# Vertex, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Vertex, Inc.](/companies/verx.md) (CIK 1806837)
- Form: 10-Q
- Filed: 2023-08-09
- Accepted by EDGAR: Aug 9, 2023, 17:24 ET
- Period: 2023-06-30
- Accession: 0001558370-23-014333
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1806837/000155837023014333/verx-20230630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1806837/000155837023014333/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $139.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $272.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $53.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $105.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $85.8m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $166.8m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $12.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $28.5m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | −$4.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | −$13.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $2.9m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $12.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$6.9m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$25.0m | us-gaap:NetIncomeLoss |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$898.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $21.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-06-30 | $41.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $234.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $725.1m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $430.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $499.4m | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $45.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-06-30 | $2.5m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-06-30 | $225.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 89,957 characters.

*You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 10, 2023 (the “2022 Annual Report”). In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the section titled “Special Note Regarding Forward-Looking Statements” above, and in Part I, Item 1A of the 2022 Annual Report and as may be subsequently updated by our other SEC filings.*

### Overview

Vertex is a leading global provider of indirect tax software and solutions. Our mission is to deliver the most trusted tax technology enabling global businesses to transact, comply and grow with confidence. Vertex provides cloud-based and on-premise solutions that can be tailored to specific industries for every major line of indirect tax, including sales and consumer use, value added and payroll. Headquartered in North America, and with offices in South America and Europe, Vertex employs over 1,400 professionals and serves companies across the globe.

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 bill the majority of our customers annually in advance of the subscription period.

Our customers include a majority of the Fortune 500, as well as a majority of the top 10 companies by revenue in multiple industries such as retail, technology and manufacturing, in addition to leading marketplaces. As our customers expand geographically and pursue omnichannel business models, their tax determination and compliance requirements increase and become more complex, providing sustainable organic growth opportunities for our business. Our flexible, tiered transaction-based pricing model also results in our customers growing their spend with us as they grow and continue to use our solutions. We principally price our solutions based on a customer’s revenue base, in addition to a number of other factors.

We employ a hybrid deployment model to align to our customers’ technology preferences for their core financial management software across on-premise, cloud deployments or any combination of these models. Over time, we expect both existing and newly acquired customers to continue to shift towards cloud deployment models. Cloud-based subscription sales to new customers have grown at a faster rate than on-premise software subscription sales, which is a trend that we expect to continue over time. We generated 43% and 40% of software subscription revenue from cloud-based subscriptions during the three months ended June 30, 2023 and 2022, respectively, and 43% and 40% for the six months ended June 30, 2023 and 2022, respectively. While our on-premise software subscription revenue comprised 57% and 60% of our software subscription revenue during the three months ended June 30, 2023 and 2022, respectively, and 57% and 60% for the six months ended June 30, 2023 and 2022, respectively, it continues to decrease as a percentage of total software subscriptions revenues as cloud-based subscriptions grow.

We license our solutions primarily through our direct sales force, which focuses on selling to qualified leads provided by our marketing efforts, and through our network of referral partners. We also utilize indirect sales to a lesser extent to efficiently grow and scale our enterprise and mid-market revenues.

Our partner ecosystem is a differentiating, competitive strength in both our software development and our sales and marketing activities. We integrate with key technology partners that span Enterprise Resource Planning (“ERP”), Customer Relationship Management (“CRM”), procurement, billing, Point of Sale (“POS”) and e-commerce. These partners include Adobe/Magento, Coupa, Microsoft Dynamics, NetSuite, Oracle, Salesforce, SAP, SAP Ariba, Workday and Zuora. We also collaborate with numerous accounting firms who have built implementation practices around our software to serve their customer base.

We believe that global commerce and the compliance environment provides durable and accelerating growth opportunities for our business. We generated revenue of $139.7 million and $119.3 million for the three months ended June 30, 2023 and 2022, respectively and $272.4 and $234.3 for the six months ended June 30, 2023 and 2022, respectively. We had a net loss of $(6.9) million and $(5.5) million for the three months ended June 30, 2023 and 2022, respectively, and $(25.0) million and $(5.9) million for the six months ended June 30, 2023 and 2022, respectively. These amounts are presented in accordance with United States (“ U.S.”) generally accepted accounting principles (“GAAP”).

We define Adjusted EBITDA as net loss or income before interest, taxes, depreciation, and amortization, as adjusted to exclude charges for asset impairments, stock-based compensation expense, amortization of cloud computing implementaion costs, severance expense, acquisition contingent consideration, litigation settlements, and transaction costs (which includes offering costs related to the sale of shares of certain of our Class B shareholders which are not representative of normal business operations). Adjusted EBITDA was $22.0 million and $17.8 million for the three months ended June 30, 2023 and 2022, respectively, and $42.2 million and $36.9 for the six months ended June 30, 2023 and 2022, respectively. Adjusted EBITDA is a non-GAAP financial measure. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—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 believe that we currently have ample liquidity and capital resources to continue to meet our operating needs, and our ability to continue to service our debt or other financial obligations is not currently impaired. For a further description of our liquidity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

### Components of Our Results of Operations

### Revenue

We generate revenue from software subscriptions and services.

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration expected to be received in exchange for those products or services. We enter into contracts that include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. 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. Customers purchase a subscription to these licenses, which includes the related software and 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 the software and the related updates and support to be a single performance obligation. Accordingly, when on-premise software is licensed, the revenue associated with this combined performance obligation is recognized ratably over the license term as these subscriptions are provided for the duration of the license term. Revenue recognition begins on the later of the beginning of the subscription period or the date the software is made available to the customer to download. Prior to January 1, 2022, certain on-premise software subscription prices in the initial subscription year were higher than standard renewal prices. The excess initial year price over the renewal price is a material right that provides customers with the right to this reduced renewal price. We recognize revenue associated with this material right over the estimated period of benefit to the customer, which is generally three years. Effective January 1, 2022, we changed the pricing structure for on-premise software so the initial year price and renewal prices were consistent, thus removing the material right for transactions after this date. The material right for applicable transactions prior to this pricing change will continue to be recognized over the remaining estimated period of benefit to the customer.

Our cloud-based subscriptions allow customers to use Vertex-hosted software over the contract period without taking possession of the software. The contracts are generally for one to three years and are generally billed annually in advance of the subscription period. Our cloud-based offerings also include related updates and support. 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.

Revenue is impacted by the timing of sales and our customers’ growth or contractions resulting in their need to expand or contract their subscription usage, the purchase of new solutions or the non-renewal of existing solutions. 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. Legacy cloud-based subscription contracts for multi-year periods previously provided customers the right to terminate their contract for services prior to the end of the subscription period at a significant penalty. This penalty requires the payment of a percentage of the remaining months of the then current contract term. Current cloud-based contracts do not contain such termination rights. Terminations of cloud-based subscriptions prior to the end of the subscription term have occurred infrequently and the impact has been immaterial. The allowance for subscription and non-renewal cancellations reflects an estimate of the amount of such cancellations and non-renewals based on past experience, current information and forward-looking economic considerations.

### Services Revenue

We generate services revenue primarily in support of our customers’ needs associated with our software and to enable them to realize the full benefit of our solutions. These software subscription-related services include configuration, data migration and implementation, and premium support and training. In addition, we generate services revenue through our managed services offering which allows customers to outsource all or a portion of their indirect tax operations to us. These services include indirect tax return preparation, filing and tax payment and notice management. We generally bill for services on a per-transaction or time and materials basis, and we recognize revenue from deliverable-based professional services as services are performed.

Fluctuations in services revenue are directly correlated to fluctuations in our subscription revenues with respect to implementation and training services as we have historically experienced an attachment rate to subscription sales for these services of approximately 60%. In addition, our managed services offering has continued to experience increased revenues associated with returns processing volume increases attributable to regulatory changes, as customers expanded their tax filings into more jurisdictions.

### Cost of Revenue

### Software Subscriptions

Cost of software subscriptions revenue consists of costs related to providing and supporting our software subscriptions and includes personnel and related expenses, including salaries, benefits, bonuses and stock-based compensation. In addition, cost of revenue includes direct costs associated with information technology, such as data center and software hosting costs, and tax content maintenance. 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. 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.

### Services

Cost of services revenue consists of direct costs of software subscription-related services and our managed services offering. These costs include personnel and related expenses, including salaries, benefits, bonuses, stock-based compensation and the cost of third-party contractors and other direct expenses. We plan to continue to expand our infrastructure and personnel as necessary to support our future growth and related increases in our service revenue. We expect growth in our business will result in an increase in the cost of services revenue in absolute dollars.

### Research and Development

Research and development expenses consist primarily of personnel and related expenses for our research and development activities, including salaries, benefits, bonuses and stock-based compensation, and the cost of third-party developers and other contractors. Research and development costs, other than software development expenses qualifying for capitalization, are expensed as incurred.

