Vertex Announces Financial Results for Fourth Quarter and Full-Year 2020

King of Prussia, Pennsylvania, UNITED STATES


KING OF PRUSSIA, Pa., March 10, 2021 (GLOBE NEWSWIRE) -- Vertex, Inc. (Nasdaq: VERX) (“Vertex” or the “Company”), a global provider of tax technology solutions, today announced financial results for its fourth quarter and full-year ended December 31, 2020.

“Our strong fourth quarter financial results underscore the value we are delivering to our customers and partners around the world,” said David DeStefano, Chief Executive Officer. “The investments we made throughout the year to scale our team, acquire world-class talent, and expand our global capabilities further position us to capture the significant market opportunities ahead.”

Fourth Quarter 2020 Financial Results

  • Total revenues of $99.5 million, up 15.7% year-over-year.
  • Software subscription revenues of $83.9 million, up 15.1% year-over-year.
  • Annual Recurring Revenue of $316.4 million, up 13.6% year-over-year.
  • Operating income of $2.5 million, compared to $4.1 million for the same period prior year. Non-GAAP operating income of $16.1 million, compared to $14.7 million for the same period prior year.
  • Net income of $0.2 million, compared to $4.7 million for the same period prior year. Non-GAAP net income of $12.3 million, compared to $14.2 million for the same period prior year.
  • Net income per basic and diluted Class A and Class B share was $0.00, compared to $0.04 for the same period prior year.
  • Non-GAAP diluted EPS was $0.08, compared to $0.11 for the same period prior year.
  • Adjusted EBITDA of $19.1 million, up 11.2% year-over-year. Adjusted EBITDA margin of 19.1%, compared to 19.9% for the same period prior year.
  • Cash provided by operating activities of $39.5 million, compared to $46.7 million for the same period prior year. Free cash flow of $30.9 million, compared to $34.8 million for the same period prior year.

Full-Year 2020 Financial Results

  • Total revenues of $374.7 million, up 16.5% year-over-year.
  • Software subscription revenues of $316.8 million, up 14.9% year-over-year.
  • Annual Recurring Revenue of $316.4 million, up 13.6% year-over-year.
  • Operating loss of $(104.8) million, compared to operating income of $31.9 million for the prior year. Non-GAAP operating income of $67.4 million, compared to $58.9 million for the prior year.
  • Net loss of $(78.9) million, compared to net income of $31.1 million for the prior year. Non-GAAP net income of $47.9 million, compared to $56.8 million for the prior year.
  • Net loss per basic and diluted Class A and Class B share was $(0.60), compared to net income per basic and diluted Class A share of $0.20 and $0.25, respectively, and net income per basic and diluted Class B share of $0.26 and $0.25, respectively, for the prior year.
  • Non-GAAP diluted EPS was $0.35, compared to $0.46 for the prior year.
  • Adjusted EBITDA of $78.4 million, up 15.4% year-over-year. Adjusted EBITDA margin of 20.9%, compared to 21.1% for the prior year.
  • Cash provided by operating activities of $59.5 million, compared to $92.5 million for the prior year. Free cash flow of $49.6 million, compared to $54.9 million for the prior year.

“We saw strong demand for our software and services from new and existing customers in the fourth quarter, as evidenced by our growth in total revenues, software subscription revenues and annual recurring revenues in both the fourth quarter and fiscal year as compared to 2019,” notes John Schwab, Chief Financial Officer. “The durability of our business model and operating discipline enabled accelerated investment in our technologies and go-to-market capacity while driving profitable growth.”

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

  • Key Metrics: Ended 2020 with Annual Recurring Revenue per customer of over $78,000, compared to over $65,000 in prior year. Software subscription revenues from cloud-based subscriptions grew to 27.5% of total revenues in 2020, compared to 19.1% in prior year. Net Revenue Retention Rate was 106% in the fourth quarter of 2020 and has averaged 108% over the last four quarters.
  • Announced the availability of Vertex Indirect Tax Chain Flow Accelerator, an intelligent data visualization and mapping tool that streamlines the management of complex VAT scenarios associated with cross-border supply chain transactions.
  • Acquired 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 the hiring of Sal Visca as Chief Technology Officer, an executive who is a recognized innovator and leader of global technology teams in e-commerce, business intelligence and enterprise management software.

