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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): November 9, 2022

VERTEX, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

001-39413

    

23-2081753

(State or other jurisdiction
of incorporation or organization)

 

(Commission
File Number)

 

(I.R.S. Employer
Identification No.)

2301 Renaissance Blvd.

King of Prussia, Pennsylvania 19406

(Address of principal executive offices) (Zip Code)

(800) 355-3500

(Registrant’s telephone number, include area code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

Title of each class

   

Trading Symbol(s)

    

Name of each exchange on which registered

Class A common stock, $0.001 par value per share

VERX

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.

Item 2.02. Results of Operations and Financial Condition.

On November 9, 2022, Vertex, Inc. (the “Company”) issued a press release announcing its financial results for the third quarter ended September 30, 2022. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

The information contained in this Item 2.02, including Exhibit 99.1 hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing made by the Company under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filings, unless expressly incorporated by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

The following exhibit relating to Item 2.02 shall be deemed to be furnished, and not filed:

Exhibit
No.

    

Description

 

 

 

99.1

 

Press Release dated November 9, 2022.

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

VERTEX, INC.

 

 

 

Date: November 9, 2022

By:

/s/ Bryan Rowland

 

Name:

Bryan Rowland

 

Title:

General Counsel and Secretary

Exhibit 99.1

Text, logo

Description automatically generated

Vertex Announces Third Quarter 2022 Financial Results

KING OF PRUSSIA, PA – November 9, 2022: Vertex, Inc. (NASDAQ: VERX) (“Vertex” or the “Company”), a leading global provider of indirect tax solutions, today announced financial results for its third quarter ended September 30, 2022.

“In the third quarter, Vertex once again delivered healthy double-digit revenue growth and solid operating results.” said David DeStefano, Chief Executive Officer. “These results reflect the strength of our business, the talent of our team, and the diversity of our world-class customer base.

Third Quarter 2022 Financial Results

Total revenues of $126.2 million, up 14.0% year-over-year.
Software subscription revenues of $106.4 million, up 15.3% year-over-year.
Cloud revenues of $43.8 million, up 31.3% year-over-year.
Annual Recurring Revenue (“ARR”) of $411.5 million in the third quarter, up 16.6% year-over-year.
Average Annual Revenue per direct customer (“AARPC”) was $97,300 at September 30, 2022, compared to $82,900 at September 30, 2021 and $93,850 at June 30, 2022.
Net Revenue Retention (“NRR”) was 109% in the third quarter of 2022, an increase from 106% for the quarter ended September 30, 2021 and down slightly from 110% for the second quarter of 2022.
Gross Revenue Retention (“GRR”) was 96% in the third quarter of 2022, an increase from 95% for the quarter ended September 30, 2021 and consistent with the second quarter of 2022.
Loss from operations of $(0.9) million, compared to a net loss of $(3.6) million for the same period prior year. Non-GAAP operating income of $17.8 million, compared to $18.3 million for the same period prior year.
Net loss of $(1.1) million, compared to net loss of $(3.9) million for the same period prior year.
Net loss per basic and diluted Class A and Class B shares of $(0.01) for 2022 compared to net loss of $(0.03) for the same period prior year.
Non-GAAP net income of $13.0 million and Non-GAAP diluted EPS of $0.08.

Adjusted EBITDA of $20.7 million, compared to $21.4 million for the same period prior year. Adjusted EBITDA margin of 16.4%, compared to 19.3% for the same period prior year.

John Schwab, Chief Financial Officer, stated, “The strong third quarter financial results exceeded our third quarter guidance for both revenue and Adjusted EBITDA. We are seeing continued positive momentum throughout the business which is translating to durable topline growth while we continue to invest in future growth opportunities.”

Definitions of certain key business metrics and the non-GAAP financial measures used in this press release and reconciliations of such measures to the most directly comparable GAAP financial measures are included below under the headings “Definitions of Certain Key Business Metrics” and “Use and Reconciliation of Non-GAAP Financial Measures.”

