Vertex Announces Second Quarter 2024 Financial Results

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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.Vertex, Inc.and SubsidiariesConsolidated Balance Sheets(Unaudited)    As of June 30, As of December 31, (In thousands, except per share data)2024 2023  (unaudited)   Assets        Current assets:        Cash and cash equivalents$325,535  $68,175  Funds held for customers 35,408   20,976  Accounts receivable, net of allowance of $17,704 and $16,272, respectively 120,082   141,752  Prepaid expenses and other current assets 25,134   26,173  Investment securities available-for-sale, at fair value (amortized cost of $8,407 and $9,550,respectively) 8,650   9,545  Total current assets 514,809   266,621           Property and equipment, net of accumulated depreciation 108,407   100,734  Capitalized software, net of accumulated amortization 37,840   38,771  Goodwill and other intangible assets 252,183   260,238  Deferred commissions 21,862   21,237  Deferred income tax asset 61,897   41,708  Operating lease right-of-use assets 13,060   14,605  Other assets 13,772   16,013  Total assets$1,023,830  $759,927  Liabilities and Stockholders' Equity        Current liabilities:        Current portion of long-term debt$—  $2,500  Accounts payable 24,220   23,596  Accrued expenses 41,767   44,735  Customer funds obligations 32,710   17,731  Accrued salaries and benefits 13,251   12,277  Accrued variable compensation 25,727   34,105  Deferred revenue, current 297,305   290,143  Current portion of operating lease liabilities 3,799   3,717  Current portion of finance lease liabilities 90   74  Purchase commitment and contingent consideration liabilities, current 200   11,901  Total current liabilities 439,069   440,779  Deferred revenue, net of current portion 2,436   2,577  Debt, net of current portion 334,092   44,059  Operating lease liabilities, net of current portion 14,397   16,567  Finance lease liabilities, net of current portion 36   51  Purchase commitment and contingent consideration liabilities, net of current portion —   2,600  Deferred other liabilities 670   313  Total liabilities 790,700   506,946  Stockholders' equity:        Preferred shares, $0.001 par value, 30,000 shares authorized; no shares issued andoutstanding —   —  Class A voting common stock, $0.001 par value, 300,000 shares authorized; 65,165 and60,989 shares issued and outstanding, respectively 65   61  Class B voting common stock, $0.001 par value, 150,000 shares authorized; 90,161 and92,661 shares issued and outstanding, respectively 90   93  Additional paid in capital 254,799   275,155  Retained earnings (Accumulated deficit) 7,262   (586) Accumulated other comprehensive loss (29,086)  (21,742) Total stockholders' equity 233,130   252,981  Total liabilities and stockholders' equity$1,023,830  $759,927     Vertex, Inc.and SubsidiariesConsolidated Statements of Comprehensive Income (Loss)(Unaudited)    Three months endedJune 30, Six months endedJune 30, (In thousands, except per share data)2024 2023 2024 2023  (unaudited) (unaudited) Revenues:                Software subscriptions$136,443  $117,836  $268,273  $228,850  Services 24,661   21,859   49,612   43,596  Total revenues 161,104   139,695   317,885   272,446  Cost of revenues:                Software subscriptions 42,261   38,516   87,389   75,919  Services 16,155   15,363   32,016   29,707  Total cost of revenues 58,416   53,879   119,405   105,626  Gross profit 102,688   85,816   198,480   166,820  Operating expenses:                Research and development 14,614   12,680   31,459   28,542  Selling and marketing 40,541   33,541   81,032   69,277  General and administrative 35,874   39,376   71,416   73,686  Depreciation and amortization 5,212   3,878   10,218   7,619  Other operating expense (income), net (1,098)  413   (1,625)  697  Total operating expenses 95,143   89,888   192,500   179,821  Income (loss) from operations 7,545   (4,072)  5,980   (13,001) Interest expense (income), net 181   (105)  467   (455) Income (loss) before income taxes 7,364   (3,967)  5,513   (12,546) Income tax (benefit) expense 2,200   2,929   (2,335)  12,482  Net income (loss) 5,164   (6,896)  7,848   (25,028) Other comprehensive (income) loss:                Foreign currency translation adjustments, net of tax 3,335   (609)  7,346   (3,731) Unrealized (gain) loss on investments, net of tax (19)  3   (2)  (10) Total other comprehensive (income) loss, net of tax 3,316   (606)  7,344   (3,741) Total comprehensive income (loss)$1,848  $(6,290) $504  $(21,287)                  Net income (loss) per share of Class A and Class B, basic$0.03  $(0.05) $0.05  $(0.17) Net income (loss) per share of Class A and Class B, dilutive$0.03  $(0.05) $0.05  $(0.17)    Vertex, Inc.and SubsidiariesConsolidated Statements of Cash Flows (Unaudited)    Six months endedJune 30, (In thousands)2024 2023  (unaudited) Cash flows from operating activities:        Net income (loss)$7,848  $(25,028) Adjustments to reconcile net loss to net cash provided by operating activities:        Depreciation and amortization 41,330   34,190  Amortization of cloud computing implementation costs 1,989   631  Provision for subscription cancellations and non-renewals 451   1,374  Amortization of deferred financing costs 660   126  Change in fair value of contingent consideration liabilities (2,375)  449  Change in settlement value of deferred purchase commitment liability 423   —  Write-off of deferred financing costs 276   —  Stock-based compensation expense 26,324   18,456  Deferred income tax benefit (9,702)  (12,331) Non-cash operating lease costs 1,536   625  Other (165)  (67) Changes in operating assets and liabilities:        Accounts receivable 19,730   (30,512) Prepaid expenses and other current assets 969   355  Deferred commissions (625)  (1,263) Accounts payable 665   7,655  Accrued expenses (3,021)  17,407  Accrued and deferred compensation (8,660)  (10,705) Deferred revenue 8,051   1,179  Operating lease liabilities (2,081)  (1,722) Payments for purchase commitment and contingent consideration liabilities in excess of initial fair value (4,367)  —  Other 3,036   (1,717) Net cash provided by (used in) operating activities 82,292   (898) Cash flows from investing activities:        Acquisition of assets, net of cash acquired (6,075)  —  Property and equipment additions (29,749)  (21,859) Capitalized software additions (11,097)  (9,042) Purchase of investment securities, available-for-sale (7,776)  (8,427) Proceeds from sales and maturities of investment securities, available-for-sale 8,860   8,600  Other (2,000)  —  Net cash used in investing activities (47,837)  (30,728) Cash flows from financing activities:        Net increase in customer funds obligations 14,979   14,473  Proceeds from convertible senior notes 345,000   —  Principal payments on long-term debt (46,875)  (938) Payment for purchase of capped calls (42,366)  —  Payments for deferred financing costs (11,374)  —  Proceeds from purchases of stock under ESPP 1,443   1,178  Payments for taxes related to net share settlement of stock-based awards (18,324)  (3,986) Proceeds from exercise of stock options 3,274   2,243  Payments for purchase commitment and contingent consideration liabilities (7,580)  (6,424) Payments of finance lease liabilities (51)  (27) Payments for deferred purchase commitments —   (10,000) Net cash provided by (used in) financing activities 238,126   (3,481) Effect of exchange rate changes on cash, cash equivalents and restricted cash (789)  380  Net increase (decrease) in cash, cash equivalents and restricted cash 271,792   (34,727) Cash, cash equivalents and restricted cash, beginning of period 89,151   106,748  Cash, cash equivalents and restricted cash, end of period$360,943  $72,021  Reconciliation of cash, cash equivalents and restricted cash to the Condensed Consolidated Balance Sheets,end of period:        Cash and cash equivalents$325,535  $41,865  Restricted cash—funds held for customers 35,408   30,156  Total cash, cash equivalents and restricted cash, end of period$360,943  $72,021     Summary of Non-GAAP Financial Measures(Unaudited)    Three months endedJune 30,  Six months endedJune 30,  (Dollars in thousands, except