Financial Outlook

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

  • Revenues of $94.5 million to $96.5 million, representing growth of 5.9% to 8.1%.
  • Adjusted EBITDA of $15.5 million to $17.5 million, representing an increase of $0.2 million to $2.2 million.

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

  • Revenues of $401 million to $405 million, representing growth of 7.0% to 8.1%.
  • Adjusted EBITDA of $68 million to $72 million, representing a decrease of $6.4 million to $10.4 million. 2021 Adjusted EBITDA anticipates $2 million in increased operating expenses related to the acquisition of Tellutax in January 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 fourth quarter and full-year 2020 financial results on March 10, 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 March 10, 2021, through March 24, 2021, by dialing 1-844-512-2921, or for international callers 1-412-317-6671. The replay passcode will be 13715702.

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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and the Company’s subsequent filings with the Securities Exchange Commission (“SEC”). Copies of each 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 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 2020 and 2019, 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 ESPP 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 adjusting net cash provided by operating activities by adding back cash used for the redemption of converted stock appreciation rights redeemed in connection with the initial public offering 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
Consolidated Balance Sheets
(Unaudited)

  December 31, 
(In thousands, except per share data) 2020 2019
Assets      
Current assets:      
Cash and cash equivalents $303,051  $75,903 
Funds held for customers  9,222   7,592 
Accounts receivable, net of allowance of $8,592, and $7,515  77,159   70,367 
Advances to stockholders      
Prepaid expenses and other current assets  13,259   11,695 
Total current assets  402,691   165,557 
Property and equipment, net of accumulated depreciation  56,557   54,727 
Capitalized software, net of accumulated amortization  31,989   32,075 
Goodwill and other intangible assets  18,711    
Deferred commissions  11,743   11,196 
Deferred income tax asset  29,974   219 
Other assets  3,263   849 
Total assets $554,928  $264,623 
    
Liabilities and Equity      
Current liabilities:      
Current portion of long-term debt $882  $50,804 
Accounts payable  8,876   10,729 
Accrued expenses  19,176   13,308 
Distributions payable  2,700   13,183 
Customer funds obligations  9,235   7,553 
Accrued salaries and benefits  17,326   15,195 
Accrued variable compensation  22,372   22,237 
Deferred compensation, current  2,057   8,935 
Deferred revenue  207,560   191,745 
Deferred rent and other  939   840 
Future acquisition commitment, current  845    
Total current liabilities  291,968   334,529 
Deferred compensation, net of current portion  5,010   18,530 
Deferred revenue, net of current portion  14,702   14,046 
Long-term debt, net of current portion  225   682 
Future acquisition commitment, net of current portion  8,905    
Deferred other liabilities  8,632   9,268 
Total liabilities  329,442   377,055 
Commitments and contingencies      
Options for redeemable shares     17,344 
Stockholders' equity (deficit):      
Preferred shares, $0.001 par value, 30,000 and 0 shares authorized; 0 and 0 shares issued and outstanding      
Class A voting common stock, $0.001 par value, 0 and 600 shares authorized; 0 and 300 shares issued; 0 and 147 shares outstanding      
Class B non-voting common stock, $0.001 par value, 0 and 299,400 shares authorized; 0 and 162,297 shares issued; 0 and 120,270 shares outstanding     54 
Class A voting common stock, $0.001 par value, 300,000 and 0 shares authorized; 26,327 and 0 shares issued and outstanding  26    
Class B voting common stock, $0.001 par value, 150,000 and 0 shares authorized; 120,117 and 0 shares issued and outstanding  120    
Additional paid in capital  206,541    
Retained earnings (accumulated deficit)  21,926   (90,701)
Accumulated other comprehensive loss  (3,127)  (491)
Treasury stock     (38,638)
Total stockholders' equity (deficit)  225,486   (129,776)
Total liabilities and equity $554,928  $264,623 


