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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 June 30, 2024

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 August 2, 2024, the registrant had 65,360,518 shares of Class A common stock, $0.001 par value per share, and 90,161,000 shares of Class B common stock, $0.001 par value per share, outstanding.

1

TABLE OF CONTENTS

 

Page

Part I - Financial Information 

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 2024 (unaudited) and December 31, 2023

5

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)

6

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)

7

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (unaudited)

8

Notes to Condensed Consolidated Financial Statements (unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

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

57

Signatures

59

2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

our ability to maintain and grow revenue from existing customers and new customers, and expand their usage of our solutions;
our ability to maintain and expand our strategic relationships with third parties;
our ability to adapt to technological change and successfully introduce new solutions or provide updates to existing solutions;
risks related to failures in information technology or infrastructure;
challenges in using and managing use of Artificial Intelligence in our business;
incorrect or improper implementation, integration or use of our solutions;
failure to attract and retain qualified technical and tax-content personnel;
competitive pressures from other tax software and service providers and challenges of convincing businesses using native enterprise resource planning (“ERP”) functions to switch to our software;
our ability to accurately forecast our revenue and other future results of operations based on recent success;
our ability to offer specific software deployment methods based on changes to customers’ and partners’ software systems;
our ability to continue making significant investments in software development and equipment;
our ability to sustain and expand revenues, maintain profitability, and to effectively manage our anticipated growth;
our ability to successfully diversify our solutions by developing or introducing new solutions or acquiring and integrating additional businesses, products, services, or content;
risks related to the fluctuations in our results of operations;
risks related to our expanding international operations;
our exposure to liability from errors, delays, fraud or system failures, which may not be covered by insurance;
our ability to adapt to organizational changes and effectively implement strategic initiatives;
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;
our involvement in material legal proceedings and audits;

3

risks related to undetected errors, bugs or defects in our software;
risks related to utilization of open-source software, business processes and information systems;
risks related to failures in information technology, infrastructure, and third-party service providers;
our ability to effectively protect, maintain, and enhance our brand;
changes in application, scope, interpretation or enforcement of laws and regulations;
global economic weakness and uncertainties, and disruption in the capital and credit markets;
business disruptions related to natural disasters, epidemic outbreaks, including a global endemic or pandemic, terrorist acts, political events, or other events outside of our control;
our ability to comply with anti-corruption, anti-bribery, and similar laws;
our ability to protect our intellectual property;
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;
our ability to maintain an effective system of disclosure controls and internal control over financial reporting, or ability to remediate any material weakness in our internal controls;
risks related to our Class A common stock and controlled company status;
risks related to our indebtedness and adherence to the covenants under our debt instruments;
our expectations regarding the effects of the Capped Call Transactions (as defined in the notes to the financial statements) and regarding actions of the Option Counterparties (as defined in the notes to the financial statements) and/or their respective affiliates;
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, 2023, filed with the Securities and Exchange Commission (the “SEC”) on February 29, 2024 (the “2023 Annual Report”). Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for us to identify all such risk factors, nor can we assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on our forward-looking statements, and you should not rely on forward-looking statements as predictions of future events. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q speak only as of the date of this report. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

4

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Vertex, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

As of June 30, 2024 and December 31, 2023

(Amounts in thousands, except per share data)

June 30, 

    

December 31, 

2024

2023

(unaudited)

    

Assets

Current assets:

  

 

Cash and cash equivalents

$

325,535

$

68,175

Funds held for customers

 

35,408

 

20,976

Accounts receivable, net of allowance of $17,704 and $16,272, respectively

 

120,082

 

141,752

Prepaid expenses and other current assets

 

25,134

 

26,173

Investment securities available-for-sale, at fair value (amortized cost of $8,407 and $9,550, respectively)

8,650

9,545

Total current assets

 

514,809

 

266,621

Property and equipment, net of accumulated depreciation

 

108,407

 

100,734

Capitalized software, net of accumulated amortization

 

37,840

 

