• Vertex Announces Second Quarter 2024 Financial Results

    ソース: Nasdaq GlobeNewswire / 07 8 2024 06:06:40   America/Chicago

    KING OF PRUSSIA, Pa., Aug. 07, 2024 (GLOBE NEWSWIRE) -- 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, 2024.

    “The second quarter financial results demonstrate the true earnings power of the Vertex business model,” stated David DeStefano, Vertex’s President, Chief Executive Officer and Chairperson of the Board. “We were GAAP earnings positive for the third quarter in a row, generated the highest level of quarterly cash provided by operating activities and free cash flow in our 46-year history and delivered our highest Adjusted EBITDA margin since we became a public company over four years ago.”

    DeStefano continued, “These are strong financial results, but we are just getting started. Several strategic initiatives completed to date in 2024 have positioned us well for continued profitable growth. Early in the second quarter we completed a $345 million convertible debt offering to bolster our balance sheet and further support organic and inorganic investments in our business. In June, we acquired tax-specific AI technology designed to more effectively manage the complexity of tax mapping. And this morning we announced our intent to acquire ecosio GmbH (“ecosio”), an Austrian company that is a provider of electronic data interchange and e-invoicing services. With ecosio, we strengthen our e-invoicing capabilities to seamlessly support customers in the rapidly changing regulatory compliance landscape. This acquisition is a significant step in accelerating our mission to deliver the world’s most trusted end-to-end solutions for global businesses to transact, comply and grow with confidence.”

    Second Quarter 2024 Financial Results

    • Total revenues of $161.1 million, up 15.3% year-over-year.
    • Software subscription revenues of $136.4 million, up 15.8% year-over-year.
    • Cloud revenues of $66.3 million, up 29.6% year-over-year.
    • Annual Recurring Revenue (“ARR”) was $548.4 million, up 17.3% year-over-year. This included $6.1 million due to the inclusion of Systax’s ARR, which was included as a result of the acquisition of the remaining ownership interests of Systax, which occurred during the second quarter of 2024. Excluding Systax, the ARR growth rate would have been 16.0%.
    • Average Annual Revenue per direct customer (“AARPC”) was $123,570 at June 30, 2024, compared to $109,170 at June 30, 2023 and $121,720 at March 31, 2024. Excluding Systax, AARPC would have been $126,400 at June 30, 2024.
    • Net Revenue Retention (“NRR”) was 110%, compared to 111% at June 30, 2023, and 112% at March 31, 2024.
    • Gross Revenue Retention (“GRR”) was 95%, compared to 96% at June 30, 2023, and 95% at March 31, 2024.
    • Income (loss) from operations of $7.5 million, compared to $(4.1) million for the same period in the prior year.
    • Non-GAAP operating income of $33.3 million, compared to $18.1 million for the same period in the prior year.
    • Net income of $5.2 million, compared to net loss of $(6.9) million for the same period in the prior year.
    • Net income per basic and diluted Class A and Class B shares of $0.03, compared to net loss per basic and diluted Class A and Class B of $(0.05) for the same period in the prior year.
    • Non-GAAP net income of $25.0 million and Non-GAAP diluted earnings per share (“EPS”) of $0.15.
    • Adjusted EBITDA of $38.5 million, compared to $22.0 million for the same period in the prior year. Adjusted EBITDA margin of 23.9%, compared to 15.7% for the same period in the 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 2024, the Company currently expects:

    • Revenues of $164 million to $167 million; and
    • Adjusted EBITDA of $33 million to $35 million.

    For the full-year 2024, the Company currently expects:

    • Revenues of $654 million to $660 million;
    • Cloud revenue growth of 28%; and
    • Adjusted EBITDA of $139 million to $145 million.

    John Schwab, Chief Financial Officer added, “We remain confident in our outlook for the second half of 2024. Accordingly, we are narrowing our full year revenue guidance to the upper end of the range, and we are significantly increasing our full year Adjusted EBITDA guidance.”

    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, amortization of cloud computing implementation costs in general and administrative expense, adjustments to the settlement value of deferred purchase commitment liabilities, 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 7, 2024, to discuss its second quarter 2024 financial results.

    Those wishing to participate may do so by dialing 1-412-317-6026 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 10190684 or via the Company’s Investor Relations website. The replay will expire on August 21, 2024 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 1,500 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 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. 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.

    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. Systax added 150 customers to the second quarter direct customer count.

    CustomersQ2 2023Q3 2023Q4 2023Q1 2024Q2 2024
    Direct4,284 4,303 4,310 4,309 4,438 
    Indirect329 373 404 433 460 
    Total4,613 4,676 4,714 4,742 4,898 
     

    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, 2023, as filed with the SEC and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, 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, included in GAAP loss or income 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, 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. 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. Additionally, the dilutive effect of shares issuable upon conversion of the senior convertible notes is included in the calculation of Non-GAAP diluted EPS by application of the if-converted method.
    • Adjusted EBITDA is determined by adding back to GAAP net income or loss the net interest income or expense (including adjustments to the settlement value of deferred purchase commitment liabilities), 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, 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.

    Vertex, Inc. and Subsidiaries
    Consolidated 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 and
    outstanding    		 —   —  
    Class A voting common stock, $0.001 par value, 300,000 shares authorized; 65,165 and
    60,989 shares issued and outstanding, respectively    		 65   61  
    Class B voting common stock, $0.001 par value, 150,000 shares authorized; 90,161 and
    92,661 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 Subsidiaries
    Consolidated Statements of Comprehensive Income (Loss)
    (Unaudited)    		 
      
     Three months ended
    June 30,    		 Six months ended
    June 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 Subsidiaries
    Consolidated Statements of Cash Flows
    (Unaudited)    		 
      
     Six months ended
    June 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 ended
    June 30,
    		  Six months ended
    June 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 Subsidiaries
    Reconciliation of GAAP to Non-GAAP Financial Measures
    (Unaudited)    		 
      
     Three months ended
    June 30,    		  Six months ended
    June 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 and
    acquired 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 and
    acquired 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 and
    marketing 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 Subsidiaries
    Reconciliation of GAAP to Non-GAAP Financial Measures (continued)
    (Unaudited)    		 
      
     Three months ended
    June 30,    		 Six months ended
    June 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 acquired
    intangible assets – cost of subscription revenues    		 14,578   12,686   29,925   25,121  
    Amortization of acquired intangible assets – selling and marketing
    expense    		 592   684   1,187   1,450  
    Amortization of cloud computing implementation costs – general
    and 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 acquired
    intangible assets – cost of subscription revenues    		 14,578   12,686   29,925   25,121  
    Amortization of acquired intangible assets – selling and marketing
    expense    		 592   684   1,187   1,450  
    Amortization of cloud computing implementation costs – general
    and 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 commitment
    liability – 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 share
    computation    		 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 Subsidiaries
    Reconciliation of GAAP to Non-GAAP Financial Measures (continued)
    (Unaudited)    		 
      
     Three months ended
    June 30,    		  Six months ended
    June 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 and
    equipment    		 5,212    3,878    10,218    7,619   
    Depreciation and amortization of capitalized software
    and acquired intangible assets – cost of subscription
    revenues    		 14,578    12,686    29,925    25,121   
    Amortization of acquired intangible assets – selling
    and marketing expense    		 592    684    1,187    1,450   
    Amortization of cloud computing implementation
    costs – 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 ended
    June 30,    		  Six months ended
    June 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 Crivelli
    Vertex, Inc.
    ir@vertexinc.com

    Media Contact:
    Rachel Litcofsky
    Vertex, Inc.
    mediainquiries@vertexinc.com


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