0001806837false00018068372023-08-092023-08-09

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): August 9, 2023

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 August 9, 2023, Vertex, Inc. (the “Company”) issued a press release announcing its financial results for the second quarter ended June 30, 2023.  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 August 9, 2023

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: August 9, 2023

By:

/s/ Bryan Rowland

 

Name:

Bryan Rowland

 

Title:

General Counsel and Secretary

Exhibit 99.1

Graphic

Vertex Announces Second Quarter 2023 Financial Results

KING OF PRUSSIA, PA – August 9, 2023: Vertex, Inc. (NASDAQ: VERX) (“Vertex” or the “Company”), a leading global provider of indirect tax solutions, today announced financial results for its second quarter ended June 30, 2023.

David DeStefano, President, Chief Executive Officer, and Chairperson of the Board stated “The return on our growth investments of the last several years was evident in the second quarter. Vertex delivered strong financial results, with high-teens revenue growth and the largest year-over-year increase in adjusted EBITDA since our IPO in mid-2020. In addition, scaled customer growth accelerated to the mid-teens; net revenue retention increased to a new high of 111%, and we delivered record average annual revenue per customer. While we are pleased with our results in the second quarter, we believe we have ongoing opportunity to drive additional top-line growth and earnings leverage in the quarters to come.”

Second Quarter 2023 Financial Results

Total revenues of $139.7 million, up 17.1% year-over-year.
Software subscription revenues of $117.8 million, up 16.6% year-over-year.
Cloud revenues of $51.2 million, up 27.3% year-over-year.
Annual Recurring Revenue (“ARR”) was $467.7 million, up 17.5% year-over-year.
Average Annual Revenue per direct customer (“AARPC”) was $109,170 at June 30, 2023, compared to $93,850 at June 30, 2022 and $104,370 at March 31, 2023.
Net Revenue Retention (“NRR”) was 111%, compared to 110% at June 30, 2022, and the first quarter of 2023.
Gross Revenue Retention (“GRR”) was 96%, consistent with June 30, 2022, and the first quarter of 2023.
Loss from operations of $(4.1) million, compared to loss from operations of $(4.3) million for the same period prior year. Non-GAAP operating income of $18.1 million, compared to $14.6 million for the same period prior year.
Net loss of $(6.9) million, compared to net loss of $(5.5) million for the same period prior year.
Net loss per basic and diluted Class A and Class B shares of $(0.05) for 2023, compared to net loss of $(0.04) for the same period prior year.
Non-GAAP net income of $13.6 million and Non-GAAP diluted EPS of $0.08.
Adjusted EBITDA of $22.0 million, compared to $17.8 million for the same period prior year. Adjusted EBITDA margin of 15.7%, compared to 14.9% for the same period prior year.

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.”

Financial Outlook

For the third quarter of 2023, the Company currently expects:

Revenues of $141 million to $143 million; and

Adjusted EBITDA of $24 million to $26 million.

For the full-year 2023, the Company currently expects:

Revenues of $556 to $562 million;
Cloud revenue growth of 27%; and
Adjusted EBITDA of $93 to $97 million.

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John Schwab, Chief Financial Officer, stated, “Given our solid performance in the first half of 2023, we are increasing our full-year guidance for both revenue and adjusted EBITDA. This reflects both the strong execution of the Vertex team as well as our current view of the conditions within the enterprise and upper middle market segments that we serve.”

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 expense, acquisition contingent consideration, litigation settlements, 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, August 9, 2023, to discuss its second quarter 2023 financial results.

Those wishing to participate may do so by dialing 1-201-689-8471 approximately ten minutes prior to start time. A listen-only webcast of the call will also be available through the Company’s Investor Relations website at https://ir.vertexinc.com.

A conference call replay will be available approximately one hour after the call by dialing 1-412-317-6671 and referencing passcode 13739853, or via the Company’s Investor Relations website. The replay will expire on August 23, 2023 at 11:59 p.m. Eastern Time.

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 1,400 professionals and serves companies across the globe.

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

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: 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; the potential effects on our business from the existence of a global endemic or pandemic; 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, 2022 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.

- 2 -


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.  

Customer Count

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

Graphic

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.

