0001104659-20-104404 | 10-Q | XBRL Viewer

Common Stock, Value, Issued

Stockholders' deficit:

^[1]

Common Stock, Value, Issued

Stockholders' deficit:

^[1]

$ 54

[1]	The number of shares of common stock have been retrospectively restated to reflect the three-for-one forward stock split which was effective July 28, 2020. See Note 13.

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	6 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Allowance for accounts receivable	$ 7,669	$ 7,515
Forward Stock Split	three-for-one
Class A voting
Common Stock, Par or Stated Value Per Share	$ 0.001	$ 0.001
Common Stock, Shares Authorized	600	600
Common Stock, Shares, Issued	300	300
Common Stock, Shares, Outstanding	147	147
Class B non-voting
Common Stock, Par or Stated Value Per Share	$ 0.001	$ 0.001
Common Stock, Shares Authorized	299,400	299,400
Common Stock, Shares, Issued	162,470	162,297
Common Stock, Shares, Outstanding	120,443	120,270

Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
shares in Thousands, $ in Thousands

3 Months Ended

6 Months Ended

Jun. 30, 2020

Jun. 30, 2019

Jun. 30, 2020

Jun. 30, 2019

Revenues:

Total revenues

$ 91,271

$ 78,375

$ 180,516

$ 152,989

Cost of revenues:

Total cost of revenues

41,745

27,109

81,207

52,673

Gross profit

49,526

51,266

99,309

100,316

Operating expenses:

Research and development

13,617

7,205

26,696

14,778

Selling and marketing

24,544

17,287

48,877

33,334

General and administrative

37,758

16,647

75,394

32,095

Depreciation and amortization

2,505

2,172

5,374

4,217

Other operating expense, net

103

305

214

468

Total operating expenses

78,527

43,616

156,555

84,892

Income (loss) from operations

(29,001)

7,650

(57,246)

15,424

Other (income) expense:

Interest income

(101)

(232)

(456)

(524)

Interest expense

1,160

539

2,084

1,076

Total other expense, net

1,059

307

1,628

552

Income (loss) before income taxes

(30,060)

7,343

(58,874)

14,872

Income tax (benefit) expense

(985)

221

(735)

425

Other comprehensive loss from foreign currency translation adjustments and revaluations, net of tax

(29,075)

7,122

(58,139)

14,447

(276)

(23)

(3,274)

(2)

Total comprehensive income (loss)

(29,351)

7,099

(61,413)

14,445

Net Income (Loss) Attributable to Parent

(29,075)

7,122

(58,139)

14,447

Loss before income taxes

(30,060)

7,343

(58,874)

14,872

Pro forma provision for income tax benefit

(7,605)

(14,895)

Proforma net loss

(22,455)

(43,979)

Software subscriptions

Revenues:

Total revenues

77,306

67,267

153,066

131,651

Cost of revenues:

Total cost of revenues

26,001

19,417

50,685

37,843

Services

Revenues:

Total revenues

13,965

11,108

27,450

21,338

Cost of revenues:

Total cost of revenues

15,744

7,692

30,522

14,830

Other (income) expense:

Net Income (Loss) Attributable to Parent

^[1]

(35)

(70)

^[1]

$ (35)

$ 9

$ (70)

$ 18

Net income (loss) per Class A share, basic and diluted

^[1]

$ (0.24)

$ 0.06

$ (0.48)

$ 0.12

Weighted average Class A common stock, basic and diluted

^[1]

147

147

Proforma net loss per share, basic and diluted

147

Proforma net loss

$ (28)

$ (54)

$ (0.19)

$ (0.37)

Other (income) expense:

Net Income (Loss) Attributable to Parent

^[1]

$ (29,040)

$ 7,113

$ (58,069)

$ 14,429

^[1]

$ (29,040)

$ 7,113

$ (58,069)

$ 14,429

Net income (loss) per Class B share, basic

^[1]

$ (0.24)

$ 0.06

$ (0.48)

$ 0.12

Net income (loss) per Class B share, diluted

^[1]

120,402

120,443

120,336

120,357

^[1]

$ (0.24)

$ 0.06

$ (0.48)

$ 0.12

Proforma net loss per share, basic and diluted

^[1]

120,402

124,158

120,336

124,169

Proforma net loss

$ (22,427)

$ (43,925)

$ (0.19)

$ (0.37)

[1]	The number of shares of common stock and the calculation of net income (loss) per share have been retrospectively restated to reflect the three-for-one forward stock split which was effective July 28, 2020. See Note 13.

Condensed Consolidated Statements of Comprehensive Income (Loss) (Parenthetical)	6 Months Ended
	Jun. 30, 2020
Condensed Consolidated Statements of Comprehensive Income (Loss)
Forward Stock Split	three-for-one

Condensed Consolidated Statements of Changes in Equity - USD ($)
shares in Thousands, $ in Thousands

Class A voting

Class B non-voting

Accumulated Deficit

Accumulated Other Comprehensive Loss

Treasury Shares

Total

Balance at Dec. 31, 2018

$ 54

$ (88,038)

$ (496)

$ (37,797)

$ (126,277)

Balance (in shares) at Dec. 31, 2018

147

120,270

41,685

^[1]

(607)

Foreign currency translation adjustments and revaluations

(5,255)

Balance (in shares) at Mar. 31, 2019

7,325

Balance at Mar. 31, 2019

$ 54

(86,575)

(475)

$ (37,797)

(124,793)

147

120,270

41,685

^[1]

Balance at Dec. 31, 2018

$ 54

(88,038)

(496)

$ (37,797)

(126,277)

Balance (in shares) at Dec. 31, 2018

147

120,270

41,685

^[1]

Foreign currency translation adjustments and revaluations

(2)

Balance (in shares) at Jun. 30, 2019

$ 18

^[2]

$ 14,429

^[2]

14,447

Balance at Jun. 30, 2019

$ 54

(85,250)

(498)

$ (37,797)

(123,491)

147

120,495

41,685

^[1]

Balance at Mar. 31, 2019

$ 54

(86,575)

(475)

$ (37,797)

(124,793)

Balance (in shares) at Mar. 31, 2019

147

120,270

41,685

^[1]

424

Exercise of stock options, net

(6,105)

(116)

Stock issued during the period

225

Foreign currency translation adjustments and revaluations

(23)

Balance (in shares) at Jun. 30, 2019

$ 9

^[2]

$ 7,113

^[2]

7,122

Balance at Jun. 30, 2019

$ 54

(85,250)

(498)

$ (37,797)

(123,491)

147

120,495

41,685

^[1]

Balance at Dec. 31, 2019

$ 54

(90,701)

(491)

$ (38,638)

(129,776)

Balance (in shares) at Dec. 31, 2019

147

120,270

41,910

^[1]

(15,242)

Foreign currency translation adjustments and revaluations

(4,010)

(2,998)

Balance (in shares) at Mar. 31, 2020

(29,064)

Balance at Mar. 31, 2020

$ 54

(139,017)

(3,489)

$ (38,638)

(181,090)

147

120,270

41,910

^[1]

Balance at Dec. 31, 2019

$ 54

(90,701)

(491)

$ (38,638)

(129,776)

Balance (in shares) at Dec. 31, 2019

147

120,270

41,910

^[1]

Foreign currency translation adjustments and revaluations

(3,274)

Balance (in shares) at Jun. 30, 2020

$ (70)

^[2]

$ (58,069)

^[2]

(58,139)

Balance at Jun. 30, 2020

$ 54

(305,861)

(3,765)

$ (38,638)

(348,210)

147

120,443

41,910

^[1]

Balance at Mar. 31, 2020

$ 54

(139,017)

(3,489)

$ (38,638)

(181,090)

Balance (in shares) at Mar. 31, 2020

147

120,270

41,910

^[1]

(14,637)

Exercise of stock options, net

(123,185)

Stock issued during the period

173

Foreign currency translation adjustments and revaluations

(276)

Balance (in shares) at Jun. 30, 2020

$ (35)

^[2]

$ (29,040)

^[2]

(29,075)

Balance at Jun. 30, 2020

$ 54

$ (305,861)

$ (3,765)

$ (38,638)

$ (348,210)

147

120,443

41,910

^[1]

[1]	The number of shares of common stock and treasury stock have been retrospectively restated to reflect the three-for-one forward stock split which was effective July 28, 2020. See Note 13.
[2]	The number of shares of common stock and the calculation of net income (loss) per share have been retrospectively restated to reflect the three-for-one forward stock split which was effective July 28, 2020. See Note 13.

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

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Amount of stockholders' equity (deficit), net of receivables from officers, directors, owners, and affiliates of the entity, attributable to both the parent and noncontrolling interests. Amount excludes temporary equity. Alternate caption for the concept is permanent equity.

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Condensed Consolidated Statements of Changes in Equity (Parenthetical) - USD ($) $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020
Condensed Consolidated Statements of Changes in Equity
Options for redeemable shares, period start	$ 32,586	$ 17,344	$ 15,188	$ 14,581	$ 17,344
Remeasurement of redeemable shares	14,637	15,242	(424)	607
Options for redeemable shares, period end	$ 47,223	$ 32,586	$ 14,764	$ 15,188	$ 47,223
Forward Stock Split					three-for-one

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Carrying amount, attributable to parent and noncontrolling interests, of an entity's issued and outstanding stock which is not included within permanent equity. Temporary equity is a security with redemption features that are outside the control of the issuer, is not classified as an asset or liability in conformity with GAAP, and is not mandatorily redeemable. Includes any type of security that is redeemable at a fixed or determinable price or on a fixed or determinable date or dates, is redeemable at the option of the holder, or has conditions for redemption which are not solely within the control of the issuer. Includes stock with a put option held by an ESOP and stock redeemable by a holder only in the event of a change in control of the issuer.

+ References + Details

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash flows from operating activities:
Net income (loss)	$ (58,139)	$ 14,447
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	15,416	12,154
Provision for subscription cancellations and non-renewals	154	(682)
Amortization of deferred financing costs	428	133
Stock-based compensation expense	76,596	2,620
Other	14	44
Changes in operating assets and liabilities:
Accounts receivable	7,093	14,626
Advances to stockholders	53	79
Prepaid expenses and other current assets	(1,717)	(1,583)
Deferred commissions	807	71
Accounts payable	2,911	(767)
Accrued expenses	(1,481)	445
Accrued and deferred compensation	(10,804)	(9,084)
Deferred revenue	(7,353)	647
Other	(3,222)	590
Net cash provided by operating activities	20,756	32,850
Cash flows from investing activities:
Acquisition of business, net of cash acquired	(12,318)
Property and equipment additions	(10,565)	(8,271)
Capitalized software additions	(7,264)	(8,101)
Net cash used in investing activities	(30,147)	(16,372)
Cash flows from financing activities:
Net increase in customer funds obligations	2,622	702
Proceeds from line of credit	12,500
Principal payments on line of credit	(12,500)
Proceeds from long-term debt	175,000
Principal payments on long-term debt	(51,009)	(3,112)
Payments for deferred financing costs	(2,904)
Proceeds from exercise of stock options	52	68
Distributions to stockholders	(140,378)	(22,252)
Net cash used in financing activities	(16,617)	(24,594)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(204)	(2)
Net decrease in cash, cash equivalents and restricted cash	(26,212)	(8,118)
Cash, cash equivalents and restricted cash, beginning of period	83,495	59,174
Cash, cash equivalents and restricted cash, end of period	$ 57,283	$ 51,056

Condensed Consolidated Statements of Cash Flows (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019	Jun. 30, 2019	Dec. 31, 2018
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets, end of period:
Cash and cash equivalents	$ 47,295	$ 75,903	$ 47,018
Restricted cash-funds held for customers	9,988	7,592	4,038
Total cash, cash equivalents and restricted cash, end of period	$ 57,283	$ 83,495	$ 51,056	$ 59,174

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2020

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Vertex, Inc. ("Vertex") and its direct and indirect wholly-owned subsidiaries (collectively, the "Company") operate as solutions providers of state, local and value added tax calculation, compliance and analytics, offering software products which are sold through software license and software as a service ("cloud") subscriptions. The Company also provides implementation and training services in connection with its software license and cloud subscriptions, transaction tax returns outsourcing, and other tax-related services. The Company sells to customers located throughout the United States of America ("U.S.") and internationally.

Effective January 7, 2020, the Company acquired a 60% controlling interest in Systax Sistemas Fiscais LTDA ("Systax"), a provider of Brazilian transaction tax content and software. Systax is considered a Variable Interest Entity ("VIE") and its accounts have been included in the consolidated financial statements from the acquisition date. Systax was determined to be a VIE as the Company is the primary beneficiary of the equity interests in Systax and participates significantly in the variability in the fair value of Systax’s net assets. Although the Company does not have full decision-making authority as it is shared with the minority interest owners, as the minority interest owners are considered a related party, the Company is considered the most closely associated party to Systax and is required to consolidate. Systax’s assets may only be used to settle its own obligations and this will continue until such time as the Company owns 100% of the VIE. As of June 30, 2020, the net assets of Systax were $19,555 (unaudited). The Company is at risk to the extent of its current 60% ownership of Systax, which risk will increase over time in proportion to increases in percentage ownership as the Company exercises its future share purchase commitment through 2024. See Note 2.

Registration of Company Stock

The Company’s Registration Statement on Form S-1 (the “S-1”) with the Securities and Exchange Commission (“SEC”) was declared effective on July 28, 2020, resulting in newly issued Class A common stock being registered and available for trading on the NASDAQ exchange (the “Offering”). Refer to Note 13 for further description of the impacts of this and other events which occurred in connection with the Offering.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC for interim financial information and include the accounts of the Company. All intercompany transactions have been eliminated in consolidation. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been condensed or omitted. Accordingly, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the year ended December 31, 2019 included in the Company’s final prospectus dated July 28, 2020 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, (the "Securities Act"), on July 30, 2020 (the "Prospectus"). The accompanying interim condensed consolidated balance sheet as of June 30, 2020, the interim condensed consolidated statements of comprehensive income (loss) and changes in equity for the three and six months ended June 30, 2020 and 2019, and the interim condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019, are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the annual audited consolidated financial statements and include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the consolidated financial statements. The operating results for the three and six months ended June 30, 2020 and 2019 are not necessarily indicative of the results expected for the full year periods ending December 31, 2020 and 2019, respectively.

