v

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, 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 November 1, 2024, the registrant had 65,969,319 shares of Class A common stock, $0.001 par value per share, and 89,990,641 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, 2024 (unaudited) and December 31, 2023	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)	6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (unaudited)	9
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	61
	Part II - Other Information	62
Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	62
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	62
	Signatures	64

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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:

● 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;

● our ability to successfully integrate acquired businesses and to realize the anticipated benefits of such acquisitions;

● 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;

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● our ability to manage cybersecurity and data privacy risks;

● our involvement in material legal proceedings and audits;

● 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;

● the effects of the Capped Call Transactions (as defined in the notes to the financial statements) and the 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.

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PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Vertex, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

As of September 30, 2024 and December 31, 2023

(Amounts in thousands, except per share data)

	September 30,		December 31,
	2024		2023
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	278,979	$	68,175
Funds held for customers		26,407		20,976
Accounts receivable, net of allowance of $14,273 and $16,272, respectively		129,908		141,752
Prepaid expenses and other current assets		33,863		26,173
Investment securities available-for-sale, at fair value (amortized cost of $7,434 and $9,550, respectively)		7,462		9,545
Total current assets		476,619		266,621
Property and equipment, net of accumulated depreciation		178,578		100,734
Capitalized software, net of accumulated amortization		36,864		38,771
Goodwill and other intangible assets		388,716		260,238
Deferred commissions		22,540		21,237
Deferred income tax asset		61,193		41,708
Operating lease right-of-use assets		12,567		14,605
Other assets		13,763		16,013
Total assets	$	1,190,840	$	759,927
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	—	$	2,500
Accounts payable		29,229		23,596
Accrued expenses		44,643		44,735
Customer funds obligations		23,762		17,731
Accrued salaries and benefits		20,025		12,277
Accrued variable compensation		35,391		34,105
Deferred revenue, current		300,620		290,143
Current portion of operating lease liabilities		3,863		3,717
Current portion of finance lease liabilities		88		74
Purchase commitment and contingent consideration liabilities, current		300		11,901
Total current liabilities		457,921		440,779
Deferred revenue, net of current portion		3,792		2,577
Debt, net of current portion		334,656		44,059
Operating lease liabilities, net of current portion		13,568		16,567
Finance lease liabilities, net of current portion		20		51
Purchase commitment and contingent consideration liabilities, net of current portion		105,000		2,600
Deferred income tax liabilities		16,187		—
Deferred other liabilities		670		313
Total liabilities		931,814		506,946
Commitments and contingencies (Note 12)
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; 65,722 and 60,989 shares issued and outstanding, respectively		66		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		264,494		275,155
Retained earnings (Accumulated deficit)		14,483		(586)
Accumulated other comprehensive loss		(20,107)		(21,742)
Total stockholders' equity		259,026		252,981
Total liabilities and stockholders' equity	$	1,190,840	$	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 nine months ended September 30, 2024 and 2023 (unaudited)

(Amounts in thousands, except per share data)

	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
	(unaudited)				(unaudited)
Revenues:
Software subscriptions	$	146,254	$	121,285	$	414,527	$	350,135
Services		24,181		23,742		73,793		67,338
Total revenues		170,435		145,027		488,320		417,473
Cost of revenues:
Software subscriptions		43,641		41,055		131,030		116,974
Services		16,270		15,816		48,286		45,523
Total cost of revenues		59,911		56,871		179,316		162,497
Gross profit		110,524		88,156		309,004		254,976
Operating expenses:
Research and development		15,621		16,772		47,080		45,314
Selling and marketing		42,111		33,919		123,143		103,196
General and administrative		41,499		35,385		112,915		109,071
Depreciation and amortization		5,214		3,782		15,432		11,401
Other operating expense (income), net		1,183		316		(442)		1,013
Total operating expenses		105,628		90,174		298,128		269,995
Income (loss) from operations		4,896		(2,018)		10,876		(15,019)
Interest expense (income), net		(2,938)		597		(2,471)		142
Income (loss) before income taxes		7,834		(2,615)		13,347		(15,161)
Income tax (benefit) expense		613		784		(1,722)		13,266
Net income (loss)		7,221		(3,399)		15,069		(28,427)
Other comprehensive (income) loss:
Foreign currency translation adjustments, net of tax		(8,955)		5,311		(1,609)		1,580
Unrealized (gain) on investments, net of tax		(24)		(10)		(26)		(20)
Total other comprehensive (income) loss, net of tax		(8,979)		5,301		(1,635)		1,560
Total comprehensive income (loss)	$	16,200	$	(8,700)	$	16,704	$	(29,987)
Net income (loss) per share of Class A and Class B, basic	$	0.05	$	(0.02)	$	0.10	$	(0.19)
Net income (loss) per share of Class A and Class B, dilutive	$	0.04	$	(0.02)	$	0.09	$	(0.19)

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

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Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the three and nine months ended September 30, 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
Exercise of stock options, net	461		1	—		—		1,386		—		—		1,387
Shares issued upon vesting of Restricted Stock Units, net	74		—	—		—		(1,348)		—		—		(1,348)
Shares issued upon vesting of Restricted Stock Awards, net	22		—	—		—		(290)		—		—		(290)
Stock-based compensation expense	—		—	—		—		9,946		—		—		9,946
Tax impact on capped calls	—		—	—		—		1		—		—		1
Foreign currency translation adjustments and revaluations, net of tax	—		—	—		—		—		—		8,955		8,955
Unrealized gain from available-for-sale investments, net of tax	—		—	—		—		—		—		24		24
Net income	—		—	—		—		—		7,221		—		7,221
Balance, September 30, 2024	65,722	$	66	90,161	$	90	$	264,494	$	14,483	$	(20,107)	$	259,026

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Vertex, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the three and nine months ended September 30, 2024 and 2023 (unaudited) (continued)

(Amounts in thousands)

									(Accumulated		Accumulated
	Outstanding	Class A		Outstanding	Class B		Additional		Deficit)		Other		Total
	Class A	Common		Class B	Common		Paid In		Retained		Comprehensive		Stockholders'
	Shares	Stock		Shares	Stock		Capital		Earnings		Loss		Equity
Balance, January 1, 2023	50,014	$	50	100,307	$	100	$	244,820	$	12,507	$	(27,752)	$	229,725
Exercise of stock options, net	592		1	—		—		1,279		—		—		1,280
Shares issued upon vesting of Restricted Stock Units, net	391		—	—		—		(3,471)		—		—		(3,471)
Stock-based compensation expense	—		—	—		—		10,938		—		—		10,938
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		—	—		—		(