UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2021

OR

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

For the transition period from to

Commission File Number: 001-39413

VERTEX, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	23-2081753
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2301 Renaissance Blvd King of Prussia, Pennsylvania	19406
(Address of principal executive offices)	(Zip Code)

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

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

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

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

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

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of November 8, 2021, the registrant had 40,772,739 shares of Class A common stock, $0.001 par value per share, and 108,017,000 shares of Class B common stock, $0.001 par value per share, outstanding.

TABLE OF CONTENTS

		Page
	Part I - Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (unaudited)	5
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	6
	Condensed Consolidated Statements of Changes in Equity (Deficit) for the Nine Months Ended September 30, 2021 and 2020 (unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (unaudited)	9
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	64
Item 4.	Controls and Procedures	64
	Part II - Other Information	66
Item 1.	Legal Proceedings	66
Item 1A.	Risk Factors	66
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3.	Defaults Upon Senior Securities	66
Item 4.	Mine Safety Disclosures	66
Item 5.	Other Information	66
Item 6.	Exhibits	67
	Signatures	68

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

● the potential effects on our business of the coronavirus disease 2019 (“COVID-19”) pandemic;

● our ability to attract new customers on a cost-effective basis and the extent to which existing customers renew and upgrade their subscriptions;

● our ability to sustain and expand revenues, maintain profitability, and to effectively manage our anticipated growth;

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

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

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

● risks related to our expanding international operations;

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

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

● risks related to our determinations of customers’ transaction tax and tax payments;

● risks related to changes in tax laws and regulations or their interpretation or enforcement;

● our ability to manage cybersecurity and data privacy risks;

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

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

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

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

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

● changes in interest rates, security ratings and market perceptions of the industry in which we operate, or our ability to obtain capital on commercially reasonable terms or at all;

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

● other factors beyond our control.

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in our Annual Report on Form 10-K for the year ended December 31, 2020 and in other sections of this Quarterly Report on Form 10-Q, including under Part II, Item 1A, Risk Factors. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for us to identify all such risk factors, nor can we assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on our forward-looking statements, and you should not rely on forward-looking statements as predictions of future events. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q speak only as of the date of this report. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Vertex, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

As of September 30, 2021 and December 31, 2020

(Amounts in thousands, except per share data)

	September 30, 2021		December 31, 2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	47,481	$	303,051
Funds held for customers		27,860		9,222
Accounts receivable, net of allowance of $8,845, and $8,592, respectively		73,234		77,159
Prepaid expenses and other current assets		18,167		13,259
Total current assets		166,742		402,691
Property and equipment, net of accumulated depreciation		97,869		56,557
Capitalized software, net of accumulated amortization		34,018		31,989
Goodwill and other intangible assets		277,924		18,711
Deferred commissions		12,583		11,743
Deferred income tax asset		32,816		29,974
Operating lease right-of-use assets		21,137		—
Other assets		2,755		3,263
Total assets	$	645,844	$	554,928
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	10,701	$	8,876
Accrued expenses		23,467		19,176
Distributions payable		—		2,700
Customer funds obligations		27,979		9,235
Accrued salaries and benefits		26,472		17,326
Accrued and deferred compensation, current		23,101		24,429
Deferred revenue		211,036		207,560
Current portion of long-term debt		—		882
Current portion of operating lease liabilities		2,480		—
Current portion of finance lease liabilities		276		—
Deferred rent and other		—		939
Deferred purchase consideration, current		19,705		—
Purchase commitment and contingent consideration liabilities, current		478		845
Total current liabilities		345,695		291,968
Deferred compensation, net of current portion		2,786		5,010
Deferred revenue, net of current portion		11,544		14,702
Debt, net of current portion		—		225
Operating lease liabilities, net of current portion		26,707		—
Finance lease liabilities, net of current portion		334		—
Deferred purchase consideration, net of current portion		19,319		—
Purchase commitment and contingent consideration liabilities, net of current portion		11,049		8,905
Deferred other liabilities		4,199		8,632
Total liabilities		421,633		329,442
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred shares, $0.001 par value, 30,000 shares authorized; no shares issued and outstanding		—		—
Class A common stock, $0.001 par value, 300,000 shares authorized; 40,574 and 26,327 shares issued and outstanding, respectively		41		26
Class B common stock, $0.001 par value, 150,000 shares authorized; 108,017 and 120,117 shares issued and outstanding, respectively		108		120
Additional paid in capital		215,647		206,541
Retained earnings		21,582		21,926
Accumulated other comprehensive loss		(13,167)		(3,127)
Total stockholders' equity		224,211		225,486
Total liabilities and stockholders' equity	$	645,844	$	554,928

