Vertex Inc

Previous wording

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 47% and 43% of software subscription revenue from cloud-based subscriptions during the three months ended March 31, 2024 and 2023, respectively. While our on-premise software subscription revenue comprised 53% and 57% of our software subscription revenue during the three months ended March 31, 2024 and 2023, respectively, it continues to decrease as a percentage of total software subscriptions revenues as cloud-based subscriptions grow.

Current wording

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 49% and 43% of software subscription revenue from cloud-based subscriptions during the three months ended June 30, 2024 and 2023, respectively, and 48% and 43% for the six months ended June 30, 2024 and 2023, respectively. While our on-premise software subscription revenue comprised 51% and 57% of our software subscription revenue during the three months ended June 30, 2024 and 2023, respectively, and 52% and 57% for the six months ended June 30, 2024 and 2023, respectively, it continues to decrease as a percentage of total software subscriptions revenues as cloud-based subscriptions grow.

Previous wording

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, Shopify, Workday and Zuora. We also collaborate with numerous accounting firms who have built implementation practices around our software to serve their customer base.

Current wording

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, Shopify,

Previous wording

We believe that global commerce and the compliance environment provides durable and accelerating growth opportunities for our business. We generated revenue of $156.8 million and $132.8 million for the three months ended March 31, 2024 and 2023, respectively. We had a net income (loss) of $2.7 million and $(18.1) million for the three months ended March 31, 2024 and 2023, respectively. These amounts are presented in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”).

Current wording

We believe that global commerce and the compliance environment provides durable and accelerating growth opportunities for our business. We generated revenue of $161.1 million and $139.7 million for the three months ended June 30, 2024 and 2023, respectively, and $317.9 and $272.4 for the six months ended June 30, 2024 and 2023, respectively. We had net income (loss) of $5.2 million and $(6.9) million for the three months ended June 30, 2024 and 2023, respectively, and $7.8 million and $(25.0) million for the six months ended June 30, 2024 and 2023, respectively These amounts are presented in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”).

Previous wording

We define Adjusted EBITDA as net loss or income before interest (including adjustments to the settlement value of deferred purchase commitment liabilities), taxes, depreciation, and amortization, as adjusted to exclude charges for asset impairments, stock-based compensation expense, amortization of cloud computing arrangement implementation costs, severance expense, acquisition contingent consideration, litigation settlements, and transaction costs.** **Adjusted EBITDA was $36.7 million and $20.2 million for the three months ended March 31, 2024 and 2023, 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.

Current wording

We define Adjusted EBITDA as net loss or income before interest (including adjustments to the settlement value of deferred purchase commitment liabilities), taxes, depreciation, and amortization, as adjusted to exclude charges for asset impairments, stock-based compensation expense, amortization of cloud computing arrangement implementation costs, severance expense, acquisition contingent consideration, litigation settlements, and transaction costs.** **Adjusted EBITDA was $38.5 million and $22.0 million for the three months ended June 30, 2024 and 2023, respectively and $75.3 million and $42.2 million for the six months ended June 30, 2024 and 2023, 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.

Previous wording

On April 26, 2024, we closed a private offering of $345.0 million Notes. For further information, refer to Note 13, “Subsequent Events” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Current wording

On August 7, 2024, we announced the signing of a definitive agreement to acquire ecosio GmbH (“Ecosio”), a limited liability company incorporated under the laws of Austria and a provider of electronic data interchange (“EDI”) and e-invoicing services. The acquisition includes an upfront cash payment of $69.0 million, net of certain closing adjustments, as well as a targeted cash earn-out payment of $76.0 million and a stock earn-out of up to $35.0 million of our Class A common stock, based on Ecosio achieving certain financial performance targets over the next three years, subject to adjustment pursuant to the terms of the acquisition agreement. The acquisition is expected to close during the third quarter of 2024 pending customary Austrian regulatory approvals. For further information, refer to Note 13, “Subsequent Events” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Previous wording

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.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

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, as well as changes in the settlement value of the future payment obligation for the Systax Sistemas Fiscais Limited (“Systax”) acquisition.

