v
美國
證券交易委員會
華盛頓特區20549
表格
(標記一個)
| 根據1934年證券交易所法案第13或15(d)條的季報告 |
截至2024年6月30日季度結束
或
| |
過渡期從________到________
委員會檔案編號:
(根據其章程所指定的正式名稱)
|
|
| ||
(依據所在地或其他管轄區) 的註冊地或組織地點) |
| (國稅局雇主識別號碼) 識別號碼) | ||
|
|
| ||
| ||||
(總部辦公地址) |
| (郵政編碼) |
註冊人的電話號碼,包括區號:(
根據法案第12(b)條註冊的證券:
每種類別的名稱 |
| 交易標的 |
| 每個註冊的交易所名稱 |
請用勾選標記指示:(1)在過去12個月內是否已依據1934年證券交易法第13或15(d)條的規定提交了所有應提交的報告(或該登記者要求提交該等報告的更短期間內),以及(2)在過去90天內是否已接受過相關的申報要求。
請在方框內加上對勾,以表明登記者是否為外殼公司(按照《交易所法》規則120億2之定義)。 是
請載明檢查標記,公司是否為大型加速披露人、加速披露人、非加速披露人、小型報告公司或新興成長公司。請於「交易所法案」第1202條中查閱「大型加速披露人」、「加速披露人」、「小型報告公司」和「新興成長公司」的定義。
☒ |
| 加速檔案提交者 | ☐ | |
非加速歸檔人 | ☐ | 較小報告公司 | ||
新興成長型企業 |
如果一家新興成長型公司,請用勾選標記表示該申報人已選擇不使用根據證交所法案13(a)條款提供的任何新的或修訂過的財務會計準則的延長過渡期。 ☐
請用勾選記號表示該發行人是否屬於殼公司(如交易所法第120億2條所定義)。 是
截至2024年11月1日,登記人持有
1
有關前瞻性陳述的特別提示
此份10-Q表格的季度報告中包含根據1995年《私人證券訴訟改革法案》的前瞻性陳述。此份10-Q表格中所有非歷史事實陳述的陳述,包括有關我們的信念和期望、未來事件或我們未來的業務營運、財務狀況、業務、戰略、財務需求以及管理層的計劃和目標等的陳述,均屬前瞻性陳述,應該以此進行評估。這些陳述通常包括「預期」、「相信」、「期望」、「表明」、「計劃」、「打算」、「估計」、「目標」、「計劃」、「應該」、「可能」、「將」、「預測」等類似表達或這些術語的否定。我們基於我們在行業中的經驗以及對歷史趨勢、當前狀況、預期的未來發展和我們認為在當時適當情況下的其他因素的認知,制定這些前瞻性陳述。當您閱讀並考慮此10-Q表格的季度報告時,您應該了解這些陳述並非未來績效或結果的保證。前瞻性陳述受到風險、不確定性和假設的影響,您不應過度依賴這些前瞻性陳述。雖然我們認為這些前瞻性陳述是基於當時的合理假設所做的,但您應該了解許多因素可能影響我們的實際結果或營運結果,並導致實際結果與前瞻性陳述中表述的有所不同。影響這些前瞻性陳述的重要因素包括但不限於:
● | 我們能否維護並增長現有客戶和新客戶的營業收入,擴大他們對我們解決方案的使用; |
● | 我們能夠維護和擴展與第三方的戰略關係; |
● | 我們能夠適應技術變革並成功推出新解決方案或為現有解決方案提供更新的能力; |
● | 與信息技術或基礎設施故障相關的風險; |
● | 在業務中使用和管理人工智能的挑戰; |
● | 我們方案的錯誤或不當實施、集成或使用; |
● | 吸引和留住合格的技術和稅務人員的失敗; |
● | 來自其他稅務軟件和服務提供商的競爭壓力,以及說服使用本地企業資源規劃(“ERP”)功能的業務轉換為我們軟件的挑戰; |
● | 基於最近成功的我們準確預測收入及其他未來營運結果的能力; |
● | 我們有能力根據客戶和合作夥伴的軟件系統變化提供特定的軟件部署方法; |
● | 我們有能力繼續大量投資於軟件開發和設備; |
● | 我們有能力維持和擴大營業收入,保持盈利能力,並有效地管理我們預期的增長; |
● | 我們有能力通過開發或推出新的解決方案,或者收購和整合其他業務、產品、服務或內容來成功地多元化我們的解決方案; |
● | 我們成功整合收購企業並實現預期的收購利益的能力; |
● | 與我們業務運作結果波動相關的風險; |
● | 與我們擴大國際業務相關的風險; |
● | 我們面臨的視我們可能無法獲得保險賠償的錯誤、延遲、詐騙或系統失敗責任曝露; |
● | 我們有能力適應組織變化並有效實施戰略倡議; |
● | 與我們對客戶交易稅和稅款的判斷有關的風險; |
● | 與稅法和法規的變化或其解釋或執行相關的風險; |
3
● | 我們管理網絡安全和數據隱私風險的能力; |
● | 我們參與重大法律訴訟和審計; |
● | 與我們軟件中未發現的錯誤、漏洞或缺陷相關的風險; |
● | 與利用開源軟件、商業流程和信息系統相關的風險; |
● | 與信息技術、基礎設施和第三方服務提供商的故障相關的風險; |
● | 有效保護、維護和增強我們品牌的能力; |
● | 法律和法規的適用範圍、解釋或執行方式的變更; |
● | 全球經濟疲軟和不確定性,以及資本和信貸市場的混亂; |
● | 與自然災害、流行病爆發、包括全球性疾病流行或大流行、恐怖主義行爲、政治事件或其他我們無法控制的事件相關的業務中斷; |
● | 我們遵守反腐敗、反賄賂和類似法律的能力; |
● | 我們保護知識產權的能力; |
● | 利率期貨的變化、安防-半導體評級和市場對我們所在行業的看法的變化,或者我們能否以商業上合理的條件或根本能否獲取資金的能力; |
● | 我們維持有效的披露控制系統和內部財務報告控制的能力,或者解決我們內部控制的任何重大弱點的能力; |
● | 與我們的A類普通股和受控公司地位相關的風險; |
● | 與我們的負債以及遵守債務工具約定下的條款相關的風險; |
● | 基本報表註釋中定義的受限看漲期貨交易(下同),看漲期貨對手方的行動(下同)和/或其各自的關聯企業的影響; |
● | 任何信仰聲明和任何上述所有信仰的假設聲明;和 |
● | 其他因素超出我們的控制。 |
此處包含的風險並非詳盡無遺,還有其他因素可能會對我們的業務和財務表現產生不利影響,包括我們於2023年12月31日結束的年度報告(即2023年年度報告)中包含的因素和風險,該報告已於2024年2月29日提交給證券交易委員會(「SEC」)。此外,我們運營在競爭激烈且快速變化的環境中。新的風險因素不時出現,我們無法確定所有這些風險因素,也無法評估所有這些風險因素對業務或因素的影響程度,或者這些因素或各種因素可能導致實際結果與任何前瞻性陳述中包含的結果有實質性差異的程度。鑑於這些風險和不確定性,您不應過度依賴我們的前瞻性陳述,也不應將前瞻性陳述視爲對未來事件的預測。前瞻性陳述中反映的結果、事件和情況可能無法實現或發生,實際結果、事件或情況可能與前瞻性陳述中描述的有實質不同。本季度在10-Q表中進行的前瞻性陳述只反映本報告日期。我們無需承擔更新本報告中進行的任何前瞻性陳述以反映本報告日期後的事件或情況或反映新信息或意外事件發生的義務,除非法律要求。如果我們更新一個或多個前瞻性陳述,則不應推論出我們將就這些或其他前瞻性陳述進行其他更新。
4
第一部分 - 財務信息
項目 1. 基本報表
Vertex公司及其子公司
彙編的綜合資產負債表
截至2024年9月30日和2023年12月31日
(金額以千爲單位,每股數據除外)
九月30日 |
| 12月31日, | |||
2024 | 2023 | ||||
(未經審計) |
| ||||
資產 | |||||
流動資產: |
|
| |||
現金及現金等價物 | $ | | $ | | |
代理客戶資金所有基金類型 |
| |
| | |
應收賬款淨額爲 |
| |
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預付費用及其他流動資產 |
| |
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可供出售的投資證券,按公允價值計量(攤銷成本爲$ | | | |||
總流動資產 |
| |
| | |
減去累計折舊的房地產和設備 |
| |
| | |
資本化軟件,減去累計攤銷 |
| |
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商譽和其他無形資產 |
| |
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推遲的佣金 |
| |
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遞延所得稅資產 | | | |||
經營租賃使用權資產 | | | |||
其他資產 |
| |
| | |
總資產 | $ | | $ | | |
負債和股東權益 |
| |
| | |
流動負債: |
|
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|
| |
長期債務的流動部分 | $ | — | $ | | |
應付賬款 | | | |||
應計費用 |
| |
| | |
客戶資金義務 |
| |
| | |
應計工資和福利 |
| |
| | |
應計的變量薪酬 |
| |
| | |
遞延收入,流動 |
| |
| | |
經營租賃負債流動部分 | | | |||
融資租賃負債的流動部分 | | | |||
購買承諾和相關事項負債,流動 |
| |
| | |
總流動負債 |
| |
| | |
遞延收入,減去當前部分淨額 |
| |
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債務,不包括流動部分 | | | |||
經營租賃負債,淨值超過流動資產 | | | |||
金融租賃負債,減去流動部分 | | | |||
購買承諾和或有對價負債,減少當前部分 |
| |
| | |
遞延所得稅負債 | | — | |||
延期其他負債 |
| |
| | |
總負債 |
| |
| | |
100億股認可,分別於2024年5月3日和2024年2月2日擁有發行並流通的股份數量 |
|
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|
| |
股東權益: |
|
|
|
| |
優先股,$ |
| ||||
A類投票普通股, $ | | | |||
B類普通股投票 $ | | | |||
股票認購應收款項。 | | | |||
留存收益(累計赤字) |
| |
| ( | |
累計其他綜合損失 |
| ( |
| ( | |
股東權益總額 |
| |
| | |
負債和股東權益合計 | $ | | $ | | |
附帶的說明是這些簡明合併財務報表不可或缺的一部分。
5
Vertex公司及其子公司
綜合收益(損失)的簡明合併報表
截至2024年和2023年9月30日的三個月和九個月(未經審計)
(金額以千爲單位,每股數據除外)
截至9月30日的三個月 | 截至2023年9月30日的九個月 | |||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||
(未經審計) | (未經審計) | |||||||||||
營業收入: |
|
|
|
|
| |||||||
軟件訂閱 | $ | | $ | | $ | | $ | | ||||
服務 | |
| | | | |||||||
總收入 |
| |
| | |
| | |||||
營收成本: |
|
|
|
| ||||||||
軟件訂閱 |
| |
| | | | ||||||
服務 |
| |
| | | | ||||||
營收總成本 |
| |
| | |
| | |||||
毛利潤 |
| |
| | |
| | |||||
運營費用: |
|
|
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| ||||||||
研發 |
| |
| | | | ||||||
銷售和營銷 |
| |
| | | | ||||||
一般和行政 |
| |
| | | | ||||||
折舊和攤銷 |
| |
| | | | ||||||
其他經營費用(收入),淨額 |
| |
| | ( | | ||||||
總營業費用 |
| |
| | |
| | |||||
營業收入(虧損) |
| |
| ( | |
| ( | |||||
利息支出(收入),淨額 |
| ( |
| | ( | | ||||||
稅前收入(損失) |
| |
| ( | |
| ( | |||||
所得稅(收益)費用 |
| |
| | ( | | ||||||
淨利潤(損失) |
| |
| ( | |
| ( | |||||
其他全面收益(損失): |
| |||||||||||
貨幣翻譯調整,稅後淨額 |
| ( |
| | ( | | ||||||
投資未實現盈利(稅後) | ( | ( | ( | ( | ||||||||
淨稅後其他綜合收益(損失)總額 | ( | | ( | | ||||||||
總的全面收入(虧損) | $ | | $ | ( | $ | | $ | ( | ||||
A類和B類基本每股淨利潤(損失) | $ | | $ | ( | $ | | $ | ( | ||||
A類股和B類股的每股淨利潤(虧損),攤薄後 | $ | | $ | ( | $ | | $ | ( | ||||
附註是基本報表的一部分。
6
Vertex公司及其子公司 |
董事股東權益變動簡明合併財務報表 |
截至2024年和2023年9月30日的三個月和九個月(未經審計) |
(單位:千元) |
保留 | 累計 | ||||||||||||||||||||||
未解決 | A類 | 未解決 | B類 | 額外的 |
| 收益 |
| 其他 費用 |
| 總計 | |||||||||||||
A類 | 普通 | B類 | 普通 | 實收 | (累計 | 全面的 | 股東的 | ||||||||||||||||
|
| 股份 |
| 期權 |
| 股份 |
| 股票 |
| 資本 |
| 赤字) |
| 虧損 |
| 股權 | |||||||
2024年1月1日餘額 | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||||
行使股票期權,淨利潤 | | — | — | — | ( | — | — | ( | |||||||||||||||
根據限制性股票單位歸屬而發行的股票,淨值 | | | — | — | ( | — | — | ( | |||||||||||||||
基於股票的薪酬費用 | — | — | — | — | | — | — | | |||||||||||||||
外幣翻譯調整和重估,稅後淨額 | — | — | — | — | — | — | ( | ( | |||||||||||||||
可供出售投資的未實現損失,稅後淨額 | — | — | — | — | — | — | ( | ( | |||||||||||||||
淨利潤 | — | — | — | — | — | | — | | |||||||||||||||
2024年3月31日的餘額 | | | | | | | ( | | |||||||||||||||
行使股票期權,淨收益 | | — | — | — | | — | — | | |||||||||||||||
限制性股票單位歸屬時發行的股份,淨額 | | — | — | — | ( | — | — | ( | |||||||||||||||
限制性股票獎勵歸屬時發行的股份,淨額 | | — | — | — | — | — | — | — | |||||||||||||||
基於股票的薪酬費用 | — | — | — | — | | — | — | | |||||||||||||||
通過員工股票購買計劃發行的股票 | | — | — | — | | — | — | | |||||||||||||||
B類股轉換爲A類股 | | | ( | ( | — | — | — | — | |||||||||||||||
購買限制性認股權,稅後淨額 | — | — | — | — | ( | — | — | ( | |||||||||||||||
外幣翻譯調整及重估,稅後淨額 | — | — | — | — | — | — | ( | ( | |||||||||||||||
可供出售投資的未實現收益,稅後淨額 | — | — | — | — | — | — | | | |||||||||||||||
淨利潤 | — | — | — | — | — | | — | | |||||||||||||||
2024年6月30日的餘額 | | $ | | | $ | | $ | | $ | | $ | ( | $ | | |||||||||
股票期權的行使,淨利潤 | | | — | — | | — | — | | |||||||||||||||
限制性股票單位歸屬時發行的股份,淨額 | | — | — | — | ( | — | — | ( | |||||||||||||||
限制性股票獎勵歸屬時發行的股票,淨額 | | — | — | — | ( | — | — | ( | |||||||||||||||
基於股票的薪酬費用 | — | — | — | — | | — | — | | |||||||||||||||
對上限期權的稅務影響 | — | — | — | — | | — | — | | |||||||||||||||
外幣轉換調整和重估,扣除稅費後淨額 | — | — | — | — | — | — | | | |||||||||||||||
未實現的可供出售投資收益,扣除稅款後 | — | — | — | — | — | — | | | |||||||||||||||
淨利潤 | — | — | — | — | — | | — | | |||||||||||||||
2024年9月30日餘額 | | $ | | | $ | | $ | | $ | | $ | ( | $ | | |||||||||
| |||||||||||||||||||||||
7
(累計 | 累計 | ||||||||||||||||||||||
未解決 | A類 | 未解決 | B類 | 額外的 |
| 赤字) |
| 其他 費用 |
| 總計 | |||||||||||||
A類 | 普通 | B類 | 普通 | 實收 | 保留 | 全面的 | 股東的 | ||||||||||||||||
股份 |
| 期權 |
| 股份 |
| 股票 |
| 資本 |
| 收益 |
| 虧損 |
| 股權 | |||||||||
2023年1月1日的餘額 | | $ | | | $ | | $ | | $ | | $ | ( | $ | | |||||||||
期權行使,淨額 | | | — | — | | — | — | | |||||||||||||||
股份發行於限制性股票單位解鎖後,淨額 | | — | — | — | ( | — | — | ( | |||||||||||||||
基於股票的薪酬費用 | — | — | — | — | | — | — | | |||||||||||||||
B類股份交換爲A類股份 | | | ( | ( | — | — | — | — | |||||||||||||||
外幣翻譯調整和重估,稅後淨額 | — | — | — | — | — | — | | | |||||||||||||||
可供出售投資未實現盈利(稅後) | — | — | — | — | — | — | | | |||||||||||||||
淨虧損 | — |
| — | — | — | — | ( | — | ( | ||||||||||||||
2023年3月31日的結存 |
| | | | | | ( | ( | | ||||||||||||||
期權行權情況,淨額 | | | — | — | | — | — | | |||||||||||||||
股份發行於受限制股票單位歸屬後,淨額 | | — | — | — | ( | — | — | ( | |||||||||||||||
股份在限制性股票授予實現後發行,淨額 | | — | — | — | — | — | — | — | |||||||||||||||
股票期權計劃發行的股份 | | — | — | — | | — | — | | |||||||||||||||
基於股票的薪酬費用 | — | — | — | — | | — | — | | |||||||||||||||
外幣兌換調整和複覈,稅後淨額 | — | — | — | — | — | — | | | |||||||||||||||
可供出售投資的未實現淨損失,稅後 | — | — | — | — | — | — | ( | ( | |||||||||||||||
淨虧損 | — | — | — | — | — | ( | — | ( | |||||||||||||||
2023年6月期末資產負債表 |
| | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||||
期權的行使,淨額 | | | — | — | ( | — | — | ( | |||||||||||||||
股票單位解禁後發行的股份,淨額 | | — | — | — | ( | — | — | ( | |||||||||||||||
受限制股獎勵行權後發行的股票淨額 | | — | — | — | ( | — | — | ( | |||||||||||||||
基於股票的薪酬費用 | — | — | — | — | | — | — | | |||||||||||||||
B類股票交換成A類股票 | | | ( | ( | — | — | — | — | |||||||||||||||
外幣換算調整和重新估值,稅後淨額 | — | — | — | — | — | — | ( | ( | |||||||||||||||
可供出售投資未實現收益,稅後淨額 | — | — | — | — | — | — | | | |||||||||||||||
淨虧損 | — | — | — | — | — | ( | — | ( | |||||||||||||||
2023年9月30日餘額 |
| | $ | | | $ | | $ | | $ | ( | $ | ( | $ | |
附帶的說明是這些簡明合併財務報表不可或缺的一部分。
8
Vertex公司及其子公司
彙編的並表報表 現金流量
截至2024年和2023年9月30日的九個月(未經審計)
(單位:千元)
截至9月30日的九個月 | |||||||
| 2024 |
| 2023 | ||||
(未經審計) | |||||||
經營活動現金流量: |
|
|
|
| |||
淨利潤(損失) | $ | | $ | ( | |||
調整淨利潤(虧損)和經營活動提供的現金: |
|
| |||||
折舊和攤銷 |
| |
| | |||
雲計算實施成本攤銷 | | | |||||
退訂和不續訂的預留款項 |
| ( |
| | |||
推遲融資成本的攤銷 |
| |
| | |||
變動的應計可變償付額負債的公允價值 | ( | | |||||
遞延採購承諾責任結算價值變動 | | — | |||||
延期融資費用沖銷 | | — | |||||
基於股票的薪酬費用 |
| |
| | |||
遞延所得稅收益 | ( | ( | |||||
非現金運營租賃成本 | | | |||||
其他 |
| ( |
| ( | |||
運營資產和負債的變化: |
|
| |||||
應收賬款 |
| |
| ( | |||
預付費用及其他流動資產 |
| ( |
| | |||
推遲的佣金 |
| ( |
| ( | |||
應付賬款 |
| |
| | |||
應計費用 |
| ( |
| | |||
已計提和待支付的薪酬 |
| |
| | |||
遞延收入 |
| |
| ( | |||
營運租賃負債 | ( | ( | |||||
購買承諾和相關考量責任的支付超出初始公允價值 | ( | — | |||||
其他 |
| |
| | |||
經營活動產生的淨現金流量 |
| |
| | |||
投資活動現金流量: |
|
|
|
| |||
企業和資產的收購,減去取得現金的金額 |
| ( |
| — | |||
資產和設備增加 |
| ( |
| ( | |||
資本化的軟件增加 |
| ( |
| ( | |||
購買可供出售的投資證券 | ( | ( | |||||
可供出售投資證券的銷售收益和到期收益 | | | |||||
投資活動中使用的淨現金 |
| ( |
| ( | |||
融資活動的現金流: |
|
|
|
| |||
客戶資金義務淨增加 |
| |
| | |||
可轉換高級票據的融資收益 |
| |
| — | |||
償還長期債務本金 |
| ( |
| ( | |||
第三方債務支付 | ( | — | |||||
購買已封頂看漲期權的支付 | ( | — | |||||
支付延期融資費用 |
| ( |
| — | |||
按照ESPP購買股票流出的款項 | | | |||||
與股權獎勵的淨份額結算相關的稅務支付 | ( | ( | |||||
行使股票期權所得 |
| |
| | |||
購買承諾和待定考慮責任的支付 | ( | ( | |||||
還款融資租賃負債 | ( | ( | |||||
延期購買承諾的付款 | — | ( | |||||
籌集資金的淨現金流量 |
| |
| ( | |||
匯率變動對現金、現金等價物及受限制資金的影響 |
| |
| ( | |||
現金,現金等價物和受限現金淨增加(減少) | | ( | |||||
期初現金、現金等價物及受限制的現金 |
| |
| | |||
現金、現金等價物和限制性現金,期末餘額 | $ | | $ | | |||
現金、現金等價物和受限現金與期末簡明合併資產負債表的對賬: |
|
|
|
| |||
現金及現金等價物 | $ | | $ | | |||
爲客戶持有的受限現金-資金 |
| |
| | |||
期末總現金、現金等價物和受限現金 | $ | | $ | | |||
附帶的說明是這些簡明合併財務報表不可或缺的一部分。
9
1. 重要會計政策摘要
業務性質
Vertex, Inc.(「Vertex」)及其合併子公司和可變利益實體(「VIE」)(統稱爲「公司」)作爲州、地方和增值稅計算、合規性及分析的解決方案提供商運營,提供軟件產品,通過軟件許可和軟件即服務(「雲服務」)訂閱出售。公司還提供與其軟件許可和雲服務訂閱相關的實施和培訓服務、交易稅申報外包及其他稅務相關服務。公司向位於美國(「美國」)以及國際客戶銷售。
合併基礎
經過合併的簡化財務報表是根據美國通用會計原則(「U.S. GAAP」)編制的,包括公司的帳戶。所有內部交易在合併中已被消除。
在2024年8月30日,公司完成對ecosio GmbH(「ecosio」)的收購。收購後,ecosio成爲公司的全資子公司,其運營自收購日起已納入公司的簡化合並財務報表中。
