VERX 10-K & 10-Q changes, risk factors and insider trading

We depend in part on and anticipate that we will continue to depend in part on,on various third-party relationships to sustain and grow our business. Our relationships with third-party publishers of software business applications, including accounting, ERP, eCommerce, POS, recurring billing, and CRM systems, help drive our business because the integration of our solutions with their applications allows us to reach their sizeable customer bases. Our customers' user experience is dependent on our ability to connect easily to such third-party software applications. We may fail to retain and expand these integrations or relationships for many reasons, including due to failures by third parties to maintain, support, or secure their technology platforms in general and our integrations in particular, or errors, bugs or defects in such third-party technology, or changes in our technology platform. Any such failure could harm our relationship with our customers, our reputation and brand, and our business and results of operations.

To improve the scalability, security, and efficiency of our solutions, and to support the expansion of our software into other tax types, we will need to continue making significant capital expenditures and also invest in additional software and infrastructure development.development, including investments in AI solutions. If we experience increasing demand in subscriptions, we may not be able to augment our infrastructure quickly enough to accommodate such increasing demand. In the event of decreases in subscription sales, certain of our fixed costs, such as for capital expenditures, may make it difficult for us to quickly adjust our expenses downward. Additionally, we are continually updating our software and content, which increases expenses for us. We may also need to review or revise our software architecture as we grow, which may require significant resources and investments. As a result, although we may have significant research and development expenditures, which may be incurred and certain of which may be capitalized, there is no guarantee our solutions will be accepted by the market. This could result in increased costs or an impairment of capitalized development costs with no resulting future revenue benefit.

Our quarterly and annual results of operations willmay fluctuate in future periods.

We willmay experience quarterly or annual fluctuations in our results of operations due to a number of factors, many of which are outside of our control. This makes our future results difficult to predict and could cause our results of operations to fall below expectations or our predictions. Factors that might cause quarterly or annual fluctuations in our results of operations include, but are not limited to:

We have a dynamic organization and routinely implement changes to our priorities and workforce in order to keep up with the constantly evolving market in which we operate. We expect these types of changes to continue for the foreseeable future. Our success is dependent on identifying, developing and retaining key employees to provide uninterrupted leadership and direction for our business. We have recently experienced workplace changes, including a new Chief Executive Officer, and we expect changes to continue for the foreseeable future. Unplanned departures or the failure to develop a robust leadership pipeline could upend our annual goals and erode investor confidence. We must aggressively recruit experts in all fields, particularly in the fields of AI and e-invoicing platforms, while retraining our existing workforce to adapt to automated, hybrid decision-making processes. This includes developing organizational capabilities in key growth markets where the depth of skilled employees is limited and competition for these resources is intense. Failure to manage this transition could lead to a loss of institutional knowledge, declining employee morale, and a weakened competitive position against digital-first entrants. Further, business and organizational changes may result in more reliance on third parties for various services, and that reliance may increase reputational, operational and compliance risks.

We are exposed to cybersecurity and data privacy risks that, if realized, could exposematerially us to legal liability, damageimpact our reputation and harm our business.

We faceand riskscertain of cyber-attacks,our computerthird-party hacks,providers theft,regularly viruses,experience maliciouscyberattacks software,and phishing,other employeeincidents, error,and denial-of-servicewe expect such attacks and otherincidents securityto breachescontinue in varying degrees. For example, we have experienced phishing attacks and incidents involving unauthorized access to confidential information. While to date no incidents have had a material impact on our operations or financial results, we cannot guarantee that couldmaterial jeopardizeincidents thewill performancenot of our software and expose us to financial and reputational harm. Any of these occurrences could create liability for us, put our reputation in jeopardy and harm our business. Such harm could beoccur in the form of theft of our or our customers' confidential information, the inability of our customers to access our systems or the improper re-routing of customer funds through fraudulent transactions or other frauds perpetrated to obtain inappropriate payments. In some cases, we rely on the safeguards put in place by third parties to protect against security threats. These third parties, including vendors that provide products and services for our operations, could also be a source of security risk to us in the event of a failure or a security incident affecting their own security systems and infrastructure. Our network of ecosystem partners could also be a source of vulnerability to the extent their applications interface with ours, whether unintentionally or through a malicious backdoor. We do not review the software code included in third-party integrations in all instances.future. Because the techniques used to obtain unauthorized access to data or to sabotage IT systems changeare frequentlyincreasingly sophisticated and generallyleverage aretools, notsuch recognizedas untilartificial launched against a target,intelligence, we orand theseour third partiesparty mayproviders beare unable to anticipate theseall techniques or to implement adequatecomprehensive preventative measures. We have internal controls designed to prevent cyber-related frauds related to authorizing the transfer of funds, but such internal controls may not be adequate. With the increasing frequency of cyber-related frauds to obtain inappropriate payments and other threats related to cyber-attacks, we may find it necessary to expend resources to remediate cyber-related incidents or to enhance and strengthen our cybersecurity. Our remediation efforts may not be successful and could result in interruptions, delays or cessation of service. Although we have insurance coverage for losses associated with cyber-attacks, as with all insurance policies, there are coverage exclusions and limitations, and our coverage may not be sufficient to cover all possible claims, and we may still suffer losses that could have a material adverse effect on our reputation and business.