- 3 -


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, 2022 and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, 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.
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, amortization of cloud computing implementation costs and severance expense included in general and administrative expense for the respective periods.
Non-GAAP operating income is determined by adding back to GAAP loss or income 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, amortization of cloud computing implementation costs in general and administrative expense, severance expense, acquisition contingent consideration, litigation settlements, and transaction costs (which includes offering costs related to the sale of shares of certain of our Class B shareholders which are not representative of normal business operations), included in GAAP loss or income from operations for the respective periods.

Non-GAAP net income is determined by adding back to GAAP net loss or income 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, amortization of cloud computing implementation costs in general and administrative expense, severance expense, acquisition contingent consideration, litigation settlements and transaction costs (which includes offering costs related to the sale of shares of certain of our Class B shareholders which are not representative of normal business operations), included in GAAP net loss or income for the

- 4 -


respective periods to determine non-GAAP loss or income before income taxes. Non-GAAP loss or income 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, amortization of cloud computing implementation costs in general and administrative expense, asset impairments, stock-based compensation expense, severance expense, acquisition contingent consideration, litigation settlements, and transaction costs (which includes offering costs related to the sale of shares of certain of our Class B shareholders which are not representative of normal business operations), 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

Consolidated Balance Sheets

(Unaudited)

As of June 30, 

December 31, 

(In thousands, except per share data)

2023

2022

    

(unaudited)

    

Assets

 

  

 

Current assets:

 

  

 

Cash and cash equivalents

$

41,865

$

91,803

Funds held for customers

 

30,156

 

14,945

Accounts receivable, net of allowance of $14,218 and $9,554, respectively

 

129,093

 

102,885

Prepaid expenses and other current assets

22,026

22,340

(A)

Investment securities available-for-sale, at fair value (amortized cost of $11,235 and $11,220, respectively)

 

11,201

 

11,173

Total current assets

 

234,341

 

243,146

(A)

Property and equipment, net of accumulated depreciation

 

98,912

 

101,090

(A)

Capitalized software, net of accumulated amortization

 

39,461

 

39,012

Goodwill and other intangible assets

 

259,587

 

257,023

Deferred commissions

 

16,726

 

15,463

Deferred income tax asset

42,855

 

30,938

Operating lease right-of-use assets

 

16,564

 

17,187

Other assets

16,624

 

15,333

(A)

Total assets

$

725,070

$

719,192

Liabilities and Stockholders' Equity

 

 

Current liabilities:

  

  

Current portion of long-term debt

$

2,500

$

2,188

Accounts payable

22,009

14,329

Accrued expenses

 

55,991

 

38,234

Customer funds obligations

 

26,594

 

12,121

Accrued salaries and benefits

 

12,332

 

10,790

Accrued variable compensation

 

15,027

 

23,729

Deferred compensation, current

 

 

2,809

Deferred revenue, current

 

274,094

 

268,847

Current portion of operating lease liabilities

 

4,454

 

4,086

Current portion of finance lease liabilities

 

59

 

103

Deferred purchase consideration, current

 

9,974

 

19,824

Purchase commitment and contingent consideration liabilities, current

 

7,866

 

6,149

Total current liabilities

 

430,900

 

403,209

Deferred revenue, net of current portion

 

2,959

 

10,289

Debt, net of current portion

45,478

46,709

Operating lease liabilities, net of current portion

 

18,330

 

20,421

Finance lease liabilities, net of current portion

 

 

10

Purchase commitment and contingent consideration liabilities, net of current portion

 

1,500

 

8,412

Deferred other liabilities

 

188

 

417

Total liabilities

499,355

 

489,467

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; 54,054 and 50,014 shares issued and outstanding, respectively

54

50

Class B voting common stock, $0.001 par value, 150,000 shares authorized; 97,718 and 100,307 shares issued and outstanding, respectively

98

100

Additional paid in capital

262,095

244,820

(Accumulated deficit) retained earnings

(12,521)

12,507

Accumulated other comprehensive loss

 

(24,011)

 

(27,752)

Total stockholders' equity

 

225,715

 

229,725

Total liabilities and stockholders' equity

$

725,070

$

719,192

(A) December 31, 2022 ending balances reflect an immaterial error correction related to an understatement of prepaid expenses and other current assets of $1,957, an overstatement of property and equipment, net of accumulated depreciation of $14,678, and an understatement of other assets of $12,721, recorded to correct the presentation of capitalized cloud computing implementation costs.

