Vertex, Inc. [VERX] Filings

10-Q 1 verx-20230930x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39413

VERTEX, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware				23-2081753
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

2301 Renaissance Blvd King of Prussia, Pennsylvania				19406
(Address of principal executive offices)				(Zip Code)

Registrant’s telephone number, including area code: (800) 355-3500

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Class A Common Stock, Par Value $0.001 Per Share	VERX	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☒

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 3, 2023, the registrant had 60,325,387 shares of Class A common stock, $0.001 par value per share, and 92,661,000 shares of Class B common stock, $0.001 par value per share, outstanding.

Table of Contents

TABLE OF CONTENTS

		Page
	Part I - Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (unaudited)	5
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited)	2
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	55
	Part II - Other Information	56
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	57
	Signatures	58

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made in this Quarterly Report on Form 10-Q that are not statements of historical fact, including statements about our beliefs and expectations and regarding future events or our future results of operations, financial condition, business, strategies, financial needs, and the plans and objectives of management, are forward-looking statements and should be evaluated as such. These statements often include words such as “anticipate,” “believe,” “expect,” “suggests,” “plans,” “intend,” “estimates,” “targets,” “projects,” “should,” “could,” “would,” “may,” “will,” “forecast,” and other similar expressions or the negatives of those terms. We base these forward-looking statements on our current expectations, plans, and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances at such time. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of future performance or results. The forward-looking statements are subject to and involve risks, uncertainties and assumptions, and you should not place undue reliance on these forward-looking statements. Although we believe that these forward-looking statements are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements. Important factors that may materially affect such forward-looking statements 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;

●

the timing of our introduction of new solutions or updates to existing solutions;

●

our ability to successfully diversify our solutions by developing or introducing new solutions or acquiring and integrating additional businesses, products, services, or content;

●

our ability to maintain and expand our strategic relationships with third parties;

●

risks related to our expanding international operations;

●

our ability to deliver our solutions to customers without disruption or delay;

●

our exposure to liability from errors, delays, fraud or system failures, which may not be covered by insurance;

●

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;

●

risks related to failures in information technology, infrastructure, and third-party service providers;

●

our ability to effectively protect, maintain, and enhance our brand;

●

global economic weakness and uncertainties, and disruption in the capital and credit markets;

●

business disruptions related to natural disasters, epidemic outbreaks, terrorist acts, political events, or other events outside of our control;

●

the potential effects on our business from the existence of a global endemic or pandemic;

●

our ability to comply with anti-corruption, anti-bribery, and similar laws;

●

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;

●

any statements of belief and any statements of assumptions underlying any of the foregoing; and

●

other factors beyond our control.

Table of Contents

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2023 (the “2022 Annual Report”). Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for us to identify all such risk factors, nor can we assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on our forward-looking statements, and you should not rely on forward-looking statements as predictions of future events. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q speak only as of the date of this report. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Vertex, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

As of September 30, 2023 and December 31, 2022

(Amounts in thousands, except per share data)


	September 30,		December 31,
	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
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
Property and equipment, net of accumulated depreciation		100,270		101,090
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
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
Commitments and contingencies (Note 11)
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

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

For the three and nine months ended September 30, 2023 and 2022

(Amounts in thousands, except per share data)


	Three months ended September 30,				Nine months ended September 30,
	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

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the three and nine months ended September 30, 2023 and 2022 (unaudited)

(Amounts in thousands)


