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Vertex Announces First Quarter 2024 Financial Results

Vertex Inc.
Vertex Inc.

KING OF PRUSSIA, Pa., May 08, 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 first quarter ended March 31, 2024.

“The year is off to a solid start, and I am very pleased with our financial performance in the first quarter,” stated David DeStefano, Vertex’s President, Chief Executive Officer and Chairperson of the Board. “Revenue traction is strong in the first quarter, with our cloud solutions leading the way, and we are seeing significant earnings leverage that is driving material growth in profitability as well as cash flow. The current momentum in our business, combined with our strengthened balance sheet following our recent successful convertible debt offering, give me confidence in our ability to continue to grow shareholder value.”

First Quarter 2024 Financial Results

  • Total revenues of $156.8 million, up 18.1% year-over-year.

  • Software subscription revenues of $131.8 million, up 18.8% year-over-year.

  • Cloud revenues of $61.8 million, up 28.3% year-over-year.

  • Annual Recurring Revenue (“ARR”) was $524.5 million, up 17.5% year-over-year.

  • Average Annual Revenue per direct customer (“AARPC”) was $121,720 at March 31, 2024, compared to $104,370 at March 31, 2023 and $118,910 at December 31, 2023.

  • Net Revenue Retention (“NRR”) was 112%, compared to 110% at March 31, 2023, and 113% at December 31, 2023.

  • Gross Revenue Retention (“GRR”) was 95%, compared to 96% at March 31, 2023, and 95% at December 31, 2023.

  • Loss from operations of $(1.6) million, compared to $(8.9) million for the same period in the prior year.

  • Non-GAAP operating income of $31.7 million, compared to $16.5 million for the same period in the prior year.

  • Net income of $2.7 million, compared to net loss of $(18.1) million for the same period in the prior year.

  • Net income per basic and diluted Class A and Class B shares of $0.02, compared to net loss per basic and diluted Class A and Class B of $(0.12) for the same period in the prior year.

  • Non-GAAP net income of $23.4 million and Non-GAAP diluted earnings per share (“EPS”) of $0.15.

  • Adjusted EBITDA of $36.7 million, compared to $20.2 million for the same period in the prior year. Adjusted EBITDA margin of 23.4%, compared to 15.2% for the same period in the prior year.

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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 second quarter of 2024, the Company currently expects:

  • Revenues of $159 million to $162 million; and

  • Adjusted EBITDA of $31 million to $33 million.

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

  • Revenues of $650 million to $660 million;

  • Cloud revenue growth of 28%; and

  • Adjusted EBITDA of $130 million to $135 million.

John Schwab, Chief Financial Officer added, “Our guidance for the second quarter reflects our continued confidence in our business. In addition, with the recent completion of our convertible debt offering, Vertex’s balance sheet is as strong as it’s ever been, and we now benefit from a significant war chest for organic and inorganic investments in our business.”

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, May 8, 2024, to discuss its first 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 10187911 or via the Company’s Investor Relations website. The replay will expire on May 22, 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, to be 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:

 

 

 

 

 

 

 

 

 

 

 

Customers

Q1 2023

Q2 2023

Q3 2023

Q4 2023

Q1 2024

Direct

4,278

 

4,284

 

4,303

 

4,310

 

4,309

 

Indirect

291

 

329

 

373

 

404

 

433

 

Total

4,569

 

4,613

 

4,676

 

4,714

 

4,742

 

 

 

 

 

 

 

 

 

 

 

 

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 March 31, 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.

  • 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 March 31, 

 

As of December 31,

(In thousands, except per share data)

2024

 

2023

 

(unaudited)

 

 

Assets

 

  

 

 

 

Current assets:

 

  

 

 

 

Cash and cash equivalents

$

56,134

 

 

$

68,175

 

Funds held for customers

 

36,546

 

 

 

20,976

 

Accounts receivable, net of allowance of $20,241 and $16,272, respectively

 

133,149

 

 

 

141,752

 

Prepaid expenses and other current assets

 

31,906

 

 

 

26,173

 

Investment securities available-for-sale, at fair value (amortized cost of $9,123 and $9,550, respectively)

 

9,101

 

 

 

9,545

 

Total current assets

 

266,836

 

 

 

266,621

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation

 

