Vertex, Inc. 10-K

Item 9A. Controls and Procedures Limitations on Effectiveness of Controls and Procedures In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Evaluation of Disclosure Controls and Procedures Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of December 31, 2021. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include those designed to ensure that such information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures, our principal executive officer and principal financial officer concluded that, as of December 31, 2021, our disclosure controls and procedures were effective at a reasonable assurance level. 53 Table of Contents Management’s Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed under the supervision of our principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate. Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021 based on the framework and criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of December 31, 2021, our internal control over financial reporting was effective. On May 12, 2021, we acquired EVAT Solutions Limited and its wholly owned subsidiaries and on September 22, 2021, we acquired LCR-Dixon Corporation. As permitted by the U.S. Securities and Exchange Commission staff interpretative guidance on newly acquired businesses, we excluded these acquisitions from our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021. Total assets excluded from this assessment were $7.2 million, representing 1% of the Company’s consolidated total assets as of December 31, 2021; total liabilities excluded from this assessment were $7.7 million, representing 2% of the Company’s consolidated total liabilities as of December 31, 2021; and total revenue excluded from this assessment was $5.2 million, representing 1% of the Company’s total revenues for the year ended December 31, 2021. This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm on internal control over financial reporting due to an exemption established by the JOBS Act for emerging growth companies. Remediation of Previously Reported Material Weaknesses We previously identified a material weakness in our internal control over financial reporting as of December 31, 2020 due to an insufficient process for the provision and governance of user access to financially significant systems that resulted in a lack of segregation of duties related to journal entries and cash disbursements. Due to the actions taken to implement new controls and procedures, we have concluded that the material weakness related to the insufficient process for the provision and governance of user access to financially significant systems that resulted in a lack of segregation of duties related to journal entries and cash disbursements was remediated as of December 31, 2021. To remediate this material weakness, we have: ● Implemented changes to our user access governance practices to prevent individuals from having the ability to create and post journal entries and to create a vendor and prepare checks; ● Performed a review and evaluated appropriate segregation of duties; and ● Implemented a periodic review cycle for user access. Changes in Internal Control over Financial Reporting Other than changes described above regarding enhancements associated with our remediation efforts, there were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. 54 Table of Contents Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. ​ ​ 55 Table of Contents ​ PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this item is incorporated by reference to the relevant information from our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, which will be filed not later than 120 days after the end of the fiscal year ended December 31, 2021. ​ Item 11. Executive Compensation The information required by this item is incorporated by reference to the relevant information from our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, which will be filed not later than 120 days after the end of the fiscal year ended December 31, 2021 . ​ Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated by reference to the relevant information from our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, which will be filed not later than 120 days after the end of the fiscal year ended December 31, 2021 . ​ Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item is incorporated by reference to the relevant information from our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, which will be filed not later than 120 days after the end of the fiscal year ended December 31, 2021. ​ Item 14. Principal Accountant Fees and Services The information required by this item is incorporated by reference to the relevant information from our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, which will be filed not later than 120 days after the end of the fiscal year ended December 31, 2021. ​ ​ 56 Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules (a) The following documents are filed as part of the Annual Report on Form 10-K: (1) Consolidated Financial Statements The financial statements filed as part of this Annual Report on Form 10-K are listed in the “Index to Consolidated Financial Statements” beginning on page F-1 of this Annual Report on Form 10-K. (2) Financial Statement Schedules All schedules are omitted because the information required to be set forth therein is not applicable or is presented in the consolidated financial statements or notes thereto beginning on page F-1 of this Annual Report on Form 10-K. (3) Exhibits The documents listed in the Index to Exhibits beginning on page E-1 of this Annual Report on Form 10-K are incorporated by reference or are filed with this Annual Report on Form 10-K, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K). ​ Item 16. Form 10-K Summary None. ​ ​ ​ 57 Table of Contents INDEX TO EXHIBITS The following exhibits are filed as part of this Annual Report on Form 10-K. Exhibit Number ​ Exhibit Description ​ Form ​ File No. ​ Exhibit Filing Date Filed Herewith Furnished Herewith ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3.1 ​ Form of Amended and Restated Certificate of Incorporation of Vertex, Inc. ​ S-1/A ​ 333-239644 ​ 3.1 ​ 07/20/20 ​ ​ ​ ​ 3.2 ​ Form of Amended and Restated Bylaws of Vertex, Inc. ​ S-1/A ​ 333-239644 ​ 3.2 ​ 07/20/20 ​ ​ ​ ​ 4.1 ​ Specimen Stock Certificate evidencing the shares of Class A common stock. ​ S-1/A ​ 333-239644 ​ 4.1 ​ 07/24/20 ​ ​ ​ ​ 4.2 ​ Form of Third Amended and Restated Stockholders' Agreement. ​ S-1/A ​ 333-239644 ​ 4.2 ​ 07/24/20 ​ ​ ​ ​ 4.3 ​ Description of Capital Stock ​ 10-K ​ 333-239644 ​ 4.3 ​ 03/15/21 ​ ​ ​ ​ 5.1 ​ Opinion of Latham & Watkins LLP. ​ S-1/A ​ 333-239644 ​ 5.1 ​ 07/20/20 ​ ​ ​ ​ 10.1 ​ Second Amendment to the Credit Agreement by and among Vertex, Inc., the guarantors party thereto, PNC Bank, National Association, and the lenders party thereto, dated as of March 8, 2022 . ​ 8-K ​ 001-39413 ​ 10.1 ​ 03/09/22 ​ ​ ​ ​ 10.3# ​ Form of Indemnification Agreement between Vertex, Inc. and each of its Executive Officers and Directors. ​ S-1/A ​ 333-239644 ​ 10.3 ​ 07/20/20 ​ ​ ​ ​ 10.4 ​ 2007 Stock Appreciation Plan . ​ S-1 ​ 333-239644 ​ 10.4 ​ 07/02/20 ​ ​ ​ ​ 10.5# ​ Form of Executive Employment Agreement, as amended and restated, by and between Vertex, Inc. and Lisa Butler. ​ S-1/A ​ 333-239644 ​ 10.5 ​ 07/20/20 ​ ​ ​ ​ 10.6# ​ Executive Employment Agreement, as amended and restated, by and between Vertex, Inc. and David DeStefano. ​ S-1/A ​ 333-239644 ​ 10.6 ​ 07/20/20 ​ ​ ​ ​ 10.7# ​ Form of Executive Employment Agreement, as amended and restated, by and between Vertex, Inc. and Bryan Rowland. ​ S-1/A ​ 333-239644 ​ 10.7 ​ 07/20/20 ​ ​ ​ ​ 10.8# ​ Form of Executive Employment Agreement, as amended and restated, by and between Vertex, Inc. and John Schwab. ​ S-1/A ​ 333-239644 ​ 10.8 ​ 07/20/20 ​ ​ ​ ​ 10.9 ​ Form of S Corporation Termination and Tax Sharing Agreement. ​ S-1/A ​ 333-239644 ​ 10.9 ​ 07/20/20 ​ ​ ​ ​ 10.10# ​ Vertex Inc. & Subsidiaries 2010 Long-Term Rewards Plan . ​ S-1/A ​ 333-239644 ​ 10.10 ​ 07/20/20 ​ ​ ​ ​ 10.11# ​ Vertex Inc. & Subsidiaries 2018 Long-Term Rewards Plan . ​ S-1/A ​ 333-239644 ​ 10.11 ​ 07/20/20 ​ ​ ​ ​ 10.12# ​ Form of Stock Option Amendment Agreement . ​ S-1/A ​ 333-239644 ​ 10.12 ​ 07/20/20 ​ ​ ​ ​ 10.13# ​ Form of Option Award Agreement under 2020 Incentive Award Plan for Amended Options . ​ S-1/A ​ 333-239644 ​ 10.13 ​ 07/20/20 ​ ​ ​ ​ 10.14# ​ Form of Option Award Agreement under 2020 Incentive Award Plan for Amended Stock Appreciation Rights . ​ S-1/A ​ 333-239644 ​ 10.14 ​ 07/20/20 ​ ​ ​ ​ 10.15# ​ Vertex, Inc. 2020 Incentive Award Plan . ​ S-1/A ​ 333-239644 ​ 10.15 ​ 07/20/20 ​ ​ ​ ​ 58 Table of Contents Exhibit Number ​ Exhibit Description ​ Form ​ File No. ​ Exhibit Filing Date Filed Herewith Furnished Herewith ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10.16# ​ Form of Option Award Agreement under 2020 Incentive Award Plan . ​ S-1/A ​ 333-239644 ​ 10.16 ​ 07/20/20 ​ ​ ​ ​ 10.17# ​ Form of Restricted Stock Award Agreement under 2020 Incentive Award Plan . ​ S-1/A ​ 333-239644 ​ 10.17 ​ 07/20/20 ​ ​ ​ ​ 10.18# ​ Form of Restricted Stock Unit Award Agreement under 2020 Incentive Award Plan . ​ S-1/A ​ 333-239644 ​ 10.18 ​ 07/20/20 ​ ​ ​ ​ 10.19# ​ Form of Stock Award Agreement under 2020 Incentive Award Plan . ​ S-1/A ​ 333-239644 ​ 10.19 ​ 07/20/20 ​ ​ ​ ​ 21.1 ​ List of Subsidiaries ​ S-1/A ​ 333-239644 ​ 21.1 ​ 07/20/20 ​ ​ ​ ​ 23.1 ​ Consent of Crowe LLP ​ ​ ​ ​ ​ ​ ​ ​ ​ X ​ ​ 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ​ ​ ​ ​ ​ ​ ​ ​ ​ X ​ 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ​ ​ ​ ​ ​ ​ ​ ​ ​ X ​ 32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ X 32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ X 101.INS Inline XBRL Instance Document ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ X 101.SCH Inline XBRL Taxonomy Extension Schema Document ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ X 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ X 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ X 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ X 104 ​ Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ X # Indicates a management contract or compensatory plan. ​ ​ ​ 59 Table of Contents SIGNATURES Pursuant to the requirements of the Securities Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ​ ​ Vertex, Inc. ​ ​ ​ Date: March 16, 2022 ​ By: /s/ DAVID DESTEFANO ​ ​ ​ David DeStefano ​ ​ ​ President, Chief Executive Officer and Chairperson ​ Pursuant to the requirements of the Securities Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date /s/ DAVID DESTEFANO ​ President, Chief Executive Officer and Chairperson ​ ​ David DeStefano ​ (Principal Executive Officer) ​ March 16, 2022 ​ ​ ​ ​ ​ /s/ JOHN SCHWAB ​ Chief Financial Officer ​ ​ John Schwab ​ (Principal Financial Officer) ​ March 16, 2022 ​ ​ ​ ​ ​ /s/ LISA BUTLER ​ Chief Accounting Officer ​ ​ Lisa Butler ​ (Principal Accounting Officer) ​ March 16, 2022 ​ ​ ​ ​ ​ /s/ ERIC ANDERSEN ​ ​ ​ ​ Eric Andersen ​ Director ​ March 16, 2022 ​ ​ ​ ​ ​ /s/ TERRENCE KYLE ​ ​ ​ ​ Terrence Kyle ​ Director ​ March 16, 2022 ​ ​ ​ ​ ​ /s/ KEVIN ROBERT ​ ​ ​ ​ Kevin Robert ​ Director ​ March 16, 2022 ​ ​ ​ ​ ​ /s/ J. RICHARD STAMM ​ ​ ​ ​ J. Richard Stamm ​ Director ​ March 16, 2022 ​ ​ ​ ​ ​ /s/ AMANDA WESTPHAL RADCLIFFE ​ ​ ​ ​ Amanda Westphal Radcliffe ​ Director ​ March 16, 2022 ​ ​ ​ ​ ​ /s/ STEFANIE WESTPHAL THOMPSON ​ ​ ​ ​ Stefanie Westphal Thompson ​ Director ​ March 16, 2022 ​ ​ ​ ​ ​ /s/ BRADLEY GAYTON ​ ​ ​ ​ Bradley Gayton ​ Director ​ March 16, 2022 ​ ​ ​ ​ ​ 60 Table of Contents ​ VERTEX, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ Page Audited Consolidated Financial Statements as of December 31, 2021 and 2020 and for each of the three years in the period ended December 31, 2021: ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID 173 ) ​ F-2 Consolidated Balance Sheets ​ F-3 Consolidated Statements of Comprehensive Income (Loss) ​ F-4 Consolidated Statements of Changes in Equity (Deficit) ​ F-5 Consolidated Statements of Cash Flows ​ F-6 Notes to Consolidated Financial Statements ​ F-7 ​ ​ F-1 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders and the Board of Directors of Vertex, Inc. King of Prussia, Pennsylvania Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Vertex, Inc. (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income (loss), changes in equity (deficit), and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph - Change in Accounting Principle ​ As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases in 2021 due to the adoption of Financial Accounting Standards Board Accounting Standards Update No. 2016-02, Leases (Topic 842) . ​ Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ ​ ​ ​ ​ ​ ​ ​ /s/ Crowe LLP ​ We have served as the Company’s auditor since 2019. New York, New York March 16, 2022 ​ ​ ​ F-2 Table of Contents Vertex, Inc. and Subsidiaries Consolidated Balance Sheets (Amounts in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, Assets ​ 2021 ​ 2020 Current assets: ​ ​ Cash and cash equivalents ​ $ 73,333 ​ $ 303,051 Funds held for customers ​ 24,873 ​ 9,222 Accounts receivable, net of allowance of $ 9,151 and $ 8,592 , respectively ​ 76,929 ​ 77,159 Prepaid expenses and other current assets ​ 20,536 ​ 13,259 Total current assets ​ 195,671 ​ 402,691 Property and equipment, net of accumulated depreciation ​ 98,390 ​ 56,557 Capitalized software, net of accumulated amortization ​ 33,442 ​ 31,989 Goodwill and other intangible assets ​ 272,702 ​ 18,711 Deferred commissions ​ 12,555 ​ 11,743 Deferred income tax asset ​ ​ 35,298 ​ ​ 33,830 Operating lease right-of-use assets ​ ​ 20,249 ​ ​ — Other assets ​ 1,900 ​ 3,263 Total assets ​ $ 670,207 ​ $ 558,784 Liabilities and Stockholders' Equity ​ ​ ​ ​ Current liabilities: ​ ​ Accounts payable ​ $ 13,000 ​ $ 8,876 Accrued expenses ​ 22,966 ​ 19,176 Tax sharing agreement distributions payable ​ 536 ​ 2,700 Customer funds obligations ​ 23,461 ​ 9,235 Accrued salaries and benefits ​ 16,671 ​ 17,326 Accrued variable compensation ​ 26,462 ​ 22,372 Deferred compensation, current ​ 4,202 ​ 2,057 Deferred revenue ​ 237,344 ​ 207,560 Current portion of capital lease obligations ​ ​ — ​ ​ 882 Current portion of operating lease liabilities ​ ​ 3,933 ​ ​ — Current portion of finance lease liabilities ​ ​ 284 ​ ​ — Deferred rent and other ​ — ​ 939 Deferred purchase consideration, current ​ ​ 19,805 ​ ​ — Purchase commitment and contingent consideration liabilities, current ​ 468 ​ 845 Total current liabilities ​ 369,132 ​ 291,968 Deferred compensation, net of current portion ​ 1,963 ​ 5,010 Deferred revenue, net of current portion ​ 11,666 ​ 14,702 Operating lease liabilities, net of current portion ​ ​ 24,320 ​ ​ — Finance lease liabilities, net of current portion ​ ​ 68 ​ ​ — Capital lease obligations, net of current portion ​ — ​ 225 Deferred purchase consideration, net of current portion ​ ​ 19,419 ​ ​ — Purchase commitment and contingent consideration liabilities, net of current portion ​ 10,829 ​ 8,905 Deferred other liabilities ​ 2,726 ​ 8,632 Total liabilities ​ 440,123 ​ 329,442 Commitments and contingencies (Note 14) ​ ​ ​ ​ ​ ​ ​ Stockholders' equity: ​ ​ Preferred shares, $ 0.001 par value, 30,000 shares authorized; no shares issued and outstanding ​ ​ — ​ — Class A voting common stock, $ 0.001 par value, 300,000 shares authorized; 42,286 and 26,327 shares issued and outstanding , respectively ​ ​ 42 ​ ​ 26 Class B voting common stock, $ 0.001 par value, 150,000 shares authorized; 106,807 and 120,117 shares issued and outstanding , respectively ​ ​ 107 ​ ​ 120 Additional paid in capital ​ ​ 222,621 ​ ​ 206,541 Retained earnings ​ 24,811 ​ 25,782 Accumulated other comprehensive loss ​ ( 17,497 ) ​ ( 3,127 ) Total stockholders' equity ​ 230,084 ​ 229,342 Total liabilities and stockholders' equity ​ $ 670,207 ​ $ 558,784 ​ The accompanying notes are an integral part of the consolidated financial statements. F-3 Table of Contents ​ ​ Vertex, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (Amounts in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2021 ​ 2020 ​ 2019 Revenues: ​ ​ ​ Software subscriptions ​ $ 358,415 ​ $ 316,763 ​ $ 275,629 Services ​ 67,133 ​ 57,902 ​ 45,871 Total revenues ​ 425,548 ​ 374,665 ​ 321,500 Cost of revenues: ​ ​ ​ Software subscriptions ​ 116,194 ​ 105,676 ​ 