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What changed in Vertex, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Vertex, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+304 added−257 removedSource: 10-K (2025-02-27) vs 10-K (2024-02-29)

Top changes in Vertex, Inc.'s 2024 10-K

304 paragraphs added · 257 removed · 205 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWith the pace of change in commerce and compliance, we believe it is important to continue innovating and extending the functionality and breadth of our software and solutions. Our approach to innovation is driven by our relationships with our customers and partners, with whom we create new solutions, align product roadmaps, and embed our software within their applications and platforms.
Biggest changeBy extending our global footprint, we believe we will also expand account penetration of existing customers with operations around the globe. ● Sustained investment in new product innovation. With the pace of change in commerce and compliance, we believe it is important to continue innovating and extending the functionality and breadth of our software and solutions.
This solution includes a powerful indirect tax calculation engine that applies rules-based logic from our proprietary content database to determine taxability, identify 2 Table of Contents precise taxing jurisdictions, and consistently apply the appropriate amount of tax to each transaction in real-time.
This solution includes a powerful indirect tax calculation 2 Table of Contents engine that applies rules-based logic from our proprietary content database to determine taxability, identify precise taxing jurisdictions, and consistently apply the appropriate amount of tax to each transaction in real-time.
We offer a number of technology solutions that offer tools and enhancements to certain ecosystems, like SAP or Oracle, that are deeply integrated into their technology stack. For example, our Chain Flow Accelerator tool allows configuration of tax specific flows within the SAP stack.
We offer a number of technology solutions that offer tools and enhancements to certain ecosystems, like SAP or Oracle, which are deeply integrated into their technology stack. For example, our Chain Flow Accelerator tool allows configuration of tax specific flows within the SAP stack.
Businesses employ a mix of approaches to address their indirect tax obligations, including: ● in-house practices and spreadsheets that result in custom transaction-specific research, manual determination, static tax tables, or rate calculator services, as well as manual filing and remittance activities; ● businesses utilizing native ERP capabilities with rudimentary tax determination capabilities, which are typically not designed for complex tax support and lack tax rates, rules and complex calculation functionality, and require the user to manually track, input, maintain, and update all tax law changes that occur; ● outsourced transaction tax compliance services offered by accounting and specialized consulting firms; and ● tax-specific solutions from other vendors.
Businesses employ a mix of approaches to address their indirect tax obligations, including: ● in-house practices and spreadsheets that result in custom transaction-specific research, manual determination, static tax tables, or rate calculator services, as well as manual filing and remittance activities; ● businesses utilizing native ERP capabilities with rudimentary tax determination capabilities, which are typically not designed for complex tax support and lack tax rates, rules and complex calculation functionality, and require the user to manually track, input, maintain, and update all tax law changes that occur; 7 Table of Contents ● outsourced transaction tax compliance services offered by accounting and specialized consulting firms; and ● tax-specific solutions from other vendors.
We believe customers consider the following factors when selecting indirect tax technologies: ● ability to minimize compliance risk exposure associated with inaccurate and/or inconsistent determination and remittance of taxes; 7 Table of Contents ● ability to deliver real time tax determinations; ● ease of deployment and use; ● ease of integration with the customer’s business applications, across multiple systems; ● ability to address multiple transaction tax compliance functions, from initial taxability and tax rate determination through compliance and remittance of funds; ● lower total cost of ownership; and ● continuously updated tax content applicable to the customer’s business.
We believe customers consider the following factors when selecting indirect tax technologies: ● ability to minimize compliance risk exposure associated with inaccurate and/or inconsistent determination and remittance of taxes; ● ability to deliver real time tax determinations; ● ease of deployment and use; ● ease of integration with the customer’s business applications, across multiple systems; ● ability to address multiple transaction tax compliance functions, from initial taxability and tax rate determination through compliance and remittance of funds; ● lower total cost of ownership; and ● continuously updated tax content applicable to the customer’s business.
You may also access, free of charge, our reports filed with the SEC (for example, our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, and 8 Table of Contents our Current Reports on Form 8-K and any amendments to those forms) through the “Investors” portion of our website (https://www.vertexinc.com/).
You may also access, free of charge, our reports filed with the SEC (for example, our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K and any amendments to those forms) through the “Investors” portion of our website (https://www.vertexinc.com/).
Indirect taxes, such as sales tax, use tax, and value-added tax (“VAT”) are complex. In the United States (“U.S.”) alone, Vertex tax content addresses indirect taxes for over 19,000 unique taxing jurisdictions. Compounding the complexity, rules, regulations, and indirect tax rates are constantly changing.
Indirect taxes, such as sales tax, use tax, and value-added tax (“VAT”) are complex. In the United States (“U.S.”) alone, Vertex tax content addresses indirect taxes for over 20,000 unique taxing jurisdictions. Compounding the complexity, rules, regulations, and indirect tax rates are constantly changing.
Users are mapped to a set of predefined roles, and we provide our customers with the ability to create user-defined roles. User-defined role-based access can be defined on a screen-by-screen level and further refined with read and/or write privileges. ● Cloud Solutions .
Users are mapped to a set of predefined roles, and we provide our customers with the ability to create user-defined roles. User-defined role-based access can be defined on a screen-by-screen level and further refined with read and/or write privileges. 4 Table of Contents ● Cloud Solutions .
Our content quality and accuracy are key components of our software subscriptions revenue and customer value. Our content quality and accuracy are critical to the longevity of our customer relationships. On a monthly basis, our content team combines legislative research, analysis, technical logic, and automation to embed updated rules into our software.
Our content quality and accuracy are critical to the longevity of our customer relationships. On a monthly basis, our content team combines legislative research, analysis, technical logic, and automation to embed updated rules into our software.
The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC, including us.
The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other 8 Table of Contents information regarding registrants that file electronically with the SEC, including us.
We also utilize indirect sales to efficiently grow and scale our revenues. Our indirect sales team focuses on building relationships with leading system integrators who implement eCommerce and other platforms, and resellers who offer our software, services, and training to their customer networks. These partnerships allow us to extend our demand generation and market reach efforts.
Our indirect sales team focuses on building relationships with leading system integrators who implement eCommerce and other platforms, and resellers who offer our software, services, and training to their customer networks. These partnerships allow us to extend our demand generation and market reach efforts.
We create and nurture an engaging work environment that embodies our core values of collaboration, performance, integrity, innovation, and fun, and we actively support our employees' participation in community service and philanthropy. As of December 31, 2023, we had over 1,500 full-time employees.
We create and nurture an engaging work environment that embodies our core values of collaboration, performance, integrity, innovation, and fun, and we actively support our employees' participation in Business Resource Groups (“BRGs”), community service, and philanthropy. As of December 31, 2024, we had over 1,900 full-time employees.
While we include these marketplaces and service providers in our customer counts, the tens of thousands of their end-user customers are not included in our customer counts. As of December 31, 2023, we had 4,310 customers and our Annual Recurring Revenue (“ARR”) per customer was $118,910.
While we include these marketplaces and service providers in our customer counts, the tens of thousands of their end-user customers are not included in our customer counts. As of December 31, 2024, we had 4,915 direct customers and our Annual Recurring Revenue (“ARR”) per customer was $122,706.
We generate sales leads through online and offline marketing channels, including search engine marketing, outbound lead generation, technology events and conferences, and digital marketing programs. Word-of-mouth referrals from our customers, technology partners and consulting firms further scale our market reach. We engage and grow our customer revenues through hosted events, customer advisory boards and user groups, and digital seminars.
We generate sales leads through online and offline marketing channels, including search engine marketing, outbound lead generation, technology events and conferences, and digital marketing programs. Word-of-mouth referrals from our customers, technology partners and consulting firms further scale our market reach.
In addition, through the acquisition of LCR-Dixon Corporation (“LCR-Dixon”), in 2021, we acquired an SAP specific tool set that provides customers the ability to maintain, analyze, and validate tax data in procure-to-pay as well as sales and billing systems that enhance its usefulness for indirect taxes as well as other business applications. ● Implementation Services.
In addition, we offer an SAP specific tool set that provides customers the ability to maintain, analyze, and validate tax data in procure-to-pay as well as sales and billing systems that enhance its usefulness for indirect taxes as well as other business applications. ● Implementation Services.
Today, we have over 4,300 customers, including the majority of the Fortune 500, and provide our customers with tax support in over 190 countries.
Today, we have over 4,900 direct customers, including the majority of the Fortune 500, and provide our customers with tax support in over 195 countries and territories.
While most of our revenue is currently generated by customers domiciled in the U.S., many of our customers are multinational organizations with global business operations. We also provide tax software solutions outside the U.S., primarily in Canada and Europe. No single customer represented more than 10% of our total revenue for the years ended December 31, 2023, 2022 or 2021.
While most of our revenue is currently generated by customers domiciled in the U.S., many of our customers are multinational organizations with global business operations. We also provide tax software solutions outside the U.S., primarily in Canada and Europe. For both the years ended December 31, 2024 and 2023, approximately 8% of our revenue was generated outside of the U.S.
Our software, content, and services address the increasing complexities of global commerce and compliance by reducing friction, enhancing transparency, and enabling greater confidence in meeting indirect tax obligations. As a result, our software is ubiquitous within our customers' business systems, touching nearly every line item of every transaction that an enterprise can conduct.
As a result, our software is ubiquitous within our customers' business systems, touching nearly every line item of every transaction that an enterprise can conduct and enabling greater confidence in meeting indirect tax obligations by helping to mitigate the risk of non-compliance.
Our partner ecosystem consists of multiple types of partners that provide us access to their customers and clients. Our continued success is enabled by our seamless integration into customers’ business applications, gathering high-quality new customer leads, and collaborating with professional service providers to help our customers solve their specific 6 Table of Contents tax needs.
Our continued success is enabled by our seamless integration into customers’ business applications, gathering high-quality new customer leads, and collaborating with professional service providers to help our customers solve their specific tax needs.
Of these employees, 88% were based in the U.S., 10% based in Europe and 2% in other countries. We believe we have a strong relationship with our employees, and we have not experienced any work stoppages.
Of these employees, 76% were based in the U.S., 14% based in Europe and 10% in other countries. We believe we have a strong relationship with our employees, and we have not experienced any work stoppages. Available Information We file annual, quarterly, and current reports and other information with the Securities and Exchange Commission (“SEC”).
These increases in business complexity necessitate advanced tax solutions for a broader number of companies. We plan to continue to invest in our direct sales, indirect sales, and partnership marketing teams, and our solution development to capture this demand increase and acquire new customers. ● Broaden and deepen our partner ecosystem.
We plan to continue to invest in our direct sales, indirect sales, and partnership marketing teams, and our solution development to capture this demand increase and acquire new customers. 5 Table of Contents ● Broaden and deepen our partner ecosystem.
We also expect these companies to adopt our solutions much earlier in their corporate lifecycle. This adoption is driven by advances in cloud computing and digital commerce, which enable more companies to accelerate new product delivery and scale their business through online marketplaces and emerging commerce platforms.
This adoption is driven by advances in cloud computing and digital commerce, which enable more companies to accelerate new product delivery and scale their business through online marketplaces and emerging commerce platforms. These increases in business complexity necessitate advanced tax solutions for a broader number of companies.
We believe the market for our software and solutions is large and underpenetrated, both in the U.S. and globally. As enterprise and mid-market companies continue to expand their business operations and their tax complexity grows, we expect demand for our solutions to increase among new customers and partners.
As enterprise and mid-market companies continue to expand their business operations and their tax complexity grows, we expect demand for our solutions to increase among new customers and partners. We also expect these companies to adopt our solutions much earlier in their corporate lifecycle.
We believe expanding our strategic alliances with emerging participants who are fueling global commerce, such as payment and digital commerce platforms, will create new value for our customers and new sources of revenue.
We believe expanding our strategic alliances with emerging participants who are fueling global commerce, such as payment and digital commerce platforms, will create new value for our customers and new sources of revenue. ● Extend global footprint . We have a significant opportunity to further expand internationally, in terms of our regional operations, content depth, and go-to-market coverage.
All data centers are operated by leading vendors providing physical security, internet access, environmental controls, and data retention services. 4 Table of Contents Our Customers Today, we serve a large, diverse, and growing global customer base.
All data centers are operated by leading vendors providing physical security, internet access, environmental controls, and data retention services. Our Customers Today, we serve a large, diverse, and growing global customer base. Our market leadership in key industries can be demonstrated by our relationships with many of the largest and most well-known companies in retail trade, wholesale trade, and manufacturing.
We plan to continue to invest in new innovations and enhance our solutions to support the ongoing retention and expansion of revenue from our existing customers. Our flexible, tiered revenue-based pricing model also results in our customers growing their spend with us as they grow and continue to use our solutions. ● Acquire new customers.
Our flexible, tiered revenue-based pricing model also results in our customers growing their spend with us as they grow and continue to use our solutions. ● Acquire new customers. We believe the market for our software and solutions is large and underpenetrated, both in the U.S. and globally.
In Europe and Brazil, for example, we have tailored our go-to-market strategy, enhanced our country-specific content database, and furthered our investment in our global compliance reporting solution. By extending our global footprint, we believe we will also expand account penetration of existing customers with operations around the globe. ● Sustained investment in new product innovation.
In Europe and Brazil, for example, we have tailored our go-to-market strategy, enhanced our country-specific content database, and furthered our investment in our global compliance reporting solution.
These partnerships can include certified integrations that drive ease of implementation and rapid time-to-value for our joint customers. We leverage our relationships with professional services firms such as Deloitte, PwC, Ernst and Young, and KPMG to drive tax software adoption in partnership with their tax advisory and tax technology practices.
We leverage our relationships with professional services firms such as Deloitte, PwC, Ernst and Young, and KPMG to drive tax software adoption in partnership with their tax advisory and tax technology practices. We also utilize indirect sales to efficiently grow and scale our revenues.
Customers can also license indirect tax returns outsourcing as a managed service for compliance in the U.S. and Canada. These managed services include indirect tax return preparation, filing and tax payment, and notice management. Our Tax Content All our software and solutions are underpinned by our proprietary content database, which currently supports over 900 million effective tax rules.
Customers can also license indirect tax returns outsourcing as a managed service for compliance in the U.S. and Canada. These managed services include indirect tax return preparation, filing and tax payment, and notice management. ● E-invoicing. We offer a global solution for the end-to-end e-invoicing process.