100,594

 

 

 

100,734

 

Capitalized software, net of accumulated amortization

 

38,532

 

 

 

38,771

 

Goodwill and other intangible assets

 

255,681

 

 

 

260,238

 

Deferred commissions

 

21,301

 

 

 

21,237

 

Deferred income tax asset

 

44,311

 

 

 

41,708

 

Operating lease right-of-use assets

 

13,773

 

 

 

14,605

 

Other assets

 

14,774

 

 

 

16,013

 

Total assets

$

755,802

 

 

$

759,927

 

Liabilities and Stockholders' Equity

 

 

 

 

 

Current liabilities:

 

  

 

 

  

Current portion of long-term debt

$

2,500

 

 

$

2,500

 

Accounts payable

 

22,431

 

 

 

23,596

 

Accrued expenses

 

36,754

 

 

 

44,735

 

Customer funds obligations

 

33,670

 

 

 

17,731

 

Accrued salaries and benefits

 

18,659

 

 

 

12,277

 

Accrued variable compensation

 

14,562

 

 

 

34,105

 

Deferred revenue, current

 

296,845

 

 

 

290,143

 

Current portion of operating lease liabilities

 

3,633

 

 

 

3,717

 

Current portion of finance lease liabilities

 

60

 

 

 

74

 

Purchase commitment and contingent consideration liabilities, current

 

13,390

 

 

 

11,901

 

Total current liabilities

 

442,504

 

 

 

440,779

 

Deferred revenue, net of current portion

 

4,146

 

 

 

2,577

 

Debt, net of current portion

 

43,458

 

 

 

44,059

 

Operating lease liabilities, net of current portion

 

15,523

 

 

 

16,567

 

Finance lease liabilities, net of current portion

 

41

 

 

 

51

 

Purchase commitment and contingent consideration liabilities, net of current portion

 

 

 

 

2,600

 

Deferred other liabilities

 

 

 

 

313

 

Total liabilities

 

505,672

 

 

 

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; 62,316 and 60,989 shares issued and outstanding, respectively

 

62

 

 

 

61

 

Class B voting common stock, $0.001 par value, 150,000 shares authorized; 92,661 and 92,661 shares issued and outstanding, respectively

 

93

 

 

 

93

 

Additional paid in capital

 

273,647

 

 

 

275,155

 

Retained earnings (Accumulated deficit)

 

2,098

 

 

 

(586

)

Accumulated other comprehensive loss

 

(25,770

)

 

 

(21,742

)

Total stockholders' equity

 

250,130

 

 

 

252,981

 

Total liabilities and stockholders' equity

$

755,802

 

 

$

759,927

 

 

 

 

 

 

 


Vertex, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)

 

 

Three months ended

 

March 31, 

(In thousands, except per share data)

2024

 

2023

 

(unaudited)

Revenues:

 

 

 

 

 

Software subscriptions

$

131,830

 

 

$

111,014

 

Services

 

24,951

 

 

 

21,737

 

Total revenues

 

156,781

 

 

 

132,751

 

Cost of revenues:

 

 

 

 

 

Software subscriptions

 

45,128

 

 

 

37,403

 

Services

 

15,861

 

 

 

14,344

 

Total cost of revenues

 

60,989

 

 

 

51,747

 

Gross profit

 

95,792

 

 

 

81,004

 

Operating expenses:

 

 

 

 

 

Research and development

 

16,845

 

 

 

15,862

 

Selling and marketing

 

40,491

 

 

 

35,736

 

General and administrative

 

35,542

 

 

 

34,310

 

Depreciation and amortization

 

5,006

 

 

 

3,741

 

Other operating expense (income), net

 

(527

)

 

 

284

 

Total operating expenses

 

97,357

 

 

 

89,933

 

Loss from operations

 

(1,565

)

 

 

(8,929

)

Interest expense (income), net

 

286

 

 

 

(350

)

Loss before income taxes

 

(1,851

)

 

 

(8,579

)

Income tax (benefit) expense

 

(4,535

)

 

 

9,553

 

Net income (loss)

 

2,684

 

 

 

(18,132

)

Other comprehensive (income) loss:

 

 

 

 

 

Foreign currency translation adjustments, net of tax

 

4,011

 

 

 

(3,122

)