77,259 Services ​ 45,698 ​ 59,711 ​ 33,119 Total cost of revenues ​ 161,892 ​ 165,387 ​ 110,378 Gross profit ​ 263,656 ​ 209,278 ​ 211,122 Operating expenses: ​ ​ ​ Research and development ​ 44,018 ​ 54,340 ​ 30,557 Selling and marketing ​ 99,005 ​ 99,418 ​ 68,127 General and administrative ​ 107,009 ​ 149,057 ​ 71,014 Depreciation and amortization ​ 11,678 ​ 11,018 ​ 8,996 Other operating expense, net ​ 4,888 ​ 203 ​ 573 Total operating expenses ​ 266,598 ​ 314,036 ​ 179,267 (Loss) income from operations ​ ( 2,942 ) ​ ( 104,758 ) ​ 31,855 Interest expense, net ​ 984 ​ 3,111 ​ 953 (Loss) income before income taxes ​ ( 3,926 ) ​ ( 107,869 ) ​ 30,902 Income tax benefit ​ ( 2,447 ) ​ ( 32,788 ) ​ ( 155 ) Net income (loss) ​ ( 1,479 ) ​ ( 75,081 ) ​ 31,057 Other comprehensive loss (income) from foreign currency translation adjustments and revaluations, net of tax ​ 14,370 ​ 2,636 ​ ( 5 ) Total comprehensive (loss) income ​ $ ( 15,849 ) ​ $ ( 77,717 ) ​ $ 31,062 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) attributable to Class A stockholders, basic ​ $ ( 357 ) ​ $ ( 6,335 ) ​ $ 23 Net income (loss) per Class A share, basic ​ $ ( 0.01 ) ​ $ ( 0.57 ) ​ $ 0.20 Weighted average Class A common stock, basic ​ 35,647 ​ 11,096 ​ 118 Net income (loss) attributable to Class A stockholders, diluted ​ $ ( 357 ) ​ $ ( 6,335 ) ​ $ 965 Net income (loss) per Class A share, diluted ​ $ ( 0.01 ) ​ $ ( 0.57 ) ​ $ 0.25 Weighted average Class A common stock, diluted ​ 35,647 ​ 11,096 ​ 3,861 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) attributable to Class B stockholders, basic ​ $ ( 1,122 ) ​ $ ( 68,746 ) ​ $ 31,034 Net income (loss) per Class B share, basic ​ $ ( 0.01 ) ​ $ ( 0.57 ) ​ $ 0.26 Weighted average Class B common stock, basic ​ 112,133 ​ 120,415 ​ 120,417 Net income (loss) attributable to Class B stockholders, diluted ​ $ ( 1,122 ) ​ $ ( 68,746 ) ​ $ 30,092 Net income (loss) per Class B share, diluted ​ $ ( 0.01 ) ​ $ ( 0.57 ) ​ $ 0.25 Weighted average Class B common stock, diluted ​ ​ 112,133 ​ ​ 120,415 ​ ​ 120,417 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of the consolidated financial statements. ​ ​ F-4 Table of Contents ​ ​ Vertex, Inc. and Subsidiaries Consolidated Statements of Changes in Equity (Deficit) (Amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Before Recapitalization ​ After Recapitalization ​ ​ ​ Retained ​ Accumulated ​ ​ ​ ​ ​ ​ Total ​ ​ ​ ​ ​ Outstanding Class A Outstanding Class B ​ Outstanding ​ Class A ​ Outstanding ​ Class B ​ Additional Earnings Other Treasury ​ ​ Stockholders' Options for ​ ​ Class A ​ Common ​ Class B ​ Common ​ Class A ​ Common ​ Class B ​ Common ​ Paid-in ​ (Accumulated ​ Comprehensive ​ Shares ​ Treasury ​ Equity ​ Redeemable ​ Shares Stock Shares Stock Shares Stock Shares Stock Capital Deficit) Loss Issued Stock (Deficit) Shares Balance, January 1, 2019 147 ​ $ — 120,270 ​ $ 54 ​ — ​ $ — — ​ $ — ​ $ — ​ $ ( 88,038 ) ​ $ ( 496 ) ​ 41,685 ​ $ ( 37,797 ) ​ $ ( 126,277 ) ​ $ 14,581 Remeasurement of options for redeemable shares — ​ — — ​ — ​ — ​ — — ​ — ​ — ​ ( 2,763 ) ​ — ​ — ​ — ​ ( 2,763 ) ​ 2,763 Exercise of stock options, net ​ — ​ ​ — ​ 225 ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 100 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 100 ) ​ ​ — Purchase of treasury stock ​ — ​ ​ — ​ ( 225 ) ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ 225 ​ ​ ( 841 ) ​ ​ ( 841 ) ​ ​ — Distributions declared — ​ — — ​ — ​ — ​ — — ​ — ​ — ​ ( 30,857 ) ​ — ​ — ​ — ​ ( 30,857 ) ​ — Foreign currency translation adjustments and revaluations — ​ — — ​ — ​ — ​ — — ​ — ​ — ​ — ​ 5 ​ — ​ — ​ 5 ​ — Net income — ​ — — ​ — ​ — ​ — — ​ — ​ — ​ 31,057 ​ — ​ — ​ — ​ 31,057 ​ — Balance, December 31, 2019 147 ​ — 120,270 ​ 54 ​ — ​ — — ​ — ​ — ​ ( 90,701 ) ​ ( 491 ) ​ 41,910 ​ ( 38,638 ) ​ ( 129,776 ) ​ 17,344 Distributions declared — ​ — — ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ( 132,901 ) ​ — ​ — ​ — ​ ( 132,901 ) ​ — Exercise of stock options prior to Offering ​ — ​ ​ — ​ 173 ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 53 ​ ​ — ​ — ​ ​ — ​ ​ 53 ​ ​ — Reclassification of accumulated S Corporation earnings ​ — ​ — — ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 354,291 ) ​ 354,291 ​ — ​ — ​ — ​ — ​ ​ — Remeasurement of options for redeemable shares — ​ — — ​ — ​ — ​ — — ​ — ​ ( 21,954 ) ​ ( 29,879 ) ​ — ​ — ​ — ​ ( 51,833 ) ​ 51,833 Reclassification of options for redeemable shares — ​ — — ​ — ​ — ​ — — ​ — ​ ​ 69,177 ​ — ​ — ​ — ​ — ​ 69,177 ​ ( 69,177 ) Recapitalization prior to Offering ​ ( 147 ) ​ ​ — ​ ( 120,443 ) ​ ​ ( 54 ) ​ 173 ​ ​ — ​ 120,417 ​ ​ 120 ​ ​ ( 38,704 ) ​ ​ — ​ ​ — ​ ( 41,910 ) ​ ​ 38,638 ​ ​ — ​ ​ — Reclassification of SAR liability to equity in connection with Offering ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ 143,519 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 143,519 ​ ​ — Auto-exercised options in connection with Offering ​ — ​ ​ — ​ — ​ ​ — ​ 564 ​ ​ 1 ​ — ​ ​ — ​ ​ ( 13,809 ) ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 13,808 ) ​ ​ — Shares issued in connection with Offering, net of Offering costs — ​ — — ​ — ​ 23,812 ​ ​ 24 ​ — ​ ​ — ​ ​ 416,778 ​ — ​ — ​ — ​ — ​ 416,802 ​ — Exercise of stock options in connection with the Offering ​ — ​ ​ — ​ — ​ ​ — ​ 510 ​ ​ — ​ — ​ ​ — ​ ​ ( 7,023 ) ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 7,023 ) ​ ​ — Vested restricted stock issued in connection with Offering ​ — ​ ​ — ​ — ​ ​ — ​ 19 ​ ​ — ​ — ​ ​ — ​ ​ 361 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 361 ​ ​ — Exercise of stock options, net ​ — ​ ​ — ​ — ​ ​ — ​ 890 ​ ​ 1 ​ — ​ ​ — ​ ​ 1,687 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 1,688 ​ ​ — Shares issued in connection with ESPP ​ — ​ ​ — ​ — ​ ​ — ​ 59 ​ ​ — ​ — ​ ​ — ​ ​ 957 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 957 ​ ​ — Stock-based compensation expense from equity-classified awards under the 2020 Plan ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ 12,576 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 12,576 ​ ​ — Distributions paid or payable in connection with Tax Sharing Agreement ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 2,733 ) ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 2,733 ) ​ ​ — Class B shares exchanged for Class A shares ​ — ​ ​ — ​ — ​ ​ — ​ 300 ​ ​ — ​ ( 300 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — Foreign currency translation adjustments and revaluations, net of tax — ​ — — ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ — ​ ( 2,636 ) ​ — ​ — ​ ( 2,636 ) ​ — Net loss — ​ — — ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ( 75,081 ) ​ — ​ — ​ — ​ ( 75,081 ) ​ — Balance, December 31, 2020 — ​ ​ — — ​ ​ — ​ 26,327 ​ ​ 26 120,117 ​ ​ 120 ​ ​ 206,541 ​ ​ 25,782 ​ ​ ( 3,127 ) ​ — ​ ​ — ​ ​ 229,342 ​ ​ — ASC 842 transition adjustment — ​ — — ​ — ​ — ​ — — ​ — ​ — ​ 508 ​ — ​ — ​ — ​ 508 ​ — Exercise of stock options, net — ​ — — ​ — ​ 2,157 ​ 3 — ​ — ​ ( 10,611 ) ​ — ​ — ​ — ​ — ​ ( 10,608 ) ​ — Shares issued upon vesting of RSUs, net — ​ — — ​ — ​ 12 ​ — — ​ — ​ ( 78 ) ​ — ​ — ​ — ​ — ​ ( 78 ) ​ — Shares issued upon vesting of RSAs, net — ​ — — ​ — ​ 352 ​ — — ​ — ​ ( 213 ) ​ — ​ — ​ — ​ — ​ ( 213 ) ​ — Shares issued in connection with ESPP ​ — ​ ​ — ​ — ​ ​ — ​ 128 ​ ​ — ​ — ​ ​ — ​ ​ 2,060 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 2,060 ​ ​ — Stock-based compensation expense ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ 25,458 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 25,458 ​ ​ — Distributions payable in connection with tax sharing agreement ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 536 ) ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 536 ) ​ ​ — Class B shares exchanged for Class A shares ​ — ​ ​ — ​ — ​ ​ — ​ 13,310 ​ ​ 13 ​ ( 13,310 ) ​ ​ ( 13 ) ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — Foreign currency translation adjustments and revaluations, net of tax — ​ — — ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ — ​ ( 14,370 ) ​ — ​ — ​ ( 14,370 ) ​ — Net income — ​ — — ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ( 1,479 ) ​ — ​ — ​ — ​ ( 1,479 ) ​ — Balance, December 31, 2021 — ​ $ — — ​ $ — ​ 42,286 ​ $ 42 106,807 ​ $ 107 ​ $ 222,621 ​ $ 24,811 ​ $ ( 17,497 ) ​ — ​ $ — ​ $ 230,084 ​ $ — The accompanying notes are an integral part of the consolidated financial statements. ​ ​ F-5 Table of Contents Vertex, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ 2021 2020 2019 Cash flows from operating activities: ​ ​ ​ Net income (loss) ​ $ ( 1,479 ) ​ $ ( 75,081 ) ​ $ 31,057 Adjustments to reconcile net income (loss) to net cash provided by operating activities: ​ ​ ​ ​ ​ Depreciation and amortization ​ 44,782 ​ 32,215 ​ 25,190 Provision for subscription cancellations and non-renewals, net of deferred allowance ​ 466 ​ 259 ​ 1,232 Amortization of deferred financing costs ​ 211 ​ 373 ​ 266 Write-off of deferred financing costs ​ ​ — ​ ​ 1,387 ​ ​ — Stock-based compensation expense ​ 26,160 ​ 147,904 ​ 9,460 Deferred income tax (benefit) provision ​ ​ ( 3,116 ) ​ ​ ( 33,499 ) ​ ​ ( 848 ) Redemption of Converted SARs ​ ​ — ​ ​ ( 22,889 ) ​ ​ — Non-cash operating lease costs ​ ​ 3,825 ​ ​ — ​ ​ — Other ​ 510 ​ 107 ​ 43 Changes in operating assets and liabilities: ​ ​ ​ ​ ​ Accounts receivable ​ 2,962 ​ ( 6,762 ) ​ ( 10,116 ) Prepaid expenses and other current assets ​ ( 5,192 ) ​ ( 1,541 ) ​ ( 809 ) Deferred commissions ​ ( 812 ) ​ ( 547 ) ​ ( 2,366 ) Accounts payable ​ 3,847 ​ ( 1,842 ) ​ 3,868 Accrued expenses ​ 3,210 ​ 4,568 ​ 2,539 Accrued and deferred compensation ​ ( 3,735 ) ​ ( 632 ) ​ 5,318 Deferred revenue ​ 24,691 ​ 17,557 ​ 27,168 Operating lease liabilities ​ ​ ( 4,697 ) ​ ​ — ​ ​ — Other ​ 336 ​ ( 2,034 ) ​ 496 Net cash provided by operating activities ​ 91,969 ​ 59,543 ​ 92,498 Cash flows from investing activities: ​ ​ ​ Acquisition of business, net of cash acquired ​ ( 251,412 ) ​ ( 11,570 ) ​ — Property and equipment additions ​ ( 33,386 ) ​ ( 20,955 ) ​ ( 20,339 ) Capitalized software additions ​ ( 11,660 ) ​ ( 11,850 ) ​ ( 17,221 ) Net cash used in investing activities ​ ( 296,458 ) ​ ( 44,375 ) ​ ( 37,560 ) Cash flows from financing activities: ​ ​ ​ Net increase in customer funds obligations ​ 14,226 ​ 1,681 ​ 4,276 Proceeds from line of credit ​ — ​ 12,500 ​ — Principal payments on line of credit ​ ​ — ​ ​ ( 12,500 ) ​ ​ — Proceeds from long-term debt ​ — ​ 175,000 ​ — Principal payments on long-term debt ​ — ​ ( 226,251 ) ​ ( 5,566 ) Payments for deferred financing costs, net ​ — ​ ( 2,436 ) ​ — Proceeds from issuance of shares in connection with Offering ​ ​ — ​ ​ 423,024 ​ ​ — Payments for Offering costs ​ ​ — ​ ​ ( 6,222 ) ​ ​ — Payments for taxes on exercised stock options ​ ​ — ​ ​ ( 14,813 ) ​ ​ — Purchase of treasury stock ​ ​ — ​ ​ — ​ ​ ( 841 ) Proceeds from purchases of stock under ESPP ​ ​ 2,060 ​ ​ 957 ​ ​ — Payments for taxes related to net share settlement of stock-based awards ​ ​ ( 12,758 ) ​ ​ — ​ ​ — Proceeds from exercise of stock options ​ 1,859 ​ 8,808 ​ 68 Distributions to stockholders ​ — ​ ( 146,116 ) ​ ( 28,566 ) Distributions under Tax Sharing Agreement ​ ​ ( 2,700 ) ​ ​ — ​ ​ — Payments for purchase commitment liabilities ​ ​ ( 10,822 ) ​ ​ — ​ ​ — Payments of finance lease liabilities ​ ​ ( 964 ) ​ ​ — ​ ​ — Net cash provided by (used in) financing activities ​ ( 9,099 ) ​ 213,632 ​ ( 30,629 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ​ ( 479 ) ​ ( 22 ) ​ 12 Net increase (decrease) in cash, cash equivalents and restricted cash ​ ​ ( 214,067 ) ​ ​ 228,778 ​ ​ 24,321 Cash, cash equivalents and restricted cash, beginning of period ​ 312,273 ​ 83,495 ​ 59,174 Cash, cash equivalents and restricted cash, end of period ​ $ 98,206 ​ $ 312,273 ​ $ 83,495 Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets, end of period: ​ ​ ​ Cash and cash equivalents ​ $ 73,333 ​ $ 303,051 ​ $ 75,903 Restricted cash—funds held for customers ​ 24,873 ​ 9,222 ​ 7,592 Total cash, cash equivalents and restricted cash, end of period ​ $ 98,206 ​ $ 312,273 ​ $ 83,495 The accompanying notes are an integral part of the consolidated financial statements. ​ ​ F-6 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in thousands, except per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Vertex, Inc. (“Vertex”) and its consolidated subsidiaries (collectively, the “Company”) operate as solutions providers of state, local and value added tax calculation, compliance and analytics, offering software products which are sold through software license and software as a service (“cloud”) subscriptions. The Company also provides implementation and training services in connection with its software license and cloud subscriptions, transaction tax returns outsourcing, and other tax-related services. The Company sells to customers located throughout the United States of America (“U.S.”) and internationally. Basis of Consolidation The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and include the accounts of the Company. All intercompany transactions have been eliminated in consolidation. The Company has a 65 % controlling equity interest in Systax Sistemas Fiscais LTDA (“Systax”), a provider of Brazilian transaction tax content and software. Systax was determined to be a Variable Interest Entity (“VIE”) and its accounts have been included in the consolidated financial statements from the acquisition date. Vertex does not have full decision-making authority over Systax; however, Vertex is the entity that most significantly participates in the variability of the fair value of Systax’s net assets and is considered the entity most closely associated to Systax. As such, Vertex is deemed the primary beneficiary of Systax and consolidates Systax into its consolidated financial statements. Revision of Previously Issued Financial Statements Certain prior period amounts on the consolidated balance sheets, consolidated statements of comprehensive income (loss), consolidated statements of cash flows, and consolidated statements of changes in stockholders’ equity (deficit) have been revised to correct for certain immaterial errors, as discussed below. During the fourth quarter of 2021, management identified certain immaterial errors impacting previously issued financial statements beginning as of and for the three and nine month periods ended September 30, 2020 and subsequent annual and quarterly reporting periods through September 30, 2021. Specifically, management identified an understatement of the deferred tax benefit and deferred tax assets for the three months ended September 30, 2020 in the amount of $ 3,856 recorded with respect to certain stock award exercise activity in connection with the Company’s initial public offering, which occurred in such quarter. Management assessed the materiality of this presentation on prior period consolidated financial statements in accordance with the SEC Staff Accounting Bulletin No. 99, “Materiality”, codified in Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections . Based on this assessment, management concluded that the error correction is not material to any previously presented interim or annual financial statements. In accordance with ASC 250, the Company has revised the previously reported financial information in this Annual Report on Form 10-K to correct these immaterial errors as shown in the tables below and throughout the financial statements and related notes, as applicable. F-7 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) The consolidated balance sheets have been revised to reflect the correction as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As Reported ​ Revision ​ As Revised September 30, 2020 (unaudited) ​ ​ ​ ​ ​ ​ ​ Deferred income tax asset $ 32,440 ​ $ 3,856 $ 36,296 Total assets ​ ​ 514,934 ​ ​ 3,856 ​ 518,790 Retained earnings ​ ​ 21,696 ​ ​ 3,856 ​ ​ 25,552 Total stockholders' equity ​ ​ 218,561 ​ ​ 3,856 ​ 222,417 Total liabilities and stockholders' equity ​ ​ 514,934 ​ ​ 3,856 ​ 518,790 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ ​ ​ ​ ​ ​ Deferred income tax asset $ 29,974 ​ $ 3,856 $ 33,830 Total assets ​ ​ 554,928 ​ ​ 3,856 ​ 558,784 Retained earnings ​ ​ 21,926 ​ ​ 3,856 ​ ​ 25,782 Total stockholders' equity ​ ​ 225,486 ​ ​ 3,856 ​ 229,342 Total liabilities and stockholders' equity ​ ​ 554,928 ​ ​ 3,856 ​ 558,784 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2021 (unaudited) ​ ​ ​ ​ ​ ​ ​ Deferred income tax