Vertex(US:VERX)2023-05-10 20:30Part I - Financial Information Item 1. Financial Statements The company's unaudited statements show total revenues of $132.8 million and a net loss of $18.1 million for Q1 2023 Condensed Consolidated Balance Sheet Highlights (unaudited) | Account | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $725,518 | $719,192 | | Cash and cash equivalents | $68,643 | $91,803 | | Total current assets | $231,435 | $241,189 | | Goodwill and other intangible assets | $259,303 | $257,023 | | Total Liabilities | $502,043 | $489,467 | | Deferred revenue, current | $276,004 | $268,847 | | Total current liabilities | $421,949 | $403,209 | | Total Stockholders' Equity | $223,475 | $229,725 | Condensed Consolidated Statements of Comprehensive Loss (unaudited) | Metric | Three months ended March 31, 2023 (in thousands) | Three months ended March 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total revenues | $132,751 | $114,984 | | Gross profit | $81,004 | $70,118 | | (Loss) income from operations | $(8,929) | $468 | | Net loss | $(18,132) | $(334) | | Net loss per Class A share, basic & diluted | $(0.12) | $(0.00) | Condensed Consolidated Statements of Cash Flows Highlights (unaudited) | Cash Flow Activity | Three months ended March 31, 2023 (in thousands) | Three months ended March 31, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,755 | $2,595 | | Net cash used in investing activities | $(17,561) | $(17,259) | | Net cash (used in) provided by financing activities | $(1,531) | $39,780 | | Net (decrease) increase in cash | $(12,133) | $25,033 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2023 revenue grew 15.5% to $132.8 million, but a net loss of $18.1 million resulted from increased operating expenses Overview Vertex provides indirect tax software, with revenue driven by subscriptions and a growing shift toward cloud solutions - The company's primary revenue source is software subscriptions, offered through both on-premise and cloud-based models, serving a majority of Fortune 500 companies909192 - There is a continuing shift towards cloud-based solutions, with cloud subscriptions constituting 43% of software subscription revenue in Q1 2023, an increase from 39% in Q1 202293 Results of Operations Revenue increased 15.5% in Q1 2023, but a 29.1% rise in operating expenses led to an $8.9 million operating loss Comparison of Results of Operations (Q1 2023 vs. Q1 2022) | Metric (in thousands) | Q1 2023 | Q1 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $132,751 | $114,984 | $17,767 | 15.5% | | Software subscriptions | $111,014 | $97,131 | $13,883 | 14.3% | | Services | $21,737 | $17,853 | $3,884 | 21.8% | | Gross Profit | $81,004 | $70,118 | $10,886 | 15.5% | | Total Operating Expenses | $89,933 | $69,650 | $20,283 | 29.1% | | (Loss) income from operations | $(8,929) | $468 | $(9,397) | * | | Net Loss | $(18,132) | $(334) | $(17,798) | * | - The increase in operating expenses was primarily due to higher personnel costs, increased advertising and promotional spending, and strategic investments in IT infrastructure to support future growth138139140 Liquidity and Capital Resources The company holds $68.6 million in cash and has a $200 million undrawn credit line, ensuring sufficient liquidity Summary of Cash Flows (unaudited) | Cash Flow Activity (in thousands) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,755 | $2,595 | | Net cash used in investing activities | $(17,561) | $(17,259) | | Net cash (used in) provided by financing activities | $(1,531) | $39,780 | - The company has a $250.0 million credit facility, consisting of a $50.0 million term loan and a $200.0 million line of credit, with no outstanding borrowings on the line of credit147153 Key Business Metrics Key metrics show strong growth with a 17.3% increase in ARR to $446.5 million and a stable 110% NRR Annual Recurring Revenue (ARR) | Metric | As of March 31, 2023 | As of March 31, 2022 | Year-Over-Year Change | | :--- | :--- | :--- | :--- | | ARR (in millions) | $446.5 | $380.6 | 17.3% | | AARPC (in thousands) | $104.37 | $89.70 | - | Revenue Retention Rates | Metric | As of March 31, 2023 | As of March 31, 2022 | | :--- | :--- | :--- | | Net Revenue Retention Rate (NRR) | 110% | 110% | | Gross Revenue Retention Rate (GRR) | 96% | 96% | Adjusted EBITDA Reconciliation (unaudited) | Metric (in thousands) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Net loss | $(18,132) | $(334) | | Adjustments (Interest, Taxes, D&A, Stock Comp, etc.) | $38,334 | $19,470 | | Adjusted EBITDA | $20,202 | $19,136 | | Total revenues | $132,751 | $114,984 | | Adjusted EBITDA margin | 15.2% | 16.6% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations on its debt and foreign currency exchange rate changes - The company is exposed to interest rate risk on its variable-rate borrowings; a 100 basis point increase in rates is projected to increase annual interest expense by $0.5 million189 - Foreign currency exchange risk exists from operations in currencies like the Canadian Dollar, Euro, and Brazilian Real, with 34% of its Brazilian Real exposure hedged190191 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and internal financial reporting procedures were effective - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2023193 - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls194 Part II - Other Information Item 1. Legal Proceedings The company is in an ongoing lawsuit against competitor Avalara, Inc for unfair competition and trade secret theft - The company is engaged in an ongoing lawsuit against Avalara, Inc, filed in January 2022, with claims of unfair competition and trade secret misappropriation197 Item 1A. Risk Factors No material changes to the risk factors disclosed in the company's 2022 Annual Report on Form 10-K have occurred - The company reports no material changes to the risk factors discussed in its 2022 Annual Report199 Other Items (Items 2, 3, 4, 5, 6) This section confirms no unregistered equity sales, defaults, or other material information to report for the quarter - The report indicates no activity or information to disclose under Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information)200201202203