Our customers provide us with information that our solutions store, some of which may be confidential information about them or their financial transactions. In addition, we store personal information about our employees and, to a lesser extent, those who purchase products or services from our customers. We have security systems and information technology infrastructure designed to protect against unauthorized access to such information. The security systems and infrastructure we maintain mayand notuse becannot successfulguarantee in protectingprotection against all security breaches and cyber-attacks, social-engineering attacks, computer break-ins, theft and other improper activity. ThreatsA tosignificant our information technology security can take various forms, including viruses, worms and other malicious software programs that attempt to attack our solutionscyberattack or platform or to gain access to the data of our customers or their customers. Like other companies, we have on occasion and will continue to experience threats to our data and systems. Any significant data breach could result in the loss of business, litigation and regulatory investigations, loss of customers and fines and penalties that could damage our reputation and brand and adversely affect the growth of our business. To date, the Company has not experienced any material impact to the business or operations resulting from information or cybersecurity attacks; however, because of the frequently changing attack techniques, along with the increased volume and sophistication of the attacks, there is the potential for the Company to be adversely impacted.

The increase in remote working arrangements by our employees, vendors, and other third parties also increases the risk of a data security compromise and the possible attack surfaces. We also have acquired and are likely to continue to acquire companies with cybersecurity vulnerabilities or unsophisticated security measures, which present potentially significant cybersecurity and integration risk to us. Although we conduct training as part of our information security, cybersecurity, and data privacy efforts, that training cannot be completely effective in preventing those attacks from being successful. There can be no assurance that our cybersecurity risk management program and processes, including our policies, controls, or procedures, will be fully implemented, complied with or effective in protecting our systems and information.

We and our subsidiaries may be able to incur substantial additional debt in the future, subject to the restrictions contained in our debt instruments, some of which may be secured debt. We will not be restricted under the terms of the indenture governing the Notes (the “Indenture”) from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that are not limited by the terms of the Indenture that could have the effect of diminishing our ability to make payments on our indebtedness when due. Each of ourOur Line of Credit and Term Loan restricts our ability to incur additional indebtedness, including secured indebtedness, but if the respective facility matures or is repaid, we may not be subject to such restrictions under the terms of any subsequent indebtedness.

Vertex is a leading global provider of indirectenterprise taxcompliance softwaretechnology for global commerce. Our software, data, and solutions.services help businesses operate with confidence by automating and governing transaction-based compliance obligations that arise wherever they buy, sell, and move goods and services around the world. Our mission is to deliver the most trusted tax technology enabling global businesses to transact, comply, and grow with confidence. Vertex provides cloud-based and on-premise solutions that can be tailored to specific industries for every major line of indirect tax, including sales and consumer use, value added (including e-invoicing), and payroll. Headquartered in North America, and with offices in South America and Europe, Vertex employs over 1,9002,100 professionals and serves companies across the globe.

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

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 ERP, CRM, procurement, billing, POS, and eCommerce. These partners include Adobe/Magento, Coupa, Microsoft Dynamics, NetSuite, Oracle, Salesforce, SAP, SAP Ariba, Shopify, Workday, and Zuora. In 2025, we partnered with Kintsugi to launch Kintsugi powered by Vertex, which enables small- and medium-sized businesses to automate key compliance functions while providing real-time dashboards for jurisdictional liability and exposure tracking. We also collaborate with numerousover 45 accounting and professional services firms who have built implementation practices around our software to serve their customer base.

We believe that global commerce and the compliance environment providesprovide durable and accelerating growth opportunities for our business. We generated revenues of $666.8$748.4 million and $572.4$666.8 million in 20242025 and 2023,2024, respectively. We had net lossesincome (loss) of $7.2 million and $(52.7) million and $(13.1) million in 20242025 and 2023,2024, respectively. These amounts are presented in accordance with generally accepted accounting principles in the U.S. (“GAAP”).

Retention and expansion of revenues from existing customers. Given the breadth of our customer base and their own internal growth, the majority of our revenues and revenue growth comes from existing customers. This revenue growth is comprised of the acquisition of new licenses for additional products, increases in subscription fees due to expanded usage of currently licensed software and price increases. We plan to continue to invest in new innovations and offerings and in our sales and marketing teams in order to support the ongoing strong retention and expansion of revenues with our existing customers. We continually invest in and focus on elevating and delivering exceptional experiences for our customers, while aiming to build strong, long-term relationships with them. We monitor our net revenue retention rate (“NRR”) in order to understand our ability to retain and grow revenues from our customers. Our NRR was 109%105% and 113%109% in 20242025 and 2023,2024, respectively. We believe our gross revenue retention rate (“GRR”) provides insight into and demonstrates to investors our ability to retain revenues from our existing customers. Our GRR was 94% and 95% in both 20242025 and 2023.2024, respectively. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations– Key Business Metrics– Net Revenue Retention Rate and Gross Revenue Retention Rate” and for further discussion.

Investing in growth and scaling our business. We believe that our market opportunity is large, and we will continue to invest significantly in scaling across organizational functions in order to support the anticipated growth in our operations both domestically and internationally. Any investments we make in our research and development and our sales and marketing organization will occur in advance of experiencing the benefits from such investments; therefore, it may be difficult for us to determine if we are efficiently allocating resources in those areas. The companyWe may pursue acquisitions or partner arrangements to accelerate its growth initiatives. Refer to Note 3, “Acquisitions” to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K for a discussion of our acquisitions.

