Vertex Announces Third Quarter 2023 Financial Results

KING OF PRUSSIA, Pa., Nov. 09, 2023 (GLOBE NEWSWIRE) — Vertex, Inc. (NASDAQ: VERX) (“Vertex” or the “Company”), a leading global provider of indirect tax solutions, today announced financial results for its third quarter ended September 30, 2023.

“We delivered strong results in the third quarter, reflecting our recent growth investments”, noted David DeStefano, Vertex Chief Executive Officer. “We have built a durable execution engine and an unmatched competitive position in the enterprise segment. Our solutions are a must-have for today’s global businesses facing increased tax complexity, and we believe this will continue to create a strong demand environment.”

Third Quarter 2023 Financial Results

  • Total revenues of $145.0 million, up 14.9% year-over-year.
  • Software subscription revenues of $121.3 million, up 14.0% year-over-year.
  • Cloud revenues of $54.6 million, up 24.8% year-over-year.
  • Annual Recurring Revenue (“ARR”) was $484.9 million, up 17.8% year-over-year.
  • Average Annual Revenue per direct customer (“AARPC”) was $112,690 at September 30, 2023, compared to $97,300 at September 30, 2022 and $109,170 at June 30, 2023.
  • Net Revenue Retention (“NRR”) was 111%, compared to 109% at September 30, 2022, and 111% at June 30, 2023.
  • Gross Revenue Retention (“GRR”) was 96%, consistent with September 30, 2022, and the second quarter of 2023.
  • Loss from operations of $(2.0) million, compared to loss from operations of $(0.9) million for the same period prior year. Non-GAAP operating income of $22.8 million, compared to $17.8 million for the same period prior year.
  • Net loss of $(3.4) million, compared to net loss of $(1.1) million for the same period prior year.
  • Net loss per basic and diluted Class A and Class B shares of $(0.02) for 2023, compared to net loss of $(0.01) for the same period prior year.
  • Non-GAAP net income of $16.6 million and Non-GAAP diluted EPS of $0.10.
  • Adjusted EBITDA of $26.6 million, compared to $20.7 million for the same period prior year. Adjusted EBITDA margin of 18.4%, compared to 16.4% for the same period 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 fourth quarter of 2023, the Company currently expects:

  • Revenues of $145 million to $147 million; and
  • Adjusted EBITDA of $27.5 million to $29.5 million.

For the full-year 2023, the Company currently expects:

  • Revenues of $562.5 to $564.5 million;
  • Cloud revenue growth of 25%; and
  • Adjusted EBITDA of $96.3 to $98.3 million.

John Schwab, Chief Financial Officer added, “Throughout the first nine months of 2023, we have consistently exceeded our financial expectations. Accordingly, we are once again increasing our full-year guidance for both revenue and Adjusted EBITDA to reflect the strong year-to-date financial results.”

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, 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, November 9, 2023, to discuss its third quarter 2023 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 10183223, or via the Company’s Investor Relations website. The replay will expire on November 23, 2023 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 1,400 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 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 identify acquisition targets and to successfully integrate and operate acquired businesses; our ability to maintain and expand our strategic relationships with third parties; the potential effects on our business from the existence of a global endemic or pandemic; 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, 2022 as filed with the Securities Exchange Commission (“SEC”), 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 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023
Direct 4,230 4,289 4,278 4,284 4,303
Indirect 268 270 291 329 373
     Total 4,498 4,559 4,569 4,613 4,676


