Vertex Q3 Net Income Dips Despite Strong Revenue Growth

TL;DR

**Vertex is spending big to grow, but investors should watch if those investments pay off in future profits, not just revenue.**

AI Summary

Vertex, Inc. reported total revenues of $192.112 million for the three months ended September 30, 2025, an increase from $170.435 million in the prior year period. Software subscriptions, the primary revenue driver, grew to $164.824 million from $146.254 million. Despite revenue growth, net income for the three months ended September 30, 2025, decreased to $4.045 million from $7.221 million in the same period of 2024. For the nine months ended September 30, 2025, total revenues reached $553.733 million, up from $488.320 million, while net income slightly declined to $14.214 million from $15.069 million. Operating expenses saw significant increases, with research and development rising to $61.397 million for the nine months from $47.080 million, and selling and marketing increasing to $143.994 million from $123.143 million. A notable change was the $16.400 million positive adjustment from the change in fair value of acquisition contingent earn-outs for the nine months ended September 30, 2025, compared to zero in the prior year. The company also made a new long-term investment of $15.000 million during the nine months ended September 30, 2025.

Why It Matters

Vertex's mixed financial results, with revenue growth but declining net income, signal increased investment in R&D and sales, which could be a long-term positive for investors if these investments translate into sustained market share gains against competitors like Avalara. Employees might see continued opportunities in these expanding departments, while customers could benefit from enhanced software solutions. The broader market for tax technology remains competitive, and Vertex's ability to innovate and expand its offerings will be crucial for its valuation and position in the enterprise resource planning ecosystem.

Risk Assessment

Risk Level: medium — The risk level is medium due to declining net income despite revenue growth, indicating increased operational costs. Net income for the nine months ended September 30, 2025, was $14.214 million, down from $15.069 million in the prior year, while total operating expenses rose significantly to $350.568 million from $298.128 million. This trend suggests potential pressure on profitability if cost increases outpace revenue expansion.

Analyst Insight

Investors should closely monitor Vertex's upcoming earnings calls for management's commentary on the return on investment for increased R&D and selling/marketing expenses. Consider holding existing positions but deferring new investments until there's clearer evidence that these strategic expenditures are translating into improved net income margins and sustainable profitability.

Financial Highlights

debt To Equity

1.27

revenue

$553.733M

operating Margin

N/A

total Assets

$1,221.858M

total Debt

$336.913M

net Income

$14.214M

eps

$0.17

gross Margin

N/A

cash Position

$313.506M

revenue Growth

+13.4%

Revenue Breakdown

Key Numbers

• $192.112M — Total Revenues (Q3 2025) (Increased from $170.435M in Q3 2024, showing 12.7% growth.)
• $4.045M — Net Income (Q3 2025) (Decreased from $7.221M in Q3 2024, a 43.9% decline.)
• $553.733M — Total Revenues (YTD 2025) (Increased from $488.320M in YTD 2024, indicating 13.4% growth.)
• $14.214M — Net Income (YTD 2025) (Slightly decreased from $15.069M in YTD 2024, a 5.7% decline.)
• $61.397M — Research and Development (YTD 2025) (Increased from $47.080M in YTD 2024, reflecting significant investment.)
• $143.994M — Selling and Marketing (YTD 2025) (Increased from $123.143M in YTD 2024, indicating higher sales efforts.)
• $16.400M — Change in fair value of acquisition contingent earn-outs (YTD 2025) (Positive adjustment, impacting operating expenses favorably.)
• $15.000M — Long-term investment (YTD 2025) (New investment made, impacting cash flows from investing activities.)
• $313.506M — Cash and cash equivalents (Sept 30, 2025) (Increased from $296.051M at Dec 31, 2024, showing improved liquidity.)
• $336.913M — Debt, net of current portion (Sept 30, 2025) (Slightly increased from $335.220M at Dec 31, 2024.)