Unrealized (gain) loss on investments, net of tax

 

17

 

 

 

(13

)

Total other comprehensive (income) loss, net of tax

 

4,028

 

 

 

(3,135

)

Total comprehensive loss

$

(1,344

)

 

$

(14,997

)

 

 

 

 

 

 

Net income (loss) attributable to Class A stockholders, basic

$

1,071

 

 

$

(6,072

)

Net income (loss) per Class A share, basic

$

0.02

 

 

$

(0.12

)

Weighted average Class A common stock, basic

 

61,560

 

 

 

50,456

 

Net income (loss) attributable to Class A stockholders, diluted

$

1,135

 

 

$

(6,072

)

Net income (loss) per Class A share, diluted

$

0.02

 

 

$

(0.12

)

Weighted average Class A common stock, diluted

 

67,921

 

 

 

50,456

 

 

 

 

 

 

 

Net income (loss) attributable to Class B stockholders, basic

$

1,613

 

 

$

(12,060

)

Net income (loss) per Class B share, basic

$

0.02

 

 

$

(0.12

)

Weighted average Class B common stock, basic

 

92,661

 

 

 

100,221

 

Net income (loss) attributable to Class B stockholders, diluted

$

1,549

 

 

$

(12,060

)

Net income (loss) per Class B share, diluted

$

0.02

 

 

$

(0.12

)

Weighted average Class B common stock, diluted

 

92,661

 

 

 

100,221

 

 

 

 

 

 

 


Vertex, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

 

 

Three months ended

 

March 31, 

(In thousands)

2024

 

2023

 

(unaudited)

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

$

2,684

 

 

$

(18,132

)

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

 

 

 

 

 

Depreciation and amortization

 

20,948

 

 

 

16,942

 

Amortization of cloud computing implementation costs

 

994

 

 

 

 

Provision for subscription cancellations and non-renewals

 

1,082

 

 

 

697

 

Amortization of deferred financing costs

 

146

 

 

 

63

 

Change in fair value of contingent consideration liabilities

 

(800

)

 

 

200

 

Stock-based compensation expense

 

16,324

 

 

 

11,434

 

Deferred income tax benefit

 

(2,588

)

 

 

(12,984

)

Non-cash operating lease costs

 

828

 

 

 

726

 

Other

 

(106

)

 

 

(4

)

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

4,478

 

 

 

(795

)

Prepaid expenses and other current assets

 

(7,335

)

 

 

(3,740

)

Deferred commissions

 

(64

)

 

 

(459

)

Accounts payable

 

(1,153

)

 

 

3,065

 

Accrued expenses

 

(8,486

)

 

 

17,578

 

Accrued and deferred compensation

 

(14,515

)

 

 

(12,452

)

Deferred revenue

 

11,177

 

 

 

4,352

 

Operating lease liabilities

 

(1,125

)

 

 

(1,309

)

Other

 

2,077

 

 

 

(1,691

)

Net cash provided by operating activities

 

24,566

 

 

 

3,491

 

Cash flows from investing activities:

 

 

 

 

 

Property and equipment additions

 

(14,449

)

 

 

(10,049

)

Capitalized software additions

 

(5,615

)

 

 

(4,007

)

Purchase of investment securities, available-for-sale

 

(4,271

)

 

 

(3,491

)

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

 

4,800

 

 

 

3,250

 

Net cash used in investing activities

 

(19,535

)

 

 

(14,297

)

Cash flows from financing activities:

 

 

 

 

 

Net increase in customer funds obligations

 

15,939

 

 

 

10,989

 

Principal payments on long-term debt

 

(625

)

 

 

(313

)

Payments for deferred financing costs

 

(89

)

 

 

 

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

 

(17,862

)

 

 

(3,681

)

Proceeds from exercise of stock options

 

1,510

 

 

 

1,490

 

Payments of finance lease liabilities

 

(26

)

 

 

(16

)

Payments for deferred purchase commitments

 

 

 

 

(10,000

)

Net cash used in financing activities

 

(1,153

)

 

 

(1,531

)

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

 

(349

)

 

 

204

 

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

 

3,529

 

 

 

(12,133

)

Cash, cash equivalents and restricted cash, beginning of period

 

89,151

 

 

 

106,748

 