asset $ 30,373 ​ $ 3,856 $ 34,229 Total assets ​ ​ 558,337 ​ ​ 3,856 ​ ​ 562,193 Retained earnings ​ ​ 24,722 ​ ​ 3,856 ​ ​ 28,578 Total stockholders' equity ​ ​ 226,576 ​ ​ 3,856 ​ ​ 230,432 Total liabilities and stockholders' equity ​ ​ 558,337 ​ ​ 3,856 ​ ​ 562,193 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2021 (unaudited) ​ ​ ​ ​ ​ ​ ​ Deferred income tax asset $ 32,573 ​ $ 3,856 $ 36,429 Total assets ​ ​ 609,529 ​ ​ 3,856 ​ ​ 613,385 Retained earnings ​ ​ 25,530 ​ ​ 3,856 ​ ​ 29,386 Total stockholders' equity ​ ​ 227,844 ​ ​ 3,856 ​ ​ 231,700 Total liabilities and stockholders' equity ​ ​ 609,529 ​ ​ 3,856 ​ ​ 613,385 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 (unaudited) ​ ​ ​ ​ ​ ​ ​ Deferred income tax asset $ 32,816 ​ $ 3,856 $ 36,672 Total assets ​ ​ 645,844 ​ ​ 3,856 ​ ​ 649,700 Retained earnings ​ ​ 21,582 ​ ​ 3,856 ​ ​ 25,438 Total stockholders' equity ​ ​ 224,211 ​ ​ 3,856 ​ ​ 228,067 Total liabilities and stockholders' equity ​ ​ 645,844 ​ ​ 3,856 ​ ​ 649,700 ​ The consolidated statements of comprehensive income (loss) have been revised to reflect the correction as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2020 ​ Nine months ended September 30, 2020 (unaudited) As Reported ​ Revision ​ As Revised ​ As Reported ​ Revision ​ As Revised Income tax benefit $ ( 30,773 ) ​ $ ( 3,856 ) $ ( 34,629 ) ​ $ ( 31,508 ) ​ $ ( 3,856 ) $ ( 35,364 ) Net loss ​ ​ ( 21,028 ) ​ ​ 3,856 ​ ​ ( 17,172 ) ​ ​ ( 79,167 ) ​ ​ 3,856 ​ ​ ( 75,311 ) Total comprehensive loss ​ ​ ( 21,266 ) ​ ​ 3,856 ​ ​ ( 17,410 ) ​ ​ ( 82,679 ) ​ ​ 3,856 ​ ​ ( 78,823 ) Net loss attributable to Class A stockholders, basic ​ ​ ( 2,751 ) ​ ​ 505 ​ ​ ( 2,246 ) ​ ​ ( 2,427 ) ​ ​ 149 ​ ​ ( 2,278 ) Net loss per Class A share, basic ​ ​ ( 0.15 ) ​ ​ 0.03 ​ ​ ( 0.12 ) ​ ​ ( 0.40 ) ​ ​ 0.03 ​ ​ ( 0.37 ) Net loss attributable to Class A stockholders, diluted ​ ​ ( 2,751 ) ​ ​ 505 ​ ​ ( 2,246 ) ​ ​ ( 2,427 ) ​ ​ 149 ​ ​ ( 2,278 ) Net loss per Class A share, diluted ​ ​ ( 0.15 ) ​ ​ 0.03 ​ ​ ( 0.12 ) ​ ​ ( 0.40 ) ​ ​ 0.03 ​ ​ ( 0.37 ) Net loss attributable to Class B stockholders, basic ​ ​ ( 18,277 ) ​ ​ 3,351 ​ ​ ( 14,926 ) ​ ​ ( 76,740 ) ​ ​ 3,707 ​ ​ ( 73,033 ) Net loss per Class B share, basic ​ ​ ( 0.15 ) ​ ​ 0.03 ​ ​ ( 0.12 ) ​ ​ ( 0.64 ) ​ ​ 0.03 ​ ​ ( 0.61 ) Net loss attributable to Class B stockholders, diluted ​ ​ ( 18,277 ) ​ ​ 3,351 ​ ​ ( 14,926 ) ​ ​ ( 76,740 ) ​ ​ 3,707 ​ ​ ( 73,033 ) Net loss per Class B share, diluted ​ ​ ( 0.15 ) ​ ​ 0.03 ​ ​ ( 0.12 ) ​ ​ ( 0.64 ) ​ ​ 0.03 ​ ​ ( 0.61 ) ​ F-8 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As Reported ​ Revision ​ As Revised Income tax benefit ​ ​ ​ ​ ​ ​ ​ ​ ​ $ ( 28,932 ) ​ $ ( 3,856 ) $ ( 32,788 ) Net loss ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 78,937 ) ​ ​ 3,856 ​ ​ ( 75,081 ) Total comprehensive loss ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 81,573 ) ​ ​ 3,856 ​ ​ ( 77,717 ) Net loss attributable to Class A stockholders, basic ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 6,660 ) ​ ​ 325 ​ ​ ( 6,335 ) Net loss per Class A share, basic ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 0.60 ) ​ ​ 0.03 ​ ​ ( 0.57 ) Net loss attributable to Class A stockholders, diluted ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 6,660 ) ​ ​ 325 ​ ​ ( 6,335 ) Net loss per Class A share, diluted ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 0.60 ) ​ ​ 0.03 ​ ​ ( 0.57 ) Net loss attributable to Class B stockholders, basic ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 72,277 ) ​ ​ 3,531 ​ ​ ( 68,746 ) Net loss per Class B share, basic ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 0.60 ) ​ ​ 0.03 ​ ​ ( 0.57 ) Net loss attributable to Class B stockholders, diluted ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 72,277 ) ​ ​ 3,531 ​ ​ ( 68,746 ) Net loss per Class B share, diluted ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 0.60 ) ​ ​ 0.03 ​ ​ ( 0.57 ) ​ The consolidated statements of cash flows have been revised to reflect the correction as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, 2020 (unaudited) As Reported ​ Revision ​ As Revised Net loss $ ( 79,167 ) ​ $ 3,856 $ ( 75,311 ) Deferred income tax benefit ​ ​ ( 32,004 ) ​ ​ ( 3,856 ) ​ ​ ( 35,860 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, 2020 ​ ​ As Reported ​ Revision ​ As Revised Net loss $ ( 78,937 ) ​ $ 3,856 $ ( 75,081 ) Deferred income tax benefit ​ ​ ( 29,643 ) ​ ​ ( 3,856 ) ​ ​ ( 33,499 ) ​ The consolidated statements of changes in stockholders’ equity (deficit) have been revised to reflect the correction as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2020 (unaudited) ​ As Reported ​ Revision ​ As Revised Net loss ​ $ ( 21,028 ) ​ $ 3,856 ​ $ ( 17,172 ) Retained earnings ​ ​ 21,696 ​ ​ 3,856 ​ ​ 25,552 Total stockholders' equity ​ ​ 218,561 ​ ​ 3,856 ​ ​ 222,417 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, 2020 ​ ​ As Reported ​ Revision ​ As Revised Net loss ​ $ ( 78,937 ) ​ $ 3,856 ​ $ ( 75,081 ) Retained earnings ​ ​ 21,926 ​ ​ 3,856 ​ ​ 25,782 Total stockholders' equity ​ ​ 225,486 ​ ​ 3,856 ​ ​ 229,342 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, 2021 (unaudited) ​ As Reported ​ Revision ​ As Revised Retained earnings ​ $ 24,722 ​ $ 3,856 ​ $ 28,578 Total stockholders' equity ​ ​ 226,576 ​ ​ 3,856 ​ ​ 230,432 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three and six months ended June 30, 2021 (unaudited) As Reported ​ Revision ​ As Revised Retained earnings ​ $ 25,530 ​ $ 3,856 ​ $ 29,386 Total stockholders' equity ​ ​ 227,844 ​ ​ 3,856 ​ ​ 231,700 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three and nine months ended September 30, 2021 (unaudited) As Reported ​ Revision ​ As Revised Retained earnings ​ $ 21,582 ​ $ 3,856 ​ $ 25,438 Total stockholders' equity ​ ​ 224,211 ​ ​ 3,856 ​ ​ 228,067 ​ F-9 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) Registration of Company Stock and Initial Public Offering On July 28, 2020, the Company filed its amended and restated certificate of incorporation with the Delaware Secretary of State to: (i) effect a three-for-one forward stock split (the “Stock Split”); (ii) establish a new capital structure for the Company (the “New Capital Structure”); and (iii) effect a share exchange (the “Share Exchange”) (collectively, the “Recapitalization”). The Stock Split resulted in each one share owned by a stockholder being exchanged for three shares of common stock, and the number of shares of the Company’s common stock issued and outstanding being increased proportionately based on the Stock Split. After the Stock Split, the Share Exchange occurred, resulting in stockholders of record exchanging their existing Class A and Class B common stock (“former Class A” and “former Class B”, respectively) for newly created shares of Class A and Class B common stock (“Class A” and “Class B”, respectively) issued in connection with the New Capital Structure. The effect of the Stock Split and the Share Exchange are recognized retrospectively in the consolidated financial statements. The Company’s Registration Statement on Form S-1 with the Securities and Exchange Commission (“SEC”) was declared effective on July 28, 2020, resulting in the Class A shares being registered and available for trading on the NASDAQ exchange (the “Offering”). On July 31, 2020, the Company received $ 423,024 in proceeds from the sale of 23,812 shares of Class A at a public offering price of $ 19.00 per share, net of underwriting fees, and used a portion of the proceeds to pay off $ 175,000 in outstanding debt. The net proceeds remaining after payment of Offering costs are being used for working capital and other corporate purposes. Segments The Company operates its business as one operating segment. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”), the Company’s Chief Executive Officer, in deciding how to allocate resources and assess performance. The Company’s CODM allocates resources and assesses performance based upon discrete financial information at the consolidated level. For the years ended December 31, 2021, 2020 and 2019 approximately 7 %, 5 % and 4 %, respectively, of the Company’s revenues were generated outside of the U.S. As of December 31, 2021 and 2020, $ 699 and $ 287 , respectively, of the Company’s property and equipment assets were held outside of the U.S. Concentration of Credit Risk Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents, which includes highly liquid investment securities, funds held for customers and accounts receivable. The Company maintains the majority of its cash and cash equivalent balances and funds held for customers in four banks. These amounts exceed federally insured (“FDIC”) limits. The Company periodically evaluates the creditworthiness of the banks. The Company has not experienced any losses in these accounts and believes they are not exposed to significant credit risk on such accounts. The Company does not require collateral from its customers. Allowances are maintained for subscription cancellations. Credit risk related to accounts receivable is limited due to the industry and geographic diversity within the Company's customer base. No single customer accounted for more than 10% of revenues for the years ended December 31, 2021, 2020 and 2019. F-10 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) Fair Value Measurement Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a measurement date. A three-level fair value hierarchy (the “Fair Value Hierarchy”) prioritizes the inputs used to measure fair value. The Fair Value Hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. Classification in the Fair Value Hierarchy is based on the lowest of the following levels that is significant to the measurement: Level 1 : Inputs are unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 : Inputs are quoted prices for similar assets and liabilities in active markets or quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 3 : Inputs are unobservable inputs based on the Company’s assumptions and valuation techniques used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation. The Company’s assessment of the significance of an input to a fair value measurement requires judgment, which may affect the determination of fair value and the measurement’s classification within the Fair Value Hierarchy. Use of Estimates The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenues and expenses during the reporting period. Significant estimates used in preparing these consolidated financial statements include: (i) the estimated allowance for subscription cancellations, (ii) expected credit losses associated with the allowance for doubtful accounts; (iii) the reserve for self-insurance, (iv) assumptions related to achievement of technological feasibility for software developed for sale, (v) product life cycles, (vi) estimated useful lives and potential impairment of long-lived assets and intangible assets, (vii) potential impairment of goodwill, (viii) determination of the fair value of tangible and intangible assets acquired, liabilities assumed and consideration transferred in acquisitions, (ix) amortization period of material rights and deferred commissions (x) valuation of the Company’s stock used to measure stock-based compensation awards, (xi) Black-Scholes-Merton option pricing model (“Black-Scholes model”) input assumptions used to determine the fair value of stock-based compensation awards, (xii) measurement of future purchase commitment, contingent consideration liabilities and deferred purchase consideration liabilities associated with acquisitions, and (xiii) the potential outcome of future tax consequences of events that have been recognized in the consolidated financial statements or tax returns. Actual results may differ from these estimates. ​ Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an initial maturity date of three months or less to be cash equivalents. Funds held as investments in money market funds are included within cash and cash equivalents. In accordance with ASU No. 2016-18, Restricted Cash , the Company presents changes in restricted cash in the cash flow statement. F-11 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) Funds Held for Customers Funds held for customers in the consolidated balance sheets represents customer funds advanced for transaction tax returns outsourcing. Funds held for customers are restricted for the sole purpose of remitting such funds to satisfy obligations on behalf of such customers and are deposited at FDIC-insured institutions. Customer obligations are included in current liabilities in the consolidated balance sheets, as the obligations are expected to be settled within one year. Property and Equipment Property and equipment are stated at cost or fair value when acquired and presented net of accumulated depreciation. Normal maintenance and repairs are charged to expense, while major renewals and betterments are capitalized. Assets under finance leases are recorded at the present value of future lease payments. Assets under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the assets and are depreciated over the shorter of the asset’s useful life or lease term. See Recently Adopted Accounting Pronouncements, Leases in Note 1. ​ ​ Depreciation and amortization are computed straight-line over the estimated useful lives of the assets, as follows: ​ ​ ​ ​ Leasehold improvements 1 - 12 years Internal-use software developed 3 - 5 years Computer software purchased 3 - 7 years Equipment 3 - 10 years Furniture and fixtures 7 - 10 years ​ Software Development Costs Internal-Use Software The Company follows ASC 350-40, Goodwill and Other, Internal-Use Software, to account for development costs incurred for the costs of computer software developed or obtained for internal use. ASC 350-40 requires such costs to be capitalized once certain criteria are met. Capitalized internal-use software costs are primarily comprised of direct labor, related expenses and initial software licenses. ASC 350-40 includes specific guidance on costs not to be capitalized, such as overhead, general and administrative and training costs. Internal-use software includes software utilized for cloud-based solutions as well as software for internal systems and tools. Costs are capitalized once the project is defined, funding is committed and it is confirmed the software will be used for its intended use. Capitalization of these costs concludes once the project is substantially complete and the software is ready for its intended purpose. Post-configuration training and maintenance costs are expensed as incurred. Internal-use software is included in internal-use software developed in property and equipment in the consolidated balance sheets once available for its intended use. Depreciation expense for internal-use software utilized for cloud-based customer solutions and for software for internal systems and tools is included in cost of revenues, software subscriptions and depreciation and amortization, respectively, in the consolidated statements of comprehensive income (loss). Software Developed for Sale The costs incurred for the development of computer software to be sold, leased, or otherwise marketed are capitalized in accordance with ASC 985-20, Costs of Software to be Sold, Leased or Marketed , when technological feasibility has been established. Technological feasibility generally occurs when all planning, design, coding and testing activities are completed that are necessary to establish that the product can be produced to meet its design specifications, including functions, features and technical performance requirements. The establishment of technological feasibility is an ongoing assessment of judgment by management with respect to certain external factors, including, but not limited to, anticipated F-12 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) future revenues, estimated economic life and changes in technology. Capitalized software includes direct labor and related expenses for software development for new products and enhancements to existing products and acquired software. Amortization of capitalized software development costs begins when the product is available for general release. Amortization is provided on a product-by-product basis using the straight-line method over periods between three to five years. Unamortized capitalized software development costs determined to be