We devote substantial resources to developing new products and enhancing existing products, conducting quality assurance testing, improving our core technology, and integrating acquired technology with our products. We believe continued investments in research and development are critical to attain our strategic objectives and expect research and development costs to increase in absolute dollars. These investments include enhancing our solution offerings to address changing customer needs to support their growth, as well as implementing changes required to keep pace with our partners’ technology to ensure the continued ability of our solutions to work together and deliver value to our customers. The market for our solutions is characterized by rapid technological change, frequent new product and service introductions and enhancements, changing customer demands and evolving industry standards. As a result, although we are making significant research and development expenditures, which may be incurred and certain of which may be capitalized, there is no guarantee these solutions will be accepted by the market. This could result in increased costs or an impairment of capitalized development costs with no resulting future revenue benefit.

### 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. We intend to continue to invest in our sales and marketing capabilities in the future to continue to increase our brand awareness and expect these costs to increase on an absolute dollar basis as we grow our business and continue to expand our market and partner ecosystem penetration. Sales and marketing expense in absolute dollars and as a percentage of total revenue may fluctuate from period-to-period based on total revenue levels and the timing of our investments in our sales and marketing functions, as these investments will occur in advance of experiencing the benefits from such investments and may vary in scope and scale over future periods.

### 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

We expect our general and administrative expenses to increase in absolute dollars as we continue to expand our operations, hire additional personnel, integrate current and future acquisitions, invest in our systems and tools to support improvements in future operating leverage, and incur additional costs associated with being a publicly listed company. As a public company, we expect to incur increased expenses related to accounting, tax and auditing activities, legal, insurance, SEC compliance and internal control compliance, including the design, implementation and testing of increasingly formalized systems of internal control over financial reporting.

### Depreciation and Amortization

Depreciation and amortization expense consists of the allocation of purchased and developed asset costs over the future periods benefitted by the use of these assets. These assets include leasehold improvements for our facilities, computers and equipment needed to support our customers and our internal infrastructure and capitalized internal-use software associated with our internal tools. Depreciation and amortization will fluctuate in correlation with our ongoing investment in internal infrastructure costs to support our growth.

### Other Operating Expense (Income), net

Other operating expense (income), net consists primarily of transactions costs associated with merger and acquisition activities, periodic remeasurement of contingent consideration associated with completed acquisitions, realized gains and losses on foreign currency changes and other operating gains and losses. 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 our interest expense and interest income within the same period.

Interest expense consists primarily of interest incurred related to borrowings, bank credit facility and leases. Interest expense includes amortization of deferred financing fees over the term of the credit facility or write-downs of such costs upon redemption of debt. Interest expense will vary as a result of fluctuations in the level of debt outstanding as well as interest rates on such debt. 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, changes in the settlement value of the future payment obligation for the Systax Sistemas Fiscais Limited (“Systax”) acquisition and amortization of the discount on deferred purchase consideration associated with the LCR-Dixon Corporation acquisition will be recorded as interest expense.

Interest income reflects earnings on investments of our cash on hand and our investment securities. Interest income will vary as a result of fluctuations in the future level of funds available for investment and the rate of return available in the market on such funds.

### Income Tax Expense (Benefit)

Income tax expense (benefit) consists primarily of federal, foreign, state, and local taxes on our loss or income. 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. Judgments and estimates related to our projections and assumptions are inherently uncertain; therefore, actual results could materially differ from our projections.

### Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and our consolidated financial statements and the notes thereto included in our 2022 Annual Report. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods. The following table sets forth our condensed consolidated statements of comprehensive loss for the periods indicated.

*(Dollars in thousands)*

*(unaudited)*

*(unaudited)*

| ​ ​ ​ ​ Revenues: | ​ ​ ​ ​ | ​ ​ For the three months ended June 30, 2023 ​ ​ | ​ ​ | ​ ​ 2022 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Period-Over-Period Change ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ For the six months ended June 30, 2023 ​ ​ | ​ ​ | ​ ​ 2022 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Period-Over-Period Change ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: | --- | --- | --- | --- | --- | --- | --- | ---: |
| Software subscriptions | ​ | $117,836 |  | $101,088 | ​ | $16,748 |  | 16.6% |  | $228,850 |  | $198,219 | ​ | $30,631 |  | 15.5% |
| Services | ​ | ​ 21,859 | ​ | ​ 18,188 | ​ | ​ 3,671 | ​ | 20.2% | ​ | ​ 43,596 | ​ | ​ 36,041 | ​ | ​ 7,555 | ​ | 21.0% |
| Total revenues | ​ | ​ 139,695 | ​ | ​ 119,276 | ​ | ​ 20,419 | ​ | 17.1% | ​ | ​ 272,446 | ​ | ​ 234,260 | ​ | ​ 38,186 | ​ | 16.3% |
| Cost of revenues: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Software subscriptions | ​ | ​ 38,516 | ​ | ​ 36,209 | ​ | ​ 2,307 | ​ | 6.4% | ​ | ​ 75,919 | ​ | ​ 69,122 | ​ | ​ 6,797 | ​ | 9.8% |
| Services | ​ | ​ 15,363 | ​ | ​ 11,920 | ​ | ​ 3,443 | ​ | 28.9% | ​ | ​ 29,707 | ​ | ​ 23,873 | ​ | ​ 5,834 | ​ | 24.4% |
| Total cost of revenues | ​ | ​ 53,879 | ​ | ​ 48,129 | ​ | ​ 5,750 | ​ | 11.9% | ​ | ​ 105,626 | ​ | ​ 92,995 | ​ | ​ 12,631 | ​ | 13.6% |
| Gross profit | ​ | ​ 85,816 | ​ | ​ 71,147 | ​ | ​ 14,669 | ​ | 20.6% | ​ | ​ 166,820 | ​ | ​ 141,265 | ​ | ​ 25,555 | ​ | 18.1% |
| Operating expenses: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Research and development | ​ | ​ 12,680 | ​ | ​ 10,310 | ​ | ​ 2,370 | ​ | 23.0% | ​ | ​ 28,542 | ​ | ​ 19,943 | ​ | ​ 8,599 | ​ | 43.1% |
| Selling and marketing | ​ | ​ 33,541 | ​ | ​ 31,979 | ​ | ​ 1,562 | ​ | 4.9% | ​ | ​ 69,277 | ​ | ​ 59,431 | ​ | ​ 9,846 | ​ | 16.6% |
| General and administrative | ​ | ​ 39,376 | ​ | ​ 30,084 | ​ | ​ 9,292 | ​ | 30.9% | ​ | ​ 73,686 | ​ | ​ 58,841 | ​ | ​ 14,845 | ​ | 25.2% |
| Depreciation and amortization | ​ | ​ 3,878 | ​ | ​ 3,224 | ​ | ​ 654 | ​ | 20.3% | ​ | ​ 7,619 | ​ | ​ 6,184 | ​ | ​ 1,435 | ​ | 23.2% |
| Other operating expense (income), net | ​ | ​ 413 | ​ | ​ (154) | ​ | ​ 567 | ​ | \*% | ​ | ​ 697 | ​ | ​ 694 | ​ | ​ 3 | ​ | \*% |
| Total operating expenses | ​ | ​ 89,888 | ​ | ​ 75,443 | ​ | ​ 14,445 | ​ | 19.1% | ​ | ​ 179,821 | ​ | ​ 145,093 | ​ | ​ 34,728 | ​ | 23.9% |
| Loss from operations | ​ | ​ (4,072) | ​ | ​ (4,296) | ​ | ​ 224 | ​ | (5.2)% | ​ | ​ (13,001) | ​ | ​ (3,828) | ​ | ​ (9,173) | ​ | 239.6% |
| Other (income) expense: | ​ | ​ ​ | ​ | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ | ​ | ​ | ​ | ​ ​ | ​ | ​ |
| Interest (income) expense, net | ​ | ​ (105) | ​ | ​ 724 | ​ | ​ (829) | ​ | \*% | ​ | ​ (455) | ​ | ​ 718 | ​ | ​ (1,173) | ​ | \*% |
| Loss before income taxes | ​ | ​ (3,967) | ​ | ​ (5,020) | ​ | ​ 1,053 | ​ | (21.0)% | ​ | ​ (12,546) | ​ | ​ (4,546) | ​ | ​ (8,000) | ​ | 176.0% |
| Income tax expense | ​ | ​ 2,929 | ​ | ​ 500 | ​ | ​ 2,429 | ​ | \*% | ​ | ​ 12,482 | ​ | ​ 1,308 | ​ | ​ 11,174 | ​ | \*% |
| Net loss | ​ | ​ (6,896) | ​ | ​ (5,520) | ​ | ​ (1,376) | ​ | 24.9% | ​ | ​ (25,028) | ​ | ​ (5,854) | ​ | ​ (19,174) | ​ | 327.5% |
| Other comprehensive (income) loss: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Foreign currency translation adjustments and revaluations, net of tax | ​ | ​ (609) | ​ | ​ 11,777 | ​ | ​ (12,386) | ​ | \*% | ​ | ​ (3,731) | ​ | ​ 13,826 | ​ | ​ (17,557) | ​ | \*% |
| Unrealized (gain) loss on investments, net of tax | ​ | ​ 3 | ​ | ​ (2) | ​ | ​ 5 | ​ | \*% | ​ | ​ (10) | ​ | ​ (2) | ​ | ​ (8) | ​ | \*% |
| Total other comprehensive (income) loss, net of tax | ​ | ​ (606) | ​ | ​ 11,775 | ​ | ​ (12,381) | ​ | \*% | ​ | ​ (3,741) | ​ | ​ 13,824 | ​ | ​ (17,565) | ​ | \*% |
| Total comprehensive loss | ​ | $(6,290) | ​ | $(17,295) | ​ | $11,005 | ​ | (63.6)% | ​ | $(21,287) | ​ | $(19,678) | ​ | $(1,609) | ​ | 8.2% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| \*: Percentage change not meaningful. | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |

*(Dollars in thousands)*

*(unaudited)*

*(unaudited)*

| ​ ​ ​ ​ Stock-based compensation expense: | ​ ​ For the three months ended June 30, 2023 ​ ​ | ​ ​ | ​ ​ 2022 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ For the six months ended June 30, 2023 ​ ​ | ​ ​ | ​ ​ 2022 ​ ​ |
| --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Cost of revenues, software subscriptions | $419 | ​ | $479 | ​ | $1,415 | ​ | $925 |
| Cost of revenues, services | 166 | ​ | 275 | ​ | 1,002 | ​ | 681 |
| Research and development | 775 | ​ | 498 | ​ | 3,009 | ​ | 612 |
| Selling and marketing | 1,082 | ​ | 1,401 | ​ | 3,980 | ​ | 2,973 |
| General and administrative | 4,581 | ​ | 1,541 | ​ | 9,051 | ​ | 3,936 |
| Total stock-based compensation expense | $7,022 | ​ | $4,194 | ​ | $18,456 | ​ | $9,127 |

The following table sets forth our results of operations as a percentage of our total revenues for the periods presented.

*(unaudited)*

*(unaudited)*

| ​ ​ ​ ​ Revenues: | ​ ​ ​ | ​ ​ For the three months ended June 30, 2023 | ​ ​ ​ 2022 ​ | ​ ​ ​ ​ ​ | ​ ​ For the six months ended June 30, 2023 | ​ ​ ​ 2022 ​ ​ ​ |
| --- | --- | ---: | ---: | --- | ---: | ---: |
| Software subscriptions |  | 84.4% | 84.8% | ​ | 84.0% | 84.6% |
| Services |  | 15.6% | 15.2% | ​ | 16.0% | 15.4% |
| Total revenues |  | 100.0% | 100.0% | ​ | 100.0% | 100.0% |
| Cost of revenues: |  |  | ​ | ​ |  | ​ |
| Software subscriptions |  | 27.6% | 30.4% | ​ | 27.9% | 29.5% |
| Services |  | 11.0% | 10.0% | ​ | 10.9% | 10.2% |
| Total cost of revenues |  | 38.6% | 40.4% | ​ | 38.8% | 39.7% |
| Gross profit |  | 61.4% | 59.6% | ​ | 61.2% | 60.3% |
| Operating expenses: |  |  | ​ | ​ |  | ​ |
| Research and development |  | 9.1% | 8.6% | ​ | 10.5% | 8.5% |
| Selling and marketing |  | 24.0% | 26.8% | ​ | 25.4% | 25.4% |
| General and administrative |  | 28.2% | 25.2% | ​ | 27.0% | 25.1% |
| Depreciation and amortization |  | 2.8% | 2.7% | ​ | 2.8% | 2.6% |
| Other operating expense (income), net |  | 0.3% | (0.1)% | ​ | 0.3% | 0.3% |
| Total operating expenses |  | 64.4% | 63.2% | ​ | 66.0% | 61.9% |
| Loss from operations |  | (3.0)% | (3.6)% | ​ | (4.8)% | (1.6)% |
| Interest (income) expense, net |  | (0.1)% | 0.6% | ​ | (0.2)% | 0.3% |
| Loss before income taxes |  | (2.9)% | (4.2)% | ​ | (4.6)% | (1.9)% |
| Income tax expense |  | 2.1% | 0.4% | ​ | 4.6% | 0.6% |
| Net loss |  | (5.0)% | (4.6)% | ​ | (9.2)% | (2.5)% |
| Other comprehensive (income) loss: | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ ​ |
| Foreign currency translation adjustments and revaluations, net of tax | ​ | (0.4)% | 9.9% | ​ | (1.4) ​ | 5.9% |
| Unrealized (gain) loss on investments, net of tax | ​ | —% | —% | ​ | — ​ | —% |
| Total other comprehensive (income) loss, net of tax |  | (0.4)% | 9.9% | ​ | (1.4)% | 5.9% |
| Total comprehensive loss |  | (4.6)% | (14.5)% | ​ | (7.8)% | (8.4)% |

### Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

### Revenues

*(Dollars in thousands)*

| ​ ​ ​ Revenues: | ​ ​ ​ | ​ ​ For the three months ended June 30, 2023 ​ | ​ | ​ ​ 2022 ​ | ​ ​ ​ | ​ ​ ​ ​ ​ ​ Period-over-Period change ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Software subscriptions | ​ | $117,836 | ​ | $101,088 | ​ | $16,748 | 16.6% |
| Services | ​ | 21,859 | ​ | 18,188 | ​ | 3,671 | 20.2% |
| Total revenues | ​ | $139,695 | ​ | $119,276 | ​ | $20,419 | 17.1% |

Revenues increased $20.4 million, or 17.1%, to $139.7 million for the three months ended June 30, 2023 compared to $119.3 million for the three months ended June 30, 2022. The increase in software subscriptions revenues of $16.7 million, or 16.6%, was primarily driven by increases from our existing customers in cross selling new products to existing customers, and to a lesser extent, increases due to expanded use and price increases. Software subscriptions revenues derived from new customers averaged 6.3% and 8.9% of total software subscriptions revenues in the three months ended June 30, 2023 and 2022, respectively.

The $3.7 million increase in services revenues was primarily driven by an increase of $2.1 million in software subscription-related services associated with the growth in subscription revenues, which includes new customers implementing our solutions and existing customers upgrading to newer versions of our solutions. In addition, our managed services offering experienced a $1.6 million increase in recurring services revenues over the prior year due to returns processing volume increases related to customer business growth and regulatory changes as customers expanded their tax filings into more jurisdictions.

### Cost of Software Subscriptions Revenues

*(Dollars in thousands)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ For the three months ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ | ​ ​ ​ ​ ​ ​ Period-over-Period change | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Cost of software subscriptions revenues | ​ | $38,516 | ​ | $36,209 | ​ | $2,307 | 6.4% |

Cost of software subscriptions revenues increased $2.3 million, or 6.4%, to $38.5 million for the three months ended June 30, 2023 compared to $36.2 million for the three months ended June 30, 2022. This was driven by a $2.0 million increase in costs of personnel supporting period-over-period growth of sales and customers and ongoing infrastructure investments and support costs to enable the continued expansion of customer transaction volumes for our cloud-based subscription customers. In addition, this included an increase in depreciation and amortization of capitalized software and acquired intangible assets of $0.3 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. As a percentage of software subscriptions revenues, the cost of software subscriptions revenues decreased to 32.7% in the three months ended June 30, 2023 compared to 35.8% for the same period in 2022.

### Cost of Services Revenues

*(Dollars in thousands)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ For the three months ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ | ​ ​ ​ ​ ​ ​ Period-over-Period change | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Cost of services revenues | ​ | $15,363 | ​ | $11,920 | ​ | $3,443 | 28.9% |

Cost of services revenues increased $3.4 million, or 28.9%, to $15.4 million for the three months ended June 30, 2023 compared to $11.9 million for the three months ended June 30, 2022. The increase in cost of services revenues was primarily due to an increase in costs of service delivery personnel to support revenue growth in software subscription-related services and our managed services offering. As a percentage of services revenues, cost of services revenues increased to 70.3% in the three months ended June 30, 2023 compared to 65.5% for the same period in 2022.

### Research and Development

*(Dollars in thousands)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ For the three months ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ | ​ ​ ​ ​ ​ ​ Period-over-Period change | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Research and development | ​ | $12,680 | ​ | $10,310 | ​ | $2,370 | 23.0% |

Research and development expenses increased $2.4 million, or 23.0%, to $12.7 million for the three months ended June 30, 2023 compared to $10.3 million for the three months ended June 30, 2022. The increase in research and development expenses is due primarily to an 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. As a percentage of total revenues, research and development expenses increased to 9.1% in the three months ended June 30, 2023 compared to 8.6% for the same period in 2022. Research and development expense excludes those costs that have been capitalized for solutions that have met our capitalization policy.

### Selling and Marketing

*(Dollars in thousands)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ For the three months ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ | ​ ​ ​ ​ ​ ​ Period-over-Period change | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Selling and marketing | ​ | $33,541 | ​ | $31,979 | ​ | $1,562 | 4.9% |

Selling and marketing expenses increased $1.6 million, or 4.9%, to $33.5 million for the three months ended June 30, 2023 compared to $32.0 million for the same period in 2022. This increase was primarily driven by a $2.9 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. This was partly offset by a decrease of $1.3 million in amortization of acquired intangible assets associated with prior acquisitions. As a percentage of total revenues, selling and marketing expenses decreased to 24.0% in the three months ended June 30, 2023 compared to 26.8% for the same period in 2022.