For example, customers initially investing in sales tax determination may need support for other tax types, jurisdictions, and capabilities to manage their indirect tax lifecycle over time. As our customers evolve through acquisitions, expand their products and services, enter new geographies, and enhance their distribution channels, we believe their need for our software, services, and content will also grow.
As our customers evolve through acquisitions, expand their products and services, enter new geographies, and enhance their distribution channels, we believe their need for our software, services, and content will also grow. We plan to continue to invest in new innovations and enhance our solutions to support the ongoing retention and expansion of revenue from our existing customers.
We extend brand awareness through advertising, press coverage and social media, as well as through sponsorships of industry associations such as Tax Executive Institute, Council on State Taxation, and CPA.com. Partners We believe the scale and quality of our ecosystem is unparalleled in the industry, and we are committed to growing it even further.
We engage and grow our customer revenues through hosted events, customer advisory boards and user groups, and digital 6 Table of Contents seminars. We extend brand awareness through advertising, press coverage and social media, as well as through sponsorships of industry associations such as Tax Executive Institute, Council on State Taxation, and CPA.com.
We also have customer success teams focused on onboarding, usage, retention, renewals, and cross-selling additional products. Our direct sales force leverages our partnerships with technology providers such as Oracle, SAP, Microsoft, and Salesforce, and a growing network of system integrators to influence and drive growth opportunities.
Our direct sales force leverages our partnerships with technology providers such as Oracle, SAP, Microsoft, and Salesforce, and a growing network of system integrators to influence and drive growth opportunities. These partnerships can include certified integrations that drive ease of implementation and rapid time-to-value for our joint customers.
Our Growth Strategies We believe today’s global commerce environment provides durable growth opportunities for our business. Our growth strategies include: ● Retention and expansion of revenues from existing customers. The breadth of our solutions allows us to continually meet our customer needs, even as their needs expand in scope.
Additionally, no single customer represented more than 10% of our total revenue for the years ended December 31, 2024 or 2023. Our Growth Strategies We believe today’s global commerce environment provides durable growth opportunities for our business. Our growth strategies include: ● Retention and expansion of revenues from existing customers.
Sales and Marketing We license our software and solutions primarily through our direct and indirect sales organization, with a focus on enterprise and midmarket businesses that have complex tax operations. Our direct sales team is comprised of inside sales and field sales, supported by our technical pre-sales and services teams. Teams are organized by territory and company size.
We will also be launching a product that leverages generative AI to deliver accurate and timely product and tax category mapping. Sales and Marketing We license our software and solutions primarily through our direct and indirect sales organization, with a focus on enterprise and midmarket businesses that have complex tax operations.
We have also created and invest in an innovation lab where we design, test, and incubate next generation tax solutions and adjacent market opportunities. Over time, we expect such investment will bring additional value to existing customers and help us acquire new customers.
Our approach to innovation is driven by our relationships with our customers and partners, with whom we create new solutions, align product roadmaps, and embed our software within their applications and platforms. We have also created and invest in an innovation lab where we design, test, and incubate next generation tax solutions and adjacent market opportunities.
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Our market leadership in key industries can be demonstrated by our relationships with many of the largest and most well-known companies in retail trade, wholesale trade, and manufacturing.
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Our software, content, and services address the increasing complexities of global commerce and compliance by reducing friction, enhancing transparency, and enabling greater confidence in meeting indirect tax obligations.
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Future partnerships with large-scale 5 Table of Contents digital payments players will allow us to develop additional customer-centric solutions and further expand our customer base. ● Extend global footprint . We have a significant opportunity to further expand internationally, in terms of our regional operations, content depth, and go-to-market coverage.
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Our solution enables organizations to optimize their real-time VAT reporting and e-invoicing processes for multiple countries to enhance continuous transaction controls and support direct reporting requirements. Our solution provides a single integrated platform to streamline the creation, submission, clearance, and e-archiving of e-invoices in compliance with jurisdictional mandates.
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Vertex has received recognition as one of Built In’s 2024 Remote Best Large Places to Work. Vertex has previously been recognized for eight consecutive years as a Top Workplace by the Philadelphia Inquirer .
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Our Tax Content All our software and solutions are underpinned by our proprietary content database, which currently supports over 900 million effective tax rules. Our content quality and accuracy are key components of our software subscriptions revenue and customer value and are supported by over 40 years of tax knowledge and experience.
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We have designed the following dashboards to power the business with human capital data to inform leaders on the development, attraction, and retention of personnel: Board Reporting, SEC Reporting, and Program Management Reporting. These dashboards are maintained by our People and Culture and Recruiting teams.
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The breadth of our solutions allows us to continually meet our customer needs, even as their needs expand in scope. For example, customers initially investing in sales tax determination may need support for other tax types, jurisdictions, and capabilities to manage their indirect tax lifecycle over time.
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These dashboards present information regarding recruiting time to fill averages, retention of employees, workforce costs, diversity, employee engagement, training and development, culture initiatives, and workforce skills and capabilities. Available Information We file annual, quarterly, and current reports and other information with the Securities and Exchange Commission (“SEC”).
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Another example in Europe includes leveraging our recent acquisition of ecosio GmbH (“ecosio”) and our e-invoicing solution to enable companies to stay compliant with current and emerging local VAT regulations, as well as positioning us to expand into new markets as individual country mandates continue to develop.
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Over time, we expect such investment will bring additional value to existing customers and help us acquire new customers. Recently, we entered into an asset purchase agreement to acquire tax-specific artificial intelligence (“AI”) capabilities to more effectively manage the complexity of tax mapping.
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Our direct sales team is comprised of inside sales and field sales, supported by our technical pre-sales and services teams. Teams are organized by territory and company size. We also have customer success teams focused on onboarding, usage, retention, renewals, and cross-selling additional products.
Added
Partners We believe the scale and quality of our ecosystem is unparalleled in the industry, and we are committed to growing it even further. Our partner ecosystem consists of multiple types of partners that provide us access to their customers and clients.
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Vertex received recognition in 2024 as a “Best Place to Work” from Built In , reflecting the value we place on our people and environment.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe may incorporate AI solutions into our platform, offerings, and/or services, and these solutions may grow over time and become significant in our operations. If the content, analyses, or recommendations that AI applications assist in producing are or are alleged to be deficient, inaccurate, or biased, our business, operations, or financial condition may be adversely and materially affected.
Biggest changeIf the content, analyses, or recommendations that our product leveraging generative AI assist in producing are or are alleged to be deficient, inaccurate, or biased, our business, operations, or financial condition may be adversely and materially affected. The use of AI applications have resulted in cybersecurity incidents that implicate the personal data of end users of such applications.
Factors that might cause quarterly or annual fluctuations in our results of operations include, but are not limited to: ● our ability to attract new customers and retain and grow revenue from existing customers; ● our ability to maintain, expand, train and achieve an acceptable level of production from our sales and marketing teams; ● our ability to find and nurture successful sales opportunities; ● the timing of our introduction of new solutions or updates to existing solutions; ● our ability to grow and maintain our relationships with our ecosystem of third-party partners, including integration partners and referral partners; 13 Table of Contents ● the success of our customers' businesses; ● the timing of large subscriptions and customer renewal rates; ● new government regulations; ● changes in our pricing policies or those of our competitors; ● the amount and timing of our expenses related to the expansion of our business, operations and infrastructure; ● any impairment of our intangible assets, capitalized software, long-lived assets and goodwill; ● any seasonality in connection with new customer agreements, as well as renewal and upgrade agreements, each of which have historically occurred at a higher rate in the fourth quarter of each year; ● future costs related to acquisitions of content, technologies or businesses and their integration; and ● general economic conditions.
Factors that might cause quarterly or annual fluctuations in our results of operations include, but are not limited to: ● our ability to attract new customers and retain and grow revenue from existing customers; 13 Table of Contents ● our ability to maintain, expand, train and achieve an acceptable level of production from our sales and marketing teams; ● our ability to find and nurture successful sales opportunities; ● the timing of our introduction of new solutions or updates to existing solutions; ● our ability to grow and maintain our relationships with our ecosystem of third-party partners, including integration partners and referral partners; ● the success of our customers' businesses; ● the timing of large subscriptions and customer renewal rates; ● new government regulations; ● changes in our pricing policies or those of our competitors; ● the amount and timing of our expenses related to the expansion of our business, operations and infrastructure; ● any impairment of our intangible assets, capitalized software, long-lived assets and goodwill; ● any seasonality in connection with new customer agreements, as well as renewal and upgrade agreements, each of which have historically occurred at a higher rate in the fourth quarter of each year; ● future costs related to acquisitions of content, technologies or businesses and their integration; and ● general economic conditions.
In addition, we are subject to a variety of risks inherent in doing business internationally, including: ● political, social and economic instability; ● risks related to the legal and regulatory environment in foreign jurisdictions, including with respect to privacy, localization and content laws as well as unexpected changes in laws, regulatory requirements and enforcement due to the wide discretion given to some local lawmakers and regulators regarding the enactment, interpretation and implementation of local regulations; ● potential damage to our brand and reputation due to compliance with local laws, including potential censorship and requirements to provide user information to local authorities; ● fluctuations in currency exchange rates; ● higher levels of credit risk and payment fraud; ● complying with the tax laws and regulations of multiple tax jurisdictions; ● enhanced difficulties of integrating any foreign acquisitions; ● complying with a variety of foreign laws, including certain employment laws requiring national collective bargaining agreements that set minimum salaries, benefits, working conditions and termination requirements; ● reduced protection for intellectual property rights in some countries; 14 Table of Contents ● difficulties in staffing and managing global operations and the increased travel, infrastructure and compliance costs associated with multiple international locations; ● regulations that might add difficulties in repatriating cash earned outside our core markets and otherwise prevent us from freely moving cash; ● import and export restrictions and changes in trade regulation; ● complying with statutory equity requirements; ● complying with the U.S.
In addition, we are subject to a variety of risks inherent in doing business internationally, including: ● political, social and economic instability; ● risks related to the legal and regulatory environment in foreign jurisdictions, including with respect to privacy, localization and content laws as well as unexpected changes in laws, regulatory requirements and enforcement due to the wide discretion given to some local lawmakers and regulators regarding the enactment, interpretation and implementation of local regulations; ● potential damage to our brand and reputation due to compliance with local laws, including potential censorship and requirements to provide user information to local authorities; ● fluctuations in currency exchange rates; ● higher levels of credit risk and payment fraud; 14 Table of Contents ● complying with the tax laws and regulations of multiple tax jurisdictions; ● enhanced difficulties of integrating any foreign acquisitions; ● complying with a variety of foreign laws, including certain employment laws requiring national collective bargaining agreements that set minimum salaries, benefits, working conditions and termination requirements; ● reduced protection for intellectual property rights in some countries; ● difficulties in staffing and managing global operations and the increased travel, infrastructure and compliance costs associated with multiple international locations; ● regulations that might add difficulties in repatriating cash earned outside our core markets and otherwise prevent us from freely moving cash; ● import and export restrictions and changes in trade regulation; ● complying with statutory equity requirements; ● complying with the U.S.
The market price of our Class A common stock is likely to be volatile and could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including: ● actual or anticipated fluctuations in our results of operations and financial condition; ● variance in our financial performance from expectations of securities analysts; ● changes in our software subscription revenue; ● changes in our projected operating and financial results; ● changes in tax laws or regulations; ● announcements by us or our competitors of significant business developments, acquisitions or new offerings; ● our involvement in any litigation; ● our sale of our Class A common stock or other securities in the future; ● changes in senior management or key personnel; ● the trading volume of our Class A common stock; 22 Table of Contents ● changes in the anticipated future size and growth rate of our market; and ● general economic, regulatory and market conditions.
The market price of our Class A common stock is likely to be volatile and could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including: ● actual or anticipated fluctuations in our results of operations and financial condition; ● variance in our financial performance from expectations of securities analysts; ● changes in our software subscription revenue; ● changes in our projected operating and financial results; ● changes in tax laws or regulations; ● announcements by us or our competitors of significant business developments, acquisitions or new offerings; 22 Table of Contents ● our involvement in any litigation; ● our sale of our Class A common stock or other securities in the future; ● changes in senior management or key personnel; ● the trading volume of our Class A common stock; ● changes in the anticipated future size and growth rate of our market; and ● general economic, regulatory and market conditions.
Our current principal stockholders beneficially own a majority of the combined voting power of all classes of our outstanding voting stock; thus, we are a controlled company within the meaning of the NASDAQ Rules, which state a company with more than 50% of the voting power held by another person or group of persons acting together is a controlled company and may elect not to comply with certain corporate governance requirements, including the requirements that: ● a majority of the board of directors consist of independent directors as defined under the rules of the NASDAQ Global Market; ● the nominating and governance committee be composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and ● the compensation committee be composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities.
Our current principal stockholders beneficially own a majority of the combined voting power of all classes of our outstanding voting stock; thus, we are a controlled company within the meaning of the NASDAQ Rules, which state a company with more than 50% of the voting power held by another person or group of persons acting together is a controlled company and may elect not to comply with certain corporate governance requirements, including the requirements that: ● a m ajority of the board of directors consist of independent directors as defined under the rules of the NASDAQ Global Market; ● the nominating and governance committee be composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and ● the compensation committee be composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities.
If our customers and potential customers experience financial hardship as a result of a weak economy, industry consolidation or other factors, the overall demand for our solutions could decrease. If economic conditions worsen, our business, results of operations, financial condition and cash flows could be harmed.
If our customers and potential customers experience financial hardship as a result of a weak or uncertain economy, industry consolidation or other factors, the overall demand for our solutions could decrease. If economic conditions worsen, our business, results of operations, financial condition and cash flows could be harmed.
However, if federal or state regulators were to apply these laws and regulations to this business activity, whether through expansion of enforcement activities, new interpretations of the scope of certain of these laws or regulations or of available exemptions, or if our activities are held by a court to be covered by such laws or regulations, we could be required to expend time, money and other resources to deal with enforcement actions and any penalties that might be asserted, to institute and maintain a compliance program specific to money transmission laws, and possibly to change aspects of how we conduct our business to achieve compliance or minimize regulation.
However, if federal or state regulators were to apply these laws and regulations to this business activity, whether through expansion of enforcement activities, new interpretations of the scope of certain of these laws or regulations or of available exemptions, or if our activities are held by a court to be covered by such laws or regulations, we could be required to expend time, money and other resources to deal with enforcement actions and any penalties that might be asserted, to institute and maintain a compliance program specific to money transmission laws, and 19 Table of Contents possibly to change aspects of how we conduct our business to achieve compliance or minimize regulation.