in excess of the net realizable value of the product are expensed immediately. Capitalized software costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in software technologies at least annually at December 31, and whenever events or circumstances make it more likely than not that impairment may have occurred. In the event of impairment, unamortized capitalized software costs are compared to the net realizable value of the related product and the carrying value of the related assets are written down to the net realizable value to the extent the unamortized capitalized costs exceed such value. The net realizable value is the estimated future gross revenues from the related product reduced by the estimated future costs of completing and disposing of such product, including the costs of providing related maintenance and customer support. Assessment of Long-Lived Assets The Company reviews the carrying value of long-lived assets, including internal-use software, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Whenever such events or circumstances are present, an impairment loss equal to the excess of the asset carrying value over its fair value, if any, is recorded. Business Combinations Upon acquisition of a company, the Company determines if the transaction is a business combination, which is accounted for using the acquisition method of accounting. Under the acquisition method, once control is obtained of a business, the assets acquired, liabilities assumed, consideration transferred and amounts attributed to noncontrolling interests, are recorded at fair value. The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired, liabilities assumed, consideration transferred, and amounts attributed to noncontrolling interests at the acquisition date. One of the most significant estimates relates to the determination of the fair value of these amounts. The determination of the fair values is based on estimates and judgments made by management. The Company’s estimates of fair value are based upon assumptions it believes to be reasonable, but which are inherently uncertain and unpredictable. Measurement period adjustments to these values as of the acquisition date are reflected at the time identified, up through the conclusion of the measurement period, which is the time at which all information for determination of the values of assets acquired, liabilities assumed, consideration transferred and noncontrolling interests is received, and is not to exceed one year from the acquisition date (the “Measurement Period”). Thus, the Company may record adjustments to the fair value of these tangible and intangible assets acquired, liabilities assumed, consideration transferred and noncontrolling interests, with the corresponding offset to goodwill during this Measurement Period. Additionally, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. The Company continues to collect information and reevaluate these estimates and assumptions periodically and record any adjustments to preliminary estimates to goodwill, provided the Company is within the Measurement Period, with any adjustments to amortization of new or previously recorded identifiable intangibles being recorded to the consolidated statements of comprehensive income (loss) in the period in which they arise. In addition, if outside of the Measurement Period, any subsequent adjustments to the acquisition date fair values are reflected in the consolidated statements of comprehensive income (loss) in the period in which they arise. F-13 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) Goodwill Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination. The Company evaluates goodwill for impairment annually at October 1 and whenever events or circumstances make it more likely than not that impairment may have occurred. The Company has determined that its business comprises one reporting unit. The Company has the option to first assess qualitative factors to determine whether events or circumstances indicate it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, in which case a quantitative impairment test is not required. As provided for by Accounting Standards Update (“ASU”) 2017-04, Simplifying the Test for Goodwill Impairment , the quantitative goodwill impairment test is performed by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not impaired. An impairment loss is recognized for any excess of the carrying amount of the reporting unit over its fair value up to the amount of goodwill allocated to the reporting unit. Income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit are considered when measuring the goodwill impairment loss, if applicable. Deferred Financing Costs The Company capitalizes costs related to obtaining, renewing or extending loan agreements and amortizes these costs on a straight-line basis, which approximates the effective interest method, over the life of the loan. Deferred financing costs related to undrawn debt are reflected in other assets in the consolidated balance sheets in accordance with ASC 835-30, Interest—Imputation of Interest . Stock-Based Compensation On the effective date of the Offering, the Company adopted the 2020 Incentive Award Plan (the “2020 Plan”) and the 2020 Employee Stock Purchase Plan (the “ESPP”), which provide for the award of stock appreciation rights (“SARs”), stock options (“options”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and participation in the ESPP (collectively, the “awards”). The awards are subject to, and the Company applies, the guidance set forth in ASC 718, Compensation—Stock Compensation , for the award of equity-based instruments. The provisions of ASC 718 require a company to measure the fair value of stock-based compensation as of the grant date of the award. Stock-based compensation expense reflects the cost of employee services received in exchange for the awards. SARs are accounted for as liabilities under ASC 718 and, as such, the Company recognizes stock-based compensation expense by remeasuring the value of the SARs at the end of each reporting period and accruing the portion of the requisite service rendered at that date. Prior to the date management determined the Company was considered to have become a public entity, the Company measured SARs at their intrinsic value. After such date, management remeasured outstanding SARs using the fair value-based method under ASC 718. Stock-based compensation expense for stock options issued under the 2020 Plan after the Offering is measured based on the grant date fair value of the award and is estimated using the Black-Scholes model. Compensation cost is recognized on a straight-line basis over the requisite service or performance period associated with the award. F-14 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) Stock-based compensation expense for RSAs and RSUs is based on the fair value of the Company’s underlying common stock on the date of grant. Compensation cost is recognized on a straight-line basis over the requisite service or performance period associated with the award. Stock-based compensation expense for awards subject to performance-based measurement criteria is recognized when achievement of performance targets is deemed probable. A total of 1,000 shares of Class A common were initially reserved for issuance under the ESPP. The number of shares available for issuance under the ESPP will be increased annually on January 1 of each calendar year beginning in 2021 and ending in and including 2030, by an amount equal to the lesser of (i) 1 % of the shares of Class A and Class B common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares as is determined by the board of directors (“Board”), provided that no more than 16,000 shares of Class A common stock may be issued. The ESPP is administered by a committee of the Board. As of December 31, 2021, there were 2,278 shares available for issuance under the ESPP. The ESPP permits participants to purchase Class A common stock through payroll deductions, up to a specified percentage of their eligible compensation, or for the initial offering period ended November 30, 2020, a lump sum contribution. The plan is a compensatory plan as it allows participants to purchase stock at a 15 % discount from the lower of the fair value of the Class A common on the first or last day of the ESPP offering period (the “ESPP Discount”). The ESPP is accounted for as an equity classified award. Stock-based compensation expense for the ESPP is measured based on the fair value of the ESPP award at the start of the offering period. The fair value is comprised of the value of the ESPP Discount and the value associated with the variability in the Class A common stock price during the offering period (the “Call/Put”), which is estimated using the Black-Scholes model. Compensation cost is recognized on a straight-line basis over the respective offering period. The Company has elected to recognize award forfeitures as they occur. Leases Effective January 1, 2021, the Company adopted ASU No. 2016-02, Leases (“ASC 842”), which adoption is more fully described under the section Recently Adopted Accounting Pronouncements, Leases in Note 1. In accordance with ASC 842, the Company determines if an arrangement is or contains a lease at its inception. The Company has elected not to recognize on the balance sheet leases with terms of one year or less as a practical expedient. For leases with terms greater than 12 months, the Company records an operating lease right-of-use asset or finance lease asset and related lease liability at the present value of lease payments over the lease term. The implicit rate for individual leases is generally not readily determinable; therefore, the Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. Leases with an option to extend the related lease term or terminate early are reflected in the lease term when it is reasonably certain that the Company will exercise such options. The Company recognizes expense for operating leases on a straight-line basis over the lease term plus any variable lease costs. The Company does not recognize a right-of-use asset or lease liability for leases with an initial term equal to or less than 12 months (“short-term leases”) on its consolidated balance sheets. The Company recognizes expense on short-term leases in the consolidated statements of comprehensive income (loss) on a straight-line basis over the lease term. For periods prior to the adoption of ASC 842, the Company recorded rent expense on a straight-line basis over the term of the related lease. The difference between the straight-line rent expense and the payments made in accordance with the operating lease agreements were recognized as a deferred rent liability within other liabilities on the accompanying consolidated balance sheets. F-15 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) Self-insurance The Company is self-insured for the majority of its health insurance costs, including medical claims subject to certain stop-loss provisions. Management periodically reviews the adequacy of the Company’s stop-loss insurance coverage. The Company records an estimate of claims incurred but not reported, based on management’s judgment and historical experience. Self-insurance accruals are $ 1,922 and $ 1,766 at December 31, 2021 and 2020, respectively, and are reflected in accrued salaries and benefits in the consolidated balance sheets. Material differences may result in the amount and timing of insurance expense if actual experience differs significantly from management’s estimates. Revenue Recognition Revenue from contracts with customers The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers , (“ASC 606”). Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration expected to be received in exchange for those products or services. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct, and accounted for as separate performance obligations. Revenue is recognized net of allowance for subscription and non-renewal cancellations and any taxes collected from customers, which are subsequently remitted to governmental authorities. Nature of goods and services Licenses for on-premise software subscriptions provide the customer with a right to use the software as it exists when made available to the customer. Customers purchase a subscription to these licenses, which includes the related software and tax content updates (collectively “updates”) and product support. The updates and support, which are part of the subscription agreement, are essential to the continued utility of the software; therefore, the Company has determined the software and the related updates and support to be a single performance obligation. Accordingly, when on-premise software is licensed, the revenue associated with this combined performance obligation is recognized ratably over the license term as these subscriptions are provided for the duration of the license term. Revenue recognition begins on the later of the beginning of the subscription period or the date the software is made available to the customer to download. Certain on-premise software subscription prices in the initial subscription year are higher than standard renewal prices. The excess initial year price over the renewal price (“new sale premium”) is a material right that provides customers with the right to this reduced renewal price. The Company recognizes revenue associated with this material right over the estimated period of benefit to the customer, which is generally three years . Cloud-based subscriptions allow customers to use Company-hosted software over the contract period without taking possession of the software. The cloud-based offerings also include related updates and support. Cloud-based contracts consistently provide a benefit to the customer during the subscription period; thus, the associated revenue is recognized ratably over the related subscription period. Revenue recognition begins on the later of the beginning of the subscription period or the date the customer is provided access to the cloud-based solutions. Revenue from deliverable-based services is recognized as services are delivered. Revenue from fixed fee services is recognized as services are performed using the percentage of completion input method. The Company has elected the “right to invoice” practical expedient for revenue related to services that are billed on an hourly basis, which enables revenue to be recognized as the services are performed. F-16 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) The Company has determined that the methods applied to measuring its progress toward complete satisfaction of performance obligations recognized over time are a faithful depiction of the transfer of control of software subscriptions and services to customers. Significant Judgments Contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Identification of the amortization periods of material rights and contract costs requires significant judgment by management. Payment terms Payment terms and conditions vary by contract, although the Company’s terms generally include a requirement of payment within 30 days . In instances where the timing of revenue recognition differs from the timing of payment, the Company has determined that its contracts do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing products and services, not to receive financing from customers or to provide customers with financing. Cost of Revenues Cost of revenues, software subscriptions include the direct cost to develop, host and distribute software products, the direct cost to provide customer support, and amortization of costs capitalized for software developed for sale, for internal-use software utilized for cloud-based subscriptions and for certain acquired intangible assets. Cost of revenues, services include the direct costs of implementation, training, transaction tax returns outsourcing and other tax-related services. Reimbursable Costs Reimbursable costs passed through and invoiced to customers of the Company are recorded as services revenues with the associated expenses recorded as cost of revenues, services in the consolidated statements of comprehensive income (loss). These amounts were $ 14 , $ 199 , and $ 1,107 for the years ended December 31, 2021, 2020 and 2019, respectively. Research and Development Research and development costs consist primarily of personnel and related expenses