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, 2022 and in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, 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 (which includes offering costs related to the sale of shares of certain of our Class B shareholders which are not representative of normal business operations), included in GAAP loss or income from operations for the respective periods.
  • Non-GAAP net income is determined by adding back to GAAP net loss or income 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, litigation settlements and transaction costs (which includes offering costs related to the sale of shares of certain of our Class B shareholders which are not representative of normal business operations), included in GAAP net loss or income for the respective periods to determine non-GAAP loss or income before income taxes. Non-GAAP loss or income 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, 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 (which includes offering costs related to the sale of shares of certain of our Class B shareholders which are not representative of normal business operations), 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 September 30,   December 31,  
(In thousands, except per share data)   2023   2022  
    (unaudited)      
Assets              
Current assets:              
Cash and cash equivalents   $ 49,499     $ 91,803    
Funds held for customers     31,623       14,945    
Accounts receivable, net of allowance of $14,308 and $9,554, respectively     129,018       102,885    
Prepaid expenses and other current assets     19,637       22,340   (A)
Investment securities available-for-sale, at fair value (amortized cost of $8,359 and $11,220, respectively)     8,326       11,173    
Total current assets     238,103       243,146   (A)
Property and equipment, net of accumulated depreciation     100,270       101,090   (A)
Capitalized software, net of accumulated amortization     39,356       39,012    
Goodwill and other intangible assets     253,976       257,023    
Deferred commissions     17,094       15,463    
Deferred income tax asset     40,557       30,938    
Operating lease right-of-use assets     15,333       17,187    
Other assets     15,379       15,333   (A)
Total assets   $ 720,068     $ 719,192    
Liabilities and Stockholders’ Equity              
Current liabilities:              
Current portion of long-term debt   $ 2,500     $ 2,188    
Accounts payable     24,379       14,329    
Accrued expenses     49,614       38,234    
Customer funds obligations     29,117       12,121    
Accrued salaries and benefits     17,355       10,790    
Accrued variable compensation     23,232       23,729    
Deferred compensation, current           2,809    
Deferred revenue, current     264,785       268,847    
Current portion of operating lease liabilities     4,198       4,086    
Current portion of finance lease liabilities     84       103    
Deferred purchase consideration, current     10,000       19,824    
Purchase commitment and contingent consideration liabilities, current     7,842       6,149    
Total current liabilities     433,106       403,209    
Deferred revenue, net of current portion     2,030       10,289    
Debt, net of current portion     44,863       46,709    
Operating lease liabilities, net of current portion     17,445       20,421    
Finance lease liabilities, net of current portion     65       10    
Purchase commitment and contingent consideration liabilities, net of current portion     2,200       8,412    
Deferred other liabilities     187       417    
  Total liabilities     499,896       489,467    
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; 55,825 and 50,014 shares issued and outstanding, respectively     56       50    
Class B voting common stock, $0.001 par value, 150,000 shares authorized; 96,839 and 100,307 shares issued and outstanding, respectively     97       100    
Additional paid in capital     265,251       244,820    
(Accumulated deficit) retained earnings     (15,920 )     12,507    
Accumulated other comprehensive loss     (29,312 )     (27,752 )  
Total stockholders’ equity     220,172       229,725    
Total liabilities and stockholders’ equity   $ 720,068     $ 719,192    
               
(A) December 31, 2022 ending balances reflect an immaterial error correction related to an understatement of prepaid expenses and other current assets of $1,957, an overstatement of property and equipment, net of accumulated depreciation of $14,678, and an understatement of other assets of $12,721, recorded to correct the presentation of capitalized cloud computing implementation costs.
               

 
Vertex, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(Unaudited)
             
