Vertex Announces First Quarter 2021 Financial Results

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KING OF PRUSSIA, Pa., May 13, 2021 (GLOBE NEWSWIRE) — Vertex, Inc. (NASDAQ: VERX) (“Vertex” or the “Company”), a global provider of tax technology solutions, today announced financial results for its first quarter ended March 31, 2021.

“Our strong start to 2021 reflects the trust our customers have in us to help them navigate today’s complex and dynamic commerce landscape. The entire team is laser focused on our mission to enable every business to transact, comply and grow with confidence,” said David DeStefano, Vertex President and Chief Executive Officer. “As tax revenues continue to be a key part of our global economic recovery, the mission-critical role of our solutions to enable growth and reduce tax compliance friction will only continue. The investments we are making in our people and technology keep us well-positioned to seize these opportunities with innovative and differentiated solutions.”

First Quarter 2021 Financial Results

  • Total revenues of $98.2 million, up 10.1% year-over-year.
  • Software subscription revenues of $83.3 million, up 9.9% year-over-year.
  • Annual Recurring Revenue of $320.1 million, up 12.6% year-over-year.
  • Operating income of $2.1 million, compared to an operating loss of $(28.2) million for the same period prior year. Non-GAAP operating income of $15.4 million, up 23.6% year-over-year.
  • Net income of $2.3 million, compared to a net loss of $(29.1) million for the same period prior year. Non-GAAP net income of $11.0 million, compared to $11.6 million for the same period prior year.
  • Net income (loss) per basic Class A and Class B share was $0.02, compared to $0.00 and $(0.24), respectively, for the same period prior year. Net income (loss) per diluted Class A and Class B share was $0.01, compared to $0.00 and $(0.24), respectively, for the same period prior year.
  • Non-GAAP diluted EPS was $0.07, compared to $0.09 for the same period prior year.
  • Adjusted EBITDA of $18.2 million, up 18.9% year-over-year. Adjusted EBITDA margin of 18.5%, up 140 basis points year-over-year.

Vertex Chief Financial Officer John Schwab said, “We continue to execute and have delivered another strong quarter of performance. We remain confident in the strength of our business model, and plan to continue investing in our sustainable, long-term growth as CFOs and CIOs around the world face increased business and regulatory complexity. We believe the investments we are making to accelerate go-to-market, expand our partnerships, deliver new products, and enable great customer experiences are adding positive momentum to our business.”

Definitions of certain key business metrics and the non-GAAP financial measures used in this press release and reconciliations of such measures to their nearest GAAP equivalents are included below under the headings “Definitions of Certain Key Business Metrics” and “Use and Reconciliation of Non-GAAP Financial Measures.”

Recent Business Highlights

  • Acquired Taxamo, a cloud-based pioneer in tax and payment automation for global e-commerce and marketplaces on May 12, 2021. The purchase price for Taxamo was approximately $200 million in an all cash transaction. This acquisition supports and accelerates our growth strategies across ecommerce platforms and marketplaces in the enterprise and mid-market in Europe and North America, and among our existing global customers. The acquisition is a strategic opportunity that we believe will provide accretive revenue growth.
  • Acquired the assets of edge-computing startup, Tellutax, on January 25, 2021, enabling the next generation of tax technology solutions to be delivered seamlessly at the point of need with increased scalability and simplified management.
  • Announced a partnership with BigCommerce, a proven e-commerce leader, to deliver sales and use tax automation to the BigCommerce Apps Marketplace.
  • Introduced the Vertex® Indirect Tax Accelerator for Oracle Fusion Cloud Enterprise Resource Planning.
  • Net Revenue Retention Rate was 105% in the first quarter of 2021 as compared to 106% in the fourth quarter of 2020.
  • Announced the hiring of Yvette Burton as Chief People Innovation Officer, an executive responsible to shape the company’s global strategic workforce planning efforts and lead organizational programs to advance inclusion and diversity.