Segments

The Company operates its business as one operating segment. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker ("CODM"), the Company’s Chief Executive Officer, in deciding how to allocate resources and assess performance. The Company’s CODM allocates resources and assesses performance based upon discrete financial information at the consolidated level. For the three and six months ended June 30, 2020 and 2019, approximately 3% of the Company’s revenues were generated outside of the United States in each respective period. As of December 31, 2019, none of the Company’s long-lived assets were held outside of the U.S. As of June 30, 2020, 18%, or $19,471, of the Company’s long-lived assets were held outside of the U.S. (unaudited) and consists primarily of goodwill of $19,355 (unaudited) at June 30, 2020 related to the acquisition of the controlling interest in Systax, which is located in Brazil. See Note 2.

Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, funds held for customers, accounts receivable, accounts payable, accrued expenses and debt approximate their related fair values.

Use of Estimates

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenues and expenses during the reporting period. Significant estimates used in preparing these consolidated financial statements include: (i) the estimated allowance for subscription cancellations, (ii) the reserve for self-insurance, (iii) assumptions related to achievement of technological feasibility for software developed for sale, (iv) product life cycles, (v) estimated useful lives and potential impairment of long-lived assets, intangible assets and goodwill, (vi) determination of the fair value of tangible and intangible assets acquired, liabilities assumed and consideration transferred in an acquisition, (vii) amortization period of material rights and deferred commissions (viii) valuation for the Company’s stock used for stock-based compensation, and (ix) the potential outcome of future tax consequences of events that have been recognized in the consolidated financial statements or tax returns. Actual results may differ from these estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an initial maturity date of three months or less to be cash equivalents.

Funds Held for Customers

Funds held for customers in the consolidated balance sheets represents customer funds advanced for transaction tax returns outsourcing. Funds held for customers are restricted for the sole purpose of remitting such funds to satisfy obligations on behalf of such customers and are deposited at FDIC-insured institutions. Customer funds obligations are included in current liabilities in the consolidated balance sheets, as the obligations are expected to be settled within one year.

Property and Equipment

Property and equipment are stated at cost or fair value when acquired in a business combination and presented net of accumulated depreciation. Normal maintenance and repairs are charged to expense, while major renewals and betterments are capitalized. Assets under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the assets and are depreciated over the shorter of the asset’s useful life or lease term. Depreciation and amortization are computed straight-line over the estimated useful lives of the assets, as follows:


Leasehold improvements		1 - 12 years
Equipment		3 - 10 years
Computer software		3 - 7 years
Internal-use software developed		3 - 5 years
Furniture and fixtures		7 - 10 years
Automobiles		5 years

Software Development Costs

Internal-Use Software

The Company follows Accounting Standard Codification ("ASC") 350‑40, Goodwill and Other, Internal-Use Software, to account for development costs incurred for the costs of computer software developed or obtained for internal use. ASC 350‑40 requires such costs to be capitalized once certain criteria are met. Capitalized internal-use software costs are primarily comprised of direct labor, related expenses and initial software licenses. ASC 350‑40 includes specific guidance on costs not to be capitalized, such as overhead, general and administrative and training costs. Internal-use software includes software utilized for cloud-based solutions as well as software for internal systems and tools. Costs are capitalized once the project is defined, funding is committed and it is confirmed the software will be used for its intended purpose. Capitalization of these costs concludes once the project is substantially complete and the software is ready for its intended purpose. Post-configuration training and maintenance costs are expensed as incurred. Internal-use software is included in internal-use software developed in property and equipment in the consolidated balance sheets once available for its intended use and is depreciated over periods between 3 to 5 years. Depreciation expense for internal-use software utilized for cloud-based solutions and for software for internal systems and tools is included in cost of revenues, software subscriptions and depreciation expense, respectively, in the consolidated statements of comprehensive income (loss).

Software Developed for Sale

The costs incurred for the development of computer software to be sold, leased, or otherwise marketed are capitalized in accordance with ASC 985‑20, Costs of Software to be Sold, Leased or Marketed, when technological feasibility has been established. Technological feasibility generally occurs when all planning, design, coding and testing activities are completed that are necessary to establish that the product can be produced to meet its design specifications, including functions, features and technical performance requirements. The establishment of technological feasibility is an ongoing assessment of judgment by management with respect to certain external factors, including, but not limited to, anticipated future revenues, estimated economic life and changes in technology. Capitalized software includes direct labor and related expenses for software development for new products and enhancements to existing products and acquired software.

Amortization of capitalized software development costs begins when the product is available for general release. Amortization is provided on a product-by-product basis using the straight-line method over periods between 3 to 5 years. Unamortized capitalized software development costs determined to be in excess of the net realizable value of the product are expensed immediately.

Capitalized software costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in software technologies. At each balance sheet date, unamortized capitalized software costs are compared to the net realizable value of the related product. The carrying value of the related assets are written down to the net realizable value to the extent the unamortized capitalized costs exceed such value. The net realizable value is the estimated future gross revenues from the related product reduced by the estimated future costs of completing and disposing of such product, including the costs of providing related maintenance and customer support.

Assessment of Long-Lived Assets

The Company reviews the carrying value of long-lived assets, including internal-use software, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Whenever such events or circumstances are present, an impairment loss equal to the excess of the asset carrying value over its fair value, if any, is recorded.

Business Combinations

Upon acquisition of a company, the Company determines if the transaction is a business combination, which is accounted for using the acquisition method of accounting. Under the acquisition method, once control is obtained of a business, the assets acquired, liabilities assumed, consideration transferred and amounts attributed to noncontrolling interests, are recorded at fair value. The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired, liabilities assumed, consideration transferred, and amounts attributed to noncontrolling interests at the acquisition date. One of the most significant estimates relates to the determination of the fair value of these amounts. The determination of the fair values is based on estimates and judgments made by management. The Company’s estimates of fair value are based upon assumptions it believes to be reasonable, but which are inherently uncertain and unpredictable. Measurement period adjustments to these values as of the acquisition date are reflected at the time identified, up through the conclusion of the measurement period, which is the time at which all information for determination of the values of assets acquired, liabilities assumed, consideration transferred and noncontrolling interests is received, and is not to exceed one year from the acquisition date (the "Measurement Period"). Thus the Company may record adjustments to the fair value of these tangible and intangible assets acquired, liabilities assumed, consideration transferred and noncontrolling interests, with the corresponding offset to goodwill during this Measurement Period. Additionally, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. The Company continues to collect information and reevaluate these estimates and assumptions periodically and record any adjustments to preliminary estimates to goodwill, provided the Company is within the Measurement Period with any adjustments to amortization of new or previously recorded identifiable intangibles being recorded to the consolidated statements of comprehensive income (loss) in the period in which they arise. In addition, if outside of the Measurement Period, any subsequent adjustments to the acquisition date fair values are recorded to the consolidated statements of comprehensive income (loss) in the period in which they arise.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination. The Company evaluates goodwill for impairment annually at December 31 and whenever events or circumstances make it more likely than not that impairment may have occurred. The Company has determined that its business comprises one reporting unit. The Company has the option to first assess qualitative factors to determine whether events or circumstances indicate it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, in which case a quantitative impairment test is not required.

The quantitative goodwill impairment test is performed by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not impaired. An impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the fair value up to the amount of goodwill allocated to the reporting unit. Income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit are considered when measuring the goodwill impairment loss, if applicable.

Deferred Financing Costs

The Company capitalizes costs related to obtaining, renewing or extending loan agreements and amortizes these costs on a straight-line basis, which approximates the interest method, over the life of the loan. Deferred financing costs related to outstanding borrowings under bank debt are reflected as a reduction of current portion of long-term debt and long-term debt, net of current portion. Deferred financing costs related to undrawn debt are reflected in deposits and other assets in the consolidated balance sheets in accordance with ASC 835‑30, Interest—Imputation of Interest.

Accounting for Stock-Based Compensation

The Company applies the provisions of ASC 718, Compensation—Stock Compensation, for the award of equity-based instruments. The provisions of ASC 718 require a company to measure the fair value of stock-based compensation as of the grant date of the award. The Company has stock options and stock appreciation rights ("SAR(s)") (collectively, the "awards") outstanding that are subject to guidance set forth in ASC 718. The Company’s Board of Directors (the "Board") intends all awards granted to be exercisable at a price per share not less than the per share fair value of the Company’s common stock underlying such awards on the date of grant. Stock-based compensation expense reflects the cost of employee services received in exchange for the awards.

SARs are accounted for as liabilities under ASC 718 and, as such, the Company recognizes stock-based compensation expense by remeasuring the SARs at the end of each reporting period and accruing the portion of the requisite service rendered at that date. As a nonpublic entity for all periods presented, the Company elected to measure SARs based on their intrinsic values. Management measures the intrinsic value of the SARs as the difference between the fair value of the Company's Class B common stock less the grant date fair value of the underlying shares as this is the value the SAR participant can derive from exercise of the SAR award. The fair value of the Company's common stock is determined periodically by the Board with the assistance of management and a third-party valuation firm. Management continued to record changes in the intrinsic value of the SARs in 2020 up to the date on which the Company became a public entity. Upon becoming a public entity and up to the effective date of the Offering, Management will remeasure SARs using the fair value-based method under ASC 718. See Note 13 for discussion of the impact of the resulting change in accounting policy. Outstanding SARs are included in deferred compensation, current and deferred compensation, net of current portion in the consolidated balance sheets.

Due to the option holders having the right to require the Company to repurchase shares issued in connection with option exercises after six months of share issuance, the options are classified as temporary equity and reflected in options for redeemable shares on the consolidated balance sheets at their redemption value, which equals the options’ intrinsic value, as of the end of each balance sheet measurement period. Changes as a result of remeasurement of the redemption value of options for redeemable shares are recorded as adjustments to accumulated deficit. The options were exchanged for new options in connection with the Offering. See Note 7.

The fair value of the common stock underlying the awards is determined by the Board with assistance from management and an independent third-party valuation firm. The determination of value uses the market and income approaches, with an adjustment for marketability discount pertinent to private company entities in arriving at the per share fair value (the "valuation methodology"). Under the market approach, the guideline public company method is used, which estimates the fair value of the Company based on market prices of stock of guideline public companies. The income approach involves projecting the future benefits of owning an asset and estimating the present value of those future benefits by discounting them based upon the time value of money and the investment risks associated with ownership. At the end of 2019, due to the consideration by the Board of pursuing the Offering, the valuation methodology began to consider the impact of such an event on the value of the Company's common stock underlying the awards. As the Company approached the Offering effective date, this resulted in increases in the intrinsic value of the awards which resulted in corresponding increases to compensation expense for the three and six months ended June 30, 2020 which exceed historical results. See Note 10. Management expects the SAR value increases to continue and to exceed historical results. See Note 13.

Operating Leases and Deferred Rent

Rent expense for operating leases is recognized on a straight-line basis over the period of the related lease. For lease agreements that include future specific rent increases, rent concessions and/or tenant improvement allowances, the difference between the rent payments and the straight-line rent expense is included in deferred rent liability in the consolidated balance sheets.

Self-insurance

The Company is self-insured for the majority of its health insurance costs, including medical claims subject to certain stop-loss provisions. Management periodically reviews the adequacy of the Company’s stop-loss insurance coverage. The Company records an estimate of claims incurred but not reported, based on management’s judgment and historical experience. Self-insurance accruals are $1,473 and $1,980 at December 31, 2019 and June 30, 2020 (unaudited), respectively, and are reflected in accrued salaries and benefits in the consolidated balance sheets. Material differences may result in the amount and timing of insurance expense if actual experience differs significantly from management’s estimates.

Revenue Recognition

Revenue from contracts with customers

The Company recognizes revenue in accordance with Accounting Standards Update ("ASU") 2014‑09, Revenue from Contracts with Customers, ("ASC 606"). Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration expected to be received in exchange for those products or services. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct, and accounted for as separate performance obligations. Revenue is recognized net of allowance for subscription and non-renewal cancellations and any taxes collected from customers, which are subsequently remitted to governmental authorities.

Nature of goods and services

Licenses for on-premise software subscriptions provide the customer with a right to use the software as it exists when made available to the customer. Customers purchase a subscription to these licenses, which includes the related software and tax content updates (collectively "updates") and product support. The updates and support, which are part of the subscription agreement, are essential to the continued utility of the software; therefore, the Company has determined the software and the related updates and support to be a single performance obligation. Accordingly, when on-premise software is licensed, the revenue associated with this combined performance obligation is recognized ratably over the license term as these subscriptions are provided for the duration of the license term. Revenue recognition begins on the later of the beginning of the subscription period or the date the software is made available to the customer to download. The Company’s on-premise software subscription prices in the initial subscription year are higher than standard renewal prices. The excess initial year price over the renewal price ("new sale premium") is a material right that provides customers with the right to this reduced renewal price. The Company recognizes revenue associated with this material right over the estimated period of benefit to the customer, which is generally three years.

Cloud-based subscriptions allow customers to use Company-hosted software over the contract period without taking possession of the software. The cloud-based offerings also include related updates and support. Cloud-based contracts consistently provide a benefit to the customer during the subscription period, thus the associated revenue is recognized ratably over the related subscription period. Revenue recognition begins on the later of the beginning of the subscription period or the date the customer is provided access to the cloud-based solutions.

Revenue from deliverable-based services is recognized as services are delivered. Revenue from fixed fee services is recognized as services are performed using the percentage of completion input method.

The Company has elected the "right to invoice" practical expedient for revenue related to services that are billed on an hourly basis, which enables revenue to be recognized as the services are performed.

The Company has determined that the methods applied to measuring its progress toward complete satisfaction of performance obligations recognized over time are a faithful depiction of the transfer of control of software subscriptions and services to customers.

Significant Judgments

Contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Identification of the amortization periods of material rights and contract costs requires significant judgement by management.