- 6 -


Vertex, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Loss

(Unaudited)

Three months ended

Six months ended

June 30, 

June 30, 

(In thousands, except per share data)

2023

2022

2023

2022

(unaudited)

(unaudited)

Revenues:

    

Software subscriptions

$

117,836

$

101,088

$

228,850

$

198,219

Services

 

21,859

 

18,188

 

43,596

 

36,041

Total revenues

 

139,695

 

119,276

 

272,446

 

234,260

Cost of revenues:

 

  

 

  

 

  

 

  

Software subscriptions

 

38,516

 

36,209

 

75,919

 

69,122

Services

 

15,363

 

11,920

 

29,707

 

23,873

Total cost of revenues

 

53,879

 

48,129

 

105,626

 

92,995

Gross profit

 

85,816

 

71,147

 

166,820

 

141,265

Operating expenses:

 

  

 

 

  

 

  

Research and development

 

12,680

 

10,310

 

28,542

 

19,943

Selling and marketing

 

33,541

 

31,979

 

69,277

 

59,431

General and administrative

 

39,376

 

30,084

 

73,686

 

58,841

Depreciation and amortization

 

3,878

 

3,224

 

7,619

 

6,184

Other operating expense (income), net

 

413

 

(154)

 

697

 

694

Total operating expenses

 

89,888

 

75,443

 

179,821

 

145,093

Loss from operations

 

(4,072)

 

(4,296)

 

(13,001)

 

(3,828)

Interest (income) expense, net

 

(105)

 

724

 

(455)

 

718

Loss before income taxes

 

(3,967)

 

(5,020)

 

(12,546)

 

(4,546)

Income tax expense

 

2,929

 

500

 

12,482

 

1,308

Net loss

 

(6,896)

 

(5,520)

 

(25,028)

 

(5,854)

Other comprehensive (income) loss:

Foreign currency translation adjustments and revaluations, net of tax

(609)

11,777

(3,731)

13,826

Unrealized (gain) loss on investments, net of tax

 

3

 

(2)

 

(10)

 

(2)

Total other comprehensive (income) loss, net of tax

 

(606)

 

11,775

 

(3,741)

 

13,824

Total comprehensive loss

$

(6,290)

$

(17,295)

$

(21,287)

$

(19,678)

Net loss attributable to Class A stockholders, basic

$

(2,447)

$

(1,598)

$

(8,633)

$

(1,679)

Net loss per Class A share, basic

$

(0.05)

$

(0.04)

$

(0.17)

$

(0.04)

Weighted average Class A common stock, basic

53,762

 

43,286

52,109

 

42,818

Net loss attributable to Class A stockholders, diluted

$

(2,447)

$

(1,598)

$

(8,633)

$

(1,679)

Net loss per Class A share, diluted

$

(0.05)

$

(0.04)

$

(0.17)

$

(0.04)

Weighted average Class A common stock, diluted

53,762

 

43,286

52,109

 

42,818

Net loss attributable to Class B stockholders, basic

$

(4,449)

$

(3,922)

$

(16,395)

$

(4,175)

Net loss per Class B share, basic

$

(0.05)

$

(0.04)

$

(0.17)

$

(0.04)

Weighted average Class B common stock, basic

97,718

 

106,203

98,969

 

106,505

Net loss attributable to Class B stockholders, diluted

$

(4,449)

$

(3,922)

$

(16,395)

$

(4,175)

Net loss per Class B share, diluted

$

(0.05)

$

(0.04)

$

(0.17)

$

(0.04)

Weighted average Class B common stock, diluted

97,718

 

106,203

98,969

 

106,505

- 7 -


Vertex, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

Six months ended

June 30, 

(In thousands)

    

2023

2022

(unaudited)

Cash flows from operating activities:

 

  

 

  

Net loss

$

(25,028)

$

(5,854)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

  

 

  

Depreciation and amortization

 

34,190

 

30,535

Amortization of cloud computing implementation costs

631

Provision for subscription cancellations and non-renewals

 