- 1 -


Financial Outlook

For the fourth quarter of 2022, the Company currently expects:

Revenues of $124 million to $127 million, representing growth of 11% to 14% from the fourth quarter of 2021; and

Adjusted EBITDA of $15.4 million to $19.4 million, representing a decrease of $3.9 million from the fourth quarter of 2021 at the low end of the range.

For the full-year 2022, the Company currently expects:

Revenues of $484.5 million to $487.5 million, representing growth of 14% to 15% from the full-year 2021;
Cloud revenue growth of 33% from the full-year 2021; and
Adjusted EBITDA of $73 million to $77 million.  At the low end of the range, this represents a decrease of $5 million from the full-year 2021, reflecting ongoing investments in research and development and selling and marketing expenses to drive growth, as well as investments in internal infrastructure to drive future operating leverage.

The Company is unable to reconcile forward-looking Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure, without unreasonable efforts because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact net income (loss) for these periods but would not impact Adjusted EBITDA. Such items may include stock-based compensation expense, depreciation and amortization of capitalized software costs and acquired intangible assets, severance, acquisition contingent consideration, transaction costs, and other items. The unavailable information could have a significant impact on the Company’s net income (loss). The foregoing forward-looking statements reflect the Company’s expectations as of today's date. Given the number of risk factors, uncertainties and assumptions discussed below, actual results may differ materially. The Company does not intend to update its financial outlook until its next quarterly results announcement.

Important disclosures in this earnings release about and reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are provided below under “Use and Reconciliation of Non-GAAP Financial Measures.”

Conference Call and Webcast Information

Vertex will host a conference call at 8:30 a.m. Eastern Time today, November 9, 2022, to discuss its third quarter 2022 financial results.

Those wishing to participate via webcast should access the call through the Company’s Investor Relations website at https://ir.vertexinc.com. Those wishing to participate via telephone may dial in at 1-844-825-9789 (USA) or 1-412-317-5180 (International). The conference call replay will be available via webcast through the Company’s Investor Relations website.

The telephone replay will be available from 11:30 a.m. Eastern Time on November 9, 2022, through November 23, 2022, by dialing 1-844-512-2921 (USA) or 1-412-317-6671 (International). The replay passcode will be 1017683.

About Vertex

Vertex, Inc. is a leading global provider of indirect tax solutions. The Company’s mission is to deliver the most trusted tax technology enabling global businesses to transact, comply and grow with confidence. Vertex provides solutions that can be tailored to specific industries for major lines of indirect tax, including sales and consumer use, value added and payroll. Headquartered in North America, and with offices in South America and Europe, Vertex employs over 1,300 professionals and serves companies across the globe.

For more information, visit www.vertexinc.com or follow on Twitter and LinkedIn.

- 2 -


Forward Looking Statements

Any statements made in this press release that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies. Forward-looking statements are based on Vertex management’s beliefs, as well as assumptions made by, and information currently available to, them. Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected. Factors which may cause actual results to differ materially from current expectations include, but are not limited to: potential effects on our business of the 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; our ability to identify acquisition targets and to successfully integrate and operate acquired businesses; our ability to maintain and expand our strategic relationships with third parties; and the other factors described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities Exchange Commission (“SEC”), as may be subsequently updated by our other SEC filings. Copies of such filings may be obtained from the Company or the SEC.

All forward-looking statements reflect our beliefs and assumptions only as of the date of this press release. We undertake no obligation to update forward-looking statements to reflect future events or circumstances.

Definitions of Certain Key Business Metrics  

Annual Recurring Revenue (“ARR”)

We derive the vast majority of our revenues from recurring software subscriptions. We believe ARR provides us with visibility to our projected software subscription revenues in order to evaluate the health of our business. Because we recognize subscription revenues ratably, we believe investors can use ARR to measure our expansion of existing customer revenues, new customer activity, and as an indicator of future software subscription revenues. ARR is based on monthly recurring revenues (“MRR”) from software subscriptions for the most recent month at period end, multiplied by twelve. MRR is calculated by dividing the software subscription price, inclusive of discounts, by the number of subscription covered months. MRR only includes direct customers with MRR at the end of the last month of the measurement period. AARPC represents average annual revenue per direct customer and is calculated by dividing ARR by the number of software subscription direct customers at the end of the respective period.