During the second quarter of 2024,2025, we paidcompleted $9.6our millionstrategic toinvestment acquirein the remaining 20% equity interest of Systax Sistemas Fiscais LTDA (“Systax”),Kintsugi, a providerSan ofFrancisco-based, BrazilianAI transactionstartup focused on automating sales tax contentcompliance for small and software.mid-size Onbusinesses June(the 5,“Kintsugi 2024,Investment”). Systax became a wholly owned subsidiaryTerms of the Company.agreement included a $15.0 million minority investment representing a 10% ownership interest, as well as an intellectual property sharing and commercial arrangement. Additionally, we have designated one member to Kintsugi’s board of directors. For further information,information on the Kintsugi Investment, refer to Note 5,4, “Financial Instruments and Fair Value MeasurementsInvestments” to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K.

ecosioCEO GmbH AcquisitionTransition

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

The change in fair value of acquisition contingent earn-outs consists of fair value adjustments to our Cash Earn-outs (as defined below) and Stock Earn-outs (as defined below) (collectively with the Cash Earn-outs, the “Earn-outs”) related to our 2024 acquisition of ecosio. The Earn-outs will be revalued and adjusted quarterly until the end of the Earn-out periods.

Interest expense consists primarily of interest incurred related to the Notes,Notes (as defined below), a term loan in the aggregate amount of $50.0 million (the “Term Loan,Loan”), Credit Agreement,Agreement (as defined below), 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 LTDA (“Systax”) acquisition, which was fully settled on June 5, 2024.

Income tax expense (benefit) consists primarily of federal, foreign, state, and local taxes on our loss or income. Vertex and its subsidiaries are generally taxed at the corporate level, and the income tax provisionexpense or benefit is based on the income or loss sourced to the U.S. federal and state jurisdictions as well as foreign jurisdictions at the tax rates applicable in those jurisdictions.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto beginning on page F-1 of this Annual Report on Form 10-K. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods. The following table sets forth our consolidated statements of comprehensive income (loss) for the periods indicated.

Revenues increased $94.4$81.7 million, or 16.5%,12.2%, to $748.4 million in 2025 compared to $666.8 million in 2024 compared to $572.4 million in 2023.2024. The increase in software subscriptions revenues of $86.3$72.5 million, or 17.9%,12.8%, was primarily driven by an increase of $80.5 million from cross selling new products to existing customers, increases from our existing customers through cross-selling new products, and to a lesser extent, increases due to expanded use of our products and services, and price increases. Software subscriptions revenues derived from new customers averaged 6.3%7.1% and 6.2%6.3% of total software subscriptions revenues in 20242025 and 2023,2024, respectively. These increases were partially offset by revenues from customer usage tier-ups being lower in 2025 compared to 2024.

Cost of software subscriptions revenues increased $12.7$12.2 million, or 7.8%,7.0%, to $187.8 million in 2025 compared to $175.6 million in 20242024. compared to $162.9 million in 2023. ThisThe increase was primarily driven by a $5.9$10.5 million increase in costs of personnel supporting period-over-period growth of sales and customers, and ongoing hosting and infrastructure investments to support expansion of customer transaction volumes for our cloud-based subscription customers. In addition, we experienced an increase in depreciation and amortization of capitalized software and acquired intangible assets of $5.3 million associated with our ongoing investments in internal-use software for cloud-based subscription solutions, software developed for sale for new products and enhancements to existing products, and costs associated with the increased amortization of acquired intangible assets. Lastly,Additionally, stock-basedthere compensationwas increaseda by $1.5$1.7 million forincrease in costs of personnel supporting period-over-period growth of sales and customers, ongoing infrastructure investments and support costs to enable the twelvecontinued monthsexpansion endedof Decembercustomer 31,transaction 2024,volumes overfor theour samecloud-based periodsubscription in 2023.customers.

Cost of services revenues increased $4.2$14.0 million, or 6.9%,21.4%, to $79.0 million in 2025, compared to $65.1 million in 20242024. compared to $60.9 million in 2023. ThisThe increase was primarily drivendue byto a $3.3 millionan increase in costs of service delivery personnel to support revenue growth in software-subscriptionsoftware relatedsubscription-related services and our managed services offering. In addition, this amount includes an increase in stock-based compensation of $0.9 million for the twelve months ended December 31, 2024, over the same period in 2023.

Research and development expenses increased $8.5$17.0 million, or 14.5%,25.6%, to $83.7 million in 2025 compared to $66.7 million in 2024 compared to $58.2 million in 2023.2024. This increase in research and development expenses was primarily due to a $4.9 millionan increase in personnel costs related to development work associated with new solutions to address end-to-end data analysis and compliance needs of our customers, and continued expansion of connectors and application program interfaces (“APIs”) to customer enterprise resource planning (“ERP”) and other software platforms. In addition,Additionally, this amount includes an increase inreflects stock-basedadditional compensation of $3.6 million for the twelve months ended December 31, 2024, over the same period in 2023. Researchresearch and development expensesinvestments excluderelated thoseto coststhe thatcommercialization have been capitalized for solutions that have metof our capitalizationAI-based policy.Smart Categorization product, other AI-related internal tools and new product initiatives, and other emerging technologies.