1,374

 

(611)

Amortization of deferred financing costs

 

126

 

118

Change in fair value of contingent consideration liability

449

700

Write-off of deferred financing costs

370

Stock-based compensation expense

 

18,456

 

9,127

Deferred income tax (benefit)

(12,331)

(88)

Non-cash operating lease costs

625

1,534

Other

 

(67)

 

552

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

(30,512)

 

(10,900)

Prepaid expenses and other current assets

 

355

 

(3,124)

Deferred commissions

 

(1,263)

 

387

Accounts payable

 

7,655

 

4,732

Accrued expenses

 

17,407

 

685

Accrued and deferred compensation

 

(10,705)

 

(17,550)

Deferred revenue

 

1,179

 

6,288

Operating lease liabilities

 

(1,722)

 

(1,868)

Other

 

(1,717)

 

(6,445)

(A)

Net cash (used in) provided by operating activities

 

(898)

 

8,588

(A)

Cash flows from investing activities:

 

  

 

  

Acquisition of business, net of cash acquired

 

 

(474)

Property and equipment additions

 

(21,859)

 

(21,839)

(A)

Capitalized software additions

 

(9,042)

 

(5,926)

Purchase of investment securities, available-for-sale

(8,427)

(6,943)

Proceeds from maturities of investment securities, available-for-sale

 

8,600

 

Net cash used in investing activities

 

(30,728)

 

(35,182)

(A)

Cash flows from financing activities:

 

 

  

Net increase (decrease) in customer funds obligations

 

14,473

 

(4,571)

Proceeds from term loan

 

 

50,000

Principal payments on long-term debt

 

(938)

 

(313)

Payments for deferred financing costs

 

 

(983)

Proceeds from purchases of stock under ESPP

1,178

 

967

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

(3,986)

 

(489)

Proceeds from exercise of stock options

2,243

 

718

Distributions under Tax Sharing Agreement

 

(536)

Payments for purchase commitment and contingent consideration liabilities

(6,424)

 

(255)

Payments of finance lease liabilities

(27)

(49)

Payments for deferred purchase commitments

(10,000)

 

(10,000)

Net cash (used in) provided by financing activities

 

(3,481)

 

34,489

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

 

380

 

(612)

Net (decrease) increase in cash, cash equivalents and restricted cash

(34,727)

7,283

Cash, cash equivalents and restricted cash, beginning of period

 

106,748

 

98,206

Cash, cash equivalents and restricted cash, end of period

$

72,021

$

105,489

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

 

  

 

  

Cash and cash equivalents

$

41,865

$

85,554

Restricted cash—funds held for customers

 

30,156

 

19,935

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

$

72,021

$

105,489

(A) Other changes in operating assets and liabilities, net cash provided by operating activities, property and equipment additions and net cash used in investing activities for the six months ended June 30, 2022 reflect an immaterial error correction of $5,988 related to the reclassification of capitalized cloud computing implementation costs.

- 8 -


Summary of Non-GAAP Financial Measures

(Unaudited)

Three months ended

Six months ended

June 30, 

June 30, 

(Dollars in thousands, except per share data)

2023

2022

2023

2022

Non-GAAP cost of revenues, software subscriptions

    

$

25,411

    

$

23,344

    

$

49,383

    

$

46,114

    

Non-GAAP cost of revenues, services

$

15,197

$

11,645

$

28,705

$

23,192

Non-GAAP gross profit

$

99,087

$

84,287

$

194,358

$

164,954

Non-GAAP gross margin

 

70.9

%  

 

70.7

%  

 

71.3

%  

 

70.4

%  

Non-GAAP research and development expense

$

11,905

$

9,812

$

25,533

$

19,331

Non-GAAP selling and marketing expense

$

31,775

$

28,559

$

63,847

$

54,190

Non-GAAP general and administrative expense

$

33,259

$

28,285

$

62,544

$

54,524

Non-GAAP operating income

$

18,105

$

14,561

$

34,566

$

30,738

Non-GAAP net income

$

13,566

$

10,309

$

26,091

$

22,365

Non-GAAP diluted EPS

$

0.08

$

0.06

$

0.16

$

0.14

Adjusted EBITDA

$

21,983

$

17,785

$

42,185

$

36,922

Adjusted EBITDA margin

 

