10-K: Vertex, Inc. Reports Strong Revenue Growth, Net Income Turnaround

Vertex, Inc. announced a significant turnaround to net income in 2025, alongside robust revenue growth and strategic investments in AI and global e-invoicing solutions, despite a slight dip in customer retention metrics.

Summary

• Total revenues increased by 12.2% to $748.4 million in 2025, up from $666.8 million in 2024.
• Net income reached $7.2 million in 2025, a substantial improvement from a net loss of $(52.7) million in 2024.
• Adjusted EBITDA grew by 6.3% to $161.5 million in 2025, compared to $151.9 million in 2024.
• Software subscriptions revenue, the majority of total revenue, increased by 12.8% to $639.7 million.
• Cloud-based subscriptions now account for 55% of software subscription revenues in 2025, up from 49% in 2024, indicating a continued shift to cloud solutions.
• The company made a strategic $15.0 million minority investment in Kintsugi AI, Inc. in Q2 2025, acquiring a 10% ownership interest to accelerate AI innovation for small and mid-size business tax compliance.
• Vertex launched Smart Categorization, an AI-powered solution designed to reduce manual effort in mapping product SKUs to tax categories.
• David DeStefano retired as CEO, President, and Chairperson of the Board, effective November 10, 2025, and Christopher Young was appointed as his successor.
• The Board authorized a stock repurchase program for up to $150.0 million of Class A common stock on October 30, 2025, with $10.1 million repurchased in 2025.
• Net Revenue Retention Rate (NRR) decreased to 105% in 2025 from 109% in 2024, attributed to slower customer annual growth, higher attrition in smaller accounts, and delayed deal activity due to macroeconomic conditions.
• Gross Revenue Retention Rate (GRR) slightly decreased to 94% in 2025 from 95% in 2024.
• Free Cash Flow decreased to $47.6 million in 2025 from $77.7 million in 2024, primarily due to increased investments in property, equipment, and capitalized software.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this filing positively, primarily due to the significant turnaround to net income and solid revenue growth. While some key metrics like NRR and Free Cash Flow margin show declines, these are largely attributed to strategic investments in future growth areas like AI and global e-invoicing, which are crucial for long-term competitiveness.

Positives

• Net income significantly improved to $7.2 million in 2025 from a net loss of $(52.7) million in 2024.
• Total revenues increased by 12.2% year-over-year, reaching $748.4 million.
• Adjusted EBITDA grew by 6.3% to $161.5 million, demonstrating operational performance improvement.
• Cloud-based subscription revenues continue to grow at a faster rate, now representing 55% of total software subscription revenues, aligning with market trends.
• Strategic investment in Kintsugi AI, Inc. and the launch of Smart Categorization enhance AI capabilities and market reach, particularly in the SMB segment.
• Expansion of global footprint and partner ecosystem, including a partnership with NITIS SAS (Brinta) for Latin American e-invoicing, supports international growth.
• Average Annual Revenue Per Customer (AARPC) increased to $137,867 in 2025 from $122,706 in 2024, indicating increased value from existing customers.

Negatives

• Net Revenue Retention Rate (NRR) decreased by 400 basis points to 105% in 2025, indicating slower growth from existing customers and higher attrition.
• Gross Revenue Retention Rate (GRR) decreased by 100 basis points to 94% in 2025, primarily due to higher customer attrition in smaller accounts.
• Adjusted EBITDA margin decreased by 120 basis points to 21.6% in 2025, reflecting strategic investments and increased operating expenses.
• Free Cash Flow decreased by $30.1 million to $47.6 million in 2025, and Free Cash Flow margin dropped to 6.4% from 11.7%, due to increased capital expenditures and capitalized software investments.
• Legal expenses associated with a pending claim against a competitor amounted to $10.3 million in 2025, impacting other operating expense, net.
• The company experienced a decrease in direct customer count from 4,915 in 2024 to 4,867 in 2025.