Selling and marketing expenses increased $30.3$25.9 million, or 21.6%,15.2%, to $196.5 million in 2025 compared to $170.6 million in 20242024. comparedThis toincrease $140.2 million in 2023,was primarily driven by a $15.6 million increase in payroll and related expenses associated with the growth in period-over-period subscription sales and services revenues and expansion of our partner and channel management programs. InAdditionally, addition,there this includedwas an increase of $10.0$10.3 million in advertising and promotional spending related to expanded brand awareness efforts. Lastly, there was an increase in stock-based compensation of $4.8 million.

General and administrative expenses increased $6.9$25.9 million, or 4.7%,16.9%, to $178.7 million in 2025 compared to $152.8 million in 2024 compared to $145.9 million in 2023,2024, primarily driven by an increase of $2.8 million associated with planned strategic investments in information technology infrastructure, business process re-engineering,re-engineering and other initiatives to drive future operating leverage.leverage, Thisas increasewell also reflectsas investments in employees, systems,systems and other resources in support of our growth. Additionally, there was an increase of $1.4 million for the amortization of capitalized cloud computing implementation costs related to our ERP modernization initiative which was completed in 2023. Lastly, there was an increase in stock-based compensation of $2.7 million for the year ended December 31, 2024, over the same period in 2023.

Depreciation and amortization expenses increased $5.8$3.9 million, or 37.8%,18.4%, to $24.8 million in 2025 compared to $21.0 million in 2024 compared to $15.2 million in 2023.2024. The increase was primarily due to the impact of infrastructure and technology purchases and other capitalized infrastructure costs to support our growth.

Change in fair value of acquisition contingent earn-outs increased $17.5 million from the prior yearis due entirely to adjustments to the fair values of our ecosioacquisition contingent consideration related to the 2024 acquisition contingentof ecosio GmbH (“ecosio”). Cash Earn-outs and Stock Earn-outs of $12,200 and $(29,200), respectively, were recorded during the year ended December 31, 2025. Cash Earn-outs and Stock Earn-outs of $3,365 and $14,135, respectively, were recorded forduring the year ended December 31, 2024. For further information, refer to Note 3, “Acquisitions” to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K.

Other Operating Expense,Expense Net(Income), net

Other operating expense,expense (income), net decreased $6.7 million,increased to $0.2$12.6 million of expense in 2025 compared to $(0.2) million of income in 20242024. comparedThis change was primarily driven by $10.3 million related to $6.5legal costs associated with a pending legal claim and $1.6 million in foreign currency transaction losses incurred. For further information regarding the referenced pending legal claim, refer to Note 14, “Commitments and Contingencies” consolidated financial statements beginning on page F-1 of expensethis inAnnual 2023.Report on Form 10-K. Other operating expense (income), net for the year ended December 31, 2024 was primarily comprised of a $2.5 million decrease in the contingent consideration liability associated with our 2021 acquisition of Tellutax, LLC (“Tellutax”), which was partially offset by $1.2 million of transaction costs associated with our recent acquisitions, and $1.1 million in foreign currency losses. Other operating expense (income), net for the year ended December 31, 2023 was primarily comprised of $4.9 million related to costs associated with a public tender offer, which occurred in December 2023, and was later withdrawn in January 2024, as well as a $1.5 million increase in the contingent consideration liability associated with our acquisition of Tellutax, and $0.1 million in foreign currency losses.

Income Tax Expense (Benefit)

Income tax expense was $0.4 million and $54.6 million for 2025 and 2024, respectively. The decrease in 2024 as compared to an income tax benefit of $8.6 million in 2023. This changeexpense was primarily driven by changesreduced increases in valuation allowances on net deferred tax assets established for U.S. and certain foreign jurisdictions, favorable adjustments for nondeductible purchase commitment and contingent consideration liabilities, and pre-tax income, partially offset by theincreased pre-tax income and reduced favorable impact of tax benefits on exercises and vesting of stock awards, net of increased limitations on deductions of certain employees’ compensation under Internal Revenue Code (“IRC”) Section 162(m).

During the fourth quarter of 2024, we established a valuation allowance against our U.S. deferred tax assets as it was determined to be more likely than not that these assets will not be realized. This determination was made based on weighing all negative evidence, specifically cumulative losses recognized in our U.S. entity over the past three years. These cumulative losses were mainly due to significant windfall tax benefits realized from the exercises of stock options during the fourth quarter of 2024, driven by an increase in our Class A common stock price during that period. Despite positive evidence of projected future business profitability in our U.S. entity, management determined that this did not outweigh the negative evidence to allow us to conclude it was more likely than not the deferred tax assets would be realized and therefore we recorded a full valuation allowance against these U.S. deferred tax assets as of December 31, 2024.2024, which we have maintained through December 31, 2025.

Our quarterly revenues have generally increased over the last two years primarily due to new sales to existing customers and sales to new customers. However, the pace of our revenue growth has not been consistent. Many of our customers are enterprise and large corporations and their purchase patterns can be sensitive to timing of budget decisions. Depending on such timing, these decisions can create volatility in the amount of business transacted by our sales team and the amount of revenues recorded in each quarter. As such, certain periods may be less comparable due to the timing of our customers purchase patterns.