per share data)2024  2023  2024  2023  Non-GAAP cost of revenues, software subscriptions$26,730   $25,411   $54,921   $49,383   Non-GAAP cost of revenues, services$15,590   $15,197   $30,445   $28,705   Non-GAAP gross profit$118,784   $99,087   $232,519   $194,358   Non-GAAP gross margin 73.7 %  70.9 %  73.1 %  71.3 % Non-GAAP research and development expense$12,692   $11,905   $26,164   $25,533   Non-GAAP selling and marketing expense$37,021   $31,775   $72,695   $63,847   Non-GAAP general and administrative expense$30,627   $33,259   $58,200   $62,544   Non-GAAP operating income$33,303   $18,105   $65,040   $34,566   Non-GAAP net income$24,991   $13,566   $48,422   $26,091   Non-GAAP diluted EPS$0.15   $0.08   $0.30   $0.16   Adjusted EBITDA$38,515   $21,983   $75,258   $42,185   Adjusted EBITDA margin 23.9 %  15.7 %  23.7 %  15.5 % Free cash flow$36,944   $(21,234)  $41,446   $(31,799)  Free cash flow margin 22.9 %  (15.2)%  13.0 %  (11.7)%    Vertex, Inc.and SubsidiariesReconciliation of GAAP to Non-GAAP Financial Measures(Unaudited)    Three months endedJune 30,  Six months endedJune 30,  (Dollars in thousands)2024  2023  2024  2023  Non-GAAP Cost of Revenues, Software Subscriptions:                    Cost of revenues, software subscriptions$42,261   $38,516   $87,389   $75,919   Stock-based compensation expense (953)   (419)   (2,543)   (1,415)  Depreciation and amortization of capitalized software andacquired intangible assets – cost of subscription revenues (14,578)   (12,686)   (29,925)   (25,121)  Non-GAAP cost of revenues, software subscriptions$26,730   $25,411   $54,921   $49,383                        Non-GAAP Cost of Revenues, Services:                    Cost of revenues, services$16,155   $15,363   $32,016   $29,707   Stock-based compensation expense (565)   (166)   (1,571)   (1,002)  Non-GAAP cost of revenues, services$15,590   $15,197   $30,445   $28,705                        Non-GAAP Gross Profit:                    Gross profit$102,688   $85,816   $198,480   $166,820   Stock-based compensation expense 1,518    585    4,114    2,417   Depreciation and amortization of capitalized software andacquired intangible assets – cost of subscription revenues 14,578    12,686    29,925    25,121   Non-GAAP gross profit$118,784   $99,087   $232,519   $194,358                        Non-GAAP Gross Margin:                    Total Revenues$161,104   $139,695   $317,885   $272,446   Non-GAAP gross margin 73.7 %  70.9 %  73.1 %  71.3 %                      Non-GAAP Research and Development Expense:                    Research and development expense$14,614   $12,680   $31,459   $28,542   Stock-based compensation expense (1,922)   (775)   (5,295)   (3,009)  Non-GAAP research and development expense$12,692   $11,905   $26,164   $25,533                        Non-GAAP Selling and Marketing Expense:                    Selling and marketing expense$40,541   $33,541   $81,032   $69,277   Stock-based compensation expense (2,928)   (1,082)   (7,150)   (3,980)  Amortization of acquired intangible assets – selling andmarketing expense (592)   (684)   (1,187)   (1,450)  Non-GAAP selling and marketing expense$37,021   $31,775   $72,695   $63,847                        Non-GAAP General and Administrative Expense:                    General and administrative expense$35,874   $39,376   $71,416   $73,686   Stock-based compensation expense (3,633)   (4,581)   (9,766)   (9,051)  Severance expense (619)   (905)   (1,461)   (1,460)  Amortization of cloud computing implementation costs –general and administrative (995)   (631)   (1,989)   (631)  Non-GAAP general and administrative expense$30,627   $33,259   $58,200   $62,544      Vertex, Inc.and SubsidiariesReconciliation of GAAP to Non-GAAP Financial Measures (continued)(Unaudited)    Three months endedJune 30, Six months endedJune 30, (In thousands, except per share data)2024 2023 2024 2023 Non-GAAP Operating Income:                Income (loss) from operations$7,545  $(4,072) $5,980  $(13,001) Stock-based compensation expense 10,001   7,022   26,325   18,456  Depreciation and amortization of capitalized software and acquiredintangible