Net Revenue Retention Rate (“NRR”)

We believe that our NRR provides insight into our ability to retain and grow revenues from our direct customers, as well as their potential long-term value to us. We also believe it demonstrates to investors our ability to expand existing customer revenues, which is one of our key growth strategies. Our NRR refers to the ARR expansion during the 12 months of a reporting period for all direct customers who were part of our customer base at the beginning of the reporting period. Our NRR calculation takes into account any revenues lost from departing direct customers or those who have downgraded or reduced usage, as well as any revenue expansion from migrations, new licenses for additional products or contractual and usage-based price changes.

Gross Revenue Retention Rate (“GRR”)

We believe our GRR provides insight into and demonstrates to investors our ability to retain revenues from our existing direct customers. Our GRR refers to how much of our MRR we retain each month after reduction for the effects of revenues lost from departing direct customers or those who have downgraded or reduced usage. GRR does not take into account revenue expansion from migrations, new licenses for additional products or contractual and usage-based price changes. GRR does not include revenue reductions resulting from cancellations of customer subscriptions that are replaced by new subscriptions associated with customer migrations to a newer version of the related software solution.  

- 3 -


Customer Count

The following table shows Vertex direct customers, as well as indirect small business customers sold and serviced through the company’s one-to-many channel strategy:

Customers

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Q3 2022

Direct

4,258

4,272

4,242

4,242

4,230

Indirect

167

206

239

266

268

Total

4,425

4,478

4,481

4,508

4,498

Use and Reconciliation of Non-GAAP Financial Measures

In addition to our results determined in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and key business metrics described above, we have calculated non-GAAP cost of revenues, non-GAAP gross profit, non-GAAP gross margin, non-GAAP research and development expense, non-GAAP selling and marketing expense, non-GAAP general and administrative expense, non-GAAP operating income, non-GAAP net income, non-GAAP diluted EPS, Adjusted EBITDA, Adjusted EBITDA margin, free cash flow and free cash flow margin, which are each non-GAAP financial measures. We have provided tabular reconciliations of each of these non-GAAP financial measures to its most directly comparable GAAP financial measure.

Management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, and to evaluate financial performance and liquidity. Our non-GAAP financial measures are presented as supplemental disclosure as we believe they provide useful information to investors and others in understanding and evaluating our results, prospects, and liquidity period-over-period without the impact of certain items that do not directly correlate to our operating performance and that may vary significantly from period to period for reasons unrelated to our operating performance, as well as comparing our financial results to those of other companies. Our definitions of these non-GAAP financial measures may differ from similarly titled measures presented by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from, the financial information prepared in accordance with GAAP, and should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 and in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 to be filed with the SEC.

We calculate these non-GAAP financial measures as follows:

Non-GAAP cost of revenues, software subscriptions is determined by adding back to GAAP cost of revenues, software subscriptions, the stock-based compensation expense, and depreciation and amortization of capitalized software and acquired intangible assets included in cost of subscription revenues for the respective periods.
Non-GAAP cost of revenues, services is determined by adding back to GAAP cost of revenues, services, the stock-based compensation expense included in cost of revenues, services for the respective periods.
Non-GAAP gross profit is determined by adding back to GAAP gross profit the stock-based compensation expense, and depreciation and amortization of capitalized software and acquired intangible assets included in cost of subscription revenues for the respective periods.
Non-GAAP gross margin is determined by dividing non-GAAP gross profit by total revenues for the respective periods.
Non-GAAP research and development expense is determined by adding back to GAAP research and development expense the stock-based compensation expense included in research and development expense for the respective periods.