    Three months ended   Nine months ended
    September 30,   September 30,
(In thousands, except per share data)   2023   2022   2023   2022
    (unaudited)   (unaudited)
Revenues:                        
Software subscriptions   $ 121,285     $ 106,368     $ 350,135     $ 304,587  
Services     23,742       19,870       67,338       55,911  
Total revenues     145,027       126,238       417,473       360,498  
Cost of revenues:                        
Software subscriptions     41,055       36,638       116,974       105,760  
Services     15,816       14,020       45,523       37,893  
Total cost of revenues     56,871       50,658       162,497       143,653  
Gross profit     88,156       75,580       254,976       216,845  
Operating expenses:                        
Research and development     16,772       10,351       45,314       30,294  
Selling and marketing     33,919       30,252       103,196       89,683  
General and administrative     35,385       31,679       109,071       90,520  
Depreciation and amortization     3,782       2,936       11,401       9,120  
Other operating expense , net     316       1,233       1,013       1,927  
Total operating expenses     90,174       76,451       269,995       221,544  
Loss from operations     (2,018 )     (871 )     (15,019 )     (4,699 )
Interest expense, net     597       361       142       1,079  
Loss before income taxes     (2,615 )     (1,232 )     (15,161 )     (5,778 )
Income tax expense (benefit)     784       (91 )     13,266       1,217  
Net loss     (3,399 )     (1,141 )     (28,427 )     (6,995 )
Other comprehensive (income) loss:                        
Foreign currency translation adjustments and revaluations, net of tax     5,311       10,670       1,580       24,496  
Unrealized (gain) loss on investments, net of tax     (10 )     28       (20 )     26  
Total other comprehensive (income) loss, net of tax     5,301       10,698       1,560       24,522  
Total comprehensive loss   $ (8,700 )   $ (11,839 )   $ (29,987 )   $ (31,517 )
                         
Net loss attributable to Class A stockholders, basic   $ (1,228 )   $ (369 )   $ (9,960 )   $ (2,092 )
Net loss per Class A share, basic   $ (0.02 )   $ (0.01 )   $ (0.19 )   $ (0.05 )
Weighted average Class A common stock, basic     54,931       48,488       53,050       44,708  
Net loss attributable to Class A stockholders, diluted   $ (1,228 )   $ (369 )   $ (9,960 )   $ (2,092 )
Net loss per Class A share, diluted   $ (0.02 )   $ (0.01 )   $ (0.19 )   $ (0.05 )
Weighted average Class A common stock, diluted     54,931       48,488       53,050       44,708  
                         
Net loss attributable to Class B stockholders, basic   $ (2,171 )   $ (772 )   $ (18,467 )   $ (4,903 )
Net loss per Class B share, basic   $ (0.02 )   $ (0.01 )   $ (0.19 )   $ (0.05 )
Weighted average Class B common stock, basic     97,145       101,307       98,361       104,772  
Net loss attributable to Class B stockholders, diluted   $ (2,171 )   $ (772 )   $ (18,467 )   $ (4,903 )
Net loss per Class B share, diluted   $ (0.02 )   $ (0.01 )   $ (0.19 )   $ (0.05 )
Weighted average Class B common stock, diluted     97,145       101,307       98,361       104,772  
                         