Current wording

Interest expense consists primarily of interest incurred related to borrowings, the Notes, 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, as well as changes in the settlement value of the future payment obligation for the Systax Sistemas Fiscais Limited (“Systax”) acquisition, which was fully settled on June 5, 2024.

Previous wording

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 and credit carryforwards, applicable tax rates, and transfer pricing methodologies. Judgments

Current wording

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 and credit 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.

Previous wording

Revenues increased $24.0 million, or 18.1%, to $156.8 million for the three months ended March 31, 2024 compared to $132.8 million for the same period in 2023. The increase in software subscriptions revenues of $20.8 million, or 18.8%, 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 5.6% and 6.8% of total software subscriptions revenues in the three months ended March 31, 2024 and 2023, respectively.

Current wording

Revenues increased $21.4 million, or 15.3%, to $161.1 million for the three months ended June 30, 2024 compared to $139.7 million for the same period in 2023. The increase in software subscriptions revenues of $18.6 million, or 15.8%, 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 5.8% and 6.3% of total software subscriptions revenues in the three months ended June 30, 2024 and 2023, respectively.

Previous wording

The $3.2 million increase in services revenues was primarily driven by an increase of $1.9 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 $1.3 million increase driven by an 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, as well as an increase in interest received from our funds held for customers.

Current wording

The $2.8 million increase in services revenues was primarily driven by an increase of $2.7 million in software subscription-related services associated with the growth in subscription revenues, which includes new customers implementing our solutions and existing customers upgrading to newer versions of our solutions. In addition, our managed services offering experienced a $0.1 million increase driven by an 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, as well as an increase in interest received from our funds held for customers.

Previous wording

Cost of software subscriptions revenues increased $7.7 million, or 20.7%, to $45.1 million for the three months ended March 31, 2024 compared to $37.4 million for the same period in 2023. The increase in cost of software subscriptions revenues was primarily driven by a $4.8 million increase in costs of personnel supporting period-over-period growth of sales and customers, ongoing infrastructure investments and support costs to enable the continued expansion of customer transaction volumes for our cloud-based subscription customers. In addition, the increase in cost of software subscriptions revenues included an increase in depreciation and amortization of capitalized software and acquired intangible assets of $2.9 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.

Current wording

Cost of software subscriptions revenues increased $3.8 million, or 9.7%, to $42.3 million for the three months ended June 30, 2024 compared to $38.5 million for the same period in 2023. The increase in cost of software subscriptions revenues was primarily driven by a $1.9 million increase in costs of personnel supporting period-over-period growth of sales and customers, ongoing infrastructure investments and support costs to enable the continued expansion of customer transaction volumes for our cloud-based subscription customers. In addition, the increase in cost of software subscriptions revenues included an increase in depreciation and amortization of capitalized software and acquired intangible assets of $3.1 million associated with our ongoing investments in internal-use software for cloud-based subscription solutions, software developed for sale for new products and enhancements to existing products, and costs associated with the amortization of acquired intangible assets.

Previous wording

Cost of services revenues increased $1.5 million, or 10.6%, to $15.9 million for the three months ended March 31, 2024, compared to $14.3 million for the same period in 2023. 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.

Current wording

Cost of services revenues increased $0.8 million, or 5.2%, to $16.2 million for the three months ended June 30, 2024, compared to $15.4 million for the same period in 2023. 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.

Previous wording

Research and development expenses increased $1.0 million, or 6.2%, to $16.8 million for the three months ended March 31, 2024 compared to $15.9 million for the same period in 2023. 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. Research and development expense excludes those costs that have been capitalized for solutions that have met our capitalization policy.