- 4 -


Non-GAAP selling and marketing expense is determined by adding back to GAAP selling and marketing expense the stock-based compensation expense and the amortization of acquired intangible assets included in selling and marketing expense for the respective periods.
Non-GAAP general and administrative expense is determined by adding back to GAAP general and administrative expense the stock-based compensation expense and severance expense included in general and administrative expense for the respective periods.
Non-GAAP operating income is determined by adding back to GAAP income or loss from operations the stock-based compensation expense, depreciation and amortization of capitalized software and acquired intangible assets included in cost of subscription revenues, amortization of acquired intangible assets included in selling and marketing expense, severance expense, acquisition contingent consideration, and transaction costs included in GAAP income or loss from operations for the respective periods.
Non-GAAP net income is determined by adding back to GAAP net income or loss the income tax benefit or expense, stock-based compensation expense, depreciation and amortization of capitalized software and acquired intangible assets included in cost of subscription revenues, amortization of acquired intangible assets included in selling and marketing expense, severance expense, acquisition contingent consideration and transaction costs included in GAAP net income or loss for the respective periods to determine non-GAAP income or loss before income taxes. Non-GAAP income or loss before income taxes is then adjusted for income taxes calculated using the respective statutory tax rates for applicable jurisdictions, which for purposes of this determination were assumed to be 25.5%.
Non-GAAP net income per diluted share of Class A and Class B common stock (“Non-GAAP diluted EPS”) is determined by dividing non-GAAP net income by the weighted average shares outstanding of all classes of common stock, inclusive of the impact of dilutive common stock equivalents to purchase such common stock, including stock options, restricted stock awards, restricted stock units and employee stock purchase plan shares.
Adjusted EBITDA is determined by adding back to GAAP net income or loss the net interest income or expense, income taxes, depreciation and amortization of property and equipment, depreciation and amortization of capitalized software and acquired intangible assets included in cost of subscription revenues, amortization of acquired intangible assets included in selling and marketing expense, asset impairments, stock-based compensation expense, severance expense, acquisition contingent consideration and transaction costs included in GAAP net income or loss for the respective periods.
Adjusted EBITDA margin is determined by dividing Adjusted EBITDA by total revenues for the respective periods.
Free cash flow is determined by adjusting net cash provided by (used in) operating activities by purchases of property and equipment and capitalized software additions for the respective periods.
Free cash flow margin is determined by dividing free cash flow by total revenues for the respective periods.

We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view these non-GAAP financial measures in conjunction with the related GAAP financial measures.

- 5 -


Vertex, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

As of September 30, 

As of December 31, 

(In thousands, except per share data)

2022

2021

    

(unaudited)

    

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

72,370

$

73,333

Funds held for customers

 

23,840

 

24,873

Accounts receivable, net of allowance of $9,620 and $9,151, respectively

 

94,529

 

76,929

Prepaid expenses and other current assets

22,494

20,536

Investment securities available-for-sale, current (amortized cost of $6,163 at September 30, 2022)

 

6,127

 

Total current assets

 

219,360

 

195,671

Property and equipment, net of accumulated depreciation

 

109,123

 

98,390

Capitalized software, net of accumulated amortization

 

38,561

 

33,442

Goodwill and other intangible assets

 

245,284

 

272,702

Deferred commissions

 

13,757

 

12,555

Deferred income tax asset

30,716

 

35,298

Operating lease right-of-use assets

 

18,089

 

20,249

Other assets

2,422

 

1,900

Total assets

$

677,312

$

670,207

 

 

Liabilities and Stockholders' Equity

 

 

Current liabilities:

  

  

Current portion of long-term debt

$

1,875

$

Accounts payable

13,052

13,000

Accrued expenses

 

28,908

 

22,966

Tax sharing agreement distributions payable

 

 

536

Customer funds obligations

 

20,858

 

23,461

Accrued salaries and benefits

 

14,937

 

16,671

Accrued variable compensation

 

19,585

 

26,462

Deferred compensation, current

 

2,067

 

4,202

Deferred revenue, current

 

242,637

 

237,344

Current portion of operating lease liabilities

 

4,278

 

3,933

Current portion of finance lease liabilities

 

967

 

284

Deferred purchase consideration, current

 

19,724

 

19,805

Purchase commitment and contingent consideration liabilities, current

 

5,082

 

468

Total current liabilities

 

373,970

 

369,132

Deferred compensation, net of current portion

 

 

1,963

Deferred revenue, net of current portion

 

11,098

 

11,666

Debt, net of current portion

47,324

Operating lease liabilities, net of current portion

 

21,431

 