Foreign Corrupt Practices Act (the "FCPA"), the U.K. Bribery Act and similar laws in other jurisdictions; and ● complying with export controls and economic sanctions administered by the relevant local authorities, including in the U.S. and European Union, in our international business.
Foreign Corrupt Practices Act (the “FCPA”), the U.K. Bribery Act and similar laws in other jurisdictions; and ● complying with export controls and economic sanctions administered by the relevant local authorities, including in the U.S. and European Union, in our international business.
If any of the foregoing risks were to be realized, it could have a material adverse effect on or business, financial performance and results of operations. We are subject to anti-corruption, anti-bribery and similar laws and noncompliance with such laws can subject us to criminal penalties or significant fines and harm our business and reputation.
If any of the foregoing risks were to be realized, it could have a material adverse effect on our business, financial performance and results of operations. 20 Table of Contents We are subject to anti-corruption, anti-bribery and similar laws and noncompliance with such laws can subject us to criminal penalties or significant fines and harm our business and reputation.
Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly and prohibit companies and their employees and agents from promising, authorizing, making, offering or providing anything of value to a "foreign official" for the purposes of influencing official decisions or obtaining or retaining business, or otherwise obtaining favorable treatment.
Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly and prohibit companies and their employees and agents from promising, authorizing, making, offering or providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining business, or otherwise obtaining favorable treatment.
Most states have also adopted laws that require notice be given to affected consumers in the event 19 Table of Contents of a security breach. In the event of a security breach, our compliance with these laws may subject us to costs associated with notice and remediation, as well as potential investigations from federal regulatory agencies and state attorneys general.
Most states have also adopted laws that require notice be given to affected consumers in the event of a security breach. In the event of a security breach, our compliance with these laws may subject us to costs associated with notice and remediation, as well as potential investigations from federal regulatory agencies and state attorneys general.
In addition, third-party licenses may expose us to increased risks, including risks associated with the integration of new technology, the diversion of resources from the development of our own proprietary 18 Table of Contents technology, and our inability to generate revenue from new technology sufficient to offset associated acquisition and maintenance costs, all of which may increase our expenses and harm our results of operations.
In addition, third-party licenses may expose us to increased risks, including risks associated with the integration of new technology, the diversion of resources from the development of our own proprietary technology, and our inability to generate revenue from new technology sufficient to offset associated acquisition and maintenance costs, all of which may increase our expenses and harm our results of operations.
As we increase our international operations, our risks under these laws may increase. Non-compliance with these laws could subject us to investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, 20 Table of Contents damages, other civil and criminal penalties or injunctions, adverse media coverage and other consequences.
As we increase our international operations, our risks under these laws may increase. Non-compliance with these laws could subject us to investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, adverse media coverage and other consequences.
Any adverse determination related to intellectual property claims or other litigation could prevent us from offering our solutions to others, could be material to our financial condition or cash flows, or both, or could otherwise harm our results of operations. Our ability to obtain additional capital on commercially reasonable terms may be limited.
Any adverse determination related 21 Table of Contents to intellectual property claims or other litigation could prevent us from offering our solutions to others, could be material to our financial condition or cash flows, or both, or could otherwise harm our results of operations. Our ability to obtain additional capital on commercially reasonable terms may be limited.
If we experience increasing demand in subscriptions, we may not be able to augment our infrastructure quickly enough to accommodate such increasing demand. In the event of decreases in subscription sales, 12 Table of Contents certain of our fixed costs, such as for capital expenditures, may make it difficult for us to quickly adjust our expenses downward.
If we experience increasing demand in subscriptions, we may not be able to augment our infrastructure quickly enough to accommodate such increasing demand. In the event of decreases in subscription sales, certain of our fixed costs, such as for capital expenditures, may make it difficult for us to quickly adjust our expenses downward.
If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and 21 Table of Contents privileges superior to those of holders of our Class A common stock.
If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock.
If we fail to establish appropriate reserves, our business could be negatively impacted. Undetected errors, bugs or defects in our software could harm our reputation or decrease market acceptance of our software, which would harm our business and results of operations. Our software may contain undetected errors, bugs or defects.
If we fail to establish appropriate reserves, our business could be negatively impacted. 17 Table of Contents Undetected errors, bugs or defects in our software could harm our reputation or decrease market acceptance of our software, which would harm our business and results of operations. Our software may contain undetected errors, bugs or defects.
Our data center providers have no obligations to renew their agreements with us on commercially reasonable terms, or at all, and it is possible that we will not be able to switch our operations to another provider in a timely and cost-effective manner should the need arise.
Our data center providers have no obligations to renew their agreements with us on commercially reasonable terms, or at all, and it is possible that we will not be able to switch our operations to 18 Table of Contents another provider in a timely and cost-effective manner should the need arise.
We need to continue making significant investments in software development and equipment to improve our business. To improve the scalability, security, and efficiency of our solutions, and to support the expansion of our software into other tax types, we will need to continue making significant capital expenditures and also invest in additional software and infrastructure development.
To improve the scalability, security, and efficiency of our solutions, and to support the expansion of our software into other tax types, we will need to continue making significant capital expenditures and also invest in additional software and infrastructure development.
Although we have insurance coverage for losses associated with cyber-attacks, as with all insurance policies, there are coverage exclusions and limitations, and our coverage may not be sufficient to 16 Table of Contents cover all possible claims, and we may still suffer losses that could have a material adverse effect on our reputation and business.
Although we have insurance coverage for losses associated with cyber-attacks, as with all insurance policies, there are coverage exclusions and limitations, and our coverage may not be sufficient to cover all possible claims, and we may still suffer losses that could have a material adverse effect on our reputation and business.
We are a "controlled company" within the meaning of the NASDAQ Rules and, as a result, expect to qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
We are a “controlled company” within the meaning of the NASDAQ Rules and, as a result, expect to qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
Additionally, erroneous tax determinations could result in overpayments to taxing authorities 15 Table of Contents that are difficult to reclaim from the applicable taxing authorities or underpayments that could result in penalties.
Additionally, erroneous tax determinations could result in overpayments to taxing authorities that are difficult to reclaim from the applicable taxing authorities or underpayments that could result in penalties.
In addition, failure of our new or updated controls governing the new ERP system, or difficulties encountered from its implementation, or subsequent operation, could harm our results of operations or cause us to fail to meet our reporting obligations. ​ If we fail to effectively protect, maintain and enhance our brand, our business may suffer.
In addition, failure of the controls governing the operation of our ERP system could harm our results of operations or cause us to fail to meet our reporting obligations. If we fail to effectively protect, maintain and enhance our brand, our business may suffer.
We continue to reassess the sufficiency of accounting and finance personnel in response to these increasing demands and expectations. Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Concern about the strength of the economy may slow the rate at which businesses of all sizes are willing to hire an outside vendor to perform the determination and remittance of their transaction taxes and filing of related returns.
Concern about the strength of the economy, or the economic uncertainty created by the changing legal, regulatory, or taxation landscape in the United States, may slow the rate at which businesses of all sizes are willing to hire an outside vendor to perform the determination and remittance of their transaction taxes and filing of related returns.
In some cases, we rely on the safeguards put in place by third parties to protect against security threats. These third parties, including vendors that provide products and services for our operations, could also be a source of security risk to us in the event of a failure or a security incident affecting their own security systems and infrastructure.
These third parties, including vendors that provide products and services for our operations, could also be a source of security risk to us in the event of a failure or a security incident affecting their own 16 Table of Contents security systems and infrastructure.
Our technology is complex and our success depends in large part on our ability to attract and retain highly qualified personnel, particularly tax-content specialists, software developers, technical support, and research and development personnel. Competition for skilled personnel is intense and we may not be successful in attracting, motivating, and retaining needed personnel.
If we fail to attract and retain qualified technical and tax-content personnel, our business could be harmed. Our technology is complex and our success depends in large part on our ability to attract and retain highly qualified personnel, particularly tax-content specialists, software developers, technical support, and research and development personnel.
Also, as we continue to expand our customer base, any failure by us to properly provide training and support will likely result in lost opportunities for additional subscriptions for our solutions.
Also, as we continue to expand our customer base, any failure by us to 11 Table of Contents properly provide training and support will likely result in lost opportunities for additional subscriptions for our solutions. In addition, the upfront costs of our solutions can limit our sales to businesses using manual processes.
In addition, if we fail to anticipate technological changes that our customers and partners may look to adopt, our solutions may be perceived as being less effective or obsolete. Any of these changes could have a material adverse effect on our results of operations and financial condition.
In addition, if we fail to anticipate technological changes that our customers and partners may look to adopt, our solutions may be perceived as being less effective or obsolete.
We have recently implemented a new ERP system, which included multiple business areas across the organization. Any issues, problems, and errors from the implementation of the ERP system or its subsequent operation may impact our continued ability to successfully operate our business or to timely and accurately report our financial results.
Our ERP system integrates multiple business areas and other systems across the organization. Any issues, problems, and errors in the operation of the ERP system or the other connected systems may impact our continued ability to successfully operate our business or to timely and accurately report our financial results.
We have recently experienced efforts by a significant competitor to solicit our employees, and other competitors may take similar actions in the future. We also may be unable to attract or integrate into our operations qualified personnel on the schedule we desire. Any inability to attract, integrate, motivate, and retain the necessary personnel could harm our business.
We also may be unable to attract or integrate into our operations qualified personnel on the schedule we desire. Any inability to attract, integrate, motivate, and retain the necessary personnel could harm our business.
Any errors, bugs, defects, disruptions in service or other performance problems with our software may damage our customers' businesses and could hurt our reputation, brand and business.
Any errors, bugs, defects, disruptions in service or other performance problems with our software may damage our customers' businesses and could hurt our reputation, brand and business. We may also be required, or may choose, for customer relations or other reasons, to expend additional resources to correct actual or perceived errors, bugs or defects in our software.
This includes developing organizational capabilities in key growth markets where the depth of skilled employees is limited and competition for these resources is intense. Further, business and organizational changes may result in more reliance on third parties for various services, and that reliance may increase reputational, operational and compliance risks.
This includes developing organizational capabilities in key growth markets where the depth of skilled employees is limited and competition for these resources is intense.
Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NASDAQ Global Market. ​ We are no longer an “emerging growth company,” and we are no longer able to take advantage of the reduced disclosure requirements applicable to “emerging growth companies,” which may increase our costs.
Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NASDAQ Global Market.
Errors in our customers' transaction tax determinations and reporting functions, or delays in the remittance of their tax payments, could harm our reputation, results of operations and growth prospects.
Further, business and organizational changes may result in more reliance on third parties for various services, and that reliance may increase reputational, operational and compliance risks. 15 Table of Contents Errors in our customers' transaction tax determinations and reporting functions, or delays in the remittance of their tax payments, could harm our reputation, results of operations and growth prospects.
These requirements will not apply to us as long as we remain a controlled company. We have elected to take advantage of the exemption from the requirement that a majority of our board of directors consist of independent directors and that our nominating and corporate governance committee consist entirely of independent directors.
These requirements will not apply to us as long as we remain a controlled company. We have in the past and may in the future rely on the exemptions afforded to a “controlled company” from the corporate governance requirements described above.
The use of AI applications have resulted in cybersecurity incidents that implicate the personal data of end users of such applications. Any such cybersecurity incidents related to our use of AI applications could adversely affect our reputation and operations.
Any such cybersecurity incidents related to our use of AI applications could adversely affect our reputation and operations. The legal and regulatory environment governing AI is evolving and creates uncertainty and new laws may cause us to modify our AI strategy or implementation of technology leveraging AI functionality.
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In addition, the upfront costs of our solutions can limit our sales to businesses using manual processes. 11 Table of Contents If we fail to attract and retain qualified technical and tax-content personnel, our business could be harmed.
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We will be launching a product leveraging generative AI and may incorporate other AI solutions into our platform, offerings, and/or services, and these solutions may grow over time and become significant in our operations.
Removed
We may also be required, or may choose, for 17 Table of Contents customer relations or other reasons, to expend additional resources to correct actual or perceived errors, bugs or defects in our software.
Added
Competition for skilled personnel is intense and we may not be successful in attracting, motivating, and retaining needed personnel. We have recently experienced efforts by a significant competitor to solicit our employees, and other competitors may take similar actions in the future.
Removed
The rapid growth of our operations and our ongoing transition to a publicly traded company has created a need for additional resources within the accounting and finance functions due to the increasing need to produce timely financial information and to ensure a level of segregation of duties customary for a U.S. public company.
Added
Any of these changes could have a material adverse effect on our results of operations and financial condition. 12 Table of Contents We need to continue making significant investments in software development and equipment to improve our business.
Removed
We no longer qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012.
Added
In some cases, we rely on the safeguards put in place by third parties to protect against security threats.
Removed
As a result, we are now subject to various disclosure and compliance requirements that did not previously apply to us, such as: ● the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act; ● the requirement that we adopt new or revised accounting standards when they are applicable to public companies, instead of delaying their adoption until they are applicable to private companies; ● compliance with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding obligatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and financial statements; ● the requirement that we provide full and more detailed disclosures regarding executive compensation; and ● the requirement that we hold a non-binding advisory vote on executive compensation and obtain stockholder approval of any golden parachute payments not previously approved.
Added
Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to satisfy our obligations under our indebtedness. ​ In April 2024, we incurred $345.0 million aggregate principal amount of indebtedness as a result of the issuance of the Company’s 0.750% Convertible Senior Notes due 2029 (the “Notes”).
Removed
We expect that the loss of emerging growth company status and compliance with these additional requirements will increase our legal and financial compliance costs and cause management and other personnel to divert attention from 23 Table of Contents operational and other business matters to devote substantial time to public company reporting requirements.
Added
As of December 31, 2024, we had approximately $923.4 million of indebtedness, excluding indebtedness of our subsidiaries and intercompany liabilities. We may also incur additional indebtedness to meet future financing needs.
Removed
In addition, if we are not able to comply with changing disclosure or compliance requirements in a timely manner, the trading price of our Class A common stock could decline and we could be subject to sanctions or investigations by NASDAQ, the SEC, or other regulatory authorities, which would require additional financial and management resources. ​ Item 1B.