在2024年6月5日之前,公司擁有對Systax Sistemas Fiscais LTDA(「Systax」)的
未經審計的中期財務信息
附帶的未經審計的臨時簡明合併基本報表是根據證券交易委員會(「SEC」)有關臨時財務信息的規則和規定編制的,幷包括公司的帳戶。根據美國公認會計原則(U.S. GAAP)編制的合併基本報表中通常包含的某些信息和披露已被簡化或省略。因此,這些臨時簡明合併基本報表應與截至2023年12月31日的審計合併基本報表及相關注釋一起閱讀,這些內容在公司於2024年2月29日提交的2023年年度報告(「2023年度報告」)中包含。2023年12月31日的簡明合併資產負債表已根據2023年度報告中包含的審計財務報表導出。附帶的截至2024年9月30日的臨時簡明合併資產負債表、截至2024年和2023年9月30日的臨時簡明合併綜合收益(損失)表及股東權益變動表,以及截至2024年和2023年9月30日的臨時簡明合併現金流量表均爲未經審計。未經審計的臨時簡明合併基本報表的編制與編制年度審計合併基本報表所用的基礎一致,並在管理層意見中,包括所有調整,包含正常和經常性項目,這些項目對於公正地呈現簡明合併基本報表是必要的。截止到2024年9月30日的三個月和九個月的經營結果並不一定代表截至2024年12月31日的完整年度預期結果。
10
分部
居於報告範圍的分段,因爲兩個品牌爲類似客戶群提供類似產品和服務,由一個管理團隊共同管理,並具有類似的經濟特徵。
使用估計
編制精簡合併基本報表需要管理層進行估計和假設,這些估計和假設會影響資產、負債、權益、收入和費用在報告期間的數額。編制這些精簡合併基本報表所使用的重要估計包括:(i) 預估退訂津貼;(ii) 與壞賬準備相關的預期信用損失;(iii) 可供出售債務證券的信用損失準備金;(iv) 自保險準備金;(v) 與爲銷售而開發的軟件的技術可行性達成相關的假設;(vi) 產品生命週期;(vii) 長期資產、無形資產和資本化雲計算安排(CCA)軟件實施成本的預計使用壽命和潛在減值;(viii) 商譽潛在減值;(ix) 獲取的有形和無形資產、承擔的負債和收購中轉讓的對價的公允價值的確定;(x) 延期佣金的攤銷期間;(xi) 用於確定特定股權報酬獎勵和員工股票購買計劃(ESPP)購買權的公允價值的Black-Scholes-Merton期權定價模型(「Black-Scholes模型」)輸入假設;(xii) 未來購買承諾的衡量,與現金和股票掛鉤賺取支付和與收購相關的延期購買款的遞延購買款的公允價值的確定;和 (xiii) 已經在精簡合併基本報表或稅務申報中確認的事件未來稅務後果的潛在結果。實際結果可能會與這些估計不同。
可轉換高級票據
公司根據《適用於全體員工證券的轉換高級票據(「票據」)作爲債務》全面將可轉換高級票據(「票據」)視爲債務。 債務-具有轉換和其他期權的債務(子課題470-20)。 Debt issuance costs incurred in connection with the issuance of the Notes are reflected in the condensed consolidated balance sheets as a direct deduction from the carrying amount of the Notes. These costs are amortized on a straight-line basis, which approximates the effective interest method, over the contractual term of the Notes and are included within interest expense (income), net on the condensed consolidated statements of comprehensive income (loss). For further information on the Notes, refer to Note 8, 「Debt」.
看漲式認購交易
Capped call transactions cover the aggregate number of shares of the Company’s common stock that will initially underlie the Notes. The Company also determined that the capped call option contracts meet the definition of a derivative under ASC Topic 815, “衍生工具和套期交易”, but are not required to be accounted for as a derivative as they meet the scope exception outlined in the guidance. The Company determined that the freestanding capped call option contracts qualify as equity under the accounting guidance and recognized the contract by recording an entry to 「Additional paid-in capital」 (「APIC」) in stockholders’ equity in its condensed consolidated balance sheets. The capped call options are not remeasured.
11
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
Supplemental Balance Sheet Disclosures
Supplemental balance sheet disclosures are as follows for the respective periods:
As of September 30, | As of December 31, | |||||
| 2024 | 2023 | ||||
| (unaudited) | |||||
Prepaid expenses and other current assets: |
|
|
|
| ||
Prepaid expenses | $ | | $ | | ||
Unamortized cloud computing implementation costs | | | ||||
Prepaid insurance | | | ||||
Prepaid licenses and support | | | ||||
Prepaid expenses and other current assets | $ | | $ | | ||
Other assets: |
|
| ||||
Unamortized cloud computing implementation costs | $ | | $ | | ||
Other assets | | | ||||
Total other assets | $ | | $ | | ||
Accrued expenses: | ||||||
Accrued general expenses | $ | | $ | | ||
Accrued contract labor and professional fees | | | ||||
Accrued income and other taxes | | | ||||
Accrued expenses | $ | | $ | | ||
Cloud computing software implementation costs incurred in hosting arrangements are capitalized and reported as a component of prepaid expenses and other current assets, or other assets, once available for their intended use. These costs are amortized using the straight-line method over their respective contract service periods, including periods covered by an option to extend, ranging from
12
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
Recently Issued or Adopted Accounting Pronouncements
Segment Reporting
In November 2023, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in ASU 2023-07 improve reportable segment disclosure requirements through enhanced disclosures. These new requirements include: disclosure of significant segment expenses regularly provided to the CODM, the title and position of the CODM, and the extension of certain annual disclosures to interim periods, permitting the disclosure of multiple measures of segment profit or loss, provided that certain criteria are met. The standard also clarifies that entities with a single reportable segment are subject to new and existing segment reporting requirements. The standard will be effective for annual periods in fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Entities must adopt the changes to the segment reporting guidance on a retrospective basis. The Company has assessed the potential impacts of the amendments, and has determined that this pronouncement will not have a material effect on its consolidated financial statements, other than the required changes to the segment disclosures.
Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires entities to disclose additional information in specified categories in the reconciliation of the effective tax rate to the statutory rate for federal, state, and foreign income taxes. ASU 2023-09 also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold and eliminates certain existing disclosures. In addition to new disclosures associated with the rate reconciliation, the standard requires information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. The standard will be effective for annual periods in fiscal years beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively, and early adoption is permitted. The Company is continuing to assess the potential impacts of the standard, and it does not expect this pronouncement to have a material effect on its condensed consolidated financial statements, other than the required changes to the income tax disclosures.
2. REVENUE RECOGNITION
Disaggregation of revenue
The table reflects revenue by major source for the following periods:
Three months ended September 30, |
| Nine months ended September 30, | ||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
| (unaudited) |
| (unaudited) | |||||||||
Software subscriptions: |
|
|
| |||||||||
Software licenses | $ | | $ | |
| $ | | $ | | |||
Cloud subscriptions | | |
| | | |||||||
Software subscriptions | | |
| | | |||||||
Services |
| |
| |
|
| |
| | |||
Total revenues | $ | | $ | | $ | | $ | |
13
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
Contract balances
Timing of revenue recognition may differ from the timing of invoicing customers. A receivable is recorded in the condensed consolidated balance sheets when customers are billed related to revenue to be collected and recognized for subscription agreements as there is an unconditional right to invoice and receive payment in the future related to these subscriptions. A receivable and related revenue may also be recorded in advance of billings to the extent services have been performed and the Company has a right under the contract to bill and collect for such performance. Subscription-based customers are generally invoiced annually at the beginning of each annual subscription period. Accounts receivable is presented net of an allowance for potentially uncollectible accounts and estimated cancellations of software license and cloud-based subscriptions (the “allowance”) of $
The beginning and ending balances of accounts receivable, net of allowance, are as follows:
For the nine months ended September 30, 2024 | For the year ended December 31, 2023 | |||||
(unaudited) | ||||||
Balance, beginning of period | $ | | $ | | ||
Balance, end of period |
| |
| | ||
Increase (decrease), net | $ | ( | $ | |
A contract liability is recorded as deferred revenue on the condensed consolidated balance sheets when customers are billed in advance of performance obligations being satisfied, and revenue is recognized after invoicing ratably over the subscription period. Deferred revenue is reflected net of a related deferred allowance for subscription cancellations (the
14
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
“deferred allowance”) of $
The beginning and ending balances of and changes to the allowance and the deferred allowance are as follows:
For the three months ended September 30, | ||||||||||||
2024 | 2023 | |||||||||||
Balance |
| Net Change |
| Balance |
| Net Change | ||||||
(unaudited) | ||||||||||||
Allowance balance, July 1, | $ | ( |
|
| $ | ( |
|
| ||||
Allowance balance, September 30, |
| ( |
|
|
| ( |
|
| ||||
Change in allowance |
| $ | ( |
| $ | | ||||||
Deferred allowance balance, July 1, |
| |
|
|
| |
|
| ||||
Deferred allowance balance, September 30, |
| |
|
|
| |
|
| ||||
Change in deferred allowance |
|
| |
|
| ( | ||||||
Net amount charged to revenues |
| $ | ( |
| $ | | ||||||
For the nine months ended September 30, | ||||||||||||
2024 | 2023 | |||||||||||
Balance |
| Net Change |
| Balance |
| Net Change | ||||||
(unaudited) | ||||||||||||
Allowance balance, January 1, | $ | ( |
|
| $ | ( |
|
| ||||
Allowance balance, September 30, |
| ( |
|
|
| ( |
|
| ||||
Change in allowance |
| $ | ( |
| $ | | ||||||
Deferred allowance balance, January 1, |
| |
|
|
| |
|
| ||||
Deferred allowance balance, September 30, |
| |
|
|
| |
|
| ||||
Change in deferred allowance |
|
| |
|
| ( | ||||||
Net amount charged to revenues |
| $ | ( |
| $ | | ||||||
The portion of deferred revenue expected to be recognized in revenue beyond one year is included in deferred revenue, net of current portion in the condensed consolidated balance sheets. The following table provides information about the balances of and changes to deferred revenue for the following periods:
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||
(unaudited) | (unaudited) | |||||||||||
Changes to deferred revenue: |
|
|
|
|
|
|
|
| ||||
Beginning balance | $ | | $ | | $ | | $ | | ||||
Additional amounts deferred |
| |
| |
| |
| | ||||
Revenues recognized |
| ( |
| ( |
| ( |
| ( | ||||
Ending balance | $ | | $ | | $ | | $ | |
15
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
Contract costs
Deferred sales commissions earned by the Company’s sales force and certain sales incentive programs and vendor referral agreements are considered incremental and recoverable costs of obtaining a contract with a customer. An asset is recognized for these incremental contract costs and reflected as deferred commissions in the condensed consolidated balance sheets. These contract costs are amortized on a straight-line basis over a period consistent with the transfer of the associated product and services to the customer, which is generally
The changes to contract cost balances as of and for the following periods are:
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||
(unaudited) | (unaudited) | |||||||||||
Deferred commissions: |
|
|
|
|
|
|
|
| ||||
Beginning balance | $ | | $ | | $ | | $ | | ||||
Additions |
| |
| |
| |
| | ||||
Amortization |
| ( |
| ( |
| ( |
| ( | ||||
Ending balance | $ | | $ | | $ | | $ | |
3. ACQUISITIONS
ecosio GmbH
On August 30, 2024 (the “Acquisition Date”), the Company purchased
The acquisition was accounted for as a business combination. The purchase price has been allocated based on the latest draft valuations and remains preliminary. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments and associated deferred taxes may be recorded during the remaining measurement period. Upon its acquisition, ecosio became a wholly owned subsidiary of the Company, and its operations have been included in the Company’s condensed consolidated financial statements commencing on the Acquisition Date.