38,771

Goodwill and other intangible assets

 

252,183

 

260,238

Deferred commissions

 

21,862

 

21,237

Deferred income tax asset

61,897

41,708

Operating lease right-of-use assets

13,060

14,605

Other assets

 

13,772

 

16,013

Total assets

$

1,023,830

$

759,927

Liabilities and Stockholders' Equity

 

 

Current liabilities:

 

  

 

  

Current portion of long-term debt

$

$

2,500

Accounts payable

24,220

23,596

Accrued expenses

 

41,767

 

44,735

Customer funds obligations

 

32,710

 

17,731

Accrued salaries and benefits

 

13,251

 

12,277

Accrued variable compensation

 

25,727

 

34,105

Deferred revenue, current

 

297,305

 

290,143

Current portion of operating lease liabilities

3,799

3,717

Current portion of finance lease liabilities

90

74

Purchase commitment and contingent consideration liabilities, current

 

200

 

11,901

Total current liabilities

 

439,069

 

440,779

Deferred revenue, net of current portion

 

2,436

 

2,577

Debt, net of current portion

334,092

44,059

Operating lease liabilities, net of current portion

14,397

16,567

Finance lease liabilities, net of current portion

36

51

Purchase commitment and contingent consideration liabilities, net of current portion

 

 

2,600

Deferred other liabilities

 

670

 

313

Total liabilities

 

790,700

 

506,946

Commitments and contingencies (Note 11)

 

  

 

  

Stockholders' equity:

 

  

 

  

Preferred shares, $0.001 par value, 30,000 shares authorized; no shares issued and outstanding

 

Class A voting common stock, $0.001 par value, 300,000 shares authorized; 65,165 and 60,989 shares issued and outstanding, respectively

65

61

Class B voting common stock, $0.001 par value, 150,000 shares authorized; 90,161 and 92,661 shares issued and outstanding, respectively

90

93

Additional paid in capital

254,799

275,155

Retained earnings (Accumulated deficit)

 

7,262

 

(586)

Accumulated other comprehensive loss

 

(29,086)

 

(21,742)

Total stockholders' equity

 

233,130

 

252,981

Total liabilities and stockholders' equity

$

1,023,830

$

759,927

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

5

Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

For the three and six months ended June 30, 2024 and 2023 (unaudited)

(Amounts in thousands, except per share data)

Three months ended June 30,

Six months ended June 30, 

2024

2023

2024

2023

(unaudited)

(unaudited)

Revenues:

  

    

  

    

    

Software subscriptions

$

136,443

$

117,836

$

268,273

$

228,850

Services

24,661

 

21,859

49,612

43,596

Total revenues

 

161,104

 

139,695

317,885

 

272,446

Cost of revenues:

 

  

 

  

Software subscriptions

 

42,261

 

38,516

87,389

75,919

Services

 

16,155

 

15,363

32,016

29,707

Total cost of revenues

 

58,416

 

53,879

119,405

 

105,626

Gross profit

 

102,688

 

85,816

198,480

 

166,820

Operating expenses:

 

  

 

  

Research and development

 

14,614

 

12,680

31,459

28,542

Selling and marketing

 

40,541

 

33,541

81,032

69,277

General and administrative

 

35,874

 

39,376

71,416

73,686

Depreciation and amortization

 

5,212

 

3,878

10,218

7,619

Other operating expense (income), net

 

(1,098)

 

413

(1,625)

697

Total operating expenses

 

95,143

 

89,888

192,500

 

179,821

Income (loss) from operations

 

7,545

 

(4,072)

5,980

 

(13,001)

Interest expense (income), net

 

181

 

(105)

467

(455)

Income (loss) before income taxes

 

7,364

 

(3,967)

5,513

 

(12,546)

Income tax (benefit) expense

 

2,200

 

2,929

(2,335)

12,482

Net income (loss)

 

5,164

 

(6,896)

7,848

 

(25,028)

Other comprehensive (income) loss:

 