Added
Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things: ​ ● increasing our vulnerability to adverse economic and industry conditions; ● limiting our ability to obtain additional financing; ● requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes; ● limiting our flexibility to plan for, or react to, changes in our business; 23 Table of Contents ● diluting the interests of our existing stockholders as a result of issuing shares of our Class A common stock upon conversion of the Notes; and ● placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.
Added
Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, including the Notes, and our cash needs may increase in the future.
Added
In addition, the Credit Agreement contains, and any future indebtedness that we may incur may contain financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness.
Added
If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full. ​ Despite current indebtedness levels, we may incur substantially more debt or take other actions which would further intensify the risks associated with our indebtedness. ​ We and our subsidiaries may be able to incur substantial additional debt in the future, subject to the restrictions contained in our debt instruments, some of which may be secured debt.
Added
We will not be restricted under the terms of the indenture governing the Notes (the “Indenture”) from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that are not limited by the terms of the Indenture that could have the effect of diminishing our ability to make payments on our indebtedness when due.
Added
Each of our Line of Credit and Term Loan restricts our ability to incur additional indebtedness, including secured indebtedness, but if the respective facility matures or is repaid, we may not be subject to such restrictions under the terms of any subsequent indebtedness. ​ We may be unable to raise the funds necessary to repurchase the Notes for cash following a “fundamental change,” or to pay any cash amounts due upon conversion, and applicable law, regulatory authorities and our other indebtedness may limit our ability to repurchase the Notes or pay cash upon their conversion . ​ Noteholders may, subject to a limited exception, require us to repurchase their Notes following a “fundamental change” (as described in the Indenture governing the Notes) at a cash repurchase price generally equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.
Added
In addition, upon conversion, we will satisfy part or all of our conversion obligation in cash unless we elect to settle conversions solely in shares of our Class A common stock.
Added
We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the Notes or pay the cash amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the Notes or pay the cash amounts due upon conversion.
Added
Our failure to repurchase Notes or to pay the cash amounts due upon conversion when required will constitute a default under the Indenture. A default under the Indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full.
Added
We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the Notes. ​ Provisions in the Indenture could delay or prevent an otherwise beneficial takeover of us. ​ Certain provisions in the Notes and the Indenture could make a third party’s attempt to acquire us more difficult or expensive.
Added
For example, if a takeover constitutes a “fundamental change” (as described in the Indenture governing the Notes), then noteholders will have the right to require us (or in limited circumstances, such third party) to repurchase their Notes for cash.
Added
In addition, if a takeover constitutes a “make-whole fundamental change” (as described in the Indenture governing the Notes), then we may be required to temporarily increase the conversion rate.
Added
In either case, and in other cases, our obligations under the Notes and the Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that noteholders or holders of our Class A common stock may view as favorable. ​ 24 Table of Contents The accounting method for the Notes could adversely affect our reported financial condition and results . ​ The accounting method for reflecting the Notes on our balance sheet, accruing interest expense for the Notes and reflecting the underlying shares of our Class A common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial condition. ​ In August 2020, the Financial Accounting Standards Board (“FASB”) published Accounting Standards Update (“ASU”) 2020-06, which simplifies certain of the accounting standards that apply to convertible notes.
Added
In accordance with ASU 2020-06, the Notes are reflected as a liability on our balance sheets, with the initial carrying amount equal to the principal amount of the Notes, net of issuance costs. The issuance costs are treated as a debt discount for accounting purposes, and are amortized into interest expense over the term of the Notes.
Added
As a result of this amortization, the interest expense that we recognize for the Notes for accounting purposes is greater than the cash interest payments we pay on the Notes, which results in lower reported income or higher reported loss. ​ In addition, the shares underlying the Notes are reflected in our diluted earnings per share using the “if converted” method, in accordance with ASU 2020-06.
Added
Under that method, if the conversion value of the Notes exceeds their principal amount for a reporting period, then we calculate our diluted earnings per share assuming that all of the Notes were converted at the beginning of the reporting period and that we issued shares of our Class A common stock to settle the excess.
Added
However, if reflecting the Notes in diluted earnings per share in this manner is anti-dilutive, or if the conversion value of the Notes does not exceed their principal amount for a reporting period, then the shares underlying the Notes are not reflected in our diluted earnings per share.
Added
The application of the if-converted method may reduce our reported diluted earnings per share, and accounting standards may change in the future in a manner that may adversely affect our diluted earnings per share. ​ Furthermore, if any of the conditions to the convertibility of the Notes is satisfied, then we may be required under applicable accounting standards to reclassify the liability carrying value of the Notes as a current, rather than a long-term, liability.
Added
This reclassification could be required even if no holders of the Notes convert their Notes and could materially reduce our reported working capital. ​ The Capped Call Transactions may affect the value of our Class A common stock. ​ In connection with the pricing of the Notes, we entered into Capped Call Transactions (as defined in Note 10, “Debt” to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K) with certain Option Counterparties (also defined in Note 10, “Debt”).
Added
The Capped Call Transactions are expected generally to reduce the potential dilution upon any conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. ​ The Option Counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our Class A common stock and/or purchasing or selling our Class A common stock or other securities of ours in secondary market transactions from time to time prior to the maturity of the Notes (and are likely to do so during any observation period related to a conversion of Notes).
Added
This activity could also cause or avoid an increase or a decrease in the market price of our Class A common stock. ​ In addition, if any such Capped Call Transactions are terminated for any reason, the Option Counterparties or their respective affiliates may unwind their hedge positions with respect to our Class A common stock, which could adversely affect the value of our Class A common stock. ​ Furthermore, the Option Counterparties are financial institutions, and we will be subject to the risk that any or all of them might default under the Capped Call Transactions.
Added
Our exposure to the credit risk of the Option Counterparties will not be secured by any collateral. If an Option Counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the Capped Call Transactions with such Option Counterparty.
Added
Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our Class A common stock. We can provide no assurances as to the financial stability or viability of the Option Counterparties. ​ 25 Table of Contents Item 1B.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeBoard members receive presentations on cybersecurity topics from our general counsel, internal security staff, or external experts as part of the Board’s continuing education on topics that impact public companies. ​ Our general counsel, with oversight by the Vertex Executive Leadership Team, is responsible for assessing and managing our material risks from cybersecurity threats.
Biggest changeThe full Board also receives briefings from management on our cybersecurity risk management program. Board members receive presentations on cybersecurity topics from our General Counsel, internal security staff, or external experts as part of the Board’s continuing education on topics that impact public companies. ​ Our Chief Operating Officer and General Counsel manage the cybersecurity risk management program.
Our general counsel’s experience includes over twenty years of legal, information security, compliance, and risk experience and positions of leadership in global organizations supervising information security, compliance, and risk professionals and programs. ​ Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings from internal security personnel; threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in the IT environment. ​ ​
Our General Counsel’s experience includes over twenty years in positions of leadership in global organizations supervising compliance and risk professionals . ​ Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings from internal security personnel; threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in the IT environment. ​ ​
See Item 1A.“Risk Factors – We are exposed to cybersecurity and data privacy risks that, if realized, could expose us to legal liability, damage our reputation, and harm our business.” ​ 24 Table of Contents Cybersecurity Governance ​ Our Board of Directors (the “Board”) considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee (the “Committee”) oversight of cybersecurity and other information technology risks.
See Item 1A.“Risk Factors – We are exposed to cybersecurity and data privacy risks that, if realized, could expose us to legal liability, damage our reputation, and harm our business.” ​ Cybersecurity Governance ​ Our Board of Directors (the “Board”) considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee (the “Committee”) oversight of cybersecurity and other information technology risks.
The Committee oversees management’s implementation of our cybersecurity risk management program. ​ The Committee receives quarterly reports from management on our cybersecurity risks. In addition, management updates the Committee, as necessary, regarding any cybersecurity incidents. ​ The Committee reports to the full Board regarding its activities, including those related to cybersecurity.
The Committee oversees management’s implementation of our cybersecurity risk management program. ​ The Committee receives quarterly reports from management on our cybersecurity risks. In addition, management updates the Committee, as necessary, regarding any cybersecurity incidents. ​ 26 Table of Contents The Committee reports to the full Board regarding its activities, including those related to cybersecurity.
This team of attorneys and certified risk and information security professionals, has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants.
The Vertex Executive Leadership Team has oversight over their management and the program. Our Chief Operating Officer is responsible for managing and mitigating our material risks from cybersecurity threats. His team of information security professionals manage our internal cybersecurity personnel and our retained external cybersecurity consultants.
Removed
The full Board also receives briefings from management on our cybersecurity risk management program.
Added
Our Chief Operating Officer has over twenty-five years of leadership experience in global business operations, including information security and compliance. Our General Counsel has overall management responsibility of cybersecurity risks.
Added
His team of attorneys and certified risk professional assess cybersecurity risks, assist the information security team with mitigating identified risks, and aligns the management of cybersecurity risks with the management of enterprise risks.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our corporate headquarters, which includes our operations and development teams, is located in King of Prussia, Pennsylvania, and consists of approximately 189,500 square feet of space under a lease that expires on September 30, 2028. We also lease offices in Naperville, Illinois; Frankfurt, Germany; Sao Paulo, Brazil; Chennai, India; Killorglin, Ireland; and Cork, Ireland.
Biggest changeItem 2. Properties Our corporate headquarters, which includes our operations and development teams, is located in King of Prussia, Pennsylvania, and consists of approximately 189,500 square feet of space under a lease that expires on September 30, 2028. We also lease offices in Naperville, Illinois; Frankfurt, Germany; Sao Paulo, Brazil; Chennai, India; Killorglin, Ireland; Cork, Ireland; and Vienna, Austria.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are not presently a party to any litigation the outcome of which we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows, or financial condition. 25 Table of Contents ​ ​ Item 4.
Biggest changeWe are not presently a party to any litigation the outcome of which we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition. ​ Item 4. Mine Safety Disclosures Not applicable. ​ ​ 27 Table of Contents PART II
We are seeking a permanent injunction to prevent Avalara from further interference with our contractual relations and to prohibit the disclosure in any way of our confidential, proprietary, and/or trade secret information. We are also seeking monetary damages, including punitive damages and attorney’s fees. Avalara has filed a motion to dismiss for lack of personal jurisdiction.
We are seeking a permanent injunction to prevent Avalara from further interference with our contractual relations and to prohibit the disclosure in any way of our confidential, proprietary and/or trade secret information. We are also seeking monetary damages, including punitive damages and attorney’s fees.
As of December 31, 2023, the matter remains before the Court as the parties pursue jurisdictional discovery, after which, further briefs will be filed. We believe the allegations in the complaint, once proven, are sufficient to prevail in this matter.
As of December 31, 2024, the matter remains before the Court and is proceeding through the discovery process. We believe the allegations in the complaint, once proven, are sufficient to prevail in this matter.
Removed
Mine Safety Disclosures Not applicable. ​ ​ 26 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+0 added−1 removed2 unchanged
Biggest changeAll rights reserved. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Base Date ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Company / Index 7/28/20 9/30/20 12/31/20 3/31/21 6/30/21 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 12/31/22 3/31/23 6/30/23 9/30/23 12/31/23 Vertex, Inc. ​ $ 100.00 ​ $ 96.11 ​ $ 145.63 ​ $ 91.85 ​ $ 91.68 ​ $ 80.32 ​ $ 66.32 ​ $ 64.10 ​ $ 47.34 ​ $ 57.12 ​ $ 60.63 ​ $ 86.45 ​ $ 81.47 ​ $ 96.51 ​ $ 112.55 S&P 500 ​ $ 100.00 ​ $ 103.54 ​ $ 116.12 ​ $ 123.29 ​ $ 133.83 ​ $ 134.61 ​ $ 149.46 ​ $ 142.58 ​ $ 119.63 ​ $ 113.79 ​ $ 122.39 ​ $ 131.56 ​ $ 143.07 ​ $ 138.38 ​ $ 154.56 NASDAQ U.S.
Biggest changeAll rights reserved. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Base Date ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Company / Index 7/28/20 12/31/20 6/30/21 12/31/21 6/30/22 12/31/22 ​ 6/30/23 ​ 12/31/23 ​ 6/30/24 12/31/24 Vertex, Inc. ​ $ 100.00 ​ $ 145.62 ​ $ 91.67 ​ $ 66.31 ​ $ 47.33 ​ $ 60.62 ​ $ 81.46 ​ $ 112.53 ​ $ 150.57 ​ $ 222.82 S&P 500 ​ $ 100.00 ​ $ 116.12 ​ $ 133.83 ​ $ 149.46 ​ $ 119.63 ​ $ 122.39 ​ $ 143.07 ​ $ 154.56 ​ $ 178.20 ​ $ 193.23 NASDAQ U.S.
Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions, and other factors that our board of directors may deem relevant. 27 Table of Contents Stock Performance Graph The graph below (1) compares the cumulative total return on our Class A common stock with that of the S&P 500 Index (2) and the NASDAQ U.S.
Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions, and other factors that our board of directors may deem relevant. ​ 28 Table of Contents Stock Performance Graph The graph below (1) compares the cumulative total return on our Class A common stock with that of the S&P 500 Index (2) and the NASDAQ U.S.
Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders. As of December 31, 2023, there were 22 stockholders of record of our Class B common stock.
Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders. As of December 31, 2024, there were 22 stockholders of record of our Class B common stock.
The stock price performance graph is not necessarily indicative of future price performance. 1 Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2024. 2 S&P 500 Index Data: Copyright Standard and Poor’s, Inc. Used with permission. All rights reserved. 3 NASDAQ Index Data: Copyright NASDAQ OMX, Inc. Used with permission.
The stock price performance graph is not necessarily indicative of future price performance. 1 Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2025. 2 S&P 500 Index Data: Copyright Standard and Poor’s, Inc. Used with permission. All rights reserved. 3 NASDAQ Index Data: Copyright NASDAQ OMX, Inc. Used with permission.
Benchmark Software TR Index (3) . The period shown commences on July 28, 2020, and ends on December 31, 2023, the end of our most recent fiscal year. The graph assumes an investment of $100 in each of the aforementioned on the close of market on July 28, 2020.
Benchmark Software TR Index (3) . The period shown commences on July 28, 2020, and ends on December 31, 2024, the end of our most recent fiscal year. The graph assumes an investment of $100 in each of the aforementioned on the close of market on July 28, 2020.
Our Class B common stock is not listed on any stock exchange nor traded on any public market. Holders As of December 31, 2023, we had 6 holders of record of our Class A common stock.