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

-5-

Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

For the three and nine months ended September 30, 2021 and 2020

(Amounts in thousands, except per share data)

	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
	(unaudited)				(unaudited)
Revenues:
Software subscriptions	$	92,276	$	79,778	$	265,160	$	232,844
Services		18,442		14,827		48,732		42,277
Total revenues		110,718		94,605		313,892		275,121
Cost of revenues:
Software subscriptions		32,000		29,161		84,419		79,846
Services		11,938		18,807		33,831		49,329
Total cost of revenues		43,938		47,968		118,250		129,175
Gross profit		66,780		46,637		195,642		145,946
Operating expenses:
Research and development		9,879		16,501		33,264		43,197
Selling and marketing		25,658		29,423		70,673		78,300
General and administrative		31,237		48,043		80,954		123,437
Depreciation and amortization		3,082		2,735		8,787		8,109
Other operating expense (income), net		538		(60)		4,892		154
Total operating expenses		70,394		96,642		198,570		253,197
Loss from operations		(3,614)		(50,005)		(2,928)		(107,251)
Interest expense, net		521		1,796		671		3,424
Loss before income taxes		(4,135)		(51,801)		(3,599)		(110,675)
Income tax benefit		(187)		(30,773)		(2,747)		(31,508)
Net loss		(3,948)		(21,028)		(852)		(79,167)
Other comprehensive loss from foreign currency translation adjustments and revaluations, net of tax		5,704		238		10,040		3,512
Total comprehensive loss	$	(9,652)	$	(21,266)	$	(10,892)	$	(82,679)
Net loss attributable to Class A stockholders	$	(1,070)	$	(2,751)	$	(195)	$	(2,427)
Net loss per Class A share, basic	$	(0.03)	$	(0.15)	$	(0.01)	$	(0.40)
Weighted average Class A common stock, basic		40,141		18,124		33,775		6,129
Net loss attributable to Class A stockholders, diluted	$	(1,070)	$	(2,751)	$	(195)	$	(2,427)
Net loss per Class A share, diluted	$	(0.03)	$	(0.15)	$	(0.01)	$	(0.40)
Weighted average Class A common stock, diluted		40,141		18,124		33,775		6,129
Net loss attributable to Class B stockholders	$	(2,878)	$	(18,277)	$	(657)	$	(76,740)
Net loss per Class B share, basic	$	(0.03)	$	(0.15)	$	(0.01)	$	(0.64)
Weighted average Class B common stock, basic		108,017		120,417		113,646		120,417
Net loss attributable to Class B stockholders, diluted	$	(2,878)	$	(18,277)	$	(657)	$	(76,740)
Net loss per Class B share, diluted	$	(0.03)	$	(0.15)	$	(0.01)	$	(0.64)
Weighted average Class B common stock, diluted		108,017		120,417		113,646		120,417

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

-6-

Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity (Deficit)

For the nine months ended September 30, 2021 (unaudited)

(Amounts in thousands)