Total Purchase Consideration
Total purchase consideration for the ecosio acquisition was $
August 30, 2024 | ||
(unaudited) | ||
Upfront cash consideration | $ | |
Cash and Stock Earn-outs, at fair value | | |
Total | $ | |
16
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
The initial cash consideration was $
The contingent consideration liabilities included in the consideration are in the form of cash (the “Cash Earn-out”), with an aggregate of up to $
Fair Value of Assets Acquired and Liabilities Assumed
The purchase price was allocated to the net assets acquired based on management’s determination of their estimated fair values using available information as of the Acquisition Date. The excess of purchase consideration over the net assets acquired is recorded as goodwill, which primarily reflects the existence of intangible assets not recognized under U.S. GAAP such as the value of expected future synergies, the value of the assembled workforce and other market factors. The preliminary values recorded, which are reflected in the table below, will be adjusted during the measurement period as more detailed analyses are performed and further information becomes available regarding the fair values of these amounts on the Acquisition Date.
August 30, 2024 | ||
(unaudited) | ||
Cash and cash equivalents | $ | |
Accounts receivable | | |
Prepaid expenses and other current assets | | |
Property and equipment (1) | | |
Other assets | | |
Goodwill (2) | | |
Other intangibles | | |
Accounts payable | ( | |
Third-party debt | ( | |
Accrued expenses | ( | |
Deferred revenue | ( | |
Deferred income tax | ( | |
Total | $ | |
(1) Includes $ | ||
(2) Goodwill associated with the acquisition is not deductible for tax purposes. | ||
17
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
The fair value, valuation methodologies, estimated useful lives, and significant assumptions of the identifiable intangibles acquired in the ecosio acquisition are summarized in the table below:
August 30, 2024 (unaudited) | ||||||||||||
ecosio Identifiable Intangibles | Balance Sheet Location | Fair Value | Valuation Methodology | Estimated Useful Life | Discount Rate | |||||||
Developed technology | Property and equipment, net | $ | | Multi-period excess earnings method - income approach | | % | ||||||
Trade name | Goodwill and other intangible assets | $ | | Relief from royalty method - income approach | | % | ||||||
Customer relationships | Goodwill and other intangible assets | $ | | With and without method - income approach | | % |
Third-party experts were engaged to assist in the valuation of identifiable intangible assets and Earn-out payments as part of the acquisition. All estimates, key assumptions, and forecasts were either provided by, or reviewed by the Company. While the Company chose to utilize a third-party valuation specialist for assistance, the fair value analysis and related valuations reflect the conclusions of the Company and not those of any third-party. Any subsequent adjustments to the preliminary values not associated with determination of their fair values on the Acquisition Date will be recorded in the consolidated statements of comprehensive income (loss) in the period in which the adjustment is identified.
Total transaction costs associated with the acquisition were $
Asset Acquisition
Ryan, LLC Artificial Intelligence Tax Categorization
On May 31, 2024, the Company entered into an asset purchase agreement with Ryan, LLC (“Ryan”) to acquire tax-specific artificial intelligence (“AI”) capabilities, designed to more effectively manage the complexity of tax mapping. The acquisition will accelerate the Company’s AI innovation strategy to help global companies manage tax complexity with greater speed and scale.
The Company paid $
Following the guidance provided under the FASB Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business, the transaction was accounted for as an asset acquisition and the entire consideration was allocated to the asset and recognized as in-process internal-use software within property and equipment on the condensed consolidated balance sheet. Once placed into service, the asset will be reported as internal-use cloud-based customer solutions software, net of accumulated amortization within property and equipment on the condensed consolidated balance sheet, and will amortize over its assigned useful life of
18
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
4. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes the Company’s fair value for its financial assets and liabilities measured at fair value on a recurring basis:
Fair Value Measurements Using | ||||||||||||
As of September 30, 2024 (unaudited) | Fair Value |
| Prices in active markets for identical assets (Level 1) |
| Significant other observable inputs |
| Significant unobservable inputs | |||||
Money Market Funds | $ | | $ | | — | — | ||||||
Commercial Paper | | — | | — | ||||||||
U.S. Treasury Securities | | — | | — | ||||||||
Tellutax Contingent Consideration | | — | — | | ||||||||
ecosio Cash Earn-out | | — | — | | ||||||||
ecosio Stock Earn-out | | — | — | | ||||||||
Fair Value Measurements Using | ||||||||||||
As of December 31, 2023 | Fair Value |
| Prices in active markets for identical assets (Level 1) |
| Significant other observable inputs |
| Significant unobservable inputs | |||||
Money Market Funds | $ | | $ | | $ | — | $ | — | ||||
Commercial Paper | | — | | — | ||||||||
U.S. Treasury Securities | | — | | — | ||||||||
Tellutax Contingent Consideration | | — | — | | ||||||||
Foreign Currency Forward Contracts | | — | | — |
The Company has investments in high quality, short-term money market instruments, which are issued and payable in U.S. dollars (“Money Market Funds”) and included in cash and cash equivalents on the condensed consolidated balance sheets. Fair value inputs for these investments are considered Level 1 measurements within the fair value hierarchy since Money Market Fund fair values are known and observable through daily published floating net asset values. Securities classified as available-for-sale are reported at fair value using Level 2 inputs. The Company has investments in bank and corporate issued commercial paper (“Commercial Paper”) and U.S. treasury securities (“U.S. Treasury Securities”). The Company believes that Level 2 designation is appropriate for Commercial Paper and U.S. Treasury Securities under ASC 820-10, Fair Value Measurements and Disclosures, as these securities are fixed income securities, none are exchange-traded and all are priced by correlation to observed market data. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors.
In connection with the August 2024 ecosio acquisition, the sellers are entitled to
19
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
Cash Earn-out | Fair value | |||||
Cash Earn-out/ Period (unaudited) | At 100% Achievement | At acquisition | ||||
Year 1 - December 1, 2024 - December 1, 2025 | $ | | $ | | ||
Year 2 - December 1, 2025 - December 1, 2026 | | | ||||
Year 3 - December 1, 2026 - December 1, 2027 | | | ||||
Total Cash Earn-out | $ | | $ | | ||
Maximum | Fair value | |||||
Stock Earn-out/ Period (unaudited) | Payout | At acquisition | ||||
Year 1 - December 1, 2024 - December 1, 2025 | $ | | $ | | ||
Year 2 - December 1, 2025 - December 1, 2026 | | | ||||
Year 3 - December 1, 2026 - December 1, 2027 | | | ||||
Total Stock Earn-out | $ | | $ | | ||
Actual payouts are further adjusted depending on ecosio’s software revenue attainment for each of the measurement periods. In the event that actual software revenues exceed 100% of the target, additional payments may be made up to a maximum of
These Earn-outs represent recurring fair value measurements with significant unobservable inputs, which management considers to be Level 3 measurements under the fair value hierarchy. The final payments may be adjusted depending on the actual amount, above or below the target. Both the Cash Earn-out and the Stock Earn-out are recorded at fair value and are included in purchase commitment and contingent consideration liabilities, net of current portion in the condensed consolidated balance sheets. The Earn-outs will be revalued and adjusted quarterly until the end of the Earn-out period, and any fair value adjustments will be recorded in the other operating expense (income), net line of the condensed consolidated statement of income (loss).
The fair value of the Cash Earn-out and the Stock Earn-out as of September 30, 2024, and unobservable inputs used for the Monte Carlo Simulation valuation are shown in the table below.
September 30, 2024 (unaudited) | ||||||||||||
Liabilities |
| Fair Value |
| Valuation Technique |
| Unobservable Inputs | ||||||
ecosio Contingent Consideration - Cash Earn-out | $ | | Monte Carlo Simulation | Revenue volatility | | % | ||||||
Revenue discount rate | | % | ||||||||||
Term (in years) | | |||||||||||
ecosio Contingent Consideration - Stock Earn-out | $ | | Monte Carlo Simulation | Revenue volatility | | % | ||||||
Revenue discount rate | | % | ||||||||||
Term (in years) | | |||||||||||
20
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
In connection with the January 2021 Tellutax LLC (“Tellutax”) acquisition, the sellers are entitled to contingent consideration if sales targets are met during a period of time following the acquisition (the “Tellutax Contingent Consideration”). The Tellutax Contingent Consideration is based on
Fair value adjustments of $
Tellutax Contingent Consideration fair value as of September 30, 2024, and December 31, 2023 and unobservable inputs used for the Monte Carlo Simulation valuation were as follows:
September 30, 2024 (unaudited) | ||||||||||||
Liabilities |
| Fair Value |
| Valuation Technique |
| Unobservable Inputs | ||||||
Tellutax Contingent Consideration | $ | | Monte Carlo Simulation | Revenue volatility | | % | ||||||
Revenue discount rate | | % | ||||||||||
Term (in years) | | |||||||||||
December 31, 2023 | ||||||||||||
Liability |
| Fair Value |
| Valuation Technique |
| Unobservable Inputs | ||||||
Tellutax Contingent Consideration | $ | | Monte Carlo Simulation | Revenue volatility | | % | ||||||
Revenue discount rate | | % | ||||||||||
Term (in years) | | |||||||||||
Changes in the fair value of the Company’s level 3 liabilities during the nine months ended September 30, 2024, were as follows:
Tellutax | ecosio | ecosio | |||||||
Contingent | Contingent Consideration | Contingent Consideration | |||||||
Consideration | Cash Earn-out | Stock Earn-out | |||||||
(unaudited) | (unaudited) | (unaudited) | |||||||
Balance, January 1, 2024 | $ | | $ | — | $ | — | |||
ecosio acquisition (Note 3) | — | | | ||||||
Fair value adjustments | ( | — | — | ||||||
Payments | ( | — | — | ||||||
Balance, September 30, 2024 | $ | | $ | | $ | |
21
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
Assets and Liabilities for Which Fair Value is Only Disclosed
The carrying amounts of cash and cash equivalents and the carrying amount of funds held for customers were the same as their respective fair values and are considered Level 1 measurements.
The carrying amount of our bank debt approximates fair value as the variable rates on the debt approximate those commercially available in the market, and is considered a Level 3 measurement.
Non-recurring Fair Value Measurements
The ecosio acquisition on August 30, 2024, the Tellutax acquisition on January 25, 2021 and the Systax acquisition on January 10, 2020 were accounted for as business combinations, and the total purchase price for each acquisition was allocated to the net assets acquired and liabilities assumed based on their estimated fair values.
The Company had a contractual commitment to acquire the remaining equity interest from the original Systax Quotaholders incrementally through 2024. Purchase commitment payments for these incremental acquisition amounts were based on a multiple of Systax revenue and earnings before interest, depreciation, amortization, and income taxes (“EBITDA”) performance at the end of 2023 and 2022. Management determined these future purchase commitments to be a forward contract, resulting in the Company being required to estimate and record an estimated future purchase commitment amount (the “Purchase Commitment Liability”) in connection with recording the initial purchase. The fair value of the Purchase Commitment Liability at the acquisition date was finalized to be $
During the second quarter of 2024, the Company paid $
Derivative Instruments
The Company may periodically enter into derivative contracts to reduce our exposure to foreign currency exchange rates. Historically, the Company has not designated derivative contracts as hedges. Such derivative contracts are typically designed to manage specific risks according to our strategies, which may change from time to time.
The Company entered into a series of foreign currency forward contracts to reduce our exposure to adverse fluctuations in the Brazilian Real associated with a portion of the Purchase Commitment Liability. Such forward contracts have not been designated as a hedge, do not qualify for hedge accounting and are not material to our condensed consolidated financial statements. During the second quarter of 2024, the forward currency contracts matured as the Company settled the outstanding Purchase Commitment Liability. These forward contacts are remeasured at fair value on a recurring basis and are included in other assets in our December 31, 2023 condensed consolidated balance sheet with changes in their estimated fair value recognized as interest expense in our condensed consolidated statements of
22
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
comprehensive income (loss). Our fair value determinations are based on foreign currency exchange rates in active markets, which are considered to be Level 2 measurements within the Fair Value Hierarchy.
Convertible Senior Notes
As of September 30, 2024 and December 31, 2023, the fair value of the Notes were $
5. PROPERTY AND EQUIPMENT
The major components of property and equipment are as follows:
| As of September 30, | As of December 31, | ||||
2024 | 2023 | |||||
| (unaudited) |
| ||||
Leasehold improvements | $ | | $ | | ||
Equipment |
| |
| | ||
Computer software purchased |
| |
| | ||
Internal-use software developed: |
|
| ||||
Cloud-based customer solutions (1) |
| |
| | ||
Internal systems and tools |
| |
| | ||
Furniture and fixtures |
| |
| | ||
In-process internal-use software |
| |
| | ||
Property and equipment |
| |
| | ||
Less accumulated depreciation and amortization |
| ( |
| ( | ||
Property and equipment, net | $ | | $ | | ||
(1) Includes $ |
Depreciation expense for property and equipment, excluding all internal-use software developed and finance leases, was $
Finance lease amortization was $
Assets under finance leases of $
The major components of internal-use software developed are as follows:
23
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
As of September 30, | As of December 31, | |||||
2024 | 2023 | |||||
| (unaudited) |
| ||||
Internal-use software developed | $ | | $ | | ||
Less accumulated depreciation |
| ( |
| ( | ||
Internal-use software developed, net of accumulated depreciation |
| |
| | ||
In-process internal-use software |
| |
| | ||
Internal-use software developed, net | $ | | $ | |
Amounts included in property and equipment additions related to capitalized internal-use software on the condensed consolidated statements of cash flows are as follows:
For the nine months ended September 30, | ||||||
2024 | 2023 | |||||
(unaudited) | ||||||
Cloud-based customer solutions |
| $ | | $ | | |
Internal systems and tools |
| |
| | ||
Total | $ | | $ | |
In-process internal-use software developed is not depreciated until it is available for its intended use. Depreciation expense for internal-use software developed for cloud-based customer solutions for the three months ended September 30, 2024 and 2023 was $
Depreciation expense for internal-use software developed for internal systems and tools for the three months ended September 30, 2024 and 2023 was $
6. CAPITALIZED SOFTWARE
Capitalized software includes acquired software and direct labor and related expenses for software developed for sale for new products and enhancements to existing products.
The major components of capitalized software are as follows:
As of September 30, | As of December 31, | ||||
2024 | 2023 | ||||
(unaudited) | |||||
Capitalized software | $ | | $ | | |
Less accumulated amortization |
| ( |
| ( | |
Capitalized software, net of accumulated depreciation |
| |
| | |
In-process capitalized software |
| |
| | |
Capitalized software, net | $ | | $ | |
Software development costs capitalized for the three months ended September 30, 2024 and 2023, were $
24
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
Capitalized software amortization expense, including amortization of acquired technology, was $
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets are as follows for the periods presented:
As of September 30, | As of December 31, | |||||
2024 | 2023 | |||||
(unaudited) | ||||||
Goodwill | $ | | $ | | ||
Other intangible assets, net (1) | |
| | |||
Total | $ | | $ | | ||
(1) Includes $ |
The changes in the carrying amount of goodwill for the nine months ended September 30, 2024 are as follows:
As of September 30, | |||
2024 | |||
(unaudited) | |||
Balance, January 1 | $ | | |
ecosio acquisition | | ||
Foreign currency translation adjustments | | ||
Balance, September 30, gross | | ||
Accumulated impairment losses | — | ||
Balance, September 30, net | $ | |
The Company has recognized various amortizable other intangible assets in connection with acquisitions related to customer relationships, technology, and tradenames. The following tables provide additional information for other intangible assets, which are individually not material to the condensed consolidated financial statements, for the periods presented:
As of September 30, | As of December 31, | ||||||||
2024 | 2023 | ||||||||
(unaudited) | |||||||||
Weighted average amortization period (years) | |||||||||
Gross value | $ | | $ | | |||||
Accumulated amortization | ( | ( | |||||||
Carrying value | $ | | $ | |
25
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
The following table presents amortization of other intangible assets:
For the three months ended September 30, | Cost of Revenues, Software Subscriptions | Selling and | Total Expense | |||||||||
2024 |
| $ | |
| $ | | $ | | ||||
2023 | | | | |||||||||
For the nine months ended September 30, | Cost of Revenues, Software Subscriptions | Selling and | Total Expense | |||||||||
2024 |
| $ | |
| $ | | | |||||
2023 |
| |
| | | |||||||
8.DEBT
Credit Agreement
The Company has a credit agreement (“Credit Agreement”) with a banking syndicate, which provided (i) a term loan in the aggregate amount of $
On April 19, 2024, the Company entered into the Fourth Amendment to the Credit Agreement (the “Fourth Amendment”) with a banking syndicate, which amended the Credit Agreement, dated as of March 31, 2020, providing for, among other things, amendments of certain definitions.
Indenture and Notes
On April 26, 2024, the Company closed its offering of $
The Notes are the senior, unsecured obligations of the Company and are (i) ranked equal in right of payment with the Company’s senior unsecured indebtedness, (ii) senior in right of payment to the Company’s indebtedness that is expressly subordinated to the Notes, (iii) effectively subordinated to the Company’s senior secured indebtedness, to the extent of the value of the collateral securing that indebtedness, and (iv) structurally subordinated to all indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries.
The Notes bear interest at a rate of
● | During any calendar quarter after June 30, 2024 if the closing price of the Company's common stock for at least |
26
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
day of the preceding calendar quarter is more than |
● | During the |
● | If the Company calls any or all of the Notes for redemption, holders may convert all or any portion of their notes at any time prior to the close of business on the scheduled trading day prior to the redemption date, even if the Notes are not otherwise convertible at such time. |
● | If specified distributions to holders of the Company’s common stock are made or specified corporate events occur. |
If a holder converts upon a make-whole fundamental change (as defined in the Indenture) or Company redemption, the holder may be eligible to receive a make-whole premium through an increase to the conversion rate.