Financial Outlook

For the second quarter of 2021, the Company currently expects:

  • Revenues in the range of $99.0 million to $100.0 million, representing growth of 8.5% to 9.6% from the second quarter of 2020; and
  • Adjusted EBITDA in the range of $15.5 million to $16.5 million, representing a decrease of $6.0 million to $5.0 million from the second quarter of 2020.

The Taxamo acquisition closed on May 12, 2021. The above guidance for the second quarter of 2021 includes the impact of the acquisition, which includes a contribution of $0.5 million to revenues and $0.5 million decrease to Adjusted EBITDA.

For the full-year 2021, the Company currently expects:

  • Revenues in the range of $410 million to $414 million, representing growth of 9.4% to 10.5% from the full-year 2020; and
  • Adjusted EBITDA in the range of $66 million to $70 million, representing a decrease of $12.4 million to $8.4 million from the full-year 2020 due to the acceleration of our growth investments.

The full-year 2021 guidance reflects the impact of the Taxamo acquisition for the remainder of the year, which includes the contribution of $9.0 million to revenues and a $2.0 million decrease to Adjusted EBITDA primarily attributable to integration costs. We expect Taxamo to have a more significant impact on our 2022 revenues due to the timing of the acquisition and the tailwinds from new and pending marketplace facilitator VAT regulations. Notably, such regulations are already effective in the United Kingdom and are scheduled to go into effect throughout the European Union in July 2021.

Certain non-GAAP financial measures included in our financial outlook were not reconciled to the comparable GAAP financial measures because the GAAP financial measures are not accessible on a forward-looking basis. The Company is unable to reconcile these forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures without unreasonable efforts because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact GAAP financial measures for these periods but would not impact the non-GAAP financial measures. Such items may include stock-based compensation charges, depreciation and amortization of capitalized software costs and acquired intangible assets, severance, and other items. The unavailable information could have a significant impact on the Company’s GAAP financial results. The foregoing forward-looking statements reflect the Company’s expectations as of today’s date. Given the number of risk factors, uncertainties and assumptions discussed below, actual results may differ materially. The Company does not intend to update its financial outlook until its next quarterly results announcement.

Important disclosures in this earnings release about and reconciliations of historical and forward-looking non-GAAP financial measures to the nearest corresponding GAAP equivalents are provided below under “Use and Reconciliation of Non-GAAP Financial Measures.”

Conference Call and Webcast Information

Vertex will host a conference call to discuss the first quarter 2021 financial results on May 13, 2021 at 8:30 a.m. Eastern Time (“ET”). The conference call can be accessed live over the phone by dialing 1-877-407-4018, or for international callers 1-201-689-8471. A replay will be available from 11:30 a.m. ET on May 13, 2021, through May 27, 2021, by dialing 1-844-512-2921, or for international callers 1-412-317-6671. The replay passcode will be 13718842.

The call will also be webcast live from Vertex’s investor relations website at https://ir.vertexinc.com. Following the completion of the call, a recorded replay of the webcast will be available on the website.

About Vertex

Vertex, Inc. is a leading global provider of indirect tax software and solutions. The Company’s mission is to deliver the most trusted tax technology enabling global businesses to transact, comply and grow with confidence. Vertex provides cloud-based and on-premise solutions that can be tailored to specific industries for every major line of indirect tax, including sales and consumer use, value added and payroll. Headquartered in North America, and with offices in South America and Europe, Vertex employs over 1,200 professionals and serves companies across the globe. More information can be found at www.vertexinc.com.

Forward Looking Statements

Any statements made in this press release that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies. Forward-looking statements are based on Vertex management’s beliefs, as well as assumptions made by, and information currently available to, them. Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected. Factors which may cause actual results to differ materially from current expectations include, but are not limited to: potential effects on our business of the 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; our ability to identify acquisition targets and to successfully integrate and operate acquired businesses; our ability to maintain and expand our strategic relationships with third parties; and the other factors described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the Securities Exchange Commission (“SEC”). Copies of such filing may be obtained from the Company or the SEC.