Risks

• Failure to add new customers, retain existing customers, or expand their usage of solutions could harm business, results of operations, financial condition, and cash flows.
• Inability to maintain or expand strategic relationships with third parties, including technology partners and system integrators, could adversely affect business.
• Significant competitive pressures from other tax software and services providers, including accounting firms and new entrants focused on eCommerce, could impact market share and revenue.
• Changes to customers' and partners' software systems may impact the ability to offer specific software deployment methods, potentially leading to contract terminations or operational issues.
• The need for continued significant investments in software development and equipment, particularly in AI solutions, may not yield expected benefits or market acceptance.
• Failure to effectively manage growth, both domestically and internationally, could strain management, operational, and financial reporting resources.
• Future acquisitions and investments may not yield anticipated benefits, and integration challenges could negatively impact business and financial performance.
• Quarterly and annual results of operations may fluctuate due to various factors, including customer purchasing patterns, new solution introductions, and economic conditions.
• Operating globally involves challenges such as political instability, regulatory complexities, currency fluctuations, and intellectual property protection issues.
• Inability to successfully adapt to organizational changes, including leadership transitions, and effectively implement strategic initiatives could impact reputation and results.
• Worsening economic conditions, including inflationary pressures, may negatively affect business and financial performance.
• Natural disasters, epidemic or pandemic outbreaks, terrorist acts, and political events could disrupt business and result in lower sales.
• Limited ability to obtain additional capital on commercially reasonable terms could impair business growth and response to challenges.
• Failure to attract and retain qualified technical and tax-content personnel, especially in AI and e-invoicing, could harm the business.
• Inability to maintain an effective system of disclosure controls and internal control over financial reporting could impair the ability to produce timely and accurate financial statements.
• Failure to adapt to rapid technological changes by introducing new and enhanced solutions and services could adversely affect business.
• Any failures in information technology or infrastructure could lead to disruptions of software, loss of customer data, or untimely remittance of taxes.
• Failure to effectively protect, maintain, and enhance the brand could cause the business to suffer.
• Challenges in using and properly managing Artificial Intelligence (AI) in the business could result in reputational or competitive harm and legal liability.
• Expansion into e-invoicing services increases dependency on government infrastructure and exposes the company to operational disruptions.
• Exposure to cybersecurity and data privacy risks, if realized, could materially impact reputation and business.
• Undetected errors, bugs, or defects in software could harm reputation or decrease market acceptance.
• Reliance on open-source software carries risks of defects, security vulnerabilities, and unanticipated license conditions.
• Interruptions or performance problems with third-party data centers, systems, and technology providers may adversely affect business.
• Limited ability to protect intellectual property and potential exposure to claims of infringement by third parties.
• Incorrect or improper implementation, integration, or use of solutions by customers could result in dissatisfaction and negative impact.
• Holding significant amounts of customer money for tax remittance exposes the company to liability from errors, delays, fraud, or system failures.
• Errors in customers' transaction tax determinations and reporting functions, or delays in tax payments, could harm reputation and growth prospects.
• Changes in tax laws and regulations, or their interpretation or enforcement, may require substantial investment to modify software or change the business model.
• Involvement in material legal proceedings and audits, such as the ongoing lawsuit against Avalara, could adversely affect business, results of operations, financial condition, and cash flows.
• Changes in the application, scope, interpretation, or enforcement of laws and regulations pertaining to operations (e.g., money transmission, data privacy, e-invoicing mandates) may harm business.
• Noncompliance with anti-corruption, anti-bribery, and similar laws can subject the company to criminal penalties or significant fines.
• The price of Class A common stock may fluctuate significantly, leading to potential investment losses.
• The share repurchase program may increase stock price volatility and adversely affect liquidity.
• Negative research or reports from securities or industry analysts could cause the market price of Class A common stock to decline.
• Reliance on controlled company exemptions from certain corporate governance requirements means stockholders may not have the same protections as in other companies.
• Indebtedness and liabilities could limit cash flow, expose the company to risks, and impair its ability to satisfy obligations.
• The ability to incur substantially more debt or take other actions could further intensify risks associated with indebtedness.
• Inability to raise funds necessary to repurchase Convertible Senior Notes for cash following a fundamental change or to pay cash amounts due upon conversion.
• Provisions in the Indenture governing the Notes could delay or prevent an otherwise beneficial takeover.
• Capped Call Transactions may affect the value of Class A common stock, and the company is exposed to credit risk of Option Counterparties.

Future Outlook

Vertex, Inc. anticipates continued expansion of its operations and headcount, with significant investments in research and development, sales and marketing, and global presence. The company expects a continued shift towards cloud deployment models by both existing and new customers. It plans to further enhance its software, expand tax content, and increase jurisdictional coverage for e-invoicing solutions. Operating expenses are expected to increase in future periods as the company invests to support ongoing business expansion and growth initiatives, including AI solutions.

Management Comments

• Management believes today's global commerce environment provides durable growth opportunities for the business.
• The company plans to continue to invest in new innovations and enhance solutions to support the ongoing retention and expansion of revenue from existing customers.
• Management believes the market for its software and solutions is large and underpenetrated, both in the U.S. and globally, and expects demand to increase among new customers and partners.
• The company expects to continue to invest in its software and solutions outside of the U.S., most notably in Latin America and Europe, which are among the most complex and largest international markets for its customers.
• Management believes it is important to continue innovating and extending the functionality and breadth of its software and solutions, driven by relationships with customers and partners.

