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 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.

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 45% of software subscription revenue from cloud-based subscriptions during the three months ended September 30, 2024 and 2023, respectively, and 48% and 44% for the nine months ended September 30, 2024 and 2023, respectively. While our on-premise software subscription revenue comprised 51% and 55% of our software subscription revenue during the three months ended September 30, 2024 and 2023, respectively, and 52% and 56% for the nine months ended September 30, 2024 and 2023, respectively, it continues to decrease as a percentage of total software subscriptions revenues as cloud-based subscriptions grow.

Previous 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”).

Current wording

We believe that global commerce and the compliance environment provides durable and accelerating growth opportunities for our business. We generated revenue of $170.4 million and $145.0 million for the three months ended September 30, 2024 and 2023, respectively, and $488.3 and $417.5 for the nine months ended September 30, 2024 and 2023, respectively. We had net income (loss) of $7.2 million and $(3.4) million for the three months ended September 30, 2024 and 2023, respectively, and $15.1 million and $(28.4) million for the nine months ended September 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 $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.

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 $38.6 million and $26.6 million for the three months ended September 30, 2024 and 2023, respectively and $113.9 million and $68.8 million for the nine months ended September 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

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. We used $42.4 million of the net proceeds from this offering to fund the cost of the Capped Call Transactions (as defined in Note, 7 “Debt” to our condensed consolidated financial statements) and intend to use the remainder for working capital or other general corporate expenses, which may include capital expenditures, potential acquisitions, and strategic transactions.

Current wording

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. We used $42.4 million of the net proceeds from this offering to fund the cost of the Capped Call Transactions (as defined in Note, 8 “Debt” to our condensed consolidated

Previous wording

On May 31,2024, we entered into an asset purchase agreement with Ryan, LLC (“Ryan”) to acquire tax-specific artificial intelligence (“AI”) capabilities, designed to more effectively manage the complexity of tax mapping. The acquisition will accelerate our AI innovation strategy to help global companies manage tax complexity with greater speed and scale. We paid approximately $6.1 million in closing consideration, which included $0.1 million in transaction costs. The purchase agreement includes the potential for earnout payments and referral fees over a five-year period. For further

Current wording

On May 31, 2024, we entered into an asset purchase agreement with Ryan, LLC (“Ryan”) to acquire tax-specific artificial intelligence (“AI”) capabilities, designed to more effectively manage the complexity of tax mapping. The acquisition will accelerate our AI innovation strategy to help global companies manage tax complexity with greater speed and scale. We paid approximately $6.1 million in closing consideration, which included $0.1 million in transaction costs. The purchase agreement includes the potential for earn-out payments and referral fees over a five-year period. For further information, refer to Note 5, “Property and Equipment” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Previous 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.

Current 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.

Previous wording

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.

Current wording

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

Previous 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.

Current wording

Revenues increased $25.4 million, or 17.5%, to $170.4 million for the three months ended September 30, 2024 compared to $145.0 million for the same period in 2023. The increase in software subscriptions revenues of $25.0 million, or 20.6%, was primarily driven by increases from our existing customers through cross selling new products, and to a lesser extent, increases due to expanded use and price increases. Software subscriptions revenues derived from new customers averaged 6.0% and 6.5% of total software subscriptions revenues in the three months ended September 30, 2024 and 2023, respectively.

Previous wording

The $6.0 million increase in services revenues was primarily driven by an increase of $4.6 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 $1.4 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 $0.4 million increase in services revenues was primarily driven by a $1.9 million increase in recurring services revenues 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. These increases were partially offset by a $1.5 million decrease in service revenues primarily from the impact of our previously discussed effort to steer more implementation opportunities to our channel partners, who are an important referral source for new software opportunities.