Foreign currency translation adjustments, net of tax

 

3,335

 

(609)

7,346

(3,731)

Unrealized (gain) loss on investments, net of tax

(19)

3

(2)

(10)

Total other comprehensive (income) loss, net of tax

3,316

(606)

7,344

(3,741)

Total comprehensive income (loss)

$

1,848

$

(6,290)

$

504

$

(21,287)

Net income (loss) per share of Class A and Class B, basic

$

0.03

$

(0.05)

$

0.05

$

(0.17)

Net income (loss) per share of Class A and Class B, dilutive

$

0.03

$

(0.05)

$

0.05

$

(0.17)

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

6

Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the three and six months ended June 30, 2024 and 2023 (unaudited)

(Amounts in thousands)

Retained

Accumulated

Outstanding

Class A

Outstanding

Class B

Additional

  

Earnings

  

Other 

  

Total

Class A

Common

Class B

Common

Paid In

(Accumulated

Comprehensive 

Stockholders'

  

  

Shares

  

 Stock

  

Shares

  

Stock

  

Capital

  

Deficit)

  

Loss

  

Equity

Balance, January 1, 2024

60,989

$

61

92,661

$

93

$

275,155

$

(586)

$

(21,742)

$

252,981

Exercise of stock options, net

653

(5,454)

(5,454)

Shares issued upon vesting of Restricted Stock Units, net

674

1

(10,899)

(10,898)

Stock-based compensation expense

14,845

14,845

Foreign currency translation adjustments and revaluations, net of tax

(4,011)

(4,011)

Unrealized loss from available-for-sale investments, net of tax

(17)

(17)

Net income

2,684

2,684

Balance, March 31, 2024

62,316

62

92,661

93

273,647

2,098

(25,770)

250,130

Exercise of stock options, net

194

1,734

1,734

Shares issued upon vesting of Restricted Stock Units, net

32

(432)

(432)

Shares issued upon vesting of Restricted Stock Awards, net

62

Stock-based compensation expense

9,924

9,924

Shares issued under ESPP

61

1,443

1,443

Class B shares exchanged for Class A shares

2,500

3

(2,500)

(3)

Purchase of capped calls, net of tax

(31,517)

(31,517)

Foreign currency translation adjustments and revaluations, net of tax

(3,335)

(3,335)

Unrealized gain from available-for-sale investments, net of tax

19

19

Net income

5,164

5,164

Balance, June 30, 2024

65,165

$

65

90,161

$

90

$

254,799

$

7,262

$

(29,086)

$

233,130

(Accumulated

Accumulated

Outstanding

Class A

Outstanding

Class B

Additional

  

Deficit)

  

Other 

  

Total

Class A

Common

Class B

Common

Paid In

Retained

Comprehensive 

Stockholders'

Shares

  

 Stock

  

Shares

  

Stock

  

Capital

  

Earnings

  

Loss

  

Equity

Balance, January 1, 2023

50,014

$

50

100,307

$

100

$

244,820

$

12,507

$

(27,752)

$

229,725

Exercise of stock options, net

592

1

1,279

1,280

Shares issued upon vesting of Restricted Stock Units, net

391

(3,471)

(3,471)

Shares issued upon vesting of Restricted Stock Awards, net

Stock-based compensation expense

10,938

10,938

Shares issued in connection with ESPP

Class B shares exchanged for Class A shares

2,589

2

(2,589)

(2)

Foreign currency translation adjustments and revaluations, net of tax

3,122

3,122

Unrealized gain from available-for-sale investments, net of tax

13

13

Net loss

 

(18,132)

(18,132)

Balance, March 31, 2023

 

53,586

53

97,718

98

253,566

(5,625)

(24,617)

223,475

Exercise of stock options, net

259

1

668

669

Shares issued upon vesting of Restricted Stock Units, net

22

(221)

(221)