Our Class B common stock is not listed on any stock exchange nor traded on any public market. Holders As of December 31, 2024, we had 6 holders of record of our Class A common stock.
Benchmark Software TR ​ $ 100.00 ​ $ 105.29 ​ $ 114.08 ​ $ 115.33 ​ $ 132.90 ​ $ 136.71 ​ $ 149.28 ​ $ 132.14 ​ $ 106.79 ​ $ 97.20 ​ $ 100.01 ​ $ 120.21 ​ $ 140.52 ​ $ 133.68 ​ $ 159.09 ​ ​ ​ Recent Sales of Unregistered Securities None.
Benchmark Software TR ​ $ 100.00 ​ $ 114.08 ​ $ 132.90 ​ $ 149.28 ​ $ 106.79 ​ $ 100.01 ​ $ 140.52 ​ $ 159.09 ​ $ 180.49 ​ $ 187.69 ​ ​ ​ Recent Sales of Unregistered Securities None. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. ​ ​
Removed
Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. ​ ​ Item 6. [Reserved] ​ ​ 28 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

117 edited+59 added−37 removed65 unchanged
Biggest changeNon-GAAP income or 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%. ​ 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. ​ 46 Table of Contents The following schedules reflect our additional non-GAAP financial measures and reconciles our additional non-GAAP financial measures to the related GAAP financial measures. ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ December 31, ​ (Dollars in thousands) ​ 2023 ​ ​ 2022 ​ Non-GAAP cost of revenues, software subscriptions $ 106,038 ​ $ 95,047 Non-GAAP cost of revenues, services $ 59,042 ​ $ 49,628 ​ Non-GAAP gross profit $ 407,307 ​ $ 346,949 ​ Non-GAAP gross margin 71.2 % 70.6 % Non-GAAP research and development expense $ 52,218 ​ $ 40,079 ​ Non-GAAP selling and marketing expense $ 129,216 ​ $ 115,272 ​ Non-GAAP general and administrative expense $ 124,925 ​ $ 112,650 ​ Non-GAAP operating income $ 85,646 ​ $ 66,233 ​ Non-GAAP net income $ 63,699 ​ $ 47,818 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ December 31, ​ (Dollars in thousands) 2023 ​ 2022 ​ Non-GAAP Cost of Revenues, Software Subscriptions: ​ ​ Cost of revenues, software subscriptions $ 162,920 ​ $ 142,071 ​ Stock-based compensation expense (2,834) ​ (2,090) ​ Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues (54,048) ​ (44,934) ​ Non-GAAP cost of revenues, software subscriptions $ 106,038 ​ $ 95,047 ​ ​ ​ ​ ​ ​ ​ ​ Non-GAAP Cost of Revenues, Services: ​ ​ ​ ​ ​ ​ Cost of revenues, services $ 60,888 ​ $ 51,061 ​ Stock-based compensation expense (1,846) ​ (1,433) ​ Non-GAAP cost of revenues, services $ 59,042 ​ $ 49,628 ​ ​ ​ ​ ​ ​ ​ ​ Non-GAAP Gross Profit: ​ ​ ​ ​ Gross profit $ 348,579 ​ $ 298,492 ​ Stock-based compensation expense 4,680 ​ 3,523 ​ Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues 54,048 ​ 44,934 ​ Non-GAAP gross profit $ 407,307 ​ $ 346,949 ​ ​ ​ ​ ​ ​ ​ ​ Non-GAAP Gross Margin: ​ ​ ​ ​ Total revenues $ 572,387 ​ $ 491,624 ​ Non-GAAP gross margin 71.2 % 70.6 % ​ ​ ​ ​ ​ ​ ​ Non-GAAP Research and Development Expense: ​ ​ ​ ​ Research and development expense $ 58,212 ​ $ 41,877 ​ Stock-based compensation expense (5,994) ​ (1,798) ​ Non-GAAP research and development expense $ 52,218 ​ $ 40,079 ​ ​ ​ ​ ​ ​ ​ ​ Non-GAAP Selling and Marketing Expense: ​ ​ ​ ​ Selling and marketing expense $ 140,237 ​ $ 125,335 ​ Stock-based compensation expense (8,380) ​ (6,284) ​ Amortization of acquired intangible assets – selling and marketing expense ​ (2,641) ​ ​ (3,779) ​ Non-GAAP selling and marketing expense $ 129,216 ​ $ 115,272 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 47 Table of Contents ​ For the year ended ​ (Dollars in thousands) December 31, ​ ​ 2023 ​ 2022 ​ Non-GAAP General and Administrative Expense: ​ ​ ​ ​ General and administrative expense $ 145,936 ​ $ 121,651 ​ Stock-based compensation expense (14,865) ​ (8,124) ​ Severance expense ​ (3,576) ​ (877) ​ Amortization of cloud computing implementation costs – general and administrative ​ (2,570) ​ ​ — ​ Non-GAAP general and administrative expense $ 124,925 ​ $ 112,650 ​ ​ ​ ​ ​ ​ ​ ​ Non-GAAP Operating Income: ​ ​ ​ ​ Loss from operations $ (17,510) ​ $ (8,082) ​ Stock-based compensation expense 33,919 ​ 19,729 ​ Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues 54,048 ​ 44,934 ​ Amortization of acquired intangible assets – selling and marketing expense ​ 2,641 ​ ​ 3,779 ​ Amortization of cloud computing implementation costs – general and administrative ​ 2,570 ​ ​ — ​ Severance expense ​ 3,576 ​ ​ 877 ​ Acquisition contingent consideration ​ 1,549 ​ ​ 2,300 ​ Litigation settlement ​ — ​ ​ 2,000 ​ Transaction costs (1) 4,853 ​ 696 ​ Non-GAAP operating income $ 85,646 ​ $ 66,233 ​ ​ ​ ​ ​ ​ ​ ​ Non-GAAP Net Income: ​ ​ ​ ​ Net loss $ (13,093) ​ $ (12,304) ​ Income tax expense (benefit) ​ (8,581) ​ ​ 2,174 ​ Stock-based compensation expense 33,919 ​ 19,729 ​ Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues ​ 54,048 ​ ​ 44,934 ​ Amortization of acquired intangible assets – selling and marketing expense ​ 2,641 ​ ​ 3,779 ​ Amortization of cloud computing implementation costs – general and administrative ​ 2,570 ​ ​ — ​ Severance expense 3,576 ​ 877 ​ Acquisition contingent consideration ​ 1,549 ​ ​ 2,300 ​ Litigation settlement ​ — ​ ​ 2,000 ​ Transaction costs (1) ​ 4,853 ​ 696 ​ Change in settlement value of deferred purchase commitment liability – interest expense ​ 4,020 ​ ​ — ​ Non-GAAP income before income taxes ​ 85,502 ​ ​ 64,185 ​ Income tax adjustment at statutory rate (21,803) ​ (16,367) ​ Non-GAAP net income $ 63,699 ​ $ 47,818 ​ (1) The year ended December 31, 2023 includes costs associated with a public tender offer, which was withdrawn by the Company on January 14, 2024.
Biggest changeNon-GAAP income or 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%. ​ 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. ​ The following schedules reflect our additional non-GAAP financial measures and reconciles our additional non-GAAP financial measures to the related GAAP financial measures. ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ December 31, ​ ​ ​ 2024 ​ ​ 2023 ​ (Dollars in thousands) ​ ​ ​ ​ ​ ​ Non-GAAP cost of revenues, software subscriptions $ 111,929 ​ $ 106,038 Non-GAAP cost of revenues, services $ 62,303 ​ $ 59,042 ​ Non-GAAP gross profit $ 492,544 ​ $ 407,307 ​ Non-GAAP gross margin 73.9 % 71.2 % Non-GAAP research and development expense $ 56,395 ​ $ 52,218 ​ Non-GAAP selling and marketing expense $ 154,892 ​ $ 129,216 ​ Non-GAAP general and administrative expense $ 128,224 ​ $ 124,925 ​ Non-GAAP operating income $ 130,989 ​ $ 85,646 ​ Non-GAAP net income $ 100,984 ​ $ 63,699 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ December 31, ​ (Dollars in thousands) ​ 2024 ​ 2023 ​ Non-GAAP Cost of Revenues, Software Subscriptions: ​ ​ Cost of revenues, software subscriptions ​ $ 175,580 ​ $ 162,920 ​ Stock-based compensation expense ​ (4,349) ​ (2,834) ​ Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues ​ (59,302) ​ (54,048) ​ Non-GAAP cost of revenues, software subscriptions ​ $ 111,929 ​ $ 106,038 ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-GAAP Cost of Revenues, Services: ​ ​ ​ ​ ​ ​ ​ Cost of revenues, services ​ $ 65,071 ​ $ 60,888 ​ Stock-based compensation expense ​ (2,768) ​ (1,846) ​ Non-GAAP cost of revenues, services ​ $ 62,303 ​ $ 59,042 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 50 Table of Contents ​ ​ For the year ended ​ ​ ​ December 31, ​ (Dollars in thousands) ​ 2024 ​ 2023 ​ Non-GAAP Gross Profit: ​ ​ ​ ​ ​ Gross profit ​ $ 426,125 ​ $ 348,579 ​ Stock-based compensation expense ​ 7,117 ​ 4,680 ​ Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues ​ 59,302 ​ 54,048 ​ Non-GAAP gross profit ​ $ 492,544 ​ $ 407,307 ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-GAAP Gross Margin: ​ ​ ​ ​ ​ Total revenues ​ $ 666,776 ​ $ 572,387 ​ Non-GAAP gross margin ​ 73.9 % 71.2 % ​ ​ ​ ​ ​ ​ ​ ​ Non-GAAP Research and Development Expense: ​ ​ ​ ​ ​ Research and development expense ​ $ 66,666 ​ $ 58,212 ​ Stock-based compensation expense ​ (9,548) ​ (5,994) ​ Transaction costs ​ ​ (723) ​ ​ — ​ Non-GAAP research and development expense ​ $ 56,395 ​ $ 52,218 ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-GAAP Selling and Marketing Expense: ​ ​ ​ ​ ​ Selling and marketing expense ​ $ 170,574 ​ $ 140,237 ​ Stock-based compensation expense ​ (13,204) ​ (8,380) ​ Amortization of acquired intangible assets – selling and marketing expense ​ ​ (2,478) ​ ​ (2,641) ​ Non-GAAP selling and marketing expense ​ $ 154,892 ​ $ 129,216 ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-GAAP General and Administrative Expense: ​ ​ ​ ​ ​ General and administrative expense ​ $ 152,835 ​ $ 145,936 ​ Stock-based compensation expense ​ (17,556) ​ (14,865) ​ Severance expense ​ ​ (3,048) ​ (3,576) ​ Amortization of cloud computing implementation costs – general and administrative ​ ​ (4,007) ​ ​ (2,570) ​ Non-GAAP general and administrative expense ​ $ 128,224 ​ $ 124,925 ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-GAAP Operating Income: ​ ​ ​ ​ ​ Loss from operations ​ $ (2,228) ​ $ (17,510) ​ Stock-based compensation expense ​ 47,425 ​ 33,919 ​ Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues ​ 59,302 ​ 54,048 ​ Amortization of acquired intangible assets – selling and marketing expense ​ ​ 2,478 ​ ​ 2,641 ​ Amortization of cloud computing implementation costs – general and administrative ​ ​ 4,007 ​ ​ 2,570 ​ Severance expense ​ ​ 3,048 ​ ​ 3,576 ​ Acquisition contingent consideration ​ ​ (2,575) ​ ​ 1,549 ​ Change in fair value of acquisition contingent earn-outs ​ ​ 17,500 ​ ​ — ​ Transaction costs ​ 2,032 ​ 4,853 ​ Non-GAAP operating income ​ $ 130,989 ​ $ 85,646 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 51 Table of Contents ​ ​ For the year ended ​ ​ ​ December 31, ​ (Dollars in thousands) ​ 2024 ​ 2023 ​ Non-GAAP Net Income: ​ ​ ​ ​ ​ Net loss ​ $ (52,729) ​ $ (13,093) ​ Income tax expense (benefit) ​ ​ 54,638 ​ ​ (8,581) ​ Stock-based compensation expense ​ 47,425 ​ 33,919 ​ Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues ​ ​ 59,302 ​ ​ 54,048 ​ Amortization of acquired intangible assets – selling and marketing expense ​ ​ 2,478 ​ ​ 2,641 ​ Amortization of cloud computing implementation costs – general and administrative ​ ​ 4,007 ​ ​ 2,570 ​ Severance expense ​ 3,048 ​ 3,576 ​ Acquisition contingent consideration ​ ​ (2,575) ​ ​ 1,549 ​ Change in fair value of acquisition contingent earn-outs ​ ​ 17,500 ​ ​ — ​ Transaction costs (1) ​ ​ 2,032 ​ 4,853 ​ Change in settlement value of deferred purchase commitment liability – interest expense ​ ​ 423 ​ ​ 4,020 ​ Non-GAAP income before income taxes ​ ​ 135,549 ​ ​ 85,502 ​ Income tax adjustment at statutory rate (2) ​ (34,565) ​ (21,803) ​ Non-GAAP net income ​ $ 100,984 ​ $ 63,699 ​ ​ ​ ​ ​ ​ ​ ​ ​ (1) The year ended December 31, 2023 includes costs associated with a public tender offer, which was withdrawn by the Company in January 2024.
We derive the majority of our revenue from software subscriptions. These subscriptions include use of our software and ongoing monthly content updates. Our software is offered on a subscription basis to our customers, regardless of their deployment preferences. On-premise subscriptions are typically sold through one-year contracts and cloud-based subscriptions are typically sold through one- to three-year contracts.
We derive the majority of our revenue from software subscriptions. These subscriptions include use of our software and ongoing monthly content updates. Our software is offered on a subscription basis to our customers, regardless of their deployment preferences. On-premise subscriptions and cloud-based subscriptions are typically sold through one- to three-year contracts.
In determining our annualized effective income tax rates, net deferred tax assets, valuation allowances, and cash paid for income taxes, we are required to make judgments and estimates about domestic and foreign profitability, the timing and usage of net operating loss carryforwards, applicable tax rates, and transfer pricing methodologies.
In determining our annualized effective income tax rates, net deferred tax assets, valuation allowances, and cash paid for income taxes, we are required to make judgments and estimates about domestic and foreign profitability, the timing and usage of net operating loss and credit carryforwards, applicable tax rates, and transfer pricing methodologies.
