8-K
Vertex, Inc. (VERX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest eventreported): September 9, 2020
VERTEX,INC. ****
(Exact name of registrant as specifiedin its charter)
| Delaware | 001-39413 | 23-2081753 |
|---|---|---|
| (State or other jurisdiction<br><br> <br>of incorporation or organization) | (Commission<br><br> <br>File Number) | (I.R.S. Employer<br><br> <br>Identification No.) |
2301 Renaissance Blvd.King of Prussia, Pennsylvania 19406
(Address of principal executive offices)(Zip Code)
(800) 355-3500
(Registrant’s telephone number,include area code)
N/A
(Former Name or Former Address, if ChangedSince Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Class A common<br> stock, $0.001 par value per share | VERX | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company þ
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02. Results of Operations and Financial Condition.
On September 9, 2020, Vertex, Inc. (the “Company”) issued a press release announcing its financial results for the quarter ended June 30, 2020. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information contained in this Item 2.02, including Exhibit 99.1 hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing made by the Company under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filings, unless expressly incorporated by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
The following exhibit relating to Item 2.02 shall be deemed to be furnished, and not filed:
| Exhibit<br><br>No. | Description |
|---|---|
| 99.1 | Press Release dated September 9, 2020. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| VERTEX, INC. | ||
|---|---|---|
| Date: September 9, 2020 | By: | /s/ Bryan Rowland |
| Name: | Bryan Rowland | |
| Title: | General Counsel and Secretary |
Exhibit 99.1
VertexAnnounces Second Quarter 2020 Financial Results
KING OF PRUSSIA, PA – September 9, 2020: Vertex, Inc. (Nasdaq: VERX) (“Vertex” or the “Company”), a leading provider of tax technology and services, today announced financial results for its second quarter ended June 30, 2020.
“We are pleased with our strong second quarter performance, driven by revenue growth of 16.5% and ARR growth of 16.4% versus the prior year period,” said David DeStefano, Chairperson and Chief Executive Officer of Vertex. “We’ve also been able to effectively balance our commitment to growth and innovation with profitability by delivering adjusted net income growth of 47.4% to $18.9 million and Adjusted EBITDA margin of 23.6%, an increase of 380 basis points, compared to the second quarter of 2019.”
DeStefano continued, “The rapid changes taking place in today's global business, technology and regulatory environments are having a compounded effect on the complexity of indirect tax management, giving us significant growth opportunity. Our recent performance speaks to the trust our customers have in us to help them continue to transact, comply and grow with confidence. Our recent IPO was a significant milestone for us. Although we are very proud of all that we have achieved so far, we are more excited that this is just the next step forward in our vision to accelerate global commerce.”
Second Quarter 2020 Financial Results
| · | Total<br> revenue of $91.3 million, up 16.5% year-over-year. |
|---|---|
| · | Software<br> subscription revenue of $77.3 million, up 14.9% year-over-year. |
| --- | --- |
| · | Annual<br> Recurring Revenue (“ARR”) of $294.6 million, up 16.4% year-over-year. |
| --- | --- |
| · | Net<br> Revenue Retention Rate (“NRR”) was 108%, which was consistent on a year-over-year<br> basis. |
| --- | --- |
| · | GAAP<br> operating loss of $29.0 million, compared to GAAP operating income of $7.7 million for<br> the same period last year. Non-GAAP operating income of $19.0 million, compared to non-GAAP<br> operating income of $13.4 million for the same period last year. |
| --- | --- |
| · | GAAP<br> net loss was $29.1 million, compared to a GAAP net income of $7.1 million for the same<br> period last year. GAAP net loss per basic and diluted Class A and Class B share was $(0.24),<br> compared to a GAAP net income per basic and diluted Class A and Class B share of $0.06<br> for the same period last year. |
| --- | --- |
| · | Non-GAAP<br> net income was $18.9 million, compared to a Non-GAAP net income of $12.8 million for<br> the same period last year. Non-GAAP net income per diluted Class A share was $0.16 as<br> compared to $0.11 for the same period last year. Non-GAAP net income per diluted Class<br> B share was $0.15 as compared to $0.10 for the same period last year. |
| --- | --- |
| · | Adjusted<br> EBITDA of $21.5 million, up 38.4% year-over-year. Adjusted EBITDA margin of 23.6%, an<br> increase of 380 basis points year-over-year. |
| --- | --- |
| · | Cash<br> flow from operations for the second quarter of 2020 was $27.2 million as compared to<br> $23.0 million for the same period in 2019. Free cash flow for the second quarter of 2020<br> was $18.7 million, up 27.1% year-over-year. |
| --- | --- |
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Definitions of the non-GAAP financial measures used in this press release and reconciliations of such measures to their nearest GAAP equivalents is included below under the heading “Use and Reconciliation of Non-GAAP Financial Measures.”