Current wording

Research and development expenses increased $1.9 million, or 15.3%, to $14.6 million for the three months ended June 30, 2024 compared to $12.7 million for the same period in 2023. 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. Research and development expense excludes those costs that have been capitalized for solutions that have met our capitalization policy.

Previous wording

Selling and marketing expenses increased $4.8 million, or 13.3%, to $40.5 million for the three months ended March 31, 2024 compared to $35.7 million for the same period in 2023. This increase was primarily driven by a $5.8 million increase in payroll and related expenses associated with the growth in period-over-period subscription sales and services revenues and expansion of our partner and channel management programs. The increase was partly offset by a decrease of $0.9 million in advertising and promotional spending related to expanded brand awareness efforts due to certain delayed activities in the three months ended March 31, 2024, which are expected to occur later in the year. Additionally, we experienced a decrease of $0.2 million in amortization of acquired intangible assets associated with prior acquisitions.

Current wording

Selling and marketing expenses increased $7.0 million, or 20.9%, to $40.5 million for the three months ended June 30, 2024 compared to $33.5 million for the same period in 2023. This increase was primarily driven by a $4.1 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. Additionally, there was an increase of $2.2 million in advertising and promotional spending related to expanded brand awareness efforts.

Previous wording

Depreciation and amortization increased $1.3 million, or 33.8%, to $5.0 million for the three months ended March 31, 2024 compared to $3.7 million for the same period in 2023. The increase was primarily due to the impact of infrastructure and technology purchases and other capitalized costs to support our growth.

Current wording

Depreciation and amortization increased $1.3 million, or 34.4%, to $5.2 million for the three months ended June 30, 2024 compared to $3.9 million for the same period in 2023. The increase was primarily due to the impact of infrastructure and technology purchases and other capitalized costs to support our growth.

Previous wording

Other operating expense (income), net decreased to income of $0.5 million, net for the three months ended March 31, 2024 compared to expense of $0.3 million, net for the same period in 2023. Other operating expense (income), net for the three months ended March 31, 2024 included a $0.8 million decrease in the contingent consideration liability for the Tellutax, Inc. acquisition (“Tellutax”), which was partially offset by $0.1 million in foreign currency transaction losses. Other operating expense (income), net for the three months ended March 31, 2023 was primarily comprised of $0.1 million in foreign currency transaction losses incurred and $0.2 million associated with an increase in the contingent consideration liability for Tellutax.

Current wording

Other operating expense (income), net increased to income of $(1.1) million, net for the three months ended June 30, 2024 compared to expense of $0.4 million, net for the same period in 2023. The decrease in expense was primarily driven by a decrease in the contingent consideration liability for the Tellutax, Inc. acquisition (“Tellutax”).

Previous wording

General and administrative expenses increased $1.2 million, or 3.6%, to $35.5 million for the three months ended March 31, 2024 compared to $34.3 million for the same period in 2023. The increase was primarily due to an increase of $1.0 million for the amortization of capitalized cloud computing implementation costs related to our ERP modernization initiative.

Current wording

General and administrative expenses decreased $2.3 million, or 3.1%, to $71.4 million for the six months ended June 30, 2024 compared to $73.7 million for the same period in 2023. The decrease was primarily due to a $4.3 million reduction in spend related to 2023 ERP implementation costs incurred in the prior period. This increase was partly offset by an increase of $1.4 million for the amortization of capitalized cloud computing implementation costs related to our ERP modernization initiative.

Previous wording

Interest expense (income), net increased to expense of $0.3 million for the three months ended March 31, 2024 compared to interest income of $0.4 million for the same period in 2023. The change was primarily due to a $0.4 million decrease of the valuation of our foreign currency forward contracts as a result of market fluctuations. Additionally, interest expense related to bank debt increased $0.1 million during the three months ended March 31, 2024 and interest income decreased by $0.1 million primarily due to a decrease in dollars invested during the period.