As of December 31, 2024,2025, we had unrestricted cash and cash equivalents of $296.1$314.0 million, in addition to $9.2 million in investment securities with a maturity date exceeding three months, which are not included in unrestricted cash and cash equivalents.million. 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.

Operating Activities. Net cash provided by operating activities of $164.8$165.5 million for the twelve monthsyear ended December 31, 20242025 consisted of a net lossincome of $52.7$7.2 million, adjusted for non-cash charges of $205.7$144.9 million, and cash inflows of $16.2$13.7 million fromrelated to changes in operating assets and liabilities.liabilities, These itemswhich were partially offset by $4.4$0.2 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 an increase in deferred revenue due to customer growth during the period, which was partially offset by increases in accounts receivable, as well as prepaid expenses and other current assets, as well as decreases in accrued and deferred compensation as a result of the timing of cash collections and payments.

Net cash provided by operating activities of $74.3$164.8 million for the twelve months ended December 31, 20232024 consisted of a net loss of $13.1$52.7 millionmillion, adjusted for non-cash charges of $107.1$205.7 million, and cash outflowsinflows of $19.7$16.2 million from changes in operating assets and liabilities. These items 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 an increase in deferred revenue due to customer growth during the period, which was partially offset by increases in accounts receivable, as well as prepaid expenses and other current assets, as a result of the timing of cash collections during the year, partially offset by increases in deferred revenue, accounts payable and accrued expenses, as a result of customer growth during the period and the timing of cash disbursements.payments.

Investing Activities. Net cash used in investing activities of $158.2$123.7 million for the twelve months ended December 31, 2024 primarily2025 consisted of investments in property and equipment, and capitalized software of $65.8$96.2 million and $21.3$21.7 million, respectively, related to investments in infrastructure, new products, and enhancements to existing products,products. and payments of $71.8 million related to acquisitions completed duringDuring the second and third quartersquarter of 2024. In addition,2025, we invested $16.0$15.0 million in the Kintsugi Investment. Additionally, we invested $2.4 million in available-for-sale investment securities, which was more than offset by proceeds of $16.7$11.6 million received during the period for sales and maturities in our investment securities. For further information on ourthe acquisitions,Kintsugi Investment, refer to Note 3,4, “AcquisitionsInvestments” to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K.

Net cash used in investing activities of $66.2$158.2 million for the twelve months ended December 31, 20232024 primarily consisted of investments in property and equipment, and capitalized software of $49.3$65.8 million and $19.0$21.3 million, respectively, related to infrastructureinvestments investmentsin infrastructure, new products, and enhancements to driveexisting operating leverageproducts, and commercialpayments solutionsof $71.8 million related to supportacquisitions ourcompleted customers.during the second and third quarters of 2024. In addition, we invested $16.3$16.0 million in available-for-sale investment securities, which was more than offset by proceeds of $18.4$16.7 million received during the period for sales and maturities in our investment securities. For further information on our acquisitions, refer to Note 3, “Acquisitions” to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K.

Financing Activities. Net cash used in financing activities of $26.5$32.8 million for the twelve months ended December 31, 20232025 consisted of $20.0 million in payments for deferred purchase commitments, $9.7$29.0 million in payments for taxes related to the net share settlement of stock-based awards,awards $6.4as millionwell in payments for purchase commitment and contingent consideration liabilities, $2.2 million used for principal debt repayments, and $1.0 million in payments related to deferred financing costs. These transactions were partially offset byas a $5.6 million increasedecrease in customer funds obligations, primarily due to timing differences between receipt of funds from customers and taxing jurisdiction withdrawals of these funds, $4.8and $10.1 million paid for repurchases of shares of our Class A common stock through our Repurchase Program. These outflows were partly offset by $7.7 million in proceeds from the exercise of stock options,options and $2.5$4.2 million in proceeds from the purchase of stock under our ESPP.employee stock purchase plan (“ESPP”).

The Line of Credit expires in March 2029. We are required to pay a quarterly fee on the difference between the $300.0 million allowed maximum borrowings and the unpaid principal balance outstanding under the Line of Credit at the applicable rate. Borrowings under the Credit Agreement will bear interest, at our option, at either the bank base rate plus an applicable margin (the “New Base Rate Option”) or Secured Overnight Financing Rate (“SOFR”) plus an applicable margin (the “SOFR Option”). At December 31, 2024,2025, the New Base Rate Option and the SOFR Option applicable to the Line of Credit were 8.00%7.25% and 5.99%,5.37%, respectively. There were no outstanding borrowings under the Line of Credit at December 31, 2025 or 2024.

Outstanding borrowings under the Credit Agreement are collateralized by nearly all of theour assets of the Company and contain financial and operating covenants. TheWe Company waswere in compliance with these covenants at December 31, 2024.2025. The CreditFirst AgreementAmendment also limitsto the declarationAmended and Restated Credit Agreement, dated November 14, 2025, permits us to make dividends or paymentdistributions, ofincluding certainshare dividends,repurchases, not to exceed, from and after the Credit Agreement closing date, the greater ofprovided (i) $15.0there millionis no event of default and (ii) 15% of Consolidated EBITDA (as defined in the Creditpro Agreement)forma forsecured thedebt mostleverage recentlyratio endedis period.less than 2.50 to 1.00.