### General and Administrative

*(Dollars in thousands)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ For the three months ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ | ​ ​ ​ ​ ​ ​ Period-over-Period change | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| General and administrative | ​ | $39,376 | ​ | $30,084 | ​ | $9,292 | 30.9% |

General and administrative expenses increased $9.3 million, or 30.9%, to $39.4 million for the three months ended June 30, 2023 compared to $30.1 million for the same period in 2022. General and administrative expenses increased $6.4 million due to planned strategic investments in information technology infrastructure, business process re-engineering and other initiatives to drive future operating leverage, as well as investments in employees, systems and resources in support of our growth and public company reporting and compliance activities. Additionally, there was an increase in stock-based compensation of $3.0 million for the three months ended June 30, 2023 over the same period in 2022. As a percentage of total revenues, general and administrative expenses increased to 28.2% in the three months ended June 30, 2023 compared to 25.2% for the same period in 2022. After excluding stock-based compensation expense, as a percentage of total revenues general and administrative expenses increased to 24.9% in the three months ended June 30, 2023 compared to 23.9% for the same period in 2022.

### Depreciation and Amortization

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ For the three months ended June 30, 2023 | ​ ​ ​ 2022 | ​ ​ ​ ​ ​ ​ ​ ​ ​ Period-over-Period change | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| Depreciation and amortization | $3,878 | $3,224 | $654 | 20.3% |

Depreciation and amortization increased $0.7 million, or 20.3%, to $3.9 million for the three months ended June 30, 2023 compared to $3.2 million for the same period in 2022. The increase was primarily due to the impact of infrastructure and technology purchases and other capitalized costs to support our growth. As a percentage of revenues, depreciation expense increased to 2.8% in the three months ended June 30, 2023 compared to 2.7% in the same period in 2022.

### Other Operating Expense (Income), Net

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ For the three months ended June 30, 2023 | ​ ​ ​ 2022 | ​ ​ ​ ​ ​ ​ ​ ​ ​ Period-over-Period change | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| Other operating expense (income), net | $413 | $(154) | $567 | (368.2)% |

Other operating expense (income), net increased to expense of $0.4 million, net for the three months ended June 30, 2023 compared to $(0.2) million of income, net for the same period in 2022. Other operating expense, net for the three months ended June 30, 2023 included a $0.2 million increase in the contingent consideration liability for the Tellutax, Inc. acquisition (“Tellutax”) as well as $0.2 million in foreign currency translation losses incurred. Other operating income, net for the three months ended June 30, 2022 included $0.2 million in foreign currency translation gains. As a percentage of total revenues, other operating expense (income), net increased to 0.3% in the first three months ended June 30, 2023 compared to (0.1)% in 2022.

### Interest (Income) Expense, Net

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ For the three months ended June 30, 2023 | ​ ​ ​ 2022 | ​ ​ ​ ​ ​ ​ ​ ​ ​ Period-over-Period change | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| Interest (income) expense, net | $(105) | $724 | $(829) | (114.5)% |

Interest (income) expense, net increased to $(0.1) million of interest income, net for the three months ended June 30, 2023, compared to $0.7 million of interest expense, net for the same period in 2022. Interest expense related to bank debt increased $0.5 million during the three months ended June 30, 2023 associated with the amendment to the credit agreement entered into in March 2022 (“Second Amendment to the Credit Agreement”). This expense was offset by a $0.5 million increase in the valuation of our foreign currency forward contracts as a result of market fluctuations, and a $0.7 million increase in interest income due to the increase in interest rates and dollars invested associated with investment securities in 2023.

### Income Tax Expense

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ For the three months ended June 30, 2023 | ​ ​ ​ 2022 | ​ ​ ​ ​ ​ ​ ​ ​ ​ Period-over-Period change | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| Income tax expense | $2,929 | $500 | $2,429 | 485.8% |

Income tax expense increased by $2.4 million, to $2.9 million for the three months ended June 30, 2023 compared to a $0.5 million for the same period in 2022. The increase in tax expense was primarily driven by changes in state income taxes, differences in tax rates on foreign jurisdiction income or loss, and valuation allowances on net deferred tax assets established for certain foreign jurisdictions.

### Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

### Revenues

*(Dollars in thousands)*

| ​ ​ ​ Revenues: | ​ ​ ​ | ​ ​ For the six months ended June 30, 2023 ​ | ​ | ​ ​ 2022 ​ | ​ ​ ​ | ​ ​ ​ ​ ​ ​ Year-Over-Year Change ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Software subscriptions | ​ | $228,850 | ​ | $198,219 | ​ | $30,631 | 15.5% |
| Services | ​ | 43,596 | ​ | 36,041 | ​ | 7,555 | 21.0% |
| Total revenues | ​ | $272,446 | ​ | $234,260 | ​ | $38,186 | 16.3% |

Revenues increased $38.2 million, or 16.3%, to $272.4 million for the six months ended June 30, 2023 compared to $234.3 million for the six months ended June 30, 2022. The increase in software subscriptions revenues of $30.6 million, or 15.5%, was primarily driven by increases from our existing customers in cross selling new products to existing customers, and to a lesser extent, increases due to expanded use and price increases. Software subscriptions revenues derived from new customers averaged 6.5% and 8.2% of total software subscriptions revenues in 2023 and 2022, respectively.

The $7.6 million increase in services revenues was primarily driven by an increase of $4.5 million in software subscription-related services associated with the growth in subscription revenues, which includes new customers implementing our solutions, existing customers upgrading to newer versions of our solutions, and our premium support services. In addition, our managed services offering experienced a $3.1 million increase in recurring services revenues over the prior year due to returns processing volume increases related to customer business growth and regulatory changes resulting in customers expanding their tax filings into more jurisdictions.

### Cost of Software Subscriptions Revenues

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ For the six months ended June 30, 2023 | ​ ​ ​ 2022 | ​ ​ ​ ​ ​ ​ ​ ​ ​ Year-Over-Year Change | ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| Cost of software subscriptions revenues | $75,919 | $69,122 | $6,797 | 9.8% |

Cost of software subscriptions revenues increased $6.8 million, or 9.8%, to $75.9 million for the six months ended June 30, 2023 compared to $69.1 million for the six months ended June 30, 2022. This was driven by a $3.3 million increase in costs of personnel supporting period-over-period growth of sales and customers and ongoing infrastructure investments and support costs to enable the continued expansion of customer transaction volumes for our cloud-based subscription customers. In addition, this included an increase in depreciation and amortization of capitalized software and acquired intangible assets of $3.0 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. Lastly, stock-based compensation increased by $0.5 million for the six months ended June 30, 2023 over the same period in 2022. As a percentage of software subscriptions revenues, the cost of software subscriptions revenues decreased to 33.2% in the six months ended June 30, 2023 compared to 34.9% for the same period in 2022. After excluding stock-based compensation expense, as a percentage of software subscriptions revenue, cost of software subscriptions revenues decreased to 32.6% for the six months ended June 30, 2023 compared to 34.4% for the same period in 2022.

### Cost of Services Revenues

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ For the six months ended June 30, 2023 | ​ ​ ​ 2022 | ​ ​ ​ ​ ​ ​ ​ ​ ​ Year-Over-Year Change | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| Cost of services revenues | $29,707 | $23,873 | $5,834 | 24.4% |

Cost of services revenues increased $5.8 million, or 24.4%, to $29.7 million for the six months ended June 30, 2023 compared to $23.9 million for the six months ended June 30, 2022. The increase in cost of services revenues was primarily due to a $5.5 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 includes an increase in stock-based compensation of $0.3 million for the six months ended June 30, 2023 over the same period in 2022. As a percentage of services revenues, cost of services revenues increased to 68.1% in the six months ended June 30, 2023 compared to 66.2% for the same period in 2022. After excluding stock-based compensation expense, as a percentage of services revenues, cost of services revenues increased to 65.8% in the six months ended June 30, 2023 compared to 64.3% for the same period in 2022.

### Research and Development

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ For the six months ended June 30, 2023 | ​ ​ ​ 2022 | ​ ​ ​ ​ ​ ​ ​ ​ ​ Year-Over-Year Change | ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $28,542 | $19,943 | $8,599 | 43.1% |

Research and development expenses increased $8.6 million, or 43.1%, to $28.5 million for the six months ended June 30, 2023 compared to $19.9 million for the six months ended June 30, 2022. The increase in research and development expenses is due to a $6.2 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 APIs to customer ERP and other software platforms. In addition, this includes an increase in stock-based compensation of $2.4 million for the six months ended June 30, 2023 over the same period in 2022. As a percentage of total revenues, research and development expenses increased to 10.5% in the six months ended June 30, 2023 compared to 8.5% for the same period in 2022. After excluding stock-based compensation expense, as a percentage of total revenues, research and development expenses increased to 9.4% in the six months ended June 30, 2023 compared to 8.3% for the same period in 2022. Research and development expense excludes those costs that have been capitalized for solutions that have met our capitalization policy.