All forward-looking statements reflect our beliefs and assumptions only as of the date of this press release. We undertake no obligation to update forward-looking statements to reflect future events or circumstances.

Definitions of Certain Key Business Metrics

Annual Recurring Revenue (“ARR”)

We derive the vast majority of our revenues from recurring software subscriptions. We believe ARR provides us with visibility to our projected software subscription revenues in order to evaluate the health of our business. Because we recognize subscription revenues ratably, we believe investors can use ARR to measure our expansion of existing customer revenues, new customer activity, and as an indicator of future software subscription revenues. ARR is based on monthly recurring revenues (“MRR”) from software subscriptions for the most recent month at period end, multiplied by twelve. MRR is calculated by dividing the software subscription price, inclusive of discounts, by the number of subscription covered months. MRR only includes customers with MRR at the end of the last month of the measurement period.

Net Revenue Retention Rate (“NRR”)

We believe that our NRR provides insight into our ability to retain and grow revenues from our customers, as well as their potential long-term value to us. We also believe it demonstrates to investors our ability to expand existing customer revenues, which is one of our key growth strategies. Our NRR refers to the ARR expansion during the 12 months of a reporting period for all customers who were part of our customer base at the beginning of the reporting period. Our NRR calculation takes into account any revenues lost from departing customers or customers who have downgraded or reduced usage, as well as any revenue expansion from migrations, new licenses for additional products or contractual and usage-based price changes.

Use and Reconciliation of Non-GAAP Financial Measures

In addition to our results determined in accordance with accounting principles generally accepted in the U.S. (“GAAP”), we have calculated non-GAAP cost of revenues, non-GAAP gross profit, non-GAAP gross margin, non-GAAP research and development expense, non-GAAP selling and marketing expense, non-GAAP general and administrative expense, non-GAAP operating income, non-GAAP net income, non-GAAP diluted EPS, Adjusted EBITDA, Adjusted EBITDA margin, free cash flow and free cash flow margin, which are each non-GAAP financial measures. We have provided tabular reconciliations of each of these non-GAAP financial measures to its most directly comparable GAAP financial measure.

Management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, and to evaluate financial performance and liquidity. Our non-GAAP financial measures are presented as supplemental disclosure as we believe they provide useful information to investors and others in understanding and evaluating our results, prospects, and liquidity period-over-period without the impact of certain items that do not directly correlate to our operating performance and that may vary significantly from period to period for reasons unrelated to our operating performance, as well as comparing our financial results to those of other companies. Our definitions of these non-GAAP financial measures may differ from similarly titled measures presented by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from, the financial information prepared in accordance with GAAP financial measures, and should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 to be filed with the SEC.

We calculate these non-GAAP financial measures as follows:

