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, 2022


☐		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 4, 2022, the registrant had 48,732,884 shares of Class A common stock, $0.001 par value per share, and 101,307,000 shares of Class B common stock, $0.001 par value per share, outstanding.

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TABLE OF CONTENTS

		Page
	Part I - Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited)	5
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2022 and 2021 (unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited)	9
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 4.	Controls and Procedures	56
	Part II - Other Information	57
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	58
	Signatures	59

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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 continued global existence 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.

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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, 2021, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 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.

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PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Vertex, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

As of September 30, 2022 and December 31, 2021

(Amounts in thousands, except per share data)


	September 30,		December 31,
	2022		2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	72,370	$	73,333
Funds held for customers		23,840		24,873
Accounts receivable, net of allowance of $9,620 and $9,151, respectively		94,529		76,929
Prepaid expenses and other current assets		22,494		20,536
Investment securities available-for-sale, current (amortized cost of $6,163 at September 30, 2022)		6,127		—
Total current assets		219,360		195,671
Property and equipment, net of accumulated depreciation		109,123		98,390
Capitalized software, net of accumulated amortization		38,561		33,442
Goodwill and other intangible assets		245,284		272,702
Deferred commissions		13,757		12,555
Deferred income tax asset		30,716		35,298
Operating lease right-of-use assets		18,089		20,249
Other assets		2,422		1,900
Total assets	$	677,312	$	670,207

Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	1,875	$	—
Accounts payable		13,052		13,000
Accrued expenses		28,908		22,966
Tax sharing agreement distributions payable		—		536
Customer funds obligations		20,858		23,461
Accrued salaries and benefits		14,937		16,671
Accrued variable compensation		19,585		26,462
Deferred compensation, current		2,067		4,202
Deferred revenue, current		242,637		237,344
Current portion of operating lease liabilities		4,278		3,933
Current portion of finance lease liabilities		967		284
Deferred purchase consideration, current		19,724		19,805
Purchase commitment and contingent consideration liabilities, current		5,082		468
Total current liabilities		373,970		369,132
Deferred compensation, net of current portion		—		1,963
Deferred revenue, net of current portion		11,098		11,666
Debt, net of current portion		47,324		—
Operating lease liabilities, net of current portion		21,431		24,320
Finance lease liabilities, net of current portion		24		68
Deferred purchase consideration, net of current portion		—		19,419
Purchase commitment and contingent consideration liabilities, net of current portion		8,009		10,829
Deferred other liabilities		1,416		2,726
Total liabilities		463,272		440,123
Commitments and contingencies (Note 13)

Stockholders' equity:
Preferred shares, $0.001 par value, 30,000 shares authorized; no shares issued and outstanding		—		—
Class A voting common stock, $0.001 par value, 300,000 shares authorized; 48,673 and 42,286 shares issued and outstanding, respectively		49		42
Class B voting common stock, $0.001 par value, 150,000 shares authorized; 101,307 and 106,807 shares issued and outstanding, respectively		101		107
Additional paid in capital		238,093		222,621
Retained earnings		17,816		24,811
Accumulated other comprehensive loss		(42,019)		(17,497)
Total stockholders' equity		214,040		230,084
Total liabilities and stockholders' equity	$	677,312	$	670,207

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

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Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

For the three and nine months ended September 30, 2022 and 2021

(Amounts in thousands, except per share data)


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021

	(unaudited)				(unaudited)
Revenues:
Software subscriptions	$	106,368	$	92,276	$	304,587	$	265,160
Services		19,870		18,442		55,911		48,732
Total revenues		126,238		110,718		360,498		313,892
Cost of revenues:
Software subscriptions		36,638		32,000		105,760		84,419
Services		14,020		11,938		37,893		33,831
Total cost of revenues		50,658		43,938		143,653		118,250
Gross profit		75,580		66,780		216,845		195,642
Operating expenses:
Research and development		10,351		9,879		30,294		33,264
Selling and marketing		30,252		25,658		89,683		70,673
General and administrative		31,679		31,237		90,520		80,954
Depreciation and amortization		2,936		3,082		9,120		8,787
Other operating expense, net		1,233		538		1,927		4,892
Total operating expenses		76,451		70,394		221,544		198,570
Loss from operations		(871)		(3,614)		(4,699)		(2,928)
Interest expense, net		361		521		1,079		671
Loss before income taxes		(1,232)		(4,135)		(5,778)		(3,599)
Income tax expense (benefit)		(91)		(187)		1,217		(2,747)
Net loss		(1,141)		(3,948)		(6,995)		(852)
Other comprehensive loss:
Foreign currency translation adjustments and revaluations, net of tax		10,670		5,704		24,496		10,040
Unrealized loss on investments, net of tax		28		—		26		—
Total other comprehensive loss, net of tax		10,698		5,704		24,522		10,040
Total comprehensive loss	$	(11,839)	$	(9,652)	$	(31,517)	$	(10,892)