Recent Business Highlights
| · | In<br> July 2020, Vertex completed its initial public offering (“IPO”) of its stock<br> at a price of $19.00 per share and issued 24.3 million shares, including 3.2 million<br> shares issued pursuant to the full exercise of the underwriters' option to purchase additional<br> shares. The IPO raised proceeds net of underwriting fees of approximately $423.0 million<br> for Vertex. |
|---|
Financial Outlook
For the third quarter of 2020, the Company currently expects:
| · | Total<br> revenue in the range of $89 million to $91 million, representing growth of 8.0% to 10.4%. |
|---|---|
| · | Adjusted<br> EBITDA in the range of $17.5 million to $18.5 million, representing a decrease of 10.7%<br> to 5.6%. |
| --- | --- |
For the full year 2020, the Company currently expects:
| · | Total<br> revenue in the range of $362 million to $365 million, representing annual growth of 12.6%<br> to 13.5%. |
|---|---|
| · | Adjusted<br> EBITDA in the range of $73 million to $75 million, representing annual growth of 7.5%<br> to 10.5%. |
| --- | --- |
Certain non-GAAP measures included in our financial outlook were not reconciled to the comparable GAAP financial measures because the GAAP measures are not accessible on a forward-looking basis. The company is unable to reconcile these forward looking non-GAAP financial measures to the most directly comparable GAAP measures 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 GAAP measures for these periods but would not impact the non-GAAP measures. Such items may include stock-based compensation charges, public offering related charges, depreciation and amortization of capitalized software costs and acquired intangible assets, severance, IPO costs and other items. The unavailable information could have a significant impact on the Company’s GAAP financial results.
The foregoing forward-looking statements reflect Vertex’s expectations as of today's date. Given the number of risk factors, uncertainties and assumptions discussed below, actual results may differ materially. Vertex does not intend to update its financial outlook until its next quarterly results announcement.
Important disclosures in this earnings release about and reconciliations of historical and forward-looking non-GAAP measures to the nearest corresponding GAAP measures are provided below under “Use and Reconciliation of Non-GAAP Financial Measures.”
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Conference Call and Webcast Information
Vertex will host a conference call to discuss the second quarter 2020 financial results on September 9, 2020 at 8:30 a.m. ET. The conference call can be accessed live over the phone by dialing 1-877-407-4018, or for international callers 1-201-689-8471. A replay will be available from 11:30 a.m. ET on September 9, 2020, through September 23, 2020, by dialing 1-844-512-2921, or for international callers 1-412-317-6671. The replay passcode will be 13709057.
The call will also be webcast live from Vertex’s investor relations website at https://ir.vertexinc.com. Following the completion of the call, a recorded replay of the webcast will be available on the website.
About Vertex
Vertex, Inc. is a leading global provider of indirect tax software and 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 cloud-based and on-premise solutions that can be tailored to specific industries for every major line 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 1,100 professionals and serves companies across the globe. More information can be found at www.vertexinc.com.
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: potential effects on our business of the COVID-19 pandemic; our ability to attract new customers on a cost-effective basis and the extent to which existing customers renew and upgrade their subscriptions; our ability to sustain and expand revenues, maintain profitability, and to effectively manage our anticipated growth; our ability to maintain and expand our strategic relationships with third parties; and the other factors described under the heading “Risk Factors” of our final prospectus filed with the Securities and Exchange Commission (“SEC”) on July 30, 2020, in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (once available) and the Company’s subsequent filings with the SEC. Copies of each filing 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.
