Vertex Swings to Profit as It Cuts Cloud Growth Outlook
Vertex Inc. posted net income of $9.0 million in the second quarter, even as it lowered its full-year cloud revenue growth forecast to 18% from 25%.
Vertex Inc. (VERX), the tax-technology software provider, swung to net income of $9.0 million in the second quarter of 2026, from a net loss of $2.5 million in the prior quarter, as cost cuts under its Value Creation Plan pushed profitability higher even as cloud revenue growth kept slowing.
The quarter captured two diverging trends. Total revenue grew 10.5% year over year, decelerating from 11.1% in the first quarter after that figure had accelerated from 9.1% in the fourth quarter of 2025. Cloud revenue, the company's primary growth engine, grew 17.9% year over year, down from 20.7% in the first quarter and 23.0% two quarters earlier, a slide that led Vertex to cut its full-year 2026 cloud growth guidance to 18% from 25%.
Profitability moved the opposite direction. Adjusted EBITDA margin reached 25.0% in the second quarter, up 220 basis points sequentially from 22.4% in the first quarter and well above the 20.8% margin posted in the year-earlier period, a gain attributed to cost actions under its Value Creation Plan. The GAAP operating loss narrowed to $4.4 million from $10.6 million in the first quarter, and the company returned to net income for the first time in the trailing period.
Customer metrics showed steadier footing than the growth-rate headline. Net revenue retention held at 105% for a third straight quarter, down from 107% to 109% a year earlier but no longer declining sequentially, while gross revenue retention improved to a steady 95% from 94% in the fourth quarter of 2025. Average annual revenue per customer rose to $142,997 from $140,464 in the first quarter, a 1.8% sequential gain that followed a 1.9% increase the quarter before. Total customer count climbed to 5,459 from 5,382 at the end of 2025, with growth split between direct customers, which rose to 4,919, and the indirect channel, which rose to 540.
Cash generation did not keep pace with the margin improvement. Free cash flow margin fell to 1.3% in the second quarter from 10.6% in the year-earlier period, a decline linked to working-capital swings that included a $45.0 million build in prepaid expenses. Vertex also disclosed $6.25 million of one-time transaction costs embedded in its non-GAAP general and administrative add-backs for the quarter, compared with none a year earlier, along with a new $1.25 million add-back for retained employee compensation tied to its Brinta acquisition.
Vertex narrowed its full-year 2026 revenue guidance to a range of $825.0 million to $830.0 million from a prior range of $823.5 million to $831.5 million, while raising its full-year Adjusted EBITDA guidance to $206.0 million to $210.0 million from $202.0 million to $208.0 million.
The company also began returning cash to shareholders during the period, repurchasing $46.6 million of shares in the six months ended June 30, 2026, compared with no buybacks in the year-earlier period. Treasury stock rose to $56.7 million from $10.1 million at the end of 2025.