Shares issued upon vesting of Restricted Stock Awards, net

106

Shares issued in connection with ESPP

81

1,178

1,178

Stock-based compensation expense

6,904

6,904

Foreign currency translation adjustments and revaluations, net of tax

609

609

Unrealized loss from available-for-sale investments, net of tax

(3)

(3)

Net loss

(6,896)

(6,896)

Balance, June 30, 2023

 

54,054

$

54

97,718

$

98

$

262,095

$

(12,521)

$

(24,011)

$

225,715

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

7

Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the six months ended June 30, 2024 and 2023 (unaudited)

(Amounts in thousands)

Six months ended June 30, 

    

2024

    

2023

(unaudited)

Cash flows from operating activities:

 

  

 

Net income (loss)

$

7,848

$

(25,028)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

Depreciation and amortization

 

41,330

 

34,190

Amortization of cloud computing implementation costs

1,989

631

Provision for subscription cancellations and non-renewals

 

451

 

1,374

Amortization of deferred financing costs

 

660

 

126

Change in fair value of contingent consideration liabilities

(2,375)

449

Change in settlement value of deferred purchase commitment liability

423

Write-off of deferred financing costs

276

Stock-based compensation expense

 

26,324

 

18,456

Deferred income tax benefit

(9,702)

(12,331)

Non-cash operating lease costs

1,536

625

Other

 

(165)

 

(67)

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

19,730

 

(30,512)

Prepaid expenses and other current assets

 

969

 

355

Deferred commissions

 

(625)

 

(1,263)

Accounts payable

 

665

 

7,655

Accrued expenses

 

(3,021)

 

17,407

Accrued and deferred compensation

 

(8,660)

 

(10,705)

Deferred revenue

 

8,051

 

1,179

Operating lease liabilities

(2,081)

(1,722)

Payments for purchase commitment and contingent consideration liabilities in excess of initial fair value

(4,367)

Other

 

3,036

 

(1,717)

Net cash provided by (used in) operating activities

 

82,292

 

(898)

Cash flows from investing activities:

 

  

 

  

Acquisition of assets, net of cash acquired

 

(6,075)

 

Property and equipment additions

 

(29,749)

 

(21,859)

Capitalized software additions

 

(11,097)

 

(9,042)

Purchase of investment securities, available-for-sale

(7,776)

(8,427)

Proceeds from sales and maturities of investment securities, available-for-sale

8,860

8,600

Other

(2,000)

Net cash used in investing activities

 

(47,837)

 

(30,728)

Cash flows from financing activities:

 

  

 

  

Net increase in customer funds obligations

 

14,979

 

14,473

Proceeds from convertible senior notes

 

345,000

 

Principal payments on long-term debt

 

(46,875)

 

(938)

Payment for purchase of capped calls

(42,366)

Payments for deferred financing costs

 

(11,374)

 

Proceeds from purchases of stock under ESPP

1,443

1,178

Payments for taxes related to net share settlement of stock-based awards

(18,324)

(3,986)

Proceeds from exercise of stock options

 

3,274

 

2,243

Payments for purchase commitment and contingent consideration liabilities

(7,580)

(6,424)

Payments of finance lease liabilities

(51)

(27)

Payments for deferred purchase commitments

(10,000)

Net cash provided by (used in) financing activities

 

238,126

 

(3,481)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(789)

 

380

Net increase (decrease) in cash, cash equivalents and restricted cash

271,792

(34,727)

Cash, cash equivalents and restricted cash, beginning of period

 

89,151

 

106,748

Cash, cash equivalents and restricted cash, end of period

$

360,943

$

72,021

Reconciliation of cash, cash equivalents and restricted cash to the Condensed Consolidated Balance Sheets, end of period:

 

  

 

  

Cash and cash equivalents

$

325,535

$

41,865

Restricted cash—funds held for customers

 

35,408

 

30,156

Total cash, cash equivalents and restricted cash, end of period

$

360,943

$

72,021

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

8

Table of Contents

Vertex, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(Amounts in thousands, except per share data)

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Vertex, Inc. (“Vertex”) and its consolidated subsidiaries and variable interest entities (“VIE”) (collectively, the “Company”) operate as solutions providers of state, local, and value added tax calculation, compliance, and analytics, offering software products that are sold through software license and software as a service (“cloud”) subscriptions. The Company also provides implementation and training services in connection with its software license and cloud subscriptions, transaction tax returns outsourcing, and other tax-related services. The Company sells to customers located throughout the United States of America (“U.S.”) and internationally.

