Vertex Q2 2026 earnings: Cloud growth lifts adjusted EBITDA margin to 25%

Vertex, Inc. (NASDAQ: VERX) reported Q2 2026 revenue of $204.0 million, up 10.5% year over year, while GAAP diluted EPS improved to $0.06 from a loss of $0.01. Cloud revenue grew 17.9%, and adjusted EBITDA margin expanded to 25.0%. However, the company remained loss-making at the GAAP operating level, and quarterly free cash flow declined to $2.7 million.

Core earnings data

Revenue growth remained led by subscriptions, with cloud revenue increasing faster than the companywide rate. Adjusted earnings also grew substantially faster than revenue, although higher GAAP costs limited gross-margin improvement and left Vertex with a slightly wider operating loss.

GAAP net income turned positive because Vertex recorded a $13.1 million income tax benefit despite a $4.1 million pre-tax loss. This distinction is important when assessing the underlying operating result.

Business and operating performance

Software subscriptions generated $174.8 million, or most of Vertex’s quarterly revenue, while cloud revenue grew 17.9%. Services revenue also increased, but at a slower rate than subscriptions and cloud.

The recurring-revenue indicators were mixed. ARR grew 10.5% and average annual revenue per direct customer increased, but net revenue retention fell to 105% from 108% a year earlier. Gross revenue retention remained stable at 95%, indicating that the change in NRR reflected less expansion within the existing customer base rather than weaker gross retention.

Direct customers increased to 4,919 from 4,862, while indirect customers rose to 540 from 504. Management also reported improved e-invoicing momentum as enterprises prepared for broader compliance mandates.

Higher amortization pressured GAAP margin while adjusted profitability expanded

Vertex’s GAAP gross margin declined by approximately 1.3 percentage points even as non-GAAP gross margin edged up to 76.1% from 75.9%. One disclosed contributor to this divergence was depreciation and amortization of capitalized software and acquired intangible assets within subscription costs, which rose to $21.9 million from $16.7 million.

The gap was also visible further down the income statement. Vertex reported a $4.4 million GAAP operating loss but $44.3 million of non-GAAP operating income. The reconciliation included $13.8 million of stock-based compensation, $2.7 million of severance expense, $7.4 million of transaction costs and several depreciation, amortization and acquisition-related items.

General and administrative expense illustrates the effect of these adjustments. GAAP G&A increased to $51.1 million from $43.4 million, while non-GAAP G&A declined to $34.6 million from $38.1 million. Investors therefore need to evaluate both the operating leverage reflected in adjusted results and the size and persistence of excluded expenses.

Cash flow and balance sheet

Quarterly operating cash flow fell to $30.9 million from $46.0 million. Property and equipment additions increased to $23.2 million, while capitalized software additions were $5.0 million, resulting in free cash flow of only $2.7 million.

The year-to-date picture was better. For the first six months of 2026, operating cash flow increased to $68.9 million from $60.8 million, and free cash flow rose to $10.4 million from $7.3 million. This means the weakness was concentrated in the second quarter rather than across the entire first half.

Cash and cash equivalents stood at $230.5 million on June 30, down from $314.0 million at the end of 2025, while debt was $338.6 million. First-half investing outflows included $47.8 million of property and equipment additions, $21.97 million for acquisitions and $10.6 million of capitalized software additions. Financing activities included $46.6 million of share repurchases and a $19.6 million acquisition earn-out payment.

Earnings guidance

Vertex narrowed its full-year revenue range and raised its adjusted EBITDA outlook, according to CFO John Schwab. The previous quantitative ranges were not included in the supplied release, so the exact size of those revisions cannot be measured.

Based on first-half results, the full-year guidance implies approximately $424.4 million to $429.4 million of second-half revenue and $110.9 million to $114.9 million of second-half adjusted EBITDA. Management expects stronger cash generation in both the third and fourth quarters.

Management commentary

CEO Christopher Young said customer retention remained stable and that e-invoicing activity improved as companies prepared for expanding global mandates. He also said Vertex’s AI-first strategy had begun improving the speed and efficiency of selected engineering and customer-delivery workflows, although the company did not quantify the financial effect.

Management’s second-half priorities remain product innovation, operating discipline and balancing growth investments with profitability. The raised adjusted EBITDA outlook suggests greater confidence in the cost and operating structure, while the cash-flow outlook will need to be confirmed by subsequent results.

Recent insider transactions

The supplied insider dataset reports 1,079,085 shares purchased across 23 transactions over the last six months, compared with 6,460 shares sold in one transaction. Net purchases were 1,072,625 shares, equal to 8.0% of the reported 14.48 million insider shares held.

The latest ten reported entries included eight director stock awards, one sale and one purchase. The table reports transaction values rather than share quantities for the individual entries.

The stock awards are compensation-related grants and should not be treated as open-market purchases. The reported sale and purchase also do not, by themselves, establish insiders’ views on Vertex’s prospects.

Risks investors need to watch

• Existing-customer expansion has slowed: NRR declined to 105% from 108%. Although GRR remained stable, lower expansion from retained customers could constrain recurring-revenue growth if the trend continues.
• Quarterly cash conversion weakened: Free cash flow fell to $2.7 million and the margin dropped to 1.3%. Management expects improvement in the second half, making third- and fourth-quarter cash generation an important test.
• GAAP and adjusted profitability remain far apart: Vertex still reported a GAAP operating loss, while adjusted EBITDA reached $51.0 million. Stock compensation, amortization, severance and transaction costs continue to create a substantial reconciliation gap.
• Full-year guidance requires a stronger second half: The implied second-half revenue and adjusted EBITDA levels are above the first-half totals. Delivering the outlook therefore depends on continued revenue growth and further operating discipline.

Summary

Vertex’s Q2 2026 results combined double-digit revenue growth, faster cloud expansion and a meaningful increase in adjusted EBITDA margin. At the same time, GAAP operations remained in the red, net income benefited from a tax benefit, and quarterly free cash flow weakened sharply. The main issues for the second half are whether NRR stabilizes, adjusted operating leverage continues and management delivers the expected improvement in cash generation.

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