### Selling and Marketing

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ For the six months ended June 30, 2023 | ​ ​ ​ 2022 | ​ ​ ​ ​ ​ ​ ​ ​ ​ Year-Over-Year Change | ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| Selling and marketing | $69,277 | $59,431 | $9,846 | 16.6% |

Selling and marketing expenses increased $9.8 million, or 16.6%, to $69.3 million for the six months ended June 30, 2023 compared to $59.4 million for the same period in 2022. This increase was primarily driven by an $8.7 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. There was also an increase of $0.9 million in advertising and promotional spending and expanded brand awareness efforts. In addition, there was an increase in stock-based compensation of $1.0 million. This was partly offset by a decrease of $0.8 million associated with amortization of acquired intangible assets associated with prior acquisitions for the six months ended June 30, 2023 compared to the same period in 2022. As a percentage of total revenues, selling and marketing expenses remained constant at 25.4% for the six months ended June 30, 2023 compared to the same period in 2022. After excluding stock-based compensation expense, as a percentage of total revenues, selling and marketing expenses decreased to 24.0% in the six months ended June 30, 2023 compared to 24.1% for the same period in 2022.

### General and Administrative

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ For the six months ended June 30, 2023 | ​ ​ ​ 2022 | ​ ​ ​ ​ ​ ​ ​ ​ ​ Year-Over-Year Change | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| General and administrative | $73,686 | $58,841 | $14,845 | 25.2% |

General and administrative expenses increased $14.8 million, or 25.2%, to $73.7 million for the six months ended June 30, 2023 compared to $58.8 million for the same period in 2022. General and administrative expenses increased $9.8 million primarily driven by planned strategic investments in information technology infrastructure, business process re-engineering and other initiatives to drive future operating leverage, as well as investments in employees, systems and resources in support of our growth, and public company reporting and compliance activities. Additionally, there was an increase in stock-based compensation of $5.1 million for the six months ended June 30, 2023 over the same period in 2022. As a percentage of total revenues, general and administrative expenses increased to 27.0% in the six months ended June 30, 2023 compared to 25.1% for the same period in 2022. After excluding stock-based compensation expense, as a percentage of total revenues, general and administrative expenses increased to 23.7% for the six months ended June 30, 2023 compared to 23.4% for the same period in 2022.

### Depreciation and Amortization

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ ​ | ​ ​ For the six months ended June 30, 2023 | ​ ​ ​ 2022 | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year-Over-Year Change | ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| Depreciation and amortization | $7,619 | $6,184 | $1,435 | 23.2% |

Depreciation and amortization increased $1.4 million, or 23.2%, to $7.6 million for the six months ended June 30, 2023 compared to $6.2 million for the same period in 2022. The increase was primarily due to the impact of infrastructure and technology purchases and other capitalized costs to support our growth. As a percentage of revenues, depreciation expense increased to 2.8% in the six months ended June 30, 2023 compared to 2.6% for the same period in 2022.

### Other Operating Expense, Net

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ For the six months ended June 30, 2023 | ​ ​ ​ 2022 | ​ ​ ​ ​ ​ ​ ​ ​ ​ Year-Over-Year Change | ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| Other operating expense, net | $697 | $694 | $3 | 0.4% |

Other operating expense, net remained relatively flat at $0.7 million for the six months ended June 30, 2023 compared to the same period in 2022. Other operating expense, net for the six months ended June 30, 2023 included a $0.4 million increase in the contingent consideration liability for the Tellutax acquisition as well as $0.3 million in foreign currency translation losses. Other operating expense, net for the six months ended June 30, 2022 was primarily comprised of a $0.7 million increase in the contingent consideration liability for the Tellutax acquisition. As a percentage of total revenues, other operating expense, net was 0.3% for both the six months ended June 30, 2023 and 2022.

### Interest (Income) Expense, Net

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ For the six months ended June 30, 2023 | ​ ​ ​ 2022 | ​ ​ ​ ​ ​ ​ ​ ​ ​ Year-Over-Year Change | ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| Interest (income) expense, net | $(455) | $718 | $(1,173) | (163.4)% |

Interest (income) expense, increased to interest income of $(0.5) million, net for the six months ended June 30, 2023 compared to $0.7 million of interest expense, net for the same period in 2022. Interest expense for the six months ended June 30, 2023 increased $1.0 million over the prior comparable period related to bank debt associated with the Second Amendment to the Credit Agreement due to increases in the interest rates on such debt as well as the debt being outstanding for the full period in 2023. This increase in expense was offset by a $1.8 million increase in interest income due to the increase in interest rates and dollars invested associated with investment securities, a $0.3 million decrease in deferred financing costs associated with the Second Amendment to the Credit Agreement, and a $0.1 million increase in the valuation of the forward currency forward contracts as a result of market fluctuations.

### Income Tax Expense

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ For the six months ended June 30, 2023 | ​ ​ ​ 2022 | ​ ​ ​ ​ ​ ​ ​ ​ ​ Year-Over-Year Change | ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| Income tax expense | $12,482 | $1,308 | $11,174 | 854.3% |

Income tax expense increased to $12.5 million for the six months ended June 30, 2023 compared to $1.3 million for the same period in 2022. The increase in tax expense was primarily driven by an increase in state income taxes, differences in tax rates on foreign jurisdiction income or loss, limitations on deductions of certain employees’ compensation under Internal Revenue Code Section 162(m), and valuation allowances on net deferred tax assets established for certain foreign jurisdictions.

### Liquidity and Capital Resources

As of June 30, 2023, we had unrestricted cash and cash equivalents of $41.9 million and an accumulated deficit of $12.5 million. In addition, we had $11.2 million in investment securities with a maturity date exceeding three months as of June 30, 2023, not included in unrestricted cash and cash equivalents. Our primary sources of capital to date have been from sales of our solutions, proceeds from bank lending facilities and the initial public offering of our Class A common stock in July 2020 (the “Offering”). On March 8, 2022, we entered into a second amendment to our credit agreement with a banking syndicate (the “Second Amendment to the Credit Agreement”), which provided a $250.0 million facility consisting of a $50.0 million term loan (the “Term Loan”) and a $200.0 million line of credit (the “Line of Credit”). The proceeds from the Term Loan will be used for working capital, capital expenditures, permitted acquisitions and general corporate purposes.

We believe that our existing cash resources and our bank Line of Credit will be sufficient to meet our capital requirements and fund our operations. However, if these sources are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities. If we raise additional funds by issuing equity securities, our stockholders would experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. Additional financing may not be available at all, or in amounts or on terms unacceptable to us.

The following table presents a summary of our cash flows for the periods indicated:

*(Dollars in thousands)*

| ​ ​ ​ | ​ ​ ​ ​ | ​ ​ For the six months ended June 30, 2023 | ​ ​ | ​ ​ 2022 | ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Year-Over-Year Change | ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | --- | --- | --- | ---: |
| Net cash (used in) provided by operating activities |  | $(898) |  | $8,588 | ​ | **(A)** | ​ | $(9,486) | (110.5)% |
| Net cash used in investing activities | ​ | (30,728) | ​ | (35,182) | ​ | **(A)** | ​ | ​ 4,454 | 12.7% |
| Net cash (used in) provided by financing activities | ​ | (3,481) | ​ | 34,489 | ​ | ​ | ​ | ​ (37,970) | (110.1)% |
| Effect of foreign exchange rate changes | ​ | 380 | ​ | (612) | ​ | ​ | ​ | ​ 992 | 162.1% |
| Net (decrease) increase in cash, cash equivalents and restricted cash | ​ | $(34,727) | ​ | $7,283 | ​ | ​ | ​ | $(42,010) | (576.8)% |
| (A) Net cash provided by operating activities, and net cash used in investing activities for the six months ended June 30, 2022 reflect an immaterial error correction of $5,988 related to the reclassification of capitalized cloud computing implementation costs. For more information refer to Note 1, “Summary of Significant Accounting Policies” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. |  |  |  |  |  |  |  |  |  |

***Operating Activities.*** Net cash used in operating activities was $(0.9) million for the six months ended June 30, 2023 compared to net cash provided by operating activities of $8.6 million for the same period in 2022. The decrease in cash provided by operating activities in the six months ended June 30, 2023 over the same period in 2022 of $9.0 million included: (i) a $9.0 million improvement in net cash from operating assets and liabilities, offset by (ii) an $18.0 million net decrease in cash comprised of adjustments to net loss for noncash operating activity which included increases in (a) depreciation and amortization of $3.6 million associated with investments in commercial software, infrastructure and acquisitions and (b) stock-based compensation of $9.3 million, offset by (c) an increase in deferred income tax benefit of $12.3 million.

***Investing Activities.*** Net cash used in investing activities was $30.7 million for the six months ended June 30, 2023 compared to $35.2 million for the same period in 2022, a decrease in use of funds for investing activities of $3.9 million. This decrease included proceeds from maturities of investment securities of $8.6 million, which was partly offset by an increase in purchases of investment securities of $1.5 million. In addition, there was a $0.5 million reduction in cash paid for acquisitions. Lastly, there was a $3.7 million increase in investments in commercial software and tools in support of our commercial cloud-based customer solutions.

