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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

    

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

    

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39413

VERTEX, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

    

 

    

23-2081753

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

2301 Renaissance Blvd
King of Prussia, Pennsylvania

 

19406 

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (800) 355-3500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading symbol

    

Name of each exchange on which registered

Class A Common Stock, Par Value $0.001 Per Share

VERX

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

    

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

As of November 8, 2021, the registrant had 40,772,739 shares of Class A common stock, $0.001 par value per share, and 108,017,000 shares of Class B common stock, $0.001 par value per share, outstanding.

Table of Contents

TABLE OF CONTENTS

 

Page

Part I - Financial Information 

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (unaudited)

5

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)

6

Condensed Consolidated Statements of Changes in Equity (Deficit) for the Nine Months Ended September 30, 2021 and 2020 (unaudited)

7

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (unaudited)

9

Notes to Condensed Consolidated Financial Statements (unaudited)

10

Item 2.

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

41

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

64

Item 4.

Controls and Procedures

64

Part II - Other Information

66

Item 1.

Legal Proceedings

66

Item 1A.

Risk Factors

66

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

66

Item 3.

Defaults Upon Senior Securities

66

Item 4.

Mine Safety Disclosures

66

Item 5.

Other Information

66

Item 6.

Exhibits

67

Signatures

68

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

the potential effects on our business of the coronavirus disease 2019 (“COVID-19”) pandemic;
our ability to attract new customers on a cost-effective basis and the extent to which existing customers renew and upgrade their subscriptions;
our ability to sustain and expand revenues, maintain profitability, and to effectively manage our anticipated growth;
the timing of our introduction of new solutions or updates to existing solutions;
our ability to successfully diversify our solutions by developing or introducing new solutions or acquiring and integrating additional businesses, products, services or content;
our ability to maintain and expand our strategic relationships with third parties;
risks related to our expanding international operations;
our ability to deliver our solutions to customers without disruption or delay;
our exposure to liability from errors, delays, fraud or system failures, which may not be covered by insurance;
risks related to our determinations of customers’ transaction tax and tax payments;
risks related to changes in tax laws and regulations or their interpretation or enforcement;
our ability to manage cybersecurity and data privacy risks;
risks related to failures in information technology, infrastructure and third-party service providers;
our ability to effectively protect, maintain and enhance our brand;
global economic weakness and uncertainties, and disruption in the capital and credit markets;
business disruptions related to natural disasters, epidemic outbreaks, terrorist acts, political events or other events outside of our control;
our ability to comply with anti-corruption, anti-bribery and similar laws;
changes in interest rates, security ratings and market perceptions of the industry in which we operate, or our ability to obtain capital on commercially reasonable terms or at all;
any statements of belief and any statements of assumptions underlying any of the foregoing; and
other factors beyond our control.

Table of Contents

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in our Annual Report on Form 10-K for the year ended December 31, 2020 and in other sections of this Quarterly Report on Form 10-Q, including under Part II, Item 1A, Risk Factors. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for us to identify all such risk factors, nor can we assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on our forward-looking statements, and you should not rely on forward-looking statements as predictions of future events. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q speak only as of the date of this report. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Vertex, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

As of September 30, 2021 and December 31, 2020

(Amounts in thousands, except per share data)

September 30, 2021

    

December 31, 2020

    

(unaudited)

    

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

47,481

$

303,051

Funds held for customers

 

27,860

 

9,222

Accounts receivable, net of allowance of $8,845, and $8,592, respectively

 

73,234

 

77,159

Prepaid expenses and other current assets

 

18,167

 

13,259

Total current assets

 

166,742

 

402,691

Property and equipment, net of accumulated depreciation

 

97,869

 

56,557

Capitalized software, net of accumulated amortization

 

34,018

 

31,989

Goodwill and other intangible assets

 

277,924

 

18,711

Deferred commissions

 

12,583

 

11,743

Deferred income tax asset

32,816

29,974

Operating lease right-of-use assets

21,137

Other assets

 

2,755

 

3,263

Total assets

$

645,844

$

554,928

 

 

Liabilities and stockholders' equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

10,701

$

8,876

Accrued expenses

 

23,467

 

19,176

Distributions payable

 

 

2,700

Customer funds obligations

 

27,979

 

9,235

Accrued salaries and benefits

 

26,472

 

17,326

Accrued and deferred compensation, current

 

23,101

 

24,429

Deferred revenue

 

211,036

 

207,560

Current portion of long-term debt

882

Current portion of operating lease liabilities

2,480

Current portion of finance lease liabilities

276

Deferred rent and other

 

 