15.7

%  

 

14.9

%  

 

15.5

%  

 

15.8

%  

Free cash flow

$

(21,240)

$

(4,987)

$

(31,799)

$

(19,177)

Free cash flow margin

(15.2)

%

(4.2)

%  

 

(11.7)

%  

 

(8.2)

%  

- 9 -


Vertex, Inc. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

Three months ended

Six months ended

June 30, 

June 30, 

(Dollars in thousands)

2023

2022

2023

2022

Non-GAAP Cost of Revenues, Software Subscriptions:

    

  

    

  

    

  

    

  

Cost of revenues, software subscriptions

$

38,516

$

36,209

$

75,919

$

69,122

Stock-based compensation expense

 

(419)

 

(479)

 

(1,415)

 

(925)

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

 

(12,686)

 

(12,386)

 

(25,121)

 

(22,083)

Non-GAAP cost of revenues, software subscriptions

$

25,411

$

23,344

$

49,383

$

46,114

Non-GAAP Cost of Revenues, Services:

Cost of revenues, services

$

15,363

$

11,920

$

29,707

$

23,873

Stock-based compensation expense

 

(166)

 

(275)

 

(1,002)

 

(681)

Non-GAAP cost of revenues, services

$

15,197

$

11,645

$

28,705

$

23,192

Non-GAAP Gross Profit:

 

  

 

  

 

  

 

  

Gross profit

$

85,816

$

71,147

$

166,820

$

141,265

Stock-based compensation expense

 

585

 

754

 

2,417

 

1,606

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

 

12,686

 

12,386

 

25,121

 

22,083

Non-GAAP gross profit

$

99,087

$

84,287

$

194,358

$

164,954

Non-GAAP Gross Margin:

 

  

 

  

 

  

 

  

Total Revenues

$

139,695

$

119,276

$

272,446

$

234,260

Non-GAAP gross margin

 

70.9

%  

 

70.7

%  

 

71.3

%  

 

70.4

%

Non-GAAP Research and Development Expense:

 

 

  

 

  

 

  

Research and development expense

$

12,680

$

10,310

$

28,542

$

19,943

Stock-based compensation expense

 

(775)

 

(498)

 

(3,009)

 

(612)

Non-GAAP research and development expense

$

11,905

$

9,812

$

25,533

$

19,331

Non-GAAP Selling and Marketing Expense:

 

  

 

  

 

  

 

  

Selling and marketing expense

$

33,541

$

31,979

$

69,277

$

59,431

Stock-based compensation expense

(1,082)

(1,401)

(3,980)

(2,973)

Amortization of acquired intangible assets – selling and marketing expense

 

(684)

 

(2,019)

 

(1,450)

 

(2,268)

Non-GAAP selling and marketing expense

$

31,775

$

28,559

$

63,847

$

54,190

Non-GAAP General and Administrative Expense:

 

  

 

  

 

  

 

  

General and administrative expense

$

39,376

$

30,084

$

73,686

$

58,841

Stock-based compensation expense

 

(4,581)

 

(1,541)

 

(9,051)

 

(3,936)

Severance expense

(905)

 

(258)

(1,460)

 

(381)

Amortization of cloud computing implementation costs – general and administrative

(631)

(631)

Non-GAAP general and administrative expense

$

33,259

$

28,285

$

62,544

$

54,524

- 10 -


Vertex, Inc. and Subsidiaries

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

(Unaudited)

Three months ended

Six months ended

June 30, 

June 30, 

(In thousands, except per share data)

2023

2022

2023

2022

Non-GAAP Operating Income:

Loss from operations

$

(4,072)

$

(4,296)

$

(13,001)

$

(3,828)

Stock-based compensation expense

 

7,022

 

4,194

 

18,456

 

9,127

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

 

12,686

 

12,386

 

25,121

 

22,083

Amortization of acquired intangible assets – selling and marketing expense

684

2,019

1,450

2,268

Amortization of cloud computing implementation costs – general and administrative

631

631

Severance expense

905

258

1,460

381

Acquisition contingent consideration

249

449

700

Transaction costs

 

 

 

 