 
Vertex, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
         
      Nine months ended  
      September 30,  
(In thousands)     2023   2022  
      (unaudited)
Cash flows from operating activities:                
Net loss     $ (28,427 )   $ (6,995 )  
Adjustments to reconcile net loss to net cash provided by operating activities:                
Depreciation and amortization       52,597       45,328    
Amortization of cloud computing implementation costs       1,550          
Provision for subscription cancellations and non-renewals       1,407       29    
Amortization of deferred financing costs       189       181    
Change in fair value of contingent consideration liability       1,349       2,000    
Write-off of deferred financing costs             370    
Stock-based compensation expense       26,228       14,383    
Deferred income tax (benefit)       (10,034 )     (20 )  
Non-cash operating lease costs       1,855       2,448    
Other       (145 )     709    
Changes in operating assets and liabilities:                
Accounts receivable       (30,760 )     (17,578 )  
Prepaid expenses and other current assets       520       (2,465 )  
Deferred commissions       (1,632 )     (1,202 )  
Accounts payable       10,049       106    
Accrued expenses       9,865       6,113    
Accrued and deferred compensation       2,487       (12,445 )  
Deferred revenue       (8,977 )     5,250    
Operating lease liabilities       (2,863 )     (2,837 )  
Other       1,438       (9,776 ) (A)
Net cash provided by operating activities       26,696       23,599   (A)
Cash flows from investing activities:                
Acquisition of business, net of cash acquired             (474 )  
Property and equipment additions       (35,357 )     (33,546 ) (A)
Capitalized software additions       (14,083 )     (10,288 )  
Purchase of investment securities, available-for-sale       (12,864 )     (6,127 )  
Proceeds from sales and maturities of investment securities, available-for-sale       16,040          
Net cash used in investing activities       (46,264 )     (50,435 ) (A)
Cash flows from financing activities:                
Net increase (decrease) in customer funds obligations       16,996       (2,603 )  
Proceeds from term loan             50,000    
Principal payments on long-term debt       (1,563 )     (625 )  
Payments for deferred financing costs             (983 )  
Proceeds from purchases of stock under ESPP       1,178       967    
Payments for taxes related to net share settlement of stock-based awards       (9,210 )     (1,012 )  
Proceeds from exercise of stock options       3,097       1,288    
Distributions under Tax Sharing Agreement             (536 )  
Payments for purchase commitment and contingent consideration liabilities       (6,424 )     (423 )  
Payments of finance lease liabilities       (77 )     (96 )  
Payments for deferred purchase commitments       (10,000 )     (20,000 )  
Net cash (used in) provided by financing activities       (6,003 )     25,977    
Effect of exchange rate changes on cash, cash equivalents and restricted cash       (55 )     (1,137 )  
Net decrease in cash, cash equivalents and restricted cash       (25,626 )     (1,996 )  
Cash, cash equivalents and restricted cash, beginning of period       106,748       98,206    
Cash, cash equivalents and restricted cash, end of period     $ 81,122     $ 96,210    
Reconciliation of cash, cash equivalents and restricted cash to the Condensed Consolidated Balance Sheets, end of period:                
Cash and cash equivalents     $ 49,499     $ 72,370    
Restricted cash—funds held for customers       31,623       23,840    
Total cash, cash equivalents and restricted cash, end of period     $ 81,122     $ 96,210    
                 
(A) Other changes in operating assets and liabilities, net cash provided by operating activities, property and equipment additions and net cash used in investing activities for the nine months ended September 30, 2022 reflect an immaterial error correction of $9,427 related to the reclassification of capitalized cloud computing implementation costs.  
 

 
Summary of Non-GAAP Financial Measures
(Unaudited)
               
    Three months ended     Nine months ended  
    September 30,     September 30,  
(Dollars in thousands, except per share data)   2023   2022       2023     2022    
Non-GAAP cost of revenues, software subscriptions   $ 26,298   $ 24,959       $ 75,681     $ 71,073    
Non-GAAP cost of revenues, services   $ 15,364   $ 13,646       $ 44,069     $ 36,838    
Non-GAAP gross profit   $ 103,365   $ 87,633       $ 297,723     $ 252,587    
Non-GAAP gross margin     71.3 %   69.4   %     71.3   %   70.1   %
Non-GAAP research and development expense   $ 15,374   $ 9,770       $ 40,907     $ 29,101    
Non-GAAP selling and marketing expense   $ 30,998   $ 27,876       $ 94,845     $ 82,066    
Non-GAAP general and administrative expense   $ 30,954   $ 29,335       $ 93,499     $ 83,859    
Non-GAAP operating income   $ 22,841   $ 17,784       $ 57,407     $ 48,522    
Non-GAAP net income   $ 16,572   $ 12,980       $ 42,662     $ 35,345    
Non-GAAP diluted EPS   $ 0.10   $ 0.08       $ 0.26     $ 0.22    
Adjusted EBITDA   $ 26,623   $ 20,720       $ 68,808     $ 57,642    
Adjusted EBITDA margin     18.4 %   16.4   %     16.5   %   16.0   %
Free cash flow   $ 9,055   $ (1,058 )     $ (22,744 )   $ (20,235 )  
Free cash flow margin     6.2 %   (0.8 ) %     (5.4 ) %   (5.6 ) %

 
 
Vertex, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)
              