Current wording

Interest expense (income), net increased to an expense of $0.5 million for the six months ended June 30, 2024, compared to interest income of $0.5 million for the same period in 2023. The change was primarily due to a $0.8 million increase in interest expense related to the convertible debt issuance and Systax acquisition, a $0.9 million decrease in the valuation of our foreign currency forward contracts as a result of market fluctuations, and a $0.8 million increase in deferred financing costs related to the convertible debt issuance and the repayment of our term loan in May. These increases were offset by $1.1 million of interest income primarily due to increased dollars invested during the period and a reduction of $0.5 million in interest expense related to the term loan repayment.

Previous wording

Income tax (benefit) expense was $(4.5) million and $9.6 million for the three months ended March 31, 2024 and 2023, respectively. The change in tax (benefit) expense was primarily driven by tax benefits on exercises and vestings of stock awards recognized during the three months ended March 31, 2024, as well as differences in tax rates on foreign jurisdiction income or loss, limitations on deductions of certain employees’ compensation, fluctuations in valuation allowances on certain foreign deferred tax assets, and income tax expense on income allocated to state jurisdictions.

Current wording

Income tax (benefit) expense was $(2.3) million and $12.5 million for the six months ended June 30, 2024 and 2023, respectively. The change in tax (benefit) expense was primarily driven by tax benefits on exercises and vesting of stock awards, net of limitations on deductions of certain employees’ compensation, changes in jurisdictional income or loss allocation, fluctuations in valuation allowances on certain foreign deferred tax assets, and changes in benefits of tax credits.

Previous wording

As of March 31, 2024, we had unrestricted cash and cash equivalents of $56.1 million and retained earnings of $2.1 million. In addition, we had $9.1 million in investment securities with a maturity date exceeding three months as of March 31, 2024, not included in unrestricted cash and cash equivalents. Our primary sources of capital include sales of our solutions, proceeds from bank lending facilities, and the offering of existing or future classes of stock.

Current wording

As of June 30, 2024, we had unrestricted cash and cash equivalents of $325.5 million and retained earnings of $7.3 million. In addition, we had $8.7 million in investment securities with a maturity date exceeding three months as of June

Previous wording

On April 19, 2024, we entered into the Fourth Amendment to the Credit Agreement (the “Fourth Amendment”) with a banking syndicate. On April 26, 2024, we closed a private offering of $345.0 million aggregate principal amount of 0.750% Convertible Senior Notes due in 2029 (the “Notes”). For additional information on the Fourth Amendment and the Notes, refer to Note 13, “Subsequent Events” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Current wording

On April 26, 2024, we closed a private offering of $345.0 million aggregate principal amount of 0.750% Convertible Senior Notes due in 2029 (the “Notes”). The net proceeds from the offering of the Notes were $333.7 million, after deducting the initial purchasers’ discount and commissions, and other transaction and offering expenses. For additional information on the Notes, refer to Note 7, “Debt” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Previous wording

As of March 31, 2024, we had a credit agreement with a banking syndicate (the “Credit Agreement”) that provided (i) a term loan in the aggregate amount of $50.0 million (the “Term Loan”); and (ii) a $200.0 million revolving facility (the “Line of Credit”). We believe that our existing cash resources and our Line of Credit will be sufficient to meet our capital requirements and fund our operations for the next 12 months as well as our longer-term liquidity needs. Also, we expect to have access to additional sources of funds in the capital markets, and we may, from time to time, seek additional capital through a combination of additional debt and/or equity financings. If we were to raise additional funds by issuing equity securities, our stockholders may experience dilution. 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.

Current wording

We believe that our existing cash resources and our Line of Credit will be sufficient to meet our capital requirements and fund our operations for the next 12 months as well as our longer-term liquidity needs. If an early conversion notice occurs on our Notes, we have the option to pay cash, shares of our Class A common stock, or a combination of both. Also, we expect to have access to additional sources of funds in the capital markets, and we may, from time to time, seek additional capital through a combination of additional debt and/or equity financings. If we were to raise additional funds by issuing equity securities, our stockholders may experience dilution. 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.