Disaggregation of revenue

The table reflects revenue by major source for the following periods:


	For the three months ended				For the six months ended
	June 30,				June 30,
		2020	2019			2020	2019
	(unaudited)				(unaudited)
Sources of revenue:
Software subscriptions	$	77,306	$	67,267	$	153,066	$	131,651
Services		13,965		11,108		27,450		21,338
Total revenue	$	91,271	$	78,375	$	180,516	$	152,989

Contract balances

Timing of revenue recognition may differ from the timing of invoicing customers. A receivable is recorded in the consolidated balance sheets when customers are billed related to revenue to be collected and recognized for subscription agreements as there is an unconditional right to invoice and receive payment in the future related to these subscriptions. A receivable and related revenue may also be recorded in advance of billings to the extent services have been performed and the Company has a right under the contract to bill and collect for such performance. Subscription-based customers are generally invoiced annually at the beginning of each annual subscription period. Accounts receivable is presented net of an allowance for potentially uncollectible accounts and estimated cancellations of software license and cloud-based subscriptions (the “allowance”) of $7,515 and $7,669 at December 31, 2019 and June 30, 2020 (unaudited), respectively. The allowance is based on management’s assessment of uncollectible accounts on a specific identification basis, with the estimate of potential cancellations being determined based on management’s review of historical cancellation rates.

The beginning and ending balances of accounts receivable, net of allowance, are as follows:


	For the year ended		For the six months ended
	December 31,		June 30,
	2019		2020
			(unaudited)
Balance, beginning of period	$	62,235	$	70,367
Balance, end of period		70,367		63,739
Increase (decrease), net	$	8,132	$	(6,628)

A contract liability is recorded as deferred revenue on the consolidated balance sheets when customers are billed in advance of performance obligations being satisfied, and revenue is recognized after invoicing ratably over the subscription period or over the amortization period of material rights. Deferred revenue is reflected net of a related deferred allowance for subscription cancellations (the "deferred allowance") of $5,614 and $5,335 at December 31, 2019 and June 30, 2020 (unaudited), respectively. The deferred allowance represents the portion of the allowance for subscription cancellations associated with deferred revenue.

The beginning and ending balances of and changes to the allowance and the deferred allowance are as follows:


	For the three months ended
	June 30, 2020
	(unaudited)
	Balance		Net Change
Allowance balance. April 1	$	(7,476)
Allowance balance, June 30		(7,669)
Change in allowance			$	193
Deferred allowance balance, April 1		5,118
Deferred allowance balance, June 30		5,335
Change in deferred allowance				(217)
Net amount charged to revenue			$	(24)


	For the three months ended
	June 30, 2019
	(unaudited)
	Balance			Net Change
Allowance balance. April 1	$	(4,703)
Allowance balance, June 30		(4,845)
Change in allowance			$	142
Deferred allowance balance, April 1		3,901
Deferred allowance balance, June 30		3,719
Change in deferred allowance				182
Net amount charged to revenue			$	324


	For the six months ended
	June 30, 2020
	(unaudited)
	Balance			Net Change
Allowance balance. January 1	$	(7,515)
Allowance balance, June 30		(7,669)
Change in allowance			$	154
Deferred allowance balance, January 1		5,614
Deferred allowance balance, June 30		5,335
Change in deferred allowance				279
Net amount charged to revenue			$	433


	For the six months ended
	June 30, 2019
	(unaudited)
	Balance			Net Change
Allowance balance. January 1	$	(5,527)
Allowance balance, June 30		(4,845)
Change in allowance			$	(682)
Deferred allowance balance, January 1		4,858
Deferred allowance balance, June 30		3,719
Change in deferred allowance				1,139
Net amount charged to revenue			$	457

The table provides information about the balances of and changes to deferred revenue for the following periods:


	As of December 31,		As of June 30,
	2019		2020
			(unaudited)
Deferred revenue, current	$	191,745	$	187,041
Deferred revenue, non-current		14,046		11,396
Total	$	205,791	$	198,437


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
	(unaudited)
Changes to deferred revenue:
Beginning balance	$	201,484	$	181,957	$	205,791	$	178,703
Additional amounts deferred		88,224		75,769		173,162		153,637
Revenue recognized		(91,271)		(78,375)		(180,516)		(152,989)
Ending balance	$	198,437	$	179,351	$	198,437	$	179,351

Contract costs

Deferred sales commissions earned by the Company’s sales force and certain sales incentive programs and vendor referral agreements are considered incremental and recoverable costs of obtaining a contract with a customer. An asset is recognized for these incremental contract costs and reflected as deferred commissions in the consolidated balance sheets. These contract costs are amortized on a straight-line basis over a period consistent with the transfer of the associated product and services to the customer, which is generally three years. Amortization of these costs are included in selling and marketing expense in the consolidated statements of comprehensive income (loss). The Company periodically reviews these contract assets to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these assets. There were no impairment losses recorded for the periods presented.

The table provides information about the changes to contract cost balances as of and for the following periods:


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
	(unaudited)
Deferred commissions:
Beginning balance	$	10,563	$	8,239	$	11,196	$	8,830
Additions		1,630		1,605		2,694		3,066
Amortization		(1,803)		(1,084)		(3,500)		(3,136)
Ending balance	$	10,390	$	8,760	$	10,390	$	8,760

Payment terms

Payment terms and conditions vary by contract, although the Company’s terms generally include a requirement of payment within 30 days. In instances where the timing of revenue recognition differs from the timing of payment, the Company has determined that its contracts do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing products and services, not to receive financing from customers or to provide customers with financing.

Cost of Revenues

Cost of revenues, software subscriptions includes the direct cost to develop, host and distribute software products, the direct cost to provide customer support, and amortization of costs capitalized for software developed for sale and for internal-use software utilized for cloud-based subscriptions. Cost of revenues, services includes the direct costs of implementation, training, transaction tax returns outsourcing and other tax-related services.

Reimbursable Costs

Reimbursable costs passed through and invoiced to customers of the Company are recorded as services revenues with the associated expenses recorded as cost of revenues, services in the consolidated statements of comprehensive income (loss).

Research and Development

Research and development costs consist primarily of personnel and related expenses for research and development activities including salaries, benefits and other compensation. Research and development costs are expensed as incurred in accordance with ASC 730, Research and Development, and are included in the consolidated statements of comprehensive income (loss).

Foreign Currency

The Company transacts business in various foreign currencies. Management has concluded that the local country’s currency is the functional currency of its foreign operations. Consequently, operating activities outside the U.S. are translated into U.S. Dollars using average exchange rates, while assets and liabilities of operations outside the U.S. are translated into U.S. Dollars using exchange rates at the balance sheet date. The effects of foreign currency translation adjustments are included in stockholders’ deficit as a component of accumulated other comprehensive loss in the consolidated balance sheets. Related periodic movements in exchange rates are included in other comprehensive income (loss) in the consolidated statements of comprehensive income (loss).

Income Taxes

Vertex is taxed as an S-corporation for U.S. federal income tax purposes and for most states. As a result, net income or loss is allocated to the stockholders and is included on their individual income tax returns. In certain states, Vertex is taxed at the corporate level. Accordingly, the income tax provision or benefit is based on taxable income allocated to these states. In certain foreign jurisdictions, Vertex subsidiaries are taxed at the corporate level. Similar to states, the income tax provision or benefit is based on taxable income sourced to these foreign jurisdictions.

Certain direct and indirect wholly-owned subsidiaries are treated as disregarded entities for U.S. federal income tax purposes and most states under the Internal Revenue Service ("IRS") "check-the-box" regulations. The income and loss from these disregarded entities are reported on the Company’s U.S. federal and most state income tax returns in addition to being reported on a foreign jurisdiction tax return if a foreign subsidiary. Other foreign subsidiaries in which we own greater than 50% of the equity by measure of vote or value are treated as controlled foreign companies ("CFCs") for U.S. federal income tax purposes and most states under the IRS foreign tax regulations. The income and loss from these entities is reported on the Company’s U.S. federal and some state income tax returns when the foreign earnings are repatriated or deemed to be repatriated to the U.S.

The Company records deferred income taxes using the liability method. The Company recognizes deferred tax assets and liabilities for future tax consequences of events that have been previously recognized in the Company’s consolidated financial statements and tax returns. The measurement of deferred tax assets and liabilities is based on provisions of the enacted tax law. The effects of future changes in tax laws or rates are not anticipated.

The Company records uncertain tax positions in accordance with ASC 740, Income Taxes, on the basis of a two step process whereby: (i) management determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position, and (ii) for those tax positions that meet the more likely than not recognition threshold, management recognizes the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The impact as a result of the application of ASC 740 is reflected in the consolidated financial statements.

On July 27, 2020, the S corporation election was terminated by the Company’s stockholders in connection with the Offering. See Note 13.

Total Comprehensive Income (Loss)

Total comprehensive income (loss) consists of net income and other comprehensive income (loss). Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under U.S. GAAP are recorded as elements of stockholders’ deficit but are excluded from net income. Other comprehensive income (loss) is comprised of foreign currency translation adjustments and revaluations.

Earnings Per Share

The Company calculates basic and diluted net income per share attributable to common stockholders using the treasury stock method. The Company has Class A voting common stock ("Class A common stock") and Class B non-voting common stock ("Class B common stock") outstanding. Neither class of stock has any liquidity or dividend preferences and are both considered to be participating securities. The diluted net income per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock are considered common stock equivalents.

Unaudited Pro Forma Income Taxes

Effective July 27, 2020, the Company converted to and will be taxed as a C corporation for U.S. income tax purposes (see Note 13). Accordingly, a pro forma income tax provision has been disclosed as if the Company was a taxable corporation for the three and six months ended June 30, 2020. The Company has computed pro forma entity level income tax expense using an estimated effective tax rate of approximately 25% for these periods, inclusive of all applicable U.S. federal, state, local and foreign income taxes.

Unaudited Pro Forma Earnings Per Share

The Company has presented pro forma earnings per share for the three and six months ended June 30, 2020 to reflect the pro forma adjustment to income taxes resulting from the conversion to a C corporation effective July 27, 2020. See Note 13.


	For the three			For the six
	months ended			months ended
	June 30,			June 30,
Class A common stock:	2020			2020
	(unaudited)
Numerator:
Pro forma net loss attributable to all stockholders	$	(22,455)		$	(43,979)
Class A stock as a percentage of total shares outstanding		0.12	%		0.12	%
Pro forma net loss attributable to Class A stockholders	$	(28)		$	(54)

Denominator:
Weighted-average Class A stock outstanding—basic and diluted		147			147

Pro forma net loss per Class A share, basic and diluted	$	(0.19)		$	(0.37)


	For the three			For the six
	months ended			months ended
	June 30,			June 30,
Class B common stock:	2020			2020
	(unaudited)
Numerator:
Pro forma net loss attributable to all stockholders	$	(22,455)		$	(43,979)
Class B stock as a percentage of total shares outstanding		99.88	%		99.88	%
Pro forma net loss attributable to Class B stockholders	$	(22,427)		$	(43,925)

Denominator:
Weighted-average Class B stock outstanding—basic and diluted		120,402			120,336

Pro forma net loss per Class B share, basic and diluted	$	(0.19)		$	(0.37)

Supplemental Cash Flow Disclosures

Supplemental cash flow disclosures are as follows for the respective periods:


	For the six
	months ended
	June 30,
	2020		2019
	(unaudited)
Cash paid for:
Interest	$	1,360	$	946
Income taxes	$	490	$	471
Non-cash investing and financing activities:
Exercised options exchanged in lieu of income taxes	$	—	$	184
Acquisition purchase commitment liability	$	14,344	$	—
Equipment acquired through capital leases	$	—	$	1,904
Remeasurement of options for redeemable shares	$	29,879	$	183

Recently Issued Accounting Pronouncements

As an "emerging growth company," the Jumpstart Our Business Startups Act (the "JOBS Act") allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to delay adoption of certain new or revised accounting standards. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies.

In February 2016, the FASB issued ASU No. 2016‑02, Leases. This standard amends several of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of-use asset, and a corresponding lease liability, measured at the present value of the future minimum lease payments. The standard is effective for public entities for fiscal years and interim periods beginning after December 15, 2018, and after December 15, 2020 for all other companies, with early adoption permitted. The Company intends to adopt this standard effective January 1, 2021 using the modified retrospective transition method and therefore will not restate comparative periods. The Company expects to elect the "package of three" practical expedients permitted under the transition guidance, which allows (i) a carry forward of the historical lease classification conclusions, (ii) management’s assessment on whether a contract is or contains a lease, and (iii) the initial direct costs for any leases that exist prior to adoption of the new standard. The Company is currently evaluating the impact this guidance will have on the Company’s consolidated financial statements. While the Company has not yet quantified the impact, resulting adjustments are expected to materially increase total assets and total liabilities relative to such amounts reported prior to adoption, but not have a material impact on the consolidated statements of comprehensive income (loss) or consolidated statements of cash flows.

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ("ASU 2016‑13") which replaces the existing incurred loss impairment model with an expected credit loss model and requires financial assets, including trade receivables, to be measured at amortized cost to be presented at the net amount expected to be collected. ASU 2016‑13 is effective for annual periods, and interim periods within those years, beginning after December 15, 2019, for business entities that are public and meet the definition of an SEC filer (excluding smaller reporting companies), and after December 15, 2022 for all other entities. The Company has elected to delay adoption of this guidance until January 1, 2021. The implementation of ASC 2016‑13 is not expected to have a material impact on the Company’s financial position.

In January 2017, the FASB issued ASU 2017‑04, Simplifying the Test for Goodwill Impairment, ("ASU 2017‑04") to eliminate step two of the goodwill impairment test requiring a hypothetical purchase price allocation. Goodwill impairment, if any, is determined by comparing the reporting unit’s fair value to its carrying value. An impairment loss is recognized in an amount equal to the excess of the reporting unit’s carrying value over its fair value, up to the amount of goodwill allocated to the reporting unit. In addition, income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. ASU 2017‑04 is effective for annual periods, and interim periods within those years, beginning after December 15, 2019, for business entities that are public and meet the definition of an SEC filer (excluding smaller reporting companies), and after December 15, 2022 for all other entities. The Company has adopted this guidance effective as of January 1, 2020.