    Three months ended   Nine months ended  
    September 30,   September 30,  
(Dollars in thousands)   2023   2022   2023   2022  
Non-GAAP Cost of Revenues, Software Subscriptions:                          
Cost of revenues, software subscriptions   $ 41,055     $ 36,638     $ 116,974     $ 105,760    
Stock-based compensation expense     (728 )     (577 )     (2,143 )     (1,502 )  
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues     (14,029 )     (11,102 )     (39,150 )     (33,185 )  
Non-GAAP cost of revenues, software subscriptions   $ 26,298     $ 24,959     $ 75,681     $ 71,073    
                           
Non-GAAP Cost of Revenues, Services:                          
Cost of revenues, services   $ 15,816     $ 14,020     $ 45,523     $ 37,893    
Stock-based compensation expense     (452 )     (374 )     (1,454 )     (1,055 )  
Non-GAAP cost of revenues, services   $ 15,364     $ 13,646     $ 44,069     $ 36,838    
                           
Non-GAAP Gross Profit:                          
Gross profit   $ 88,156     $ 75,580     $ 254,976     $ 216,845    
Stock-based compensation expense     1,180       951       3,597       2,557    
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues     14,029       11,102       39,150       33,185    
Non-GAAP gross profit   $ 103,365     $ 87,633     $ 297,723     $ 252,587    
                           
Non-GAAP Gross Margin:                          
Total Revenues   $ 145,027     $ 126,238     $ 417,473     $ 360,498    
Non-GAAP gross margin     71.3   %   69.4   %   71.3   %   70.1   %
                           
Non-GAAP Research and Development Expense:                          
Research and development expense   $ 16,772     $ 10,351     $ 45,314     $ 30,294    
Stock-based compensation expense     (1,398 )     (581 )     (4,407 )     (1,193 )  
Non-GAAP research and development expense   $ 15,374     $ 9,770     $ 40,907     $ 29,101    
                           
Non-GAAP Selling and Marketing Expense:                          
Selling and marketing expense   $ 33,919     $ 30,252     $ 103,196     $ 89,683    
Stock-based compensation expense     (2,325 )     (1,621 )     (6,305 )     (4,594 )  
Amortization of acquired intangible assets – selling and marketing expense     (596 )     (755 )     (2,046 )     (3,023 )  
Non-GAAP selling and marketing expense   $ 30,998     $ 27,876     $ 94,845     $ 82,066    
                           
Non-GAAP General and Administrative Expense:                          
General and administrative expense   $ 35,385     $ 31,679     $ 109,071     $ 90,520    
Stock-based compensation expense     (2,869 )     (2,103 )     (11,919 )     (6,039 )  
Severance expense     (643 )     (241 )     (2,103 )     (622 )  
Amortization of cloud computing implementation costs – general and administrative     (919 )           (1,550 )        
Non-GAAP general and administrative expense   $ 30,954     $ 29,335     $ 93,499     $ 83,859    

 
 
Vertex, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures (continued)
(Unaudited)
             
    Three months ended   Nine months ended
    September 30,    September 30, 
(In thousands, except per share data)   2023    2022    2023    2022 
Non-GAAP Operating Income:                        
Loss from operations   $ (2,018 )   $ (871 )   $ (15,019 )   $ (4,699 )
Stock-based compensation expense     7,772       5,256       26,228       14,383  
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues     14,029       11,102       39,150       33,185  
Amortization of acquired intangible assets – selling and marketing expense     596       755       2,046       3,023  
Amortization of cloud computing implementation costs – general and administrative     919             1,550        
Severance expense     643       241       2,103       622  
Acquisition contingent consideration     900       1,300       1,349       2,000  
Transaction costs           1             8  
Non-GAAP operating income   $ 22,841     $ 17,784     $ 57,407     $ 48,522  
                         