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Definitions of Certain Key BusinessMetrics
Annual Recurring Revenue
We derive the vast majority of our revenue from recurring software subscriptions. We believe ARR provides us with visibility to our projected software subscription revenue in order to evaluate the health of our business. Because we recognize subscription revenue 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 calculated based on monthly recurring revenue (“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 customers with MRR at the end of the last month of the measurement period.
Net Revenue Retention Rate
We believe that our NRR provides insight into our ability to retain and grow revenue from our 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 customers who were part of our customer base at the beginning of the reporting period. Our NRR calculation takes into account any revenue lost from departing customers or customers who have downgraded as well as any revenue expansion from upgrades, cross sells or upsells of our software.
Use and Reconciliation of Non-GAAP FinancialMeasures
In addition to our results determined in accordance with GAAP, 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 net income per share, Adjusted EBITDA, Adjusted EBITDA margin, free cash flow and free cash flow margin, each of which are non-GAAP financial measures. We have provided tabular reconciliations of each of these non-GAAP financial measures to such measure’s 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 financial statements included in our Quarterly Report on Form 10-Q to be filed with the SEC.
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We calculate these non-GAAP financial measures as follows:
| · | Non-GAAP<br> cost of revenues, software subscriptions is determined by adding back to GAAP cost of<br> revenues, software subscriptions, the stock-based compensation expense and depreciation<br> and amortization of capitalized software costs, for the respective periods. |
|---|---|
| · | Non-GAAP<br> cost of revenues, services is determined by adding back to GAAP cost of revenues, services,<br> the stock-based compensation expense for the respective periods. |
| --- | --- |
| · | Non-GAAP<br> gross profit is determined by adding back to GAAP gross profit the stock-based compensation<br> expense and the depreciation and amortization of capitalized software costs included<br> in cost of revenue for the respective periods. |
| --- | --- |
| · | Non-GAAP<br> gross margin is determined by adding back to GAAP gross margin the impact of stock-based<br> compensation expense and depreciation and amortization of capitalized software costs<br> included in cost of revenues as a percentage of revenue for the respective periods. |
| --- | --- |
| · | Non-GAAP<br> research and development expense, non-GAAP selling and marketing expense and non-GAAP<br> general and administrative expenses are determined by adding back to GAAP research and<br> development expense, GAAP selling and marketing expense and GAAP general and administrative<br> expense, the stock-based compensation expense and severance expense included in the applicable<br> expense categories for the respective periods. |
| --- | --- |
| · | Non-GAAP<br> operating income is determined by adding back to GAAP operating income (loss) the stock-based<br> compensation expense, depreciation and amortization of capitalized software costs, and<br> severance costs included for the respective periods. |
| --- | --- |
| · | Non-GAAP<br> net income is determined by adding back to GAAP net income (loss) the depreciation and<br> amortization of capitalized software costs, stock-based compensation expense, and severance<br> costs included for the respective periods. |
| --- | --- |
| · | Non-GAAP<br> net income per diluted share of Class A and Class B share is determined by dividing non-GAAP<br> net income by the respective weighted average shares outstanding, inclusive of the impact<br> of options to purchase such common stock, for each class of stock. |
| --- | --- |
| · | Adjusted<br> EBITDA is determined by adding back to GAAP net income (loss) the net interest expense,<br> taxes, depreciation and amortization of property and equipment and capitalized software<br> costs, stock-based compensation expense, severance cost and IPO costs included for the<br> respective periods. |
| --- | --- |
| · | Adjusted<br> EBITDA margin is determined by dividing Adjusted EBITDA by total revenues for the respective<br> periods. |
| --- | --- |
| · | Free<br> cash flow is determined by adjusting net cash provided by (used in) operating activities<br> by cash used for purchases of property and equipment and capitalized software additions<br> for the respective periods. |
| --- | --- |
| · | Free<br> cash flow margin is determined by dividing free cash flow by total revenues for the respective<br> 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.
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Vertex, Inc.