Also, we expect to have access to additional sources of funds in the capital markets, and we may, from time to time, seek additional capital through a combination of additional debt and/or equity financings. If we were to raise additional funds by issuing equity securities, our stockholders may experience dilution.
We expect to have access to additional sources of funds in the capital markets, and we may, from time to time, seek additional capital through a combination of additional debt and/or equity financings. If we were to raise additional funds by issuing equity securities, our stockholders may experience dilution.
As enterprise and mid-market companies continue to expand their business operations—both through their product and service offerings and their global footprint—we expect demand for our tax solutions to increase due to the fact that legacy solutions such as spreadsheets, manual processes, native ERP functionality, or home-built solutions are error prone, inefficient, and cannot scale.
As enterprise and mid-market companies continue to expand their business operations—both through their product and service offerings and their global footprint—we expect demand for our tax and e-invoicing solutions to increase due to the fact that legacy solutions such as spreadsheets, manual processes, native ERP functionality, or home-built solutions are error prone, inefficient, and cannot scale.
Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” T his section of this Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” T his section of this Annual Report on Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.
For a summary of our significant accounting policies, see Note 1 to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K. Revenue Recognition We account for our revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers , which requires judgment and the use of estimates.
For a summary of our significant accounting policies, see Note 1,“Summary of Significant Accounting Policies” to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K. Revenue Recognition We account for our revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers , which requires judgment and the use of estimates.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included in this Annual Report on Form 10-K, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 are not included in this Annual Report on Form 10-K, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
In addition, our managed services offering experienced a $4.1 million increase in recurring services revenues over the prior year due to returns processing volume increases related to regulatory changes as customers expanded their tax filings into more jurisdictions.
In addition, our managed services offering experienced a $5.4 million increase in recurring services revenues over the prior year due to returns processing volume increases related to regulatory changes as customers expanded their tax filings into more jurisdictions.
For the years ended December 31, 2023, 2022, and 2021, approximately 4%, 3%, and 4% of our revenues were generated in currencies other than U.S. dollars in each respective period.
For the years ended December 31, 2024, 2023, and 2022, approximately 4%, 4%, and 3% of our revenues were generated in currencies other than U.S. dollars in each respective period.
With the pace of change in commerce and compliance, we believe it is important to continue innovating and extending the functionality and breadth of our software. We plan to continue 30 Table of Contents investing to further enhance our content and the speed and usability of our software. Historically such innovation has been accomplished through internal development efforts.
With the pace of change in commerce and compliance, we believe it is important to continue innovating and extending the functionality and breadth of our software. We plan to continue investing to further enhance our content and the speed and usability of our software. Historically such innovation has been accomplished through internal development efforts.
Many of our customers are enterprise and large corporations and their purchase patterns can be sensitive to timing of budget decisions. Depending on such timing, these decisions can create volatility in the amount of business transacted by our sales team and the amount of revenues recorded in each quarter.
Many of our customers are enterprise and large corporations and their purchase patterns can be sensitive to timing of budget decisions. 42 Table of Contents Depending on such timing, these decisions can create volatility in the amount of business transacted by our sales team and the amount of revenues recorded in each quarter.
We have historically recognized immaterial amounts of foreign currency gains and losses in each of the periods presented. We may in the future hedge selected significant transactions denominated in currencies other than the U.S. dollar as we expand our international operations and our risk grows.
We have historically recognized immaterial 54 Table of Contents amounts of foreign currency gains and losses in each of the periods presented. We may in the future hedge selected significant transactions denominated in currencies other than the U.S. dollar as we expand our international operations and our risk grows.
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 1,500 professionals and serves companies across the globe.
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 (including e-invoicing), and payroll. Headquartered in North America, and with offices in South America and Europe, Vertex employs over 1,900 professionals and serves companies across the globe.
This increase was primarily driven by a $9.4 million increase in costs of service delivery personnel to support revenue growth in software-subscription related services and our managed services offering. In addition, this amount includes an increase in stock-based compensation of $0.4 million for the twelve months ended December 31, 2023 over the same period in 2022.
This increase was primarily driven by a $3.3 million increase in costs of service delivery personnel to support revenue growth in software-subscription related services and our managed services offering. In addition, this amount includes an increase in stock-based compensation of $0.9 million for the twelve months ended December 31, 2024, over the same period in 2023.
Revenue is recognized net of allowance for subscription and non-renewal cancellations and any taxes collected from customers that are subsequently remitted to governmental authorities. Software Subscriptions Licenses for on-premise software subscriptions, which are generally one year, provide the customer with a right to use the software as it exists when made available to the customer.
Revenue is recognized net of allowance for subscription and non-renewal cancellations and any taxes collected from customers that are subsequently remitted to governmental authorities. Software Subscriptions Licenses for on-premise software subscriptions provide the customer with a right to use the software as it exists when made available to the customer.
Additional Non-GAAP Financial Measures In addition to Adjusted EBITDA, Adjusted EBITDA margin, free cash flow, and free cash flow margin calculated and discussed in “Key Business Metrics,” the following additional non-GAAP financial measures are calculated and presented further below: ​ 45 Table of Contents ● 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 and acquired intangible assets included in cost of subscription 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, services 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 and acquired intangible assets included in cost of subscription revenues for the respective periods. ​ ● Non-GAAP gross margin is determined by dividing non-GAAP gross profit by total revenues for the respective periods. ​ ● Non-GAAP research and development expense is determined by adding back to GAAP research and development expense the stock-based compensation expense included in research and development expense 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 general and administrative expense is determined by adding back to GAAP general and administrative expense the stock-based compensation expense, amortization of cloud computing implementation costs and severance expense included in general and administrative expense for the respective periods. ​ ● Non-GAAP operating income is determined by adding back to GAAP loss or income from operations the stock-based compensation expense, depreciation and amortization of capitalized software and acquired intangible assets included in cost of subscription revenues, amortization of acquired intangible assets included in selling and marketing expense, amortization of cloud computing implementation costs in general and administrative expense, severance expense, acquisition contingent consideration, litigation settlements, and transaction costs , included in GAAP loss or income from operations for the respective periods. ​ ● N on-GAAP net income is determined by adding back to GAAP net loss or income the income tax benefit or expense, stock-based compensation expense, depreciation and amortization of capitalized software and acquired intangible assets included in cost of subscription revenues, amortization of acquired intangible assets included in selling and marketing expense, amortization of cloud computing implementation costs in general and administrative expense, severance expense, acquisition contingent consideration, adjustments to the settlement value of deferred purchase commitment liabilities recorded as interest expense, litigation settlements, and transaction costs , included in GAAP net loss or income for the respective periods to determine non-GAAP loss or income before income taxes.
Additional Non-GAAP Financial Measures In addition to Adjusted EBITDA, Adjusted EBITDA margin, free cash flow, and free cash flow margin calculated and discussed in “Key Business Metrics,” the following additional non-GAAP financial measures are calculated and presented further below: ​ ● 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 and acquired intangible assets included in cost of subscription 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, services 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 and acquired intangible assets included in cost of subscription revenues for the respective periods. ​ ● Non-GAAP gross margin is determined by dividing non-GAAP gross profit by total revenues for the respective periods. ​ ● Non-GAAP research and development expense is determined by adding back to GAAP research and development expense the stock-based compensation expense, and transaction costs related to acquired technology included in research and development expense 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 general and administrative expense is determined by adding back to GAAP general and administrative expense the stock-based compensation expense, amortization of cloud computing implementation costs and severance expense included in general and administrative expense for the respective periods. ​ ● Non-GAAP operating income is determined by adding back to GAAP loss or income from operations the stock-based compensation expense, depreciation and amortization of capitalized software and acquired intangible assets included in cost of subscription revenues, amortization of acquired intangible assets included in selling and marketing expense, amortization of cloud computing implementation costs in general and administrative expense, severance expense, acquisition contingent consideration, changes in the fair 49 Table of Contents value of acquisition contingent earn-outs , and transaction costs , included in GAAP loss or income from operations for the respective periods. ​ ● N on-GAAP net income is determined by adding back to GAAP net income or loss the income tax benefit or expense, stock-based compensation expense, depreciation and amortization of capitalized software and acquired intangible assets included in cost of subscription revenues, amortization of acquired intangible assets included in selling and marketing expense, amortization of cloud computing implementation costs in general and administrative expense, severance expense, acquisition contingent consideration, changes in the fair value of acquisition contingent earn-outs , adjustments to the settlement value of deferred purchase commitment liabilities recorded as interest expense, and transaction costs , included in GAAP net income or loss for the respective periods to determine non-GAAP loss or income before income taxes.
General and Administrative General and administrative expenses consist primarily of personnel and related expenses for administrative, finance, information technology, legal, risk management, facilities, and human resources staffing, including salaries, benefits, bonuses, severance, stock-based compensation, professional fees, insurance premiums, facility costs, amortization of cloud computing arrangement implementation costs related to our ERP modernization initiative, and other internal support and infrastructure costs.
General and Administrative General and administrative expenses consist primarily of personnel and related expenses for administrative, finance, information technology, legal, risk management, facilities, and human resources staffing, including salaries, benefits, bonuses, severance, stock-based compensation, professional fees, insurance premiums, facility costs, amortization of cloud computing arrangement implementation costs, and other internal support and infrastructure costs.
This increase was primarily driven by a $12.1 million increase in costs of personnel supporting period-over-period growth of sales and customers, and ongoing hosting and infrastructure investments to support expansion of customer transaction volumes for our cloud-based subscription customers.
This increase was primarily driven by a $5.9 million increase in costs of personnel supporting period-over-period growth of sales and customers, and ongoing hosting and infrastructure investments to support expansion of customer transaction volumes for our cloud-based subscription customers.
Customer funds obligations are reported as a current liability on our consolidated balance sheets as the obligations are expected to be settled within one year. Cash flows related to changes in customer funds obligations are presented as cash flows from financing activities. 41 Table of Contents Contractual Obligations and Commitments .
Customer funds obligations are reported as a current liability on our consolidated balance sheets as the obligations are expected to be settled within one year. Cash flows related to changes in customer funds obligations are presented as cash flows from financing activities. ​ Contractual Obligations and Commitments .
Cost of software subscriptions revenue also includes amortization associated with direct labor and related expenses for capitalized internal-use software for cloud-based subscription solutions and software developed for sale for new products and enhancements to existing products, and costs associated with the amortization of certain acquired intangible assets.
Cost of software subscriptions revenue also includes amortization associated with capitalized internal-use software for cloud-based subscription solutions and software developed for sale for new products and enhancements to existing products, and costs associated with the amortization of certain acquired intangible assets.
See Note 3, Business Combinations to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K for a discussion of our acquisitions. Customer migration to cloud solutions. Over time, we expect a continued shift to our cloud solutions by our existing and newly acquired customers.
Refer to Note 3, “Acquisitions” to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K for a discussion of our acquisitions. Customer migration to cloud solutions. Over time, we expect a continued shift to our cloud solutions by our existing and newly acquired customers.
In addition, revenue will fluctuate with the cessation of extended product support fees charged for older versions of our software subscription solutions when they are retired and these fees are no longer charged. Contracts for on-premise licenses permit cancellations at the end of the license term, which is generally one year.
In addition, revenue will fluctuate with the cessation of extended product support fees charged for older versions of our software subscription solutions when they are retired and these fees are no longer charged. Contracts for on-premise licenses permit cancellations at the end of the license term.
In addition, this included an increase of $0.4 million in advertising and promotional spending related to expanded brand awareness efforts. Lastly, there was an increase in stock-based compensation of $2.1 million.
In addition, this included an increase of $10.0 million in advertising and promotional spending related to expanded brand awareness efforts. Lastly, there was an increase in stock-based compensation of $4.8 million.
Judgments and estimates related to our projections and assumptions are inherently uncertain; therefore, actual results could materially differ from our projections. ​ Our subsidiaries in foreign jurisdictions are generally taxed at the corporate level, and the income tax provision or benefit is based on the income or loss sourced to these foreign jurisdictions at the tax rates applicable in those jurisdictions. 34 Table of Contents Results of Operations You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto beginning on page F-1 of this Annual Report on Form 10-K.
Judgments and estimates related to our projections and assumptions are inherently uncertain; therefore, actual results could materially differ from our projections. ​ Vertex and its subsidiaries are generally taxed at the corporate level, and the income tax provision or benefit is based on the income or loss sourced to the U.S. federal and state jurisdictions as well as foreign jurisdictions at the tax rates applicable in those jurisdictions. 37 Table of Contents Results of Operations You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto beginning on page F-1 of this Annual Report on Form 10-K.
We believe that our existing cash resources and our Line of Credit will be sufficient to meet our capital requirements and fund our operations for the next 12 months as well as our longer-term liquidity needs.
Material Future Cash Obligations and Commercial Commitments Cash Requirements. We believe that our existing cash resources and our Line of Credit will be sufficient to meet our capital requirements and fund our operations for the next 12 months as well as our longer-term liquidity needs.
See Note 3, Business Combinations to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K for a discussion of our acquisitions. Investing in growth and scaling our business.
Refer to Note 3, “ Acquisitions” to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K for a discussion of our acquisitions. Investing in growth and scaling our business.
We also collaborate with numerous accounting firms who have built implementation practices around our software to serve their customer base. 29 Table of Contents We believe that global commerce and the compliance environment provides durable and accelerating growth opportunities for our business. We generated revenues of $572.4 million and $491.6 million in 2023 and 2022, respectively.
We also collaborate with numerous accounting firms who have built implementation practices around our software to serve their customer base. 30 Table of Contents We believe that global commerce and the compliance environment provides durable and accelerating growth opportunities for our business. We generated revenues of $666.8 million and $572.4 million in 2024 and 2023, respectively.
Adjusted EBITDA was $100.8 million and $78.7 million in 2023 and 2022, respectively. Adjusted EBITDA is a non-GAAP financial measure. Refer to “Key Business Metrics” and “Use and Reconciliation of Non-GAAP Financial Measures” for further discussion of key business metrics and non-GAAP financial measures and their comparison to GAAP financial measures.
Adjusted EBITDA was $151.9 million and $100.8 million in 2024 and 2023, respectively. Adjusted EBITDA is a non-GAAP financial measure. Refer to “Key Business Metrics” and “Use and Reconciliation of Non-GAAP Financial Measures” for further discussion of key business metrics and non-GAAP financial measures and their comparison to GAAP financial measures.