7

Non-GAAP operating income

$

18,105

$

14,561

$

34,566

$

30,738

Non-GAAP Net Income:

Net loss

$

(6,896)

$

(5,520)

$

(25,028)

$

(5,854)

Income tax expense

2,929

 

500

12,482

 

1,308

Stock-based compensation expense

 

7,022

 

4,194

 

18,456

 

9,127

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

 

12,686

 

12,386

 

25,121

 

22,083

Amortization of acquired intangible assets – selling and marketing expense

684

2,019

1,450

2,268

Amortization of cloud computing implementation costs – general and administrative

631

631

Severance expense

905

258

1,460

381

Acquisition contingent consideration

249

449

700

Transaction costs

7

Non-GAAP income before income taxes

18,210

13,837

35,021

30,020

Income tax adjustment at statutory rate

(4,644)

(3,528)

(8,930)

(7,655)

Non-GAAP net income

$

13,566

$

10,309

$

26,091

$

22,365

Non-GAAP Diluted EPS:

Non-GAAP net income

$

13,566

$

10,309

$

26,091

$

22,365

Weighted average Class A and B common stock, diluted

162,128

158,803

161,247

158,460

Non-GAAP diluted EPS

$

0.08

$

0.06

$

0.16

$

0.14

- 11 -


Vertex, Inc. and Subsidiaries

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

(Unaudited)

Three months ended

Six months ended

June 30, 

June 30, 

(Dollars in thousands)

    

2023

2022

2023

2022

Adjusted EBITDA:

Net loss

$

(6,896)

$

(5,520)

$

(25,028)

$

(5,854)

Interest (income) expense, net

 

(105)

 

724

 

(455)

 

718

Income tax expense

 

2,929

 

500

 

12,482

 

1,308

Depreciation and amortization – property and equipment

 

3,878

 

3,224

 

7,619

 

6,184

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

12,686

12,386

25,121

22,083

Amortization of acquired intangible assets – selling and marketing expense

 

684

 

2,019

 

1,450

 

2,268

Amortization of cloud computing implementation costs – general and administrative

631

631

Stock-based compensation expense

 

7,022

 

4,194

 

18,456

 

9,127

Severance expense

905

258

1,460

381

Acquisition contingent consideration

249

 

 

449

 

700

Transaction costs

 

 

 

 

7

Adjusted EBITDA

$

21,983

$

17,785

$

42,185

$

36,922

Adjusted EBITDA Margin:

 

  

 

  

 

  

 

  

Total revenues

$

139,695

$

119,276

$

272,446

$

234,260

Adjusted EBITDA margin

 

15.7

%  

 

14.9

%  

 

15.5

%  

 

15.8

%  

Three months ended

Six months ended

June 30, 

June 30, 

(Dollars in thousands)

    

2023

2022

2023

2022

Free Cash Flow:

Cash (used in) provided by operating activities

$

(7,653)

$

8,955

(A)

$

(898)

$

8,588

(B)

Property and equipment additions

 

(8,546)

 

(10,928)

(A)

 

(21,859)

 

(21,839)

(B)

Capitalized software additions

 

(5,041)

 

(3,014)

 

(9,042)

 

(5,926)

Free cash flow

$

(21,240)

$

(4,987)

$

(31,799)

$

(19,177)

Free Cash Flow Margin:

 

 

Total revenues

$

139,695

$

119,276

$

272,446

$

234,260

Free cash flow margin

(15.2)

%

(4.2)

%

(11.7)

%  

(8.2)

%  

(A) Cash provided by operating activities and property and equipment additions for the three months ended June 30, 2022 reflect an immaterial error correction of $3,026 related to the reclassification of capitalized cloud computing implementation costs from property and equipment additions to other changes in operating assets and liabilities.

(B) Cash provided by operating activities and property and equipment additions for the six months ended June 30, 2022 reflect an immaterial error correction of $5,988 related to the reclassification of capitalized cloud computing implementation costs from property and equipment additions to other changes in operating assets and liabilities.

Investor Relations Contact:
Joe Crivelli

Vertex, Inc.

- 12 -


ir@vertexinc.com

Media Contact:

Rachel Litcofsky

Vertex, Inc.

mediainquiries@vertexinc.com

- 13 -