In December 2019, the FASB issued ASU Update No. 2019‑12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, ("ASU 2019‑12") which simplifies the accounting for income taxes. The guidance in ASU 2019‑12 is required for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2020, for business entities that are public, and after December 15, 2021, including interim periods within those annual periods for all other entities, with early adoption permitted. The Company will adopt this guidance on January 1, 2021. The Company is currently evaluating the impact this guidance will have on the Company’s consolidated financial statements.

Risks and Uncertainties

In December 2019, a novel strain of coronavirus (“COVID-19”) appeared. In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a pandemic. The COVID-19 pandemic is having widespread, rapidly evolving and unpredictable impacts on global society, economies, financial markets and business practices. To protect the health and well-being of Company employees and customers, substantial modifications were made to employee travel policies, our offices were closed and employees advised to work from home, and conferences and other marketing events were cancelled or shifted to virtual-only. The COVID-19 pandemic has impacted and may continue to impact Company operations, including employees, customers and partners, and there is substantial uncertainty in the nature and degree of its continued effects over time.

The Company did not experience any significant reductions in sales, revenues or collections through June 30, 2020 as a result of COVID-19. The uncertainty caused by the COVID-19 pandemic could, however, impact Company billings to new customers for the remainder of 2020, and may also negatively impact Company efforts to expand revenues from existing customers as they continue to evaluate certain long-term projects and budget constraints. In addition to the potential impact on sales, the Company may see delays in collections over the coming months. However, these delays are not expected to materially impact the business, and thus the Company has not recorded an additional allowance for doubtful accounts in connection with any delays. The Company believes it has ample liquidity and capital resources to continue to meet its operating needs, and to service debt and other financial obligations.

The extent to which the COVID-19 pandemic impacts the business going forward will depend on numerous evolving factors that cannot reliably be predicted, including the duration and scope of the pandemic; governmental, business, and individuals’ actions in response to the pandemic; and the impact on economic activity, including the possibility of recession or financial market instability. These factors may adversely impact consumer, business and government spending on technology as well as customers’ ability to pay for Company products and services on an ongoing basis. This uncertainty also affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions, including estimated allowance for subscription cancellations, product life cycles and estimated lives of long lived assets.

ACQUISITION

6 Months Ended

Jun. 30, 2020

ACQUISITION

ACQUISITION

2. ACQUISITION

On January 7, 2020, the Company acquired a 60% controlling interest in Systax, a provider of Brazilian transaction tax content and software. Cash consideration for the purchase was $12,374 and was funded through borrowings under the revolving line of credit (the "Line of Credit"). This acquisition provides the Company with full access to a sizeable database of Brazilian tax content that is critical to supporting its global multi-national customers’ business expansion into Brazil. The Company has a contractual purchase commitment to acquire the remaining 40% equity interest from the original Systax Quota holders incrementally between 2021 through 2024. Future purchase commitment payments for these incremental acquisition amounts are based on a multiple of Systax revenue and earnings before interest, depreciation, amortization and income taxes ("EBITDA") performance at the end of 2020, 2022 and 2023, whereby the Company will have full ownership after the final payment in 2024. Management has determined these future purchase commitments to be a forward contract, resulting in the Company being required to estimate and record an estimated future purchase commitment amount (the "Purchase Commitment Liability") in connection with recording the initial purchase. The Purchase Commitment Liability is estimated to be $14,344 at the acquisition date based on information currently available. This amount is reflected in future acquisition commitment in the consolidated balance sheet at June 30, 2020, and any adjustments to the acquisition date fair value of this commitment will be adjusted to goodwill during the Measurement Period. Adjustments to the settlement date value that arise as a result of remeasurement at future balance sheet dates will be recorded as interest expense in the consolidated statements of comprehensive income (loss) in the period the change is identified.

The acquisition was accounted for as a business combination and the total preliminary purchase price was allocated to the net tangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the excess being recorded as goodwill. The net tangible assets acquired and liabilities assumed were valued at their respective carrying amounts as of the acquisition date pending the receipt of additional information during the Measurement Period. The contractual value of accounts receivable was $867 at acquisition date. The excess of the purchase consideration over the net tangible assets is recorded as goodwill and primarily reflects the value of the tax content database, the assembled workforce and expected future synergies. Goodwill is deductible for tax purposes. The preliminary values recorded will be adjusted during the Measurement Period as more detailed analyses are performed and further information becomes available regarding the fair values of these amounts as of the acquisition date. Any such adjustments may be material. Subsequent adjustments to these values not associated with determination of their fair values on the acquisition date would be recorded in the consolidated statements of comprehensive income (loss) in the period the change is identified.

The following table presents the preliminary purchase price allocation recorded in the Company’s consolidated balance sheet as of the acquisition date (unaudited):


	Initial Purchase
Net Assets and Assumed Liabilities	Price Allocation
	(unaudited)
	(in thousands)
Cash and cash equivalents	$	56
Accounts receivable		867
Property and equipment		48
Other assets		18
Goodwill		26,124
Accounts payable and accrued expenses		(228)
Accrued compensation		(162)
Other liabilities		(5)

Total consideration at acquisition date	$	26,718

The Company has included the financial results of Systax in the consolidated statement of comprehensive income (loss) from the date of acquisition in accordance with ASC 810 due to the Company having a controlling financial interest in Systax. Systax revenue and net loss for the three months ended June 30, 2020 (unaudited) reflected in the consolidated statement of comprehensive income (loss), after elimination of intercompany activity, were $944 and ($25), respectively. Systax revenue and net loss for the six months ended June 30, 2020 (unaudited) reflected in the consolidated statement of comprehensive income (loss), after elimination of intercompany activity, were $2,087 and ($281), respectively. As the Systax acquisition did not have a material impact on the Company’s reported revenue or net loss for the three and six months ended June 30, 2020, pro forma financial information has not been presented. The transaction costs associated with the acquisition were approximately $504 and were recorded in general and administrative expense in the year ending December 31, 2019.

PROPERTY AND EQUIPMENT

6 Months Ended

Jun. 30, 2020

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT

3. PROPERTY AND EQUIPMENT

The major components of property and equipment are as follows:


	As of December 31,		As of June 30,
	2019		2020
			(unaudited)
Leasehold improvements	$	20,887	$	21,028
Equipment		40,598		40,698
Computer software acquired		11,232		11,269
Internal-use software developed
Cloud-based services		51,442		54,689
Internal systems and tools		23,957		24,584
Furniture and fixtures		7,451		7,505
Automobiles		27		60
In-process internal-use software		809		5,587
		156,403		165,420
Less accumulated depreciation		(101,676)		(109,763)
Property and equipment, net	$	54,727	$	55,657

Depreciation expense for property and equipment, excluding all internal-use software and capital leases, was $1,773 and $1,371 for the three months ended June 30, 2020 and 2019 (unaudited), respectively, and $3,948 and $2,788 for the six months ended June 30, 2020 and 2019 (unaudited), respectively. Depreciation for property and equipment, excluding all internal-use software, is reflected in depreciation and amortization in the consolidated statements of comprehensive income (loss).

Assets under capital leases of $1,455 and $1,120, net of accumulated depreciation of $627 and $962, at December 31, 2019 and June 30, 2020 (unaudited), respectively, are included in property and equipment in the consolidated balance sheets. Depreciation expense for assets held under capital leases was $167 and $167 for the three months ended June 30, 2020 and 2019 (unaudited), respectively, and $335 and $229 for the six months ended June 30, 2020 and 2019 (unaudited), respectively. Depreciation expense for assets held under capital leases is included in depreciation and amortization expense in the consolidated statements of comprehensive income (loss).

The major components of internal-use software are as follows:


	As of December 31,		As of June 30,
	2019		2020
			(unaudited)
Internal-use software developed	$	75,399	$	79,273
Less accumulated depreciation		(53,852)		(59,051)
		21,547		20,222
In-process internal-use software		809		5,587
Internal-use software developed, net	$	22,356	$	25,809

Amounts capitalized for internal-use software and included in property and equipment additions on the consolidated statements of cash flows are as follows:


	For the six months ended June 30,
	2020		2019
	(unaudited)
Cloud-based solutions	$	7,731	$	4,594
Internal systems and tools		939		1,622
Total	$	8,670	$	6,216

In-process internal-use software is not depreciated until it is available for its intended use. Depreciation expense for internal-use software used for cloud-based solutions for the three months ended June 30, 2020 and 2019 (unaudited) was $2,453 and $2,105, respectively, and $4,464 and $4,219 for the six months ended June 30, 2020 and 2019 (unaudited), respectively. Depreciation expense for internal-use software used for cloud-based solutions is included in cost of revenues, software subscriptions in the consolidated statements of comprehensive income (loss).

Depreciation expense for internal-use software utilized for internal systems and tools for the three months ended June 30, 2020 and 2019 (unaudited) was $565 and $634, respectively, and $1,091 and $1,200 for the six months ended June 30, 2020 and 2019 (unaudited), respectively. Depreciation expense for internal-use software utilized for internal systems and tools is included in depreciation and amortization in the consolidated statements of comprehensive income (loss).

Research and development costs associated with internal-use software were $240 and $211 for the three months ended June 30, 2020 and 2019 (unaudited), respectively, and $735 and $398 for the six months ended June 30, 2020 and 2019 (unaudited), respectively.

CAPITALIZED SOFTWARE

6 Months Ended

Jun. 30, 2020

CAPITALIZED SOFTWARE

CAPITALIZED SOFTWARE

4. CAPITALIZED SOFTWARE

Capitalized software includes acquired software and direct labor and related expenses for software developed for sale for new products and enhancements to existing products. Software development costs capitalized for the three months ended June 30, 2020 and 2019 (unaudited) were $3,558 and $4,186, respectively, and $7,264 and $8,101 for the six months ended June 30, 2020 and 2019 (audited), respectively.

The major components of capitalized software are as follows:


	As of December 31,		As of June 30,
	2019		2020
			(unaudited)
Capitalized software	$	47,862	$	57,560
Less accumulated amortization		20,281		25,859
		27,581		31,701
In-process capitalized software		4,494		2,060
Capitalized software, net	$	32,075	$	33,761

Capitalized software amortization expense for the three months ended June 30, 2020 and 2019 was $3,022 and $1,903, respectively, and $5,578 and $3,718 for the six months ended June 30, 2020 and 2019, respectively, and is included in cost of revenues, software subscriptions in the consolidated statements of comprehensive income (loss).

GOODWILL

6 Months Ended

Jun. 30, 2020

GOODWILL

GOODWILL

5. GOODWILL

The changes in the carrying amount of goodwill for the six months ended June 30, 2020 are as follows:


	2020
	(unaudited)
Balance, January 1	$	—
Acquisition of Systax, January		26,124
Foreign currency translation adjustment for the three months ended March 30		(5,893)
Foreign currency translation adjustment for the three months ended June 30		(876)
Balance, June 30	$	19,355

DEBT	6 Months Ended
DEBT	Jun. 30, 2020
DEBT
DEBT	6. DEBT New Credit Agreement (unaudited) On March 31, 2020, the Company entered into a new credit agreement with a bank, which was subsequently amended on April 3, 2020 to permit another bank to be a party to the agreement, consisting of a $175,000 term loan (the "New Term Loan") and a $100,000 committed line of credit (the "New Line of Credit") (collectively, the "New Credit Agreement"). Absent the occurrence of a triggering event, such as an initial public offering which requires immediate repayment of the New Term Loan, the New Term Loan matures in March 2023 and requires quarterly principal payments of $4,375 starting October 1, 2020, with a balloon payment on the payoff date. The Company was required to distribute not less than $110,000 and not more than $125,000 to stockholders within 90 days of the closing date of the New Credit Agreement or such amount must be repaid to the lender. Net proceeds from the New Term Loan after payment of financing fees of $2,904 and repayment of aggregate amounts outstanding at March 31, 2020 under the previous credit agreement term loan and line of credit of $61,656, were used to fund a portion of the $123,000 distribution made to the stockholders on May 29, 2020, thus satisfying this requirement. The New Term Loan was repaid on July 31, 2020 upon funding of the Offering (see Note 13). The outstanding balance of the New Term Loan of $175,000 was classified as long-term debt, net of current portion in the consolidated balance sheet at June 30, 2020 due to this amount being repaid on July 31, 2020 with a portion of the proceeds from the Offering. The New Line of Credit matures in March 2025 and had no outstanding borrowings at closing. The Company has the option to select an applicable interest rate at either the bank base rate plus an applicable margin (the "New Base Rate Option") or the LIBOR plus an applicable margin (the "New LIBOR Option"). The applicable margins are determined by certain financial covenant performance as defined in the New Credit Agreement. At June 30, 2020, the New Base Rate Option and New LIBOR Option were 3.75% and 2.50%, respectively. The New Credit Agreement is collateralized by certain assets of the Company. The New Credit Agreement contains financial and operating covenants. The Company was in compliance with these covenants at June 30, 2020. Credit Agreement At December 31, 2019, the Company had a credit agreement (the "Credit Agreement") consisting of a term loan (the "Term Loan") with an outstanding principal balance of $50,375 and a $40,000 committed line of credit (the “Line of Credit”) with no outstanding borrowings. The Company had the option to select an applicable interest rate at either the bank base rate plus an applicable margin (the "Base Rate Option") or the London Interbank Offered Rate ("LIBOR") plus an applicable margin (the "LIBOR Option"). The applicable margins were determined by certain financial covenant performance as defined in the Credit Agreement. At December 31, 2019, the Base Rate Option and LIBOR Option resulted in rates of 4.75% and 2.69%, respectively. The Credit Agreement was collateralized by certain assets of the Company. The Credit Agreement contained financial and operating covenants, which included limitations on the amount of dividends payable in a given period. The Company was in compliance with these covenants at December 31, 2019. The Term Loan required quarterly principal payments over five years, with a balloon payment in November 2020. The interest rate on the Term Loan was 2.69% at December 31, 2019 as the Company selected the LIBOR Option. Term Loan outstanding amounts are reported in current portion of long-term debt and long-term debt, net of current portion, in the consolidated balance sheets. As a result of the Term Loan becoming due in November 2020, the balance outstanding of $50,375 was included in current portion of long-term debt on the consolidated balance sheet at December 31, 2019. The Line of Credit was due to expire on November 1, 2020. The Company was required to pay a quarterly fee on the difference between the $40,000 maximum borrowings allowed under the Line of Credit and the unpaid principal balance outstanding under the line at an applicable rate. The applicable rate, determined by certain financial covenant performance as defined in the Credit Agreement, was 0.200%. Unamortized deferred financing costs of $221 at December 31, 2019 are included as a reduction in current portion of long-term debt in the consolidated balance sheets. Amortization expense of deferred financing costs will be $221 in 2020 and will be included in interest expense in the consolidated statements of comprehensive income (loss). Capital Leases Capital lease obligations were $1,333 and $701 at December 31, 2019 and June 30, 2020 (unaudited), respectively, and are included in current portion of long-term debt and long-term debt, net of current portion in the consolidated balance sheets.