Key Players & Entities

• Vertex, Inc. (company) — Registrant as Specified in its Charter
• Bloomberg (company) — publisher
• SEC (regulator) — Securities and Exchange Commission
• Nasdaq Stock Market LLC (company) — exchange where Class A Common Stock is registered
• Avalara (company) — competitor in tax technology
• $192.112 million (dollar_amount) — total revenues for three months ended September 30, 2025
• $170.435 million (dollar_amount) — total revenues for three months ended September 30, 2024
• $4.045 million (dollar_amount) — net income for three months ended September 30, 2025
• $7.221 million (dollar_amount) — net income for three months ended September 30, 2024
• $15.000 million (dollar_amount) — long-term investment made during nine months ended September 30, 2025

FAQ

Risk Factors

• Contingent Consideration Liabilities [medium — financial]: The company has significant purchase commitment and contingent consideration liabilities, totaling $106.100M ($27.100M current, $79.000M non-current) as of September 30, 2025. These represent potential future payments related to acquisitions and could impact cash flow and profitability.
• Increased Operating Expenses [medium — operational]: Research and development expenses increased to $61.397M for the nine months ended September 30, 2025, from $47.080M in the prior year. Selling and marketing expenses also rose to $143.994M from $123.143M. These investments, while potentially driving future growth, are currently pressuring net income.
• Declining Net Income Despite Revenue Growth [high — financial]: For Q3 2025, net income decreased to $4.045M from $7.221M in Q3 2024, a 43.9% decline, despite a 12.7% increase in total revenues. For the nine months, net income declined 5.7% to $14.214M from $15.069M. This indicates margin compression or increased costs impacting profitability.
• Intensifying Competition [medium — market]: While not explicitly detailed in the provided text, the software industry is highly competitive. Increased R&D and S&M spending suggest Vertex is investing to maintain market share and develop new offerings, indicating competitive pressures.
• Fair Value Adjustments on Contingent Earn-outs [low — financial]: A positive adjustment of $16.400M from the change in fair value of acquisition contingent earn-outs was recorded for the nine months ended September 30, 2025. While favorable, the volatility of these fair value adjustments can introduce unpredictability to earnings.

Industry Context

Vertex operates in the software industry, which is characterized by rapid technological advancements and evolving customer needs. The sector demands continuous innovation, leading to significant R&D investments. Competition is fierce, requiring companies to invest heavily in sales and marketing to acquire and retain customers. Cloud-based subscription models are prevalent, driving recurring revenue streams.

Regulatory Implications

As a software company, Vertex is subject to data privacy regulations (e.g., GDPR, CCPA) which could lead to compliance costs and potential penalties for breaches. Changes in accounting standards for revenue recognition or capitalization of software development costs could also impact financial reporting.

What Investors Should Do

1. Monitor operating expense growth relative to revenue.
2. Analyze the drivers of net income decline.
3. Evaluate the impact of contingent consideration liabilities.
4. Assess the long-term investment strategy.

Glossary

Accumulated deficit

The total net losses of a company since its inception that have not been offset by net income. (A negative accumulated deficit of ($39.101M) as of September 30, 2025, indicates the company has historically incurred more losses than profits, though it has improved from ($53.315M) at the end of 2024.)

Capitalized software

Costs incurred in developing software that are capitalized rather than expensed immediately, typically when technological feasibility has been established. (Represents an investment in the company's core product, with a net value of $35.917M as of September 30, 2025.)

Deferred revenue

Revenue that has been received by a company but not yet earned, typically because the goods or services have not yet been delivered or rendered. (A significant liability of $339.043M ($333.636M current, $5.407M non-current) as of September 30, 2025, indicating future revenue streams from unfulfilled obligations.)

Goodwill and other intangible assets

Intangible assets arising from acquisitions, representing the excess of the purchase price over the fair value of identifiable net assets acquired. (A substantial portion of the company's assets at $396.997M as of September 30, 2025, reflecting past acquisitions and potential future impairment risks.)

Acquisition contingent earn-outs

Additional payments to sellers of an acquired company that are contingent upon the acquired company achieving certain performance targets after the acquisition. (The $16.400M positive adjustment in fair value for the nine months ended September 30, 2025, impacts net income and reflects changes in the expected future performance of acquired businesses.)

Year-Over-Year Comparison

Vertex reported a 12.7% increase in Q3 2025 revenue and a 13.4% increase year-to-date, demonstrating top-line growth. However, net income saw a significant decline of 43.9% in Q3 and a 5.7% decrease year-to-date, indicating margin pressure. Operating expenses, particularly R&D and S&M, have increased substantially, contributing to the lower profitability. The company also made a new $15.000M long-term investment, and a notable $16.400M positive adjustment from contingent earn-outs was recorded, impacting the income statement.

