $760–$768M; Adj. EBITDA $161–$165M; cloud +28%), which remains above Street on revenue; Q2 guide implies continued top‑line acceleration and near‑term EBITDA investment for AI/e‑invoicing .
  • Potential stock reaction catalysts: maintained FY guide above consensus revenue*, strong cloud growth/GA of the ecosio e‑invoicing solution, and the Kintsugi AI investment/partnership broadening AI roadmap and SMB channel .

What Went Well and What Went Wrong

What Went Well

  • Cloud growth/attach: Cloud revenue +29.6% YoY ($80.2M), ahead of the full‑year pace; management highlighted “strong progress on long‑term strategic initiatives, including e‑invoicing and AI” .
  • ARR momentum/enterprise wins: ARR $618.5M (+17.9% YoY; +15.1% organic); scaled customer count +15% YoY, driven by enterprise migrations and multi‑ecosystem wins (SAP, Oracle, Microsoft) .
  • New product readiness: Joint e‑invoicing offering with ecosio reached GA in mid‑March; pipeline building into 2026–2027 EU mandate catalysts (France, Germany) . Quote: “We believe this can be best addressed by providing a single solution which combines VAT compliance and e‑invoicing… a game changer” .

What Went Wrong

  • Margin mix headwind in Services: Services gross margin fell to 31.1% (vs. 40.5% LY), driven by higher MSO compensation and inclusion of lower‑margin ecosio services .
  • Retention mix still below prior-year: NRR 109% (vs. 112% LY); direct customers declined sequentially at the low end, though GRR remained 95% and focus remains on scaled customers .
  • Free cash flow seasonality/investments: FCF was -$12.3M, impacted by seasonal bonus/payroll taxes and accelerated AI/e‑invoicing investments; some expenses slipped from Q1 to Q2 .

Financial Results

Headline metrics (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($M)$170.4 $178.5 $177.1
GAAP EPS (diluted)$0.04 $(0.43) $0.07
Non-GAAP Diluted EPS$0.16 $0.15 $0.15
Adjusted EBITDA ($M)$38.6 $38.1 $37.2
Adjusted EBITDA Margin %22.7% 21.3% 21.0%
Revenue YoY Growth %17.5% 15.2% 12.9%

Revenue breakdown (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Software subscriptions ($M)$146.3 $152.6 $150.8
Services ($M)$24.2 $25.9 $26.3
Cloud revenue ($M)$71.0 $76.9 $80.2

KPIs (oldest → newest)

KPIQ3 2024Q4 2024Q1 2025
ARR ($M)$576.8 $603.1 $618.5
AARPC ($)$118,800 $122,706 $126,534
NRR (%)111% 109% 109%
GRR (%)95% 95% 95%
Direct customers (#)4,855 4,915 4,888
Indirect customers (#)448 464 481

Actual vs S&P Global consensus (Q1 2025)

MetricActualConsensusResult
Revenue$177.062M $176.989M*Slight beat
EPS (Non-GAAP)$0.15 $0.1356*Beat

Values with asterisks retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ1 2025$175M–$178M (2/27) Actual: $177.1M In range
Adj. EBITDAQ1 2025$33M–$36M (2/27) Actual: $37.2M Above range (beat)
RevenueQ2 2025N/A$182M–$187M New
Adj. EBITDAQ2 2025N/A$35.5M–$39.5M (incl. $1–$2M Q1→Q2 shift) New
RevenueFY 2025$760M–$768M (2/27) $760M–$768M Maintained
Cloud revenue growthFY 2025+28% (2/27) +28% Maintained
Adj. EBITDAFY 2025$161M–$165M (2/27) $161M–$165M Maintained

Notes: Management flagged ~$1–$2M expenses expected in Q1 shifting to Q2, weighing Q2 EBITDA within the range .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
E‑invoicing (ecosio)Acquired ecosio; strong customer interest in end‑to‑end e‑invoicing + VAT platform .Joint solution GA mid‑March; pipeline building; catalysts France ’26/Germany ’27 .Execution progressing; demand building.
AI initiativesFY25 plan: +$10–$12M AI investments (Smart Categorization, tools) .Strategic investment in Kintsugi (10% stake, IP sharing/commercial); enhances AI roadmap, SMB channel .Accelerating AI roadmap; ecosystem broadened.
Macro/tariffs, supply chainEmphasized durable demand drivers; no specifics on tariffs .Tariffs more income‑tax related; impact for VERX is e‑invoicing/VAT as supply chains shift ; “no change in buyer behavior” .Macro neutral; tailwinds intact.
ERP ecosystems (SAP/Oracle/MSFT)Expect ERP supercycle tailwind; ecosys breadth highlighted .Tracking SAP activity; Oracle ISV top‑tier momentum; MSFT wins incl. Dynamics TCS .Broad ecosystem traction continues.
Retention/NRRQ3 NRR 111% ; FY reacceleration implied into H2 in prior commentary .NRR 109%; expect rebound >110% by year‑end .Improving exit‑rate expected.
Services margin—Services GM 31.1% vs 40.5% LY; ecosio mix and MSO comp impacted .Mix headwind near‑term.