Cash, cash equivalents and restricted cash, end of period

$

92,680

 

 

$

94,615

 

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

 

 

 

 

 

Cash and cash equivalents

$

56,134

 

 

$

68,643

 

Restricted cash—funds held for customers

 

36,546

 

 

 

25,972

 

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

$

92,680

 

 

$

94,615

 

 


Summary of Non-GAAP Financial Measures
(Unaudited)

 

 

 

 

Three months ended

 

March 31, 

(Dollars in thousands, except per share data)

2024

 

2023

Non-GAAP cost of revenues, software subscriptions

$

28,191

 

 

$

23,972

 

Non-GAAP cost of revenues, services

$

14,855

 

 

$

13,508

 

Non-GAAP gross profit

$

113,735

 

 

$

95,271

 

Non-GAAP gross margin

 

72.5

%

 

 

71.8

%

Non-GAAP research and development expense

$

13,472

 

 

$

13,628

 

Non-GAAP selling and marketing expense

$

35,674

 

 

$

32,072

 

Non-GAAP general and administrative expense

$

27,573

 

 

$

29,285

 

Non-GAAP operating income

$

31,737

 

 

$

16,461

 

Non-GAAP net income

$

23,431

 

 

$

12,524

 

Non-GAAP diluted EPS

$

0.15

 

 

$

0.08

 

Adjusted EBITDA

$

36,743

 

 

$

20,202

 

Adjusted EBITDA margin

 

23.4

%

 

 

15.2

%

Free cash flow

$

4,502

 

 

$

(10,565

)

Free cash flow margin

 

2.9

%

 

 

(8.0

)%

 

 

 

 

 

 

 

 


Vertex, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)

 

 

 

 

Three months ended

 

March 31, 

(Dollars in thousands)

2024

 

2023

Non-GAAP Cost of Revenues, Software Subscriptions:

 

 

 

 

 

 

 

Cost of revenues, software subscriptions

$

45,128

 

 

$

37,403

 

Stock-based compensation expense

 

(1,590

)

 

 

(996

)

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

 

(15,347

)

 

 

(12,435

)

Non-GAAP cost of revenues, software subscriptions

$

28,191

 

 

$

23,972

 

 

 

 

 

 

 

 

 

Non-GAAP Cost of Revenues, Services:

 

 

 

 

 

 

 

Cost of revenues, services

$

15,861

 

 

$

14,344

 

Stock-based compensation expense

 

(1,006

)

 

 

(836

)

Non-GAAP cost of revenues, services

$

14,855

 

 

$

13,508

 

 

 

 

 

 

 

 

 

Non-GAAP Gross Profit:

 

 

 

 

 

 

 

Gross profit

$

95,792

 

 

$

81,004

 

Stock-based compensation expense

 

2,596

 

 

 

1,832

 

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

 

15,347

 

 

 

12,435

 

Non-GAAP gross profit

$

113,735

 

 

$

95,271

 

 

 

 

 

 

 

 

 

Non-GAAP Gross Margin:

 

 

 

 

 

 

 

Total Revenues

$

156,781

 

 

$

132,751

 

Non-GAAP gross margin

 

72.5

%

 

 

71.8

%

 

 

 

 

 

 

 

 

Non-GAAP Research and Development Expense:

 

 

 

 

 

 

 

Research and development expense

$

16,845

 

 

$

15,862

 

Stock-based compensation expense

 

(3,373

)

 

 

(2,234

)

Non-GAAP research and development expense

$

13,472

 

 

$

13,628

 

 

 

 

 

 

 

 

 

Non-GAAP Selling and Marketing Expense:

 

 

 

 

 

 

 

Selling and marketing expense

$

40,491

 

 

$

35,736

 

Stock-based compensation expense

 

(4,222

)

 

 

(2,898

)

Amortization of acquired intangible assets – selling and marketing expense

 

(595

)

 

 

(766

)

Non-GAAP selling and marketing expense

$

35,674

 

 

$

32,072

 

 

 

 

 

 

 

 

 

Non-GAAP General and Administrative Expense:

 

 

 

 

 

 

 

General and administrative expense

$

35,542

 

 

$

34,310

 

Stock-based compensation expense

 

(6,133

)

 

 

(4,470

)

Severance expense

 