Net loss attributable to Class A stockholders, basic	$	(369)	$	(1,070)	$	(2,092)	$	(195)
Net loss per Class A share, basic	$	(0.01)	$	(0.03)	$	(0.05)	$	(0.01)
Weighted average Class A common stock, basic		48,488		40,141		44,708		33,775
Net loss attributable to Class A stockholders, diluted	$	(369)	$	(1,070)	$	(2,092)	$	(195)
Net loss per Class A share, diluted	$	(0.01)	$	(0.03)	$	(0.05)	$	(0.01)
Weighted average Class A common stock, diluted		48,488		40,141		44,708		33,775
Net loss attributable to Class B stockholders, basic	$	(772)	$	(2,878)	$	(4,903)	$	(657)
Net loss per Class B share, basic	$	(0.01)	$	(0.03)	$	(0.05)	$	(0.01)
Weighted average Class B common stock, basic		101,307		108,017		104,772		113,646
Net loss attributable to Class B stockholders, diluted	$	(772)	$	(2,878)	$	(4,903)	$	(657)
Net loss per Class B share, diluted	$	(0.01)	$	(0.03)	$	(0.05)	$	(0.01)
Weighted average Class B common stock, diluted		101,307		108,017		104,772		113,646

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

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Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

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

(Amounts in thousands)


											Accumulated
	Outstanding	Class A		Outstanding	Class B		Additional				Other		Total
	Class A	Common		Class B	Common		Paid In		Retained		Comprehensive		Stockholders'
	Shares	Stock		Shares	Stock		Capital		Earnings		Loss		Equity
Balance, January 1, 2022	42,286	$	42	106,807	$	107	$	222,621	$	24,811	$	(17,497)	$	230,084
Exercise of stock options, net	272		—	—		—		278		—		—		278
Shares issued upon vesting of Restricted Stock Units, net	3		—	—		—		(15)		—		—		(15)
Stock-based compensation expense	—		—	—		—		4,867		—		—		4,867
Foreign currency translation adjustments and revaluations, net of tax	—		—	—		—		—		—		(2,049)		(2,049)
Net loss	—		—	—		—		—		(334)		—		(334)
Balance, March 31, 2022	42,561		42	106,807		107		227,751		24,477		(19,546)		232,831
Exercise of stock options, net	93		—	—		—		(34)		—		—		(34)
Shares issued upon vesting of Restricted Stock Awards, net	59		—	—		—		—		—		—		—
Stock-based compensation expense	—		—	—		—		4,166		—		—		4,166
Shares issued in connection with ESPP	103		—	—		—		967		—		—		967
Class B shares exchanged for Class A shares	5,500		6	(5,500)		(6)		—		—		—		—
Foreign currency translation adjustments and revaluations, net of tax	—		—	—		—		—		—		(11,777)		(11,777)
Unrealized gain from available-for-sale investments, net of tax	—		—	—		—		—		—		2		2
Net loss	—		—	—		—		—		(5,520)		—		(5,520)
Balance, June 30, 2022	48,316		48	101,307		101		232,850		18,957		(31,321)		220,635
Exercise of stock options, net	212		1	—		—		387		—		—		388
Shares issued upon vesting of Restricted Stock Units, net	31		—	—		—		(176)		—		—		(176)
Shares issued upon vesting of Restricted Stock Awards, net	114		—	—		—		(164)		—		—		(164)
Stock-based compensation expense	—		—	—		—		5,196		—		—		5,196
Foreign currency translation adjustments and revaluations, net of tax	—		—	—		—		—		—		(10,670)		(10,670)
Unrealized loss from available-for-sale investments, net of tax	—		—	—		—		—		—		(28)		(28)
Net loss	—		—	—		—		—		(1,141)				(1,141)
Balance, September 30, 2022	48,673	$	49	101,307	$	101	$	238,093	$	17,816	$	(42,019)	$	214,040

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

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Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

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

(Amounts in thousands)


											Accumulated
	Outstanding	Class A		Outstanding	Class B		Additional				Other		Total
	Class A	Common		Class B	Common		Paid In		Retained		Comprehensive		Stockholders'
	Shares	Stock		Shares	Stock		Capital		Earnings		Loss		Equity
Balance, January 1, 2021	26,327	$	26	120,117	$	120	$	206,541	$	25,782	$	(3,127)	$	229,342
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		28,578		(4,104)		230,432
Exercise of stock options, net	462		1	—		—		(3,293)		—		—		(3,292)
Shares issued upon vesting of Restricted Stock Awards, net	234		—	—		—		—		—		—		—
Shares issued in connection with ESPP	60		—	—		—		6,101		—		—		6,101
Stock-based compensation expense	—		—	—		—		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		29,386		(7,463)		231,700
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	$	25,438	$	(13,167)	$	228,067

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

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Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the nine months ended September 30, 2022 and 2021

(Amounts in thousands)


	Nine Months Ended September 30,
	2022		2021

	(unaudited)
Cash flows from operating activities:
Net loss	$	(6,995)	$	(852)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		45,328		31,902
Provision for subscription cancellations and non-renewals, net of deferred allowance		29		423
Amortization of deferred financing costs		181		159
Change in fair value of contingent consideration liability		2,000		—
Write-off of deferred financing costs