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

  Three Months Ended  Year Ended
  December 31,  December 31, 
(In thousands, except per share data) 2020 2019 2020 2019
Revenues:    
Software subscriptions $83,919  $72,937  $316,763  $275,629 
Services  15,625   13,135   57,902   45,871 
Total revenues  99,544   86,072   374,665   321,500 
Cost of revenues:            
Software subscriptions  25,830   20,769   105,676   77,259 
Services  10,382   9,503   59,711   33,119 
Total cost of revenues  36,212   30,272   165,387   110,378 
Gross profit  63,332   55,800   209,278   211,122 
Operating expenses:            
Research and development  11,143   8,508   54,340   30,557 
Selling and marketing  21,118   18,963   99,418   68,127 
General and administrative  25,620   21,656   149,057   71,014 
Depreciation and amortization  2,909   2,468   11,018   8,996 
Other operating expense, net  49   101   203   573 
Total operating expenses  60,839   51,696   314,036   179,267 
Income (loss) from operations  2,493   4,104   (104,758)  31,855 
Interest (income) expense, net  (313)  149   3,111   953 
Income (loss) before income taxes  2,806   3,955   (107,869)  30,902 
Income tax expense (benefit)  2,576   (755)  (28,932)  (155)
Net income (loss)  230   4,710   (78,937)  31,057 
Other comprehensive (income) loss from foreign currency translation adjustments and revaluations, net of tax  (876)  (181)  2,636   (5)
Total comprehensive income (loss) $1,106  $4,891  $(81,573) $31,062 
             
Net income (loss) attributable to Class A stockholders, basic $41  $3  $(6,660) $23 
Net income (loss) per Class A share, basic $0.00  $0.04  $(0.60) $0.20 
Weighted average Class A common stock, basic  25,888   73   11,096   118 
Net income (loss) attributable to Class A stockholders, diluted $53  $142  $(6,660) $965 
Net income (loss) per Class A share, diluted $0.00  $0.04  $(0.60) $0.25 
Weighted average Class A common stock, diluted  35,754   3,754   11,096   3,861 
             
Net income (loss) attributable to Class B stockholders, basic $189  $4,707  $(72,277) $31,034 
Net income (loss) per Class B share, basic $0.00  $0.04  $(0.60) $0.26 
Weighted average Class B common stock, basic  120,411   120,417   120,415   120,417 
Net income (loss) attributable to Class B stockholders, diluted $177  $4,568  $(72,277) $30,092 
Net income (loss) per Class B share, diluted $0.00  $0.04  $(0.60) $0.25 
Weighted average Class B common stock, diluted  120,411   120,417   120,415   120,417 


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

  Three Months Ended  Year Ended
  December 31,  December 31, 
(In thousands) 2020
 2019
 2020
 2019
Cash flows from operating activities:            
Net income (loss) $230  $4,710  $(78,937) $31,057 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:            
Depreciation and amortization  8,629   7,038   32,215   25,190 
Provision for subscription cancellations and non-renewals, net of deferred allowance  207   1,259   259   1,232 
Amortization of deferred financing costs  17   67   373   266 
Write-off of deferred financing costs  36      1,387    
Stock-based compensation expense  7,014   5,530   147,904   9,460 
Deferred income tax provision (benefit)  2,361   (848)  (29,643)  (848)
Redemption of converted SARs        (22,889)   
Other  21   (8)  107   43 
Changes in operating assets and liabilities:            
Accounts receivable  (10,905)  (13,126)  (6,762)  (10,116)
Prepaid expenses and other current assets  2,791   455   (1,541)  (809)
Deferred commissions  (1,371)  (2,113)  (547)  (2,366)
Accounts payable  (3,035)  3,740   (1,842)  3,868 
Accrued expenses  3,186   4,306   4,568   2,539 
Accrued and deferred compensation  4,767   9,515   (632)  5,318 
Deferred revenue  25,808   26,115   17,557   27,168 
Other  (257)  59   (2,034)  496 
Net cash provided by operating activities  39,499   46,699   59,543   92,498 
Cash flows from investing activities:            
Acquisition of business, net of cash acquired  748      (11,570)   
Property and equipment additions  (5,973)  (7,024)  (20,955)  (20,339)
Capitalized software additions  (2,604)  (4,876)  (11,850)  (17,221)
Net cash used in investing activities  (7,829)  (11,900)  (44,375)  (37,560)
Cash flows from financing activities:            
Net increase in customer funds obligations  523   3,053   1,681   4,276 
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  (222)  (1,227)  (226,251)  (5,566)
Payments for deferred financing costs, net        (2,436)   
Proceeds from issuance of shares in connection with offering        423,024    
Payments for offering costs        (6,222)   
Payments for taxes on exercised options  (2,814)  184   (14,813)   
Purchase of treasury stock     (841)     (841)
Proceeds from purchases of stock under ESPP  957      957    
Proceeds from exercise of stock options  2,785      8,808   68 
Distributions to stockholders  (32)  (6,314)  (146,116)  (28,566)
Net cash provided by (used in) financing activities  1,197   (5,145)  213,632   (30,629)
Effect of exchange rate changes on cash, cash equivalents and restricted cash  390   188   (22)  12 
Net increase in cash, cash equivalents and restricted cash  33,257   29,842   228,778   24,321 
Cash, cash equivalents and restricted cash, beginning of period  279,016   53,653   83,495   59,174 
Cash, cash equivalents and restricted cash, end of period $312,273  $83,495  $312,273  $83,495 
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets, end of period:            
Cash and cash equivalents $303,051  $75,903  $303,051  $75,903 
Restricted cash—funds held for customers  9,222   7,592   9,222   7,592 
Total cash, cash equivalents and restricted cash, end of period $312,273  $83,495  $312,273  $83,495 