assets – cost of subscription revenues 14,578   12,686   29,925   25,121  Amortization of acquired intangible assets – selling and marketingexpense 592   684   1,187   1,450  Amortization of cloud computing implementation costs – generaland administrative 995   631   1,989   631  Severance expense 619   905   1,461   1,460  Acquisition contingent consideration (1,575)  249   (2,375)  449  Transaction costs 548   —   548   —  Non-GAAP operating income$33,303  $18,105  $65,040  $34,566                                    Non-GAAP Net Income:                Net income (loss)$5,164  $(6,896) $7,848  $(25,028) Income tax (benefit) expense 2,200   2,929   (2,335)  12,482  Stock-based compensation expense 10,001   7,022   26,325   18,456  Depreciation and amortization of capitalized software and acquiredintangible assets – cost of subscription revenues 14,578   12,686   29,925   25,121  Amortization of acquired intangible assets – selling and marketingexpense 592   684   1,187   1,450  Amortization of cloud computing implementation costs – generaland administrative 995   631   1,989   631  Severance expense 619   905   1,461   1,460  Acquisition contingent consideration (1,575)  249   (2,375)  449  Transaction costs 548   —   548   —  Change in settlement value of deferred purchase commitmentliability – interest expense 423   —   423   —  Non-GAAP income before income taxes 33,545   18,210   64,996   35,021  Income tax adjustment at statutory rate (1) (8,554)  (4,644)  (16,574)  (8,930) Non-GAAP net income $24,991  $13,566  $48,422  $26,091                   Non-GAAP Diluted EPS:                Non-GAAP net income$24,991  $13,566  $48,422  $26,091  Total average Class A and B shares used in dilutive per sharecomputation 161,440   162,128   161,011   161,247  Non-GAAP diluted EPS$0.15  $0.08  $0.30  $0.16    (1) Non-GAAP income (loss) before income taxes is adjusted for income taxes using the respective statutory tax rates for applicable jurisdictions, which for purposes of this determination were assumed to be 25.5%.    Vertex, Inc.and SubsidiariesReconciliation of GAAP to Non-GAAP Financial Measures (continued)(Unaudited)    Three months endedJune 30,  Six months endedJune 30,  (Dollars in thousands)2024  2023  2024  2023  Adjusted EBITDA:                    Net income (loss)$5,164   $(6,896)  $7,848   $(25,028)  Interest expense (income), net 181    (105)   467    (455)  Income tax (benefit) expense 2,200    2,929    (2,335)   12,482   Depreciation and amortization – property andequipment 5,212    3,878    10,218    7,619   Depreciation and amortization of capitalized softwareand acquired intangible assets – cost of subscriptionrevenues 14,578    12,686    29,925    25,121   Amortization of acquired intangible assets – sellingand marketing expense 592    684    1,187    1,450   Amortization of cloud computing implementationcosts – general and administrative 995    631    1,989    631   Stock-based compensation expense 10,001    7,022    26,325    18,456   Severance expense 619    905    1,461    1,460   Acquisition contingent consideration (1,575)   249    (2,375)   449   Transaction costs 548    —    548    —   Adjusted EBITDA$38,515   $21,983   $75,258   $42,185                        Adjusted EBITDA Margin:                    Total revenues$161,104   $139,695   $317,885   $272,446   Adjusted EBITDA margin 23.9 %  15.7 %  23.7 %  15.5 %     Three months endedJune 30,  Six months endedJune 30,  (Dollars in thousands)2024  2023  2024  2023  Free Cash Flow:                    Cash provided by (used in) operating activities$57,726   $(4,389)  $82,292   $(898)  Property and equipment additions (15,300)   (11,810)   (29,749)   (21,859)  Capitalized software additions (5,482)   (5,035)   (11,097)   (9,042)  Free cash flow$36,944   $(21,234)  $41,446   $(31,799)                       Free Cash Flow Margin:                    Total revenues$161,104   $139,695   $317,885   $272,446   Free cash flow margin 22.9 %  (15.2)%  13.0 %  (11.7)%    Investor Relations Contact:Joe CrivelliVertex, Inc.ir@vertexinc.com Media Contact:Rachel LitcofskyVertex, Inc.mediainquiries@vertexinc.