Key Financial Figures

• $0.001 — tered Class A Common Stock, Par Value $0.001 Per Share VERX The Nasdaq Stock Mar

Filing Documents

• verx-20250930x10q.htm (10-Q) — 3918KB
• verx-20250930xex31d1.htm (EX-31.1) — 13KB
• verx-20250930xex31d2.htm (EX-31.2) — 14KB
• verx-20250930xex32d1.htm (EX-32.1) — 6KB
• verx-20250930xex32d2.htm (EX-32.2) — 7KB
• 0001104659-25-105582.txt ( ) — 14453KB
• verx-20250930.xsd (EX-101.SCH) — 65KB
• verx-20250930_cal.xml (EX-101.CAL) — 77KB
• verx-20250930_def.xml (EX-101.DEF) — 404KB
• verx-20250930_lab.xml (EX-101.LAB) — 617KB
• verx-20250930_pre.xml (EX-101.PRE) — 563KB
• verx-20250930x10q_htm.xml (XML) — 3052KB

- Financial Information

Part I - Financial Information Item 1.

Financial Statements

Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2025 (unaudited) and December 31, 2024 5 Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2025 and 2024 (unaudited) 6 Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended September 30, 2025 and 2024 (unaudited) 7 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2025 and 2024 (unaudited) 9 Notes to Condensed Consolidated Financial Statements (unaudited) 10 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 35 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 58 Item 4.

Controls and Procedures

Controls and Procedures 59

- Other Information

Part II - Other Information 60 Item 1.

Legal Proceedings

Legal Proceedings 60 Item 1A.

Risk Factors

Risk Factors 60 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 60 Item 3. Defaults Upon Senior Securities 60 Item 4. Mine Safety Disclosures 60 Item 5. Other Information 60 Item 6. Exhibits 61

Signatures

Signatures 62 2 Table of Contents SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made in this Quarterly Report on Form 10-Q that are not statements of historical fact, including statements about our beliefs and expectations and regarding future events or our future results of operations, financial condition, business, strategies, financial needs, the plans and objectives of management, and our stock repurchase program are forward-looking statements and should be evaluated as such. These statements often include words such as "anticipate," "believe," "expect," "suggests," "plans," "intend," "estimates," "targets," "projects," "should," "could," "would," "may," "will," "forecast," and other similar expressions or the negatives of those terms. We base these forward-looking statements on our current expectations, plans, and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances at such time. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of future performance or results. The forward-looking statements are subject to and involve risks, uncertainties and assumptions, and you should not place undue reliance on these forward-looking statements. Although we believe that these forward-looking statements are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements. Important factors that may materially affect such forward-looking statements include,

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION

FINANCIAL STATEMENTS

Item 1. FINANCIAL STATEMENTS Vertex, Inc. and Subsidiaries Condensed Consolidated Balance Sheets As of September 30, 2025 and December 31, 2024 (Amounts in thousands, except per share data) September 30, December 31, 2025 2024 (unaudited) Assets Current assets: Cash and cash equivalents $ 313,506 $ 296,051 Funds held for customers 25,287 30,015 Accounts receivable, net of allowance of $ 15,069 and $ 16,838 , respectively 131,502 164,432 Prepaid expenses and other current assets 48,532 36,678 Investment securities available-for-sale, at fair value (amortized cost of $ 0 and $ 9,147 , respectively) — 9,157 Total current assets 518,827 536,333 Property and equipment, net of accumulated depreciation 202,655 177,559 Capitalized software, net of accumulated amortization 35,917 36,350 Goodwill and other intangible assets 396,997 363,021 Deferred commissions 28,812 27,480 Deferred income tax asset 22 19 Operating lease right-of-use assets 10,496 11,956 Long-term investment 15,000 — Other assets 13,132 14,073 Total assets $ 1,221,858 $ 1,166,791 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 35,374 $ 36,215 Accrued expenses 39,788 35,169 Customer funds obligations 22,904 27,406 Accrued salaries and benefits 23,729 14,581 Accrued variable compensation 29,101 45,507 Deferred revenue, current 333,636 339,326 Current portion of operating lease liabilities 4,236 3,995 Current portion of finance lease liabilities 71 77 Purchase commitment and contingent consideration liabilities, current 27,100 35,100 Total current liabilities 515,939 537,376 Deferred revenue, net of current portion 5,407 4,840 Debt, net of current portion 336,913 335,220 Operating lease liabilities, net of current portion 10,093 12,585 Finance lease liabilities, net of current portion 61 10 Purchase commitment

View Full Filing

View this 10-Q filing on SEC EDGAR