939

Deferred purchase consideration, current

19,705

Purchase commitment and contingent consideration liabilities, current

 

478

 

845

Total current liabilities

 

345,695

 

291,968

Deferred compensation, net of current portion

 

2,786

 

5,010

Deferred revenue, net of current portion

 

11,544

 

14,702

Debt, net of current portion

 

 

225

Operating lease liabilities, net of current portion

26,707

Finance lease liabilities, net of current portion

334

Deferred purchase consideration, net of current portion

19,319

Purchase commitment and contingent consideration liabilities, net of current portion

 

11,049

 

8,905

Deferred other liabilities

 

4,199

 

8,632

Total liabilities

 

421,633

 

329,442

Commitments and contingencies (Note 13)

 

  

 

  

Stockholders' equity:

 

  

 

  

Preferred shares, $0.001 par value, 30,000 shares authorized; no shares issued and outstanding

Class A common stock, $0.001 par value, 300,000 shares authorized; 40,574 and 26,327 shares issued and outstanding, respectively

41

26

Class B common stock, $0.001 par value, 150,000 shares authorized; 108,017 and 120,117 shares issued and outstanding, respectively

108

120

Additional paid in capital

215,647

206,541

Retained earnings

 

21,582

 

21,926

Accumulated other comprehensive loss

 

(13,167)

 

(3,127)

Total stockholders' equity

 

224,211

 

225,486

Total liabilities and stockholders' equity

$

645,844

$

554,928

The accompanying notes are an integral part of these condensed consolidated financial statements.

-5-

Table of Contents

Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

For the three and nine months ended September 30, 2021 and 2020

(Amounts in thousands, except per share data)

Three months ended

Nine months ended

September 30, 

September 30, 

2021

2020

2021

2020

(unaudited)

(unaudited)

Revenues:

    

  

    

  

  

    

  

Software subscriptions

$

92,276

$

79,778

$

265,160

$

232,844

Services

 

18,442

 

14,827

 

48,732

 

42,277

Total revenues

 

110,718

 

94,605

 

313,892

 

275,121

Cost of revenues:

 

  

 

  

 

  

 

  

Software subscriptions

 

32,000

 

29,161

 

84,419

 

79,846

Services

 

11,938

 

18,807

 

33,831

 

49,329

Total cost of revenues

 

43,938

 

47,968

 

118,250

 

129,175

Gross profit

 

66,780

 

46,637

 

195,642

 

145,946

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

9,879

 

16,501

 

33,264

 

43,197

Selling and marketing

 

25,658

 

29,423

 

70,673

 

78,300

General and administrative

 

31,237

 

48,043

 

80,954

 

123,437

Depreciation and amortization

 

3,082

 

2,735

 

8,787

 

8,109

Other operating expense (income), net

 

538

 

(60)

 

4,892

 

154

Total operating expenses

 

70,394

 

96,642

 

198,570

 

253,197

Loss from operations

 

(3,614)

 

(50,005)

 

(2,928)

 

(107,251)

Interest expense, net

 

521

 

1,796

 

671

 

3,424

Loss before income taxes

 

(4,135)

 

(51,801)

 

(3,599)

 

(110,675)

Income tax benefit

 

(187)

 

(30,773)

 

(2,747)

 

(31,508)

Net loss

 

(3,948)

 

(21,028)

 

(852)

 

(79,167)

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

 

5,704

 

238

 

10,040

 

3,512

Total comprehensive loss

$

(9,652)

$

(21,266)

$

(10,892)

$

(82,679)

Net loss attributable to Class A stockholders

$

(1,070)

$

(2,751)

$

(195)

$

(2,427)

Net loss per Class A share, basic

$

(0.03)

$

(0.15)

$

(0.01)

$

(0.40)

Weighted average Class A common stock, basic

 

40,141

 

18,124

 

33,775

 

6,129

Net loss attributable to Class A stockholders, diluted

$

(1,070)

$

(2,751)

$

(195)

$

(2,427)

Net loss per Class A share, diluted

$

(0.03)

$

(0.15)

$

(0.01)

$

(0.40)

Weighted average Class A common stock, diluted

 

40,141

 

18,124

 

33,775

 

6,129

Net loss attributable to Class B stockholders

$

(2,878)

$

(18,277)

$

(657)

$

(76,740)

Net loss per Class B share, basic

$

(0.03)

$

(0.15)

$

(0.01)

$

(0.64)

Weighted average Class B common stock, basic

 

108,017

 

120,417

 

113,646

 

120,417

Net loss attributable to Class B stockholders, diluted

$

(2,878)

$

(18,277)

$

(657)

$

(76,740)

Net loss per Class B share, diluted

$

(0.03)

$

(0.15)

$

(0.01)

$

(0.64)

Weighted average Class B common stock, diluted

108,017

120,417

113,646

120,417

The accompanying notes are an integral part of these condensed consolidated financial statements.