Previous wording

Cost of software subscriptions revenues increased $11.5 million, or 15.1%, to $87.4 million for the six months ended June 30, 2024 compared to $75.9 million for the same period in 2023. The increase in cost of software subscriptions revenues was primarily driven by a $6.7 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 $4.8 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 $2.6 million, or 6.3%, to $43.6 million for the three months ended September 30, 2024 compared to $41.1 million for the same period in 2023. The increase in cost of software subscriptions revenues was primarily driven by a $2.4 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.

Previous 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.

Current wording

Cost of services revenues increased $0.5 million, or 2.9%, to $16.3 million for the three months ended September 30, 2024, compared to $15.8 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 $1.9 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.

Current wording

Research and development expenses decreased $1.2 million, or (6.9)%, to $15.6 million for the three months ended September 30, 2024 compared to $16.8 million for the same period in 2023. The decrease in research and development expenses is due to an increase in capitalized costs over the prior year 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.

Previous 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.

Current wording

Selling and marketing expenses increased $8.2 million, or 24.2%, to $42.1 million for the three months ended September 30, 2024 compared to $33.9 million for the same period in 2023. This increase was primarily driven by a $4.6 million increase in payroll and related expenses associated with the growth in period-over-period subscription sales and services revenues and expansion of our partner and channel management programs. Additionally, there was an increase of $3.6 million in advertising and promotional spending related to expanded brand awareness efforts.

Previous 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.

Current wording

Depreciation and amortization increased $1.4 million, or 37.9%, to $5.2 million for the three months ended September 30, 2024 compared to $3.8 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 $(1.6) million, net for the six months ended June 30, 2024 compared to expense of $0.7 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 acquisition.

Current wording

Other operating expense (income), net increased to expense of $1.2 million, net for the three months ended September 30, 2024 compared to expense of $0.3 million, net for the same period in 2023. The increase in expense was primarily driven by foreign currency transaction losses incurred.

Previous wording

Interest expense (income), net increased to an expense of $0.2 million for the three months ended June 30, 2024, compared to interest income of $0.1 million for the same period in 2023. This change was mainly due to several factors: a $0.8 million increase in interest expense related to the convertible debt issuance and Systax acquisition, a $0.5 million decrease in the valuation of our foreign currency forward contracts due to market fluctuations, and a $0.7 million increase in deferred financing costs related to the convertible debt issuance and the repayment of our term loan in May. These increases were partially offset by $1.3 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.

Current wording

Interest expense (income), net increased to income of $2.9 million for the three months ended September 30, 2024, compared to an expense of $0.6 million for the same period in 2023. This change was mainly due to several factors: a $3.8 million increase in interest income primarily due to increased dollars invested during the period, a reduction of $0.8 million of interest expense related to the term loan repayment, and $0.2 million related to the valuation of our prior year foreign currency forward contracts due to market fluctuations. These interest income increases were partially offset by $0.7 million of interest expense and a $0.6 million increase in deferred financing costs related to the convertible debt issuance.

Previous wording

Income tax expense was $2.2 million and $2.9 million for the three months ended June 30, 2024 and 2023, respectively. The change in tax expense was primarily driven by changes in benefits of tax credits, changes in jurisdictional income or loss allocation, and fluctuations in valuation allowances on certain foreign deferred tax assets.

Current wording

Income tax expense was $0.6 million and $0.8 million for the three months ended September 30, 2024 and 2023, respectively. The change in tax expense was primarily driven by fluctuations in valuation allowances on certain foreign deferred tax assets, tax benefits from stock-based awards exercised or vested during the quarter, net of the impact from limitations on deductions of certain employees’ compensation, and benefits from tax credits partially offset by changes in taxes in profitable jurisdictions.

Previous wording

Revenues increased $45.4 million, or 16.7%, to $317.9 million for the six months ended June 30, 2024 compared to $272.4 million for the same period in 2023. The increase in software subscriptions revenues of $39.4 million, or 17.2%, 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 5.7% and 6.5% of total software subscriptions revenues in the six months ended June 30, 2024 and 2023, respectively.