for research and development activities including salaries, benefits and other compensation. Research and development costs are expensed as incurred in accordance with ASC 730, Research and Development, and are included in the consolidated statements of comprehensive income (loss). Advertising Advertising expense is recorded as incurred and is reflected in selling and marketing expense in the consolidated statements of comprehensive income (loss). Total advertising expense was $ 20,386 , $ 11,069 , and $ 11,921 for the years ended December 31, 2021, 2020, and 2019, respectively. Foreign Currency The Company transacts business in various foreign currencies. Management has concluded that the local country’s currency is the functional currency of its foreign operations. Consequently, operating activities outside the U.S. are translated into U.S. dollars using average exchange rates, while assets and liabilities of operations outside the U.S. are F-17 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) translated into U.S. dollars using exchange rates at the balance sheet date. The effects of foreign currency translation adjustments are included in stockholders' equity (deficit) as a component of accumulated other comprehensive loss in the consolidated balance sheets. Related periodic movements in exchange rates are included in other comprehensive income (loss) in the consolidated statements of comprehensive income (loss). Other operating expense, net in the consolidated statements of comprehensive income (loss) includes net foreign exchange transaction gains (losses) of $ 183 , $( 155 ), and $( 84 ) for the years ended December 31, 2021, 2020 and 2019, respectively. Income Taxes On July 27, 2020, the Company’s S-Corporation election (the “S Election”) was terminated by the Company’s stockholders in connection with the Offering. As a result, Vertex will now be taxed at the corporate level as a C-Corporation for U.S federal and state income tax purposes. In connection with the S Election termination, the Company entered into an agreement with the S-Corporation stockholders pursuant to which the Company has indemnified them for unpaid income tax liabilities and may be required to make future payments in material amounts to them attributable to incremental income taxes resulting from an adjustment to S-Corporation related taxable income that arises after the effective date of the S Election termination (the “Tax Sharing Agreement”). In addition, the Tax Sharing Agreement indemnifies the S-Corporation stockholders for any interest, penalties, losses, costs or expenses arising out of any claim under the agreement. Correspondingly, the S-Corporation stockholders have indemnified the Company with respect to unpaid tax liabilities (including interest and penalties) to the extent that such unpaid tax liabilities are attributable to a decrease in S-Corporation stockholders’ taxable income for any period and a corresponding increase in our taxable income for any period. Prior to July 27, 2020, as Vertex was taxed as an S-Corporation for U.S. federal income tax purposes and for most states, net income or loss was allocated to the stockholders and was included on their individual income tax returns. Historically the Company distributed amounts to the stockholders to satisfy their tax liabilities resulting from allocated net income or loss. In certain states, Vertex was taxed at the corporate level. Accordingly, the income tax provision or benefit was based on taxable income allocated to these states. In certain foreign jurisdictions, Vertex subsidiaries were taxed at the corporate level. Similar to states, the income tax provision or benefit is based on taxable income sourced to these foreign jurisdictions. Certain foreign subsidiaries in which the Company owns greater than 50% of the equity by measure of vote or value are treated as controlled foreign companies (“CFCs”) for U.S. federal income tax purposes and most states under the IRS foreign tax regulations. In conjunction with the termination of the S Election, certain direct and indirect wholly owned foreign subsidiaries that were previously treated as disregarded entities for U.S. federal income tax purposes and most states under the Internal Revenue Service (“IRS”) “check-the-box” regulations, “unchecked-the-box” to become regarded entities and as a result, became CFCs. Prior to these elections, the income and loss from these entities was reported on the Company’s U.S. federal and most state income tax returns in addition to being reported on a foreign jurisdiction tax return regardless of whether or not the earnings were repatriated. The Company records deferred income taxes using the liability method. The Company recognizes deferred tax assets and liabilities for future tax consequences of events that have been previously recognized in the Company’s consolidated financial statements and tax returns. The measurement of deferred tax assets and liabilities is based on provisions of the enacted tax law. The effect of a change in tax laws or rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The effects of future changes in tax laws or rates are not anticipated. A valuation allowance is recorded when it is more likely than not that some or all of the deferred tax assets will not be realized. The Company records uncertain tax positions in accordance with ASC 740, Income Taxes , on the basis of a two-step process whereby: (i) management determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position, and (ii) for those tax positions that meet the more likely than not recognition F-18 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) threshold, management recognizes the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The impact as a result of the application of ASC 740 is reflected in the consolidated financial statements. The Company assesses its income tax positions and records tax benefits or expense based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. The Company recorded a deferred tax asset during the year ended December 31, 2020 as a result of the conversion from an S-Corporation to a C-Corporation. The deferred tax asset is primarily due to future stock-based compensation deductions for tax purposes resulting from SARs that were previously issued by the Company, converted to options and immediately exercised upon the effective date of the Offering. The exercise of these options has resulted in a net operating loss for the C-Corporation short tax year beginning July 27, 2020 and ending December 31, 2020. Based on Management’s evaluation of the positive and negative evidence, it is more likely than not that the Company will realize these benefits on future U.S. tax returns. Total Comprehensive Income (Loss) Total comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under U.S. GAAP are recorded as elements of stockholders' equity but are excluded from net income (loss). Other comprehensive income (loss) is comprised of foreign currency translation adjustments and revaluations. Earnings Per Share (“EPS”) The Company has two classes of common stock outstanding and thus calculates EPS following the two-class method. This method allocates earnings for the respective periods between the two classes of common stock in proportion to the weighted average shares outstanding for each class of common stock as a percentage of total weighted average shares of both classes of common stock outstanding. Neither the Class A nor Class B common stock has any liquidity or dividend preferences and are both considered to be participating securities. Basic and diluted net income (loss) per share attributable to common stockholders is calculated using the treasury stock method. The basic net income (loss) per share attributable to Class A common stockholders includes RSAs, RSUs and ESPP shares once vesting or purchase contingencies are resolved, and the related shares are deemed to be outstanding. The diluted net income (loss) per share attributable to Class A common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, all options to purchase shares of Class A common stock, nonvested RSAs and RSUs are considered common stock equivalents. Additionally, the portion of ESPP shares for which the Company has received payments but for which the related shares are not yet issuable are also considered common stock equivalents. In periods of net loss available to common stockholders, diluted calculations are equal to basic calculations because the inclusion of common stock equivalents would be anti-dilutive. In accordance with ASC 260, Earnings Per Share , the historical EPS was retrospectively restated similar to the treatment of a stock split to reflect the Share Exchange for all periods presented prior to the Offering as management concluded that there was no economic value attributable to the exchange of shares in connection with the Recapitalization. Class A common stock issued in connection with the Offering are reflected in the weighted average share calculation from their issuance date. F-19 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) Supplemental Balance Sheet Information Supplemental information for certain consolidated balance sheet accounts are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of Ended December 31, ​ 2021 2020 Prepaid expenses and other current assets: ​ ​ Prepaid expenses ​ $ 12,251 ​ $ 6,334 Prepaid licenses and support ​ ​ 8,285 ​ ​ 6,925 Prepaid expenses and other current assets ​ $ 20,536 ​ $ 13,259 ​ ​ ​ ​ ​ ​ ​ Accrued expenses: ​ ​ ​ ​ ​ ​ Accrued general expenses ​ $ 17,894 ​ $ 15,964 Accrued professional fees ​ ​ 2,565 ​ ​ 631 Accrued income and other taxes ​ ​ 2,507 ​ ​ 2,581 Accrued expenses ​ $ 22,966 ​ $ 19,176 ​ Supplemental Cash Flow Disclosures Supplemental cash flow disclosures are as follows for the respective periods: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ 2021 2020 2019 Cash paid for: ​ ​ ​ Interest ​ $ 223 ​ $ 2,461 ​ $ 1,766 Income taxes, net of refunds ​ ​ 1,287 ​ ​ 588 ​ ​ 945 Operating cash flows from operating leases ​ ​ 4,692 ​ ​ — ​ ​ — Non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ Distributions payable ​ ​ — ​ ​ — ​ ​ 13,183 Estimated distributions payable under Tax Sharing Agreement ​ ​ 536 ​ ​ 2,700 ​ ​ — Purchase commitment and contingent consideration liabilities ​ ​ 12,736 ​ ​ 12,592 ​ ​ — Deferred purchase consideration ​ ​ 39,024 ​ ​ — ​ ​ — Remeasurement of options for redeemable shares ​ ​ — ​ ​ 51,833 ​ ​ 2,763 Conversion of SARs in connection with the Offering ​ ​ — ​ ​ 129,710 ​ ​ — Exchange of Amended Options in connection with the Offering ​ ​ — ​ ​ 69,177 ​ ​ — Exercised options exchanged in lieu of income taxes ​ ​ — ​ ​ — ​ ​ 184 Leased assets obtained in exchange for new finance lease liabilities ​ ​ 173 ​ ​ — ​ ​ — Equipment acquired through capital leases ​ ​ — ​ ​ 646 ​ ​ 1,904 ​ Recently Issued Accounting Pronouncements As an "emerging growth company," the Jumpstart Our Business Startups Act (the “JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to delay adoption of certain new or revised accounting standards. As a result, the Company’s consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies. F-20 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) Deferred Revenue In October 2021, the Financial Accounting Standard Board (“FASB”) issued ASU No. 2021-08, Business Combinations . This standard provides specific guidance on how to recognize and measure contract assets and contract liabilities related to revenue contracts with customers acquired in a business combination. This will align the accounting for these acquired contracts to the accounting for revenue contracts originated by the acquirer and will provide more comparable information to investors and other financial statement users seeking to better understand the financial impact of these acquisitions. For public entities, the standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For all other entities, the standard is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on the Company’s consolidated financial statements. Recently Adopted Accounting Pronouncements Leases In February 2016, the FASB issued ASC 842. This standard amended several aspects of lease accounting, including requiring lessees to recognize operating leases with an initial term greater than one year on their balance sheet as a right-of-use asset, and a corresponding lease liability, measured at the present value of the future minimum lease payments. The standard is effective for public entities for fiscal years and interim periods beginning after December 15, 2018. For all other entities, the standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted ASC 842 on January 1, 2021 using the modified retrospective transition method, which did not require the Company to adjust comparative periods. The Company’s lease assets and lease liabilities are recognized on the lease commencement date in an amount that represents the present value of future lease payments. The Company’s incremental borrowing rate, which is based on information available at the adoption date for existing leases and the commencement date for leases commencing after the adoption date, is used to determine the present value of lease payments. The Company elected the “package of three” practical expedients permitted under the transition guidance, which allows (i) a carry forward of the historical lease classification conclusions, (ii) management to assess whether a contract is or contains a lease, and (iii) the retention of initial direct costs for any leases that exist prior to adoption of the new standard. As a result of the adoption of ASC 842 on January 1, 2021, the Company recorded both operating lease right-of-use assets of $ 24,004 and operating lease liabilities of $ 32,562 in addition to writing off deferred rent of $ 9,554 amongst other adjustments. An adjustment to retained earnings of $ 508 , net of the deferred tax impact, was also recorded. The adoption of ASC 842 had an immaterial impact on the consolidated statement of comprehensive income (loss) and the consolidated cash flow. The adoption of this standard also resulted in a change in the naming convention for leases classified historically as capital leases. These leases are now referred to as finance leases within property and equipment, with corresponding short-term and long-term debt liabilities being presented as “Current portion of finance lease liabilities” and “Finance lease liabilities, net of current portion,” respectively. See Note 7 for further information. Credit Losses In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) : Measurement of Credit Losses on Financial Instruments , (“ASU 2016-13”) which replaces the existing incurred loss impairment model with an expected credit loss model and requires financial assets, including trade receivables, to be measured at amortized cost to be presented at the net amount expected to be collected. ASU 2016-13 is effective for annual periods, and interim periods within those years, beginning after December 15, 2019, for business entities that are public and meet the definition F-21 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) of an SEC filer (excluding smaller reporting companies), and after December 15, 2022 for all other entities. The Company adopted this standard effective January 1, 2021, and this guidance did not have a material impact on the Company’s consolidated financial statements. Income Taxes In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, (“ASU 2019-12”) which simplifies the accounting for income taxes. The guidance in ASU 2019-12 is required for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2020, for business entities that are public, and after December 15, 2021, including interim periods within those annual periods, for all other entities, with early adoption permitted. The Company adopted this standard effective January 1, 2021, and this guidance did not have a material impact on the Company’s consolidated financial statements. Risks and Uncertainties In March 2020, the World Health Organization declared the outbreak of coronavirus disease 2019 (“COVID-19”) to be a pandemic. The COVID-19 pandemic is continuing to have widespread, rapidly evolving and unpredictable impacts on global society, economies, financial markets and business practices. To protect the health and well-being of Company employees and