What Vertex (VERX) Said on Its Q3 Earnings Call

Key Points

• Vertex beat Q3 expectations and raised its full-year outlook. Revenue grew 11% to $213.3 million, while adjusted EBITDA rose nearly 50% to $64.8 million; the company lifted its revenue and EBITDA guidance and now targets an approximately 30% adjusted EBITDA margin in 2027.
• Recurring revenue and profitability strengthened. Annual recurring revenue increased 11.7% to $724.3 million, cloud revenue grew more than 20%, and non-GAAP gross margin reached a company-record 77.6%.
• E-invoicing is a growth opportunity, while a payroll customer loss poses a limited near-term headwind. E-invoicing ARR more than doubled year over year, but the loss of one payroll tax customer is expected to lower Q4 retention rates by about one percentage point and reduce quarterly revenue by roughly $1 million.

Vertex NASDAQ: VERX raised its full-year revenue and earnings guidance after reporting third-quarter revenue growth of 11% and a nearly 50% increase in adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA.

The tax software company reported revenue of $213.3 million, above the high end of its guidance, and adjusted EBITDA of $64.8 million, nearly $8 million above its forecast range. Adjusted EBITDA margin reached 30.4%.

President and CEO Chris Young said the results showed progress on the company’s priorities of stabilizing its core business, improving profitability and creating a foundation for growth. CFO John Schwab said Vertex now expects to operate at an adjusted EBITDA margin of approximately 30% in 2027, ahead of its previous goal of exiting that year with a margin in the high 20s.

Recurring Revenue and Margins Improve

Annual recurring revenue rose 11.7% year over year to $724.3 million, while cloud revenue growth accelerated to more than 20%. Software subscription revenue increased 10.2%, and services revenue rose 15.8%.

Schwab attributed part of the services growth to e-invoicing implementation activity, including work related to France’s mandate. He also cited the company’s MSO and tax filing businesses, while noting that Vertex wants implementation partners and accounting firms to remain at the forefront of services activity.

Gross revenue retention was 95%, and net revenue retention increased one percentage point from the prior quarter to 106%. Average annual revenue per direct customer rose 9.2% year over year to $145,793.

Non-GAAP gross margin increased to 77.6%, up 370 basis points from a year earlier. Software subscription gross margin was 84.6%, and services gross margin was 37.7%. Schwab said overall and subscription gross margins were the highest Vertex has delivered as a public company.

Free cash flow was $25.2 million, while pro forma free cash flow was $33.8 million. Adjusted EBITDA less capital expenditures, which Vertex calls cash EBITDA, rose to $36.7 million from $11.2 million a year earlier.

Guidance Raised Despite Payroll Customer Loss

Vertex increased its full-year revenue forecast to $828.9 million to $830.9 million, a $2.4 million increase at the midpoint. It raised its adjusted EBITDA outlook to $217.9 million to $219.9 million, an increase of $10.9 million at the midpoint. The company expects full-year cloud revenue growth of 19%.

For the fourth quarter, Vertex forecast revenue of $215 million to $217 million and adjusted EBITDA of $58 million to $60 million. Schwab said the earnings outlook includes marketing expenses for the Vertex Exchange event and targeted investments for future growth.

Schwab also said Vertex expects gross and net revenue retention to each decline by approximately one percentage point in the fourth quarter because of the loss of an original equipment manufacturer customer in its payroll tax business. He estimated the quarterly revenue impact at approximately $1 million and said it was reflected in guidance.

Young described the loss as a discrete event rather than evidence of broader deterioration. Schwab said retention trends in the core tax determination business had improved throughout 2026.

E-Invoicing Growth and AI Investments

Young said e-invoicing annual recurring revenue grew more than 100% year over year, supported by the launch of France’s mandate and the contribution from acquired business Brinta. He said the ecosio and Brinta teams were performing ahead of the plans established when Vertex acquired them.

The CEO cautioned that Vertex does not expect to sustain that rate every quarter as the business scales, but said e-invoicing should continue to grow significantly faster than the company overall. Upcoming mandates, including the next phase of Germany’s requirements on Jan. 1, 2027, could provide further opportunities, he said.

Young said France was a bigger driver of the sales pipeline earlier in the year, but Vertex sees a longer-term opportunity as multinational customers look to consolidate e-invoicing work with fewer providers. He also highlighted Avanade’s selection of Vertex as its e-invoicing technology partner.

At Vertex Exchange, the company introduced Vertex Sōl, its vision for a connected, AI-powered tax and compliance experience. Young said some Sōl capabilities will be included in the core platform, while others will carry separate charges.

Internally, Young said engineering efficiency had improved more than 100% since the beginning of the year, with teams delivering nearly twice the code contribution throughput. AI-assisted review supports nearly nine in 10 code contributions, he said, with human oversight retained.

Vertex repurchased $27 million of shares during the third quarter. Schwab said the company had bought back $83.6 million under its $150 million authorization since the program began in November 2025, leaving $66.4 million available.

About Vertex (NASDAQ:VERX)

Vertex, Inc is a tax technology company that provides software and services to help businesses manage tax determination, compliance and reporting. Its solutions are designed to support complex transaction tax requirements across sales and use tax, value-added tax, goods and services tax, communications tax, and other indirect taxes.

The company's offerings include cloud-based and enterprise tax software, tax calculation engines, compliance and returns management tools, tax data management, and related professional services.

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