24,320

Finance lease liabilities, net of current portion

 

24

 

68

Deferred purchase consideration, net of current portion

 

19,419

Purchase commitment and contingent consideration liabilities, net of current portion

 

8,009

 

10,829

Deferred other liabilities

 

1,416

 

2,726

Total liabilities

463,272

 

440,123

Stockholders' equity:

 

  

 

  

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

Class A voting common stock, $0.001 par value, 300,000 shares authorized; 48,673 and 42,286 shares issued and outstanding, respectively

49

42

Class B voting common stock, $0.001 par value, 150,000 shares authorized; 101,307 and 106,807 shares issued and outstanding, respectively

101

107

Additional paid in capital

238,093

222,621

Retained earnings

17,816

24,811

Accumulated other comprehensive loss

 

(42,019)

 

(17,497)

Total stockholders' equity

 

214,040

 

230,084

Total liabilities and stockholders' equity

$

677,312

$

670,207

- 6 -


Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

Three months ended

Nine months ended

 

September 30, 

September 30, 

(In thousands, except per share data)

2022

2021

2022

2021

 

Revenues:

    

Software subscriptions

$

106,368

$

92,276

$

304,587

$

265,160

Services

 

19,870

 

18,442

 

55,911

 

48,732

Total revenues

 

126,238

 

110,718

 

360,498

 

313,892

Cost of revenues:

 

  

 

  

 

  

 

  

Software subscriptions

 

36,638

 

32,000

 

105,760

 

84,419

Services

 

14,020

 

11,938

 

37,893

 

33,831

Total cost of revenues

 

50,658

 

43,938

 

143,653

 

118,250

Gross profit

 

75,580

 

66,780

 

216,845

 

195,642

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

10,351

 

9,879

 

30,294

 

33,264

Selling and marketing

 

30,252

 

25,658

 

89,683

 

70,673

General and administrative

 

31,679

 

31,237

 

90,520

 

80,954

Depreciation and amortization

 

2,936

 

3,082

 

9,120

 

8,787

Other operating expense, net

 

1,233

 

538

 

1,927

 

4,892

Total operating expenses

 

76,451

 

70,394

 

221,544

 

198,570

Loss from operations

 

(871)

 

(3,614)

 

(4,699)

 

(2,928)

Interest expense, net

 

361

 

521

 

1,079

 

671

Loss before income taxes

 

(1,232)

 

(4,135)

 

(5,778)

 

(3,599)

Income tax expense (benefit)

 

(91)

 

(187)

 

1,217

 

(2,747)

Net loss

 

(1,141)

 

(3,948)

 

(6,995)

 

(852)

Other comprehensive loss:

Foreign currency translation adjustments and revaluations, net of tax

10,670

5,704

24,496

10,040

Unrealized loss on investments, net of tax

 

28

 

 

26

 

Other comprehensive loss, net of tax

 

10,698

 

5,704

 

24,522

 

10,040

Total comprehensive loss

$

(11,839)

$

(9,652)

$

(31,517)

$

(10,892)

Net loss attributable to Class A stockholders, basic

$

(369)

$

(1,070)

$

(2,092)

$

(195)

Net loss per Class A share, basic

$

(0.01)

$

(0.03)

$

(0.05)

$

(0.01)

Weighted average Class A common stock, basic

48,488

 

40,141

44,708

 

33,775

Net loss attributable to Class A stockholders, diluted

$

(369)

$

(1,070)

$

(2,092)

$

(195)

Net loss per Class A share, diluted

$

(0.01)

$

(0.03)

$

(0.05)

$

(0.01)

Weighted average Class A common stock, diluted

48,488

 

40,141

44,708

 

33,775

Net loss attributable to Class B stockholders, basic

$

(772)

$

(2,878)

$

(4,903)

$

(657)

Net loss per Class B share, basic

$

(0.01)

$

(0.03)

$

(0.05)

$

(0.01)

Weighted average Class B common stock, basic

101,307

 

108,017

104,772

 

113,646

Net loss attributable to Class B stockholders, diluted

$

(772)

$

(2,878)

$

(4,903)

$

(657)

Net loss per Class B share, diluted

$

(0.01)