  • Non-GAAP cost of revenues, software subscriptions is determined by adding back to GAAP cost of revenues, software subscriptions, the stock-based compensation expense, and depreciation and amortization of capitalized software costs and acquired intangible assets included in cost of revenues for the respective periods.
  • Non-GAAP cost of revenues, services is determined by adding back to GAAP cost of revenues, services, the stock-based compensation expense included in cost of revenues for the respective periods.
  • Non-GAAP gross profit is determined by adding back to GAAP gross profit the stock-based compensation expense, and depreciation and amortization of capitalized software costs and acquired intangible assets included in cost of revenues for the respective periods.
  • Non-GAAP gross margin is determined by adding back to GAAP gross margin the impact of stock-based compensation expense, and depreciation and amortization of capitalized software costs and acquired intangible assets included in cost of revenues as a percentage of revenues for the respective periods.
  • Non-GAAP research and development expense and non-GAAP general and administrative expenses are determined by adding back to GAAP research and development expense and GAAP general and administrative expense the stock-based compensation expense and severance expense included in the applicable expense categories for the respective periods.
  • Non-GAAP selling and marketing expense is determined by adding back to GAAP selling and marketing expense the stock-based compensation expense and the amortization of acquired intangible assets included in selling and marketing expense for the respective periods.
  • Non-GAAP operating income is determined by adding back to GAAP operating income (loss) the stock-based compensation expense, depreciation and amortization of capitalized software costs and acquired intangible assets, and severance expense included in GAAP operating income (loss) for the respective periods.
  • Non-GAAP net income is determined by adding back to GAAP income (loss) before income taxes the stock-based compensation expense, depreciation and amortization of capitalized software costs and acquired intangible assets – cost of subscription revenues, amortization of acquired intangible assets – selling and marketing expense, and severance expense included in GAAP income (loss) before income taxes for the respective periods to determine non-GAAP income (loss) before income taxes. Non-GAAP income (loss) before income taxes is then adjusted for income taxes calculated using the respective statutory tax rates for applicable jurisdictions, which for purposes of this determination were assumed to be 25.5% and 2.0% for the 2021 and 2020 periods, respectively.
  • Non-GAAP net income per diluted share of Class A and Class B common stock (“Non-GAAP diluted EPS”) is determined by dividing non-GAAP net income by the weighted average shares outstanding of all classes of common stock, inclusive of the impact of common stock equivalents to purchase such common stock, including stock options, restricted stock awards, restricted stock units and employee stock purchase plan shares.
  • Adjusted EBITDA is determined by adding back to GAAP net income (loss) the net interest (income) or expense, income tax expense (benefit), depreciation and amortization of property and equipment, depreciation and amortization of capitalized software costs and acquired intangible assets – cost of subscription revenues, amortization of acquired intangible assets – selling and marketing expense, asset impairments, stock-based compensation expense, severance expense and transaction costs included in GAAP net income (loss) for the respective periods.
  • Adjusted EBITDA margin is determined by dividing Adjusted EBITDA by total revenues for the respective periods.
  • Free cash flow is determined by net cash provided by (used in) operating activities and reducing it for purchases of property and equipment and capitalized software additions for the respective periods.
  • Free cash flow margin is determined by dividing free cash flow by total revenues for the respective periods.

We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view these non-GAAP financial measures in conjunction with the related GAAP financial measures.

Vertex, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)

    March 31,   December 31,
(In thousands, except per share data)   2021   2020
Assets            
Current assets:            
Cash and cash equivalents   $ 277,681     $ 303,051  
Funds held for customers     8,745       9,222  
Accounts receivable, net of allowance of $8,059, and $8,592     63,798       77,159  
Prepaid expenses and other current assets     26,696       13,259  
Total current assets     376,920       402,691  
Property and equipment, net of accumulated depreciation     57,408       56,557  
Capitalized software, net of accumulated amortization     34,642       31,989  
Goodwill and other intangible assets     21,553       18,711  
Deferred commissions     11,693       11,743  
Deferred income tax asset     30,373       29,974  
Operating lease right-of-use assets     22,981        
Other assets     2,767       3,263  
Total assets   $ 558,337     $ 554,928  
       