Factors which may cause actual results to differ materially from current expectations include, but are not limited to: our ability to maintain and grow revenue from existing customers and new customers, and expand their usage of our solutions; our ability to maintain and expand our strategic relationships with third parties; our ability to adapt to technological change and successfully introduce new solutions or provide updates to existing solutions; risks related to failures in information technology or infrastructure; challenges in using and managing use of Artificial Intelligence in our business; incorrect or improper implementation, integration or use of our solutions; failure to attract and retain qualified technical and tax-content personnel; competitive pressures from other tax software and service providers and challenges of convincing businesses using native enterprise resource planning ("ERP”) functions to switch to our software; our ability to accurately forecast our revenue and other future results of operations based on recent success; our ability to offer specific software deployment methods based on changes to customers’ and partners’ software systems; our ability to continue making significant investments in software development and equipment; our ability to sustain and expand revenues, maintain profitability, and to effectively manage our anticipated growth; our ability to successfully diversify our solutions by developing or introducing new solutions or acquiring and integrating additional businesses, products, services, or content; risks related to the fluctuations in our results of operations; risks related to our expanding international operations; our exposure to liability from errors, delays, fraud or system failures, which may not be covered by insurance; our ability to adapt to organizational changes and effectively implement strategic initiatives; 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; our involvement in material legal proceedings and audits; risks related to undetected errors, bugs or defects in our software; risks related to utilization of open-source software, business processes and information systems; risks related to failures in information technology, infrastructure, and third-party service providers; our ability to effectively protect, maintain, and enhance our brand; changes in application, scope, interpretation or enforcement of laws and regulations; global economic weakness and uncertainties, and disruption in the capital and credit markets; business disruptions related to natural disasters, epidemic outbreaks, including a global endemic or pandemic, terrorist acts, political events, or other events outside of our control; our ability to comply with anti-corruption, anti-bribery, and similar laws; our ability to protect our intellectual property; 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; our ability to maintain an effective system of disclosure controls and internal control over financial reporting, or ability to remediate any material weakness in our internal controls; risks related to our Class A common stock and controlled company status; risks related to our indebtedness and adherence to the covenants under our debt instruments; our expectations regarding the effects of the Capped Call Transactions and regarding actions of the Option Counterparties and/or their respective affiliates; 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, 2023, as filed with the Securities Exchange Commission ("SEC”), and as supplemented by the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, as filed with the SEC, and as may be subsequently updated by our other SEC filings.

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, amortization of cloud computing implementation costs in general and administrative expense, severance expense, acquisition contingent consideration, adjustments to the settlement value of deferred purchase commitment liabilities recorded as interest expense, litigation settlements, and transaction costs, included in GAAP net income or loss for the respective periods to determine non-GAAP income or loss before income taxes.

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Author / Journalist: Vertex Inc.

Category: Technology

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Published On: 2024-08-07 @ 11:06:00 (10 hours ago)

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