This document incorporates by reference various risk factors discussed in the Company’s 2025 Annual Report,Report and Quarterly Report on Form 10-Q for the quarter ended March 31, 2026, under the heading “Risk FactorsFactors.”.

There are no additional material changes to the risk factors discussed in these filings. You should carefully consider these risks, together with management’s discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. If any of the events contemplated should occur, our business, results of operations, financial condition and cash flows could suffer significantly.

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 58% and 53%55% of software subscription revenue from cloud-based subscriptions during the three months ended MarchJune 31,30, 2026 and 2025, respectively, and 58% and 54% for the six months ended June 30, 2026 and 2025, respectively. While our on-premise software subscription revenue comprised 42% and 47%45% of our software subscription revenue during the three months ended MarchJune 31,30, 2026 and 2025, respectively, and 42% and 46% during the six months ended June 30, 2026 and 2025, respectively, it continues to decrease as a percentage of total software subscriptions revenues as cloud-based subscriptions grow.

We believe that global commerce and the compliance environment provides durable and accelerating growth opportunities for our business. We generated revenue of $196.6$204.0 million and $177.1$184.6 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and $400.6 million and $361.6 million for the six months ended June 30, 2026 and 2025, respectively. We had net income (loss) of $(2.5)$9.0 million and $11.1$(1.0) million for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and $6.5 million and $10.2 million for the six months ended June 30, 2026 and 2025, respectively. These amounts are presented in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”).

We define Adjusted EBITDA as net loss or income before interest, taxes, depreciation, and amortization, as adjusted to exclude charges for stock-based compensation expense, amortization of cloud computing arrangement implementation costs, severance expense, acquisition contingent consideration, changes in the fair value of acquisition contingent earn-outs, acquisition-related retained employee compensation, and transaction costs. Adjusted EBITDA was $44.1$51.0 million and $37.2$38.4 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and $95.1 million and $75.6 million for the six months ended June 30, 2026 and 2025, 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.

On March 2, 2026 (the “Acquisition Date”), we completed our acquisition of 100% of the equity interests of Finta Inc. and its subsidiaries (collectively, “Brinta” or the “Acquisition”). Headquartered in Uruguay, Brinta is a Latin American provider of business-to-business integration services, specializing in indirect tax calculation, tax filing, and e-invoicing. We plan to fully integrate Brinta, leveraging its e-invoicing capabilities to immediately expand the Company’s coverage across the Latin American region. Total purchase consideration for the Acquisition was $22.0$22.1 million, net of $0.04 million of cash acquired. For further informationinformation, refer to Note 3, “Acquisitions” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

On April 28, 2026, we announced that our Board approved a global Value Creation Plan (the “Plan”) with the intention to become a more AI-enabled company, focusing investments on key growth opportunities and driving operational efficiency to better align our workforce and resources with our long-term strategic priorities. The Plan includes a reduction in force of approximately 170 employees along with a significant reduction of third party spend across the Company. In connection with the Plan, we recognized a pre-tax chargecharges of $6.2$1.7 million and $7.9 million in the three and six months ended MarchJune 31,30, 2026.2026, Thisrespectively. chargeThese consistscharges consist primarily of cash expenditures related to employee severance, notice pay, statutory termination indemnities, and other employee separation benefits. All related cash payments are expected to be made during 2026. Any changes to our estimates or timing of the Plan will be reflected in our results of operations in future periods.

General and administrative expenses consist primarily of personnel and related expenses for administrative, finance, information technology, legal, risk management, facilities, and human resources staffing, including salaries, benefits, bonuses, severance, stock-based compensation, professional fees, insurance premiums, facility costs, amortization of cloud computing arrangement implementation costs, and other internal support and infrastructure costs. Additionally, theThe three and six months ended MarchJune 31,30, 2026 periodperiods includesinclude severance and other costs related to the Plan. For further informationinformation, refer to Note 15, “Restructuring” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Additionally, the three and six months ended June 30, 2026 periods include compensation expense recognized related to the Additional Cash Consideration (as defined in the notes to the condensed consolidated financial statements) to the obligation associated with the acquisition of Brinta. For further information, refer to Note 3, “Acquisitions” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and our consolidated financial statements and the notes thereto included in our 2025 Annual Report. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods. The following table sets forth our condensed consolidated statements of comprehensive income (loss) for the periods indicated.

Three Months Ended MarchJune 31,30, 2026 Compared to Three Months Ended MarchJune 31,30, 2025

Revenues increased $19.6$19.4 million, or 11.1%,10.5%, to $196.6$204.0 million for the three months ended MarchJune 31,30, 2026 compared to $177.1$184.6 million for the same period in 2025. The increase in software subscriptions revenues of $16.4$16.9 million, or 10.9%,10.7%, 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 8.1%8.4% of total software subscriptions revenues in the three months ended MarchJune 31,30, 2026 and 2025, respectively.

Cost of software subscriptions revenues increased $6.9$7.7 million, or 15.7%,17.3%, to $51.2$52.2 million for the three months ended MarchJune 31,30, 2026 compared to $44.2$44.5 million for the same period in 2025. The increase was primarily driven by a $4.2$5.2 million increase in depreciation and amortization of capitalized software and acquired intangible assets 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 increased amortization of acquired intangible assets. Additionally, there was a $2.7$2.5 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.

