Vertex(US:VERX)2024-05-08 20:31Part I - Financial Information Financial Statements Vertex reported strong Q1 2024 financial performance, achieving net income and improved operating cash flow Condensed Consolidated Financial Statements Key financial metrics for Q1 2024 show significant revenue growth and a return to profitability Financial Metric | Financial Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenues | $156,781 | $132,751 | +18.1% | | Gross Profit | $95,792 | $81,004 | +18.3% | | Loss from Operations | $(1,565) | $(8,929) | +82.5% | | Net Income (Loss) | $2,684 | $(18,132) | N/A | | Net Income (Loss) per Share, diluted | $0.02 | $(0.12) | N/A | Balance Sheet Item | Balance Sheet Item | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Assets | $755,802 | $759,927 | | Cash and cash equivalents | $56,134 | $68,175 | | Total Liabilities | $505,672 | $506,946 | | Deferred revenue, current | $296,845 | $290,143 | | Total Stockholders' Equity | $250,130 | $252,981 | Cash Flow Activity | Cash Flow Activity | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $24,566 | $3,491 | | Net cash used in investing activities | $(19,535) | $(14,297) | | Net cash used in financing activities | $(1,153) | $(1,531) | Notes to Condensed Consolidated Financial Statements Detailed notes provide insights into revenue streams, stock-based compensation, and a significant post-quarter convertible notes offering Revenue Source | Revenue Source | Q1 2024 (in thousands) | Q1 2023 (in thousands) | YoY Growth | | :--- | :--- | :--- | :--- | | Software licenses | $69,994 | $62,808 | +11.4% | | Cloud subscriptions | $61,836 | $48,206 | +28.3% | | Total Software Subscriptions | $131,830 | $111,014 | +18.8% | | Services | $24,951 | $21,737 | +14.8% | | Total Revenues | $156,781 | $132,751 | +18.1% | - Total stock-based compensation expense for Q1 2024 was $16.3 million, an increase from $11.4 million in Q1 2023, distributed across various departments86 - Subsequent to the quarter end, on April 26, 2024, the company closed a private offering of $345 million in 0.750% Convertible Senior Notes due 2029, with net proceeds of approximately $333.7 million9398 - The company's effective income tax rate was 245.0% for Q1 2024, resulting in a tax benefit of $4.5 million, contrasting with a (111.4)% rate and $9.6 million tax expense in Q1 2023 due to tax benefits from stock-based awards8991 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong revenue growth driven by software subscriptions, improved profitability, and positive trends in key business metrics Results of Operations Revenue growth, particularly in software subscriptions, led to improved gross profit and a significant reduction in operating loss, resulting in net income - The 18.8% increase in software subscriptions revenue was primarily driven by cross-selling to existing customers and expanded use, with new customer revenue accounting for 5.6% of total software subscriptions revenue in Q1 2024146 - Cost of software subscriptions revenues increased 20.7% YoY, mainly due to higher personnel costs and a $2.9 million increase in depreciation and amortization of capitalized software and acquired intangible assets148 - Selling and marketing expenses rose 13.3% YoY, driven by a $5.8 million increase in payroll and related expenses, partially offset by decreased advertising and promotional spending151 Liquidity and Capital Resources The company maintains strong liquidity with substantial cash, an undrawn credit line, and significantly enhanced capital from a recent convertible notes offering Cash Flow Summary | Cash Flow Summary | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $24,566 | $3,491 | | Net cash used in investing activities | $(19,535) | $(14,297) | | Net cash used in financing activities | $(1,153) | $(1,531) | - The company believes its existing cash, line of credit, and expected access to capital markets are sufficient to meet its operating and capital requirements for the next 12 months and beyond159 - In April 2024, the company closed a private offering of $345.0 million in Convertible Senior Notes, significantly enhancing its capital resources161174 Key Business Metrics Key business metrics demonstrate strong growth in Annual Recurring Revenue and Net Revenue Retention, alongside significant improvements in non-GAAP profitability Metric | Metric | As of March 31, 2024 | As of March 31, 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Annual Recurring Revenue (ARR) | $524.5 million | $446.5 million | +17.5% | | Average Annual Revenue Per Customer (AARPC) | $121,720 | $104,370 | +16.6% | | Net Revenue Retention Rate (NRR) | 112% | 110% | +2 p.p. | | Gross Revenue Retention Rate (GRR) | 95% | 96% | -1 p.p. | Non-GAAP Metric | Non-GAAP Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Adjusted EBITDA | $36.7 million | $20.2 million | | Adjusted EBITDA Margin | 23.4% | 15.2% | | Free Cash Flow | $4.5 million | $(10.6) million | | Free Cash Flow Margin | 2.9% | (8.0)% | Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk from variable-rate debt and foreign currency risk from international operations, partially hedged by forward contracts - A 100 basis point increase in the bank prime or SOFR rates is projected to increase annual interest expense by $0.4 million on outstanding borrowings207 - Approximately 4% of revenues in Q1 2024 were denominated in currencies other than the U.S. Dollar, with increased exposure to the Brazilian Real due to the Systax acquisition208209 Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures with no material changes to internal controls over financial reporting - The principal executive officer and principal financial officer concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective at a reasonable assurance level211 Part II - Other Information Legal Proceedings The company is engaged in ongoing legal proceedings against a competitor, alleging unfair competition and trade secret misappropriation - The company filed a complaint against Avalara, Inc. alleging unfair competition and trade secret misappropriation, seeking both injunctive relief and monetary damages215 Risk Factors Key risks include increased indebtedness from recent convertible notes, potential impacts on cash flow, and stock price volatility from associated hedging activities - In April 2024, the company incurred an additional $345.0 million in debt through the issuance of Convertible Senior Notes, which significantly increases its total indebtedness218 - The company's indebtedness could limit its ability to obtain additional financing, require a substantial portion of cash flow for debt service, and reduce flexibility in business planning220 - The Capped Call Transactions entered into in connection with the notes offering expose the company to credit risk from financial institution counterparties, and their hedging activities could affect the value of the Class A common stock232233235 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - There were no unregistered sales of equity securities or use of proceeds to report for the period236 Other Information Director Eric Andersen terminated a Rule 10b5-1 trading arrangement during the quarter, with no other similar changes reported - Director Eric Andersen terminated a Rule 10b5-1 trading plan on March 4, 2024239 Exhibits This section lists all exhibits filed with the Form 10-Q, including required certifications and Inline XBRL documents