***Financing Activities.*** Net cash used in financing activities was $3.5 million for the six months ended June 30, 2023 compared to $34.5 million net cash provided by financing activities for the same period in 2022, a decrease in net cash of $38.0 million. The decrease in cash provided by financing activities was primarily driven by cash received in 2022 in connection with borrowings under the Term Loan of $50.0 million associated with the Second Amendment to the Credit Agreement, partially offset by an increase in customer funds obligations of $19.0 million in 2023 due primarily to timing differences between receipt of funds from customers and taxing jurisdiction withdrawals of these funds.

***Debt***. As of June 30, 2023, we had a $200.0 million Line of Credit with no outstanding borrowings and a $50.0 million Term Loan in connection with the Second Amendment to the Credit Agreement. Interest on outstanding borrowings accrue at a base rate plus an applicable margin (8.25% as of June 30, 2023) or the Secured Overnight Financing Rate (“SOFR”) plus an applicable margin (6.25% as of June 30, 2023). We have $48.0 million in bank debt outstanding at June 30, 2023 associated with the Term Loan.

### Funds Held for Customers and Customer Funds Obligations

We maintain trust accounts with financial institutions, which allows our customers to outsource their tax remittance functions to us. We have legal ownership over the accounts utilized for this purpose. Funds held for customers represent cash and cash equivalents that, based upon our intent, are restricted solely for satisfying the obligations to remit funds relating to our tax remittance services. Funds held for customers are not commingled with our operating funds.

Customer funds obligations represent our contractual obligations to remit collected funds to satisfy customer tax payments. 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 liability are presented as cash flows from financing activities.

### Contractual Obligations and Commitments

Other than the borrowings under the Second Amendment to the Credit Agreement entered into in March 2022, there have been no material updates or changes to our contractual obligations and commitments compared to contractual obligations and commitments described in our 2022 Annual Report.

### 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. We believe ARR provides us with visibility to our projected software subscription revenue in order to evaluate the health of our business. Because we recognize subscription revenue ratably, we believe investors can use ARR to measure our expansion of existing customer revenues, new customer activity, and as an indicator of future software subscription revenues. ARR is based on monthly recurring 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.

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.

*(Dollars in millions)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ ​ As of June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ | ​ ​ ​ ​ ​ Year-Over-Year Change | ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Annual Recurring Revenue | ​ | $467.7 | ​ | $398.1 | ​ | $69.6 | 17.5% |

ARR increased by $69.6 million, or 17.5%, at June 30, 2023, as compared to June 30, 2022. The increase was primarily driven by $43.4 million of growth in revenues from existing customers through their expanded use of our solutions as well as price increases, and $26.2 million in growth of subscriptions of our solutions to new customers.

We had 4,284 customers and AARPC was approximately $109,170 at June 30, 2023. At June 30, 2022, we had 4,242 customers and approximately $93,800 of AARPC. The increase in AARPC was primarily due to expansion of usage by existing customers and adding new customers through organic growth.

### Net Revenue Retention Rate (“NRR”).

We believe that our NRR provides insight into our ability to retain and grow revenue from our customers, as well as their potential long-term value to us. We also believe it demonstrates to investors our ability to expand existing customer revenues, which is one of our key growth strategies. Our NRR refers to the ARR expansion during the 12 months of a reporting period for all customers who were part of our customer base at the beginning of the reporting period. Our NRR calculation takes into account any revenue lost from departing customers or those 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 June 30, 2023 | ​ ​ ​ 2022 ​ |
| --- | ---: | ---: |
| Net Revenue Retention Rate | 111% | 110% |

### 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. Our GRR refers to how much of our MRR we retain each month after reduction for the effects of revenues lost from departing customers or those who have downgraded or reduced usage. GRR does not take into account revenue expansion from migrations, new licenses for additional products or contractual and usage-based price changes. GRR does not include revenue reductions resulting from cancellations of customer subscriptions that are replaced by new subscriptions associated with customer migrations to a newer version of the related software solution.

| ​ ​ ​ ​ ​ | ​ ​ As of June 30, 2023 | ​ ​ ​ 2022 ​ |
| --- | ---: | ---: |
| Gross Revenue Retention Rate | 96% | 96% |

### Adjusted EBITDA and Adjusted EBITDA Margin.

We believe that Adjusted EBITDA is a measure widely used by securities analysts and investors to evaluate the financial performance of our company and other companies. We believe that Adjusted EBITDA and Adjusted EBITDA margin are useful as supplemental measures to evaluate our overall operating performance as they measure business performance focusing on cash related charges and because they are important metrics to lenders under our credit agreement. We define Adjusted EBITDA as net loss or income before interest, taxes, depreciation, and amortization, as adjusted to exclude charges for asset impairments, amortization of cloud computing implementation costs, stock-based compensation expense, severance expense, acquisition contingent consideration, litigation settlements, and transaction costs (which includes offering costs related to the sale of shares of certain of our Class B shareholders which are not representative of normal business operations). Adjusted EBITDA margin represents Adjusted EBITDA divided by total revenues for the same period. For purposes of comparison, our net loss was $(6.9) million and $(5.5) million for the three months ended June 30, 2023 and 2022, respectively, while our net loss margin was (4.9)% and (4.6)% over the same periods, respectively. Additionally, our net loss was $(25.0) million and $(5.9) million for the six months ended June 30, 2023 and 2022, respectively, while our net loss margin was (9.2)% and (2.5)% over the same periods, respectively.

*(Dollars in thousands)*

*(unaudited)*

*(unaudited)*

| ​ ​ ​ ​ Adjusted EBITDA: | ​ ​ ​ ​ ​ | ​ ​ ​ For the three months ended June 30, 2023 ​ ​ ​ ​ | ​ ​ ​ ​ ​ 2022 ​ ​ ​ ​ ​ | ​ ​ ​ For the six months ended June 30, 2023 ​ ​ ​ ​ | ​ ​ ​ ​ ​ 2022 ​ ​ ​ ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| **Net loss** | ​ | $(6,896) ​ | $(5,520) ​ | $(25,028) ​ | $(5,854) ​ |
| Interest (income) expense, net | ​ | (105) ​ | 724 ​ | (455) ​ | 718 ​ |
| Income tax expense | ​ | 2,929 ​ | 500 ​ | 12,482 ​ | 1,308 ​ |
| Depreciation and amortization – property and equipment | ​ | 3,878 ​ | 3,224 ​ | 7,619 ​ | 6,184 ​ |
| Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues | ​ | 12,686 ​ | 12,386 ​ | 25,121 ​ | 22,083 ​ |
| Amortization of acquired intangible assets – selling and marketing expense | ​ | ​ 684 ​ | ​ 2,019 ​ | ​ 1,450 ​ | ​ 2,268 ​ |
| Amortization of cloud computing implementation costs – general and administrative | ​ | ​ 631 ​ | ​ — ​ | ​ 631 ​ | ​ — ​ |
| Stock-based compensation expense | ​ | 7,022 ​ | 4,194 ​ | 18,456 ​ | 9,127 ​ |
| Severance expense | ​ | ​ 905 ​ | ​ 258 ​ | ​ 1,460 ​ | ​ 381 ​ |
| Acquisition contingent consideration | ​ | ​ 249 ​ | ​ — ​ | ​ 449 ​ | ​ 700 ​ |
| Transaction costs | ​ | — ​ | — ​ | — ​ | 7 ​ |
| **Adjusted EBITDA** | ​ | $21,983 ​ | $17,785 ​ | $42,185 ​ | $36,922 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| **Adjusted EBITDA Margin:** | ​ | ​ | ​ | ​ | ​ |
| Total revenues | ​ | $139,695 ​ | $119,276 ​ | $272,446 ​ | $234,260 ​ |
| **Adjusted EBITDA margin** | ​ | 15.7% | 14.9% | 15.5% | 15.8% |

The increase in Adjusted EBITDA for the three months ended June 30, 2023 of $4.2 million over the comparable period in 2022 was primarily driven by an increase of $14.8 million in non-GAAP gross profit, offset by increases in various non-GAAP operating expense categories including $3.2 million in non-GAAP selling and marketing expense, $2.1 million in non-GAAP research and development expense and $5.0 million in non-GAAP general and administrative expense. Adjusted EBITDA margin increased to 15.7% for the three months ended June 30, 2023 compared to 14.9% for the comparable period in 2022, primarily due to increased non-GAAP gross margin from our software subscriptions revenue.

The increase in Adjusted EBITDA for the six months ended June 30, 2023 of $5.3 million over the comparable period in 2022 was primarily driven by an increase of $29.4 million in non-GAAP gross profit, offset by increases in various non-GAAP operating expense categories, including $9.7 million in non-GAAP selling and marketing expense, $6.2 million in non-GAAP research and development expense and $8.0 million in non-GAAP general and administrative expense. Adjusted EBITDA margin decreased to 15.5% for the six months ended June 30, 2023 compared to 15.8% for the comparable period in 2022, primarily due to operating expenses increasing at a higher rate than our increases in revenues, driven by our investments to enable future growth.