(842

)

 

 

(555

)

Amortization of cloud computing implementation costs – general and administrative

 

(994

)

 

 

 

Non-GAAP general and administrative expense

$

27,573

 

 

$

29,285

 

 

 

 

 

 

 

 

 


Vertex, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures (continued)
(Unaudited)

 

 

Three months ended

 

March 31, 

(In thousands, except per share data)

2024

 

2023

Non-GAAP Operating Income:

 

 

 

 

 

Loss from operations

$

(1,565

)

 

$

(8,929

)

Stock-based compensation expense

 

16,324

 

 

 

11,434

 

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

 

15,347

 

 

 

12,435

 

Amortization of acquired intangible assets – selling and marketing expense

 

595

 

 

 

766

 

Amortization of cloud computing implementation costs – general and administrative

 

994

 

 

 

 

Severance expense

 

842

 

 

 

555

 

Acquisition contingent consideration

 

(800

)

 

 

200

 

Non-GAAP operating income

$

31,737

 

 

$

16,461

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Income:

 

 

 

 

 

Net income (loss)

$

2,684

 

 

$

(18,132

)

Income tax (benefit) expense

 

(4,535

)

 

 

9,553

 

Stock-based compensation expense

 

16,324

 

 

 

11,434

 

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

 

15,347

 

 

 

12,435

 

Amortization of acquired intangible assets – selling and marketing expense

 

595

 

 

 

766

 

Amortization of cloud computing implementation costs – general and administrative

 

994

 

 

 

 

Severance expense

 

842

 

 

 

555

 

Acquisition contingent consideration

 

(800

)

 

 

200

 

Non-GAAP income before income taxes

 

31,451

 

 

 

16,811

 

Income tax adjustment at statutory rate (1)

 

(8,020

)

 

 

(4,287

)

Non-GAAP net income

$

23,431

 

 

$

12,524

 

 

 

 

 

 

 

Non-GAAP Diluted EPS:

 

 

 

 

 

Non-GAAP net income

$

23,431

 

 

$

12,524

 

Weighted average Class A and B common stock, diluted

 

160,582

 

 

 

158,881

 

Non-GAAP diluted EPS

$

0.15

 

 

$

0.08

 

(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

 

March 31, 

(Dollars in thousands)

2024

 

2023

Adjusted EBITDA:

 

 

 

 

 

 

 

Net income (loss)

$

2,684

 

 

$

(18,132

)

Interest expense (income), net

 

286

 

 

 

(350

)

Income tax (benefit) expense

 

(4,535

)

 

 

9,553

 

Depreciation and amortization – property and equipment

 

5,006

 

 

 

3,741

 

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

 

15,347

 

 

 

12,435

 

Amortization of acquired intangible assets – selling and marketing expense

 

595

 

 

 

766

 

Amortization of cloud computing implementation costs – general and administrative

 

994

 

 

 

 

Stock-based compensation expense

 

16,324

 

 

 

11,434

 

Severance expense

 

842

 

 

 

555

 

Acquisition contingent consideration

 

(800

)

 

 

200

 

Adjusted EBITDA

$

36,743

 

 

$

20,202

 

 

 

 

 

 

 

 

 

Adjusted EBITDA Margin:

 

 

 

 

 

 

 

Total revenues

$

156,781

 

 

$

132,751

 

Adjusted EBITDA margin

 

23.4

%

 

 

15.2

%

 

 

 

 

 

 

 

 


 

Three months ended

 

March 31, 

(Dollars in thousands)

2024

 

2023

Free Cash Flow:

 

 

 

 

 

 

 

Cash provided by operating activities

$

24,566

 

 

$

3,491

 

Property and equipment additions

 

(14,449

)

 

 

(10,049

)

Capitalized software additions

 

(5,615

)

 

 

(4,007

)

Free cash flow

$

4,502

 

 

$

(10,565

)

 

 

 

 

 

 

 

 

Free Cash Flow Margin:

 

 

 

 

 

 

 

Total revenues

$

156,781

 

 

$

132,751

 

Free cash flow margin

 

2.9

%

 

 

(8.0

)%

 

 

 

 

 

 

 

 

Investor Relations Contact:
Joe Crivelli
Vertex, Inc.
investors@vertexinc.com

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