We generated 45% and 41% of software subscription revenues from cloud-based subscriptions in 2023 and 2022, respectively. While our on-premise software subscription revenues comprised 55% and 59% of our software subscription revenues for 2023 and 2022, respectively, they continue to decrease as a percentage of total software subscriptions revenues as cloud-based subscriptions grow.
We generated 49% and 45% of software subscription revenues from cloud-based subscriptions in 2024 and 2023, respectively. While our on-premise software subscription revenues comprised 51% and 55% of our software subscription revenues for 2024 and 2023, respectively, they continue to decrease as a percentage of total software subscriptions revenues as cloud-based subscriptions grow.
These amounts will fluctuate as a result of ongoing merger and acquisition activities and for changes in foreign currency rates. Interest (Income) Expense, net Interest (income) expense, net reflects the net amount of interest expense and interest income over the same period. Interest expense consists primarily of interest incurred related to borrowings, bank credit facility and leases.
These amounts will fluctuate as a result of ongoing merger and acquisition activities and for changes in foreign currency rates. Interest Expense (Income), net Interest expense (income), net reflects the net amount of interest expense and interest income over the same period. Interest expense consists primarily of interest incurred related to the Notes, Term Loan, Credit Agreement, and leases.
Over the past three years, cloud sales to new customers have grown at a faster rate than sales of on-premise solutions, which is a trend that we expect to continue over time. We generated 45% and 41% of software subscription revenues from cloud-based subscriptions in 2023 and 2022, respectively. We host our cloud-based subscriptions.
Over recent years, cloud sales to new customers have grown at a faster rate than sales of on-premise solutions, which is a trend that we expect to continue over time. We generated 49% and 45% of software subscription revenues from cloud-based subscriptions in 2024 and 2023, respectively. We host our cloud-based subscriptions.
We define Adjusted EBITDA as net income or loss before interest (including adjustments to the settlement value of deferred purchase commitment liabilities), taxes, depreciation, and amortization, as adjusted to exclude charges for asset impairments, stock-based compensation expense, amortization of cloud computing arrangement implementation costs, severance expense, acquisition contingent consideration, changes in the settlement value of deferred purchase commitment liabilities recorded as interest expense, litigation settlements, and transaction costs.
We define Adjusted EBITDA as net income or loss before interest (including adjustments to the settlement value of deferred purchase commitment liabilities), income tax expense or benefit, depreciation, and amortization, as adjusted to exclude charges for stock-based compensation expense, amortization of cloud computing arrangement implementation costs, severance expense, acquisition contingent consideration, changes in the fair value of acquisition contingent earn-outs, changes in the settlement value of deferred purchase commitment liabilities recorded as interest expense, and transaction costs.
There were no outstanding borrowings under the Line of Credit at December 31, 2023. Outstanding borrowings under the credit agreement are collateralized by nearly all of the assets of the Company and contain financial and operating covenants. The Company was in compliance with these covenants at December 31, 2023.
Outstanding borrowings under the Credit Agreement are collateralized by nearly all of the assets of the Company and contain financial and operating covenants. The Company was in compliance with these covenants at December 31, 2024.
Adjusted EBITDA margin represents Adjusted EBITDA divided by total revenues for the same period. For purposes of comparison, our net loss was ($13.1) million and ($12.3) million in 2023 and 2022, respectively, while our net loss margin was (2.3)% and (2.5)% over the same periods, respectively.
Adjusted EBITDA margin represents Adjusted EBITDA divided by total revenues for the same period. For purposes of comparison, our net loss was $(52.7) million and $(13.1) million in 2024 and 2023, respectively, while our net loss margin was (7.9)% and (2.3)% over the same periods, respectively.
In addition, this included an increase in depreciation and amortization of capitalized software and acquired intangible assets of $9.1 million associated with our ongoing investments in internal-use software for cloud-based subscription solutions, software developed for sale for new products and enhancements to existing products, and costs associated with the amortization of acquired intangible assets.
In addition, we experienced an increase in depreciation and amortization of capitalized software and acquired intangible assets of $5.3 million associated with our ongoing investments in internal-use software for cloud-based subscription solutions, software developed for sale for new products and enhancements to existing products, and costs associated with the amortization of acquired intangible assets.
This increase was primarily due to a $12.1 million increase in personnel costs related to development work associated with new solutions to address end-to-end data analysis and compliance needs of our customers, and continued expansion of connectors and application program interfaces (“APIs”) to customer ERP and other software platforms.
This increase was primarily due to a $4.9 million increase in personnel costs related to development work associated with new solutions to address end-to-end data analysis and compliance needs of our customers, and continued expansion of connectors and application program interfaces (“APIs”) to customer enterprise resource planning (“ERP”) and other software platforms.
This seasonality is reflected in our revenues, though the impact to overall annual or quarterly revenues is typically minimal since we recognize subscription revenue ratably over the term of the customer contract.
This seasonality is reflected in our revenues, though the impact to overall annual or quarterly revenues is typically minimal since we recognize subscription revenue ratably over the term of the customer contract. Additionally, this seasonality is reflected in commission expenses to our sales personnel and our partners.
The effect of a change in tax laws or rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The effects of future changes in tax laws or rates are not anticipated.
The effect of a change in tax laws or rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
Free cash flow margin increased in 2023 by 400 basis points compared to 2022. ​ Use and Reconciliation of Non-GAAP Financial Measures In addition to our results determined in accordance with GAAP, we have calculated Adjusted EBITDA, Adjusted EBITDA margin, free cash flow, free cash flow margin, 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, and non-GAAP net income, which are each non-GAAP financial measures.
Free cash flow margin increased in 2024 to 11.7% compared to 1.1% in 2023. ​ Use and Reconciliation of Non-GAAP Financial Measures In addition to our results determined in accordance with GAAP, we have calculated Adjusted EBITDA, Adjusted EBITDA margin, free cash flow, free cash flow margin, 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, and non-GAAP net income, which are each non-GAAP 48 Table of Contents financial measures.
Specific risks for these critical accounting estimates are described in the following sections. For all of these estimates, we caution that future events rarely develop exactly as forecast, and such estimates routinely require adjustment.
Specific risks for these critical accounting estimates are described in the following sections. For all of these estimates, we caution that future events rarely develop exactly as forecast, and such estimates routinely require adjustment. We have reviewed these critical accounting estimates and related disclosures with our Audit Committee.
Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk We had unrestricted cash and cash equivalents of $68.2 million and $91.8 million as of December 31, 2023 and 2022, respectively, and investments of $9.5 million and $11.2 million as of December 31, 2023 and 2022, respectively.
Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk We had unrestricted cash and cash equivalents of $296.1 million and $68.2 million as of December 31, 2024 and 2023, respectively, and investments of $9.2 million and $9.5 million as of December 31, 2024 and 2023, respectively.
AARPC represents average annual revenue per customer and is calculated by dividing ARR by the number of software subscription customers at the end of the respective period: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ (Dollars in millions) ​ 2023 ​ 2022 ​ Year-Over-Year Change Annual Recurring Revenue ​ $ 512.5 ​ $ 431.1 ​ $ 81.4 18.9 % ​ ARR increased by $81.4 million or 18.9% in 2023 as compared to 2022.
AARPC represents average annual revenue per customer and is calculated by dividing ARR by the number of software subscription customers at the end of the respective period: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ (Dollars in millions) ​ 2024 ​ 2023 ​ Year-Over-Year Change Annual Recurring Revenue ​ $ 603.1 ​ $ 512.5 ​ $ 90.6 17.7 % ​ ARR increased by $90.6 million, or 17.7%, at December 31, 2024, as compared to December 31, 2023.
We define Adjusted EBITDA as net income or loss before interest (including adjustments to the settlement value of deferred purchase commitment liabilities), taxes, depreciation, and amortization, as adjusted to exclude charges for asset impairments, stock-based compensation expense, amortization of cloud computing arrangement implementation costs, severance expense, acquisition contingent consideration, litigation settlements, and transaction costs.
We define Adjusted EBITDA as net income or loss before interest (including adjustments to the settlement value of deferred purchase commitment liabilities), income tax expense or benefit, depreciation, and amortization, as adjusted to exclude charges for stock-based compensation expense, amortization of cloud computing arrangement implementation costs, severance expense, acquisition contingent consideration, changes in the fair value of acquisition contingent earn-outs, and transaction costs.
We define free cash flow margin as free cash flow divided by total revenues for the same period. 44 Table of Contents Our net cash provided by operating activities was $74.3 million and $63.8 million in 2023 and 2022, respectively, while our operating cash flow margin was 13.0% and 13.0% over the same periods, respectively.
We define free cash flow margin as free cash flow divided by total revenues for the same period. Our net cash provided by operating activities was $164.8 million and $74.3 million in 2024 and 2023, respectively, while our operating cash flow margin was 24.7% and 13.0% over the same periods, respectively.
Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations– Key Business Metrics– Net Revenue Retention Rate and Gross Revenue Retention Rate” and for further discussion. Acquire new customers.
Our GRR was 95% in both 2024 and 2023. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations– Key Business Metrics– Net Revenue Retention Rate and Gross Revenue Retention Rate” and for further discussion. Acquire new customers.
More information is provided in Note 3 to our consolidated financial statements, beginning on page F-1 of this Annual Report on Form 10-K. ​ Components of Our Results of Operations Revenues We generate revenues from software subscriptions and services.
For further information, refer to Note 3, “Acquisitions” to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K. ​ 33 Table of Contents Components of Our Results of Operations Revenues We generate revenues from software subscriptions and services.
We had a net loss of ($13.1) million and ($12.3) million in 2023 and 2022, respectively. These amounts are presented in accordance with generally accepted accounting principles in the U.S. (“GAAP”).
We had net losses of $(52.7) million and $(13.1) million in 2024 and 2023, respectively. These amounts are presented in accordance with generally accepted accounting principles in the U.S. (“GAAP”).
This increase also reflects investments in employees, systems, and other resources in support of our growth, and public company reporting and compliance activities. Additionally, there was an increase of $2.6 million for the amortization of capitalized cloud computing implementation costs related to our ERP modernization initiative.
This increase also reflects investments in employees, systems, and other resources in support of our growth. Additionally, there was an increase of $1.4 million for the amortization of capitalized cloud computing implementation costs related to our ERP modernization initiative which was completed in 2023.
We have reviewed these critical accounting estimates and related disclosures with our Audit Committee. 48 Table of Contents Our discussion of critical accounting estimates is intended to supplement, not duplicate, our summary of significant accounting policies so that readers will have greater insight into the uncertainties involved in applying our critical accounting policies and estimates.
Our discussion of critical accounting estimates is intended to supplement, not duplicate, our summary of significant accounting policies so that readers will have greater insight into the uncertainties involved in applying our critical accounting policies and estimates.
Selling and Marketing ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2023 ​ 2022 ​ Year-Over-Year Change Selling and marketing $ 140,237 ​ $ 125,335 ​ $ 14,902 11.9 % ​ Selling and marketing expenses increased $14.9 million, or 11.9%, to $140.2 million in 2023 compared to $125.3 million in 2022, primarily driven by a $13.5 million increase in payroll and related expenses associated with the growth in period-over-period subscription sales and services revenues and expansion of our partner and channel management programs.
Selling and Marketing ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2024 ​ 2023 ​ Year-Over-Year Change Selling and marketing $ 170,574 ​ $ 140,237 ​ $ 30,337 21.6 % ​ 40 Table of Contents Selling and marketing expenses increased $30.3 million, or 21.6%, to $170.6 million in 2024 compared to $140.2 million in 2023, primarily driven by a $15.6 million increase in payroll and related expenses associated with the growth in period-over-period subscription sales and services revenues and expansion of our partner and channel management programs.
The increase in software subscriptions revenues of $65.4 million, or 15.7%, was primarily driven by an increase of $35.5 million, primarily from cross selling new products to existing customers, and to a lesser extent, increases from expanded use of our products and services, and price increases.
The increase in software subscriptions revenues of $86.3 million, or 17.9%, was primarily driven by an increase of $80.5 million from cross selling new products to existing customers, increases from expanded use of our products and services, and price increases.
We record uncertain tax positions in accordance with ASC 740, Income Taxes , on the basis of a two-step process requiring judgement whereby: (i) we determine whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position, and (ii) for those tax positions that meet the more likely than not recognition threshold, we recognize the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
In evaluating the ability to realize our deferred tax assets, we rely on, in order of increasing subjectivity, taxable income in prior carryback years, the future reversals of existing taxable temporary differences, tax planning strategies and forecasted taxable income using historical and projected future operating results. ​ We record uncertain tax positions in accordance with ASC 740, Income Taxes , on the basis of a two-step process requiring judgement whereby: (i) we determine whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position, and (ii) for those tax positions that meet the more likely than not recognition threshold, we recognize the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The increase was primarily due to the impact of infrastructure and technology purchases and other capitalized infrastructure costs to support our growth, which were placed in service during 2023 and 2022.
The increase was primarily due to the impact of infrastructure and technology purchases and other capitalized infrastructure costs to support our growth.
Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration expected to be received in exchange for those products or services. Our most critical judgments required in applying ASC 606 relate to the identification of performance obligations.
Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration expected to be received in exchange for those products or services.
Selling and Marketing Expenses Selling expenses consist primarily of personnel and related expenses in support of sales and marketing efforts. These costs include salaries, benefits, bonuses, and stock-based compensation. In addition, selling expense includes costs related to advertising and promotion efforts, branding costs, partner-based commissions, costs associated with our annual customer conferences and amortization of certain acquired intangible assets.
In addition, selling and marketing expenses include costs related to advertising and promotion efforts, branding costs, partner-based commissions, costs associated with our annual customer conferences and amortization of certain acquired intangible assets.
Additionally, this seasonality is reflected in commission expenses to our sales personnel and our partners. 39 Table of Contents Our quarterly revenues have generally increased over the last two years primarily due to new sales to existing customers and sales to new customers. However, the pace of our revenue growth has not been consistent.
Our quarterly revenues have generally increased over the last two years primarily due to new sales to existing customers and sales to new customers. However, the pace of our revenue growth has not been consistent.
All services within the cloud-based contracts consistently provide a benefit to the customer during the subscription period, thus the associated revenue is recognized ratably over the subscription period.
Revenue recognition begins on the later of the beginning of the subscription period or the date the customer is provided access to the cloud-based solutions. All services within the cloud-based contracts consistently provide a benefit to the customer during the subscription period; thus, the associated revenue is recognized ratably over the subscription period.