Increased investment in selling and marketing expense for the three and six months ended June 30, 2023 over the comparable periods in 2022, was driven by increased expenses associated with the growth in period-over-period subscription sales and services revenue and expansion of our partner and channel management programs. In addition, there was increased advertising and promotional spending and brand awareness efforts. Increased research and development expense for the three and six months ended June 30, 2023 over the comparable periods in 2022 was due primarily to an increase in personnel costs related to development work associated with innovation and new solutions to address end-to-end data analysis and compliance needs of our customers. Increased general and administrative expense for the three and six months ended June 30, 2023 over the comparable periods in 2022, was driven by planned strategic investments in information technology infrastructure, business process reengineering and other initiatives to drive future operating leverage, as well as investments in employees, systems and resources in support of our growth.

### Free Cash Flow and Free Cash Flow Margin.

We use free cash flow as a critical measure in the evaluation of liquidity in conjunction with related GAAP amounts. We also use this measure when considering available cash, including for decision making purposes related to dividends and discretionary investments. We consider free cash flow to be an important measure for investors because it measures the amount of cash we generate from our operations after our capital expenditures and capitalization of software development costs. In addition, we base certain of our forward-looking estimates and budgets on free cash flow and free cash flow margin. We define free cash flow as the total of net cash provided by operating activities less purchases of property and equipment and capitalized software.

We define free cash flow margin as free cash flow divided by total revenues for the same period. Our net cash used in operating activities was $(4.4) million, and our net cash provided by operating activities was $9.0 million for the three months ended June 30, 2023 and 2022, respectively, while our operating cash flow margin was (3.1)% and 7.5% over the same periods, respectively. Our net cash used in operating activities was $(0.9) million and our net cash provided by operating activities was $8.6 million for the six months ended June 30, 2023 and 2022, respectively, while our operating cash flow margin was (0.3)% and 3.7% over the same periods, respectively.

*(Dollars in thousands)*

| ​ ​ ​ Free Cash Flow: | ​ ​ ​ ​ | ​ ​ ​ For the three months ended June 30, 2023 ​ ​ ​ | ​ ​ ​ | ​ ​ ​ ​ ​ 2022 ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ For the six months ended June 30, 2023 ​ ​ ​ | ​ ​ ​ ​ ​ 2022 ​ ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- |
| **Cash (used in) provided by operating activities** | **​** | $(4,389) **​** | **​** | $8,955 **(A)** | ​ | $(898) **(B)** | $8,588 **(A)** |
| Property and equipment additions | **​** | **​** (11,810) **​** | **​** | **​** (10,928) **(A)** | ​ | ​ (21,859) **(B)** | **​** (21,839) **(A)** |
| Capitalized software additions | **​** | **​** (5,035) **​** | **​** | **​** (3,014) ​ | ​ | ​ (9,042) **​** | **​** (5,926) ​ |
| **Free cash flow** | **​** | $(21,234) ​ | ​ | $(4,987) ​ | ​ | $(31,799) ​ | $(19,177) ​ |
| ​ | **​** | ​ ​ ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| **Free Cash Flow Margin:** | **​** | ​ ​ ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Total revenues | **​** | $139,695 ​ | ​ | $119,276 ​ | ​ | $272,446 ​ | $234,260 ​ |
| **Free cash flow margin** | **​** | (15.2)% | ​ | ​ (4.2)% | ​ | (11.7)% | (8.2)% |
| ​ | **​** | ​ ​ ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| (A) Cash provided by operating activities and property and equipment additions for the three and six months ended June 30, 2022 reflect immaterial error corrections of $3,026 and $5,988, respectively, related to the reclassification of capitalized cloud computing implementation costs from property and equipment additions to other changes in operating assets and liabilities. For more information refer to Note 1, “Summary of Significant Accounting Policies” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. |  |  |  |  |  |  |  |
| (B) Cash provided by operating activities and property and equipment additions for the six months ended June 30, 2023 reflect immaterial error corrections of $3,264, related to the reclassification of capitalized cloud computing implementation costs for the three months ended March 31, 2023 from property and equipment additions to prepaid expenses and other current assets and other changes in operating assets and liabilities. For more information refer to Note 1, “Summary of Significant Accounting Policies” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. |  |  |  |  |  |  |  |
| ​ | **​** | ​ ​ ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ | ​ ​ ​ |

Free cash flow decreased by $16.3 million for the three months ended June 30, 2023, as compared to the same period in 2022. This decrease was primarily driven by a decrease in net cash provided by operating activities of $16.6 million, combined with a $2.0 million increase in capitalized software additions in support of our commercial cloud-based customer solutions. Free cash flow margin decreased to (15.2)% for the three months ended June 30, 2023, compared to (4.2)% for the same period in 2022.

Free cash flow decreased by $12.6 million for the six months ended June 30, 2023, as compared to the same period in 2022. This decrease was primarily driven by a decrease in net cash provided by operating activities of $9.5 million, and an increase of $3.1 million in investments in capitalized software in support of our commercial cloud-based customer solutions. Free cash flow margin decreased to (11.7)% for the six months ended June 30, 2023, compared to (8.2)% for the same period in 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. We have provided tabular reconciliations of each of these non-GAAP financial measures to its most directly comparable GAAP financial measure.

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

### 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 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 (which includes offering costs related to the sale of shares of certain of our Class B shareholders which are not representative of normal business operations), included in GAAP loss or income from operations for the respective periods.
- Non-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, litigation settlements, and transaction costs (which includes offering costs related to the sale of shares of certain of our Class B shareholders which are not representative of normal business operations), included in GAAP net loss or income for the respective periods to determine non-GAAP loss or income before income taxes. Non-GAAP loss or income 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.

*(Dollars in thousands)*

*(unaudited)*

*(unaudited)*

| ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ For the three months ended June 30, 2023 ​ | ​ ​ ​ ​ ​ 2022 ​ ​ | ​ ​ ​ For the six months ended June 30, 2023 ​ | ​ ​ ​ 2022 ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| Non-GAAP cost of revenues, software subscriptions |  | $25,411 | $23,344 ​ | $49,383 | $46,114 ​ |
| Non-GAAP cost of revenues, services | ​ | $15,197 ​ | $11,645 ​ | $28,705 ​ | $23,192 ​ |
| Non-GAAP gross profit | ​ | $99,087 ​ | $84,287 ​ | $194,358 ​ | $164,954 ​ |
| Non-GAAP gross margin | ​ | 70.9% | 70.7% | 71.3% | 70.4% |
| Non-GAAP research and development expense | ​ | $11,905 ​ | $9,812 ​ | $25,533 ​ | $19,331 ​ |
| Non-GAAP selling and marketing expense | ​ | $31,775 ​ | $28,559 ​ | $63,847 ​ | $54,190 ​ |
| Non-GAAP general and administrative expense | ​ | $33,259 ​ | $28,285 ​ | $62,544 ​ | $54,524 ​ |
| Non-GAAP operating income | ​ | $18,105 ​ | $14,561 ​ | $34,566 ​ | $30,738 ​ |
| Non-GAAP net income | ​ | $13,566 ​ | $10,309 ​ | $26,091 ​ | $22,365 ​ |

*(Dollars in thousands)*

*(unaudited)*

*(unaudited)*

| ​ ​ ​ ​ Non-GAAP Cost of Revenues, Software Subscriptions: | ​ ​ ​ For the three months ended June 30, 2023 ​ ​ | ​ ​ ​ 2022 ​ ​ ​ | ​ ​ ​ For the six months ended June 30, 2023 ​ ​ | ​ ​ ​ ​ ​ 2022 ​ ​ ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| **Cost of revenues, software subscriptions** | $38,516 ​ | $36,209 ​ | $75,919 ​ | $69,122 ​ |
| Stock-based compensation expense | (419) ​ | (479) ​ | (1,415) ​ | $(925) ​ |
| Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues | (12,686) ​ | (12,386) ​ | (25,121) ​ | (22,083) ​ |
| **Non-GAAP cost of revenues, software subscriptions** | $25,411 ​ | $23,344 ​ | $49,383 ​ | $46,114 ​ |
| ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| **Non-GAAP Cost of Revenues, Services:** | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| **Cost of revenues, services** | $15,363 ​ | $11,920 ​ | $29,707 ​ | $23,873 ​ |
| Stock-based compensation expense | (166) ​ | (275) ​ | (1,002) ​ | (681) ​ |
| **Non-GAAP cost of revenues, services** | $15,197 ​ | $11,645 ​ | $28,705 ​ | $23,192 ​ |
| ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| **Non-GAAP Gross Profit:** | ​ ​ | ​ ​ | ​ ​ | ​ ​ |
| **Gross profit** | $85,816 ​ | $71,147 ​ | $166,820 ​ | $141,265 ​ |
| Stock-based compensation expense | 585 ​ | 754 ​ | 2,417 ​ | 1,606 ​ |
| Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues | 12,686 ​ | 12,386 ​ | 25,121 ​ | 22,083 ​ |
| **Non-GAAP gross profit** | $99,087 ​ | $84,287 ​ | $194,358 ​ | $164,954 ​ |
| ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| **Non-GAAP Gross Margin:** | ​ ​ | ​ ​ | ​ ​ | ​ ​ |
| Total revenues | $139,695 ​ | $119,276 ​ | $272,446 ​ | $234,260 ​ |
| **Non-GAAP gross margin** | 70.9% | 70.7% | 71.3% | 70.4% |
| ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| **Non-GAAP Research and Development Expense:** | ​ ​ | ​ ​ | ​ ​ | ​ ​ |
| **Research and development expense** | $12,680 ​ | $10,310 ​ | $28,542 ​ | $19,943 ​ |
| Stock-based compensation expense | (775) ​ | (498) ​ | (3,009) ​ | (612) ​ |
| **Non-GAAP research and development expense** | $11,905 ​ | $9,812 ​ | $25,533 ​ | $19,331 ​ |
| **​** | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| **Non-GAAP Selling and Marketing Expense:** | ​ ​ | ​ ​ | ​ ​ | ​ ​ |
| **Selling and marketing expense** | $33,541 ​ | $31,979 ​ | $69,277 ​ | $59,431 ​ |
| Stock-based compensation expense | ​ (1,082) ​ | (1,401) ​ | ​ (3,980) ​ | (2,973) ​ |
| Amortization of acquired intangible assets – selling and marketing expense | (684) ​ | (2,019) ​ | (1,450) ​ | (2,268) ​ |
| **Non-GAAP selling and marketing expense** | $31,775 ​ | $28,559 ​ | $63,847 ​ | $54,190 ​ |