OPTIONS FOR REDEEMABLE SHARES

6 Months Ended

Jun. 30, 2020

OPTIONS FOR REDEEMABLE SHARES

OPTIONS FOR REDEEMABLE SHARES

7. OPTIONS FOR REDEEMABLE SHARES

Prior to 2006, Vertex issued stock options under separate option agreements, not subject to an option plan, permitting certain key members of management and the Board to purchase shares of Class B common stock. At December 31, 2019 and June 30, 2020, 3,849 and 3,676 (unaudited) shares of Class B common stock, respectively, were reserved for issuance under these option agreements. The exercise price of the shares under these option agreements is equal to the fair value of the shares as of the grant date, as determined by the Board with assistance from management and an independent third-party valuation provider. No options have been issued since December 2005. All options are fully vested at December 31, 2019 and June 30, 2020.

The options are exercisable upon: (i) any time after the option holder is no longer an employee of the Company or a member of the Board; (ii) the Grantee’s death or disability; (iii) the occurrence of a Partial Triggering Event (as defined below); or (iv) the occurrence of a Triggering Event (as defined below). In addition, the option agreements provide employee option holders with the ability to exercise a portion of their options between April 15 and April 30 of each year based upon the fair value of the Class B common stock as of December 31 of the prior calendar year, provided that certain Company performance is achieved. At the election of the Company, the option agreements allow option holders to satisfy tax withholding obligations incurred in connection with the exercise by exchanging exercised options in lieu of payment of income taxes paid by the Company on their behalf. The fair value of exchanged exercised options is recorded as a reduction to stockholders’ deficit as part of the exercise of the related options, net of cash received.

Since these option agreements permit the option holders to put their exercised shares back to the Company for a price per share based upon the fair value of the Class B common stock determined six months after the holder exercised the options, they are classified as temporary equity and included in options for redeemable shares on the consolidated balance sheets. In addition, these option agreements permit the Company to call the shares based upon the fair value of the Class B common stock determined six months after the options were exercised. The Company has never exercised its right to call any shares issued from option exercises. In the event of the sale of at least 50% of the Company’s stock or all the assets of the Company ("Triggering Event") in a single or multiple transactions, the option holders have the right to exercise their options and sell their related shares in connection with the transactions. Unexercised options expire after a Triggering Event. In the event of a sale of at least 25% of the Company’s assets to an unrelated third-party in a single or multiple transactions ("Partial Triggering Event"), the option holders have the right to exercise a portion of their options pro rata based on the sales price and sell their related shares in connection with the transaction. Unexercised options remaining after a Partial Triggering Event remain outstanding. In addition, in the event stockholders owning at least 51% of the outstanding stock of the Company (the "selling stockholders") sell a portion of their stock to an unrelated third-party, the option holders have the right to exercise and sell an amount of options in the same proportion as the selling stockholders (a "tag-along right"). The option holders may also be required to exercise all their outstanding options and sell all related shares in the event the selling stockholders sell at least 51% of their ownership to an unrelated third-party (a "drag-along right").

The table below reflects stock option activity for the following periods:


						Per share
				Per share		weighted
		Intrinsic		range of		average
	Options	values		option prices		option prices
Outstanding at January 1, 2019	4,125	$	14,581	$	0.15—$0.71	$	0.20
Exercised	(276)	$	957	$	0.15—$0.38	$	0.25
Outstanding at December 31, 2019	3,849	$	17,344	$	0.15—$0.71	$	0.19
Exercised (unaudited)	(173)	$	759	$	0.15—$0.38	$	0.30
Outstanding at June 30, 2020 (unaudited)	3,676	$	47,223	$	0.15—$0.71	$	0.19

Upon the effectiveness of the Offering on July 28, 2020 (see Note 13), outstanding options to purchase Class B common shares were exchanged for options to purchase an equivalent number of Class A shares at the same exercise price and vesting, subject to the terms of the 2020 Incentive Award Plan (the "2020 Plan") except with respect to the expiration of the options which remain subject to the Trigger Event requirements of the original option agreements. The option holders' ability to put the exercised option shares to the Company and the Company's ability to call these shares expired as these shares are now eligible to sold on the NASDAQ exchange. As a result of the put right no longer being applicable, the options will no longer be considered temporary equity and will be reclassified to stockholders' equity during the three months ended September 30, 2020.

STOCKHOLDERS' DEFICIT	6 Months Ended
STOCKHOLDERS' DEFICIT	Jun. 30, 2020
STOCKHOLDERS' DEFICIT
STOCKHOLDERS' DEFICIT	8. STOCKHOLDERS’ DEFICIT Common Stock There are no dividend or liquidation preference differences between the Class A common stock or Class B common stock. In April 2020, Vertex issued 173 shares of Class B common stock in connection with the exercise of stock options by option holders for cash of $53. In April 2019, Vertex issued 225 shares of Class B common stock in connection with the exercise of stock options by option holders for cash of $68, net of 51 shares that were immediately returned to Vertex upon exercise in lieu of payment of income taxes payable by the option holders of $184. At December 31, 2019 and June 30, 2020, repurchased shares ("Treasury Stock") aggregating 41,910 for each period are carried at cost and included in Treasury Stock in the consolidated balance sheets. Treasury Stock includes 41,757 shares of Class B common stock and 153 shares of Class A common stock for both years. The Board declared distributions of $4,010 ($0.03 per share) and $123,185 ($1.02 per share) during the three months ended March 31 and June 30, 2020, respectively, pro rata to stockholders of the Class A and Class B common stock. The Board declared distributions of $5,255 ($0.04 per share) and $6,105 ($0.05 per share) during the three months ended March 31 and June 30, 2019, respectively, pro rata to stockholders of the Class A and Class B common stock.

EARNINGS PER SHARE

6 Months Ended

Jun. 30, 2020

EARNINGS PER SHARE

EARNINGS PER SHARE

9. EARNINGS PER SHARE

The table below illustrates the calculation of basic and diluted net income (loss) per common share for the Class A common stock and Class B common stock for the following periods:


	For the three months						For the six months
	ended June 30,						ended June 30,
Class A common stock:	2020			2019			2020			2019
	(unaudited)
Numerator:
Net income (loss) attributable to all stockholders	$	(29,075)		$	7,122		$	(58,139)		$	14,447
Class A stock as a percentage of total shares outstanding		0.12	%		0.12	%		0.12	%		0.12	%
Net income (loss) attributable to Class A stockholders	$	(35)		$	9		$	(70)			18

Denominator:
Weighted-average Class A stock outstanding—basic		147			147			147			147
Dilutive effect of stock equivalents		—			—			—			—
Weighted-average Class A stock outstanding—diluted		147			147			147			147

Net income (loss) per Class A share, basic and diluted	$	(0.24)		$	0.06		$	(0.48)			0.12


	For the three months						For the six months
	ended June 30,						ended June 30,
Class B common stock:	2020			2019			2020			2019
	(unaudited)
Numerator:
Net income (loss) attributable to all stockholders	$	(29,075)		$	7,122		$	(58,139)		$	14,447
Class B stock as a percentage of total stock outstanding		99.88	%		99.88	%		99.88	%		99.88	%
Net income (loss) attributable to Class B stockholders	$	(29,040)		$	7,113		$	(58,069)		$	14,429

Denominator:
Weighted-average Class B stock outstanding—basic		120,402			120,443			120,336			120,357
Dilutive effect of stock equivalents		—			3,715			—			3,812
Weighted-average Class B stock outstanding—diluted		120,402			124,158			120,336			124,169

Net income (loss) per Class B share, basic	$	(0.24)		$	0.06		$	(0.48)		$	0.12

Net income (loss) per Class B share, diluted	$	(0.24)		$	0.06		$	(0.48)		$	0.12

EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS

6 Months Ended

Jun. 30, 2020

EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS

EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS

10. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS

401(k) Plan

The Company maintains a 401(k) plan that covers eligible employees subject to certain age and length of service requirements. The Company matches up to 3% of eligible compensation during the period in which an eligible participant contributes to the plan. Matching contributions were $965 and $779 for the three months ended June 30, 2020 and 2019 (unaudited), respectively, and $2,090 and $1,929 for the six months ended June 30, 2020 and 2019 (unaudited), respectively. In addition, a discretionary profit-sharing contribution of 3% of eligible compensation for eligible employees was approved and aggregated $3,363 for the year ended December 31, 2019 and is reflected in accrued salaries and benefits in the consolidated balance sheet. Accrued salaries and benefits includes $981 and $1,942 for the three and six months ended June 30, 2020 (unaudited), respectively, for an estimated discretionary profit-sharing contribution for 2020.

Long-Term Rewards Plan

The Company has a long-term rewards ("LTR") plan for certain key employees which provides for compensation related to growth in certain financial measures over a three-year period (the "Reward Performance Period"), subject to achieving an annual minimum net income target (the "Net Income Target") during each year of the Reward Performance Period. Each year, eligible LTR plan participants receive an individual target award opportunity ("Award Opportunity") for a new three-year Reward Performance Period (i.e. target award grant made in 2018 is for years 2018 through 2020). For Reward Performance Periods prior to 2018, compensation earned for growth in the financial measures over each Reward Performance Period is paid in cash in the year following the end of the respective Reward Performance Period, assuming the Net Income Target was achieved for each year of the respective Reward Performance Period. Starting in 2018, the Net Income Target is only required to be achieved in the final year of the Reward Performance Period. Estimated compensation is recorded during each year of a Reward Performance Period ("accrued LTR Award Opportunities").

Compensation expense included $799 and $493 for the three months ended June 30, 2020 and 2019 (unaudited), respectively, and $1,597 and $985 for the six months ended June 30, 2020 and 2019 (unaudited), respectively, for open Reward Performance Periods. Amounts paid to participants in 2020 for the Reward Performance Period starting in 2017 of $2,717 is reflected in deferred compensation, current in the consolidated balance sheet as of December 31, 2019. Amounts estimated to be paid in 2021 for performance through June 30, 2020 for the Reward Performance Period starting in 2018 of $1,707 (unaudited) is reflected in deferred compensation, current in the consolidated balance sheet as of June 30, 2020. The remaining balances of accrued LTR Award Opportunities for open Reward Performance Periods of $1,812 and $3,329 at December 31, 2019 and June 30, 2020 (unaudited) are reflected in deferred compensation, net of current portion, in the consolidated balance sheets.

SAR Plan

The Company has a SAR plan for the purpose of providing incentives to key members of management to contribute to the growth and financial success of the Company. SAR plan awards ("SAR Awards") are represented as a fixed number of shares of Class B common stock ("SAR Units"). SAR Units outstanding aggregated 12,276 and 12,086 at December 31, 2019 and June 30, 2020 (unaudited), respectively. SAR Units are issued at the equivalent of the fair value of the equivalent number of shares of the Company’s Class B common stock on the grant date ("Base Value"), as determined by the Board with assistance from management and an independent third-party valuation provider, and compensation is based upon the appreciation of the SAR Units in excess of the Base Value over the service vesting period. SAR Awards are exercisable upon 50% vesting or upon the occurrence of a triggering event.

Vested SAR units are redeemed upon the occurrence of a triggering event. Triggering events include: (i) expiration of the term of the SAR; (ii) a change of control of the Company whereby stockholders holding at least 50% of the voting stock of the company sell their shares; (iii) a merger of the Company with an unrelated third-party; (iv) an initial public offering; and (v) death, disability or retirement of a SAR participant.

SAR participants are limited to exercising no more than 25% of their vested SAR Units in any given year. SAR Awards generally vest 50% and 100% after two years and five years, respectively, from the grant date, or as determined by the Board. Maximum contractual terms range from ten years to term of employment of the participant. SAR Awards are settled in cash only, not through the issuance of shares. SAR Award exercises are limited each year to the proportion of the vested SAR units to the total units outstanding multiplied by adjusted net cash from operating activities (the "Liquidity Pool"), which is defined as cash from operating activities less cash paid for property and equipment and capitalized software for a given period.

The below table represents SAR activity for the following periods:


				Range of
	Vested Units	Unvested Units	Total Units	Grant Values
Balance, January 1, 2019	5,889	4,782	10,671	$	0.92–$3.17
Granted	297	2,112	2,409	$	3.73
Exercised	(609)	—	(609)	$	1.31–$2.50
Forfeited	—	(195)	(195)	$	2.13–$2.50
Vested	630	(630)	—
Balance, December 31, 2019	6,207	6,069	12,276	$	0.92–$3.73
Granted (unaudited)	21	681	702	$	4.70
Exercised (unaudited)	(829)	—	(829)	$	1.31–$2.50
Forfeited (unaudited)	—	(63)	(63)	$	2.50
Vested (unaudited)	1,410	(1,410)	—
Balance June 30, 2020 (unaudited)	6,809	5,277	12,086	$	0.92–$4.70

The weighted average grant date intrinsic value of the SARs on grant date is zero as the Company’s Board grants all awards at a price per share not less than the per share fair value of the Company’s Class B common stock underlying such awards on the date of grant.