Previous wording

Operating Activities. Net cash provided by operating activities of $24.6 million for the three months ended March 31, 2024 consisted of net income of $2.7 million, adjusted for non-cash charges of $36.8 million, which was partially offset by cash outflows of $14.9 million from changes in operating assets and liabilities. The change in operating assets and liabilities was primarily driven by decreases in accrued and deferred compensation and accrued expenses, and an increase in prepaid expenses and other current assets. These movements were primarily due to the timing of cash payments. These changes were partially offset by an increase in deferred revenue and a decrease in accounts receivable, primarily due to customer growth and cash collections during the period.

Current wording

Operating Activities. Net cash provided by operating activities of $82.3 million for the six months ended June 30, 2024 consisted of net income of $7.8 million, adjusted for non-cash charges of $60.7 million and cash inflows of $18.1 million from changes in operating assets and liabilities, which were partially offset by $4.7 million in payments for purchase commitment and contingent consideration liabilities in excess of their initial fair value. The change in operating assets and liabilities was primarily driven by a decrease in accounts receivable and an increase in deferred revenue, primarily due to cash collections and customer growth during the period. These changes were partially offset by decreases in accrued and deferred compensation and accrued expenses. These movements were primarily due to the timing of cash payments.

Previous wording

Net cash provided by operating activities of $3.5 million for the three months ended March 31, 2023 consisted of a net loss of $18.1 million, adjusted for non-cash charges of $17.1 million, which was partially offset by cash inflows of $4.5 million from changes in operating assets and liabilities. The change in operating assets and liabilities was primarily driven by an increase in accrued expenses and accounts payable, which were partially offset by decreases in accrued and deferred compensation and an increase in prepaids and other current assets. These movements were primarily due to timing of cash payments during the period.

Current wording

Net cash used in operating activities of $0.9 million for the six months ended June 30, 2023 consisted of a net loss of $25.0 million, adjusted for non-cash charges of $43.5 million, and cash outflows of $19.3 million from changes in operating assets and liabilities. The change in operating assets and liabilities was primarily driven by an increase in accounts receivable and a decrease in accrued and deferred compensation, which was partially offset by increases in accrued expenses and accounts payable. These movements were primarily due to timing of cash collections and payments during the period.

Previous wording

Investing Activities. Net cash used in investing activities of $19.5 million for the three months ended March 31, 2024 consisted of investments in property and equipment, and capitalized software of $14.4 million and $5.6 million, respectively, related to investments in infrastructure, new products, and enhancements to existing products. Additionally, we invested $4.3 million in available-for-sale investment securities, which was offset by proceeds of $4.8 million received during the period for sales and maturities in our investment securities.

Current wording

Investing Activities. Net cash used in investing activities of $47.8 million for the six months ended June 30, 2024 consisted of investments in property and equipment, and capitalized software of $29.7 million and $11.1 million, respectively, related to investments in infrastructure, new products, and enhancements to existing products. Additionally, we invested $7.8 million in available-for-sale investment securities, which was more than offset by proceeds of $8.9

Previous wording

Net cash used in investing activities of $14.3 million for the three months ended March 31, 2023 consisted of investments in property and equipment, and capitalized software of $10.0 million and $4.0 million, respectively, related to infrastructure investments to drive operating leverage and commercial solutions to support our customers. Additionally, we invested $3.5 million in available-for-sale investment securities, which was partially offset by proceeds of $3.3 million received during the period for sales and maturities in our investment securities.

Current wording

Net cash used in investing activities of $30.7 million for the six months ended June 30, 2023 consisted of investments in property and equipment, and capitalized software of $21.9 million and $9.0 million, respectively, related to infrastructure investments to drive operating leverage and commercial solutions to support our customers. Additionally, we invested $8.4 million in available-for-sale investment securities, which was more than offset by proceeds of $8.6 million received during the period for sales and maturities in our investment securities.

