8-K: Vertex Inc. Announces Strong Fourth Quarter and Full Year 2024 Financial Results, Driven by Cloud Revenue Growth

Vertex, Inc. reports a 15.2% year-over-year increase in total revenues for Q4 2024 and a 16.5% increase for the full year, highlighting growth in software subscriptions and cloud revenues.

Summary

• Vertex, Inc. announced its financial results for the fourth quarter and full year ended December 31, 2024.
• Total revenues for Q4 2024 were $178.5 million, a 15.2% increase year-over-year.
• Software subscription revenues for Q4 2024 reached $152.6 million, up 16.8% year-over-year.
• Cloud revenues for Q4 2024 grew to $76.9 million, a 27.0% increase year-over-year.
• Annual Recurring Revenue (ARR) was $603.1 million, up 17.7% year-over-year, including contributions from the Systax and ecosio acquisitions.
• Excluding the impact of Systax and ecosio, ARR growth was 15.0%.
• Average Annual Revenue per direct customer (AARPC) was $122,706 at December 31, 2024.
• Net Revenue Retention (NRR) was 109%, compared to 113% at December 31, 2023.
• Gross Revenue Retention (GRR) was 95%, consistent with previous periods.
• The company reported a loss from operations of $(13.1) million for Q4 2024, compared to a loss of $(2.5) million in the same period of the prior year.
• Non-GAAP operating income for Q4 2024 was $32.5 million, compared to $28.2 million in the same period of the prior year.
• Net loss for Q4 2024 was $(67.8) million, compared to net income of $15.3 million in the same period of the prior year.
• Adjusted EBITDA for Q4 2024 was $38.1 million, compared to $32.0 million in the same period of the prior year.
• Total revenues for the full year 2024 were $666.8 million, up 16.5% year-over-year.
• Software subscription revenues for the full year 2024 were $567.1 million, up 17.9% year-over-year.
• Cloud revenues for the full year 2024 were $276.0 million, up 28.6% year-over-year.
• The company reported a loss from operations of $(2.2) million for the full year 2024, compared to a loss of $(17.5) million in the prior year.
• Non-GAAP operating income for the full year 2024 was $131.0 million, compared to $85.6 million in the prior year.
• Net loss for the full year 2024 was $(52.7) million, compared to a net loss of $(13.1) million in the prior year.
• Adjusted EBITDA for the full year 2024 was $151.9 million, compared to $100.8 million in the prior year.
• Cash provided by operating activities was $164.8 million, compared to $74.3 million in the prior year.
• Free cash flow was $77.7 million, compared to $6.1 million in the prior year.
• The company expects revenues of $175 million to $178 million and Adjusted EBITDA of $33 million to $36 million for the first quarter of 2025.
• For the full year 2025, the company expects revenues of $760 million to $768 million, cloud revenue growth of 28%, and Adjusted EBITDA of $161 million to $165 million.

Sentiment

Score: 7

Explanation: The sentiment is positive due to strong revenue growth, especially in cloud services, and improved free cash flow. However, increased net losses temper the overall outlook.

Positives

• Total revenues increased by 15.2% year-over-year for Q4 2024 and 16.5% for the full year 2024.
• Software subscription revenues grew by 16.8% year-over-year in Q4 2024 and 17.9% for the full year 2024.
• Cloud revenues experienced substantial growth, increasing by 27.0% year-over-year in Q4 2024 and 28.6% for the full year 2024.
• Annual Recurring Revenue (ARR) increased by 17.7% year-over-year.
• Average Annual Revenue per direct customer (AARPC) increased to $122,706.
• Adjusted EBITDA margin improved to 22.8% for the full year 2024, compared to 17.6% for the prior year.
• Cash provided by operating activities increased significantly to $164.8 million, compared to $74.3 million in the prior year.
• Free cash flow increased substantially to $77.7 million, compared to $6.1 million in the prior year.

Negatives

• The company reported a loss from operations of $(13.1) million for Q4 2024, compared to a loss of $(2.5) million for the same period in the prior year.
• Net loss for Q4 2024 was $(67.8) million, compared to net income of $15.3 million for the same period in the prior year.
• Net Revenue Retention (NRR) decreased to 109% compared to 113% at December 31, 2023.
• The company reported a net loss of $(52.7) million for the full year 2024, compared to a net loss of $(13.1) million for the prior year.