Condensed Consolidated Balance Sheets
As of December 31, 2019 and June 30,2020 (unaudited)
(Amounts in thousands)
| December 31, | |||||
|---|---|---|---|---|---|
| 2019 | |||||
| Assets | |||||
| Current<br> assets: | |||||
| Cash<br> and cash equivalents | 47,295 | $ | 75,903 | ||
| Funds<br> held for customers | 9,988 | 7,592 | |||
| Accounts<br> receivable, net of allowance of 7,669 (unaudited), and 7,515, respectively | 63,739 | 70,367 | |||
| Advances<br> to stockholders | 230 | 283 | |||
| Prepaid<br> expenses and other current assets | 13,119 | 11,412 | |||
| Total<br> current assets | 134,371 | 165,557 | |||
| Property<br> and equipment, net of accumulated depreciation | 55,657 | 54,727 | |||
| Capitalized<br> software, net of accumulated amortization | 33,761 | 32,075 | |||
| Goodwill | 19,355 | — | |||
| Deferred<br> commissions | 10,390 | 11,196 | |||
| Deposits<br> and other assets | 4,956 | 1,068 | |||
| Total<br> assets | 258,490 | $ | 264,623 | ||
| Liabilities<br> and Equity | |||||
| Current<br> liabilities: | |||||
| Current<br> portion of long-term debt | 649 | $ | 50,804 | ||
| Accounts<br> payable | 13,769 | 10,729 | |||
| Accrued<br> expenses | 11,961 | 13,308 | |||
| Distributions<br> payable | — | 13,183 | |||
| Customer<br> funds obligations | 10,175 | 7,553 | |||
| Accrued<br> salaries and benefits | 19,825 | 15,195 | |||
| Accrued<br> variable compensation | 11,025 | 22,237 | |||
| Deferred<br> compensation, current | 22,349 | 8,935 | |||
| Deferred<br> revenue | 187,041 | 191,745 | |||
| Deferred<br> rent and other | 917 | 840 | |||
| Future<br> acquisition commitment, current | 808 | — | |||
| Total<br> current liabilities | 278,519 | 334,529 | |||
| Deferred<br> compensation, net of current portion | 77,505 | 18,530 | |||
| Deferred<br> revenue, net of current portion | 11,396 | 14,046 | |||
| Long-term<br> debt, net of current portion | 173,361 | 682 | |||
| Future<br> acquisition commitment, net of current portion | 9,831 | — | |||
| Deferred<br> other liabilities | 8,865 | 9,268 | |||
| Total<br> liabilities | 559,477 | 377,055 | |||
| Commitments<br>and contingencies | |||||
| Options<br> for redeemable shares | 47,223 | 17,344 | |||
| Stockholders'<br> deficit: | |||||
| Class A<br> voting common stock, 0.001 par value, 600 shares authorized, 300 shares issued, 147 shares outstanding | — | — | |||
| Class B<br> non-voting common stock, 0.001 par value, 299,400 shares authorized, 162,470 (unaudited), and 162,297 shares issued, respectively,<br> 120,443 (unaudited) and 120,270 shares outstanding, respectively | 54 | 54 | |||
| Accumulated<br> deficit | (305,861) | (90,701 | ) | ||
| Accumulated<br> other comprehensive loss | (3,765) | (491 | ) | ||
| Treasury<br> stock | (38,638) | (38,638 | ) | ||
| Total<br> stockholders' deficit | (348,210 | ) | (129,776 | ) | |
| Total<br> liabilities and equity | 258,490 | $ | 264,623 |
All values are in US Dollars.
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Vertex, Inc.