Liabilities and Equity            
Current liabilities:            
Accounts payable   $ 11,115     $ 8,876  
Accrued expenses     15,936       19,176  
Distributions payable     2,700       2,700  
Customer funds obligations     8,798       9,235  
Accrued salaries and benefits     18,065       17,326  
Accrued variable compensation     5,854       22,372  
Deferred compensation, current     2,057       2,057  
Deferred revenue     204,971       207,560  
Current portion of long-term debt           882  
Current portion of operating lease liabilities     4,665        
Current portion of finance lease liabilities     267        
Deferred rent and other           939  
Purchase commitment and contingent consideration liabilities, current     767       845  
Total current liabilities     275,195       291,968  
Deferred compensation, net of current portion     6,048       5,010  
Deferred revenue, net of current portion     13,162       14,702  
Debt, net of current portion           225  
Operating lease liabilities, net of current portion     26,671        
Finance lease liabilities, net of current portion     334        
Purchase commitment and contingent consideration liabilities, net of current portion     10,287       8,905  
Deferred other liabilities     64       8,632  
Total liabilities     331,761       329,442  
Commitments and contingencies            
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; 26,972 and 26,327 shares issued and outstanding, respectively     27       26  
Class B common stock, $0.001 par value, 150,000 shares authorized; 120,117 and 120,117 shares issued and outstanding, respectively     120       120  
Additional paid in capital     205,811       206,541  
Retained earnings     24,722       21,926  
Accumulated other comprehensive loss     (4,104 )     (3,127 )
Total stockholders’ equity     226,576       225,486  
Total liabilities and equity   $ 558,337     $ 554,928  

Vertex, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)

    Three Months Ended
    March 31,
(In thousands, except per share data)   2021
  2020
         
Revenues:    
Software subscriptions   $ 83,280     $ 75,760  
Services     14,956       13,485  
Total revenues     98,236       89,245  
Cost of revenues:            
Software subscriptions     25,590       24,684  
Services     11,343       14,778  
Total cost of revenues     36,933       39,462  
Gross profit     61,303       49,783  
Operating expenses:            
Research and development     11,459       13,079  
Selling and marketing     20,150       24,333  
General and administrative     24,852       37,636  
Depreciation and amortization     2,827       2,869  
Other operating (income) expense, net     (129 )     111  
Total operating expenses     59,159       78,028  
Income (loss) from operations     2,144       (28,245 )
Interest expense, net     535       569  
Income (loss) before income taxes     1,609       (28,814 )
Income tax (benefit) expense     (679 )     250  
Net income (loss)     2,288       (29,064 )
Other comprehensive loss from foreign currency translation adjustments and revaluations, net of tax     977       2,998  
Total comprehensive income (loss)   $ 1,311     $ (32,062 )
             
Net income attributable to Class A stockholders   $ 413     $  
Net income per Class A share, basic   $ 0.02     $  
Weighted average Class A common stock, basic     26,458        
Net income attributable to Class A stockholders, diluted   $ 550     $  
Net income per Class A share, diluted   $ 0.01     $  
Weighted average Class A common stock, diluted     38,003        
             
Net income (loss) attributable to Class B stockholders   $ 1,875     $ (29,064 )
Net income (loss) per Class B share, basic   $ 0.02     $ (0.24 )
Weighted average Class B common stock, basic     120,117       120,417  
Net income (loss) attributable to Class B stockholders, diluted   $ 1,738     $ (29,064 )
Net income (loss) per Class B share, diluted   $ 0.01     $ (0.24 )
Weighted average Class B common stock, diluted     120,117       120,417  