Industry Context

StockSavvy.ai notes that Vertex, Inc.'s performance and strategic initiatives are well-aligned with broader industry trends, particularly the increasing complexity of global indirect tax regulations, the growing adoption of digital and real-time compliance mandates (e.g., e-invoicing), and the accelerating integration of Artificial Intelligence (AI) into enterprise software. The company's focus on cloud-based solutions and its investment in AI-powered tools like Smart Categorization position it to capitalize on the ongoing digital transformation in global commerce. The mention of the EU's 'VAT in the Digital Age' (ViDA) package highlights the critical need for adaptable e-invoicing solutions, a market segment Vertex is actively expanding into through partnerships like Brinta and acquisitions like ecosio. The competitive landscape remains fragmented, with businesses using a mix of in-house, ERP-native, outsourced, and specialized tax solutions, underscoring Vertex's strategy to differentiate through comprehensive, scalable, and integrated offerings.

Comparison to Industry Standards

• The company's NRR of 105% in 2025, while a decrease from 109% in 2024, remains a healthy indicator for a SaaS company, though it suggests some deceleration compared to prior periods. Leading SaaS companies often aim for NRR above 110-120%.
• The increase in cloud-based subscription revenue to 55% of total software subscriptions reflects a positive trend towards modern deployment models, aligning with industry leaders like Salesforce or Workday, which are predominantly cloud-native.
• The strategic investment in Kintsugi AI and the launch of Smart Categorization demonstrate a proactive approach to AI integration, similar to moves by larger enterprise software providers like SAP or Oracle, who are also embedding AI into their core offerings to enhance efficiency and automation.

Management Changes

Corporate Governance

Legal Proceedings

• An ongoing complaint filed on January 25, 2022 (subsequently amended on February 9, 2022) against Avalara, Inc. in the United States District Court for the Eastern District of Pennsylvania. The complaint alleges claims of unfair competition, intentional interference with contractual relations, and trade secret misappropriation. Vertex, Inc. is seeking a permanent injunction, monetary damages, punitive damages, and attorneys' fees. The matter is proceeding through the discovery process, and $10.3 million in legal costs were recognized in 2025.

Related Party Transactions

• A $15.0 million minority investment in Kintsugi AI, Inc. in April 2025, representing approximately 10% ownership, with Vertex, Inc. designating one member to Kintsugi's board of directors. This includes an intellectual property sharing and commercial arrangement.

Stakeholder Impact

• **Shareholders:** Potential for increased shareholder value through the stock repurchase program, but also exposure to stock price volatility and potential dilution from convertible notes. The net income turnaround is positive for equity holders.
• **Employees:** Continued investment in research and development and expansion of operations may lead to increased hiring, but also requires adapting to organizational changes and new technologies like AI.
• **Customers:** Benefit from continued innovation in tax compliance solutions, including AI-powered tools and expanded e-invoicing capabilities, enhancing operational efficiency and reducing compliance risk. Cloud migration offers modern deployment options.
• **Creditors:** The company's indebtedness, including Convertible Senior Notes and a Line of Credit, exposes creditors to financial risks, though the company was in compliance with covenants as of December 31, 2025.
• **Partners:** Expansion of the partner ecosystem, including technology and accounting firms, creates new opportunities for collaboration and market reach.

Next Steps

• Continue to invest in new innovations and enhance solutions to support the ongoing retention and expansion of revenue from existing customers.
• Invest in direct sales, indirect sales, and partnership marketing teams, and solution development to acquire new customers.
• Broaden and deepen the partner ecosystem by forming additional strategic alliances with participants in global digital transformation, such as payments and eCommerce platforms.
• Extend global footprint by investing in software and solutions outside the U.S., particularly in Latin America and Europe.
• Sustain investment in new product innovation, focusing on emerging technologies like edge computing, AI/machine learning, and blockchain.
• Manage customer migrations to cloud solutions, anticipating a continued shift from on-premise to cloud-based offerings.
• Continue to monitor and address the ongoing legal proceeding against Avalara, Inc.

Key Dates

Recommendation

Vertex, Inc. demonstrates solid revenue growth and a significant return to net profitability, driven by strategic investments in AI and global e-invoicing. These initiatives position the company well for long-term growth in a complex regulatory environment. However, the decline in Net Revenue Retention Rate (NRR) and Gross Revenue Retention Rate (GRR), coupled with a decrease in Free Cash Flow and Adjusted EBITDA margin due to increased investments, suggests some near-term headwinds and execution risks. While the strategic direction is sound, a 'hold' recommendation is prudent for a seasoned investor to observe the effectiveness of these investments in stabilizing retention rates and improving cash flow generation in subsequent periods, especially given the competitive landscape and macroeconomic uncertainties.

Keywords

Tax Compliance Software, Indirect Tax, VAT, Sales Tax, Use Tax, E-invoicing, AI, Artificial Intelligence, Cloud Solutions, Enterprise Software, Financial Technology, FinTech, SEC Filing, 10-K, Corporate Governance, Stock Repurchase, Convertible Notes, Risk Management