Upon conversion, the Company will pay or deliver, as applicable, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock at the Company’s election. The initial conversion rate for the Notes is
The net proceeds from the offering of the Notes were $
Capped Call Transactions
In connection with the pricing of the Notes on April 23, 2024, the Company entered into privately negotiated capped call transactions (the “Base Capped Calls”) with certain financial institutions (together, the “Option Counterparties”). In connection with the exercise of the option to purchase the additional Notes in full, the Company entered into additional capped call transactions with the Option Counterparties (together, the “Additional Capped Call Transactions” and, together with the Base Capped Call Transactions, the “Capped Call Transactions”).
The cap price of the Capped Call Transactions will initially be $
Term Loan
On May 10, 2024, the Company repaid the outstanding Term Loan balance of $
27
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
The Company’s indebtedness at September 30, 2024 and December 31, 2023 was as follows:
As of September 30, 2024 | As of December 31, 2023 | ||||||||||||||||
(unaudited) | |||||||||||||||||
Principal Amount | Discounts and Deferred Financing Costs | Net Carrying Amount |
| Principal Amount | Discounts and Deferred Financing Costs | Net Carrying Amount | |||||||||||
Term Loan | $ | — | $ | — | $ | — | $ | | $ | — | $ | | |||||
Current portion of long-term debt | — | — | — | | — | | |||||||||||
Term Loan | — | — | — | | ( | | |||||||||||
Debt, net of current portion | — | — | — | | ( | | |||||||||||
Convertible senior notes, non-current | | ( | | — | — | — | |||||||||||
Total debt | $ | | $ | ( | $ | | $ | | $ | ( | $ | |
The Company’s interest expense related to the Notes is as follows:
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||
(unaudited) | (unaudited) | |||||||||||||
Contractual interest expense | $ | | $ | — | $ | | $ | — | ||||||
Amortization of issuance costs | | — | | — | ||||||||||
Total interest expense, Convertible Senior Notes | $ | | $ | — | $ | | $ | — |
9.STOCKHOLDERS’ EQUITY
Common Stock
During the three months ended September 30, 2024, the Company issued
During the nine months ended September 30, 2024, the Company issued
28
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
Company also issued
During the three months ended September 30, 2023, the Company issued
During the nine months ended September 30, 2023, the Company issued
10. EARNINGS PER SHARE
The Company has two classes of common stock outstanding and thus calculates earnings per share (“EPS”) following the two-class method. This method allocates earnings for the respective periods between the two classes of common stock in proportion to the weighted average shares outstanding for each class of common stock as a percentage of total weighted average shares of both classes of common stock outstanding. Neither the Class A nor Class B common stock has any liquidity or dividend preferences and are both considered to be participating securities.
Basic and diluted net income (loss) per share attributable to common stockholders is calculated using the treasury stock and if-converted methods. The basic net income (loss) per share attributable to Class A common stockholders includes RSAs, RSUs, and ESPP shares once vesting or purchase contingencies are resolved, and the related shares are deemed to be outstanding. The diluted net income (loss) per share attributable to Class A common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, all options to purchase shares of Class A common stock and nonvested RSAs and RSUs are considered common stock equivalents. The portion of ESPP shares for which the Company has received payments but for which the related shares are not yet issuable are also considered potential common stock equivalents. Additionally, the dilutive effect of shares issuable upon conversion of the Notes is included in the calculation of diluted EPS by application of the if-converted method. In connection with the issuance of the Notes, the Company entered into the Capped Calls Transactions, which are not included for purposes of calculating the number of diluted weighted-average shares outstanding, as their effect would be anti-dilutive. In periods of net loss available to common stockholders diluted calculations are equal to basic calculations because the inclusion of potential common stock equivalents would be anti-dilutive. The Company has excluded from the calculation of diluted EPS the effect of shares of the Company’s Class A common stock to be issued in connection with the Stock Earn-out payable to the sellers of ecosio.
29
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
The tables below illustrate the calculation of basic and diluted net income (loss) per common share for the Class A common stock and Class B common stock for the periods reflected below.
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
Class A | Class B | Class A | Class B | Class A | Class B | Class A | Class B | ||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||||||
Basic net income (loss) per share: | |||||||||||||||||||||||
Numerator | |||||||||||||||||||||||
Allocation of net income (loss) (1) | $ | | $ | | $ | ( | $ | ( | $ | | $ | | $ | ( | $ | ( | |||||||
Denominator | |||||||||||||||||||||||
Total shares used in per share computation | |
| | |
| |
| |
| |
| |
| | |||||||||
Basic net income (loss) per share: | $ | | $ | | $ | ( | $ | ( | $ | | $ | | $ | ( | $ | ( | |||||||
Diluted net income (loss) per share: | |||||||||||||||||||||||
Numerator | |||||||||||||||||||||||
Allocation of net income (loss) (1) | $ | | $ | | $ | ( | $ | ( | $ | | $ | | $ | ( | $ | ( | |||||||
Total net income (loss) used in per diluted computation | $ | | $ | | $ | ( | $ | ( | $ | | $ | | $ | ( | $ | ( | |||||||
Denominator | |||||||||||||||||||||||
Number shares used in basic per share computation | |
| | |
| |
| |
| | |
| | ||||||||||
Dilutive effect of common stock equivalents | |
| — | — |
| — |
| |
| — | — |
| — | ||||||||||
Total shares used in per share computation (2) | | | | | | | | | |||||||||||||||
Dilutive net income (loss) per share: | $ | | $ | | $ | ( | $ | ( | $ | | $ | | $ | ( | $ | ( | |||||||
(1) Allocation of net income (loss) is based on the percentages of average shares outstanding.
(2) The Notes were issued on April 26, 2024. Proration of shares assumed to be converted from the Notes during the current year periods resulted in anti-dilutive impact to EPS.
The following weighted-average outstanding shares of common stock equivalents by award type were excluded from the computation of diluted net loss per share attributable to Class A stockholders, as the impact of including them would have been anti-dilutive:
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||
2024 |
| 2023 | 2024 |
| 2023 | ||||||||
(unaudited) | (unaudited) | ||||||||||||
Stock Options (1) | — | | — | | |||||||||
Stock Options out-of-the money options | — | | | | |||||||||
RSAs | — | | — | | |||||||||
RSUs | — | | — | | |||||||||
ESPP | — | | — | | |||||||||
Convertible Senior Notes | | — | | — |
(1) | Excludes out-of-the-money options. |
11. STOCK-BASED AWARD PLANS
The 2020 Incentive Award Plan (the “2020 Plan”) provides the ability to grant cash and equity-based incentive awards to eligible employees, directors and service providers in order to attract, retain and motivate those that make important
30
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
contributions to the Company. The Company issued stock options, RSAs, and RSUs under the 2020 Plan. As of September 30, 2024,
Options
The following table summarizes activity for options outstanding under the 2020 Plan for the nine months ended September 30, 2024:
Weighted | ||||||||||
Weighted | Average | |||||||||
Average | Remaining | Aggregate | ||||||||
Exercise | Contractual | Intrinsic | ||||||||
2020 Plan Option Activity | Units | Price | Life (Years) | Value | ||||||
(unaudited) | ||||||||||
Outstanding at January 1, 2024 | | $ | | $ | | |||||
Exercised | ( | $ | | |||||||
2020 Plan options outstanding at September 30, 2024 | | $ | | $ | | |||||
2020 Plan options exercisable at September 30, 2024 |
| | $ | |
| $ | |
The detail of options outstanding, vested, and exercisable under the 2020 Plan as of September 30, 2024 is as follows:
Options Outstanding | Options Vested and Exercisable | |||||||
|
| Weighted |
|
| Weighted | |||
Average | Average | |||||||
Exercise Prices | Units | Life (Years) | Units | Life (Years) | ||||
(unaudited) | ||||||||
$ |
| | | |||||
$ |
| | | |||||
$ |
| | | |||||
$ | | | ||||||
$ | | | ||||||
$ | | | ||||||
$ | | | ||||||
$ |
| | | |||||
$ |
| | | |||||
|
| | ||||||
*These options have indefinite contractual lives. |
|
The Board of Directors (the “Board”) intends all options granted to be exercisable at a price per share not less than the per share fair market value of the Company’s Class A common stock underlying the options on the date of grant. Compensation expense for option awards are measured based on the grant date fair value of the awards and recognized in the condensed consolidated statements of comprehensive income (loss) over the period during which the participant is required to perform the requisite services. The vesting period is generally
31
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
There were
At September 30, 2024, $
Restricted Stock Units
The following table summarizes RSU activity for the nine months ended September 30, 2024:
|
|
| |||
Weighted | |||||
Average | |||||
Grant Date Fair | |||||
Units | Value Per Share | ||||
Outstanding at January 1, 2024 | | $ | | ||
Granted | | | |||
Vested | ( | | |||
Forfeited | ( | | |||
Outstanding at September 30, 2024 | | $ | |
Stock-based compensation cost for RSUs is measured based on the fair value of the Company’s underlying common stock on the date of grant and is recognized on a straight-line basis in the condensed consolidated statements of comprehensive income (loss) over the period during which the participant is required to perform services in exchange for the award, which is generally to
Restricted Stock Awards
The following table summarizes RSA activity for the nine months ended September 30, 2024:
| |||||
Weighted | |||||
Average | |||||
Grant Date Fair | |||||
Units | Value Per Share | ||||
Outstanding at January 1, 2024 | | $ | | ||
Granted | | | |||
Vested | ( | | |||
Outstanding at September 30, 2024 |
| | $ | |
Stock-based compensation cost for RSAs is measured based on the fair value of the Company’s underlying common stock on the date of grant and is recognized on a straight-line basis in the condensed consolidated statements of comprehensive income (loss) over the period during which the participant is required to perform services in exchange for the award, which is generally to
Employee Stock Purchase Plan
The ESPP provides eligible employees with rights during each
32
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
are reflected in accrued salaries and benefits in the condensed consolidated balance sheets until such shares are purchased. Amounts withheld from participants for the offering period ending November 30, 2024 aggregated $
As of September 30, 2024, there was approximately $
At September 30, 2024 and 2023, there were
Offering Period Ending | ||||||
11/30/2024 | 11/30/2023 | |||||
Fair market value of common stock | $ | | $ | | ||
Volatility |
| | % |
| | % |
Expected term (years) |
|
| ||||
Expected dividend yield |
| - | % |
| - | % |
Risk-free interest rate |
| | % |
| | % |
33
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
Volatility is representative of expected stock price volatility over the offering period. The Company’s volatility is applied to current and future offering periods. The expected term represents the term of the ESPP offering period, which is six months. The Company does not expect to pay dividends. The risk-free interest rate was based on the rate for a U.S. Treasury zero-coupon issue with a term that closely approximates the expected term of the award at the date nearest to the offering term.
Stock-Based Compensation
The Company recognized total stock-based compensation cost related to incentive awards, net of forfeitures, as follows:
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||
2024 |
| 2023 |
| 2024 |
| 2023 | |||||||
(unaudited) | (unaudited) | ||||||||||||
Stock-based compensation expense: | |||||||||||||
Stock options | $ | | $ | | $ | | $ | | |||||
RSUs |
| |
| |
| |
| | |||||
RSAs | | | | | |||||||||
ESPP |
| |
| |
| |
| | |||||
Total stock-based compensation expense | $ | | $ | | $ | | $ | |
The Company recognized stock-based compensation cost in the condensed consolidated statements of comprehensive income (loss) as follows:
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||
2024 |
| 2023 |
| 2024 |
| 2023 | |||||||
(unaudited) | (unaudited) | ||||||||||||
Stock-based compensation expense: | |||||||||||||
Cost of revenues, software subscriptions | $ | | $ | | $ | | $ | | |||||
Cost of revenues, services |
| |
| |
| |
| | |||||
Research and development |
| |
| |
| |
| | |||||
Selling and marketing |
| |
| |
| |
| | |||||
General and administrative |
| |
| |
| |
| | |||||
Total stock-based compensation expense | $ | | $ | | $ | | $ | |
12. COMMITMENTS AND CONTINGENCIES
In January 2022, the Company filed a complaint against a competitor alleging claims of unfair competition, intentional interference with contractual relations, and trade secret misappropriation. The outcome of the case is subject to a number of uncertainties; therefore, the Company has not recognized any potential impact to the condensed consolidated financial statements.
The Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. The Company is not aware of any such legal proceedings or claims that management believes will have a material adverse effect on its business, financial condition, or operating results.
34
Vertex, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements (unaudited) continued |
(Amounts in thousands, except per share data) |
13. INCOME TAXES
The Company reported income tax (benefit) expense of $
In determining interim provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date income (loss) adjusted for discrete items arising year-to-date. The Company’s effective tax rate differs from the U.S. federal statutory rate of
The income tax expense for the three months ended September 30, 2024 was primarily attributable to taxes in profitable jurisdictions, fluctuations in valuation allowances on certain foreign deferred tax assets, and fluctuations in other permanent adjustments. This income tax expense was partially offset by tax benefits from stock-based awards exercised or vested during the quarter, net of the impact from limitations on deductions of certain employees’ compensation, and benefits from tax credits. The income tax benefit for the nine months ended September 30, 2024 was primarily attributable to tax benefits from stock-based awards exercised or vested, net of the impact from limitations on deductions of certain employees’ compensation, and tax credits. This income tax benefit was partially offset by taxes in profitable jurisdictions and fluctuations in valuation allowances on certain foreign deferred tax assets. The income tax expense for the three months ended September 30, 2023 was primarily attributable to fluctuations in valuation allowances on certain foreign deferred tax assets and taxes in profitable jurisdictions partially offset by tax benefits from stock-based awards exercised or vested during the quarter, net of the impact from limitations on deductions of certain employees’ compensation and benefits from tax credits. The income tax expense for the nine months ended September 30, 2023 was primarily attributable to taxes in profitable jurisdictions, fluctuations in valuation allowances on certain foreign deferred tax assets, and limitations on deductions of certain employees’ compensation partially offset by tax benefits from stock-based awards exercised or vested, and benefits from tax credits.
14. SUBSEQUENT EVENTS
On November 4, 2024, the Company entered into a Fifth Amendment to the Credit Agreement (the “Fifth Amendment”), with a banking syndicate, which amended the previous credit agreement entered into in March 2020, providing for, among other modifications, an increase in the Line of Credit commitment from $
35
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 29, 2024 (the “2023 Annual Report”). In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs, and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the section titled “Special Note Regarding Forward-Looking Statements” above, and in Part I, Item 1A of the 2023 Annual Report and as may be subsequently updated by our other SEC filings.
Overview
Vertex is a leading global provider of indirect tax software and solutions. Our 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 1,500 professionals and serves companies across the globe.
We derive the majority of our revenue from software subscriptions. These subscriptions include use of our software and ongoing monthly content updates. Our software is offered on a subscription basis to our customers, regardless of their deployment preferences. On-premise subscriptions are typically sold through one-year contracts, and cloud-based subscriptions are typically sold through one- to three-year contracts. We bill the majority of our customers annually in advance of the subscription period.
Our customers include a majority of the Fortune 500, as well as a majority of the top 10 companies by revenue in multiple industries such as retail, technology, and manufacturing, in addition to leading marketplaces. As our customers expand geographically and pursue omnichannel business models, their tax determination and compliance requirements increase and become more complex, providing sustainable organic growth opportunities for our business. Our flexible, tiered transaction-based pricing model also results in our customers growing their spend with us as they grow and continue to use our solutions. We principally price our solutions based on a customer’s revenue base, in addition to a number of other factors.
We employ a hybrid deployment model to align to our customers’ technology preferences for their core financial management software across on-premise, cloud deployments or any combination of these models. Over time, we expect both existing and newly acquired customers to continue to shift towards cloud deployment models. Cloud-based subscription sales to new customers have grown at a faster rate than on-premise software subscription sales, which is a trend that we expect to continue over time. We generated 49% and 45% of software subscription revenue from cloud-based subscriptions during the three months ended September 30, 2024 and 2023, respectively, and 48% and 44% for the nine months ended September 30, 2024 and 2023, respectively. While our on-premise software subscription revenue comprised 51% and 55% of our software subscription revenue during the three months ended September 30, 2024 and 2023, respectively, and 52% and 56% for the nine months ended September 30, 2024 and 2023, respectively, it continues to decrease as a percentage of total software subscriptions revenues as cloud-based subscriptions grow.
We license our solutions primarily through our direct sales force, which focuses on selling to qualified leads provided by our marketing efforts, and through our network of referral partners. We also utilize indirect sales to a lesser extent to efficiently grow and scale our enterprise and mid-market revenues.
Our partner ecosystem is a differentiating, competitive strength in both our software development and our sales and marketing activities. We integrate with key technology partners that span Enterprise Resource Planning (“ERP”), Customer Relationship Management (“CRM”), procurement, billing, Point of Sale (“POS”) and e-commerce. These partners include Adobe/Magento, Coupa, Microsoft Dynamics, NetSuite, Oracle, Salesforce, SAP, SAP Ariba, Shopify,
36
Workday and Zuora. We also collaborate with numerous accounting firms who have built implementation practices around our software to serve their customer base.