Condensed Consolidated Statements ofComprehensive Income (Loss)
For the three and six months ended June30, 2019 and 2020 (unaudited)
(Amounts in thousands, except per sharedata)
| Three months ended June 30, | Six months<br><br> <br>ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||||||
| Revenues: | ||||||||||||
| Software<br> subscriptions | $ | 77,306 | $ | 67,267 | $ | 153,066 | $ | 131,651 | ||||
| Services | 13,965 | 11,108 | 27,450 | 21,338 | ||||||||
| Total<br> revenues | 91,271 | 78,375 | 180,516 | 152,989 | ||||||||
| Cost<br> of revenues: | ||||||||||||
| Software<br> subscriptions | 26,001 | 19,417 | 50,685 | 37,843 | ||||||||
| Services | 15,744 | 7,692 | 30,522 | 14,830 | ||||||||
| Total<br> cost of revenues | 41,745 | 27,109 | 81,207 | 52,673 | ||||||||
| Gross<br> profit | 49,526 | 51,266 | 99,309 | 100,316 | ||||||||
| Operating<br> expenses: | ||||||||||||
| Research<br> and development | 13,617 | 7,205 | 26,696 | 14,778 | ||||||||
| Selling<br> and marketing | 24,544 | 17,287 | 48,877 | 33.334 | ||||||||
| General<br> and administrative | 37,758 | 16,647 | 75,394 | 32,095 | ||||||||
| Depreciation<br> and amortization | 2,505 | 2,172 | 5,374 | 4,217 | ||||||||
| Other<br> operating expense, net | 103 | 305 | 214 | 468 | ||||||||
| Total<br> operating expenses | 78,527 | 43,616 | 156,555 | 84,892 | ||||||||
| Income<br> (loss) from operations | (29,001 | ) | 7,650 | (57,246) | 15,424 | |||||||
| Other<br> (income) expense: | ||||||||||||
| Interest<br> income | (101 | ) | (232 | ) | (456 | ) | (524 | ) | ||||
| Interest<br> expense | 1,160 | 539 | 2,084 | 1,076 | ||||||||
| Total<br> other expense, net | 1,059 | 307 | 1,628 | 552 | ||||||||
| Income<br> (loss) before income taxes | (30,060 | ) | 7,343 | (58,874 | ) | 14,872 | ||||||
| Income<br> tax (benefit) expense | (985 | ) | 221 | (735 | ) | 425 | ||||||
| Net<br> income (loss) | (29,075 | ) | 7,122 | (58,139 | ) | 14,447 | ||||||
| Other<br> comprehensive loss from foreign currency translation adjustments and revaluations, net of tax | 276 | 23 | 3,274 | 2 | ||||||||
| Total<br> comprehensive income (loss) | $ | (29,351 | ) | $ | 7,099 | $ | (61,413 | ) | $ | 14,445 | ||
| Net<br> income (loss) attributable to Class A stockholders | $ | (35) | $ | 9 | $ | (70 | ) | $ | 18 | |||
| Net<br> income (loss) per Class A share, basic and diluted | $ | (0.24 | ) | $ | 0.06 | $ | (0.48 | ) | $ | 0.12 | ||
| Weighted<br> average Class A common stock, basic and diluted | 147 | 147 | 147 | 147 | ||||||||
| Net<br> income (loss) attributable to Class B stockholders | $ | (29,040 | ) | $ | 7,113 | (58,069 | ) | $ | 14,429 | |||
| Net<br> income (loss) per Class B share, basic | $ | (0.24) | $ | 0.06 | $ | (0.48 | ) | $ | 0.12 | |||
| Weighted<br> average common Class B stock, basic | 120,402 | 120,443 | 120,336 | 120,357 | ||||||||
| Net<br> income (loss) per Class B share, diluted | $ | (0.24 | ) | $ | 0.06 | $ | (0.48 | ) | $ | 0.12 | ||
| Weighted<br> average common Class B stock, diluted | 120,402 | 124,158 | 120,336 | 124,169 |
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Vertex, Inc.