The Company recognized stock-based compensation cost in the consolidated statements of comprehensive income (loss) to reflect the appreciation in value of the vested portion of outstanding SAR Awards over the Base Value from the grant date as follows:


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
	(unaudited)
Cost of revenues, software subscriptions	$	4,168	$	131	$	7,660	$	262
Cost of revenues, services		6,251		197		11,489		394
Research and development		4,168		131		7,660		262
Selling and marketing		8,335		262		15,319		523
General and administrative		18,754		589		34,468		1,179
Total stock-based compensation	$	41,676	$	1,310	$	76,596	$	2,620

Accrued SAR Awards of $5,790 and $20,582 at December 31, 2019 and June 30, 2020 (unaudited), respectively, representing SAR Units scheduled for redemption and 25% of the vested SAR Units eligible for exercise within 12‑months of the balance sheet date are reflected in deferred compensation, current in the consolidated balance sheets. The remaining balances of accrued SAR Awards of $16,506 and $75,705 at December 31, 2019 and June 30, 2020 (unaudited), respectively, are reflected as deferred compensation, net of current portion, in the consolidated balance sheets. We had approximately $3,900 and $27,867 of total unrecognized compensation expense for unvested SAR Awards at December 31, 2019 and June 30, 2020 (unaudited), respectively, which we expect to recognize over the respective service periods of one to five years.

The SAR Awards were amended in connection with the Offering. See Note 13.

The entire disclosure for retirement benefits.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

RELATED PARTIES	6 Months Ended
RELATED PARTIES	Jun. 30, 2020
RELATED PARTIES
RELATED PARTIES	11. RELATED PARTIES The Company advanced amounts to certain stockholders of the Company of $283 and $230 at December 31, 2019 and June 30, 2020 (unaudited), respectively. These amounts are non-interest bearing as they are short-term in nature and repaid within three months. These amounts are included in advances to stockholders in the consolidated balance sheets.

COMMITMENTS AND CONTINGENCIES	6 Months Ended
COMMITMENTS AND CONTINGENCIES	Jun. 30, 2020
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES	12. COMMITMENTS AND CONTINGENCIES The Company leases office space under operating leases that expire at various dates through September 2028. Rent expense under all property operating leases was $1,754 and $1,574 for the three months ended June 30, 2020 and 2019 (unaudited), respectively, and $3,451 and $3,092 for the six months ended June 30, 2020 and 2019 (unaudited), respectively. These amounts are reflected in general and administrative expense in the consolidated statements of comprehensive income (loss). The Company may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The Company is not aware of any such legal proceedings or claims that management believes will have a material adverse effect on our business, financial condition, or operating results.

SUBSEQUENT EVENTS	6 Months Ended
SUBSEQUENT EVENTS	Jun. 30, 2020
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS	13. SUBSEQUENT EVENTS Termination of S Corporation Filing Status On July 27, 2020, the Company and its shareholders entered into an S corporation and Tax Sharing Agreement, pursuant to which the Company’s S corporation status for U.S. federal income tax purposes was terminated on July 27, 2020 and the Company will thereafter be taxed as C Corporation. As a result, the Company’s effective tax rate is projected to increase from approximately 2.5% to 25%. The Company estimates a tax benefit of approximately $27,200 (unaudited) upon such conversion in the quarter ended September 30, 2020. Changes to Capital Structure On July 28, 2020, the Company filed its amended and restated certificate of incorporation with the Delaware Secretary of State to effect a three-for-one forward stock split (the “Stock Split”), a share exchange, and to establish a new capital structure for the Company. The Stock Split resulted in each one share owned by a stockholder being exchanged for three shares of common stock, and the number of shares of the Company’s common stock issued and outstanding was increased proportionately based on the Stock Split. In addition, in connection with the Stock Split, stockholders of record exchanged their existing Class A and Class B common stock for newly created shares of Class A common stock ("Class A") and Class B common stock ("Class B") issued in connection with the new capital structure. The effect of the Stock Split was recognized retrospectively in the Consolidated Financial Statements. In connection with the new capital structure, the Company authorized 450,000 shares of common stock, par value $0.001 per share, and 30,000 shares of preferred stock, par value $0.001 per share. Common stock is divided into two classes, Class A with one vote per share, and Class B with ten votes per share. The rights of the holders of Class A and Class B are identical, except with respect to voting, conversion and transfer rights. Following the Offering, authorized Class A will consist of 300,000 shares and authorized Class B will consist of 150,000 shares. Each outstanding share of Class B is convertible at any time at the option of the holder into one share of Class A. Each share of Class B will convert automatically into one share of Class A upon any transfer, except for certain permitted transfers to other Class B stockholders or other members of the control group. Each share of Class B will convert automatically into one share of Class A if the voting power of all then-outstanding shares of Class B comes to represent less than ten percent of the combined voting power of all shares of the then-outstanding common stock. Once converted or transferred and converted into Class A, the Class B may not be reissued. The Board is authorized to issue up to 30,000 shares of preferred stock in one or more series without stockholder approval. The Board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. Upon closing of the Offering, there were no shares of preferred stock outstanding. SAR Amendment SAR participants were offered the option to either redeem their SARs upon the occurrence of the Offering or amend their SARs pursuant to which, upon effectiveness of the Company’s 2020 Plan to occur concurrent or shortly after the effective date of the Offering, such SARs will become options to purchase shares of new Class A common stock under the 2020 Plan. Effective July 13, 2020, this offer period ended and all SAR participants eligible to receive the offer accepted and will have their outstanding SARs converted to stock options with equivalent terms under the 2020 Plan (the "Converted SARs"). This is considered a modification of these SAR awards. Converted SARs with either no expiration date or that expire during calendar year 2020 were converted to options and automatically exercised into shares (the "Auto Exercise New Options") on July 28, 2020, the effective date of the Offering. Shares issued in connection with the Auto Exercise New Options were net of the number of shares of common stock necessary to satisfy the aggregate exercise price and the tax withholding obligation of such options. The Auto Exercise New Option participants also had the ability to require the Company to repurchase all or a portion of the shares remaining after this reduction on the Offering date for cash based on the Offering price, which aggregated $22,900 (unaudited). Management continued to record changes in the intrinsic value of the SARs in 2020 up to July 2, 2020,the date on which Management determined the Company was considered to have become a public entity. Management will record the change in accounting policy of $2,421 in accordance with ASC 718 during the three months ended September 30, 2020, which includes $1,299 of vested Converted SARs which will be recognized as compensation expense during this period, with the remaining $1,122 of unvested Converted SARs being recognized as compensation expense over the remaining service period of one to five years through 2025. Any additional incremental increase in fair value of the Converted SARs after July 2, 2020 resulting from the modification will be recorded as compensation expense at the time of the exchange upon the Offering effective date. Upon modification, the Converted SARs will no longer be recorded as a liability under ASC 718 and the accumulated liability balance will be reclassified to stockholders’ equity. The unvested portion of the Converted SAR liability at the Offering date will be amortized over the remaining service period of the Converted SARs as compensation expense. At the Offering price of $19.00 management estimates the fair value of the Converted SARs at the Offering date to be approximately $197,000 (unaudited), of which approximately $153,000 (unaudited) is vested. At this value, management expects to record estimated additional compensation expense of approximately $57,000 (unaudited) for vested Converted SARs from July 1 to the Offering date, which includes the $1,299 impact of the change in accounting of vested Converted SARs. The remaining approximate $44,000 (unaudited) of unvested Converted SAR liability, which includes the $1,122 of unvested Converted SARs, will be recognized as compensation expense over the remaining service period of one to five years through 2025. Registration of Company Stock The Company’s Registration Statement filed with the SEC was declared effective on July 28, 2020, resulting in Class A being registered and available for trading on the NASDAQ exchange. Concurrent with the effectiveness of the S‑1, the Company filed a form S‑8 registration statement, which was also declared effective covering registration of shares issued or to be issued under the Company’s 2020 Plan and the Employee Stock Purchase Plan. Debt Redemption On July 31, 2020, the Company received $423,024 in proceeds, net of underwriting fees, from the sale of 23,812 shares of Class A and used a portion of the proceeds to pay off the $175,000 New Term Loan. The Company expects to record a write down of deferred financing costs associated with the New Term Loan of $1,174, which will be recorded as interest expense in the consolidated statement of comprehensive income for the three months ended September 30, 2020. The net proceeds remaining after payment of Offering costs will be used for working capital and other corporate purposes as described in the Prospectus.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2020

Nature of Business

Registration of Company Stock

Unaudited Interim Financial Information

Segments

Fair Value of Financial Instruments

Use of Estimates

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an initial maturity date of three months or less to be cash equivalents.

Funds Held for Customers

Property and Equipment


Leasehold improvements		1 - 12 years
Equipment		3 - 10 years
Computer software		3 - 7 years
Internal-use software developed		3 - 5 years
Furniture and fixtures		7 - 10 years
Automobiles		5 years

Software Development Costs

Internal-Use Software

Software Developed for Sale

Assessment of Long-Lived Assets

Business Combinations

Goodwill

Deferred Financing Costs

Accounting for Stock-Based Compensation

Operating Leases and Deferred Rent

Self-insurance

Revenue Recognition

Revenue from contracts with customers

Nature of goods and services

Significant Judgments

Disaggregation of revenue

The table reflects revenue by major source for the following periods:


	For the three months ended				For the six months ended
	June 30,				June 30,
		2020	2019			2020	2019
	(unaudited)				(unaudited)
Sources of revenue:
Software subscriptions	$	77,306	$	67,267	$	153,066	$	131,651
Services		13,965		11,108		27,450		21,338
Total revenue	$	91,271	$	78,375	$	180,516	$	152,989

Contract balances

The beginning and ending balances of accounts receivable, net of allowance, are as follows:


	For the year ended		For the six months ended
	December 31,		June 30,
	2019		2020
			(unaudited)
Balance, beginning of period	$	62,235	$	70,367
Balance, end of period		70,367		63,739
Increase (decrease), net	$	8,132	$	(6,628)

The beginning and ending balances of and changes to the allowance and the deferred allowance are as follows:


	For the three months ended
	June 30, 2020
	(unaudited)
	Balance		Net Change
Allowance balance. April 1	$	(7,476)
Allowance balance, June 30		(7,669)
Change in allowance			$	193
Deferred allowance balance, April 1		5,118
Deferred allowance balance, June 30		5,335
Change in deferred allowance				(217)
Net amount charged to revenue			$	(24)


	For the three months ended
	June 30, 2019
	(unaudited)
	Balance			Net Change
Allowance balance. April 1	$	(4,703)
Allowance balance, June 30		(4,845)
Change in allowance			$	142
Deferred allowance balance, April 1		3,901
Deferred allowance balance, June 30		3,719
Change in deferred allowance				182
Net amount charged to revenue			$	324


	For the six months ended
	June 30, 2020
	(unaudited)
	Balance			Net Change
Allowance balance. January 1	$	(7,515)
Allowance balance, June 30		(7,669)
Change in allowance			$	154
Deferred allowance balance, January 1		5,614
Deferred allowance balance, June 30		5,335
Change in deferred allowance				279
Net amount charged to revenue			$	433


	For the six months ended
	June 30, 2019
	(unaudited)
	Balance			Net Change
Allowance balance. January 1	$	(5,527)
Allowance balance, June 30		(4,845)
Change in allowance			$	(682)
Deferred allowance balance, January 1		4,858
Deferred allowance balance, June 30		3,719
Change in deferred allowance				1,139
Net amount charged to revenue			$	457

The table provides information about the balances of and changes to deferred revenue for the following periods:


	As of December 31,		As of June 30,
	2019		2020
			(unaudited)
Deferred revenue, current	$	191,745	$	187,041
Deferred revenue, non-current		14,046		11,396
Total	$	205,791	$	198,437


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
	(unaudited)
Changes to deferred revenue:
Beginning balance	$	201,484	$	181,957	$	205,791	$	178,703
Additional amounts deferred		88,224		75,769		173,162		153,637
Revenue recognized		(91,271)		(78,375)		(180,516)		(152,989)
Ending balance	$	198,437	$	179,351	$	198,437	$	179,351

Contract costs

The table provides information about the changes to contract cost balances as of and for the following periods:


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
	(unaudited)
Deferred commissions:
Beginning balance	$	10,563	$	8,239	$	11,196	$	8,830
Additions		1,630		1,605		2,694		3,066
Amortization		(1,803)		(1,084)		(3,500)		(3,136)
Ending balance	$	10,390	$	8,760	$	10,390	$	8,760

Payment terms

Cost of Revenues

Reimbursable Costs

Research and Development

Foreign Currency

Income Taxes

On July 27, 2020, the S corporation election was terminated by the Company’s stockholders in connection with the Offering. See Note 13.