We believe that global commerce and the compliance environment provides durable and accelerating growth opportunities for our business. We generated revenue of $170.4 million and $145.0 million for the three months ended September 30, 2024 and 2023, respectively, and $488.3 and $417.5 for the nine months ended September 30, 2024 and 2023, respectively. We had net income (loss) of $7.2 million and $(3.4) million for the three months ended September 30, 2024 and 2023, respectively, and $15.1 million and $(28.4) million for the nine months ended September 30, 2024 and 2023, respectively These amounts are presented in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”).
We define Adjusted EBITDA as net loss or income before interest (including adjustments to the settlement value of deferred purchase commitment liabilities), taxes, depreciation, and amortization, as adjusted to exclude charges for asset impairments, stock-based compensation expense, amortization of cloud computing arrangement implementation costs, severance expense, acquisition contingent consideration, litigation settlements, and transaction costs. Adjusted EBITDA was $38.6 million and $26.6 million for the three months ended September 30, 2024 and 2023, respectively and $113.9 million and $68.8 million for the nine months ended September 30, 2024 and 2023, respectively. Adjusted EBITDA is a non-GAAP financial measure. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Use and Reconciliation of Non-GAAP Financial Measures” for further discussion of key business metrics and non-GAAP financial measures and their comparison to GAAP financial measures.
We believe that we currently have ample liquidity and capital resources to continue to meet our operating needs, and our ability to continue to service our debt or other financial obligations is not currently impaired. For a further description of our liquidity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Recent Developments
ecosio GmbH Acquisition
On August 30, 2024, we purchased 100% of the share interests in ecosio GmbH (“ecosio”), a limited liability company incorporated under the laws of Austria and a provider of electronic data interchange (“EDI”) and e-invoicing services. The acquisition was completed with the goal of integrating ecosio’s cloud-based, scalable global network with our indirect tax solutions to enable customers to facilitate the creation, exchange, and clearance of jurisdictionally compliant e-invoices and seamlessly reconcile these invoices with their periodic filing requirements. ecosio’s operations and offerings will be integrated into our one operating segment.
Total purchase consideration for the ecosio acquisition was $169.0 million, net of $0.8 cash acquired and included contingent consideration liabilities included in the consideration are in the form of cash (the “Cash Earn-out”), with an aggregate of up to $76.0 million, and stock, with an aggregate value of up to $35.0 million (the “Stock Earn-out”, together with the Cash-Earnout, the “Earn-outs”), assuming 100% achievement. For further information on the acquisiton refer to Note 3, “Acquisitions” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Issuance of Convertible Senior Notes
On April 26, 2024, we closed our offering of $345.0 million aggregate principal amount of 0.750% Convertible Senior Notes due 2029 (the “Notes”) to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended. The Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”) between the Company and U.S. Bank Trust Company, National Association, as trustee. The Notes issued on April 26, 2024 include an additional $45.0 million aggregate principal amount of Notes, issued pursuant to the full exercise by the initial purchasers of the Notes of their option to purchase additional Notes.
The net proceeds from the offering of the Notes were $333.7 million after deducting the initial purchasers’ discount and commissions, and other transaction and offering expenses. We used $42.4 million of the net proceeds from this offering to fund the cost of the Capped Call Transactions (as defined in Note, 8 “Debt” to our condensed consolidated
37
financial statements) and intend to use the remainder for working capital or other general corporate expenses, which may include capital expenditures, potential acquisitions, and strategic transactions.
On May 10, 2024, we repaid our outstanding term loan balance of $46.3 million.
For further information on the Notes or term loan, refer to Note 8, “Debt” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Ryan, LLC Artificial Intelligence Tax Categorization Acquisition
On May 31, 2024, we entered into an asset purchase agreement with Ryan, LLC (“Ryan”) to acquire tax-specific artificial intelligence (“AI”) capabilities, designed to more effectively manage the complexity of tax mapping. The acquisition will accelerate our AI innovation strategy to help global companies manage tax complexity with greater speed and scale. We paid approximately $6.1 million in closing consideration, which included $0.1 million in transaction costs. The purchase agreement includes the potential for earn-out payments and referral fees over a five-year period. For further information, refer to Note 5, “Property and Equipment” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Systax Acquisition
During the second quarter of 2024, we paid $9.6 million to acquire the remaining 20% equity interest of Systax Sistemas Fiscais LTDA (“Systax”), a provider of Brazilian transaction tax content and software. Systax is now a wholly owned subsidiary of Vertex.
Fifth Amendment to the Credit Agreement
On November 4, 2024, we entered into a Fifth Amendment to our Credit Agreement (the “Fifth Amendment”), with a banking syndicate, which amended the previous credit agreement entered into in March 2020, providing for, among other modifications, an increase in the Line of Credit commitment from $200.0 million to $300.0 million and an extension of the maturity date to November 4, 2029. For further information, refer to Note 8, “Debt” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Components of Our Results of Operations
Revenue
We generate revenue from software subscriptions and services.
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration expected to be received in exchange for those products or services. We enter into contracts that include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowance for subscription and non-renewal cancellations and any taxes collected from customers that are subsequently remitted to governmental authorities.
Software Subscriptions
Licenses for on-premise software subscriptions, which are generally one year, provide the customer with a right to use the software as it exists when made available to the customer. Customers purchase a subscription to these licenses, which includes the related software and tax content updates and product support. The updates and support, which are part of the subscription agreement, are essential to the continued utility of the software; therefore, we have determined the software and the related updates and support to be a single performance obligation. Accordingly, when on-premise software is licensed, the revenue associated with this combined performance obligation is recognized ratably over the license term as these subscriptions are provided for the duration of the license term. Revenue recognition begins on the later of the beginning of the subscription period or the date the software is made available to the customer to download.
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Our cloud-based subscriptions allow customers to use Vertex-hosted software over the contract period without taking possession of the software. The contracts are generally for one to three years and are generally billed annually in advance of the subscription period. Our cloud-based offerings also include related updates and support. Revenue recognition begins on the later of the beginning of the subscription period or the date the customer is provided access to the cloud-based solutions. All services within the cloud-based contracts consistently provide a benefit to the customer during the subscription period; thus, the associated revenue is recognized ratably over the subscription period.
Revenue is impacted by the timing of sales and our customers’ growth or contractions resulting in their need to expand or contract their subscription usage, the purchase of new solutions, or the non-renewal of existing solutions. In addition, revenue will fluctuate with the cessation of extended product support fees charged for older versions of our software subscription solutions when they are retired and these fees are no longer charged. Contracts for on-premise licenses permit cancellations at the end of the license term, which is generally one year. Legacy cloud-based subscription contracts for multi-year periods previously provided customers the right to terminate their contract for services prior to the end of the subscription period at a significant penalty. This penalty requires the payment of a percentage of the remaining months of the then-current contract term. Current cloud-based contracts do not contain such termination rights. Terminations of cloud-based subscriptions prior to the end of the subscription term have occurred infrequently, and the impact has been immaterial. The allowance for subscription and non-renewal cancellations reflects an estimate of the amount of such cancellations and non-renewals based on past experience, current information, and forward-looking economic considerations.
Services Revenue
We generate services revenue primarily in support of our customers’ needs associated with our software and to enable them to realize the full benefit of our solutions. These software subscription-related services include configuration, data migration and implementation, and premium support and training. In addition, we generate services revenue through our managed services offering which allows customers to outsource all or a portion of their indirect tax operations to us. These services include indirect tax return preparation, filing and tax payment, and notice management. We generally bill for services on a per-transaction or time and materials basis, and we recognize revenue from deliverable-based professional services as services are performed.
Fluctuations in services revenue are directly correlated to fluctuations in our subscription revenues with respect to implementation and training services as we have historically experienced an attachment rate to subscription sales for these services of approximately 60%. In addition, our managed services offering has continued to experience increased revenues associated with returns processing volume increases attributable to regulatory changes, as customers expanded their tax filings into more jurisdictions.
Cost of Revenue
Software Subscriptions
Cost of software subscriptions revenue consists of costs related to providing and supporting our software subscriptions and includes personnel and related expenses, including salaries, benefits, bonuses, and stock-based compensation. In addition, cost of revenue includes direct costs associated with information technology, such as data center and software hosting costs, and tax content maintenance. Cost of software subscriptions revenue also includes amortization associated with direct labor and related expenses for capitalized internal-use software for cloud-based subscription solutions and software developed for sale for new products and enhancements to existing products, and costs associated with the amortization of certain acquired intangible assets. We plan to continue to significantly expand our infrastructure and personnel to support our future growth and increases in transaction volumes of our cloud-based solutions, including through acquisitions. We expect growth in our business will result in an increase in cost of software subscriptions revenue in absolute dollars.
Services
Cost of services revenue consists of direct costs of software subscription-related services and our managed services offering. These costs include personnel and related expenses, including salaries, benefits, bonuses, stock-based compensation, and the cost of third-party contractors and other direct expenses. We plan to continue to expand our
39
infrastructure and personnel as necessary to support our future growth and related increases in our service revenue. We expect growth in our business will result in an increase in the cost of services revenue in absolute dollars.
Research and Development
Research and development expenses consist primarily of personnel and related expenses for our research and development activities, including salaries, benefits, bonuses and stock-based compensation, and the cost of third-party developers and other contractors. Research and development costs, other than software development expenses qualifying for capitalization, are expensed as incurred.
We devote substantial resources to developing new products and enhancing existing products, conducting quality assurance testing, improving our core technology, and integrating acquired technology with our products. We believe continued investments in research and development are critical to attain our strategic objectives and expect research and development costs to increase in absolute dollars. These investments include enhancing our solution offerings to address changing customer needs to support their growth, as well as implementing changes required to keep pace with our partners’ technology to ensure the continued ability of our solutions to work together and deliver value to our customers. The market for our solutions is characterized by rapid technological change, frequent new product and service introductions and enhancements, changing customer demands, and evolving industry standards. As a result, although we are making significant research and development expenditures, certain of which may be capitalized, there is no guarantee these solutions will be accepted by the market. This could result in increased costs or an impairment of capitalized development costs with no resulting future revenue benefit.
Selling and Marketing Expenses
Selling expenses consist primarily of personnel and related expenses in support of sales and marketing efforts. These costs include salaries, benefits, bonuses and stock-based compensation. In addition, selling expense includes costs related to advertising and promotion efforts, branding costs, partner-based commissions, costs associated with our annual customer conferences and amortization of certain acquired intangible assets. We intend to continue to invest in our sales and marketing capabilities in the future to continue to increase our brand awareness and expect these costs to increase on an absolute dollar basis as we grow our business and continue to expand our market and partner ecosystem penetration. Sales and marketing expense in absolute dollars and as a percentage of total revenue may fluctuate from period-to-period based on total revenue levels and the timing of our investments in our sales and marketing functions, as these investments will occur in advance of experiencing the benefits from such investments and may vary in scope and scale over future periods.
General and Administrative
General and administrative expenses consist primarily of personnel and related expenses for administrative, finance, information technology, legal, risk management, facilities, and human resources staffing, including salaries, benefits, bonuses, severance, stock-based compensation, professional fees, insurance premiums, facility costs, amortization of cloud computing arrangement implementation costs related to our ERP modernization initiative, and other internal support and infrastructure costs.
We expect our general and administrative expenses to increase in absolute dollars as we continue to expand our operations, hire additional personnel, integrate current and future acquisitions, and incur additional costs associated with being a publicly-listed company, including costs related to compliance with Section 404(b) of the Sarbanes-Oxley Act of 2002 beginning in 2023, as well as the additional requirements resulting from the Company's loss of emerging growth company status.
Depreciation and Amortization
Depreciation and amortization expense consists of the allocation of purchased and developed asset costs over the future periods benefitted by the use of these assets. These assets include leasehold improvements for our facilities, computers and equipment needed to support our customers and our internal infrastructure and capitalized internal-use software associated with our internal tools. Depreciation and amortization will fluctuate in correlation with our ongoing investment in internal infrastructure costs to support our growth.
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Other Operating Expense (Income), net
Other operating expense (income), net consists primarily of transactions costs associated with merger and acquisition activities, periodic remeasurement of contingent consideration associated with completed acquisitions, realized gains and losses on foreign currency changes, and other operating gains and losses. These amounts will fluctuate as a result of ongoing merger and acquisition activities and for changes in foreign currency rates.
Interest Expense (Income), net
Interest expense (income), net reflects the net amount of our interest expense and interest income within the same period.
Interest expense consists primarily of interest incurred related to borrowings, the Notes, bank credit facility and leases. Interest expense includes amortization of deferred financing fees over the term of the credit facility or write-downs of such costs upon redemption of debt. Interest expense will vary as a result of fluctuations in the level of debt outstanding as well as interest rates on such debt. In addition, interest expense will include adjustments to the fair value of contracts that may be entered into to hedge risks associated with currency fluctuations for cash receipts or cash payments denominated in currencies other than U.S. dollars and which do not qualify for hedge accounting, as well as changes in the settlement value of the future payment obligation for the Systax Sistemas Fiscais Limited (“Systax”) acquisition, which was fully settled on June 5, 2024.
Interest income reflects earnings on investments of our cash on hand and our investment securities. Interest income will vary as a result of fluctuations in the future level of funds available for investment and the rate of return available in the market on such funds.
Income Tax Expense (Benefit)
Income tax expense (benefit) consists primarily of federal, foreign, state, and local taxes on our loss or income. In determining our annualized effective income tax rates, net deferred tax assets, valuation allowances, and cash paid for income taxes, we are required to make judgments and estimates about domestic and foreign profitability, the timing and usage of net operating loss and credit carryforwards, applicable tax rates, and transfer pricing methodologies. Judgments and estimates related to our projections and assumptions are inherently uncertain; therefore, actual results could materially differ from our projections.
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Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and our consolidated financial statements and the notes thereto included in our 2023 Annual Report. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods. The following table sets forth our condensed consolidated statements of comprehensive income (loss) for the periods indicated.
For the three months ended | For the nine months ended | ||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||
(Dollars in thousands) | 2024 |
| 2023 | Period-Over-Period Change | 2024 |
| 2023 | Period-Over-Period Change | |||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Software subscriptions | $ | 146,254 |
| $ | 121,285 | $ | 24,969 |
| 20.6 | % |
| $ | 414,527 |
| $ | 350,135 | $ | 64,392 |
| 18.4 | % | ||
Services | 24,181 | 23,742 | 439 | 1.8 | % | 73,793 | 67,338 | 6,455 | 9.6 | % | |||||||||||||
Total revenues | 170,435 | 145,027 | 25,408 | 17.5 | % | 488,320 | 417,473 | 70,847 | 17.0 | % | |||||||||||||
Cost of revenues: | |||||||||||||||||||||||
Software subscriptions (1) | 43,641 | 41,055 | 2,586 | 6.3 | % | 131,030 | 116,974 | 14,056 | 12.0 | % | |||||||||||||
Services (1) | 16,270 | 15,816 | 454 | 2.9 | % | 48,286 | 45,523 | 2,763 | 6.1 | % | |||||||||||||
Total cost of revenues | 59,911 | 56,871 | 3,040 | 5.3 | % | 179,316 | 162,497 | 16,819 | 10.4 | % | |||||||||||||
Gross profit | 110,524 | 88,156 | 22,368 | 25.4 | % | 309,004 | 254,976 | 54,028 | 21.2 | % | |||||||||||||
Operating expenses: | |||||||||||||||||||||||
Research and development (1) | 15,621 | 16,772 | (1,151) | (6.9) | % | 47,080 | 45,314 | 1,766 | 3.9 | % | |||||||||||||
Selling and marketing (1) | 42,111 | 33,919 | 8,192 | 24.2 | % | 123,143 | 103,196 | 19,947 | 19.3 | % | |||||||||||||
General and administrative (1) | 41,499 | 35,385 | 6,114 | 17.3 | % | 112,915 | 109,071 | 3,844 | 3.5 | % | |||||||||||||
Depreciation and amortization | 5,214 | 3,782 | 1,432 | 37.9 | % | 15,432 | 11,401 | 4,031 | 35.4 | % | |||||||||||||
Other operating expense (income), net | 1,183 | 316 | 867 | * | % | (442) | 1,013 | (1,455) | * | % | |||||||||||||
Total operating expenses | 105,628 | 90,174 | 15,454 | 17.1 | % | 298,128 | 269,995 | 28,133 | 10.4 | % | |||||||||||||
Income (loss) from operations | 4,896 | (2,018) | 6,914 | (342.6) | % | 10,876 | (15,019) | 25,895 | (172.4) | % | |||||||||||||
Other (income) expense: |
|
|
|
|
| ||||||||||||||||||
Interest expense (income), net | (2,938) | 597 | (3,535) | * | % | (2,471) | 142 | (2,613) | * | % | |||||||||||||
Income (loss) before income taxes | 7,834 | (2,615) | 10,449 | (399.6) | % | 13,347 | (15,161) | 28,508 | (188.0) | % | |||||||||||||
Income tax (benefit) expense | 613 | 784 | (171) | * | % | (1,722) | 13,266 | (14,988) | * | % | |||||||||||||
Net income (loss) | 7,221 | (3,399) | 10,620 | (312.4) | % | 15,069 | (28,427) | 43,496 | (153.0) | % | |||||||||||||
Other comprehensive (income) loss: | |||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | (8,955) | 5,311 | (14,266) | (268.6) | % | (1,609) | 1,580 | (3,189) | (201.8) | % | |||||||||||||
Unrealized (gain) on investments, net of tax | (24) | (10) | (14) | * | % | (26) | (20) | (6) | * | % | |||||||||||||
Total other comprehensive (income) loss, net of tax | (8,979) | 5,301 | (14,280) | * | % | (1,635) | 1,560 | (3,195) | * | % | |||||||||||||
Total comprehensive income (loss) | $ | 16,200 | $ | (8,700) | $ | 24,900 | (286.2) | % | $ | 16,704 | $ | (29,987) | $ | 46,691 | (155.7) | % | |||||||
(1) | Includes stock-based compensation expenses as follows in the table below. |
* Percentage change not meaningful.
