Overview

Vertex is a leading provider of tax software and solutions that help businesses manage their tax processes and compliance globally. In the first quarter of 2024, Vertex delivered strong financial results:

• Revenue grew 18% to $156.8 million compared to $132.8 million in the first quarter of 2023, driven by expansion from existing customers and adding new customers. Software subscriptions revenue grew 19% and services revenue grew 15%.

• Net income was $2.7 million compared to a net loss of $18.1 million in the first quarter of 2023.

• Adjusted EBITDA, a key profitability metric, increased 81% to $36.7 million. Adjusted EBITDA margin expanded from 15% to 23%.

The revenue growth reflects the value Vertex provides in helping customers navigate complex tax regimes across the globe. Vertex serves over 4,300 direct customers globally including leading companies in retail, technology, and manufacturing.

Financial Results

Vertex generates revenue primarily from software subscriptions, which made up 84% of total first quarter revenue. Subscription revenue grew 19% driven by customers expanding their use of Vertex’s solutions and adding more products.

Services revenue, 16% of total revenue, grew 15% in the quarter. This was driven by implementations for new customers, upgrades for existing customers, and transaction growth in Vertex’s returns processing services.

Total cost of revenues which includes software subscriptions and services, increased 18% compared to a 19% increase in subscription revenue. Gross margin expanded slightly from 61.0% to 61.1%.

Operating expenses grew 8% as the company continues investing in growth. Significant investment areas include product development, sales and marketing, and infrastructure to support customer and transaction growth.

First quarter net income was $2.7 million compared to a loss of $18.1 million last year, reflecting strong revenue growth and operating leverage.

Cash Flow and Balance Sheet

Vertex generated $24.6 million in cash flow from operations in the first quarter, up significantly from $3.5 million last year. This funds investments to drive growth while paying down debt.

The company has ample liquidity including $56 million of unrestricted cash and cash equivalents and access to a $200 million revolving credit facility, bolstering its financial flexibility. Total debt stands at $46 million.

Growth Outlook

Multiple trends point to sustainable long-term growth for Vertex:

• Global tax complexity continues increasing as businesses expand across borders and tax regimes evolve. This benefits Vertex’s specialized tax software.

• Customers are moving toward cloud-based subscription models which Vertex is well positioned to capitalize on.

• Vertex’s large existing customer base provides a steady revenue expansion opportunity as they grow and add products.

The company reaffirmed its full-year guidance for revenue and profit growth, expecting its investments to drive growth for years to come.