Vertex, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

    Three Months Ended
    March 31,
(In thousands)   2021
  2020
Cash flows from operating activities:            
Net income (loss)   $ 2,288     $ (29,064 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:            
Depreciation and amortization     8,816       7,436  
Provision for subscription cancellations and non-renewals, net of deferred allowance     379       (39 )
Amortization of deferred financing costs     53       221  
Stock-based compensation expense     6,543       34,920  
Deferred income tax (benefit) provision     (615 )      
Non-cash operating lease costs     998        
Other     (14 )     72  
Changes in operating assets and liabilities:            
Accounts receivable     13,810       9,453  
Prepaid expenses and other current assets     (13,437 )     (2,167 )
Deferred commissions     50       634  
Accounts payable     2,258       (2,697 )
Accrued expenses     (3,048 )     (1,042 )
Accrued and deferred compensation     (14,966 )     (19,706 )
Deferred revenue     (5,046 )     (4,307 )
Operating lease liabilities     (1,519 )      
Other     485       (131 )
Net cash used in operating activities     (2,965 )     (6,417 )
Cash flows from investing activities:            
Acquisition of business, net of cash acquired     (6,100 )     (12,318 )
Property and equipment additions     (6,195 )     (5,632 )
Capitalized software additions     (2,221 )     (3,706 )
Net cash used in investing activities     (14,516 )     (21,656 )
Cash flows from financing activities:            
Net increase in customer funds obligations     (438 )     (208 )
Proceeds from line of credit           12,500  
Principal payments on line of credit           (12,500 )
Proceeds from long-term debt           175,000  
Principal payments on long-term debt           (51,041 )
Payments for deferred financing costs, net           (2,904 )
Payments for taxes related to net share settlement of stock-based awards     (7,178 )      
Proceeds from exercise of stock options     147        
Distributions to stockholders           (17,193 )
Payments on financing lease liabilities     (671 )      
Net cash (used in) provided by financing activities     (8,140 )     103,654  
Effect of exchange rate changes on cash, cash equivalents and restricted cash     (226 )     (249 )
Net (decrease) increase in cash, cash equivalents and restricted cash     (25,847 )     75,332  
Cash, cash equivalents and restricted cash, beginning of period     312,273       83,495  
Cash, cash equivalents and restricted cash, end of period   $ 286,426     $ 158,827  
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets, end of period:            
Cash and cash equivalents   $ 277,681     $ 40,416  
Restricted cash—funds held for stockholder distributions           110,000  
Restricted cash—funds held for customers     8,745       8,411  
Total cash, cash equivalents and restricted cash, end of period   $ 286,426     $ 158,827  

Vertex, Inc. and Subsidiaries
Summary of Non-GAAP Financial Measures
(Unaudited)

    Three Months Ended
    March 31,
(Dollars in thousands, except per share data)   2021
  2020
Non-GAAP cost of revenues, software subscriptions   $ 19,125     $ 16,625  
Non-GAAP cost of revenues, services   $ 10,749     $ 9,540  
Non-GAAP gross profit   $ 68,362     $ 63,080  
Non-GAAP gross margin     69.7 %     70.6 %
Non-GAAP research and development expense   $ 10,898     $ 9,587  
Non-GAAP selling and marketing expense   $ 18,779     $ 17,349  
Non-GAAP general and administrative expense   $ 20,630     $ 20,739  
Non-GAAP operating income   $ 15,357     $ 12,425  
Non-GAAP net income   $ 11,042     $ 11,619  
Non-GAAP diluted EPS   $ 0.07     $ 0.09  
Adjusted EBITDA   $ 18,184     $ 15,294  
Adjusted EBITDA margin     18.5 %     17.1 %
Free cash flow   $ (11,381 )   $ (15,755 )
Free cash flow margin     (11.6 )%     (17.7 )%

Vertex, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)

    Three Months Ended
    March 31,
(Dollars in thousands)   2021   2020
Non-GAAP Cost of Revenues, Software Subscriptions:            
Cost of revenues, software subscriptions   $ 25,590     $ 24,684  
Stock-based compensation expense     (560 )     (3,492 )
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues     (5,905 )     (4,567 )
Non-GAAP cost of revenues, software subscriptions   $ 19,125     $ 16,625  
             
Non-GAAP Cost of Revenues, Services:            
Cost of revenues, services   $ 11,343     $ 14,778  
Stock-based compensation expense     (594 )     (5,238 )
Non-GAAP cost of revenues, services   $ 10,749     $ 9,540  
             
Non-GAAP Gross Profit:            
Gross profit   $ 61,303     $ 49,783  
Stock-based compensation expense     1,154       8,730  
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues     5,905       4,567  
Non-GAAP gross profit   $ 68,362     $ 63,080  
             
Non-GAAP Gross Margin:            
Gross margin     62.5 %     55.7 %
Stock-based compensation expense as a percentage of revenues     1.2 %     9.8 %
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues as a percentage of revenues     6.0 %     5.1 %
Non-GAAP gross margin     69.7 %     70.6 %
             