									(Accumulated		Accumulated
	Outstanding	Class A		Outstanding	Class B		Additional		Deficit)		Other		Total
	Class A	Common		Class B	Common		Paid In		Retained		Comprehensive		Stockholders'
	Shares	Stock		Shares	Stock		Capital		Earnings		Loss		Equity
Balance, January 1, 2023	50,014	$	50	100,307	$	100	$	244,820	$	12,507	$	(27,752)	$	229,725
Exercise of stock options, net	592		1	—		—		1,279		—		—		1,280
Shares issued upon vesting of Restricted Stock Units, net	391		—	—		—		(3,471)		—		—		(3,471)
Shares issued upon vesting of Restricted Stock Awards, net	—		—	—		—		—		—		—		—
Stock-based compensation expense	—		—	—		—		10,938		—		—		10,938
Shares issued in connection with ESPP	—		—	—		—		—		—		—		—
Class B shares exchanged for Class A shares	2,589		2	(2,589)		(2)		—		—		—		—
Foreign currency translation adjustments and revaluations, net of tax	—		—	—		—		—		—		3,122		3,122
Unrealized gain from available-for-sale investments, net of tax	—		—	—		—		—		—		13		13
Net loss	—		—	—		—		—		(18,132)		—		(18,132)
Balance, March 31, 2023	53,586		53	97,718		98		253,566		(5,625)		(24,617)		223,475
Exercise of stock options, net	259		1	—		—		668		—		—		669
Shares issued upon vesting of Restricted Stock Units, net	22		—	—		—		(221)		—		—		(221)
Shares issued upon vesting of Restricted Stock Awards, net	106		—	—		—		—		—		—		—
Shares issued in connection with ESPP	81		—	—		—		1,178		—		—		1,178
Stock-based compensation expense	—		—	—		—		6,904		—		—		6,904
Foreign currency translation adjustments and revaluations, net of tax	—		—	—		—		—		—		609		609
Unrealized loss from available-for-sale investments, net of tax	—		—	—		—		—		—		(3)		(3)
Net loss	—		—	—		—		—		(6,896)		—		(6,896)
Balance, June 30, 2023	54,054		54	97,718		98		262,095		(12,521)		(24,011)		225,715
Exercise of stock options, net	744		1	—		—		(3,717)		—		—		(3,716)
Shares issued upon vesting of Restricted Stock Units, net	56		—	—		—		(508)		—		—		(508)
Shares issued upon vesting of Restricted Stock Awards, net	92		—	—		—		(146)		—		—		(146)
Stock-based compensation expense	—		—	—		—		7,527		—		—		7,527
Class B shares exchanged for Class A shares	879		1	(879)		(1)		—		—		—		—
Foreign currency translation adjustments and revaluations, net of tax	—		—	—		—		—		—		(5,311)		(5,311)
Unrealized gain from available-for-sale investments, net of tax	—		—	—		—		—		—		10		10
Net loss	—		—	—		—		—		(3,399)		—		(3,399)
Balance, September 30, 2023	55,825	$	56	96,839	$	97	$	265,251	$	(15,920)	$	(29,312)	$	220,172

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the three and nine months ended September 30, 2023 and 2022 (unaudited) continued

(Amounts in thousands)


	Outstanding	Class A		Outstanding	Class B		Additional				Other		Total
	Class A	Common		Class B	Common		Paid In		Retained		Comprehensive		Stockholders'
	Shares	Stock		Shares	Stock		Capital		Earnings		Loss		Equity
Balance, January 1, 2022	42,286	$	42	106,807	$	107	$	222,621	$	24,811	$	(17,497)	$	230,084
Exercise of stock options, net	272		—	—		—		278		—		—		278
Shares issued upon vesting of Restricted Stock Units, net	3		—	—		—		(15)		—		—		(15)
Stock-based compensation expense	—		—	—		—		4,867		—		—		4,867
Foreign currency translation adjustments and revaluations, net of tax	—		—	—		—		—		—		(2,049)		(2,049)
Net loss	—		—	—		—		—		(334)		—		(334)
Balance, March 31, 2022	42,561		42	106,807		107		227,751		24,477		(19,546)		232,831
Exercise of stock options, net	93		—	—		—		(34)		—		—		(34)
Shares issued upon vesting of Restricted Stock Awards, net	59		—	—		—		—		—		—		—
Stock-based compensation expense			—	—		—		4,166		—		—		4,166
Shares issued in connection with ESPP	103		—	—		—		967		—		—		967
Class B shares exchanged for Class A shares	5,500		6	(5,500)		(6)		—		—		—		—
Foreign currency translation adjustments and revaluations, net of tax	—		—	—		—		—		—		(11,777)		(11,777)
Unrealized gain from available for sale investments, net of tax	—		—	—		—		—		—		2		2
Net loss	—		—	—		—		—		(5,520)		—		(5,520)
Balance, June 30, 2022	48,316		48	101,307		101		232,850		18,957		(31,321)		220,635
Exercise of stock options, net	212		1	—		—		387		—		—		388
Shares issued upon vesting of Restricted Stock Units, net	31		—	—		—		(176)		—		—		(176)
Shares issued upon vesting of Restricted Stock Awards, net	114		—	—		—		(164)		—		—		(164)
Stock-based compensation expense	—		—	—		—		5,196		—		—		5,196
Foreign currency translation adjustments and revaluations, net of tax	—		—	—		—		—		—		(10,670)		(10,670)
Unrealized loss from available for sale investments, net of tax	—		—	—		—		—		—		(28)		(28)
Net loss	—		—	—		—		—		(1,141)

Vertex, Inc. [VERX] Filings
10-Q	[2023-11-09]
10-Q	[2023-08-09]
10-Q	[2023-05-10]
10-K	[2023-03-10]
10-Q	[2022-11-09]
10-Q	[2022-08-09]
10-Q	[2022-05-10]
10-K	[2022-03-16]
10-Q	[2021-11-12]
10-Q	[2021-08-12]
10-Q	[2021-05-13]
10-K	[2021-03-15]
10-Q	[2020-11-13]
10-Q	[2020-09-11]
S-1	[2020-07-02]