Current wording

Revenues increased $70.8 million, or 17.0%, to $488.3 million for the nine months ended September 30, 2024 compared to $417.5 million for the same period in 2023. The increase in software subscriptions revenues of $64.4 million, or 18.4%, was primarily driven by increases from our existing customers through cross selling new products, and to a lesser extent, increases due to expanded use and price increases. Software subscriptions revenues derived from new customers averaged 5.8% and 6.5% of total software subscriptions revenues in the nine months ended September 30, 2024 and 2023, respectively.

Previous 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.

Current wording

The $6.5 million increase in services revenues was primarily driven by an increase of $3.1 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 $3.3 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.

Previous 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.

Current wording

Cost of software subscriptions revenues increased $14.1 million, or 12.0%, to $131.0 million for the nine months ended September 30, 2024 compared to $117.0 million for the same period in 2023. The increase in cost of software subscriptions revenues was primarily driven by a $9.1 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 $5.0 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.

Previous wording

Cost of services revenues increased $2.3 million, or 7.8%, to $32.0 million for the six months ended June 30, 2024, compared to $29.7 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 $2.8 million, or 6.1%, to $48.3 million for the nine months ended September 30, 2024, compared to $45.5 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 $2.9 million, or 10.2%, to $31.5 million for the six months ended June 30, 2024 compared to $28.5 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 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 $1.8 million, or 3.9%, to $47.1 million for the nine months ended September 30, 2024 compared to $45.3 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 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 $11.8 million, or 17.0%, to $81.0 million for the six months ended June 30, 2024 compared to $69.3 million for the same period in 2023. This increase was primarily driven by a $10.6 million increase in payroll and related expenses associated with the growth in period-over-period subscription sales and services revenues and expansion of our partner and channel management programs. Additionally, there was an increase of $0.5 million in advertising and promotional spending related to expanded brand awareness efforts.

Current wording

Selling and marketing expenses increased $19.9 million, or 19.3%, to $123.1 million for the nine months ended September 30, 2024 compared to $103.2 million for the same period in 2023. This increase was primarily driven by a $14.6 million increase in payroll and related expenses associated with the growth in period-over-period subscription sales and services revenues and expansion of our partner and channel management programs. Additionally, there was an increase of $4.8 million in advertising and promotional spending related to expanded brand awareness efforts.

Previous wording

Depreciation and amortization increased $2.6 million, or 34.1%, to $10.2 million for the six months ended June 30, 2024 compared to $7.6 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 $4.0 million, or 35.4%, to $15.4 million for the nine months ended September 30, 2024 compared to $11.4 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 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”).

Current wording

Other operating expense (income), net increased to income of $0.4 million, net for the nine months ended September 30, 2024 compared to expense of $1.0 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 LLC acquisition.

Previous 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.

Current wording

Interest expense (income), net increased to income of $2.5 million for the nine months ended September 30, 2024, compared to interest expense of $0.1 million for the same period in 2023. The change was primarily due to a $5.0 million increase in interest income due to increased dollars invested during the period and a reduction of $1.2 million of interest expense related to the term loan repayment. This was partially offset by a $0.6 million decrease in the valuation of our foreign currency forward contracts due to market fluctuations, a $1.6 million increase in interest expense and $1.4 million increase in deferred financing costs related to the convertible debt issuance.

Previous 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.

Current wording

Income tax (benefit) expense was $(1.7) million and $13.3 million for the nine months ended September 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 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

Current wording

As of September 30, 2024, we had unrestricted cash and cash equivalents of $279.0 million and retained earnings of $14.5 million. In addition, we had $7.5 million in investment securities with a maturity date exceeding three months as of September 30, 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.

Previous 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.

Current wording

Operating Activities. Net cash provided by operating activities of $123.7 million for the nine months ended September 30, 2024 consisted of net income of $15.1 million, adjusted for non-cash charges of $93.5 million and cash inflows of $19.5 million from changes in operating assets and liabilities, which were partially offset by $4.4 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 an increase in prepaid expenses and other current assets. These movements were primarily due to the timing of cash payments.