42
For the three months ended | For the nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
(Dollars in thousands) | 2024 |
| 2023 | 2024 |
| 2023 |
| |||||
(unaudited) | (unaudited) | |||||||||||
Stock-based compensation expense: | ||||||||||||
Cost of revenues, software subscriptions | $ | 894 | $ | 728 | $ | 3,437 | $ | 2,143 | ||||
Cost of revenues, services |
| 558 |
| 452 |
| 2,129 |
| 1,454 | ||||
Research and development |
| 2,001 |
| 1,398 |
| 7,296 |
| 4,407 | ||||
Selling and marketing |
| 2,951 |
| 2,325 |
| 10,101 |
| 6,305 | ||||
General and administrative |
| 3,730 |
| 2,869 |
| 13,496 |
| 11,919 | ||||
Total stock-based compensation expense | $ | 10,134 | $ | 7,772 | $ | 36,459 | $ | 26,228 |
The following table sets forth our results of operations as a percentage of our total revenues for the periods presented.
For the three months ended September 30, | For the nine months ended September 30, | |||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||
(unaudited) |
| (unaudited) | ||||||||
Revenues: |
|
|
|
|
|
|
| |||
Software subscriptions |
| 85.8 | % | 83.6 | % | 84.9 | % | 83.9 | % | |
Services |
| 14.2 | % | 16.4 | % | 15.1 | % | 16.1 | % | |
Total revenues |
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |
Cost of revenues: |
|
|
|
|
|
|
| |||
Software subscriptions |
| 25.6 | % | 28.3 | % | 26.8 | % | 28.0 | % | |
Services |
| 9.5 | % | 10.9 | % | 9.9 | % | 10.9 | % | |
Total cost of revenues |
| 35.1 | % | 39.2 | % | 36.7 | % | 38.9 | % | |
Gross profit |
| 64.9 | % | 60.8 | % | 63.3 | % | 61.1 | % | |
Operating expenses: |
|
|
|
|
|
|
| |||
Research and development |
| 9.2 | % | 11.6 | % | 9.6 | % | 10.9 | % | |
Selling and marketing |
| 24.7 | % | 23.4 | % | 25.2 | % | 24.7 | % | |
General and administrative |
| 24.3 | % | 24.4 | % | 23.1 | % | 26.1 | % | |
Depreciation and amortization |
| 3.1 | % | 2.6 | % | 3.2 | % | 2.7 | % | |
Other operating expense (income), net |
| 0.7 | % | 0.2 | % | (0.1) | % | 0.2 | % | |
Total operating expenses |
| 62.0 | % | 62.2 | % | 61.0 | % | 64.6 | % | |
Income (loss) from operations |
| 2.9 | % | (1.4) | % | 2.3 | % | (3.5) | % | |
Interest expense (income), net |
| (1.7) | % | 0.4 | % | (0.5) | % | — | % | |
Income (loss) before income taxes |
| 4.6 | % | (1.8) | % | 2.8 | % | (3.5) | % | |
Income tax (benefit) expense |
| 0.4 | % | 0.5 | % | (0.4) | % | 3.2 | % | |
Net income (loss) |
| 4.2 | % | (2.3) | % | 3.2 | % | (6.7) | % | |
Other comprehensive (income) loss: | ||||||||||
Foreign currency translation adjustments, net of tax | (5.3) | % | 3.7 | % | (0.3) | % | 0.4 | % | ||
Unrealized gain on investments, net of tax | — | % | — | % | — | % | — | % | ||
Total other comprehensive (income) loss, net of tax |
| (5.3) | % | 3.7 | % | (0.3) | % | 0.4 | % | |
Total comprehensive income (loss) |
| 9.5 | % | (6.0) | % | 3.5 | % | (7.1) | % |
43
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
Revenues
For the three months ended | ||||||||||||
September 30, | ||||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Period-Over-Period Change | ||||||
(unaudited) | ||||||||||||
Revenues: |
|
|
|
|
|
|
|
| ||||
Software subscriptions | $ | 146,254 | $ | 121,285 | $ | 24,969 |
| 20.6 | % | |||
Services |
| 24,181 |
| 23,742 |
| 439 |
| 1.8 | % | |||
Total revenues | $ | 170,435 | $ | 145,027 | $ | 25,408 | 17.5 | % |
Revenues increased $25.4 million, or 17.5%, to $170.4 million for the three months ended September 30, 2024 compared to $145.0 million for the same period in 2023. The increase in software subscriptions revenues of $25.0 million, or 20.6%, was primarily driven by increases from our existing customers through cross selling new products, and to a lesser extent, increases due to expanded use and price increases. Software subscriptions revenues derived from new customers averaged 6.0% and 6.5% of total software subscriptions revenues in the three months ended September 30, 2024 and 2023, respectively.
The $0.4 million increase in services revenues was primarily driven by a $1.9 million increase in recurring services revenues due to returns processing volume increases related to customer business growth and regulatory changes as customers expanded their tax filings into more jurisdictions, as well as an increase in interest received from our funds held for customers. These increases were partially offset by a $1.5 million decrease in service revenues primarily from the impact of our previously discussed effort to steer more implementation opportunities to our channel partners, who are an important referral source for new software opportunities.
Cost of Software Subscriptions Revenues
For the three months ended | ||||||||||||
September 30, | ||||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Period-Over-Period Change | ||||||
Cost of software subscriptions revenues | $ | 43,641 | $ | 41,055 | $ | 2,586 |
| 6.3 | % |
Cost of software subscriptions revenues increased $2.6 million, or 6.3%, to $43.6 million for the three months ended September 30, 2024 compared to $41.1 million for the same period in 2023. The increase in cost of software subscriptions revenues was primarily driven by a $2.4 million increase in costs of personnel supporting period-over-period growth of sales and customers, ongoing infrastructure investments and support costs to enable the continued expansion of customer transaction volumes for our cloud-based subscription customers.
Cost of Services Revenues
For the three months ended | ||||||||||||
September 30, | ||||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Period-Over-Period Change | ||||||
Cost of services revenues | $ | 16,270 | $ | 15,816 | $ | 454 |
| 2.9 | % |
Cost of services revenues increased $0.5 million, or 2.9%, to $16.3 million for the three months ended September 30, 2024, compared to $15.8 million for the same period in 2023. The increase in cost of services revenues was primarily due to an increase in costs of service delivery personnel to support revenue growth in software subscription-related services and our managed services offering.
44
Research and Development
For the three months ended | ||||||||||||
September 30, | ||||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Period-Over-Period Change | ||||||
Research and development | $ | 15,621 | $ | 16,772 | $ | (1,151) |
| (6.9) | % |
Research and development expenses decreased $1.2 million, or (6.9)%, to $15.6 million for the three months ended September 30, 2024 compared to $16.8 million for the same period in 2023. The decrease in research and development expenses is due to an increase in capitalized costs over the prior year related to development work associated with new solutions to address end-to-end data analysis and compliance needs of our customers, and continued expansion of connectors and application program interfaces (“APIs”) to customer ERP and other software platforms.
Selling and Marketing
For the three months ended | ||||||||||||
September 30, | ||||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Period-Over-Period Change | ||||||
Selling and marketing | $ | 42,111 | $ | 33,919 | $ | 8,192 |
| 24.2 | % |
Selling and marketing expenses increased $8.2 million, or 24.2%, to $42.1 million for the three months ended September 30, 2024 compared to $33.9 million for the same period in 2023. This increase was primarily driven by a $4.6 million increase in payroll and related expenses associated with the growth in period-over-period subscription sales and services revenues and expansion of our partner and channel management programs. Additionally, there was an increase of $3.6 million in advertising and promotional spending related to expanded brand awareness efforts.
General and Administrative
For the three months ended | ||||||||||||
September 30, | ||||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Period-Over-Period Change | ||||||
General and administrative | $ | 41,499 | $ | 35,385 | $ | 6,114 |
| 17.3 | % |
General and administrative expenses increased $6.1 million, or 17.3%, to $41.5 million for the three months ended September 30, 2024 compared to $35.4 million for the same period in 2023, primarily driven by a $5.3 million increase in planned strategic investments in information technology infrastructure, business process re-engineering and other initiatives to drive future operating leverage, as well as investments in employees, systems and other resources in support of our growth. Additionally, there was a $0.9 million increase in stock-based compensation expense over the prior year.
Depreciation and Amortization
For the three months ended | ||||||||||||
September 30, | ||||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Period-Over-Period change | ||||||
Depreciation and amortization |
| $ | 5,214 |
| $ | 3,782 |
| $ | 1,432 |
| 37.9 | % |
Depreciation and amortization increased $1.4 million, or 37.9%, to $5.2 million for the three months ended September 30, 2024 compared to $3.8 million for the same period in 2023. The increase was primarily due to the impact of infrastructure and technology purchases and other capitalized costs to support our growth.
Other Operating Expense (Income), Net
For the three months ended | ||||||||||||
September 30, | ||||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Period-Over-Period Change | ||||||
Other operating expense (income), net |
| $ | 1,183 |
| $ | 316 |
| $ | 867 |
| 274.4 | % |
Other operating expense (income), net increased to expense of $1.2 million, net for the three months ended September 30, 2024 compared to expense of $0.3 million, net for the same period in 2023. The increase in expense was primarily driven by foreign currency transaction losses incurred.
45
Interest Expense (Income), Net
For the three months ended | ||||||||||||
September 30, | ||||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Period-Over-Period Change | ||||||
Interest expense (income), net |
| $ | (2,938) |
| $ | 597 |
| $ | (3,535) |
| (592.1) | % |
Interest expense (income), net increased to income of $2.9 million for the three months ended September 30, 2024, compared to an expense of $0.6 million for the same period in 2023. This change was mainly due to several factors: a $3.8 million increase in interest income primarily due to increased dollars invested during the period, a reduction of $0.8 million of interest expense related to the term loan repayment, and $0.2 million related to the valuation of our prior year foreign currency forward contracts due to market fluctuations. These interest income increases were partially offset by $0.7 million of interest expense and a $0.6 million increase in deferred financing costs related to the convertible debt issuance.
Income Tax Expense
For the three months ended | ||||||||||||
September 30, | ||||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Period-Over-Period Change | ||||||
Income tax expense |
| $ | 613 |
| $ | 784 |
| $ | (171) |
| (21.8) | % |
Income tax expense was $0.6 million and $0.8 million for the three months ended September 30, 2024 and 2023, respectively. The change in tax expense was primarily driven by fluctuations in valuation allowances on certain foreign deferred tax assets, tax benefits from stock-based awards exercised or vested during the quarter, net of the impact from limitations on deductions of certain employees’ compensation, and benefits from tax credits partially offset by changes in taxes in profitable jurisdictions.
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
Revenues
For the nine months ended | ||||||||||||
September 30, | ||||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Year-Over-Year Change | ||||||
(unaudited) | ||||||||||||
Revenues: |
|
|
|
|
|
|
|
| ||||
Software subscriptions | $ | 414,527 | $ | 350,135 | $ | 64,392 |
| 18.4 | % | |||
Services |
| 73,793 |
| 67,338 |
| 6,455 |
| 9.6 | % | |||
Total revenues | $ | 488,320 | $ | 417,473 | $ | 70,847 |
| 17.0 | % |
Revenues increased $70.8 million, or 17.0%, to $488.3 million for the nine months ended September 30, 2024 compared to $417.5 million for the same period in 2023. The increase in software subscriptions revenues of $64.4 million, or 18.4%, was primarily driven by increases from our existing customers through cross selling new products, and to a lesser extent, increases due to expanded use and price increases. Software subscriptions revenues derived from new customers averaged 5.8% and 6.5% of total software subscriptions revenues in the nine months ended September 30, 2024 and 2023, respectively.
The $6.5 million increase in services revenues was primarily driven by an increase of $3.1 million in software subscription-related services associated with the growth in subscription revenues, which includes new customers implementing our solutions and existing customers upgrading to newer versions of our solutions. In addition, our managed services offering experienced a $3.3 million increase driven by an increase in recurring services revenues over the prior year due to returns processing volume increases related to customer business growth and regulatory changes as customers expanded their tax filings into more jurisdictions, as well as an increase in interest received from our funds held for customers.
46
Cost of Software Subscriptions Revenues
For the nine months ended | ||||||||||||
September 30, |
| |||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Year-Over-Year Change |
| |||||
Cost of software subscriptions revenues |
| $ | 131,030 |
| $ | 116,974 |
| $ | 14,056 |
| 12.0 | % |
Cost of software subscriptions revenues increased $14.1 million, or 12.0%, to $131.0 million for the nine months ended September 30, 2024 compared to $117.0 million for the same period in 2023. The increase in cost of software subscriptions revenues was primarily driven by a $9.1 million increase in costs of personnel supporting period-over-period growth of sales and customers, ongoing infrastructure investments and support costs to enable the continued expansion of customer transaction volumes for our cloud-based subscription customers. In addition, the increase in cost of software subscriptions revenues included an increase in depreciation and amortization of $5.0 million associated with our ongoing investments in internal-use software for cloud-based subscription solutions, software developed for sale for new products and enhancements to existing products, and costs associated with the amortization of acquired intangible assets.
Cost of Services Revenues
For the nine months ended | ||||||||||||
September 30, | ||||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Year-Over-Year Change | ||||||
Cost of services revenues |
| $ | 48,286 |
| $ | 45,523 |
| $ | 2,763 |
| 6.1 | % |
Cost of services revenues increased $2.8 million, or 6.1%, to $48.3 million for the nine months ended September 30, 2024, compared to $45.5 million for the same period in 2023. The increase in cost of services revenues was primarily due to an increase in costs of service delivery personnel to support revenue growth in software subscription-related services and our managed services offering.
Research and Development
For the nine months ended | ||||||||||||
September 30, |
| |||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Year-Over-Year Change |
| |||||
Research and development |
| $ | 47,080 |
| $ | 45,314 |
| $ | 1,766 |
| 3.9 | % |
Research and development expenses increased $1.8 million, or 3.9%, to $47.1 million for the nine months ended September 30, 2024 compared to $45.3 million for the same period in 2023. The increase in research and development expenses is due primarily to an increase in personnel costs related to development work associated with new solutions to address end-to-end data analysis and compliance needs of our customers, and continued expansion of connectors and APIs to customer ERP and other software platforms. Research and development expense excludes those costs that have been capitalized for solutions that have met our capitalization policy.
Selling and Marketing
For the nine months ended | ||||||||||||
September 30, |
| |||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Year-Over-Year Change |
| |||||
Selling and marketing |
| $ | 123,143 |
| $ | 103,196 |
| $ | 19,947 |
| 19.3 | % |
Selling and marketing expenses increased $19.9 million, or 19.3%, to $123.1 million for the nine months ended September 30, 2024 compared to $103.2 million for the same period in 2023. This increase was primarily driven by a $14.6 million increase in payroll and related expenses associated with the growth in period-over-period subscription sales and services revenues and expansion of our partner and channel management programs. Additionally, there was an increase of $4.8 million in advertising and promotional spending related to expanded brand awareness efforts.
General and Administrative
For the nine months ended | ||||||||||||
September 30, | ||||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Year-Over-Year Change | ||||||
General and administrative |
| $ | 112,915 |
| $ | 109,071 |
| $ | 3,844 |
| 3.5 | % |
47
General and administrative expenses increased $3.8 million, or 3.5%, to $112.9 million for the nine months ended September 30, 2024 compared to $109.1 million for the same period in 2023, driven by a $0.8 million increase in planned strategic investments in information technology infrastructure, business process reengineering and other initiatives to drive future operating leverage, as well as investments in employees, systems and other resources in support of our growth. Additionally, there was an increase of $1.4 million for the amortization of capitalized cloud computing implementation costs related to our ERP modernization initiative. Finally, there was a $1.8 million increase in stock-based compensation expense over the prior year.
Depreciation and Amortization
For the nine months ended | ||||||||||||
September 30, | ||||||||||||
(Dollars in thousands) | 2024 |
| 2023 | Year-Over-Year Change |
| |||||||
Depreciation and amortization |
| $ | 15,432 |
| $ | 11,401 |
| $ | 4,031 |
| 35.4 | % |
Depreciation and amortization increased $4.0 million, or 35.4%, to $15.4 million for the nine months ended September 30, 2024 compared to $11.4 million for the same period in 2023. The increase was primarily due to the impact of infrastructure and technology purchases and other capitalized costs to support our growth.
Other Operating Expense (Income), Net
For the nine months ended | ||||||||||||
September 30, |
| |||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Year-Over-Year Change | ||||||
Other operating expense (income), net |
| $ | (442) |
| $ | 1,013 |
| $ | (1,455) |
| (143.6) | % |
Other operating expense (income), net increased to income of $0.4 million, net for the nine months ended September 30, 2024 compared to expense of $1.0 million, net for the same period in 2023. The decrease in expense was primarily driven by a decrease in the contingent consideration liability for the Tellutax LLC acquisition.