Previous wording

Net cash used in financing activities of $1.5 million for the three months ended March 31, 2023 consisted of a $10.0 million payment for a deferred purchase commitment, $3.7 million in payments for taxes related to the net share settlement of stock-based awards, and $0.3 million used for principal debt repayments. These transactions were partially offset by a $11.0 million increase in customer funds obligations, primarily due to timing differences between receipt of funds from

Current wording

Financing Activities. Net cash provided by financing activities of $238.1 million for the six months ended June 30, 2024 consisted of $345.0 million in gross proceeds from our Notes, as well as a $15.0 million increase in customer funds obligations, primarily due to timing differences between receipt of funds from customers and taxing jurisdiction withdrawals of these funds. These transactions were partly offset by $46.9 million for the repayment of our term loan, $42.4 million for the purchase of the Capped Call Transactions, $18.3 million in payments for taxes related to the net share settlement of stock-based awards, $11.4 million for payments related to deferred financing costs and $7.6 million for payments on purchase commitment and contingent consideration liabilities.

Previous wording

Financing Activities. Net cash used in financing activities of $1.2 million for the three months ended March 31, 2024 consisted of $17.9 million in payments for taxes related to the net share settlement of stock-based awards, and $0.6 million used for principal debt repayments. These transactions were partially offset by a $15.9 million increase in customer funds obligations, primarily due to timing differences between receipt of funds from customers and taxing jurisdiction withdrawals of these funds, and $1.5 million in proceeds from the exercise of stock options.

Current wording

Net cash used in financing activities of $3.5 million for the six months ended June 30, 2023 consisted of a $10.0 million payment for a deferred purchase commitment, $6.4 million in payments for purchase commitment and contingent consideration liabilities, $4.0 million in payments for taxes related to the net share settlement of stock-based awards, and $0.9 million used for principal debt repayments. These transactions were partially offset by a $14.5 million increase in customer funds obligations, primarily due to timing differences between receipt of funds from customers and taxing jurisdiction withdrawals of these funds, and $2.2 million in proceeds from the exercise of stock options.

Previous wording

As of March 31, 2024, other than the borrowings under the Term Loan**,** there have been no material updates or changes to our contractual obligations and commitments compared to contractual obligations and commitments described in our 2023 Annual Report.

Current wording

There have been no material updates or changes to our contractual obligations and commitments compared to contractual obligations and commitments described in our 2023 Annual Report, other than those noted above.

Previous wording

ARR increased by $78.0 million, or 17.5%, at March 31, 2024, as compared to March 31, 2023. The increase was primarily driven by $53.8 million of growth in revenues from existing customers through their expanded use of our solutions as well as price increases, and $24.2 million in growth of subscriptions of our solutions to new customers.

Current wording

ARR increased by $80.7 million, or 17.3%, at June 30, 2024, as compared to June 30, 2023. The increase was primarily driven by $48.6 million of growth in revenues from existing customers through their expanded use of our solutions as well as price increases, and $26.0 million in growth of subscriptions of our solutions to new customers. Addionally, $6.1 million was added to ARR due to the inclusion of Systax’s ARR, which was included as a result of the acquisition of the remaining ownership interests of Systax during the second quarter of 2024. Excluding the impact of Systax, the ARR growth rate would have been 16.0%.

Previous wording

We had 4,309 direct customers and AARPC was approximately $121,720 at March 31, 2024. At March 31, 2023, we had 4,278 direct customers and approximately $104,370 of AARPC. The increase in AARPC was primarily due to expansion of usage by existing customers and adding new customers through organic growth.

Current wording

We had 4,438 direct customers and AARPC was approximately $123,570 at June 30, 2024. At June 30, 2023, we had 4,284 direct customers and approximately $109,170 of AARPC. The increase in AARPC was primarily due to expansion of usage by existing customers and adding new customers through organic growth. Additionally, the inclusion of Systax added 150 customers to the second quarter of 2024.

