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    VERX
    Earnings call· Jun 2026(Q2 FY26)

    Vertex Q2 FY26 earnings call VERX

    Aug 3, 2026 Source

    Executive summary

    Vertex Q2 FY26 — Strong Earnings Leverage and E-invoicing Momentum

    Vertex delivered strong Q2 FY26 results, showcasing business durability and significant earnings leverage driven by operational focus. While e-invoicing momentum and AI-driven internal efficiencies are promising, the company faces challenges with slower cloud conversions and elongated sales cycles. Management is focused on accelerating growth, improving expansion, and translating product vision into commercial outcomes, supported by recent strategic leadership hires.

    Highlights

    5

    • Revenue grew 10.5% year-over-year to $204 million, reaching the high end of guidance.

    • Adjusted EBITDA increased 33% to $51 million, exceeding guidance.

    • Adjusted EBITDA margin expanded by over 4 percentage points year-over-year to 25%.

    • Gross revenue retention was 95% and net revenue retention was 105% for the second consecutive quarter.

    • E-invoicing momentum increased across all geographic regions, with several 6-figure enterprise deals won.

    Concerns

    4

    • Cloud conversions have been slower than expected, leading to a lowered full-year Cloud revenue growth guidance to 18%.

    • Expansion within the installed base and new logo performance are not yet at expected levels.

    • Sales cycles have elongated, with some deals slipping into the next quarter, including a 7-figure deal.

    • Free cash flow was impacted by costs associated with the value creation plan, resulting in $2.7 million FCF.

    Guidance & targets

    7
    CategoryTargetConfidence
    Revenue
    $208M-$211M
    high materiality
    High
    Adjusted EBITDA
    $55M-$57M
    high materiality
    High
    Revenue
    $825M-$830M
    high materiality
    High
    Adjusted EBITDA
    $206M-$210M
    high materiality
    High
    Cloud revenue growth
    18%
    medium materiality
    Medium
    Adjusted EBITDA margin
    high 20s
    high materiality
    Medium
    Free cash flow to adjusted EBITDA conversion rate
    approximately 70%
    high materiality
    Medium

    Operational metrics

    24
    Subscription software revenue growth
    10.7%YoY
    Q2 FY26
    Services revenue growth
    9.4%YoY
    Q2 FY26
    Annual recurring revenue (ARR) growth
    10.5%YoY
    Q2 FY26

    In line with expectations.

    Cloud revenue growth
    17.9%YoY
    Q2 FY26
    Year-to-date Cloud revenue growth
    19.3%
    YTD FY26
    Gross revenue retention
    95%
    Q2 FY26

    Stable for the second consecutive quarter.

    Net revenue retention
    105%stable compared to the prior quarter
    Q2 FY26

    Stable for the second consecutive quarter.

    Average annual revenue per direct customer
    $142,9979.2% year-over-year
    Q2 FY26
    Scaled customer growth
    8%
    Q2 FY26
    Overall customer count
    upyear-over-year and sequential basis
    Q2 FY26

    Growth largely driven by e-invoicing business.

    Non-GAAP gross margins
    increased 15 bpsyear-over-year
    Q2 FY26

    Driven by higher margins in the software business.

    Adjusted EBITDA
    $51M33% from last year's second quarter
    Q2 FY26

    Above guidance range.

    Adjusted EBITDA margin
    25%expanded by more than 4 percentage points year-over-year
    Q2 FY26
    Pro forma free cash flow margin
    6.5%
    Q2 FY26
    Free cash flow to adjusted EBITDA conversion rate
    26%
    Q2 FY26

    Pro forma.

    Adjusted EBITDA less capital expenditures
    more than doubled
    past 6 quarters

    During this time frame, quarterly adjusted EBITDA increased 37% or $14 million.

    Shares repurchased
    $26.5M
    Q2 FY26
    Total shares repurchased since program launch
    $56.6M
    since November

    Program launched in November with $150 million authorization.

    Remaining buyback authorization
    $93.4M
    as of Q2 FY26

    Under the $150 million buyback program.

    Internal AI tool active use
    89%up from 68% in January
    Q2 FY26

    Across the company.

    Engineering efficiency improvement (AI)
    34%
    Q2 FY26

    Internal measurements across the majority of teams.

    Pull request merge rates (AI)
    increased 30%from January baseline
    Q2 FY26

    In engineering.

    E-invoicing onboarding time reduction (AI)
    50%
    Q2 FY26

    Reduced in applicable workflow through AI-supported generation of e-invoicing business rules.

    Country expansion agent onboarding speed (AI)
    70% faster
    Q2 FY26

    Enabled the team to onboard rules faster than the prior process.

    Industry KPIs

    8
    MetricValueDetails
    Revenue growth$204MUSD
    Arr net new arr10.5%%
    Customer account countup
    Large deal new logo metricsseveral 6-figuredeals
    Gross retention renewal rate95%%
    Operating FCF margin rule of 4025%%
    Ai product adoption monetizationsteady increase
    Net revenue net dollar retention105%%

    Product announcements

    2
    ProductTypeDetails
    Vertex Intelligence embedded AIupdate
    Smart Categorizationupdate

    Deals & partnerships

    6
    Leading mobility and delivery technology companyExpansion of Vertex footprint due to customer growth and increased transaction volumes.mid-6 figures

    Expanded footprint with an existing customer, resulting in mid-6 figures of additional revenue due to entitlement expansion driven by the customer's growth and broadening operations.

    Consumer packaged goods companyHigh 6-figure expansion as part of the customer's SAP cloud transformation.high 6-figures

    Secured a high 6-figure expansion with an existing customer, extending the relationship across multiple geographies and tax types, leveraging SAP software and Vertex Consulting as part of an SAP cloud transformation.

