10-Q: Vertex Reports Q1 2026 Results: Revenue Up 11.1%, Net Loss Widens

Vertex, Inc. announced its first quarter 2026 financial results, showing an 11.1% increase in total revenues to $196.6 million, but a net loss of $2.5 million compared to a net income of $11.1 million in the prior year.

Summary

• Total revenues for the first quarter of 2026 increased by 11.1% to $196.6 million, up from $177.1 million in the same period of 2025.
• Software subscription revenues grew by 10.9% to $167.1 million, driven by existing customer growth and new customer acquisition.
• Services revenues increased by 12.2% to $29.5 million, attributed to recurring services and managed services growth.
• The company reported a net loss of $2.5 million for the quarter, a significant decrease from a net income of $11.1 million in Q1 2025.
• Operating expenses increased by 24.9% to $135.5 million, largely due to investments in R&D, G&A, and severance costs related to the Value Creation Plan.
• Adjusted EBITDA, a non-GAAP measure, increased by 18.4% to $44.1 million, with an improved margin of 22.4% compared to 21.0% in the prior year.
• Free cash flow turned positive, reaching $7.7 million in Q1 2026, a substantial improvement from a negative $12.3 million in Q1 2025.
• Vertex completed the acquisition of Brinta for $22.0 million to expand its presence in Latin America.
• The company announced a Value Creation Plan, including a workforce reduction of approximately 170 employees, aimed at becoming more AI-enabled and driving operational efficiency.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this filing as mixed. While revenue growth and improved free cash flow are positive, the significant net loss and increased operating expenses, particularly due to restructuring costs, present concerns for near-term profitability.

Positives

• Total revenues increased by 11.1% to $196.6 million.
• Software subscription revenue grew by 10.9% to $167.1 million.
• Services revenue increased by 12.2% to $29.5 million.
• Adjusted EBITDA increased by 18.4% to $44.1 million.
• Adjusted EBITDA margin improved to 22.4% from 21.0%.
• Free cash flow improved significantly, turning positive at $7.7 million from a negative $12.3 million in the prior year.
• Annual Recurring Revenue (ARR) increased by 11.2% to $687.6 million.
• Acquisition of Brinta to expand into the Latin American market.

Negatives

• Net loss of $2.5 million, compared to a net income of $11.1 million in the prior year.
• Operating expenses increased by 24.9% to $135.5 million.
• Research and development expenses increased by 17.5%.
• General and administrative expenses increased by 20.7%, including $6.2 million in severance costs.
• Net Revenue Retention Rate (NRR) decreased to 105% from 109%.

Risks

• The Value Creation Plan, including workforce reductions, may not achieve intended benefits and could adversely affect profitability, financial condition, and results of operations.
• Restructuring activities carry risks of loss of institutional knowledge, reduced morale, difficulty in attracting/retaining personnel, and operational disruptions.
• The company faces competitive pressures from other tax software and service providers.
• Risks related to failures in information technology or infrastructure.
• Reliance on government infrastructure to support e-invoicing services.
• Challenges in using and managing Artificial Intelligence (AI) in business operations.
• Incorrect or improper implementation, integration, or use of solutions.
• Failure to attract and retain qualified technical and tax-content personnel.
• Inability to accurately forecast revenue and other future results of operations.
• Risks related to fluctuations in results of operations and expanding international operations.
• Exposure to liability from errors, delays, fraud, or system failures.
• Cybersecurity and data privacy risks.
• Involvement in material legal proceedings and audits.
• Risks related to undetected errors, bugs, or defects in software.
• Changes in tax laws and regulations or their interpretation or enforcement.
• Global economic weakness and uncertainties.
• Business disruptions related to natural disasters, epidemic outbreaks, terrorist acts, political events, or other events outside of control.
• Ability to comply with anti-corruption, anti-bribery, and similar laws.
• Ability to protect intellectual property.
• Changes in interest rates, security ratings, and market perceptions of the industry.
• Ability to maintain an effective system of disclosure controls and internal control over financial reporting, or ability to remediate any material weakness.
• Risks related to Class A common stock and controlled company status.
• Risks related to the Repurchase Program.
• Risks related to indebtedness and adherence to covenants under debt instruments.
• Effects of Capped Call Transactions and actions of Option Counterparties.
• Risks related to the Value Creation Plan.