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

  Three Months Ended  Year Ended
  December 31,  December 31, 
(Dollars in thousands, except per share data) 2020 2019 2020 2019
Non-GAAP cost of revenues, software subscriptions $19,497  $15,646  $69,992  $60,119 
Non-GAAP cost of revenues, services $9,629  $8,675  $38,239  $31,700 
Non-GAAP gross profit $70,418  $61,751  $266,434  $229,681 
Non-GAAP gross margin  70.7%  71.7%  71.1%  71.4%
Non-GAAP research and development expense $10,449  $7,955  $39,646  $29,611 
Non-GAAP selling and marketing expense $19,659  $17,855  $69,691  $66,235 
Non-GAAP general and administrative expense $21,208  $18,708  $78,502  $65,349 
Non-GAAP operating income $16,144  $14,664  $67,374  $58,917 
Non-GAAP net income $12,260  $14,225  $47,876  $56,805 
Non-GAAP diluted EPS $0.08  $0.11  $0.35  $0.46 
Adjusted EBITDA $19,053  $17,132  $78,392  $67,913 
Adjusted EBITDA margin  19.1%  19.9%  20.9%  21.1%
Free cash flow $30,922  $34,799  $49,627  $54,938 
Free cash flow margin  31.1%  40.4%  13.2%  17.1%


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

  Three Months Ended  Year Ended
  December 31,  December 31, 
(Dollars in thousands) 2020
 2019
 2020
 2019
Non-GAAP Cost of Revenues, Software Subscriptions:            
Cost of revenues, software subscriptions $25,830  $20,769  $105,676  $77,259 
Stock-based compensation expense  (661)  (553)  (14,663)  (946)
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues  (5,672)  (4,570)  (21,021)  (16,194)
Non-GAAP cost of revenues, software subscriptions $19,497  $15,646  $69,992  $60,119 
             
Non-GAAP Cost of Revenues, Services:            
Cost of revenues, services $10,382  $9,503  $59,711  $33,119 
Stock-based compensation expense  (753)  (828)  (21,472)  (1,419)
Non-GAAP cost of revenues, services $9,629  $8,675  $38,239  $31,700 
             
Non-GAAP Gross Profit:            
Gross profit $63,332  $55,800  $209,278  $211,122 
Stock-based compensation expense  1,414   1,381   36,135   2,365 
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues  5,672   4,570   21,021   16,194 
Non-GAAP gross profit $70,418  $61,751  $266,434  $229,681 
             
Non-GAAP Gross Margin:            
Gross margin  63.6%  64.8%  55.9%  65.7%
Stock-based compensation expense as a percentage of revenues  1.4%  1.6%  9.6%  0.7%
Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues as a percentage of revenues  5.7%  5.3%  5.6%  5.0%
Non-GAAP gross margin  70.7%  71.7%  71.1%  71.4 
             
Non-GAAP Research and Development Expense:            
Research and development expense $11,143  $8,508  $54,340  $30,557 
Stock-based compensation expense  (694)  (553)  (14,694)  (946)
Non-GAAP research and development expense $10,449  $7,955  $39,646  $29,611 
             