Condensed Consolidated Statements ofCash Flows
For the six months ended June 30, 2019and 2020 (unaudited)
(Amounts in thousands)
| Six Months Ended<br><br> <br>June 30, | |||||||
|---|---|---|---|---|---|---|---|
| 2020 | 2019 | ||||||
| Cash<br> flows from operating activities: | |||||||
| Net<br> income (loss) | $ | (58,139 | ) | ||||
| Adjustments<br> to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||
| Depreciation<br> and amortization | 15,416 | ||||||
| Provision<br> for subscription cancellations and non-renewals | 154 | ) | |||||
| Amortization<br> of deferred financing costs | 428 | ||||||
| Stock-based<br> compensation expense | 76,596 | ||||||
| Other | 14 | ||||||
| Changes<br> in operating assets and liabilities: | |||||||
| Accounts<br> receivable | 7,093 | 14,626 | |||||
| Advances<br> to stockholders | 53 | 79 | |||||
| Prepaid<br> expenses and other current assets | (1,717 | ) | (1,583 | ) | |||
| Deferred<br> commissions | 807 | 71 | |||||
| Accounts<br> payable | 2,911 | (1,212 | ) | ||||
| Accrued<br> expenses | (1,481 | ) | 445 | ||||
| Accrued<br> and deferred compensation | (10,804 | ) | (9,084) | ||||
| Deferred<br> revenue | (7,353 | ) | 647 | ||||
| Other | (3,222 | ) | 590 | ||||
| Net<br> cash provided by operating activities | 20,756 | 32,850 | |||||
| Cash<br> flows from investing activities: | |||||||
| Acquisition<br> of business, net of cash acquired | (12,318 | ) | — | ||||
| Property<br> and equipment additions | (10,565 | ) | (8,271 | ) | |||
| Capitalized<br> software additions | (7,264 | ) | (8,101 | ) | |||
| Net<br> cash used in investing activities | (30,147 | ) | (16,372 | ) | |||
| Cash<br> flows from financing activities: | |||||||
| Net<br> increase in customer funds obligations | 2,622 | 702 | |||||
| Proceeds<br> from line of credit | 12,500 | — | |||||
| Principal<br> payments on line of credit | (12,500 | ) | — | ||||
| Proceeds<br> from long-term debt | 175,000 | — | |||||
| Principal<br> payments on long-term debt | (51,009 | ) | (3,112 | ) | |||
| Payments<br> for deferred financing costs | (2,904 | ) | — | ||||
| Proceeds<br> from exercise of stock options | 52 | 68 | |||||
| Distributions<br> to stockholders | (140,378 | ) | (22,252 | ) | |||
| Net<br> cash used in financing activities | (16,617) | (24,594 | ) | ||||
| Effect<br> of exchange rate changes on cash, cash equivalents and restricted cash | (204 | ) | (2 | ) | |||
| Net<br> decrease in cash, cash equivalents and restricted cash | (26,212) | (8,118 | ) | ||||
| Cash,<br> cash equivalents and restricted cash, beginning of period | 83,495 | 59,174 | |||||
| Cash,<br> cash equivalents and restricted cash, end of period | $ | 57,283 | 51,056 | ||||
| Reconciliation<br> of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets, end of period: | |||||||
| Cash<br> and cash equivalents | $ | 47,295 | 47,018 | ||||
| Restricted<br> cash—funds held for customers | 9,988 | 4,038 | |||||
| Total<br> cash, cash equivalents and restricted cash, end of period | $ | 57,283 | 51,056 |
All values are in US Dollars.
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Vertex, Inc.
Reconciliation of GAAP to Non-GAAP Measures
For the three and six months ended June 30, 2019 and 2020 (unaudited) (Amounts in thousands)
| For<br> the Three Months <br><br> Ended June 30 | For<br> the Six Months <br><br> 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<br> the Three Months <br><br> Ended June 30 | For<br> the Six Months<br><br> Ended June 30 | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (dollars in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||
| Non-GAAP Cost of Revenue: | ||||||||||||
| Cost of revenues, software subscriptions | $ | 26,001 | $ | 19,417 | $ | 50,685 | $ | 37,843 | ||||
| Stock-based compensation | (4,168 | ) | (131 | ) | (7,660 | ) | (262 | ) | ||||
| Depreciation and amortization - cost of subscription<br> revenues | (5,475 | ) | (4,008 | ) | (10,042 | ) | (7,937 | ) | ||||