Interest Expense (Income), Net
For the nine months ended | ||||||||||||
September 30, |
| |||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Year-Over-Year Change | ||||||
Interest expense (income), net |
| $ | (2,471) |
| $ | 142 |
| $ | (2,613) |
| (1,840.1) | % |
Interest expense (income), net increased to income of $2.5 million for the nine months ended September 30, 2024, compared to interest expense of $0.1 million for the same period in 2023. The change was primarily due to a $5.0 million increase in interest income due to increased dollars invested during the period and a reduction of $1.2 million of interest expense related to the term loan repayment. This was partially offset by a $0.6 million decrease in the valuation of our foreign currency forward contracts due to market fluctuations, a $1.6 million increase in interest expense and $1.4 million increase in deferred financing costs related to the convertible debt issuance.
Income Tax (Benefit) Expense
For the nine months ended | ||||||||||||
September 30, |
| |||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Year-Over-Year Change | ||||||
Income tax (benefit) expense |
| $ | (1,722) |
| $ | 13,266 |
| $ | (14,988) |
| (113.0) | % |
Income tax (benefit) expense was $(1.7) million and $13.3 million for the nine months ended September 30, 2024 and 2023, respectively. The change in tax (benefit) expense was primarily driven by tax benefits on exercises and vesting of stock awards, net of limitations on deductions of certain employees’ compensation, changes in jurisdictional income or loss allocation, fluctuations in valuation allowances on certain foreign deferred tax assets, and changes in benefits of tax credits.
48
Liquidity and Capital Resources
As of September 30, 2024, we had unrestricted cash and cash equivalents of $279.0 million and retained earnings of $14.5 million. In addition, we had $7.5 million in investment securities with a maturity date exceeding three months as of September 30, 2024, not included in unrestricted cash and cash equivalents. Our primary sources of capital include sales of our solutions, proceeds from bank lending facilities, and the offering of existing or future classes of stock.
As of September 30, 2024, we had a credit agreement with a banking syndicate (the “Credit Agreement”) that provides a $200.0 million revolving facility (the “Line of Credit”).
On April 26, 2024, we closed a private offering of $345.0 million aggregate principal amount of 0.750% Convertible Senior Notes due in 2029 (the “Notes”). The net proceeds from the offering of the Notes were $333.7 million, after deducting the initial purchasers’ discount and commissions, and other transaction and offering expenses. For additional information on the Notes, refer to Note 8, “Debt” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
We believe that our existing cash resources and our Line of Credit will be sufficient to meet our capital requirements and fund our operations for the next 12 months as well as our longer-term liquidity needs. If an early conversion notice occurs on our Notes, we have the option to pay cash, shares of our Class A common stock, or a combination of both. Also, we expect to have access to additional sources of funds in the capital markets, and we may, from time to time, seek additional capital through a combination of additional debt and/or equity financings. If we were to raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. Additional financing may not be available at all, or in amounts or on terms unacceptable to us.
The following table presents a summary of our cash flows for the periods indicated:
For the nine months ended | ||||||||||||||
September 30, | ||||||||||||||
(Dollars in thousands) | 2024 | 2023 | Year-Over-Year Change | |||||||||||
Net cash provided by operating activities |
| $ | 123,688 |
| $ | 26,696 | $ | 96,992 | 363.3 | % | ||||
Net cash used in investing activities |
| (133,268) |
| (46,264) | (87,004) | (188.1) | % | |||||||
Net cash provided by (used in) financing activities |
| 225,005 |
| (6,003) | 231,008 | 3,848.2 | % | |||||||
Effect of foreign exchange rate changes |
| 810 |
| (55) | 865 | 1,572.7 | % | |||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 216,235 | $ | (25,626) | $ | 241,861 | 943.8 | % |
Operating Activities. Net cash provided by operating activities of $123.7 million for the nine months ended September 30, 2024 consisted of net income of $15.1 million, adjusted for non-cash charges of $93.5 million and cash inflows of $19.5 million from changes in operating assets and liabilities, which were partially offset by $4.4 million in payments for purchase commitment and contingent consideration liabilities in excess of their initial fair value. The change in operating assets and liabilities was primarily driven by a decrease in accounts receivable and an increase in deferred revenue, primarily due to cash collections and customer growth during the period. These changes were partially offset by an increase in prepaid expenses and other current assets. These movements were primarily due to the timing of cash payments.
Net cash provided by operating activities of $26.7 million for the nine months ended September 30, 2023 consisted of net loss of $28.4 million, adjusted for non-cash charges of $75.0 million and cash outflows of $19.9 million from changes in operating assets and liabilities. The change in operating assets and liabilities was primarily driven by an increase in accounts receivable which was partially offset by increases in accounts payable and accrued expenses. These movements were primarily due to timing of cash collections and payments during the period.
Investing Activities. Net cash used in investing activities of $133.3 million for the nine months ended September 30, 2024 consisted of investments in property and equipment, and capitalized software of $47.5 million and $16.4 million,
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respectively, related to investments in infrastructure, new products, and enhancements to existing products. Additionally, we paid $71.8 million related to acquisitions completed during the second and third quarters of 2024. Finally, we invested $12.2 million in available-for-sale investment securities, which was more than offset by proceeds of $14.6 million received during the period for sales and maturities in our investment securities. For additional information on our acquisitions, refer to Note 3, “Acquisitions” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Net cash used in investing activities of $46.3 million for the nine months ended September 30, 2023 consisted of investments in property and equipment, and capitalized software of $35.4 million and $14.1 million, respectively, related to infrastructure investments to drive operating leverage and commercial solutions to support our customers. Additionally, we invested $12.9 million in available-for-sale investment securities, which was more than offset by proceeds of $16.0 million received during the period for sales and maturities in our investment securities.
Financing Activities. Net cash provided by financing activities of $225.0 million for the nine months ended September 30, 2024 consisted of $345.0 million in gross proceeds from our Notes, as well as a $6.0 million increase in customer funds obligations, primarily due to timing differences between receipt of funds from customers and taxing jurisdiction withdrawals of these funds. These transactions were partly offset by $46.9 million for the repayment of our term loan, $42.4 million for the purchase of the Capped Call Transactions, $3.9 million in payments of third-party debt, $20.0 million in payments for taxes related to the net share settlement of stock-based awards, $11.4 million for payments related to deferred financing costs and $7.6 million for payments on purchase commitment and contingent consideration liabilities.
Net cash used in financing activities of $6.0 million for the nine months ended September 30, 2023 consisted of a $10.0 million payment for a deferred purchase commitment, $9.2 million in payments for taxes related to the net share settlement of stock-based awards, $6.4 million in payments for purchase commitment and contingent consideration liabilities, and $1.6 million used for principal debt repayments. These transactions were partially offset by a $17.0 million increase in customer funds obligations, primarily due to timing differences between receipt of funds from customers and taxing jurisdiction withdrawals of these funds, and $3.1 million in proceeds from the exercise of stock options.
Debt. As of September 30, 2024, we had a $200.0 million Line of Credit with no outstanding borrowings in connection with our Credit Agreement. As of September 30, 2024, we had $345.0 million aggregate principal amount of debt outstanding related to our Notes. For additional information on our debt refer to Note 8, “Debt” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Funds Held for Customers and Customer Funds Obligations
We maintain trust accounts with financial institutions, which allow our customers to outsource their tax remittance functions to us. We have legal ownership over the accounts utilized for this purpose. Funds held for customers represent cash and cash equivalents that, based upon our intent, are restricted solely for satisfying the obligations to remit funds relating to our tax remittance services. Funds held for customers are not commingled with our operating funds.
Customer funds obligations represent our contractual obligations to remit collected funds to satisfy customer tax payments. Customer funds obligations are reported as a current liability on our consolidated balance sheets as the obligations are expected to be settled within one year. Cash flows related to changes in customer funds obligations liability are presented as cash flows from financing activities.
Contractual Obligations and Commitments
In connection with the pricing of the Notes on April 23, 2024, the Company entered into Capped Call Transactions. For additional information regarding the Capped Call Transactions, refer to Note 8, “Debt” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
As of September 30, 2024, we have no outstanding borrowings under the term loan or Line of Credit. Our Notes are due in May 2029. We expect to continue to fund debt maturities and interest payments with cash flows generated from operations, existing cash and cash equivalents, or proceeds from additional financing. For additional information on our debt obligations, refer to Note 8, “Debt” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
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As a result of the August 30, 2024 ecosio acquisition, we may be obligated to make annual payouts for Earn-outs based on ecosio’s achievement of certain financial targets over a three-year period. For additional information on the ecosio acquisition, refer to Note 3, “Acquisitions” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
There have been no other material updates or changes to our contractual obligations and commitments compared to contractual obligations and commitments described in our 2023 Annual Report, other than those noted above.
Key Business Metrics
We regularly review the metrics identified below to evaluate growth trends, measure our performance, formulate financial projections and make strategic decisions.
Annual Recurring Revenue (“ARR”) and Average Annual Revenue Per Customer (“AARPC”).
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 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.
AARPC represents average annual revenue per customer and is calculated by dividing ARR by the number of software subscription customers at the end of the respective period.
As of September 30, | ||||||||||||
(Dollars in millions) |
| 2024 |
| 2023 |
| Year-Over-Year Change | ||||||
Annual Recurring Revenue | $ | 576.8 | $ | 484.9 | $ | 91.9 |
| 19.0 | % |
ARR increased by $91.9 million, or 19.0%, at September 30, 2024, as compared to September 30, 2023. The increase was primarily driven by $52.6 million of growth in revenues from existing customers through their expanded use of our solutions as well as price increases, and $25.3 million in growth of subscriptions of our solutions to new customers. Addionally, $5.9 million was added to ARR due to the inclusion of Systax’s ARR, which was included as a result of the acquisition of the remaining ownership interests of Systax during the second quarter of 2024, and $8.1 million was added to ARR due to the ecosio acquisition during the third quarter of 2024. Excluding the impact of Systax and ecosio, the ARR growth rate would have been 16.1%.
We had 4,855 direct customers and AARPC was approximately $118,800 at September 30, 2024. At September 30, 2023, we had 4,303 direct customers and approximately $112,690 of AARPC. The increase in AARPC was primarily due to expansion of usage by existing customers and adding new customers through organic growth. Additionally, the inclusion of Systax and ecosio added 574 customers to the third quarter of 2024.
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Net Revenue Retention Rate (“NRR”).
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 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.
As of September 30, | |||||
| 2024 |
| 2023 | ||
Net Revenue Retention Rate |
| 111 | % | 111 | % |
Gross Revenue Retention Rate (“GRR”).
We believe our GRR provides insight into and demonstrates to investors our ability to retain revenues from our existing customers. Our GRR refers to how much of our MRR we retain each month after reduction for the effects of revenues lost from departing 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.
As of September 30, | |||||
| 2024 |
| 2023 | ||
Gross Revenue Retention Rate |
| 95 | % | 96 | % |
Adjusted EBITDA and Adjusted EBITDA Margin.
We believe that Adjusted EBITDA is a measure widely used by securities analysts and investors to evaluate the financial performance of our company and other companies. We believe that Adjusted EBITDA and Adjusted EBITDA margin are useful as supplemental measures to evaluate our overall operating performance as they measure business performance focusing on cash related charges and because they are important metrics to lenders under our credit agreement. We define Adjusted EBITDA as net loss or income before interest (including adjustments to the settlement value of deferred purchase commitment liabilities), taxes, depreciation, and amortization, as adjusted to exclude charges for asset impairments, stock-based compensation expense, amortization of cloud computing arrangement implementation costs, severance expense, acquisition contingent consideration, litigation settlements, and transaction costs. Adjusted EBITDA margin represents Adjusted EBITDA divided by total revenues for the same period. For purposes of comparison, our net income (loss) was $7.2 million and $(3.4) million for the three months ended September 30, 2024 and 2023, respectively, while our net income (loss) margin was 4.2% and (2.3)% over the same periods, respectively. Additionally,
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our net income (loss) was $15.1 million and $(28.4) million for the nine months ended September 30, 2024 and 2023, respectively, while our net income (loss) margin was 3.1% and (6.8)% over the same periods, respectively.
For the three months ended | For the nine months ended | ||||||||||||
| September 30, | September 30, | |||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 | 2024 |
| 2023 | ||||||
(unaudited) | (unaudited) | ||||||||||||
Adjusted EBITDA: | |||||||||||||
Net income (loss) | $ | 7,221 | $ | (3,399) | $ | 15,069 | $ | (28,427) | |||||
Interest expense (income), net |
| (2,938) |
| 597 |
| (2,471) | 142 | ||||||
Income tax (benefit) expense |
| 613 |
| 784 |
| (1,722) | 13,266 | ||||||
Depreciation and amortization – property and equipment |
| 5,214 |
| 3,782 |
| 15,432 | 11,401 | ||||||
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues |
| 14,198 |
| 14,029 |
| 44,123 | 39,150 | ||||||
Amortization of acquired intangible assets – selling and marketing expense | 706 | 596 | 1,893 | 2,046 | |||||||||
Amortization of cloud computing implementation costs – general and administrative | 1,005 | 919 | 2,994 | 1,550 | |||||||||
Stock-based compensation expense |
| 10,134 |
| 7,772 |
| 36,459 | 26,228 | ||||||
Severance expense | 927 | 643 | 2,388 | 2,103 | |||||||||
Acquisition contingent consideration | 100 | 900 | (2,275) | 1,349 | |||||||||
Transaction costs |
| 1,443 |
| — |
| 1,991 | — | ||||||
Adjusted EBITDA | $ | 38,623 | $ | 26,623 | $ | 113,881 | $ | 68,808 | |||||
Adjusted EBITDA Margin: |
|
|
|
|
|
|
|
| |||||
Total revenues | $ | 170,435 | $ | 145,027 | $ | 488,320 | $ | 417,473 | |||||
Adjusted EBITDA margin |
| 22.7 | % |
| 18.4 | % |
| 23.3 | % |
| 16.5 | % |
The increase in Adjusted EBITDA for the three months ended September 30, 2024 of $12.0 million over the comparable period in 2023 was primarily driven by an increase of $22.8 million in non-GAAP gross profit, partly offset by a $7.5 million increase in non-GAAP selling and marketing expense as well as a $4.9 million increase in non-GAAP general and administrative expense. Adjusted EBITDA margin increased to 22.7% for the three months ended September 30, 2024, compared to 18.4% for the comparable period in 2023, primarily due to increased non-GAAP gross margin from both our software subscriptions and professional services revenue.
The increase in Adjusted EBITDA for the nine months ended September 30, 2024 of $45.1 million over the comparable period in 2023 was primarily driven by an increase of $61.0 million in non-GAAP gross profit, partly offset by an $16.3 million increase in non-GAAP selling and marketing expense. Adjusted EBITDA margin increased to 23.3% for the nine months ended September 30, 2024, compared to 16.5% for the comparable period in 2023, primarily due to increased non-GAAP gross margin from both our software subscriptions and professional services revenue.
The increase in Adjusted EBITDA is also partially due to the previously announced strategic investments that were made primarily during 2020 through 2023 into information technology infrastructure, business and re-engineering processes, employees, and other initiatives, which were strategically aimed to deliver consistent revenue growth, drive future earnings leverage, and expand adjusted EBITDA margins.
Free Cash Flow and Free Cash Flow Margin.
We use free cash flow as a critical measure in the evaluation of liquidity in conjunction with related GAAP amounts. We also use this measure when considering available cash, including for decision-making purposes related to dividends and discretionary investments. We consider free cash flow to be an important measure for investors because it measures the amount of cash we generate from our operations after our capital expenditures and capitalization of software development costs. In addition, we base certain of our forward-looking estimates and budgets on free cash flow and free
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cash flow margin. We define free cash flow as the total of net cash provided by operating activities less purchases of property and equipment and capitalized software. We define free cash flow margin as free cash flow divided by total revenues for the same period.
Our net cash provided by operating activities was $41.4 million and $27.6 million for the three months ended September 30, 2024 and 2023, respectively, while our operating cash flow margin was 24.3% and 19.0% over the same periods, respectively. Our net cash provided by operating activities was $123.7 million and $26.7 million for the nine months ended September 30, 2024 and 2023, respectively, while our operating cash flow margin was 25.3% and 6.4% over the same periods, respectively.
For the three months ended | For the nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 | 2024 |
| 2023 | ||||||||
(unaudited) | |||||||||||||||
Free Cash Flow: | |||||||||||||||
Cash provided by (used in) operating activities | $ | 41,396 | $ | 27,594 | $ | 123,688 | $ | 26,696 | |||||||
Property and equipment additions | (17,771) | (13,498) | (47,520) | (35,357) | |||||||||||
Capitalized software additions | (5,260) | (5,041) | (16,357) | (14,083) | |||||||||||
Free cash flow | $ | 18,365 | $ | 9,055 | $ | 59,811 | $ | (22,744) | |||||||
Free Cash Flow Margin: | |||||||||||||||
Total revenues | $ | 170,435 | $ | 145,027 | $ | 488,320 | $ | 417,473 | |||||||
Free cash flow margin |
| 10.8 | % | 6.2 | % |
| 12.2 | % |
| (5.4) | % | ||||
Free cash flow increased by $9.3 million for the three months ended September 30, 2024, as compared to the same period in 2023. This increase was primarily driven by an increase in net cash provided by operating activities of $13.8 million, primarily attributable to customer growth and cash collections during the period. This increase was partly offset by a $4.3 million increase in ongoing investments in internal-use software for cloud-based subscription solutions and software developed for sale for new products and enhancements to existing products. Free cash flow margin increased to 10.8% for the three months ended September 30, 2024, compared to 6.2% for the same period in 2023.