Risks

• The company's ability to maintain and grow revenue from existing and new customers.
• The ability to maintain and expand strategic relationships with third parties.
• The ability to adapt to technological changes and introduce new solutions.
• Risks related to failures in information technology or infrastructure.
• Challenges in using and managing the use of Artificial Intelligence in the business.
• The risk of incorrect or improper implementation, integration, or use of the company's solutions.
• The ability to attract and retain qualified technical and tax-content personnel.
• Competitive pressures from other tax software and service providers.
• The ability to accurately forecast revenue and other future results of operations.
• The ability to successfully diversify solutions through development, introduction, or acquisition.
• Risks related to fluctuations in results of operations and expanding international operations.
• Exposure to liability from errors, delays, fraud, or system failures.
• The ability to manage cybersecurity and data privacy risks.
• Involvement in material legal proceedings and audits.
• Risks related to undetected errors, bugs, or defects in the software.
• Risks related to utilization of open-source software, business processes, and information systems.
• The ability to effectively protect, maintain, and enhance the brand.
• Changes in application, scope, interpretation, or enforcement of laws and regulations.
• Global economic weakness and uncertainties, and disruption in the capital and credit markets.
• Business disruptions related to natural disasters, epidemic outbreaks, terrorist acts, political events, or other events outside of the company's control.
• The ability to comply with anti-corruption, anti-bribery, and similar laws.
• The ability to protect intellectual property.
• Changes in interest rates, security ratings, and market perceptions of the industry.
• The ability to maintain an effective system of disclosure controls and internal control over financial reporting.
• Risks related to the company's Class A common stock and controlled company status.
• Risks related to the company's indebtedness and adherence to the covenants under debt instruments.
• Expectations regarding the effects of the Capped Call Transactions and regarding actions of the Option Counterparties and/or their respective affiliates.

Future Outlook

For the first quarter of 2025, the company expects revenues of $175 million to $178 million and Adjusted EBITDA of $33 million to $36 million; for the full year 2025, the company expects revenues of $760 million to $768 million, cloud revenue growth of 28%, and Adjusted EBITDA of $161 million to $165 million.

Management Comments

• Vertex's 2024 financial results demonstrated the power of our business and financial model, which is built to deliver consistent and durable mid-to-high teens revenue growth with strong earnings leverage and cash flow, stated David DeStefano, Vertex's President, Chief Executive Officer and Chairperson of the Board.
• We believe the secular tailwinds that enable our performance will accelerate in the coming years as indirect taxes continue to grow in complexity, and enterprise technology continues to evolve and move to the cloud.
• Our Adjusted EBITDA guidance for 2025 includes additional research and development investments to capitalize on the significant growth opportunities in front of us, stated John Schwab, Chief Financial Officer.

Industry Context

Vertex operates in the indirect tax solutions market, which is experiencing growth due to increasing complexity in tax regulations and the ongoing shift to cloud-based enterprise technology. The company's focus on cloud revenue growth aligns with industry trends.

Comparison to Industry Standards

• Vertex's cloud revenue growth of 28.6% for the full year 2024 is strong compared to industry averages, but specific benchmarks depend on the subset of the software industry.
• Companies like Avalara and Sovos are direct competitors in the tax compliance space, and their growth rates and financial metrics would provide a more specific comparison.
• Vertex's Net Revenue Retention (NRR) of 109% indicates solid customer loyalty and expansion, but leading SaaS companies often target NRR above 110%.

Stakeholder Impact

• Shareholders can expect continued growth in revenue and a focus on profitability.
• Employees may see opportunities for growth and development as the company invests in R&D.
• Customers will benefit from new and improved solutions as the company invests in AI and emerging technologies.

Next Steps

• The company will continue to focus on growing its cloud revenue and expanding its product offerings.
• Vertex plans to make additional research and development investments, including in ecosio and AI-based Smart Categorization.
• The company will host a conference call to discuss the results.

Key Dates