                         
Non-GAAP Net Income:                        
Net loss   $ (3,399 )   $ (1,141 )   $ (28,427 )   $ (6,995 )
Income tax expense     784       (91 )     13,266       1,217  
Stock-based compensation expense     7,772       5,256       26,228       14,383  
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues     14,029       11,102       39,150       33,185  
Amortization of acquired intangible assets – selling and marketing expense     596       755       2,046       3,023  
Amortization of cloud computing implementation costs – general and administrative     919             1,550        
Severance expense     643       241       2,103       622  
Acquisition contingent consideration     900       1,300       1,349       2,000  
Transaction costs           1             8  
Non-GAAP income before income taxes     22,244       17,423       57,265       47,443  
Income tax adjustment at statutory rate     (5,672 )     (4,443 )     (14,603 )     (12,098 )
Non-GAAP net income   $ 16,572     $ 12,980     $ 42,662     $ 35,345  
                         
Non-GAAP Diluted EPS:                        
Non-GAAP net income   $ 16,572     $ 12,980     $ 42,662     $ 35,345  
Weighted average Class A and B common stock, diluted     162,182       159,043       161,559       158,654  
Non-GAAP diluted EPS   $ 0.10     $ 0.08     $ 0.26     $ 0.22  
                         

 
Vertex, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures (continued)
(Unaudited)
 
    Three months ended     Nine months ended  
    September 30,     September 30,  
(Dollars in thousands)   2023   2022     2023   2022  
Adjusted EBITDA:                            
Net loss   $ (3,399 )   $ (1,141 )     $ (28,427 )   $ (6,995 )  
Interest expense, net     597       361         142       1,079    
Income tax expense (benefit)     784       (91 )       13,266       1,217    
Depreciation and amortization – property and equipment     3,782       2,936         11,401       9,120    
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues     14,029       11,102         39,150       33,185    
Amortization of acquired intangible assets – selling and marketing expense     596       755         2,046       3,023    
Amortization of cloud computing implementation costs – general and administrative     919               1,550          
Stock-based compensation expense     7,772       5,256         26,228       14,383    
Severance expense     643       241         2,103       622    
Acquisition contingent consideration     900       1,300         1,349       2,000    
Transaction costs           1               8    
Adjusted EBITDA   $ 26,623     $ 20,720       $ 68,808     $ 57,642    
                             
Adjusted EBITDA Margin:                            
Total revenues   $ 145,027     $ 126,238       $ 417,473     $ 360,498    
Adjusted EBITDA margin     18.4   %   16.4   %     16.5   %   16.0   %
                             

    Three months ended     Nine months ended  
    September 30,     September 30,  
(Dollars in thousands)   2023   2022     2023   2022  
Free Cash Flow:                            
Cash provided by operating activities   $ 27,594     $ 15,011   (A)   $ 26,696   (B) $ 23,599   (A)
Property and equipment additions     (13,498 )     (11,707 ) (A)     (35,357 ) (B)   (33,546 ) (A)
Capitalized software additions     (5,041 )     (4,362 )       (14,083 )     (10,288 )  
Free cash flow   $ 9,055     $ (1,058 )     $ (22,744 )   $ (20,235 )  
                             
Free Cash Flow Margin:                            
Total revenues   $ 145,027     $ 126,238       $ 417,473     $ 360,498    
Free cash flow margin     6.2   %   (0.8 ) %     (5.4 ) %   (5.6 ) %
                             
(A) Cash provided by operating activities and property and equipment additions for the three and nine months ended September 30, 2022 reflect immaterial error corrections of $3,439 and $9,427, respectively related to the reclassification of capitalized cloud computing implementation costs from property and equipment additions to other changes in operating assets and liabilities.  
                             
(B) Cash provided by operating activities and property and equipment additions for the nine months ended September 30, 2023 reflect immaterial error corrections of $3,264, related to the reclassification of capitalized cloud computing implementation costs for the three months ended March 31, 2023 from property and equipment additions to prepaid expenses and other current assets and other changes in operating assets and liabilities.  
   
   

Investor Relations Contact:
Joe Crivelli
Vertex, Inc.
[email protected]

Media Contact: 
Rachel Litcofsky
Vertex, Inc.
[email protected]

Disclaimer: The above press release comes to you under an arrangement with GlobeNewswire. TheTechOutlook.com takes no editorial responsibility for the same.




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