| Non-GAAP cost of revenues, software subscriptions | $ | 16,358 | $ | 15,278 | $ | 32,983 | $ | 29,644 | ||||
| Cost of revenues, services | $ | 15,744 | $ | 7,692 | $ | 30,522 | $ | 14,830 | ||||
| Stock-based compensation | (6,251 | ) | (197 | ) | (11,489 | ) | (394 | ) | ||||
| Non-GAAP cost of revenues, services | $ | 9,493 | $ | 7,495 | $ | 19,033 | $ | 14,436 | ||||
| Non-GAAP Gross Profit: | ||||||||||||
| Gross Profit | $ | 49,526 | $ | 51,266 | $ | 99,309 | $ | 100,316 | ||||
| Stock-based compensation | 10,419 | 328 | 19,149 | 656 | ||||||||
| Depreciation and amortization of capitalized software | 5,475 | 4,008 | 10,042 | 7,937 | ||||||||
| Non-GAAP gross profit | $ | 65,420 | $ | 55,602 | $ | 128,500 | $ | 108,909 | ||||
| Non-GAAP Gross Margin: | ||||||||||||
| Gross margin | 54.3 | % | 65.4 | % | 55.0 | % | 65.6 | % | ||||
| Stock-based compensation as a percentage of revenue | 11.4 | % | 0.4 | % | 10.6 | % | 0.4 | % | ||||
| Depreciation and amortization - cost of subscription<br> revenues as a percentage of revenue | 6.0 | % | 5.1 | % | 5.6 | % | 5.2 | % | ||||
| Non-GAAP gross margin | 71.7 | % | 70.9 | % | 71.2 | % | 71.2 | % | ||||
| Non-GAAP Research and Development Expense: | ||||||||||||
| Research and development | $ | 13,617 | $ | 7,205 | $ | 26,696 | $ | 14,778 | ||||
| Stock-based compensation | (4,168 | ) | (131 | ) | (7,660 | ) | (262 | ) | ||||
| Non-GAAP research and development expense | $ | 9,449 | $ | 7,074 | $ | 19,036 | $ | 14,516 | ||||
| Non-GAAP Selling and Marketing Expense: | ||||||||||||
| Selling and marketing | $ | 24,544 | $ | 17,287 | $ | 48,877 | $ | 33,334 | ||||
| Stock-based compensation | (8,335 | ) | (262 | ) | (15,319 | ) | (523 | ) | ||||
| Non-GAAP selling and marketing | $ | 16,209 | $ | 17,025 | $ | 33,558 | $ | 32,811 | ||||
| Non-GAAP General and Administrative Expense: | ||||||||||||
| General and administrative | $ | 37,758 | $ | 16,647 | $ | 75,394 | $ | 32,095 | ||||
| Stock-based compensation | (18,754 | ) | (589 | ) | (34,468 | ) | (1,179 | ) | ||||
| Severance charges | (859 | ) | (409 | ) | (2,042 | ) | (947 | ) | ||||
| Non-GAAP general and administrative | $ | 18,145 | $ | 15,649 | $ | 38,884 | $ | 29,969 |
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| For<br> the Three Months <br><br> Ended June 30 | For<br> the Six Months <br><br> Ended June 30 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||
| Non-GAAP Operating Income: | ||||||||||
| Operating income (loss) | $ | (29,001 | ) | $ | 7,650 | $ | (57,246 | ) | $ | 15,424 |
| Stock-based compensation | 41,676 | 1,310 | 76,596 | 2,620 | ||||||
| Severance expense | 859 | 409 | 2,042 | 947 | ||||||
| Depreciation and amortization - cost of subscription<br> revenues | 5,475 | 4,008 | 10,042 | 7,937 | ||||||
| Non-GAAP operating income | $ | 19,009 | $ | 13,377 | $ | 31,434 | $ | 26,928 | ||
| Non-GAAP Net Income (Loss): | ||||||||||
| Net income (loss) | $ | (29,075 | ) | $ | 7,122 | $ | (58,139 | ) | $ | 14,447 |
| Stock-based compensation | 41,676 | 1,310 | 76,596 | 2,620 | ||||||
| Severance charges | 859 | 409 | 2,042 | 947 | ||||||
| Depreciation and amortization - cost of subscription<br> revenues | 5,475 | 4,008 | 10,042 | 7,937 | ||||||
| Non-GAAP net income (loss) | $ | 18,935 | $ | 12,849 | $ | 30,541 | $ | 25,951 |
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AdjustedEBITDA and Adjusted EBITDA Margin.
| For the Three Months<br> <br>Ended June 30, | For<br> the Six Months <br> 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<br> 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 | % |
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Investor Contact:
Ankit Hira or Ed Yuen
Solebury Trout for Vertex, Inc.
610.312.2890
Media Contact:
Tricia Schafer-Petrecz
Vertex, Inc.
484.595.6142
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