Future Outlook

The company expects savings from the Value Creation Plan to yield an improvement of Adjusted EBITDA between $14.0 million to $16.0 million during fiscal year 2026 and forecast fully annualized cash savings of approximately $60.0 million to $70.0 million per year beginning in fiscal 2027. The company believes its existing cash resources and Line of Credit will be sufficient to meet capital requirements and fund operations for the next 12 months and longer-term liquidity needs. Additional financing may be sought through debt and/or equity, which could result in dilution or unfavorable terms.

Management Comments

• The company's mission is to deliver the most trusted tax technology enabling global businesses to transact, comply and grow with confidence.
• Cloud-based subscription sales to new customers have grown at a faster rate than on-premise software subscription sales, a trend expected to continue.
• The company believes that global commerce and the compliance environment provides durable and accelerating growth opportunities.
• The company believes that Adjusted EBITDA is a measure widely used by securities analysts and investors to evaluate financial performance.
• The company believes that Adjusted EBITDA and Adjusted EBITDA margin are useful as supplemental measures to evaluate overall operating performance.

Industry Context

StockSavvy.ai notes that Vertex's Q1 2026 results reflect continued growth in its core software subscription business, driven by cloud adoption and customer expansion. The increased investment in R&D, particularly in AI, aligns with broader industry trends towards leveraging artificial intelligence for enhanced tax compliance and automation. The acquisition of Brinta signals a strategic move to capitalize on the growing e-invoicing and tax compliance needs in the Latin American market, a region experiencing significant digital transformation in tax administration.

Comparison to Industry Standards

• While specific direct competitors' Q1 2026 results are not provided in this filing, Vertex's reported 11.1% revenue growth is generally considered solid in the enterprise software sector, particularly for established players.
• The increase in R&D spending as a percentage of revenue (12.5% in Q1 2026) is in line with or slightly above industry averages for software companies investing in innovation and AI capabilities.
• The Net Revenue Retention Rate (NRR) of 105% indicates that the company is successfully growing revenue from its existing customer base, which is a key benchmark for SaaS companies. However, the slight decrease from 109% suggests a potential slowdown in expansion or increased churn, which warrants monitoring.
• The Gross Revenue Retention Rate (GRR) of 95% is a strong indicator of customer stickiness, showing that the company retains a high percentage of its recurring revenue base before accounting for expansion.

Legal Proceedings

• Vertex filed a complaint against Avalara, Inc. alleging unfair competition, intentional interference with contractual relations, and trade secret misappropriation. Seeking injunction and monetary damages. Trial scheduled for October 13, 2026.

Stakeholder Impact

• Shareholders: Potential dilution if equity is raised for future financing. The net loss and increased expenses may impact stock price. The Value Creation Plan aims for long-term efficiency and profitability.
• Employees: Approximately 170 employees impacted by workforce reductions as part of the Value Creation Plan. Remaining employees may experience changes in morale and workload.
• Customers: Continued investment in R&D and AI may lead to enhanced solutions. Acquisition of Brinta expands service offerings in Latin America. Potential for service disruptions due to restructuring is a risk.
• Suppliers: Reduced third-party spend as part of the Value Creation Plan may impact some suppliers.
• Creditors: The company believes it has ample liquidity and capital resources to meet operating needs and service debt.

Next Steps

• Continue integration of Brinta to expand coverage in Latin America.
• Execute the Value Creation Plan, including workforce reductions and reduced third-party spend, to drive operational efficiency and become more AI-enabled.
• Focus investments on key growth opportunities and AI-enabled solutions.
• Monitor and manage cybersecurity and data privacy risks.
• Continue to invest in research and development for new products and enhancements.
• Manage legal proceedings, including the case against Avalara, Inc.

Key Dates

Recommendation

Vertex demonstrates solid revenue growth and improved cash flow generation, indicating a healthy underlying business. However, the significant net loss, driven by increased operating expenses and restructuring charges, coupled with a slight decrease in Net Revenue Retention Rate, warrants a cautious approach. The company's strategic investments in AI and international expansion are positive long-term indicators, but the immediate profitability concerns and execution risks associated with the Value Creation Plan suggest a 'hold' rating until clearer signs of sustained profitability and successful integration emerge.

Keywords

Vertex, SEC Filing, 10-Q, Quarterly Report, Tax Software, Compliance Technology, Financial Results, Revenue Growth, Net Loss, Adjusted EBITDA, Value Creation Plan, Acquisition, Brinta, AI