Cost of services revenues increased $0.8$1.6 million, or 3.9%,8.5%, to $20.6$20.5 million for the three months ended MarchJune 31,30, 2026, compared to $19.8$18.9 million for the same period in 2025. The increase 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.

Research and development expenses increased $3.7$4.2 million, or 17.5%,20.5%, to $24.6$24.8 million for the three months ended MarchJune 31,30, 2026 compared to $20.9$20.6 million for the same period in 2025. This increase in research and development expenses was primarily due 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 to customer ERP and other software platforms. Additionally, this increase reflects additional research and development investments related to the commercialization of our AI-based Smart Categorization product, other AI-related internal tools and new product initiatives, and other emerging technologies.

Selling and marketing expenses increased $4.5$3.4 million, or 9.3%,7.1%, to $52.6$51.9 million for the three months ended MarchJune 31,30, 2026 compared to $48.2$48.5 million for the same period in 2025. This increase was primarily driven by a $2.9$3.4 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 $1.5 million in advertisingAdvertising and promotional spending related to expanded brand awareness efforts.efforts was flat as compared to prior year.

General and administrative expenses increased $9.3$7.8 million, or 20.7%,17.9%, to $54.3$51.1 million for the three months ended MarchJune 31,30, 2026 compared to $45.0$43.4 million for the same period in 2025, primarily driven by planned strategic investments in information technology infrastructure, business process re-engineering and other initiatives to drive future operating leverage, as well as investments in employees, systems and other resources in support of our growth. Additionally, $6.2$1.7 million of severance expense and $2.6$6.3 million of execution costs related to our Value Creation Plan were recorded in the first three months ended MarchJune 31,30, 2026. For further informationinformation, refer to Note 15, “Restructuring” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. The three months ended June 30, 2026 period also includes $1.3 million in compensation expense recognized related to the Additional Cash Consideration obligation associated with the acquisition of Brinta. For further information, refer to Note 3, “Acquisitions” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Depreciation and amortization expenses increased $0.6$0.5 million, or 9.6%,8.6%, to $6.4$6.7 million for the three months ended MarchJune 31,30, 2026 compared to $5.9$6.2 million for the same period in 2025. The increase was primarily due to the impact of infrastructure and technology purchases and other capitalized costs to support our growth.

Change in fair value of acquisition contingent earn-outs was $(5.70.1) million for the three months ended MarchJune 31,30, 2026 due to adjustments to the fair values of our ecosio acquisition contingent Cash Earn-outs and Stock Earn-outs of $(0.3)$0.3 million and $(5.40.4) million, respectively. Change in fair value of acquisition contingent earn-outs was $(14.7)$2.3 million for the three months ended MarchJune 31,30, 2025 due to adjustments to the fair values of our ecosio acquisition contingent Cash Earn-outs and Stock Earn-outs of $1.7$1.8 million and $(16.4)$0.5 million, respectively. For further information, refer to Note 4, “Financial Instruments and Fair Value Measurements” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Other operating expense, net was $3.2$1.3 million for the three months ended MarchJune 31,30, 2026 compared to $3.3$4.1 million for the same period in 2025. Legal costs associated with a pending legal claim were $2.7$1.1 million and $2.4$2.9 million infor the first three months ended MarchJune 31,30, 2026 and 2025, respectively. For further information, refer to Note 12, “Commitments and Contingencies” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Additionally, foreign currency transaction gains (losses) were $(0.2)$0.1 million and $0.6$1.0 million for the first three months ended MarchJune 31,30, 2026 and 2025, respectively.

Interest income, net was $1.0$(0.3) million for the three months ended MarchJune 31,30, 2026 compared to $1.5$(1.2) million for the same period in 2025. This change was mainly due to a $0.6$0.9 million decrease in interest income, driven by lower dollars invested and lower interest rates during the period.

Income tax benefit was $7.1$(13.1) million and $5.1$(1.7) million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The period-over-period change was primarily driven by increased tax benefits from fluctuations in valuation allowances on net deferred tax assets established for U.S. and certain foreign jurisdictions, as well as the impact from the estimated annual effective tax rate applied to pre-tax loss for the three months ended MarchJune 31,30, 2026. These income tax benefit increases were partially offset partially by a decreased tax benefit on exercises and vesting of stock awards recognized, net of limitations on deductions of certain employees’ compensation, fluctuations in nondeductible contingent consideration liabilities as well as fluctuations in tax credits.credits, reserves, and non-deductible contingent consideration liabilities.

As of MarchJune 31,30, 2026, we had unrestricted cash and cash equivalents of $252.5$230.5 million. 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.

As of MarchJune 31,30, 2026, we had a credit agreement with a banking syndicate (the “Credit Agreement”) that provides a $300.0 million revolving facility (the “Line of Credit”). There were no outstanding borrowings under the Credit Agreement at MarchJune 31,30, 2026.