$

(0.03)

$

(0.05)

$

(0.01)

Weighted average Class B common stock, diluted

101,307

 

108,017

104,772

 

113,646

- 7 -


Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine months ended

September 30, 

(In thousands)

    

2022

2021

Cash flows from operating activities:

 

  

 

  

Net loss

$

(6,995)

$

(852)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

  

 

  

Depreciation and amortization

 

45,328

 

31,902

Provision for subscription cancellations and non-renewals, net of deferred allowance

 

29

 

423

Amortization of deferred financing costs

 

181

 

159

Change in fair value of contingent consideration liability

2,000

Write-off of deferred financing costs

370

Stock-based compensation expense

 

14,383

 

20,250

Deferred income tax benefit

(20)

(3,075)

Non-cash operating lease costs

2,448

2,867

Other

 

709

 

280

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

(17,578)

 

12,120

Prepaid expenses and other current assets

 

(2,465)

 

(3,669)

Deferred commissions

 

(1,202)

 

(840)

Accounts payable

 

106

 

1,529

Accrued expenses

 

6,113

 

(2,445)

Accrued and deferred compensation

 

(12,445)

 

(679)

Deferred revenue

 

5,250

 

(1,971)

Operating lease liabilities

 

(2,837)

 

(3,685)

Other

 

(349)

 

354

Net cash provided by operating activities

 

33,026

 

52,668

Cash flows from investing activities:

 

  

 

  

Acquisition of business, net of cash acquired

 

(474)

 

(251,412)

Property and equipment additions

 

(42,973)

 

(23,899)

Capitalized software additions

 

(10,288)

 

(7,902)

Purchase of investment securities, available-for-sale

 

(6,127)

 

Net cash used in investing activities

 

(59,862)

 

(283,213)

Cash flows from financing activities:

 

  

 

  

Net increase (decrease) in customer funds obligations

 

(2,603)

 

18,744

Proceeds from term loan

 

50,000

 

Payments for deferred financing costs

 

(983)

 

Payments for taxes related to net share settlement of stock-based awards

(1,012)

 

(12,712)

Proceeds from exercise of stock options

1,288

 

1,212

Distributions under Tax Sharing Agreement

(536)

 

(2,700)

Payments of finance lease liabilities

(96)

(685)

Payments for deferred purchase commitments

(20,000)

 

Net cash provided by (used in) financing activities

 

25,977

 

(5,953)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(1,137)

 

(434)

Net decrease in cash, cash equivalents and restricted cash

(1,996)

(236,932)

Cash, cash equivalents and restricted cash, beginning of period

 

98,206

 

312,273

Cash, cash equivalents and restricted cash, end of period

$

96,210

$

75,341

Reconciliation of cash, cash equivalents and restricted cash to the Condensed Consolidated Balance Sheets, end of period:

 

  

 

  

Cash and cash equivalents

$

72,370

$

47,481

Restricted cash—funds held for customers

 

23,840

 

27,860

Total cash, cash equivalents and restricted cash, end of period

$

96,210

$

75,341

- 8 -


Summary of Non-GAAP Financial Measures

(Unaudited)

Three months ended

Nine months ended

September 30, 

September 30, 

(Dollars in thousands, except per share data)

2022

2021

2022

2021

Non-GAAP cost of revenues, software subscriptions

    

$

24,959

    

$

20,595

    

$

71,073

    

$

60,060

    

Non-GAAP cost of revenues, services

$

13,646

$

11,178

$

36,838

$

31,855

Non-GAAP gross profit

$

87,633

$

78,945

$

252,587

$

221,977

Non-GAAP gross margin

 

69.4

%  

 

71.3

%  

 

70.1

%  

 

70.7

%  

Non-GAAP research and development expense

$

9,770

$

9,003

$

29,101

$

31,256

Non-GAAP selling and marketing expense

$

27,876

$

23,126

$

82,066

$

65,251

Non-GAAP general and administrative expense

$

29,335

$

24,944

$

83,859

$

66,545

Non-GAAP operating income

$

17,784

$

18,273

$

48,522

$

49,939

Non-GAAP net income

$

12,980

$

13,225

$

35,345

$

36,705

Non-GAAP diluted EPS

$

0.08

$

0.08

$

0.22

$

0.23

Adjusted EBITDA

$

20,720

$

21,355

$

57,642

$

58,726

Adjusted EBITDA margin

 