Management Commentary

  • “Our financial results were in line with our expectations for the quarter, and we made solid progress on key strategic initiatives including e‑invoicing and artificial intelligence.” — CEO David DeStefano .
  • “Our joint e‑invoicing solution with ecosio achieved general availability in mid‑March… We see a growing pipeline… France in late 2026 and Germany… early 2027.” — CEO .
  • “Adjusted EBITDA was… above the high end of our quarterly guidance… impacted by approximately $1–$2 million of expenses that were expected in the first quarter but will be realized in the second quarter.” — CFO John Schwab .
  • “We continue to expect accelerating financial momentum throughout 2025 as we execute on our strategy to drive long‑term profitable growth.” — CFO .
  • On Kintsugi AI: “IP sharing and a commercial partnership… to apply their technology to our market opportunity while expediting and enhancing our AI roadmap.” — CEO ; investment terms (10% minority stake; $15M) detailed Apr 30 release .

Q&A Highlights

  • Packaged vs homegrown shift: Rising e‑invoicing mandates and audit pressure are pushing enterprises off spreadsheets/point solutions; end‑to‑end suite (determination→audit→e‑invoicing) a differentiator .
  • Retention/customer mix: Sequential decline in low‑end direct customers; focus on scaled customers; GRR steady at 95% .
  • Tariffs: No direct tariff product (more income‑tax domain); VERX benefits indirectly as customers rethink supply chains and face new e‑invoicing/VAT regimes .
  • Pricing/consumption: Core O‑Series is revenue‑band priced (wide bands cushion downturns); pure transaction pricing mainly in e‑invoicing .
  • Services margin: Lower due to MSO comp and ecosio services mix; caution on extrapolating elevated software GM through the year .
  • Ecosystem momentum: SAP pipeline tracking well; Oracle relationship strengthened (top‑tier ISV program); MSFT Dynamics seeing scaled wins and brand gains .
  • 2025 acceleration drivers: ERP cloud migrations, cross‑sell; expect NRR >110% by YE; e‑invoicing becomes more of a revenue accelerant in 2026 .

Estimates Context

  • Q1 2025: Revenue $177.062M vs $176.989M consensus* (slight beat); Non‑GAAP EPS $0.15 vs $0.1356 consensus* (beat) .
  • FY 2025: Company guide $760–$768M revenue and $161–$165M Adj. EBITDA vs Street revenue ~$748.1M* and EBITDA ~$160.2M*; guidance sits above consensus, implying room for upward estimate revisions if execution persists .
    Values with asterisks retrieved from S&P Global.

Key Takeaways for Investors

  • Durable growth engine: High‑quality ARR (+17.9% YoY) with organic +15.1% and cloud +29.6% YoY continue to support mid‑teens top‑line with operating leverage over time .
  • FY guide reiterated above Street on revenue, balancing investment (AI/e‑invoicing) and profitability (Adj. EBITDA 21% target) — supportive for estimate stability/upward bias if execution continues* .
  • Near‑term watch items: Services mix headwind (ecosio/MSO), low‑end customer churn effects on NRR (target >110% by YE), and Q2 opex timing ($1–$2M shifted from Q1) .
  • Strategic catalysts: ecosio e‑invoicing GA and EU mandate timeline (France ’26, Germany ’27) plus Kintsugi AI investment/partnership expand product/market reach into SMB and enhance AI roadmap .
  • Ecosystem breadth is an advantage: Healthy SAP alignment, strengthened Oracle partnership, and growing Dynamics presence diversify demand across large enterprise transformations .
  • Cash/Balance sheet flexibility: $270.4M cash and $300M undrawn revolver provide capacity to fund AI/e‑invoicing investments while maintaining growth trajectory .
  • Setup: With Q1 in range and Q2 accelerating, the narrative pivots to execution on AI/e‑invoicing monetization and NRR re‑acceleration into YE25 — key drivers for multiple and estimate revisions .