Total Comprehensive Income (Loss)

Earnings Per Share

Unaudited Pro Forma Income Taxes

Unaudited Pro Forma Earnings Per Share


	For the three			For the six
	months ended			months ended
	June 30,			June 30,
Class A common stock:	2020			2020
	(unaudited)
Numerator:
Pro forma net loss attributable to all stockholders	$	(22,455)		$	(43,979)
Class A stock as a percentage of total shares outstanding		0.12	%		0.12	%
Pro forma net loss attributable to Class A stockholders	$	(28)		$	(54)

Denominator:
Weighted-average Class A stock outstanding—basic and diluted		147			147

Pro forma net loss per Class A share, basic and diluted	$	(0.19)		$	(0.37)


	For the three			For the six
	months ended			months ended
	June 30,			June 30,
Class B common stock:	2020			2020
	(unaudited)
Numerator:
Pro forma net loss attributable to all stockholders	$	(22,455)		$	(43,979)
Class B stock as a percentage of total shares outstanding		99.88	%		99.88	%
Pro forma net loss attributable to Class B stockholders	$	(22,427)		$	(43,925)

Denominator:
Weighted-average Class B stock outstanding—basic and diluted		120,402			120,336

Pro forma net loss per Class B share, basic and diluted	$	(0.19)		$	(0.37)

Supplemental Cash Flow Disclosures

Supplemental cash flow disclosures are as follows for the respective periods:


	For the six
	months ended
	June 30,
	2020		2019
	(unaudited)
Cash paid for:
Interest	$	1,360	$	946
Income taxes	$	490	$	471
Non-cash investing and financing activities:
Exercised options exchanged in lieu of income taxes	$	—	$	184
Acquisition purchase commitment liability	$	14,344	$	—
Equipment acquired through capital leases	$	—	$	1,904
Remeasurement of options for redeemable shares	$	29,879	$	183

Recently Issued Accounting Pronouncements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2020

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Schedule of estimated useful lives of the assets


Leasehold improvements		1 - 12 years
Equipment		3 - 10 years
Computer software		3 - 7 years
Internal-use software developed		3 - 5 years
Furniture and fixtures		7 - 10 years
Automobiles		5 years

Schedule of disaggregation of revenue


	For the three months ended				For the six months ended
	June 30,				June 30,
		2020	2019			2020	2019
	(unaudited)				(unaudited)
Sources of revenue:
Software subscriptions	$	77,306	$	67,267	$	153,066	$	131,651
Services		13,965		11,108		27,450		21,338
Total revenue	$	91,271	$	78,375	$	180,516	$	152,989

Schedule of beginning and ending balances of accounts receivable, net of allowance


	For the year ended		For the six months ended
	December 31,		June 30,
	2019		2020
			(unaudited)
Balance, beginning of period	$	62,235	$	70,367
Balance, end of period		70,367		63,739
Increase (decrease), net	$	8,132	$	(6,628)

Schedule of beginning and ending balances of and changes to the allowance and the deferred allowance

The beginning and ending balances of and changes to the allowance and the deferred allowance are as follows:


	For the three months ended
	June 30, 2020
	(unaudited)
	Balance		Net Change
Allowance balance. April 1	$	(7,476)
Allowance balance, June 30		(7,669)
Change in allowance			$	193
Deferred allowance balance, April 1		5,118
Deferred allowance balance, June 30		5,335
Change in deferred allowance				(217)
Net amount charged to revenue			$	(24)


	For the three months ended
	June 30, 2019
	(unaudited)
	Balance			Net Change
Allowance balance. April 1	$	(4,703)
Allowance balance, June 30		(4,845)
Change in allowance			$	142
Deferred allowance balance, April 1		3,901
Deferred allowance balance, June 30		3,719
Change in deferred allowance				182
Net amount charged to revenue			$	324


	For the six months ended
	June 30, 2020
	(unaudited)
	Balance			Net Change
Allowance balance. January 1	$	(7,515)
Allowance balance, June 30		(7,669)
Change in allowance			$	154
Deferred allowance balance, January 1		5,614
Deferred allowance balance, June 30		5,335
Change in deferred allowance				279
Net amount charged to revenue			$	433


	For the six months ended
	June 30, 2019
	(unaudited)
	Balance			Net Change
Allowance balance. January 1	$	(5,527)
Allowance balance, June 30		(4,845)
Change in allowance			$	(682)
Deferred allowance balance, January 1		4,858
Deferred allowance balance, June 30		3,719
Change in deferred allowance				1,139
Net amount charged to revenue			$	457

Schedule of information about the balances of and changes to deferred revenue

The table provides information about the balances of and changes to deferred revenue for the following periods:


	As of December 31,		As of June 30,
	2019		2020
			(unaudited)
Deferred revenue, current	$	191,745	$	187,041
Deferred revenue, non-current		14,046		11,396
Total	$	205,791	$	198,437


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
	(unaudited)
Changes to deferred revenue:
Beginning balance	$	201,484	$	181,957	$	205,791	$	178,703
Additional amounts deferred		88,224		75,769		173,162		153,637
Revenue recognized		(91,271)		(78,375)		(180,516)		(152,989)
Ending balance	$	198,437	$	179,351	$	198,437	$	179,351

Schedule of information about the changes to contract cost balances

The table provides information about the changes to contract cost balances as of and for the following periods:


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
	(unaudited)
Deferred commissions:
Beginning balance	$	10,563	$	8,239	$	11,196	$	8,830
Additions		1,630		1,605		2,694		3,066
Amortization		(1,803)		(1,084)		(3,500)		(3,136)
Ending balance	$	10,390	$	8,760	$	10,390	$	8,760

Schedule of unaudited proforma earnings per share


	For the three			For the six
	months ended			months ended
	June 30,			June 30,
Class A common stock:	2020			2020
	(unaudited)
Numerator:
Pro forma net loss attributable to all stockholders	$	(22,455)		$	(43,979)
Class A stock as a percentage of total shares outstanding		0.12	%		0.12	%
Pro forma net loss attributable to Class A stockholders	$	(28)		$	(54)

Denominator:
Weighted-average Class A stock outstanding—basic and diluted		147			147

Pro forma net loss per Class A share, basic and diluted	$	(0.19)		$	(0.37)


	For the three			For the six
	months ended			months ended
	June 30,			June 30,
Class B common stock:	2020			2020
	(unaudited)
Numerator:
Pro forma net loss attributable to all stockholders	$	(22,455)		$	(43,979)
Class B stock as a percentage of total shares outstanding		99.88	%		99.88	%
Pro forma net loss attributable to Class B stockholders	$	(22,427)		$	(43,925)

Denominator:
Weighted-average Class B stock outstanding—basic and diluted		120,402			120,336

Pro forma net loss per Class B share, basic and diluted	$	(0.19)		$	(0.37)

Schedule of supplemental cash flow disclosures

Supplemental cash flow disclosures are as follows for the respective periods:


	For the six
	months ended
	June 30,
	2020		2019
	(unaudited)
Cash paid for:
Interest	$	1,360	$	946
Income taxes	$	490	$	471
Non-cash investing and financing activities:
Exercised options exchanged in lieu of income taxes	$	—	$	184
Acquisition purchase commitment liability	$	14,344	$	—
Equipment acquired through capital leases	$	—	$	1,904
Remeasurement of options for redeemable shares	$	29,879	$	183

ACQUISITION (Tables)

6 Months Ended

Jun. 30, 2020

ACQUISITION

Schedule of preliminary purchase price allocation recorded in the Company's consolidated balance sheet as of the acquisition date


	Initial Purchase
Net Assets and Assumed Liabilities	Price Allocation
	(unaudited)
	(in thousands)
Cash and cash equivalents	$	56
Accounts receivable		867
Property and equipment		48
Other assets		18
Goodwill		26,124
Accounts payable and accrued expenses		(228)
Accrued compensation		(162)
Other liabilities		(5)

Total consideration at acquisition date	$	26,718

PROPERTY AND EQUIPMENT (Tables)

6 Months Ended

Jun. 30, 2020

PROPERTY AND EQUIPMENT

Schedule of major components of property and equipment


	As of December 31,		As of June 30,
	2019		2020
			(unaudited)
Leasehold improvements	$	20,887	$	21,028
Equipment		40,598		40,698
Computer software acquired		11,232		11,269
Internal-use software developed
Cloud-based services		51,442		54,689
Internal systems and tools		23,957		24,584
Furniture and fixtures		7,451		7,505
Automobiles		27		60
In-process internal-use software		809		5,587
		156,403		165,420
Less accumulated depreciation		(101,676)		(109,763)
Property and equipment, net	$	54,727	$	55,657

Schedule of major components of internal-use software


	As of December 31,		As of June 30,
	2019		2020
			(unaudited)
Internal-use software developed	$	75,399	$	79,273
Less accumulated depreciation		(53,852)		(59,051)
		21,547		20,222
In-process internal-use software		809		5,587
Internal-use software developed, net	$	22,356	$	25,809

Schedule of amounts capitalized for internal-use software and included in property and equipment additions on the consolidated statements of cash flows


	For the six months ended June 30,
	2020		2019
	(unaudited)
Cloud-based solutions	$	7,731	$	4,594
Internal systems and tools		939		1,622
Total	$	8,670	$	6,216

CAPITALIZED SOFTWARE (Tables)

6 Months Ended

Jun. 30, 2020

CAPITALIZED SOFTWARE

Schedule of major components of capitalized software


	As of December 31,		As of June 30,
	2019		2020
			(unaudited)
Capitalized software	$	47,862	$	57,560
Less accumulated amortization		20,281		25,859
		27,581		31,701
In-process capitalized software		4,494		2,060
Capitalized software, net	$	32,075	$	33,761

GOODWILL (Tables)

6 Months Ended

Jun. 30, 2020

GOODWILL

Schedule of changes in the carrying amount of goodwill


	2020
	(unaudited)
Balance, January 1	$	—
Acquisition of Systax, January		26,124
Foreign currency translation adjustment for the three months ended March 30		(5,893)
Foreign currency translation adjustment for the three months ended June 30		(876)
Balance, June 30	$	19,355

OPTIONS FOR REDEEMABLE SHARES (Tables)

6 Months Ended

Jun. 30, 2020

OPTIONS FOR REDEEMABLE SHARES

Schedule of stock activity


						Per share
				Per share		weighted
		Intrinsic		range of		average
	Options	values		option prices		option prices
Outstanding at January 1, 2019	4,125	$	14,581	$	0.15—$0.71	$	0.20
Exercised	(276)	$	957	$	0.15—$0.38	$	0.25
Outstanding at December 31, 2019	3,849	$	17,344	$	0.15—$0.71	$	0.19
Exercised (unaudited)	(173)	$	759	$	0.15—$0.38	$	0.30
Outstanding at June 30, 2020 (unaudited)	3,676	$	47,223	$	0.15—$0.71	$	0.19

EARNINGS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2020

EARNINGS PER SHARE

Schedule of earnings per share basic and diluted


	For the three months						For the six months
	ended June 30,						ended June 30,
Class A common stock:	2020			2019			2020			2019
	(unaudited)
Numerator:
Net income (loss) attributable to all stockholders	$	(29,075)		$	7,122		$	(58,139)		$	14,447
Class A stock as a percentage of total shares outstanding		0.12	%		0.12	%		0.12	%		0.12	%
Net income (loss) attributable to Class A stockholders	$	(35)		$	9		$	(70)			18

Denominator:
Weighted-average Class A stock outstanding—basic		147			147			147			147
Dilutive effect of stock equivalents		—			—			—			—
Weighted-average Class A stock outstanding—diluted		147			147			147			147

Net income (loss) per Class A share, basic and diluted	$	(0.24)		$	0.06		$	(0.48)			0.12


	For the three months						For the six months
	ended June 30,						ended June 30,
Class B common stock:	2020			2019			2020			2019
	(unaudited)
Numerator:
Net income (loss) attributable to all stockholders	$	(29,075)		$	7,122		$	(58,139)		$	14,447
Class B stock as a percentage of total stock outstanding		99.88	%		99.88	%		99.88	%		99.88	%
Net income (loss) attributable to Class B stockholders	$	(29,040)		$	7,113		$	(58,069)		$	14,429

Denominator:
Weighted-average Class B stock outstanding—basic		120,402			120,443			120,336			120,357
Dilutive effect of stock equivalents		—			3,715			—			3,812
Weighted-average Class B stock outstanding—diluted		120,402			124,158			120,336			124,169

Net income (loss) per Class B share, basic	$	(0.24)		$	0.06		$	(0.48)		$	0.12

Net income (loss) per Class B share, diluted	$	(0.24)		$	0.06		$	(0.48)		$	0.12

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) $ in Thousands	1 Months Ended	3 Months Ended		6 Months Ended
	Feb. 29, 2016	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2020 USD ($) item segment	Jun. 30, 2019 USD ($)	Mar. 31, 2020 USD ($)	Jan. 07, 2020 USD ($)	Dec. 31, 2019 USD ($)	Mar. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Summary of significant accounting policies
Operating segments \| segment				1
Property and equipment, net		$ 55,657		$ 55,657				$ 54,727
Goodwill		19,355		$ 19,355
Reporting units \| item				1
Allowance for accounts receivable		7,669	$ 4,845	$ 7,669	$ 4,845	$ 7,476		7,515	$ 4,703	$ 5,527
Self-insurance accruals		1,980		1,980				$ 1,473
Revenue recognized during the year that was included in the opening deferred revenue balance		$ 91,271	$ 78,375	180,516	$ 152,989
Impairment loss on contract costs				$ 0
Term				30 days
Lease, Practical Expedients, Package [true false]	true
Revenue \| Geographic Concentration Risk \| Outside United States
Summary of significant accounting policies
Concentration risk percentage		3.00%	3.00%	3.00%	3.00%
Long Lived Assets \| Geographic Concentration Risk \| Outside United States
Summary of significant accounting policies
Concentration risk percentage				18.00%
Property and equipment, net		$ 19,471		$ 19,471
Systax
Summary of significant accounting policies
Ownership (as a percent)		60.00%		60.00%
Net assets		$ 19,555		$ 19,555
Systax \| Outside United States
Summary of significant accounting policies
Goodwill		$ 19,355		$ 19,355
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-06-30
Summary of significant accounting policies
Revenue recognition period		3 years		3 years
Systax
Summary of significant accounting policies
Interest acquired (as a percent)							60.00%
Goodwill							$ 26,124

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Useful lives (Details)	6 Months Ended
	Jun. 30, 2020
Leasehold improvements \| Minimum
Estimated useful lives:
Useful lives (in years)	1 year
Leasehold improvements \| Maximum
Estimated useful lives:
Useful lives (in years)	12 years
Equipment \| Minimum
Estimated useful lives:
Useful lives (in years)	3 years
Equipment \| Maximum
Estimated useful lives:
Useful lives (in years)	10 years
Computer software acquired \| Minimum
Estimated useful lives:
Useful lives (in years)	3 years
Computer software acquired \| Maximum
Estimated useful lives:
Useful lives (in years)	7 years
Internal-use software developed \| Minimum
Estimated useful lives:
Useful lives (in years)	3 years
Internal-use software developed \| Maximum
Estimated useful lives:
Useful lives (in years)	5 years
Furniture and fixtures \| Minimum
Estimated useful lives:
Useful lives (in years)	7 years
Furniture and fixtures \| Maximum
Estimated useful lives:
Useful lives (in years)	10 years
Automobiles
Estimated useful lives:
Useful lives (in years)	5 years

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Revenue by source (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Disaggregation of revenue:
Total revenue	$ 91,271	$ 78,375	$ 180,516	$ 152,989
Software subscriptions
Disaggregation of revenue:
Total revenue	77,306	67,267	153,066	131,651
Services
Disaggregation of revenue:
Total revenue	$ 13,965	$ 11,108	$ 27,450	$ 21,338

Amount, excluding tax collected from customer, of revenue from satisfaction of performance obligation by transferring promised good or service to customer. Tax collected from customer is tax assessed by governmental authority that is both imposed on and concurrent with specific revenue-producing transaction, including, but not limited to, sales, use, value added and excise.

