VERX 8-K

Vertex, Inc. (VERX)

8-K 2020-09-09 For: 2020-09-09

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Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, $0.001 par value per share	VERX	The Nasdaq Stock Market LLC

Exhibit No.		Description

99.1		Press Release dated September 9, 2020.

	VERTEX, INC.

Date: September 9, 2020	By:	/s/ Bryan Rowland
	Name:	Bryan Rowland
	Title:	General Counsel and Secretary

	June 30,			December 31,
	2020				2019
Assets
Current assets:
Cash and cash equivalents	$	47,295		$	75,903
Funds held for customers		9,988			7,592
Accounts receivable, net of allowance of $7,669 (unaudited), and $7,515, respectively		63,739			70,367
Advances to stockholders		230			283
Prepaid expenses and other current assets		13,119			11,412
Total current assets		134,371			165,557
Property and equipment, net of accumulated depreciation		55,657			54,727
Capitalized software, net of accumulated amortization		33,761			32,075
Goodwill		19,355			—
Deferred commissions		10,390			11,196
Deposits and other assets		4,956			1,068
Total assets	$	258,490		$	264,623
Liabilities and Equity
Current liabilities:
Current portion of long-term debt	$	649		$	50,804
Accounts payable		13,769			10,729
Accrued expenses		11,961			13,308
Distributions payable		—			13,183
Customer funds obligations		10,175			7,553
Accrued salaries and benefits		19,825			15,195
Accrued variable compensation		11,025			22,237
Deferred compensation, current		22,349			8,935
Deferred revenue		187,041			191,745
Deferred rent and other		917			840
Future acquisition commitment, current		808			—
Total current liabilities		278,519			334,529
Deferred compensation, net of current portion		77,505			18,530
Deferred revenue, net of current portion		11,396			14,046
Long-term debt, net of current portion		173,361			682
Future acquisition commitment, net of current portion		9,831			—
Deferred other liabilities		8,865			9,268
Total liabilities		559,477			377,055
Commitments and contingencies
Options for redeemable shares		47,223			17,344
Stockholders' deficit:
Class A voting common stock, $0.001 par value, 600 shares authorized, 300 shares issued, 147 shares outstanding		—			—
Class B non-voting common stock, $0.001 par value, 299,400 shares authorized, 162,470 (unaudited), and 162,297 shares issued, respectively, 120,443 (unaudited) and 120,270 shares outstanding, respectively		54			54
Accumulated deficit		(305,861)			(90,701	)
Accumulated other comprehensive loss		(3,765)			(491	)
Treasury stock		(38,638)			(38,638	)
Total stockholders' deficit		(348,210	)		(129,776	)
Total liabilities and equity	$	258,490		$	264,623


	Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019
Revenues:
Software subscriptions	$	77,306		$	67,267		$	153,066		$	131,651
Services		13,965			11,108			27,450			21,338
Total revenues		91,271			78,375			180,516			152,989
Cost of revenues:
Software subscriptions		26,001			19,417			50,685			37,843
Services		15,744			7,692			30,522			14,830
Total cost of revenues		41,745			27,109			81,207			52,673
Gross profit		49,526			51,266			99,309			100,316
Operating expenses:
Research and development		13,617			7,205			26,696			14,778
Selling and marketing		24,544			17,287			48,877			33.334
General and administrative		37,758			16,647			75,394			32,095
Depreciation and amortization		2,505			2,172			5,374			4,217
Other operating expense, net		103			305			214			468
Total operating expenses		78,527			43,616			156,555			84,892
Income (loss) from operations		(29,001	)		7,650			(57,246)			15,424
Other (income) expense:
Interest income		(101	)		(232	)		(456	)		(524	)
Interest expense		1,160			539			2,084			1,076
Total other expense, net		1,059			307			1,628			552
Income (loss) before income taxes		(30,060	)		7,343			(58,874	)		14,872
Income tax (benefit) expense		(985	)		221			(735	)		425
Net income (loss)		(29,075	)		7,122			(58,139	)		14,447
Other comprehensive loss from foreign currency translation adjustments and revaluations, net of tax		276			23			3,274			2
Total comprehensive income (loss)	$	(29,351	)	$	7,099		$	(61,413	)	$	14,445
Net income (loss) attributable to Class A stockholders	$	(35)		$	9		$	(70	)	$	18
Net income (loss) per Class A share, basic and diluted	$	(0.24	)	$	0.06		$	(0.48	)	$	0.12
Weighted average Class A common stock, basic and diluted		147			147			147			147
Net income (loss) attributable to Class B stockholders	$	(29,040	)	$	7,113			(58,069	)	$	14,429
Net income (loss) per Class B share, basic	$	(0.24)		$	0.06		$	(0.48	)	$	0.12
Weighted average common Class B stock, basic		120,402			120,443			120,336			120,357
Net income (loss) per Class B share, diluted	$	(0.24	)	$	0.06		$	(0.48	)	$	0.12
Weighted average common Class B stock, diluted		120,402			124,158			120,336			124,169

	·	Non-GAAP gross margin is determined by adding back to GAAP gross margin the impact of stock-based compensation expense and depreciation and amortization of capitalized software costs included in cost of revenues as a percentage of revenue for the respective periods.