	Before Recapitalization						After Recapitalization										Accumulated
	Outstanding	Class A		Outstanding	Class B		Outstanding	Class A		Outstanding	Class B		Additional				Other		Treasury			Total		Options for
	Class A	Common		Class B	Common		Class A	Common		Class B	Common		Paid-in		Retained		Comprehensive		Shares	Treasury		Stockholders'		Redeemable
	Shares	Stock		Shares	Stock		Shares	Stock		Shares	Stock		Capital		Earnings		Loss		Issued	Stock		Equity		Shares
Balance, January 1, 2021	—	$	—	—	$	—	26,327	$	26	120,117	$	120	$	206,541	$	21,926	$	(3,127)	—	$	—	$	225,486	$	—
ASC 842 transition adjustment	—		—	—		—	—		—	—		—		—		508		—	—		—		508		—
Exercise of stock options, net	—		—	—		—	640		1	—		—		(6,998)		—		—	—		—		(6,997)		—
Shares issued upon vesting of Restricted Stock Units, net	—		—	—		—	5		—	—		—		(34)		—		—	—		—		(34)		—
Stock-based compensation expense	—		—	—		—	—		—	—		—		6,302		—		—	—		—		6,302		—
Foreign currency translation adjustments and revaluations, net of tax	—		—	—		—	—		—	—		—		—		—		(977)	—		—		(977)		—
Net income	—		—	—		—	—		—	—		—		—		2,288		—	—		—		2,288		—
Balance, March 31, 2021	—		—	—		—	26,972		27	120,117		120		205,811		24,722		(4,104)	—		—		226,576		—
Exercise of stock options, net	—		—	—		—	462		1	—		—		(3,293)		—		—	—		—		(3,292)		—
Shares issued upon vesting of Restricted Stock Awards	—		—	—		—	234		—	—		—		—		—		—	—		—		—		—
Stock-based compensation expense	—		—	—		—	—		—	—		—		6,101		—		—	—		—		6,101		—
Shares issued under ESPP	—		—	—		—	60		—	—		—		1,010		—		—	—		—		1,010		—
Class B shares exchanged for Class A shares	—		—	—		—	12,100		12	(12,100)		(12)		—		—		—	—		—		—		—
Foreign currency translation adjustments and revaluations, net of tax	—		—	—		—	—		—	—		—		—		—		(3,359)	—		—		(3,359)		—
Net income	—		—	—		—	—		—	—		—		—		808		—	—		—		808		—
Balance, June 30, 2021	—		—	—		—	39,828		40	108,017		108		209,629		25,530		(7,463)	—		—		227,844		—
Exercise of stock options, net	—		—	—		—	625		1	—		—		(919)		—		—	—		—		(918)		—
Shares issued upon vesting of Restricted Stock Units, net	—		—	—		—	3		—	—		—		(44)		—		—	—		—		(44)		—
Shares issued upon vesting of Restricted Stock Awards, net	—		—	—		—	118		—	—		—		(213)		—		—	—		—		(213)		—
Stock-based compensation expense	—		—	—		—	—		—	—		—		7,194		—		—	—		—		7,194		—
Foreign currency translation adjustments and revaluations, net of tax	—		—	—		—	—		—	—		—		—		—		(5,704)	—		—		(5,704)		—
Net loss	—		—	—		—	—		—	—		—		—		(3,948)		—	—		—		(3,948)		—
Balance, September 30, 2021	—	$	—	—	$	—	40,574	$	41	108,017	$	108	$	215,647	$	21,582	$	(13,167)	—	$	—	$	224,211	$	—

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

-7-

Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity (Deficit)

For the nine months ended September 30, 2020 (unaudited)

(Amounts in thousands)

	Before Recapitalization						After Recapitalization								Retained		Accumulated
	Outstanding	Class A		Outstanding	Class B		Outstanding	Class A		Outstanding	Class B		Additional		Earnings		Other		Treasury			Total		Options for
	Class A	Common		Class B	Common		Class A	Common		Class B	Common		Paid In		(Accumulated		Comprehensive		Shares	Treasury		Stockholders'		Redeemable
	Shares	Stock		Shares	Stock		Shares	Stock		Shares	Stock		Capital		Deficit)		Loss		Issued	Stock		Equity (Deficit)		Shares
Balance, January 1, 2020	147	$	—	120,270	$	54	—	$	—	—	$	—	$	—	$	(90,701)	$	(491)	41,910	$	(38,638)	$	(129,776)	$	17,344
Remeasurement of options for redeemable shares	—		—	—		—	—		—	—		—		—		(15,242)		—	—		—		(15,242)		15,242
Distributions declared	—		—	—		—	—		—	—		—		—		(4,010)		—	—		—		(4,010)		—
Foreign currency translation adjustments and revaluations, net of tax	—		—	—		—	—		—	—		—		—		—		(2,998)	—		—		(2,998)		—
Net loss	—		—	—		—	—		—	—		—		—		(29,064)		—	—		—		(29,064)		—
Balance, March 31, 2020	147		—	120,270		54	—		—	—		—		—		(139,017)		(3,489)	41,910		(38,638)		(181,090)		32,586
Remeasurement of options for redeemable shares	—		—	—		—	—		—	—		—		—