16.4

%  

 

19.3

%  

 

16.0

%  

 

18.7

%  

Free cash flow

$

(1,058)

$

15,415

$

(20,235)

$

20,867

Free cash flow margin

 

(0.8)

%  

 

13.9

%  

 

(5.6)

%  

 

6.6

%  

- 9 -


Vertex, Inc. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

Three months ended

Nine months ended

September 30, 

September 30, 

(Dollars in thousands)

2022

2021

2022

2021

Non-GAAP Cost of Revenues, Software Subscriptions:

    

  

    

  

    

  

    

  

Cost of revenues, software subscriptions

$

36,638

$

32,000

$

105,760

$

84,419

Stock-based compensation expense

 

(577)

 

(656)

 

(1,502)

 

(1,788)

Depreciation and amortization of capitalized software and acquired intangible assets cost of subscription revenues

 

(11,102)

 

(10,749)

 

(33,185)

 

(22,571)

Non-GAAP cost of revenues, software subscriptions

$

24,959

$

20,595

$

71,073

$

60,060

Non-GAAP Cost of Revenues, Services:

Cost of revenues, services

$

14,020

$

11,938

$

37,893

$

33,831

Stock-based compensation expense

 

(374)

 

(760)

 

(1,055)

 

(1,976)

Non-GAAP cost of revenues, services

$

13,646

$

11,178

$

36,838

$

31,855

Non-GAAP Gross Profit:

 

  

 

  

 

  

 

  

Gross profit

$

75,580

$

66,780

$

216,845

$

195,642

Stock-based compensation expense

 

951

 

1,416

 

2,557

 

3,764

Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues

 

11,102

 

10,749

 

33,185

 

22,571

Non-GAAP gross profit

$

87,633

$

78,945

$

252,587

$

221,977

Non-GAAP Gross Margin:

 

  

 

  

 

  

 

  

Total Revenues

$

126,238

$

110,718

$

360,498

$

313,892

Non-GAAP gross margin

 

69.4

%  

 

71.3

%  

 

70.1

%  

 

70.7

%  

Non-GAAP Research and Development Expense:

 

  

 

  

 

  

 

  

Research and development expense

$

10,351

$

9,879

$

30,294

$

33,264

Stock-based compensation expense

 

(581)

 

(876)

 

(1,193)

 

(2,008)

Non-GAAP research and development expense

$

9,770

$

9,003

$

29,101

$

31,256

Non-GAAP Selling and Marketing Expense:

 

  

 

  

 

  

 

  

Selling and marketing expense

$

30,252

$

25,658

$

89,683

$

70,673

Stock-based compensation expense

(1,621)

(2,157)

(4,594)

(4,877)

Amortization of acquired intangible assets – selling and marketing expense

 

(755)

 

(375)

 

(3,023)

 

(545)

Non-GAAP selling and marketing expense

$

27,876

$

23,126

$

82,066

$

65,251

Non-GAAP General and Administrative Expense:

 

  

 

  

 

  

 

  

General and administrative expense

$

31,679

$

31,237

$

90,520

$

80,954

Stock-based compensation expense

 

(2,103)

 

(2,973)

 

(6,039)

 

(9,601)

Severance expense

(241)

 

(3,320)

(622)

 

(4,808)

Non-GAAP general and administrative expense

$

29,335

$

24,944

$

83,859

$

66,545

- 10 -


Vertex, Inc. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Financial Measures (continued)

(Unaudited)

Three months ended

Nine Months Ended

September 30, 

September 30, 

(In thousands, except per share data)

2022

2021

2022

2021

Non-GAAP Operating Income:

Loss from operations

$

(871)

$

(3,614)

$

(4,699)

$

(2,928)

Stock-based compensation expense

 

5,256

 

7,422

 

14,383

 

20,250

Depreciation and amortization of capitalized software and acquired intangible assets - cost of subscription revenues