    Major quick service restaurant operatorCompetitive displacement opportunity in the Oracle ecosystem, standardizing on Vertex.mid-6 figures

    Won a competitive displacement opportunity where the customer chose to standardize on Vertex to modernize and simplify its existing technology environment, resulting in a mid-6-figure expansion including multiple Vertex solutions and services.

    Telecommunications infrastructure leaderNew customer win, automating indirect tax processes after outgrowing a manual solution.low 6-figures

    A new enterprise customer win, where the customer outgrew a manual solution and needed to automate its indirect tax processes.

    Global management and technology consulting firmNew customer win, selected Vertex for North America Sales Tax, Consumer Use Tax, SAP Accelerator, and Consulting services as part of an SAP cloud migration.low 6-figures

    A new customer win as part of an SAP cloud migration, selecting Vertex for a broad set of tax and consulting services.

    Building products distributorNew customer win, driven by transaction volume growth, selected a broad set of Vertex capabilities.high 6-figures

    A new customer win where transaction volume growth was the catalyst, leading to the selection of a broad set of Vertex capabilities.

    Risks & headwinds

    4
    Slower-than-expected cloud conversionsFY26

    Lowered full-year Cloud revenue growth guidance to 18%.

    Mitigation: Management views it as a 'conversion timing issue, not a revenue issue'; continuing to support customers on-prem or cloud; working to improve cloud conversion expansion and new logo execution; providing more incentives (new features, AI capabilities) for cloud migration.

    Sub-optimal expansion within installed base and new logo performanceQ2 FY26, expected to continue into H2

    Not yet at expected levels.

    Mitigation: Improving the way successful initial deployments convert into broader customer relationships is a clear growth opportunity; focus on cross-sell and upsell.

    Elongation of sales cyclesQ2 FY26, continuing into Q3

    Deals slipping between quarters (e.g., a 7-figure deal from June to July).

    Mitigation: Acknowledged as part of the environment, factored into guidance.

    Free cash flow impact from value creation plan costsQ2 FY26

    $2.7 million FCF, impacted by severance and consulting fees; pro forma FCF $13.2 million.

    Mitigation: Expect steady upward march of FCF to adjusted EBITDA conversion rate to ~70% by Q4 2027 as impact of value creation program takes root.

    What to watch in Q3 FY26

    5

    E-invoicing revenue and ARR ramp

    Q3 FY26 and into 2027
    CurrentVery strong growth, several 6-figure deals in Q2.
    TargetContinued ramp, material contribution to overall growth, impact from French mandate.

    Why it matters

    E-invoicing is a key growth driver and strategic opportunity, especially with upcoming mandates.

    Importantly, we continue to see both new e-invoicing revenue and the number of our e-invoicing wins ramping considerably as we move throughout the year and towards the implementation dates for the upcoming French and German mandates.

    Q&A highlights

    5

    How is Vertex making risk-averse tax accountants comfortable with adopting new AI solutions?

    Chris Young explained that Vertex uses a 'forward deployed engineering model' to work with customers, helping them adapt their operational models, not just providing tools. He noted increased adoption of Vertex Intelligence (Copilot equivalent) and sees opportunities to improve customer posture and cross-sell through AI.

    “you're not only offering your customers a tool, but you're changing the way they work. They've had a series of processes built up around how they categorize products.”

    asked by Christopher Quintero · answered by Christopher Young

    2 min read5 chapters

    Detailed Narrative

    01

    Operational Efficiency & AI Integration

    Vertex is translating greater operating focus and cost discipline into meaningful earnings leverage, with adjusted EBITDA up 33% and margin expanding to 25%. Internal AI tool adoption increased to 89% (from 68% in January), leading to a 34% improvement in engineering efficiency and a 50% reduction in e-invoicing onboarding time for applicable workflows. The company is also applying AI to specific customer delivery bottlenecks, such as a country expansion agent enabling 70% faster onboarding of 3,500 rules across 50 formats.

    02

    E-invoicing Momentum and Strategic Importance

    E-invoicing was a strong area of execution, with very strong ARR and revenue growth materially above the corporate rate. The company won several 6-figure enterprise e-invoicing deals, including a mid-6-figure win for an existing customer driven by French and Finnish mandates. This momentum is supported by upcoming mandates (France, Germany) and customers seeking broader global compliance solutions, positioning Vertex to manage the entire tax lifecycle from decision to defense.

    03

    Customer Metrics and Growth Opportunities

    Gross revenue retention remained strong at 95% and net revenue retention at 105% for the second consecutive quarter, indicating deep customer embeddedness. However, expansion within the installed base and new logo performance are not yet at expected levels, partly due to slower-than-anticipated cloud conversions and elongated sales cycles. Improving the conversion of initial deployments into broader customer relationships is identified as a clear growth opportunity.

    04

    Strategic Leadership Hires

    Vertex strengthened its leadership team with key hires, including Allison Cerra as Chief Marketing Officer, Aneel Jaeel as Chief Operations Officer, Chatelle Lynch as Chief People Officer, and Bala Chandran as Chief Product and Technology Officer. These leaders bring significant experience in product innovation, cloud modernization, and AI leadership, aiming to improve execution and drive the next phase of transformation.

    05

    Customer Buying Patterns and New Logo Activity

    The company observed consistent buying patterns: customers expanding use due to increased transaction volumes and global complexity, standardizing on Vertex during ERP cloud transformations (SAP, Oracle, Microsoft), and choosing Vertex in competitive situations for complex tax environments. New logo activity included wins replacing manual processes, supporting SAP cloud migrations, and responding to transaction volume growth, spanning various ecosystems and deployment types.

    AI-generated summary of the company’s earnings call. Not investment advice.