Free cash flow increased by $82.6 million for the nine months ended September 30, 2024, as compared to the same period in 2023. This increase was primarily driven by an increase in net cash provided by operating activities of $97.0 million, primarily attributable to customer growth and cash collections during the period. This increase was partly offset by a $12.2 million increase in ongoing investments in internal-use software for cloud-based subscription solutions and software developed for sale for new products and enhancements to existing products. Free cash flow margin increased to 12.2% for the nine months ended September 30, 2024, compared to (5.4)% for the same period in 2023.
Use and Reconciliation of Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we have calculated Adjusted EBITDA, Adjusted EBITDA margin, free cash flow, free cash flow margin, 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, and non-GAAP net income, 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.
We use 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. We use non-GAAP financial measures of free cash flow and free cash flow margin to evaluate 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
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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 financial measures, and should be read in conjunction with the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Additional Non-GAAP Financial Measures
In addition to Adjusted EBITDA, Adjusted EBITDA margin, free cash flow, and free cash flow margin calculated and discussed in “Key Business Metrics,” the following additional non-GAAP financial measures are calculated and presented further below:
● | 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 and transaction costs related to acquired technology included in research and development expense for the respective periods. |
● | Non-GAAP selling and marketing expense is determined by adding back to GAAP selling and marketing expense the stock-based compensation expense and the amortization of acquired intangible assets included in selling and marketing expense for the respective periods. |
● | Non-GAAP general and administrative expense is determined by adding back to GAAP general and administrative expense the stock-based compensation expense, amortization of cloud computing implementation costs and severance expense included in general and administrative expense for the respective periods. |
● | Non-GAAP operating income is determined by adding back to GAAP loss or income from operations the stock-based compensation expense, depreciation and amortization of capitalized software and acquired intangible assets included in cost of subscription revenues, amortization of acquired intangible assets included in selling and marketing expense, amortization of cloud computing implementation costs in general and administrative expense, severance expense, acquisition contingent consideration, litigation settlements, and transaction costs, included in GAAP loss or income from operations for the respective periods. |
● | Non-GAAP net income is determined by adding back to GAAP net income or loss income tax benefit or expense, stock-based compensation expense, depreciation and amortization of capitalized software and acquired intangible assets included in cost of subscription revenues, amortization of acquired intangible assets included in selling and marketing expense, amortization of cloud computing implementation costs in general and administrative expense, severance expense, acquisition contingent consideration, adjustments to the settlement value of deferred purchase commitment liabilities recorded as interest expense, litigation settlements, and transaction costs, included in GAAP net income or loss for the respective periods to determine non-GAAP income or loss before income taxes. Non-GAAP income or loss before income taxes |
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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%. |
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.
The following schedules reflect our additional non-GAAP financial measures and reconciles our additional non-GAAP financial measures to the related GAAP financial measures.
For the three months ended | For the nine months ended |
| |||||||||||
September 30, | September 30, |
| |||||||||||
(Dollars in thousands) | 2024 | 2023 | 2024 | 2023 |
| ||||||||
(unaudited) | (unaudited) | ||||||||||||
Non-GAAP cost of revenues, software subscriptions |
| $ | 28,549 |
| $ | 26,298 | $ | 83,470 |
| $ | 75,681 | ||
Non-GAAP cost of revenues, services | $ | 15,712 | $ | 15,364 | $ | 46,157 | $ | 44,069 | |||||
Non-GAAP gross profit | $ | 126,174 | $ | 103,365 | $ | 358,693 | $ | 297,723 | |||||
Non-GAAP gross margin |
| 74.0 | % |
| 71.3 | % |
| 73.5 | % |
| 71.3 | % | |
Non-GAAP research and development expense | $ | 12,897 | $ | 15,374 | $ | 39,061 | $ | 40,907 | |||||
Non-GAAP selling and marketing expense | $ | 38,454 | $ | 30,998 | $ | 111,149 | $ | 94,845 | |||||
Non-GAAP general and administrative expense | $ | 35,837 | $ | 30,954 | $ | 94,037 | $ | 93,499 | |||||
Non-GAAP operating income | $ | 33,409 | $ | 22,841 | $ | 98,449 | $ | 57,407 | |||||
Non-GAAP net income | $ | 27,079 | $ | 16,572 | $ | 75,501 | $ | 42,662 | |||||
For the three months ended |
| For the nine months ended | |||||||||||
September 30, |
| September 30, | |||||||||||
(Dollars in thousands) | 2024 | 2023 |
| 2024 | 2023 | ||||||||
(unaudited) | (unaudited) | ||||||||||||
Non-GAAP Cost of Revenues, Software Subscriptions: |
|
|
|
|
|
|
| ||||||
Cost of revenues, software subscriptions | $ | 43,641 | $ | 41,055 | $ | 131,030 | $ | 116,974 | |||||
Stock-based compensation expense |
| (894) |
| (728) |
| (3,437) | (2,143) | ||||||
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues |
| (14,198) |
| (14,029) |
| (44,123) |
| (39,150) | |||||
Non-GAAP cost of revenues, software subscriptions | $ | 28,549 | $ | 26,298 | $ | 83,470 | $ | 75,681 | |||||
Non-GAAP Cost of Revenues, Services: | |||||||||||||
Cost of revenues, services | $ | 16,270 | $ | 15,816 | $ | 48,286 | $ | 45,523 | |||||
Stock-based compensation expense |
| (558) |
| (452) |
| (2,129) |
| (1,454) | |||||
Non-GAAP cost of revenues, services | $ | 15,712 | $ | 15,364 | $ | 46,157 | $ | 44,069 | |||||
Non-GAAP Gross Profit: |
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|
|
|
|
|
| |||||
Gross profit | $ | 110,524 | $ | 88,156 | $ | 309,004 | $ | 254,976 | |||||
Stock-based compensation expense |
| 1,452 |
| 1,180 |
| 5,566 |
| 3,597 | |||||
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues |
| 14,198 |
| 14,029 |
| 44,123 |
| 39,150 | |||||
Non-GAAP gross profit | $ | 126,174 | $ | 103,365 | $ | 358,693 | $ | 297,723 | |||||
Non-GAAP Gross Margin: |
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|
|
|
|
| |||||
Total revenues | $ | 170,435 | $ | 145,027 | $ | 488,320 | $ | 417,473 | |||||
Non-GAAP gross margin |
| 74.0 | % |
| 71.3 | % |
| 73.5 | % |
| 71.3 | % | |
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For the three months ended | For the nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
(Dollars in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||
(unaudited) | (unaudited) | ||||||||||||
Non-GAAP Research and Development Expense: |
|
|
|
|
|
|
|
| |||||
Research and development expense | $ | 15,621 | $ | 16,772 | $ | 47,080 | $ | 45,314 | |||||
Stock-based compensation expense |
| (2,001) |
| (1,398) |
| (7,296) |
| (4,407) | |||||
Transaction costs | (723) | — | (723) | — | |||||||||
Non-GAAP research and development expense | $ | 12,897 | $ | 15,374 | $ | 39,061 | $ | 40,907 | |||||
Non-GAAP Selling and Marketing Expense: |
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|
|
|
|
|
|
| |||||
Selling and marketing expense | $ | 42,111 | $ | 33,919 | $ | 123,143 | $ | 103,196 | |||||
Stock-based compensation expense | (2,951) |
| (2,325) | (10,101) |
| (6,305) | |||||||
Amortization of acquired intangible assets – selling and marketing expense |
| (706) |
| (596) |
| (1,893) |
| (2,046) | |||||
Non-GAAP selling and marketing expense | $ | 38,454 | $ | 30,998 | $ | 111,149 | $ | 94,845 | |||||
Non-GAAP General and Administrative Expense: |
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|
|
|
|
|
|
| |||||
General and administrative expense | $ | 41,499 | $ | 35,385 | $ | 112,915 | $ | 109,071 | |||||
Stock-based compensation expense |
| (3,730) |
| (2,869) |
| (13,496) |
| (11,919) | |||||
Severance expense | (927) | (643) | (2,388) | (2,103) | |||||||||
Amortization of cloud computing implementation costs – general and administrative | (1,005) | (919) | (2,994) | (1,550) | |||||||||
Non-GAAP general and administrative expense | $ | 35,837 | $ | 30,954 | $ | 94,037 | $ | 93,499 | |||||
Non-GAAP Operating Income: |
|
|
|
|
|
|
|
| |||||
Income (loss) from operations | $ | 4,896 | $ | (2,018) | $ | 10,876 | $ | (15,019) | |||||
Stock-based compensation expense |
| 10,134 |
| 7,772 |
| 36,459 |
| 26,228 | |||||
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues |
| 14,198 |
| 14,029 |
| 44,123 |
| 39,150 | |||||
Amortization of acquired intangible assets – selling and marketing expense | 706 |
| 596 | 1,893 |
| 2,046 | |||||||
Amortization of cloud computing implementation costs – general and administrative | 1,005 | 919 | 2,994 | 1,550 | |||||||||
Severance expense | 927 | 643 | 2,388 | 2,103 | |||||||||
Acquisition contingent consideration | 100 | 900 | (2,275) | 1,349 | |||||||||
Transaction costs | 1,443 |
| — |
| 1,991 | — | |||||||
Non-GAAP operating income | $ | 33,409 | $ | 22,841 | $ | 98,449 | $ | 57,407 | |||||
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For the three months ended | For the nine months ended | ||||||||||||
(Dollars in thousands) | September 30, | September 30, | |||||||||||
2024 | 2023 | 2024 | 2023 | ||||||||||
(unaudited) | (unaudited) | ||||||||||||
Non-GAAP Net Income: |
|
|
|
|
|
|
|
| |||||
Net income (loss) | $ | 7,221 | $ | (3,399) | $ | 15,069 | $ | (28,427) | |||||
Income tax (benefit) expense | 613 | 784 | (1,722) | 13,266 | |||||||||
Stock-based compensation expense |
| 10,134 |
| 7,772 |
| 36,459 |
| 26,228 | |||||
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues | 14,198 | 14,029 | 44,123 | 39,150 | |||||||||
Amortization of acquired intangible assets – selling and marketing expense | 706 | 596 | 1,893 | 2,046 | |||||||||
Amortization of cloud computing implementation costs – general and administrative | 1,005 | 919 | 2,994 | 1,550 | |||||||||
Severance expense |
| 927 |
| 643 |
| 2,388 |
| 2,103 | |||||
Acquisition contingent consideration | 100 | 900 | (2,275) | 1,349 | |||||||||
Transaction costs | 1,443 | — | 1,991 | — | |||||||||
Change in settlement value of deferred purchase commitment liability – interest expense | — | — | 423 | — | |||||||||
Non-GAAP income before income taxes | 36,347 |
| 22,244 | 101,343 |
| 57,265 | |||||||
Income tax adjustment at statutory rate (1) |
| (9,268) |
| (5,672) |
| (25,842) |
| (14,603) | |||||
Non-GAAP net income | $ | 27,079 | $ | 16,572 | $ | 75,501 | $ | 42,662 | |||||
(1) Non-GAAP income (loss) before income taxes is adjusted for income taxes using the respective statutory tax rates for applicable jurisdictions, which for purposes of this determination were assumed to be 25.5%. |
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Critical Accounting Estimates
The critical accounting policies that reflect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements include revenue recognition and income taxes, which are described in our 2023 Annual Report.
Business Combination Fair Value Estimates
The results of a business acquired in a business combination are included in our condensed consolidated financial statements from the date of the acquisition. Purchase accounting results in tangible and intangible assets acquired, liabilities assumed, consideration transferred, and amounts attributed to noncontrolling interests of an acquired business being recorded at their estimated fair values on the acquisition date, which may be considered preliminary and subject to adjustment during the measurement period, which is up to one year from the acquisition date (the “Measurement Period”). Any excess consideration over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining the fair value of these amounts requires significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, royalty rates, and selection of comparable companies. We continue to collect information and reevaluate these estimates and assumptions periodically and record any adjustments to preliminary estimates to goodwill, provided we are within the Measurement Period, with any adjustments to amortization of new or previously recorded assets and identifiable intangibles being recorded to the consolidated statements of comprehensive loss in the period in which they arise. In addition, if outside of the Measurement Period, any subsequent adjustments to the acquisition date fair values are reflected in the consolidated statements of comprehensive loss in the period in which they arise.
We use our best estimates, information and assumptions available at the acquisition date to assign preliminary fair values to the assets acquired, liabilities assumed, consideration transferred, and amounts attributed to noncontrolling interests. We engage the assistance of third-party valuation specialists to perform valuations of these amounts and to assist us in concluding on these fair value measurements. The resulting fair values and useful lives assigned to acquisition-related assets impact the amount and timing of future amortization expense.
These estimates are inherently uncertain and unpredictable, and if different estimates were used then the purchase price for the respective acquisition could be allocated to the acquired assets and liabilities differently from the allocation that we have made. In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates, and if such events occur, we may be required to record a charge against the value ascribed to an acquired asset, an increase in the amounts recorded for assumed liabilities, or an impairment of some or all of the goodwill.
There have been no other material updates or changes to our critical accounting estimates compared to the critical accounting estimates described in our 2023 Annual Report.
Recent Accounting Pronouncements
For further information on recent accounting pronouncements, refer to Note 1, “Summary of Significant Accounting Policies” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk
We had unrestricted cash and cash equivalents of $279.0 million and $68.2 million as of September 30, 2024 and December 31, 2023, respectively, and investments of $7.5 million and $9.5 million as of September 30, 2024 and December 31, 2023, respectively. We maintain our cash and cash equivalents in deposit accounts, money market funds with various financial institutions, and in short duration fixed income securities. Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of these investments as a result of changes in interest rates. Increases or declines in interest rates would be expected to augment or reduce future interest income by an insignificant amount.
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We are exposed to risk related to changes in interest rates on our outstanding borrowings. Borrowings under our Credit Agreement bear interest at rates that are variable. Increases in the bank prime or SOFR rates would increase the interest rate on any future outstanding borrowings. Any debt we incur in the future may also bear interest at variable rates.
Our Notes have a fixed annual interest rate; therefore, we have no financial or economic interest exposure associated with changes in interest rates. However, the fair value of fixed rate debt instruments fluctuates when interest rates change. Additionally, the fair value of the Notes can be affected when the market price of our common stock fluctuates. We carry the Notes at principal value less unamortized issuance costs on our condensed consolidated balance sheets, and we present fair value for required disclosure purposes only.
Foreign Currency Exchange Risk
Our revenues and expenses are primarily denominated in U.S. Dollars. For our foreign operations, the majority of our revenues and expenses are denominated in other currencies, such as the Canadian Dollar, Euro, British Pound, Swedish Krona, and Brazilian Real. Decreases in the relative value of the U.S. Dollar as compared to these currencies may negatively affect our revenues and other operating results as expressed in U.S. Dollars. For both the nine months ended September 30, 2024 and 2023, approximately 3% of our revenues were denominated in currencies other than U.S. Dollars.
We have experienced and will continue to experience fluctuations in our net loss or income as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. We have historically recognized immaterial amounts of foreign currency gains and losses in each of the periods presented. We may in the future hedge selected significant transactions denominated in currencies other than the U.S. dollar as we expand our international operations and our risk grows.
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Item 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Based on the evaluation of our disclosure controls and procedures, our principal executive officer and principal financial officer concluded that, as of September 30, 2024, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II---OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 25, 2022, we filed a complaint (subsequently amended on February 9, 2022) against Avalara, Inc. (“Avalara”) in the United States District Court for the Eastern District of Pennsylvania. The complaint alleges claims of unfair competition, intentional interference with contractual relations, and trade secret misappropriation against Avalara. We are seeking a permanent injunction to prevent Avalara from further interference with our contractual relations and prohibit the disclosure in any way of our confidential, proprietary and/or trade secret information. We are also seeking monetary damages, including punitive damages and attorney’s fees. As of September 30, 2024, the matter remains before the Court and is proceeding through the discovery process. We believe the allegations in the complaint, once proven, are sufficient to prevail in this matter. However, the eventual outcome of the case is subject to a number of uncertainties, and therefore we cannot offer any assurance as to the ultimate impact of this case on our business and operations.
In addition to the foregoing matter, from time to time, we may be involved in various legal proceedings arising from the normal course of business activities. We are not presently a party to any litigation the outcome of which we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition.
ITEM 1A. RISK FACTORS
This document incorporates by reference various risk factors discussed in the Company’s 2023 Annual Report and Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, under the heading “Risk Factors”. There are no material changes to the risk factors discussed in these filings. You should carefully consider these risks, together with management’s discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. If any of the events contemplated should occur, our business, results of operations, financial condition and cash flows could suffer significantly.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
During the three months ended September 30, 2024,
ITEM 6. EXHIBITS
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Exhibit Number |
| Exhibit Description |
| Form |
| File No. |
| Exhibit |
| Filing |
| Filed |
| Furnished |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
X | ||||||||||||||
| X | |||||||||||||
| X | |||||||||||||
| X | |||||||||||||
101.INS |
| Inline XBRL Instance Document | X | |||||||||||
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document | X | |||||||||||
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | |||||||||||
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document | X | |||||||||||
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document | X | |||||||||||
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | |||||||||||
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
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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 thereunto duly authorized.
|
| Vertex, Inc. | |
|
| ||
Date: November 6, 2024 | By: | /s/ David DeStefano | |
|
| David DeStefano | |
|
| President, Chief Executive Officer and Chairperson (principal executive officer) | |
|
| ||
Date: November 6, 2024 | By: | /s/ John Schwab | |
|
| John Schwab | |
|
| Chief Financial Officer (principal financial officer) |
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