 

11,102

 

10,749

 

33,185

 

22,571

Amortization of acquired intangible assets – selling and marketing expense

755

375

3,023

545

Severance expense

241

3,320

622

4,808

Acquisition contingent consideration

1,300

2,000

Transaction costs

 

1

 

21

 

8

 

4,693

Non-GAAP operating income

$

17,784

$

18,273

$

48,522

$

49,939

Non-GAAP Net Income:

Net loss

$

(1,141)

$

(3,948)

$

(6,995)

$

(852)

Income tax (benefit) expense

(91)

 

(187)

1,217

 

(2,747)

Stock-based compensation expense

 

5,256

 

7,422

 

14,383

 

20,250

Depreciation and amortization of capitalized software and acquired intangible assets - cost of subscription revenues

 

11,102

 

10,749

 

33,185

 

22,571

Amortization of acquired intangible assets – selling and marketing expense

755

375

3,023

545

Severance expense

241

3,320

622

4,808

Acquisition contingent consideration

1,300

2,000

Transaction costs

1

21

8

4,693

Non-GAAP income before income taxes

17,423

17,752

47,443

49,268

Income tax adjustment at statutory rate

(4,443)

(4,527)

(12,098)

(12,563)

Non-GAAP net income

$

12,980

$

13,225

$

35,345

$

36,705

Non-GAAP Diluted EPS:

Non-GAAP net income

$

12,980

$

13,225

$

35,345

$

36,705

Weighted average Class A and B common stock, diluted

159,043

157,402

158,654

157,679

Non-GAAP diluted EPS

$

0.08

$

0.08

$

0.22

$

0.23

- 11 -


Vertex, Inc. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Financial Measures (continued)

(Unaudited)

Three months ended

Nine Months Ended

September 30, 

September 30, 

(Dollars in thousands)

    

2022

2021

2022

2021

Adjusted EBITDA:

Net loss

$

(1,141)

$

(3,948)

$

(6,995)

$

(852)

Interest expense (income), net

 

361

 

521

 

1,079

 

671

Income tax expense (benefit)

 

(91)

 

(187)

 

1,217

 

(2,747)

Depreciation and amortization - property and equipment

 

2,936

 

3,082

 

9,120

 

8,787

Depreciation and amortization of capitalized software and acquired intangible assets - cost of subscription revenues

11,102

10,749

33,185

22,571

Amortization of acquired intangible assets - selling and marketing expense

 

755

 

375

 

3,023

 

545

Stock-based compensation expense

 

5,256

 

7,422

 

14,383

 

20,250

Severance expense

241

3,320

622

4,808

Acquisition contingent consideration

1,300

 

 

2,000

 

Transaction costs

 

1

 

21

 

8

 

4,693

Adjusted EBITDA

$

20,720

$

21,355

$

57,642

$

58,726

Adjusted EBITDA Margin:

 

  

 

  

 

  

 

  

Total revenues

$

126,238

$

110,718

$

360,498

$

313,892

Adjusted EBITDA margin

 

16.4

%  

 

19.3

%  

 

16.0

%  

 

18.7

%  

Three months ended

Nine Months Ended

September 30, 

September 30, 

(Dollars in thousands)

    

2022

2021

2022

2021

Free Cash Flow:

Cash provided by operating activities

$

18,450

$

26,203

$

33,026

$

52,668

Property and equipment additions

 

(15,146)

 

(8,011)

 

(42,973)

 

(23,899)

Capitalized software additions

 

(4,362)

 

(2,777)

 

(10,288)

 

(7,902)

Free cash flow

$

(1,058)

$

15,415

$

(20,235)

$

20,867

Free Cash Flow Margin:

 

 

Total revenues

$

126,238

$

110,718

$

360,498

$

313,892

Free cash flow margin

 

(0.8)

%  

13.9

%  

 

(5.6)

%  

6.6

%  

Investor Relations Contact:
Joe Crivelli

Vertex, Inc.

ir@vertexinc.com

Media Contact:

Rachel Litcofsky

Vertex, Inc.

mediainquiries@vertexinc.com

- 12 -