	·	Non-GAAP research and development expense, non-GAAP selling and marketing expense and non-GAAP general and administrative expenses are determined by adding back to GAAP research and development expense, GAAP selling and marketing expense and GAAP general and administrative expense, the stock-based compensation expense and severance expense included in the applicable expense categories for the respective periods.

	·	Non-GAAP net income is determined by adding back to GAAP net income (loss) the depreciation and amortization of capitalized software costs, stock-based compensation expense, and severance costs included for the respective periods.

	·	Non-GAAP net income per diluted share of Class A and Class B share is determined by dividing non-GAAP net income by the respective weighted average shares outstanding, inclusive of the impact of options to purchase such common stock, for each class of stock.

	·	Adjusted EBITDA is determined by adding back to GAAP net income (loss) the net interest expense, taxes, depreciation and amortization of property and equipment and capitalized software costs, stock-based compensation expense, severance cost and IPO costs included 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 cash used for purchases of property and equipment and capitalized software additions for the respective periods.

		Six Months Ended June 30,
		2020		2019
Cash flows from operating activities:
Net income (loss)	$	(58,139	)		$	14,447
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		15,416				12,154
Provision for subscription cancellations and non-renewals		154				(682		)
Amortization of deferred financing costs		428				133
Stock-based compensation expense		76,596				2,620
Other		14				44
Changes in operating assets and liabilities:
Accounts receivable		7,093					14,626
Advances to stockholders		53					79
Prepaid expenses and other current assets		(1,717	)				(1,583	)
Deferred commissions		807					71
Accounts payable		2,911					(1,212	)
Accrued expenses		(1,481	)				445
Accrued and deferred compensation		(10,804	)				(9,084)
Deferred revenue		(7,353	)				647
Other		(3,222	)				590
Net cash provided by operating activities		20,756					32,850
Cash flows from investing activities:
Acquisition of business, net of cash acquired		(12,318	)				—
Property and equipment additions		(10,565	)				(8,271	)
Capitalized software additions		(7,264	)				(8,101	)
Net cash used in investing activities		(30,147	)				(16,372	)
Cash flows from financing activities:
Net increase in customer funds obligations		2,622					702
Proceeds from line of credit		12,500					—
Principal payments on line of credit		(12,500	)				—
Proceeds from long-term debt		175,000					—
Principal payments on long-term debt		(51,009	)				(3,112	)
Payments for deferred financing costs		(2,904	)				—
Proceeds from exercise of stock options		52					68
Distributions to stockholders		(140,378	)				(22,252	)
Net cash used in financing activities		(16,617)					(24,594	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(204	)				(2	)
Net decrease in cash, cash equivalents and restricted cash		(26,212)					(8,118	)
Cash, cash equivalents and restricted cash, beginning of period		83,495					59,174
Cash, cash equivalents and restricted cash, end of period	$	57,283			$		51,056
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets, end of period:
Cash and cash equivalents	$	47,295			$		47,018
Restricted cash—funds held for customers		9,988					4,038
Total cash, cash equivalents and restricted cash, end of period	$	57,283			$		51,056


	For the Three Months Ended June 30						For the Six Months Ended June 30
(dollars in thousands)	2020			2019			2020			2019
Non-GAAP cost of revenues, software subscriptions	$	16,358		$	15,278		$	32,983		$	29,644
Non-GAAP cost of revenues, services	$	9,493		$	7,495		$	19,033		$	14,436
Non-GAAP gross profit	$	65,420		$	55,602		$	128,500		$	108,909
Non-GAAP gross margin		71.7	%		70.9	%		71.2	%		71.2	%
Non-GAAP research and development expense	$	9,449		$	7,074		$	19,036		$	14,516
Non-GAAP selling and marketing expense	$	16,209		$	17,025		$	33,558		$	32,811
Non-GAAP general and administrative expense	$	18,145		$	15,649		$	38,884		$	29,969
Non-GAAP operating income	$	19,009		$	13,377		$	31,434		$	26,928
Non-GAAP net income	$	18,935		$	12,849		$	30,541		$	25,951
Adjusted EBITDA	$	21,514		$	15,549		$	36,808		$	31,145
Adjusted EBITDA margin		23.6	%		19.8	%		20.4	%		20.4	%
Free cash flow	$	18,682		$	14,694		$	2,927		$	16,478
Free cash flow margin		20.5	%		18.8	%		1.6	%		10.8	%

	For the Three Months Ended June 30,						For the Six Months Ended June 30
	2020			2019			2020			2019
(dollars in thousands)	(unaudited)
Net income (loss)	$	(29,075	)	$	7,122		$	(58,139	)	$	14,447
Interest, net		1,059			307			1,628			552
Income tax (benefit) expense		(985	)		221			(735	)		425
Depreciation and amortization – cost of subscription revenues		5,475			4,008			10,042			7,937
Depreciation and amortization		2,505			2,172			5,374			4,217
Stock-based compensation		41,676			1,310			76,596			2,620
Severance charges		859			409			2,042			947
Adjusted EBITDA	$	21,514		$	15,549		$	36,808		$	31,145
Adjusted EBITDA Margin:
Total revenues	$	91,271		$	78,375		$	180,516		$	152,989
Adjusted EBITDA margin		23.6	%		19.8	%		20.4	%		20.4	%