customers, substantial modifications were made to employee travel policies, and our offices were closed, and remained closed through December 31, 2021, with employees directed to work from home. In addition, conferences and other marketing events were cancelled or shifted to virtual-only, and the Company continued to participate virtually through December 31, 2021. The COVID-19 pandemic has impacted, and may continue to impact, Company operations, including employees, customers and partners, and there is substantial uncertainty regarding the nature and degree of its continued effects over time. The Company did not experience any significant reductions in sales, revenues or collections through December 31, 2021 as a result of COVID-19. The uncertainty caused by the COVID-19 pandemic could, however, impact Company billings to new customers in 2022, and may also negatively impact Company efforts to expand revenues from existing customers as they continue to evaluate certain long-term projects and budget constraints. In addition to the potential impact on sales, the Company may see delays in collections during 2022 as customers continue to adjust their operating protocols to accommodate implementation of criteria to protect the health and well-being of their employees and customers. However, these delays are not expected to materially impact the business, and thus the Company has not recorded additional credit losses associated with the allowance for doubtful accounts in connection with any delays. The Company believes it has ample liquidity and capital resources to continue to meet its operating needs and to service debt and other financial obligations. The extent to which the COVID-19 pandemic impacts the business going forward will depend on numerous evolving factors that cannot reliably be predicted, including the duration and scope of the pandemic; governmental, business, and individuals’ actions in response to the pandemic; and the impact on economic activity, including the possibility of recession or financial market instability. These factors may adversely impact consumer, business and government spending on technology as well as customers’ ability to pay for Company products and services on an ongoing basis. This uncertainty also affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions. F-22 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) 2. REVENUE RECOGNITION Disaggregation of revenue The table reflects revenue by major source for the following periods: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2021 2020 2019 Software subscriptions: ​ ​ ​ ​ ​ ​ Software licenses ​ $ 231,371 ​ $ 229,744 ​ $ 223,116 Cloud subscriptions ​ ​ 127,044 ​ ​ 87,019 ​ ​ 52,513 Software subscriptions ​ ​ 358,415 ​ ​ 316,763 ​ ​ 275,629 Services ​ 67,133 ​ 57,902 ​ 45,871 Total revenues ​ $ 425,548 ​ $ 374,665 ​ $ 321,500 ​ Contract balances Timing of revenue recognition may differ from the timing of invoicing customers. A receivable is recorded in the consolidated balance sheets when customers are billed related to revenue to be collected and recognized for subscription agreements as there is an unconditional right to invoice and receive payment in the future related to these subscriptions. A receivable and related revenue may also be recorded in advance of billings to the extent services have been performed and the Company has a right under the contract to bill and collect for such performance. Subscription-based customers are generally invoiced annually at the beginning of each annual subscription period. The Company’s payment terms typically range from 30-60 days. Accounts receivable is presented net of an allowance for potentially uncollectible accounts and estimated cancellations of software license and cloud-based subscriptions (the “allowance”) of $ 9,151 and $ 8,592 at December 31, 2021 and 2020, respectively. The allowance is adjusted for expected credit losses based on management’s assessment of collectability after considering factors including the age of each outstanding invoice, collection history of customers, current and forecasted economic conditions as well as estimated cancellations. The beginning and ending balances of accounts receivable, net of allowance, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ 2021 2020 Balance, beginning of period ​ $ 77,159 ​ $ 70,367 Balance, end of period ​ 76,929 ​ 77,159 Increase, net ​ $ ( 230 ) ​ $ 6,792 ​ A contract liability is recorded as deferred revenue on the consolidated balance sheets when customers are billed in advance of performance obligations being satisfied, and revenue is recognized after invoicing ratably over the subscription period or over the amortization period of material rights. Deferred revenue is reflected net of a related deferred allowance for subscription cancellations (the “deferred allowance”) of $ 6,537 and $ 6,432 at December 31, 2021 and 2020, respectively. The deferred allowance represents the portion of the allowance for subscription cancellations associated with deferred revenue. F-23 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) The beginning and ending balances of and changes to the allowance and the deferred allowance are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2021 ​ 2020 ​ 2019 ​ Balance ​ Net Change Balance ​ Net Change Balance ​ Net Change Allowance balance, January 1 ​ $ ( 8,592 ) ​ ​ $ ( 7,515 ) ​ ​ $ ( 5,527 ) ​ Allowance balance, December 31 ​ ( 9,151 ) ​ ​ ( 8,592 ) ​ ​ ( 7,515 ) ​ Change in allowance ​ ​ ​ $ 559 ​ ​ ​ $ 1,077 ​ ​ ​ $ 1,988 Deferred allowance balance, January 1 ​ 6,432 ​ ​ 5,614 ​ ​ 4,858 ​ Deferred allowance balance, December 31 ​ 6,537 ​ ​ 6,432 ​ ​ 5,614 ​ Change in deferred allowance ​ ​ ​ ( 105 ) ​ ​ ​ ( 818 ) ​ ​ ​ ( 756 ) Net amount charged to revenues ​ ​ ​ $ 454 ​ ​ ​ $ 259 ​ ​ ​ $ 1,232 ​ The amount of revenue recognized during the years ended December 31, 2021, 2020 and 2019 that was included in the opening deferred revenue balance of the same fiscal year was $ 207,560 , $ 191,745 , and $ 163,939 , respectively. The portion of deferred revenue expected to be recognized in revenue beyond one year is included in deferred revenue, net of current portion in the consolidated balance sheets. The table provides information about the balances of and changes to deferred revenue for the following periods: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2021 ​ 2020 Balances: ​ ​ Deferred revenue, current ​ $ 237,344 ​ $ 207,560 Deferred revenue, non-current ​ 11,666 ​ 14,702 Total deferred revenue ​ $ 249,010 ​ $ 222,262 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2021 ​ 2020 ​ 2019 Changes to deferred revenue: ​ ​ ​ Beginning balance ​ $ 222,262 ​ $ 205,791 ​ $ 178,703 Additional amounts deferred ​ 452,296 ​ 391,136 ​ 348,588 Revenues recognized ​ ( 425,548 ) ​ ( 374,665 ) ​ ( 321,500 ) Ending balance ​ $ 249,010 ​ $ 222,262 ​ $ 205,791 ​ Deferred revenue at December 31, 2021 will be recognized as follows for all future years: ​ ​ ​ ​ ​ Year Ending December 31, ​ ​ 2022 ​ $ 237,344 2023 ​ 10,161 2024 ​ 1,505 Total ​ $ 249,010 ​ Contract costs Deferred sales commissions earned by the Company’s sales force and certain sales incentive programs and vendor referral agreements are considered incremental and recoverable costs of obtaining a contract with a customer. An asset is recognized for these incremental contract costs and reflected as deferred commissions in the consolidated balance sheets. These contract costs are amortized on a straight-line basis over a period consistent with the transfer of the associated F-24 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) product and services to the customer, which is generally three years . Amortization of these costs are included in selling and marketing expense in the consolidated statements of comprehensive income (loss). The Company periodically reviews these contract assets to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these assets. There were no impairment losses recorded for the periods presented. The table provides information about the changes to contract cost balances as of and for the following periods: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2021 ​ 2020 ​ 2019 Changes to deferred commissions: ​ ​ ​ Beginning balance ​ $ 11,743 ​ $ 11,196 ​ $ 8,830 Additions ​ 10,018 ​ 8,291 ​ 10,140 Amortization ​ ( 9,206 ) ​ ( 7,744 ) ​ ( 7,774 ) Ending balance ​ $ 12,555 ​ $ 11,743 ​ $ 11,196 ​ ​ 3. BUSINESS COMBINATIONS LCR-Dixon On September 22, 2021, the Company executed a stock purchase agreement with LCR-Dixon Corporation (“LCR-Dixon”), a provider of SAP technologies and tax intelligence solutions. LCR-Dixon’s solutions were specifically developed to improve functionality and performance for SAP indirect tax processes and are integrated with the Company’s tax determination software. The LCR-Dixon acquisition was accounted for as a business combination. The Company’s accounting for the LCR-Dixon acquisition is preliminary. The preliminary purchase price was $ 98,744 as of the acquisition date consisting of (i) $ 59,720 of cash paid at closing, partially offset by $ 1,899 of LCR-Dixon cash received in the acquisition resulting in net cash consideration at closing of $ 57,821 and (ii) non-interest bearing deferred payments aggregating $ 40,000 to be paid in four equal installments of $ 10,000 every six-months beginning March 2022 and ending September 2023 (the “deferred purchase consideration”). The purchase price is subject to purchase price adjustments related to the final determination of LCR-Dixon’s cash, net working capital, and taxes as of the acquisition date. Cash consideration was funded from available cash on hand. Management recorded deferred purchase consideration of $ 39,024 , net of a discount of $ 976 which will be recorded as interest expense over the payment period using the effective interest method. The deferred purchase consideration, net of discount, is included in current liabilities and long-term liabilities at $ 19,805 and $ 19,419 , respectively, in the consolidated balance sheet at December 31, 2021. The following table summarizes the preliminary purchase price for LCR-Dixon: ​ ​ ​ ​ ​ ​ ​ September 22, 2021 Cash paid at closing ​ $ 59,720 Fair value of deferred purchase consideration ​ ​ 39,024 Total ​ $ 98,744 ​ The preliminary purchase price was allocated to the net assets acquired based on management’s determination of their estimated fair values using available information as of the acquisition date. The preliminary excess of purchase consideration over the net assets acquired is recorded as goodwill, which primarily reflects the existence of intangible assets not recognized under U.S. GAAP such as the value of expected future synergies, the value of the assembled workforce and other market factors. The Company expects that goodwill associated with the LCR-Dixon acquisition will not be deductible for tax purposes. The preliminary values recorded, which are reflected in the table below, will be adjusted F-25 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) during the Measurement Period as more detailed analyses are performed and further information becomes available regarding the fair values of these amounts on the acquisition date. The Company does not have a preliminary estimate of identifiable intangible assets as of the acquisition date. A third-party expert has been engaged to assist in the valuation of identifiable intangible assets and deferred payments as part of the acquisition. Any subsequent adjustments to the preliminary values not associated with determination of their fair values on the acquisition date will be recorded in the consolidated statements of comprehensive income (loss) in the period in which the adjustment is identified. LCR-Dixon’s business and product offerings are being integrated into the Company’s one operating segment. The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed as recorded in the Company’s consolidated balance sheet as of the acquisition date: ​ ​ ​ ​ ​ ​ ​ September 22, 2021 Cash and cash equivalents ​ $ 1,899 Accounts receivable ​ ​ 1,437 Prepaid expenses and other current assets ​ ​ 326 Property and equipment ​ ​ 4 Goodwill ​ ​ 96,968 Accounts payable ​ ​ ( 19 ) Accrued expenses ​ ​ ( 306 ) Accrued compensation ​ ​ ( 1,746 ) Deferred revenue ​ ​ ( 71 ) Total ​ $ 98,492 ​ The Company and LCR-Dixon had a pre-existing relationship in the form of the royalty agreement at the date of acquisition. The Company owed LCR-Dixon royalties in connection with licenses sold by the Company to end users when collected by the Company from end users. The royalty agreement terminated upon consummation of the acquisition and the Company wrote-off $ 252 of royalties payable to LCR-Dixon with an offset to goodwill. The Company has included the financial results of LCR-Dixon in the consolidated statement of comprehensive income (loss) from the date of acquisition. The transaction costs associated with the acquisition were not material. Taxamo On May 12, 2021, the Company acquired 95 % of the outstanding equity of EVAT Solutions Limited (“EVAT”) and its wholly owned subsidiaries (collectively “Taxamo”), a cloud-based provider of tax and payment automation for global eCommerce and marketplaces. This acquisition supports the Company’s growth strategies across eCommerce platforms and marketplaces in Europe and North America. Included in the acquisition agreement is an option to purchase from and an option for the remaining shareholder to sell the remaining 5 % of the outstanding equity of EVAT (the “Option”) at a fixed amount between August and December 2021 for an estimated fair value of $ 10,034 . The purchase price for the Taxamo acquisition was $ 200,689 , consisting of (i) $ 190,153 of cash paid at closing, partially offset by $ 2,662 of acquired cash, including $ 221 of restricted cash, received in the acquisition resulting in net cash consideration at closing of $ 187,491 , (ii) an acquisition holdback with an estimated fair value upon acquisition of $ 502 , and (iii) the Option. The Company recorded the estimated fair value of the Option payment amount in purchase commitment and contingent consideration liabilities, current, on the consolidated balance sheet as of the acquisition date. Cash consideration was funded from available cash on hand. F-26 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) The following table summarizes the purchase price for Taxamo: ​ ​ ​ ​ ​ ​ ​ May 12, 2021 Cash paid at closing ​ $ 190,153 Fair value of acquisition holdback ​ 502 Fair value of the Option ​ ​ 10,034 Total ​ $ 200,689 ​ On August 19, 2021, the Company acquired the remaining 5 % equity interest of EVAT for $ 10,034 through exercise of the Option, giving the Company 100 % of the outstanding equity interest of EVAT. The acquisition holdback is fixed in Euros and approximates $ 468 , which amount is included in purchase commitment and contingent consideration liabilities, current in the consolidated balance sheet as of December 31, 2021. The Taxamo acquisition was accounted for as a business combination. The purchase price was allocated to the net assets acquired based on management’s determination of their estimated fair values using available information as of the acquisition date. The excess of purchase consideration over the net assets acquired was recorded as goodwill, which reflects the value of intangible assets not recognized under U.S. GAAP such as the value of expected future synergies, the value of the assembled workforce and other market factors. The Company expects that goodwill associated with the Taxamo acquisition will not be deductible for tax purposes. Taxamo’s business and product offerings are being integrated into the Company’s one operating segment. The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed as recorded in the Company’s consolidated balance sheet as of the acquisition date: ​ ​ ​ ​ ​ ​ ​ May 12, 2021 Cash and cash equivalents ​ $ 2,441 Funds held for customers ​ ​ 221 Accounts receivable ​ ​ 2,657 Prepaid expenses and other current assets ​ ​ 908 Property and equipment ​ 40,792 Goodwill ​ ​ 164,199 Other intangibles ​ ​ 1,581 Accounts payable ​ ​ ( 304 ) Accrued expenses ​ ​ ( 1,395 ) Accrued compensation ​ ​ ( 3,939 ) Deferred revenue ​ ​ ( 2,196 ) Deferred other income ​ ​ — Deferred other liabilities ​ ​ ( 4,276 ) Total ​ $ 200,689 F-27 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) ​ The fair value, valuation