-6-

Table of Contents

Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity (Deficit)

For the nine months ended September 30, 2021 (unaudited)

(Amounts in thousands)

Before Recapitalization

After Recapitalization

Accumulated

Outstanding

Class A

Outstanding

Class B

Outstanding

Class A

Outstanding

Class B

Additional

  

  

Other 

  

Treasury

  

  

Total

  

Options for

Class A

Common

Class B

Common

Class A

Common

Class B

Common

Paid-in

Retained

Comprehensive 

Shares

Treasury

Stockholders'

Redeemable

  

Shares

  

 Stock

  

Shares

  

Stock

  

Shares

  

 Stock

  

Shares

  

Stock

  

Capital

  

Earnings

  

Loss

  

Issued

  

Stock

  

Equity

  

Shares

Balance, January 1, 2021

$

$

26,327

$

26

120,117

$

120

$

206,541

$

21,926

$

(3,127)

$

$

225,486

$

ASC 842 transition adjustment

 

 

 

508

508

Exercise of stock options, net

640

 

1

 

 

(6,998)

(6,997)

Shares issued upon vesting of Restricted Stock Units, net

5

 

 

 

(34)

(34)

Stock-based compensation expense

 

 

 

6,302

6,302

Foreign currency translation adjustments and revaluations, net of tax

 

 

 

(977)

(977)

Net income

 

 

 

2,288

2,288

Balance, March 31, 2021

 

26,972

27

 

120,117

120

205,811

24,722

(4,104)

226,576

Exercise of stock options, net

462

1

(3,293)

(3,292)

Shares issued upon vesting of Restricted Stock Awards

234

Stock-based compensation expense

6,101

6,101

Shares issued under ESPP

60

1,010

1,010

Class B shares exchanged for Class A shares

12,100

12

(12,100)

(12)

Foreign currency translation adjustments and revaluations, net of tax

(3,359)

(3,359)

Net income

808

808

Balance, June 30, 2021

 

39,828

40

 

108,017

108

209,629

25,530

(7,463)

227,844

Exercise of stock options, net

625

 

1

 

 

(919)

(918)

Shares issued upon vesting of Restricted Stock Units, net

3

 

 

 

(44)

(44)

Shares issued upon vesting of Restricted Stock Awards, net

118

 

 

 

(213)

(213)

Stock-based compensation expense

7,194

7,194

Foreign currency translation adjustments and revaluations, net of tax

(5,704)

(5,704)

Net loss

(3,948)

(3,948)

Balance, September 30, 2021

$

 

$

40,574

$

41

 

108,017

$

108

$

215,647

$

21,582

$

(13,167)

$

$

224,211

$

The accompanying notes are an integral part of these condensed consolidated financial statements.

-7-

Table of Contents

Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity (Deficit)

For the nine months ended September 30, 2020 (unaudited)

(Amounts in thousands)

Before Recapitalization

After Recapitalization

Retained

Accumulated

Outstanding

Class A

Outstanding

Class B

Outstanding

Class A

Outstanding

Class B

Additional

  

Earnings

  

Other 

  

Treasury

  

  

Total

  

Options for

Class A

Common

Class B

Common

Class A

Common

Class B

Common

Paid In

(Accumulated

Comprehensive 

Shares

Treasury

Stockholders'

Redeemable

  

Shares

  

 Stock

  

Shares

  

Stock

  

Shares

  

 Stock

  

Shares

  

Stock

  

Capital

  

Deficit)

  

Loss

  

Issued

  

Stock

  

Equity (Deficit)

  

Shares

Balance, January 1, 2020

147

$

 

120,270

$

54

$

 

$

$

$

(90,701)

$

(491)

 

41,910

$

(38,638)

$

(129,776)

$

17,344

Remeasurement of options for redeemable shares

 

 

 

 

 

 

 

 

(15,242)

 

 

 

 

(15,242)

 

15,242

Distributions declared

(4,010)

(4,010)

Foreign currency translation adjustments and revaluations, net of tax

 

 

 

 

 

 

 

 

 

(2,998)

 

 

 

(2,998)

 

Net loss

 

 

 

 

 

 

 

 

(29,064)

 

 

 

 

(29,064)

 

Balance, March 31, 2020

147

 

120,270

54

 

 

(139,017)

(3,489)

 

41,910

(38,638)

(181,090)

32,586

Remeasurement of options for redeemable shares