Previous wording

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 (including adjustments to the settlement value of deferred purchase commitment liabilities), taxes, depreciation, and amortization, as adjusted to exclude charges for asset impairments, stock-based compensation expense, amortization of cloud computing arrangement implementation costs, severance expense, acquisition contingent consideration, litigation settlements, and transaction costs. Adjusted EBITDA margin represents Adjusted EBITDA divided by total revenues for the same period. For purposes of comparison,

Current wording

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 (including adjustments to the settlement value of deferred purchase commitment liabilities), taxes, depreciation, and amortization, as adjusted to exclude charges for asset impairments, stock-based compensation expense, amortization of cloud computing arrangement implementation costs, severance expense, acquisition contingent consideration, litigation settlements, and transaction costs. Adjusted EBITDA margin represents Adjusted EBITDA divided by total revenues for the same period. For purposes of comparison, our net income (loss) was $5.2 million and $(6.9) million for the three months ended June 30, 2024 and 2023, respectively, while our net income (loss) margin was 3.2% and (4.9)% over the same periods, respectively. Additionally, our net income

Previous wording

our net income (loss) was $2.7 million and $(18.1) million for the three months ended March 31, 2024 and 2023, respectively, while our net income (loss) margin was 1.7% and (13.7)% over the same periods, respectively.

Current wording

(loss) was $7.8 million and $(25.0) million for the six months ended June 30, 2024 and 2023, respectively, while our net income (loss) margin was 2.5% and (9.2)% over the same periods, respectively.

Previous wording

The increase in Adjusted EBITDA for the three months ended March 31, 2024 of $16.5 million over the comparable period in 2023 was primarily driven by an increase of $18.5 million in non-GAAP gross profit, offset by increases in non-GAAP operating expense categories, including a $3.6 million increase in non-GAAP selling and marketing expense. Adjusted EBITDA margin increased to 23.4% for the three months ended March 31, 2024, compared to 15.2% for the comparable period in 2023, primarily due to increased non-GAAP gross margin from our software subscriptions revenue.

Current wording

The increase in Adjusted EBITDA for the three months ended June 30, 2024 of $16.5 million over the comparable period in 2023 was primarily driven by an increase of $19.7 million in non-GAAP gross profit as well as a $2.6 million decrease in non-GAAP general and administrative expense, partly offset by a $5.2 million increase in non-GAAP selling and marketing expense. Adjusted EBITDA margin increased to 23.9% for the three months ended June 30, 2024, compared to 15.7% for the comparable period in 2023, primarily due to increased non-GAAP gross margin from both our software subscriptions and professional services revenue, as well as decreased non-GAAP general and administrative expense.

Previous wording

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

Current wording

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.

Previous wording

Free cash flow increased by $15.1 million for the three months ended March 31, 2024, as compared to the same period in 2023. This increase was primarily driven by an increase in net cash provided by operating activities of $21.1 million, primarily attributable to customer growth and cash collections during the period. This increase was partly offset by a $6.0 million increase in ongoing investments in internal-use software for cloud-based subscription solutions and software developed for sale for new products and enhancements to existing products. Free cash flow margin increased to 2.9% for the three months ended March 31, 2024, compared to (8.0)% for the same period in 2023.

Current wording

Free cash flow increased by $58.2 million for the three months ended June 30, 2024, as compared to the same period in 2023. This increase was primarily driven by an increase in net cash provided by operating activities of $62.1 million, primarily attributable to customer growth and cash collections during the period. This increase was partly offset by a $3.9 million increase in ongoing investments in internal-use software for cloud-based subscription solutions and software developed for sale for new products and enhancements to existing products. Free cash flow margin increased to 22.9% for the three months ended June 30, 2024, compared to (15.2)% for the same period in 2023.

Previous wording

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.

Current wording

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.