methodologies, estimated useful lives, and significant assumptions of the identifiable intangibles acquired in the Taxamo acquisition are summarized in the table below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ May 12, 2021 Taxamo Identifiable Intangibles ​ Balance Sheet Location ​ ​ Fair Value ​ Valuation Methodology ​ Estimated Useful Life ​ Discount Rate ​ Developed technology ​ Property and equipment, net (Note 5) ​ $ 40,746 ​ Multi-period excess earnings method - income approach ​ 3 years ​ 16.5 % Trade name ​ Goodwill and other intangible assets (Note 8) ​ $ 608 ​ Relief from royalty method - income approach ​ 2 years ​ 16.5 % Customer relationships ​ Goodwill and other intangible assets (Note 8) ​ $ 973 ​ Distributor method - income approach ​ 2 years ​ 16.5 % ​ The Company has included the financial results of Taxamo in the consolidated statement of comprehensive income (loss) from the date of acquisition. The transaction costs associated with the acquisition were $ 4,269 and are recorded in other operating expense, net, for the year ended December 31, 2021. The Company assumed certain liabilities in the acquisition of Taxamo, including deferred revenue with a fair value of $ 2,196 , using a cost-plus profit approach. The Company is amortizing the acquired deferred revenue at its fair value over the period for which it is incurring costs to support the assumed customer obligations. Tellutax On January 25, 2021, the Company executed an Asset Purchase Agreement with Tellutax LLC, a Portland, Oregon-based edge computing technology startup (“Tellutax”), to acquire substantially all of Tellutax’s assets (the “Tellutax acquisition”). Cash consideration paid for the acquisition was $ 6,100 , funded through cash on hand, and serves to strengthen the Company’s technology roadmap and hybrid cloud strategy enabling it to better serve customers in an increasingly hyper-connected environment. The Tellutax acquisition entitles the sellers to contingent consideration if sales targets are met during a period of time following the acquisition. The Tellutax acquisition was accounted for as a business combination. The total purchase price was allocated to the net assets acquired based on management’s determination of their estimated fair values using available information as of the acquisition date. The excess of purchase consideration over the net assets acquired is recorded as goodwill, which primarily reflects the value of expected future synergies, the existence of intangible assets not recognized under U.S. GAAP such as the value of the assembled workforce and other market factors. The Company expects that goodwill associated with the Tellutax acquisition will be deductible for tax purposes. The fair values of these amounts on the acquisition date, which are reflected in the table below, have been finalized. Any subsequent adjustments to these values will be recorded in the consolidated statements of comprehensive income (loss) in the period in which the adjustment is identified. F-28 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) The purchase price for the Tellutax acquisition included cash paid at closing plus an estimated fair value of contingent consideration of $ 2,200 (the “Tellutax Contingent Consideration”) as of January 25, 2021. The following table presents the final purchase price allocation recorded in the consolidated balance sheet as of the acquisition date: ​ ​ ​ ​ ​ ​ ​ January 25, 2021 Capitalized software - developed technology ​ $ 3,600 Goodwill ​ 4,700 Total ​ $ 8,300 ​ The Company has included the financial results of Tellutax in the consolidated statement of comprehensive income (loss) from the date of acquisition. The fair value of developed technology was valued using the multi-period excess earnings method, which is a variation of the income approach. This method estimates an intangible asset’s value based on the present value of the incremental after-tax cash flows attributable to the intangible asset. The significant assumptions used in the developed technology valuation included an estimated linear obsolescence factor of 20 % per year and a discount rate of 28.5 %. The fair value of Tellutax Contingent Consideration is estimated using a Monte Carlo Simulation to compute the expected cash flows from earnout payments specified in the purchase agreement. The Tellutax Contingent Consideration is based on three potential earn-out payments determined by periodic revenue achievements over a thirty-month period. Earn-out payments have no maximum limit, but if certain targets are not met, there will be no earn-out payment for the applicable measurement period. The estimated fair value of the Tellutax Contingent Consideration recorded as of the acquisition date was $ 2,200 . See Note 4 for information on recurring fair value adjustments after the acquisition date. Systax On January 7, 2020, the Company acquired a 60 % controlling interest in Systax, a provider of Brazilian transaction tax content and software. Cash consideration for the purchase was $ 12,374 , which was funded through borrowings under a revolving line of credit. This acquisition provided the Company with full access to a sizeable database of Brazilian tax content that is critical to supporting its global multi-national customers’ business expansion into Brazil. On the acquisition date, the Company had a contractual purchase commitment to acquire the remaining 40 % equity interest from the original Systax Quotaholders incrementally between 2021 through 2024. This contractual purchase commitment was deemed to be a forward contract, for which the Company was required to estimate and record a future purchase commitment liability (the “Purchase Commitment Liability”). The Purchase Commitment Liability was recorded at the acquisition date fair value of $ 12,592 . Subsequent adjustments will be recorded based on settlement value. This amount will fluctuate as a result of changes in foreign currency exchange rates and is reflected in Purchase Commitment Liability in the consolidated balance sheet at December 31, 2021 and 2020. Adjustments to the settlement value that arise as a result of remeasurement at future balance sheet dates will be recorded as interest expense related to financing costs in the consolidated statements of comprehensive income (loss) in the period the change is identified. The acquisition was accounted for as a business combination and the total purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the excess being recorded as goodwill. The fair values of assets acquired and liabilities assumed as of the acquisition date are reflected in the tables below. Any adjustments to these values will be recorded in the consolidated statements of comprehensive income (loss) in the period the change is identified. No such adjustments have been recorded through December 31, 2021. F-29 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) The following table reflects the purchase price for Systax: ​ ​ ​ ​ ​ ​ ​ January 7, 2020 Cash paid to Systax Quotaholders at closing ​ $ 11,626 Cash held in escrow for benefit of Systax Quotaholders ​ 748 Initial cash consideration ​ ​ 12,374 Purchase Commitment Liability ​ 12,592 Total ​ $ 24,966 ​ The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed as recorded in the Company’s consolidated balance sheet as of the acquisition date: ​ ​ ​ ​ ​ ​ ​ January 7, 2020 Cash ​ $ 56 Accounts receivable ​ ​ 495 Property and equipment ​ 112 Other current assets ​ 14 Goodwill ​ 21,089 Other intangible assets ​ ​ 3,650 Accounts payable ​ ( 358 ) Accrued expenses ​ ​ ( 92 ) Total ​ $ 24,966 ​ The excess of the purchase consideration over the net assets acquired is recorded as goodwill and primarily reflects the value of expected future synergies, the existence of intangible assets not recognized under U.S. GAAP such as the value of the assembled workforce and other market factors. Goodwill is deductible for tax purposes. The Company has included the financial results of Systax in the consolidated statement of comprehensive income (loss) from the date of acquisition in accordance with ASC 810 due to the Company having a controlling financial interest in Systax. The transaction costs associated with the acquisition were $ 504 and were recorded in general and administrative expense in the year ended December 31, 2019. ​ The Company acquired an additional 5 % equity interest of Systax in April 2021 for $ 788 , increasing the Company’s equity interest in Systax to 65 %. The Purchase Commitment Liability included in purchase commitment and contingent consideration liabilities, net of current portion in the consolidated balance sheets on December 31, 2021 was $ 8,329 . The Purchase Commitment Liability included in purchase commitment and contingent consideration liabilities, net of current portion in the consolidated balance sheets and purchase commitment and contingent consideration liabilities, current on December 31, 2020 was $ 8,905 and $ 845 , respectively. ​ Unaudited Pro Forma Financial Information Unaudited proforma financial information has not been presented, as the information from the acquired companies would not have had a material impact individually or in the aggregate for the current and prior year periods. ​ ​ F-30 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) 4. Financial instruments and fair value measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis The Company has investments in money market accounts, which are included in cash and cash equivalents on the consolidated balance sheets. Fair value inputs for these investments are considered Level 1 measurements within the Fair Value Hierarchy since money market account fair values are known and observable through daily published floating net asset values. The following table summarizes the Company’s Fair Value Hierarchy for its financial assets and liabilities measured at fair value on a recurring basis: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements Using ​ As of December 31, 2021 Fair Value Prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) ​ Money market funds ​ $ 10,703 ​ $ 10,703 ​ $ — ​ $ — ​ Tellutax Contingent Consideration ​ $ ( 2,500 ) ​ $ — ​ $ — ​ $ ( 2,500 ) ​ Foreign currency forward contracts ​ $ — ​ $ — ​ $ ( 62 ) ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements Using ​ As of December 31, 2020 Fair Value Prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) ​ Money market funds ​ $ 265,270 ​ $ 265,270 ​ $ — ​ $ — ​ Tellutax Contingent Consideration ​ $ — ​ $ — ​ $ — ​ $ — ​ Foreign currency forward contracts ​ $ — ​ $ — ​ $ 448 ​ $ — ​ ​ Tellutax Contingent Consideration The Tellutax acquisition entitles the sellers to contingent consideration if sales targets are met during a period of time following the acquisition. The estimated fair value of the Tellutax Contingent Consideration as of the acquisition date of January 25, 2021 was $ 2,200 . The Tellutax Contingent Consideration is based on three potential earn-out payments determined by periodic revenue achievements over a thirty-month period. Such estimate represents a recurring fair value measurement with significant unobservable inputs, which management considers to be Level 3 measurements under the Fair Value Hierarchy. The significant assumptions used in these calculations included forecasted results and the estimated likelihood for each performance scenario. The fair value of Tellutax Contingent Consideration is estimated using a Monte Carlo Simulation to compute the expected cash flows from earn-out payments specified in the purchase agreement. The Tellutax Contingent Consideration is based on three potential earn-out payments determined by periodic revenue achievements over a thirty-month period. Earn-out payments have no maximum limit, but if certain targets are not met, there will be no earn-out payment for the applicable measurement period. The Tellutax Contingent Consideration fair value is $ 2,500 at December 31, 2021, which represents an increase from $ 2,200 as of the acquisition date. Fair value adjustments of $ 300 were recorded in other operating expense, net for the year F-31 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) ended December 31, 2021. The Tellutax Contingent Consideration fair value of $ 2,500 is included in purchase commitment and contingent consideration liabilities, net of current portion in the consolidated balance sheet at December 31, 2021. Tellutax Contingent Consideration fair value and unobservable inputs used for the Monte Carlo Simulation valuation were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 Liability Fair Value Valuation Technique Unobservable Inputs Tellutax Contingent Consideration ​ $ ( 2,500 ) ​ Monte Carlo Simulation ​ Revenue volatility ​ 95.0 % ​ ​ ​ ​ ​ ​ ​ Revenue discount rate ​ 20.0 % ​ ​ ​ ​ ​ ​ ​ Term (in years) ​ 3.6 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ January 25, 2021 Liability Fair Value Valuation Technique Unobservable Inputs Tellutax Contingent Consideration ​ $ ( 2,200 ) ​ Monte Carlo Simulation ​ Revenue volatility ​ 95.0 % ​ ​ ​ ​ ​ ​ ​ Revenue discount rate ​ 20.3 % ​ ​ ​ ​ ​ ​ ​ Term (in years) ​ 4.3 ​ ​ Beginning and ending balances in fair value of Tellutax Contingent Consideration were as follows: ​ ​ ​ ​ ​ ​ ​ Tellutax ​ ​ Contingent ​ ​ Consideration ​ ​ ​ Balance, January 1, 2021 ​ $ — Acquisition of Tellutax ​ ​ ( 2,200 ) Fair value adjustments ​ ( 300 ) Balance, December 31, 2021 ​ $ ( 2,500 ) ​ Assets and Liabilities for Which Fair Value is Only Disclosed The carrying amounts of cash and cash equivalents and the carrying amount of funds held for customers were the same as their respective fair values and are considered Level 1 measurements. The carrying amounts for accounts receivable, accounts payable, and accrued expenses approximate their relative fair values due to their short-term nature and are considered Level 2 measurements. Non-recurring Fair Value Measurements The LCR-Dixon acquisition on September 22, 2021, the Taxamo acquisition on May 12, 2021, the Tellutax acquisition on January 25, 2021, and the Systax acquisition on January 10, 2020 were accounted for as business combinations and the total purchase price for each acquisition was allocated to the net assets acquired and liabilities assumed based on their estimated fair values. See Note 3. See Note 3 for information on the LCR-Dixon deferred purchase consideration of $ 39,224 and the Systax Purchase Commitment Liability of $ 8,329 recorded in the consolidated balance sheet at December 31, 2021. The carrying amounts F-32 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) of both approximated their respective fair values at December 31, 2021 and are considered Level 3 non-recurring fair value measurements. ​ The Company’s obligation with respect to future purchase commitments to the Systax Quotaholders was determined to be a forward contract necessitating initial recognition based on fair value. We estimated the initial fair value of our Purchase Commitment Liability using a Monte Carlo simulation, which we consider to be a Level 3 measurement. The significant assumptions used in the Monte Carlo simulation include, among other variables, forecasted cash flow projections consistent with those used to support the overall purchase price, selection of comparable companies, asset volatility and discount rate determinations and the total number of simulations to compute. Subsequent remeasurements of the Purchase Commitment Liability, as and if required, are not expected to be based on fair value. Derivative Instruments We may periodically enter into derivative contracts to reduce our exposure to foreign currency exchange rates. Historically we have not designated derivative contracts as hedges. The derivative contracts are typically designed to manage specific risks according to our strategies, which may change from time to time. In May 2020, we entered into a series of foreign currency forward contracts to reduce our exposure to adverse fluctuations in the Brazilian Real associated with a portion of our Purchase Commitment Liability. Such forward contracts, have not been designated as a hedge, do not qualify for hedge accounting and are not material to our consolidated financial statements. We remeasure these forward contacts at fair value on a recurring basis and include them in other assets in our consolidated balance sheets with changes in their estimated fair value recognized as interest expense in our consolidated statements of comprehensive income or loss. Our fair value determinations are based on foreign currency exchange rates in active markets, which we consider to be Level 2 measurements within the Fair Value Hierarchy. 