Basis of Consolidation

The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and include the accounts of the Company. All intercompany transactions have been eliminated in consolidation.

Prior to June 5, 2024, the Company owned an 80% controlling equity interest in Systax Sistemas Fiscais LTDA (“Systax”), a provider of Brazilian transaction tax content and software. Systax was determined to be a VIE and the accounts were included in the condensed consolidated financial statements. Vertex did not have full decision-making authority over Systax; however, Vertex was the entity that most significantly participated in the variability of the fair value of Systax’s net assets and was considered the entity most closely associated to Systax. As such, Vertex was deemed the primary beneficiary of Systax and consolidated Systax into its condensed consolidated financial statements. On June 5, 2024, Vertex acquired the remaining 20% equity interest in Systax. Systax is now a wholly owned subsidiary of the Company and is consolidated into the condensed consolidated financial statements.

Unaudited Interim Financial Information

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information and include the accounts of the Company. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”) filed with the SEC on February 29, 2024. The condensed consolidated balance sheet as of December 31, 2023 has been derived from audited financial statements included in the 2023 Annual Report. The accompanying interim condensed consolidated balance sheet as of June 30, 2024, the interim condensed consolidated statements of comprehensive income (loss) and changes in stockholders’ equity for the three and six months ended June 30, 2024 and 2023, and the interim condensed consolidated statements of cash flows for the six months ended June 30, 2024 and 2023 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the annual audited consolidated financial statements and include, in the opinion of management, all adjustments, consisting of normal and recurring items necessary for the fair presentation of the condensed consolidated financial statements. The operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results expected for the full year ending December 31, 2024.

9

Table of Contents

Vertex, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) continued

(Amounts in thousands, except per share data)

Segments

The Company operates its business as one operating segment. For both the three and six months ended June 30, 2024 and June 30, 2023, approximately 7% of the Company’s revenues were generated from customers located outside the U.S.. As of June 30, 2024 and December 31, 2023, $504 and $633, respectively, of the Company’s property and equipment assets were held outside the U.S.

Use of Estimates

The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenues, and expenses during the reporting period. Significant estimates used in preparing these condensed consolidated financial statements include: (i) the estimated allowance for subscription cancellations; (ii) expected credit losses associated with the allowance for doubtful accounts; (iii) allowance for credit losses on available-for-sale debt securities; (iv) the reserve for self-insurance; (v) assumptions related to achievement of technological feasibility for software developed for sale; (vi) product life cycles; (vii) estimated useful lives and potential impairment of long-lived assets, intangible assets, and capitalized cloud computing arrangement (“CCA”) software implementation costs; (viii) potential impairment of goodwill; (ix) determination of the fair value of tangible and intangible assets acquired, liabilities assumed, and consideration transferred in acquisitions; (x) amortization period of deferred commissions; (xi) Black-Scholes-Merton option pricing model (“Black-Scholes model”) input assumptions used to determine the fair value of certain stock-based compensation awards and Employee Stock Purchase Plan (“ESPP”) purchase rights; (xii) measurement of future purchase commitment, contingent consideration liabilities, and deferred purchase consideration liabilities associated with acquisitions; and (xiii) the potential outcome of future tax consequences of events that have been recognized in the condensed consolidated financial statements or tax returns. Actual results may differ from these estimates.

Convertible Senior Notes

The Company accounts for its convertible senior notes (the “Notes”) wholly as debt under ASU 2026-06 Debt—Debt with Conversion and Other Options (Subtopic 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 7, “Debt”.

Capped Call Transactions