Previous 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.

Current wording

Net cash provided by operating activities of $26.7 million for the nine months ended September 30, 2023 consisted of net loss of $28.4 million, adjusted for non-cash charges of $75.0 million and cash outflows of $19.9 million from changes in operating assets and liabilities. The change in operating assets and liabilities was primarily driven by an increase in accounts receivable which was partially offset by increases in accounts payable and accrued expenses. 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 $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

Current wording

Investing Activities. Net cash used in investing activities of $133.3 million for the nine months ended September 30, 2024 consisted of investments in property and equipment, and capitalized software of $47.5 million and $16.4 million,

Previous wording

million received during the period for sales and maturities in our investment securities.** **Finally, we paid $6.1 million related to an asset acquisition completed during the second quarter of 2024. For additional information on our asset acquisition, refer to Note 4, “Property and Equipment” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Current wording

respectively, related to investments in infrastructure, new products, and enhancements to existing products. Additionally, we paid $71.8 million related to acquisitions completed during the second and third quarters of 2024. Finally, we invested $12.2 million in available-for-sale investment securities, which was more than offset by proceeds of $14.6 million received during the period for sales and maturities in our investment securities. For additional information on our acquisitions, refer to Note 3, “Acquisitions” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Previous 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.

Current wording

Net cash used in investing activities of $46.3 million for the nine months ended September 30, 2023 consisted of investments in property and equipment, and capitalized software of $35.4 million and $14.1 million, respectively, related to infrastructure investments to drive operating leverage and commercial solutions to support our customers. Additionally, we invested $12.9 million in available-for-sale investment securities, which was more than offset by proceeds of $16.0 million received during the period for sales and maturities in our investment securities.

Previous 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.

Current wording

Financing Activities. Net cash provided by financing activities of $225.0 million for the nine months ended September 30, 2024 consisted of $345.0 million in gross proceeds from our Notes, as well as a $6.0 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, $3.9 million in payments of third-party debt, $20.0 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

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.

Current wording

Net cash used in financing activities of $6.0 million for the nine months ended September 30, 2023 consisted of a $10.0 million payment for a deferred purchase commitment, $9.2 million in payments for taxes related to the net share settlement of stock-based awards, $6.4 million in payments for purchase commitment and contingent consideration liabilities, and $1.6 million used for principal debt repayments. These transactions were partially offset by a $17.0 million increase in customer funds obligations, primarily due to timing differences between receipt of funds from customers and taxing jurisdiction withdrawals of these funds, and $3.1 million in proceeds from the exercise of stock options.

Previous 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.

Current wording

There have been no other 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 $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%.

Current wording

ARR increased by $91.9 million, or 19.0%, at September 30, 2024, as compared to September 30, 2023. The increase was primarily driven by $52.6 million of growth in revenues from existing customers through their expanded use of our solutions as well as price increases, and $25.3 million in growth of subscriptions of our solutions to new customers. Addionally, $5.9 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, and $8.1 million was added to ARR due to the ecosio acquisition during the third quarter of 2024. Excluding the impact of Systax and ecosio, the ARR growth rate would have been 16.1%.

Previous 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.

Current wording

We had 4,855 direct customers and AARPC was approximately $118,800 at September 30, 2024. At September 30, 2023, we had 4,303 direct customers and approximately $112,690 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 and ecosio added 574 customers to the third 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, 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

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 $7.2 million and $(3.4) million for the three months ended September 30, 2024 and 2023, respectively, while our net income (loss) margin was 4.2% and (2.3)% over the same periods, respectively. Additionally,

Previous 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.

Current wording

our net income (loss) was $15.1 million and $(28.4) million for the nine months ended September 30, 2024 and 2023, respectively, while our net income (loss) margin was 3.1% and (6.8)% over the same periods, respectively.