Operating Activities. Net cash provided by operating activities of $38.0$68.9 million for the threesix months ended MarchJune 31,30, 2026 consisted of net lossincome of $(2.5)$6.5 million, adjusted for non-cash charges of $46.1$95.3 million, and cash outflows of $(5.632.9) million related to changes in operating assets and liabilities. The change in operating assets and liabilities was primarily driven by a decrease in accrued and deferred compensation and accrued expenses, and an increase in prepaid expenses and other current assets due to the timing of cash payments during the period. These changes were partially offset by a decrease in accounts receivable and an increase in deferred revenue, primarily due to customer growth and the timing of cash collections during the period.

Net cash provided by operating activities of $14.8$60.8 million for the threesix months ended MarchJune 31,30, 2025 consisted of net income of $11.1$10.2 million,million adjustedand adjustments for non-cash charges of $30.3$69.7 million, which were partlypartially offset by cash outflows of $(26.7)$19.0 million related to changes in operating assets and liabilities. The change in operating assets and liabilities was primarily driven by a decrease in accrued and deferred compensation,compensation and an increase in prepaid expenses and other current assets due to the timing of cash payments during the period. These changes were partially offset by an increase in deferred revenue and a decrease in accounts receivable, primarilyreceivable due to customer growth and the timing of cash collections during the period.

Investing Activities. Net cash used in investing activities of $52.3$80.4 million for the threesix months ended MarchJune 31,30, 2026 consisted of investments in property and equipment, and capitalized software of $24.7$47.8 million and $5.7$10.6 million, respectively, related to investments in infrastructure, new products, and enhancements to existing products. Additionally, we paid $22.0 million for our acquisition of Brinta. For further information on the Acquisition, refer to Note 3, “Acquisitions” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Net cash used in investing activities of $17.8$59.3 million for the threesix months ended MarchJune 31,30, 2025 consisted of investments in property and equipment, and capitalized software of $21.4$42.9 million and $5.7$10.6 million, respectively, related to investments in infrastructure, new products, and enhancements to existing products. During the second quarter of 2025, we invested $15.0 million in the Kintsugi Investment. Additionally, we invested $2.4 million in available-for-sale investment securities, which was more than offset by proceeds of $11.6 million received during the period for sales and maturities in our investment securities. For further information on the Kintsugi Investment, refer to Note 4, “Financial Instruments and Fair Value Measurements” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Financing Activities. Net cash used in financing activities of $53.3$69.1 million for the threesix months ended MarchJune 31,30, 2026 consisted of $20.0$46.6 million in payments for the repurchases of our Class A common stock under our Repurchase Program, $19.6 million in payments related to our ecosio Cash Earn-out, $7.1and $7.9 million in payments for taxes related to the net share settlement of stock-based awards,awards. andThese uses of cash were partially offset by a $6.6$2.8 million decreaseincrease in customer funds obligations, primarily due to timing differences between receipt of funds from customers and taxing jurisdiction withdrawals of these funds.funds, $1.8 million in proceeds from the purchase of stock under our employee stock purchase plan (“ESPP”) and $0.4 million in proceeds from the exercise of stock options. For further information on the Cash Earn-outs, refer to Note 4, “Financial Instruments and Fair Value Measurements” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Net cash used in financing activities of $20.7$20.2 million for the threesix months ended MarchJune 31,30, 2025 consisted of $25.0$26.1 million in payments for taxes related to the net share settlement of stock-based awards,awards whichas werewell partially offset byas a $3.2$3.5 million increasedecrease in customer funds obligations, primarily due to timing differences between receipt of funds from customers and taxing jurisdiction withdrawals of these funds, andpartially $1.2offset by $7.7 million in proceeds from the exercise of stock options.options, and $1.8 million in proceeds from the purchase of stock under our ESPP.

Debt. As of MarchJune 31,30, 2026, we had a $300.0 million Line of Credit with no outstanding borrowings in connection with our Credit Agreement. As of MarchJune 31,30, 2026, we had $345.0 million aggregate principal amount of debt outstanding related to our Notes. For further information on our debt obligations, refer to Note 8, “Debt” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Repurchase Program. On October 30, 2025, the Board authorized a stock repurchase program for up to $150.0 million of our outstanding shares of Class A common stock (the “Repurchase Program”). During the first threesix months ended MarchJune 31,30, 2026, we repurchased 1,370,9483,383,744 shares of our Class A common stock for an aggregate amount of $20.0$46.5 million (excluding exercise taxes and commissions) and have $119.9$93.4 million remaining for purchases under our authorization.

As of MarchJune 31,30, 2026, we have no outstanding borrowings under our Line of Credit. Our Notes are due in May 2029. We expect to continue to fund debt maturities and interest payments with cash flows generated from operations, existing cash and cash equivalents, or proceeds from additional financing. For further information on our debt obligations, refer to Note 8, “Debt” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

We derive the vast majority of our revenue from recurring software subscriptions. We believe ARR provides us with visibility to our projected software subscription revenue in order to evaluate the health of our business. Because we recognize subscription revenue ratably, we believe investors can use ARR to measure our expansion of existing customer revenues, new customer activity, and as an indicator of future software subscription revenues. ARR is based on monthly recurring revenue (“MRR”) from software subscriptions for the most recent month at period end, multiplied by twelve. MRR is calculated by dividing the software subscription price, inclusive of discounts, by the number of subscription covered months. MRR only includes direct customers with MRR at the end of the last month of the measurement period.