Our NRR was 113% and 110% in 2023 and 2022, respectively. We believe our gross revenue retention rate (“GRR”) provides insight into and demonstrates to investors our ability to retain revenues from our existing customers. Our GRR was 95% and 96% in 2023 and 2022, respectively.
We monitor our net revenue retention rate (“NRR”) in order to understand our ability to retain and grow revenues from our customers. Our NRR was 109% and 113% in 2024 and 2023, respectively. We believe our gross revenue retention rate (“GRR”) provides insight into and demonstrates to investors our ability to retain revenues from our existing customers.
Cost of Software Subscriptions Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2023 2022 Year-Over-Year Change Cost of software subscriptions revenues $ 162,920 ​ $ 142,071 ​ $ 20,849 14.7 % ​ Cost of software subscriptions revenues increased $20.8 million, or 14.7%, to $162.9 million in 2023 compared to $142.1 million in 2022.
Cost of Software Subscriptions Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2024 2023 Year-Over-Year Change Cost of software subscriptions revenues $ 175,580 ​ $ 162,920 ​ $ 12,660 7.8 % ​ Cost of software subscriptions revenues increased $12.7 million, or 7.8%, to $175.6 million in 2024 compared to $162.9 million in 2023.
We are required to pay a quarterly fee on the difference between the $200.0 million allowed maximum borrowings and the unpaid principal balance outstanding under the line at the applicable rate. At December 31, 2023, the base rate option and the SOFR Option applicable to the Line of Credit were 8.50% and 6.48%, respectively.
We are required to pay a quarterly fee on the difference between the $300.0 million allowed maximum borrowings and the unpaid principal balance outstanding under the Line of Credit at the applicable rate.
We plan to continue to significantly expand our infrastructure and personnel to support our future growth and increases in transaction volumes of our cloud-based solutions, including through acquisitions.
We plan to continue to significantly expand our infrastructure and personnel to support our future growth and increases in transaction volumes of our cloud-based solutions, including through acquisitions. We expect growth in our business will result in an increase in cost of software subscriptions revenue in absolute dollars.
Software subscriptions revenues derived from new customers averaged 6.2% and 8.0% of total software subscriptions revenues in 2023 and 2022, respectively. ​ ​ 36 Table of Contents The $15.4 million increase in services revenues was primarily driven by an increase of $11.3 million in software subscription-related services associated with the growth in subscription revenues, which includes new customers implementing our solutions and upgrading existing customers to newer versions of our solutions.
The $8.1 million increase in services revenues was primarily driven by an increase of $2.7 million in software subscription-related services associated with the growth in subscription revenues, which includes new customers 39 Table of Contents implementing our solutions and upgrading existing customers to newer versions of our solutions.
Liquidity and Capital Resources As of December 31, 2023, we had unrestricted cash and cash equivalents of $68.2 million and an accumulated deficit o f $0.6 million. In addition, we had $9.5 million in investment securities with a maturity date exceeding three months as of Decembe r 31, 2023 which are not included in unrestricted cash and cash equivalents.
Liquidity and Capital Resources As of December 31, 2024, we had unrestricted cash and cash equivalents of $296.1 million, in addition to $9.2 million in investment securities with a maturity date exceeding three months , which are not included in unrestricted cash and cash equivalents.
Our NRR calculation takes into account any revenue lost from departing customers or customers who have downgraded or reduced 42 Table of Contents usage, as well as any revenue expansion from migrations, new licenses for additional products or contractual and usage-based price changes. ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2023 2022 ​ Net Revenue Retention Rate 113 % 110 % ​ The 300 basis point increase in NRR to 113% at December 31, 2023 from 110% for the same period in 2022 was primarily attributable to an increase in customer cross-sell and additional entitlements.
Our NRR calculation takes into account any revenue 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. ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2024 2023 ​ Net Revenue Retention Rate 109 % 113 % ​ The 400 basis point decrease in NRR to 109% at December 31, 2024 from 113% for the same period in 2023 was primarily attributed to a decrease in customer cross-sell and additional entitlements. 46 Table of Contents Gross Revenue Retention Rate (“GRR”). ​ We believe our GRR provides insight into and demonstrates to investors our ability to retain revenues from our existing customers.
In foreign jurisdictions, our subsidiaries are generally taxed at the corporate level, and the income tax provision or benefit is based on income or loss sourced to these foreign jurisdictions at the tax rates applicable in those jurisdictions.
Significant judgment is required in determining our worldwide income tax provision. Vertex and its subsidiaries are generally taxed at the corporate level, and the income tax provision or benefit is based on income or loss sourced to the U.S. federal and state jurisdictions as well as foreign jurisdictions at the tax rates applicable in those jurisdictions.
We had 4,289 customers and approximately $100,500 of AARPC at December 31, 2022. The increase in customers and AARPC was due to expansion of usage by existing customers and adding new customers through organic growth.
At December 31, 2024, we had 4,915 direct customers and approximately $122,706 of AARPC. At December 31, 2023, we had 4,310 direct customers and approximately $118,910 of AARPC. The increase in AARPC was primarily due to expansion of usage by existing customers and adding new customers through organic growth.
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.
ARR is based on monthly recurring revenue (“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.
A valuation allowance is recorded when management determines it is more likely than not that some or all of the deferred tax assets will not be realized.
The effects of future changes in tax laws or rates are not anticipated. ​ A valuation allowance is recorded when management determines it is more likely than not that some or all the deferred tax assets will not be realized. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets.
By forming additional strategic alliances with participants in the global digital transformation, such as payments and eCommerce platforms, we can continue to expand our exposure to all transactions, both business-to-consumer and business-to-business. Future partnerships with large-scale digital payments companies will allow us to develop additional customer-centric solutions and further expand our customer base. Continued innovation of our software.
By forming additional strategic alliances with participants in the global digital transformation, such as payments and eCommerce platforms, we can continue to expand our exposure to all transactions, business-to-consumer, business-to-business, and business-to-government. 31 Table of Contents Continued innovation of our software.
The following schedules reconcile Adjusted EBITDA and Adjusted EBITDA margin to net loss, the most closely directly comparable GAAP financial measure. 43 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ December 31, ​ (Dollars in thousands) 2023 2022 Adjusted EBITDA: ​ ​ ​ ​ ​ ​ Net loss $ (13,093) ​ $ (12,304) ​ Interest expense, net (1) 4,164 ​ 2,048 ​ Income tax expense (benefit) (8,581) ​ 2,174 ​ Depreciation and amortization – property and equipment 15,202 ​ 12,440 ​ Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues 54,048 ​ 44,934 ​ Amortization of acquired intangible assets – selling and marketing expense ​ 2,641 ​ ​ 3,779 ​ Amortization of cloud computing implementation costs – general and administrative ​ 2,570 ​ ​ — ​ Stock-based compensation expense 33,919 ​ 19,729 ​ Severance expense ​ 3,576 ​ 877 ​ Acquisition contingent consideration ​ 1,549 ​ ​ 2,300 ​ Litigation settlements ​ — ​ ​ 2,000 ​ Transaction costs (2) 4,853 ​ 696 ​ Adjusted EBITDA $ 100,848 ​ $ 78,673 ​ ​ ​ ​ ​ ​ ​ ​ Adjusted EBITDA Margin: ​ ​ Total revenues $ 572,387 ​ $ 491,624 ​ Adjusted EBITDA margin 17.6 % 16.0 % (1) The year ended December 31, 2023 includes $4,020 for the change in the settlement value of a deferred purchase commitment liability recorded as interest expense. ​ (2) The year ended December 31, 2023 includes costs associated with a public tender offer, which was withdrawn by the Company on January 14, 2024.
The following schedules reconcile Adjusted EBITDA and Adjusted EBITDA margin to net loss, the most closely directly comparable GAAP financial measure. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ December 31, ​ (Dollars in thousands) 2024 2023 Adjusted EBITDA: ​ ​ ​ ​ ​ ​ ​ Net loss ​ $ (52,729) ​ $ (13,093) ​ Interest expense (income), net (1) ​ (4,137) ​ 4,164 ​ Income tax expense (benefit) ​ 54,638 ​ (8,581) ​ Depreciation and amortization – property and equipment ​ 20,953 ​ 15,202 ​ Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues ​ 59,302 ​ 54,048 ​ Amortization of acquired intangible assets – selling and marketing expense ​ ​ 2,478 ​ ​ 2,641 ​ Amortization of cloud computing implementation costs – general and administrative ​ ​ 4,007 ​ ​ 2,570 ​ Stock-based compensation expense ​ 47,425 ​ 33,919 ​ Severance expense ​ ​ 3,048 ​ 3,576 ​ Acquisition contingent consideration ​ ​ (2,575) ​ ​ 1,549 ​ Change in fair value of acquisition contingent earn-outs ​ ​ 17,500 ​ ​ — ​ Transaction costs (2) ​ 2,032 ​ 4,853 ​ Adjusted EBITDA ​ $ 151,942 ​ $ 100,848 ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted EBITDA Margin: ​ ​ ​ Total revenues ​ $ 666,776 ​ $ 572,387 ​ Adjusted EBITDA margin ​ 22.8 % 17.6 % (1) The years ended December 31, 2024 and 2023 include $423 and $4,020, respectively, for the change in the settlement value of a deferred purchase commitment liability recorded as interest expense. ​ (2) The year ended December 31, 2023 includes costs associated with a public tender offer, which was withdrawn by the Company in January 2024. ​ ​ ​ 47 Table of Contents The increase in Adjusted EBITDA of $51.1 million in 2024, as compared to 2023, was primarily driven by an increase of $85.2 million in non-GAAP gross profit, which was partially offset by a $25.7 million increase in non-GAAP selling and marketing expense, a $4.2 million increase in non-GAAP research and development expense, and a $3.3 million increase in non-GAAP general and administrative expense.
Variations in the actual outcome of these future tax consequences could materially impact the consolidated financial statements. ​ Recent Accounting Pronouncements A discussion of recent accounting pronouncements is included in Note 1 to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K. ​ ​ 49 Table of Contents Item 7A.
Recent Accounting Pronouncements A discussion of recent accounting pronouncements is included in Note 1,“Summary of Significant Accounting Policies” to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K. ​ ​ Item 7A.
After excluding stock-based compensation expense, as a percentage of total revenues, selling and marketing expenses decreased to 23.0% in 2023 compared to 24.2% in 2022. ​ General and Administrative ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2023 ​ 2022 ​ Year-Over-Year Change General and administrative $ 145,936 ​ $ 121,651 ​ $ 24,285 20.0 % ​ General and administrative expenses increased $24.3 million, or 20.0%, to $145.9 million in 2023 compared to $121.7 million in 2022, primarily driven by an increase of $15.0 million associated with planned strategic investments in information technology infrastructure, business process re-engineering, and other initiatives to drive future operating leverage.
General and Administrative ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2024 ​ 2023 ​ Year-Over-Year Change General and administrative $ 152,835 ​ $ 145,936 ​ $ 6,899 4.7 % ​ General and administrative expenses increased $6.9 million, or 4.7%, to $152.8 million in 2024 compared to $145.9 million in 2023, primarily driven by an increase of $2.8 million associated with planned strategic investments in information technology infrastructure, business process re-engineering, and other initiatives to drive future operating leverage.
However, we may pursue acquisitions, development arrangements with partners or similar activities to accelerate these investments. We believe continuing to enhance our existing software and expanding our tax content will increase our ability to generate revenues by broadening the appeal of our software to new customers as well as increasing our engagement with existing customers.
We believe continuing to enhance our existing software and expanding our tax content and increasing jurisdictional coverage with our e-invoicing solutions will increase our ability to generate revenues by broadening the appeal of our software to new customers as well as increasing our engagement with existing customers.
Software subscriptions include the related software, consisting of both on-premise and cloud-based software, tax content updates, and product support. The updates and support, which are part of the subscription agreement, are essential to the continued utility of the software. Therefore, we have determined that the software, updates, and support should be combined into a single performance obligation.
The updates and support, which are part of the subscription agreement, are essential to the continued utility of the software. Therefore, we have determined that the software, updates, and support should be combined into a single performance obligation. Income Taxes We estimate our income taxes based on the various jurisdictions where we conduct business.
In addition, interest expense will include adjustments to the fair value of contracts that may be entered into to hedge risks associated with currency fluctuations for cash receipts or cash payments denominated in currencies other than U.S. dollars and which do not qualify for hedge accounting.
In addition, interest expense will include adjustments to the fair value of contracts that may be entered into to hedge risks associated with currency fluctuations for cash receipts or cash payments denominated in currencies other than U.S. dollars and which do not qualify for hedge accounting, as well as changes in the settlement value of the future payment obligation for the Systax acquisition, which was fully settled on June 5, 2024. 36 Table of Contents Interest income reflects earnings on investments of our cash on hand and our investment securities.
The decrease in tax expense was primarily driven by changes in tax benefits on exercises and vestings of stock awards, tax credits, valuation allowances on net deferred tax assets established for certain foreign jurisdictions, loss before income taxes, and limitations on deductions of certain employees’ compensation under Internal Revenue Code Section 162(m).
This change was primarily driven by changes in valuation allowances on net deferred tax assets established for U.S. and certain foreign jurisdictions, nondeductible purchase commitment and contingent consideration liabilities, and pre-tax income, partially offset by the favorable impact of tax benefits on exercises and vesting of stock awards, net of limitations on deductions of certain employees’ compensation under Internal Revenue Code (“IRC”) Section 162(m).
We assess our income tax positions and record tax benefits or expense based upon our evaluation of the facts, circumstances, and information available at the reporting date.
We record interest related to underpayment of income taxes as interest expense and penalties as other operating expenses in the consolidated statements of comprehensive loss. ​ We assess our income tax positions and record tax benefits or expense based upon our evaluation of the facts, circumstances, and information available at the reporting date.
See Note 3 to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K. ​ Key Business Metrics ​ We regularly review the metrics identified below to evaluate growth trends, measure our performance, formulate financial projections and make strategic decisions. Annual Recurring Revenue (“ARR”) and Average Annual Revenue Per Customer (“AARPC”).
Key Business Metrics ​ We regularly review the metrics identified below to evaluate growth trends, measure our performance, formulate financial projections and make strategic decisions. Annual Recurring Revenue (“ARR”) and Average Annual Revenue Per Customer (“AARPC”). We derive the vast majority of our revenue from recurring software subscriptions.
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.
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.

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