Non-GAAP Selling and Marketing Expense:            
Selling and marketing expense $21,118  $18,963  $99,418  $68,127 
Stock-based compensation expense  (1,411)  (1,108)  (29,551)  (1,892)
Amortization of acquired intangible assets – selling and marketing expense  (48)     (176)   
Non-GAAP selling and marketing expense $19,659  $17,855  $69,691  $66,235 
             
Non-GAAP General and Administrative Expense:            
General and administrative expense $25,620  $21,656  $149,057  $71,014 
Stock-based compensation expense  (3,495)  (2,488)  (67,524)  (4,257)
Severance expense  (917)  (460)  (3,031)  (1,408)
Non-GAAP general and administrative expense $21,208  $18,708  $78,502  $65,349 


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

  Three Months Ended  Year Ended
  December 31,  December 31, 
(In thousands, except per share data) 2020 2019 2020 2019
Non-GAAP Operating Income:               
Income (loss) from operations $2,493  $4,104  $(104,758) $31,855 
Stock-based compensation expense  7,014   5,530   147,904   9,460 
Depreciation and amortization of capitalized software and acquired intangible assets - cost of subscription revenues  5,672   4,570   21,021   16,194 
Amortization of acquired intangible assets – selling and marketing expense  48      176    
Severance expense  917   460   3,031   1,408 
Non-GAAP operating income $16,144  $14,664  $67,374  $58,917 
                
Non-GAAP Net Income:               
Income (loss) before income taxes $2,806  $3,955  $(107,869) $30,902 
Stock-based compensation expense  7,014   5,530   147,904   9,460 
Depreciation and amortization of capitalized software and acquired intangible assets - cost of subscription revenues  5,672   4,570   21,021   16,194 
Amortization of acquired intangible assets – selling and marketing expense  48      176    
Severance expense  917   460   3,031   1,408 
Non-GAAP income before income taxes  16,457   14,515   64,263   57,964 
Income tax adjustment at statutory rate  4,197   290   16,387   1,159 
Non-GAAP net income $12,260  $14,225  $47,876  $56,805 
                
Non-GAAP Diluted EPS:               
Non-GAAP net income $12,260  $14,225  $47,876  $56,805 
Weighted average Class A and B common stock, diluted  158,065   124,171   138,670   124,278 
Non-GAAP diluted EPS $0.08  $0.11  $0.35  $0.46 


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

  Three Months Ended  Year Ended
  December 31,  December 31, 
(Dollars in thousands) 2020 2019 2020 2019
Adjusted EBITDA:            
Net income (loss) $230  $4,710  $(78,937) $31,057 
Interest (income) expense, net  (313)  149   3,111   953 
Income tax expense (benefit)  2,576   (755)  (28,932)  (155)
Depreciation and amortization - property and equipment  2,909   2,468   11,018   8,996 
Depreciation and amortization of capitalized software and acquired intangible assets - cost of subscription revenues  5,672   4,570   21,021   16,194 
Amortization of acquired intangible assets - selling and marketing expense  48      176    
Stock-based compensation expense  7,014   5,530   147,904   9,460 
Severance expense  917   460   3,031   1,408 
Adjusted EBITDA $19,053  $17,132  $78,392  $67,913 
             
Adjusted EBITDA Margin:            
Total revenues $99,544  $86,072  $374,665  $321,500 
Adjusted EBITDA margin  19.1%  19.9%  20.9%  21.1%


  Three Months Ended  Year Ended
  December 31,  December 31, 
(Dollars in thousands) 2020
 2019
 2020
 2019
Free Cash Flow:            
Cash provided by operating activities $39,499  $46,699  $59,543  $92,498 
Redemption of converted SARs        22,889    
Property and equipment additions  (5,973)  (7,024)  (20,955)  (20,339)
Capitalized software additions  (2,604)  (4,876)  (11,850)  (17,221)
Free cash flow $30,922  $34,799  $49,627  $54,938 
             
Free Cash Flow Margin:            
Total revenues $99,544  $86,072  $374,665  $321,500 
Free cash flow margin  31.1%  40.4%  13.2%  17.1%


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