Non-GAAP Research and Development Expense:            
Research and development expense   $ 11,459     $ 13,079  
Stock-based compensation expense     (561 )     (3,492 )
Non-GAAP research and development expense   $ 10,898     $ 9,587  
             
Non-GAAP Selling and Marketing Expense:            
Selling and marketing expense   $ 20,150     $ 24,333  
Stock-based compensation expense     (1,287 )     (6,984 )
Amortization of acquired intangible assets – selling and marketing expense     (84 )      
Non-GAAP selling and marketing expense   $ 18,779     $ 17,349  
             
Non-GAAP General and Administrative Expense:            
General and administrative expense   $ 24,852     $ 37,636  
Stock-based compensation expense     (3,541 )     (15,714 )
Severance expense     (531 )     (1,183 )
Transaction costs     (150 )      
Non-GAAP general and administrative expense   $ 20,630     $ 20,739  

Vertex, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures (continued)
(Unaudited)

  Three Months Ended
  March 31,
(In thousands, except per share data) 2021
  2020
Non-GAAP Operating Income:          
Income (loss) from operations $ 2,144     $ (28,245 )
Stock-based compensation expense   6,543       34,920  
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues   5,905       4,567  
Amortization of acquired intangible assets – selling and marketing expense   84        
Severance expense   531       1,183  
Transaction costs   150        
Non-GAAP operating income $ 15,357     $ 12,425  
           
Non-GAAP Net Income:          
Income (loss) before income taxes $ 1,609     $ (28,814 )
Stock-based compensation expense   6,543       34,920  
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues   5,905       4,567  
Amortization of acquired intangible assets – selling and marketing expense   84        
Severance expense   531       1,183  
Transaction costs   150        
Non-GAAP income before income taxes   14,822       11,856  
Income tax adjustment at statutory rate   (3,780 )     (237 )
Non-GAAP net income $ 11,042     $ 11,619  
           
Non-GAAP Diluted EPS:          
Non-GAAP net income $ 11,042     $ 11,619  
Weighted average Class A and B common stock, diluted   158,120       124,151  
Non-GAAP diluted EPS $ 0.07     $ 0.09  

Vertex, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures (continued)
(Unaudited)

  Three Months Ended
  March 31,
(Dollars in thousands) 2021   2020
Adjusted EBITDA:          
Net income (loss) $ 2,288     $ (29,064 )
Interest expense, net   535       569  
Income tax (benefit) expense   (679 )     250  
Depreciation and amortization – property and equipment   2,827       2,869  
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues   5,905       4,567  
Amortization of acquired intangible assets – selling and marketing expense   84        
Stock-based compensation expense   6,543       34,920  
Severance expense   531       1,183  
Transaction costs   150        
Adjusted EBITDA $ 18,184     $ 15,294  
           
Adjusted EBITDA Margin:          
Total revenues $ 98,236     $ 89,245  
Adjusted EBITDA margin   18.5 %     17.1 %
  Three Months Ended
  March 31,
(Dollars in thousands) 2021   2020
Free Cash Flow:          
Cash used in operating activities $ (2,965 )   $ (6,417 )
Property and equipment additions   (6,195 )     (5,632 )
Capitalized software additions   (2,221 )     (3,706 )
Free cash flow $ (11,381 )   $ (15,755 )
           
Free Cash Flow Margin:          
Total revenues $ 98,236     $ 89,245  
Free cash flow margin   (11.6 )%     (17.7 )%

Investor Contact:
Ankit Hira or Ed Yuen
Solebury Trout for Vertex, Inc.
ir@vertexinc.com
610.312.2890

Media Contact:
Tricia Schafer-Petrecz
Vertex, Inc.
tricia.schafer-petrecz@vertexinc.com
484.595.6142

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