50

*(Dollars in thousands)*

*(unaudited)*

*(unaudited)*

| ​ ​ ​ ​ ​ Non-GAAP General and Administrative Expense: | ​ ​ ​ ​ For the three months ended June 30, 2023 ​ | ​ ​ ​ ​ | ​ ​ ​ ​ 2022 ​ | ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ For the six months ended June 30, 2023 ​ | ​ ​ ​ ​ | ​ ​ ​ ​ 2022 ​ | ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | --- | ---: | --- | --- | --- | --- | --- |
| **General and administrative expense** | $39,376 | ​ | $30,084 | ​ | $73,686 | ​ | $58,841 | ​ |
| Stock-based compensation expense | (4,581) | ​ | (1,541) | ​ | (9,051) | ​ | (3,936) | ​ |
| Severance expense | ​ (905) | ​ | ​ (258) | ​ | ​ (1,460) | ​ | ​ (381) | ​ |
| Amortization of cloud computing implementation costs – general and administrative | ​ (631) | ​ | ​ — | ​ | ​ (631) | ​ | ​ — | ​ |
| **Non-GAAP general and administrative expense** | $33,259 | ​ | $28,285 | ​ | $62,544 | ​ | $54,524 | ​ |
| **​** | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| **Non-GAAP Operating Income:** |  | ​ |  | ​ |  | ​ |  | ​ |
| **Loss from operations** | $(4,072) | ​ | $(4,296) | ​ | $(13,001) | ​ | $(3,828) | ​ |
| Stock-based compensation expense | 7,022 | ​ | 4,194 | ​ | 18,456 | ​ | 9,127 | ​ |
| Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues | 12,686 | ​ | 12,386 | ​ | 25,121 | ​ | 22,083 | ​ |
| Amortization of acquired intangible assets – selling and marketing expense | ​ 684 | ​ | 2,019 | ​ | ​ 1,450 | ​ | 2,268 | ​ |
| Amortization of cloud computing implementation costs – general and administrative | ​ 631 | ​ | ​ — | ​ | ​ 631 | ​ | ​ — | ​ |
| Severance expense | ​ 905 | ​ | ​ 258 | ​ | ​ 1,460 | ​ | ​ 381 | ​ |
| Acquisition contingent consideration | ​ 249 | ​ | ​ — | ​ | ​ 449 | ​ | ​ 700 | ​ |
| Transaction costs | ​ — | ​ | — | ​ | — | ​ | ​ 7 | ​ |
| **Non-GAAP operating income** | $18,105 | ​ | $14,561 | ​ | $34,566 | ​ | $30,738 | ​ |
| **​** | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| **Non-GAAP Net Income:** |  | ​ | ​ | ​ |  | ​ | ​ | ​ |
| **Net loss** | $(6,896) | ​ | $(5,520) | ​ | $(25,028) | ​ | $(5,854) | ​ |
| Income tax expense | ​ 2,929 | ​ | ​ 500 | ​ | ​ 12,482 | ​ | ​ 1,308 | ​ |
| Stock-based compensation expense | 7,022 | ​ | 4,194 | ​ | 18,456 | ​ | 9,127 | ​ |
| Depreciation and amortization of capitalized software and acquired intangible assets – cost of subscription revenues | ​ 12,686 | ​ | ​ 12,386 | ​ | ​ 25,121 | ​ | ​ 22,083 | ​ |
| Amortization of acquired intangible assets – selling and marketing expense | ​ 684 | ​ | ​ 2,019 | ​ | ​ 1,450 | ​ | ​ 2,268 | ​ |
| Amortization of cloud computing implementation costs – general and administrative | ​ 631 | ​ | ​ — | ​ | ​ 631 | ​ | ​ — | ​ |
| Severance expense | 905 | ​ | 258 | ​ | 1,460 | ​ | 381 | ​ |
| Acquisition contingent consideration | ​ 249 | ​ | ​ — | ​ | ​ 449 | ​ | ​ 700 | ​ |
| Transaction costs | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 7 | ​ |
| Non-GAAP income before income taxes | ​ 18,210 | ​ | 13,837 | ​ | ​ 35,021 | ​ | 30,020 | ​ |
| Income tax adjustment at statutory rate | (4,644) | ​ | (3,528) | ​ | (8,930) | ​ | (7,655) | ​ |
| **Non-GAAP net income** | $13,566 | ​ | $10,309 | ​ | $26,091 | ​ | $22,365 | ​ |

### Critical Accounting Estimates

The critical accounting policies that reflect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements include software development costs, business combinations, goodwill, accounting for stock-based compensation, revenue recognition, and income taxes, which are described in our 2022 Annual Report.

There have been no material updates or changes to our critical accounting estimates compared to the critical accounting estimates described in our 2022 Annual Report.

### Recent Accounting Pronouncements

For further information on recent accounting pronouncements, refer to Note 1, “Summary of Significant Accounting Policies” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

## Market risk

As filed, 2,982 characters.

### Interest Rate Risk

We had unrestricted cash and cash equivalents of $41.9 million and $91.8 million as of June 30, 2023 and December 31, 2022, respectively, and investments of $11.2 million as of June 30, 2023 and December 31, 2022. We maintain our cash and cash equivalents in deposit accounts, money market funds with various financial institutions, and in short duration fixed income securities. Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of these investments as a result of changes in interest rates. Increases or declines in interest rates would be expected to augment or reduce future interest income by an insignificant amount.

We are exposed to risk related to changes in interest rates on our outstanding borrowings. Borrowings under the Second Amendment to the Credit Agreement bear interest at rates that are variable. Increases in the bank prime or SOFR rates would increase the interest rate on any future outstanding borrowings. Any debt we incur in the future may also bear interest at variable rates. For each 100 basis point increase in the bank prime or SOFR rates, this would be expected to result in a projected increase in interest expense of $0.5 million annually.

### Foreign Currency Exchange Risk

Our revenues and expenses are primarily denominated in U.S. dollars. For our foreign operations, the majority of our revenues and expenses are denominated in other currencies, such as the Canadian Dollar, Euro, British Pound, Swedish Krona and Brazilian Real. Decreases in the relative value of the U.S. dollar as compared to these currencies may negatively affect our revenues and other operating results as expressed in U.S. dollars. For the six months ended June 30, 2023 and 2022, approximately 3% and 4%, respectively, of our revenues were denominated in currencies other than U.S. dollars.

We have experienced and will continue to experience fluctuations in our net loss or income as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. 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. The acquisition of the controlling interest in Systax in January 2020 and the future purchase commitment liabilities associated with this acquisition are expected to increase our exposure to fluctuations of the Brazilian Real over time. At June 30, 2023, outstanding foreign currency forward contracts hedge approximately 67% of our exposure to adverse fluctuations in the Brazilian Real associated with these future purchase commitment liabilities.

## Controls and procedures

As filed, 996 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Based on the evaluation of our disclosure controls and procedures, our principal executive officer and principal financial officer concluded that, as of June 30, 2023, our disclosure controls and procedures were effective at a reasonable assurance level.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than for certain new or modified controls resulting from the go-live of our new ERP system.

## Risk factors

As filed, 662 characters.

This document incorporates by reference various risk factors discussed in the Company’s 2022 Annual Report, under the heading “Risk Factors”. There are no material changes to the risk factors discussed in these filings. You should carefully consider these risks, together with management’s discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. If any of the events contemplated should occur, our business, results of operations, financial condition and cash flows could suffer significantly.

Filed Aug 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-014333. Last ingested by Listed: Nov 4, 2026, 16:38 ET. No prices; not investment advice.