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Effective tax rate (as a percent)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Accounts receivable, net of allowances (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Accounts receivable rollforward:
Balance, beginning of period	$ 70,367	$ 62,235
Balance, end of period	63,739	70,367
Increase (decrease), net	$ (6,628)	$ 8,132

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Allowance and deferred allowance (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Accounts Receivable, Allowance for Credit Loss [Roll Forward]
Allowance balance, beginning period	$ (7,476)	$ (4,703)	$ (7,515)	$ (5,527)
Allowance balance, ending period	(7,669)	(4,845)	(7,669)	(4,845)
Change in allowance	193	142	154	(682)
Deferred allowance balance, beginning period	5,118	3,901	5,614	4,858
Deferred allowance balance, ending period	5,335	3,719	5,335	3,719
Change in deferred allowance	(217)	182	279	1,139
Net amount charged to revenue	$ (24)	$ 324	$ 433	$ 457

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Deferred revenue (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Deferred revenue, current	$ 187,041		$ 191,745
Deferred revenue, non-current	11,396		14,046
Total	$ 198,437	$ 201,484	$ 205,791	$ 179,351	$ 181,957	$ 178,703

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Changes in deferred revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Changes to deferred revenue:
Beginning balance	$ 201,484	$ 181,957	$ 205,791	$ 178,703
Additional amounts deferred	88,224	75,769	173,162	153,637
Revenue recognized	(91,271)	(78,375)	(180,516)	(152,989)
Ending balance	$ 198,437	$ 179,351	$ 198,437	$ 179,351

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Changes to contract cost balances (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Changes to deferred revenue:
Beginning balance	$ 10,563	$ 8,239	$ 11,196	$ 8,830
Additions	1,630	1,605	2,694	3,066
Amortization	(1,803)	(1,084)	(3,500)	(3,136)
Ending balance	$ 10,390	$ 8,760	$ 10,390	$ 8,760

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Unaudited Pro Forma Income Taxes and Earnings Per Share (Details)
$ / shares in Units, shares in Thousands, $ in Thousands

3 Months Ended

6 Months Ended

Jun. 30, 2020

USD ($)

$ / shares

Jun. 30, 2019

Jun. 30, 2020

USD ($)

$ / shares

Jun. 30, 2019

25.00%

Pro forma net loss attributable to all stockholders

$ (22,455)

$ (43,979)

Pro forma net loss attributable to all stockholders

$ (28)

$ (54)

Stock as a percentage of total shares outstanding

0.12

Weighted average common stock outstanding, diluted | shares

147

Proforma net loss per share, basic and diluted | $ / shares

$ (0.19)

$ (0.37)

Pro forma net loss attributable to all stockholders

$ (22,427)

$ (43,925)

Stock as a percentage of total shares outstanding

99.88

Weighted average common stock outstanding, diluted | shares

^[1]

120,402

124,158

120,336

124,169

Proforma net loss per share, basic and diluted | $ / shares

$ (0.19)

$ (0.37)

[1]	The number of shares of common stock and the calculation of net income (loss) per share have been retrospectively restated to reflect the three-for-one forward stock split which was effective July 28, 2020. See Note 13.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Supplemental Cash Flow Disclosures (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash paid for:
Interest	$ 1,360	$ 946
Income taxes	490	471
Non-cash investing and financing activities:
Stock exchanged in lieu, value		184
Acquisition purchase commitment liability	14,344	0
Equipment acquired through capital leases		1,904
Remeasurement of options	$ 29,879	$ 183

ACQUISITION (Details) - Systax - USD ($) $ in Thousands		3 Months Ended	6 Months Ended	12 Months Ended
ACQUISITION (Details) - Systax - USD ($) $ in Thousands	Jan. 07, 2020	Jun. 30, 2020	Jun. 30, 2020	Dec. 31, 2019
Acquisition
Interest acquired (as a percent)	60.00%
Cash consideration	$ 12,374
Remaining interest (as a percent)	40.00%
Purchase commitment liability	$ 14,344
Accounts receivable	$ 867
Revenue		$ 944	$ 2,087
Net loss		$ (25)	$ (281)
Transaction costs				$ 504

ACQUISITION - Net Assets and Assumed Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Jan. 07, 2020
Acquisition
Goodwill	$ 19,355
Systax
Acquisition
Cash and cash equivalents		$ 56
Accounts receivable		867
Property and equipment		48
Other assets		18
Goodwill		26,124
Accounts payable and accrued expenses		(228)
Accrued compensation		(162)
Other liabilities		(5)
Total consideration at acquisition date		$ 26,718

PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Property and equipment
Property and equipment, gross	$ 165,420	$ 156,403
Less accumulated depreciation	(109,763)	(101,676)
Property and equipment, net	55,657	54,727
Leasehold improvements
Property and equipment
Property and equipment, gross	21,028	20,887
Equipment
Property and equipment
Property and equipment, gross	40,698	40,598
Computer software acquired
Property and equipment
Property and equipment, gross	11,269	11,232
Internal-use software developed
Property and equipment
Property and equipment, gross	79,273	75,399
Less accumulated depreciation	(59,051)	(53,852)
Property and equipment, net	25,809	22,356
Internal-use software developed, Cloud-based services
Property and equipment
Property and equipment, gross	54,689	51,442
Internal-use software developed, Internal systems and tools
Property and equipment
Property and equipment, gross	24,584	23,957
Furniture and fixtures
Property and equipment
Property and equipment, gross	7,505	7,451
Automobiles
Property and equipment
Property and equipment, gross	60	27
In-process internal-use software
Property and equipment
Property and equipment, gross	5,587	809
Property and equipment, net	$ 5,587	$ 809

PROPERTY AND EQUIPMENT - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Property and equipment
Property and equipment, net	$ 55,657		$ 55,657		$ 54,727
Accumulated depreciation	109,763		109,763		101,676
Property and equipment, excluding all internal-use software and capital leases
Property and equipment
Depreciation expense	1,773	$ 1,371	3,948	$ 2,788
Assets under capital leases
Property and equipment
Depreciation expense	167	$ 167	335	$ 229
Property and equipment, net	1,120		1,120		1,455
Accumulated depreciation	$ 962		$ 962		$ 627

PROPERTY AND EQUIPMENT - Major components of internal-use software (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Property and equipment
Property and equipment, gross	$ 165,420	$ 156,403
Less accumulated depreciation	(109,763)	(101,676)
Property and equipment, net	55,657	54,727
Internal-use software developed
Property and equipment
Property and equipment, gross	79,273	75,399
Less accumulated depreciation	(59,051)	(53,852)
Property and equipment, net excluding in-process internal-use software	20,222	21,547
Property and equipment, net	25,809	22,356
In-process internal-use software
Property and equipment
Property and equipment, gross	5,587	809
Property and equipment, net	$ 5,587	$ 809

PROPERTY AND EQUIPMENT - Amounts capitalized for internal-use software and included in property and equipment additions on the consolidated statements of cash flows (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Property and equipment
Amounts capitalized for internal-use software and included in property and equipment additions			$ 10,565	$ 8,271
Research and development	$ 13,617	$ 7,205	26,696	14,778
Internal-use software developed
Property and equipment
Amounts capitalized for internal-use software and included in property and equipment additions			8,670	6,216
Research and development	240	211	735	398
Internal-use software developed, Cloud-based services
Property and equipment
Amounts capitalized for internal-use software and included in property and equipment additions			7,731	4,594
Depreciation expense	2,453	2,105	4,464	4,219
Internal-use software developed, Internal systems and tools
Property and equipment
Amounts capitalized for internal-use software and included in property and equipment additions			939	1,622
Depreciation expense	$ 565	$ 634	$ 1,091	$ 1,200

CAPITALIZED SOFTWARE (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
CAPITALIZED SOFTWARE (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
CAPITALIZED SOFTWARE
Software development costs capitalized	$ 3,558	$ 4,186	$ 7,264	$ 8,101
Capitalized software	57,560		57,560		$ 47,862
Less accumulated amortization	25,859		25,859		20,281
Capitalized software, net excluding in-process capitalized software	31,701		31,701		27,581
In-process capitalized software	2,060		2,060		4,494
Capitalized software, net	33,761		33,761		$ 32,075
Capitalized software amortization expense	$ 3,022	$ 1,903	$ 5,578	$ 3,718

GOODWILL (Details) - USD ($) $ in Thousands	3 Months Ended
GOODWILL (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Mar. 31, 2020
GOODWILL
Acquisition of Systax, January		$ 26,124
Foreign currency translation adjustment	$ (876)	$ (5,893)
Closing balance	$ 19,355

DEBT (Details) - USD ($) $ in Thousands				6 Months Ended		12 Months Ended
DEBT (Details) - USD ($) $ in Thousands	Oct. 01, 2020	May 29, 2020	Apr. 03, 2020	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Debt
Distribution paid		$ 123,000		$ 140,378	$ 22,252
Outstanding balance of the New Term Loan				173,361		$ 682
Net proceeds				175,000
Payments for deferred financing costs				2,904
Repayment of amounts outstanding				51,009	3,112
Current portion of long-term debt				649		50,804
Unamortized deferred financing costs						221
Amortization of deferred financing costs				428	$ 133
Capital lease obligations				$ 701		$ 1,333
Credit Agreement
Debt
Quarterly principal payments	$ 4,375
Term after closing requiring distribution payable			90 days
Payments for deferred financing costs			$ 2,904
Repayment of amounts outstanding			61,656
Credit Agreement \| Base rate
Debt
Interest rate				3.75%		4.75%
Credit Agreement \| LIBOR
Debt
Interest rate				2.50%		2.69%
Term Loan
Debt
Face amount			175,000
Outstanding balance of the New Term Loan				$ 175,000
Current portion of long-term debt						$ 50,375
Term of debt						5 years
Term Loan \| LIBOR
Debt
Interest rate						2.69%
Line of Credit
Debt
Line of credit, borrowing capacity			100,000			$ 40,000
Line of credit, amount outstanding			0			$ 0
Applicable rate						0.20%
Minimum \| Credit Agreement
Debt
Distribution payable			110,000
Maximum \| Credit Agreement
Debt
Distribution payable			$ 125,000

OPTIONS FOR REDEEMABLE SHARES (Details) - Class B non-voting - shares shares in Thousands	6 Months Ended	180 Months Ended
	Jun. 30, 2020	Dec. 31, 2020	Dec. 31, 2019
Options for redeemable shares
Common stock reserved for issuance	3,676		3,849
Key members of management and the Board
Options for redeemable shares
Options issued		0
Triggering event threshold	50.00%
Triggering event threshold - partial	25.00%
Tag-along right threshold	51.00%
Drag-along-right threshold	51.00%

OPTIONS FOR REDEEMABLE SHARES (Details) - Key members of management and the Board - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019	Dec. 31, 2018
Options
Outstanding , Beginning of period	3,849	4,125
Exercised	(173)	(276)
Outstanding , End of the period	3,676	3,849	4,125
Intrinsic values
Beginning of period	$ 17,344	$ 14,581
Exercised	759	957
End of period	$ 47,223	$ 17,344	$ 14,581
Per share range of option prices
Lower range of option prices	$ 0.15	$ 0.15	$ 0.15
Upper range of option prices	0.71	0.71	0.71
Exercised	0.38	0.38
Per share weighted average option prices
Beginning of period	0.19	0.20
Exercised	0.30	0.25
End of period	$ 0.19	$ 0.19	$ 0.20

STOCKHOLDERS' DEFICIT (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	1 Months Ended		3 Months Ended				6 Months Ended
	Apr. 30, 2020	Apr. 30, 2019	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Stockholders' Deficit
Proceeds from exercise of stock option							$ 52	$ 68
Stock exchanged in lieu, value								$ 184
Treasury stock			41,910				41,910		41,910
Distributions declared			$ 123,185	$ 4,010	$ 6,105	$ 5,255
Distributions declared per share			$ 1.02	$ 0.03	$ 0.05	$ 0.04
Class A voting
Stockholders' Deficit
Treasury stock			153				153		153
Class B non-voting
Stockholders' Deficit
Stock issued during the period	173	225	173		225
Proceeds from exercise of stock option	$ 53	$ 68
Return of stock options exercised		51
Stock exchanged in lieu, value		$ 184
Treasury stock			41,757				41,757		41,757

EARNINGS PER SHARE (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands

3 Months Ended

6 Months Ended

Jun. 30, 2020

Mar. 31, 2020

Jun. 30, 2019

Mar. 31, 2019

Jun. 30, 2020

Jun. 30, 2019

Net income (loss) attributable to all stockholders

$ (29,075)

$ (29,064)

$ 7,122

$ 7,325

$ (58,139)

$ 14,447

Net income (loss) attributable to all stockholders

^[1]

$ (35)

$ 9

$ (70)

$ 18

Shares (as a percentage of total outstanding)

0.12%

147

Net income (loss) per share, basic and diluted

147

^[1]

$ (0.24)

$ 0.06

$ (0.48)

$ 0.12

Net income (loss) attributable to all stockholders

^[1]

$ (29,040)

$ 7,113

$ (58,069)

$ 14,429

Shares (as a percentage of total outstanding)

99.88%

Dilutive effect of stock equivalents

^[1]

120,402

120,443

120,336

120,357

3,715

3,812