5 . PROPERTY AND EQUIPMENT The major components of property and equipment are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2021 ​ 2020 Leasehold improvements ​ $ 20,956 ​ $ 20,907 Equipment ​ 41,937 ​ 41,410 Computer software purchased ​ 11,792 ​ 11,620 Internal-use software developed: ​ ​ ​ ​ Cloud-based customer solutions ​ 114,872 ​ 65,423 Internal systems and tools ​ 32,408 ​ 25,349 Furniture and fixtures ​ 7,675 ​ 7,674 In-process internal-use software ​ 16,965 ​ 3,304 ​ ​ 246,605 ​ 175,687 Less accumulated depreciation ​ ( 148,215 ) ​ ( 119,130 ) Property and equipment, net ​ $ 98,390 ​ $ 56,557 ​ Depreciation expense for property and equipment, excluding all internal-use software developed and finance leases, was $ 7,425 , $ 7,833 and $ 7,386 for the years ended December 31, 2021, 2020 and 2019, respectively. Depreciation for property and equipment, excluding internal-use software developed for cloud-based customer solutions, is reflected in depreciation and amortization in the consolidated statements of comprehensive income (loss). Finance lease amortization was $ 931 for the year ended December 31, 2021. Depreciation expense for assets held under capital leases was $ 743 and $ 565 for the years ended December 31, 2020 and 2019, respectively. Finance lease F-33 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) amortization and depreciation expense for assets held under capital leases are included in depreciation and amortization in the consolidated statements of comprehensive income (loss). Assets under finance leases of $ 1,533 , net of accumulated amortization of $ 931 , at December 31, 2021 are included in property and equipment in the consolidated balance sheets. Assets under capital leases of $ 1,360 and $ 1,455 , net of accumulated depreciation of $ 1,370 and $ 627 , at December 31, 2020 and 2019, respectively, are included in property and equipment in the consolidated balance sheets. The major components of internal-use software developed are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2021 ​ 2020 Internal-use software developed ​ $ 147,280 ​ $ 90,772 Less accumulated depreciation ​ ( 87,281 ) ​ ( 65,090 ) ​ ​ 59,999 ​ 25,682 In-process internal-use software ​ 16,965 ​ 3,304 Internal-use software developed, net ​ $ 76,964 ​ $ 28,986 ​ Amounts capitalized for internal-use software developed, excluding acquired technology, and included in property and equipment additions on the consolidated statements of cash flows are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2021 ​ 2020 ​ 2019 Cloud-based customer solutions $ 19,837 $ 14,710 $ 10,179 Internal systems and tools ​ 11,491 ​ 3,176 ​ 4,860 Total ​ $ 31,328 ​ $ 17,886 ​ $ 15,039 ​ In-process internal-use software developed is not depreciated until it is available for its intended use. Depreciation expense for internal-use software developed for cloud-based customer solutions for the years ended December 31, 2021, 2020 and 2019 was $ 19,076 , $ 8,818 and $ 7,982 , respectively, and is included in cost of revenues, software subscriptions in the consolidated statements of comprehensive income (loss). During the year ended December 31, 2021, developed technology with an acquisition date fair value of $ 40,746 was recorded in connection with the Taxamo acquisition and is reflected in property and equipment, net, in the consolidated balance sheet at December 31, 2021. Depreciation expense from the acquisition date through December 31, 2021 associated with this developed technology was $ 8,123 and was reflected in cost of revenues - software subscriptions in the consolidated statement of comprehensive income (loss) for the year ended December 31, 2021. Depreciation expense for internal-use software developed for internal systems and tools for the years ended December 31, 2021, 2020 and 2019 was $ 3,322 , $ 2,442 and $ 1,045 , respectively, and is included in depreciation and amortization in the consolidated statements of comprehensive income (loss). F-34 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) Amortization expense of internal-use software developed, excluding in-process internal-use software not yet available for its intended use, at December 31, 2021 is as follows for all future years: ​ ​ ​ ​ ​ ​ ​ ​ Year Ending December 31, Internal Systems and Tools Cloud-Based Customer Solutions 2022 ​ $ 3,861 ​ $ 24,740 2023 ​ 2,831 ​ 19,624 2024 ​ 1,988 ​ 5,988 2025 ​ 845 ​ — 2026 ​ 122 ​ — Total ​ $ 9,647 ​ $ 50,352 ​ ​ 6. CAPITALIZED SOFTWARE Capitalized software includes acquired software and direct labor and related expenses for software developed for sale for new products and enhancements to existing products. The major components of capitalized software are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2021 2020 Capitalized software ​ $ 72,512 ​ $ 63,071 Less accumulated amortization ​ ( 45,179 ) ​ ( 32,217 ) ​ ​ 27,333 ​ 30,854 In-process capitalized software ​ 6,109 ​ 1,135 Capitalized software, net ​ $ 33,442 ​ $ 31,989 ​ Software development costs capitalized for the years ended December 31, 2021, 2020 and 2019 were $ 11,660 , $ 11,850 and $ 17,221 , respectively. In-process capitalized software at December 31, 2021 includes the acquisition date fair value of $ 3,600 for developed technology acquired in the Tellutax acquisition as the Company undertakes necessary enhancements to integrate the technology with the Company’s existing software architecture. Capitalized software amortization expense for the years ended December 31, 2021, 2020 and 2019 was $ 12,962 , $ 11,936 and $ 8,212 , respectively, and is included in cost of revenues, software subscriptions in the consolidated statements of comprehensive income (loss). In-process capitalized software at December 31, 2021 was not available for general release to customers as of the balance sheet date and therefore not included in the table below. Amortization expense of capitalized software available for general release to customers as of December 31, 2021 is as follows for all future years: ​ ​ ​ ​ ​ Year Ending December 31, ​ 2022 ​ $ 11,352 2023 ​ 8,514 2024 ​ 5,802 2025 ​ 1,416 2026 ​ 249 Total ​ $ 27,333 ​ ​ ​ ​ F-35 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) 7. LEASES The Company leases office space, IT equipment and office equipment. The Company’s leases have remaining terms of up to 7 years . The following table sets forth the Company’s lease assets and liabilities and their balance sheet location as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ Balance Sheet Location 2021 Lease assets: ​ ​ ​ ​ Operating lease right-of-use assets ​ Operating lease right-of-use assets ​ $ 20,249 Finance lease assets ​ Property and equipment, net (Note 5) ​ ​ 602 Total lease assets ​ ​ ​ $ 20,851 ​ ​ ​ ​ ​ ​ Lease liabilities: ​ ​ ​ ​ ​ Current: ​ ​ ​ ​ ​ Operating lease liabilities ​ Current portion of operating lease liabilities ​ $ 3,933 Finance lease liabilities ​ Current portion of finance lease liabilities ​ ​ 284 Total current lease liabilities ​ ​ ​ ​ 4,217 Non-current: ​ ​ ​ ​ ​ Operating lease liabilities ​ Operating lease liabilities, net of current portion ​ ​ 24,320 Finance lease liabilities ​ Finance lease liabilities, net of current portion ​ ​ 68 Total non-current lease liabilities ​ ​ ​ ​ 24,388 Total lease liabilities ​ ​ ​ $ 28,605 ​ ​ The major components of lease cost are as follows: ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ 2021 Operating lease cost ​ $ 4,774 ​ ​ ​ ​ Finance lease cost: ​ ​ ​ Amortization of lease assets ​ ​ 931 Interest on lease liabilities ​ ​ 16 Total lease cost ​ $ 5,721 ​ The weighted-average term and discount rate for leases are as follows: ​ ​ ​ ​ ​ As of December 31, ​ ​ 2021 ​ Weighted-average remaining lease term (years): ​ ​ Operating leases 6.6 ​ Finance leases 1.2 ​ ​ ​ ​ Weighted-average discount rate: ​ ​ Operating leases 2.3 % Finance leases 2.3 % F-36 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) ​ Lease liability maturities for the next five years and thereafter are as follows as of December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating Leases Finance Leases 2022 ​ $ 4,593 ​ $ 289 2023 ​ ​ 4,459 ​ ​ 59 2024 ​ ​ 4,464 ​ ​ 10 2025 ​ ​ 4,382 ​ ​ — 2026 ​ ​ 4,477 ​ ​ — Thereafter ​ ​ 8,054 ​ ​ — Total lease payments ​ ​ 30,429 ​ ​ 358 Less: Imputed interest ​ ​ ( 2,176 ) ​ ​ ( 6 ) Present value of lease liabilities ​ $ 28,253 ​ $ 352 ​ Lease liability maturities for the next five years and thereafter under the previous lease accounting standard are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2020 ​ ​ Operating Leases ​ Capital Leases 2021 ​ $ 5,442 ​ $ 915 2022 ​ 4,518 ​ 230 2023 ​ 4,459 ​ — 2024 ​ 4,464 ​ — 2025 ​ 4,382 ​ — Thereafter ​ 12,531 ​ — Total lease payments ​ $ 35,796 ​ ​ 1,145 Less amount representing interest ​ ​ ​ ​ ​ ( 38 ) Present value of minimum lease payments ​ ​ ​ ​ ​ 1,107 Less current portion ​ ​ ​ ​ ​ ( 882 ) Capital lease obligations, net of current portion ​ ​ ​ ​ $ 225 ​ ​ ​ 8. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and other intangible assets were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2021 ​ 2020 Goodwill ​ $ 270,041 ​ $ 16,329 Other intangible assets, net ​ ​ 2,661 ​ 2,382 Total ​ $ 272,702 ​ $ 18,711 ​ F-37 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) The changes in the carrying amount of goodwill are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2021 ​ 2020 Balance, January 1 ​ $ 16,329 ​ $ — Acquisitions ​ ​ 265,867 ​ 21,089 Foreign currency translation adjustments ​ ​ ( 12,155 ) ​ ​ ( 4,760 ) Balance, December 31, gross ​ ​ 270,041 ​ ​ 16,329 Accumulated impairment losses ​ ​ — ​ ​ — Balance, December 31, net ​ $ 270,041 ​ $ 16,329 ​ The Company recognized various amortizable other intangible assets in connection with acquisitions (Note 3), including related to customer relationships, technology and tradenames. The following tables provide additional information for our other intangible assets, which are individually not material to the consolidated financial statements: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31 ​ ​ ​ ​ ​ 2021 ​ 2020 Weighted average amortization period (years) ​ ​ ​ ​ ​ 4.2 ​ ​ 5.5 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross value ​ ​ ​ ​ $ 4,110 ​ $ 2,825 Accumulated amortization ​ ​ ​ ​ ​ ( 1,449 ) ​ ​ ( 443 ) Carrying value ​ ​ ​ ​ $ 2,661 ​ $ 2,382 ​ The following table presents amortization of intangible assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ending December 31, ​ Cost of Revenues, Software Subscriptions ​ Selling and Marketing Expense ​ Total Expense 2021 ​ $ 253 $ 813 $ 1,066 2020 ​ $ 267 $ 176 $ 443 ​ The following table presents estimated future amortization of intangible assets: ​ ​ ​ ​ ​ Year Ending December 31, ​ 2022 ​ $ 1,203 2023 ​ 743 2024 ​ 466 2025 ​ 249 Total ​ $ 2,661 ​ ​ ​ 9. DEBT Credit Agreement On March 31, 2020, the Company entered into a credit agreement with a bank consisting of a $ 175,000 term loan (the “Term Loan”) and a $ 100,000 committed line of credit (the “Line of Credit”) (collectively, the “Credit Agreement”). Net proceeds from the Term Loan, after payment of financing fees of $ 2,904 and repayment of aggregate amounts outstanding under the previous credit agreement of $ 61,656 , were used to fund a portion of the $ 123,185 distribution made to the stockholders on May 29, 2020 (see Note 10). F-38 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) A portion of the Offering proceeds was used to repay the $ 175,000 Term Loan in full on July 31, 2020. The Company received a refund of $ 468 of financing fees as a result of repayment of the Term Loan within 90 days of execution of the Credit Agreement, which was recorded as a reduction of deferred financing costs associated with the Term Loan. The Company wrote off the remaining balance of deferred financing costs associated with the Term Loan of $ 1,174 , which was recorded as interest expense in the consolidated statement of comprehensive income (loss) for the year ended December 31, 2020. The Line of Credit matures in March 2025 and had no outstanding borrowings at either December 31, 2021 or 2020. The Company has the option to select an applicable interest rate at either the bank base rate plus an applicable margin (the “Base Rate Option”) or the LIBOR plus an applicable margin (the “LIBOR Option”). The applicable margins are determined by certain financial covenant performance as defined in the Credit Agreement. At December 31, 2021, the Base Rate Option and LIBOR Option applicable to Line of Credit borrowings were 3.25 % and 2.00 %, respectively. The Credit Agreement is collateralized by certain assets of the Company and contains financial and operating covenants. The Company was in compliance with all financial covenants at December 31, 2021. 10. STOCKHOLDERS’ EQUITY Termination of S-Corporation status In connection with termination of the Company’s S-Corporation status effective July 27, 2020, the Company had an accumulated deficit of $ 354,291 pertaining to the S-Corporation shareholders which was reclassified to additional paid in capital upon such termination. Recapitalization In connection with the Recapitalization, the Company: (i) effected the three-for-one Stock Split, which is reflected retrospectively in the consolidated financial statements; (ii) established the New Capital Structure; and (iii) effected the Share Exchange. In connection with the Recapitalization, repurchased shares (“Treasury Stock”) of 41,910 were retired and amounts associated with the Treasury Stock were reclassified to additional paid in capital. Prior to the Share Exchange, the Company had 147 shares of former Class A common stock and 120,443 shares of former Class B common stock outstanding. Members of a family (the “Family”) owned 99.9 % of all outstanding shares of both former classes of common stock, which was comprised of 100 % of the former Class A common stock and 120,270 shares of the former Class B common stock. The remaining 173 shares of former Class B common stock were owned by non-Family members. There were no dividend or liquidation preference differences between the former Class A and former Class B shares. In connection with establishing the New Capital Structure, the shareholders authorized 450,000 shares of common stock, par value $ 0.001 per share, and 30,000 shares of preferred stock, par value $ 0.001 per share. Common stock is divided into two classes, Class A with one vote per share, and Class B with ten votes per share. The rights of the holders of Class A and Class B are identical, except with respect to voting and conversion rights. Upon the transfer of Class B shares, such shares will automatically convert to an equivalent number of Class A shares with the respective voting rights attributable to such new shares. Authorized Class A and Class B shares are 300,000 and 150,000 shares, respectively. There are no dividend or liquidation preference differences between Class A and Class B. In connection with the Share Exchange, the Family members exchanged each share of former Class A and former Class B for the equivalent number of Class B shares established as part of the New Capital Structure. In addition, the non-Family members exchanged their former Class B shares for an equivalent number of Class A shares established as part of the New Capital Structure. No funds were exchanged in connection with the Share Exchange and the aggregate number of F-39 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) shares outstanding both immediately prior to and after the Share Exchange remained the same at 120,590 . In addition, common stock equivalents, all of which were held by non-Family members and which were previously exercisable into former Class B shares, became exercisable into Class A shares established as part of the New Capital Structure Common Stock During 2021, the Company issued 2,157 shares of Class A related to the exercise of options, net of 706 shares returned to the Company in lieu of payment of the exercise price and taxes due on these exercises. The Company also issued 12 shares and 352 shares of Class A in 2021 in connection with the vesting of RSUs and RSAs, respectively, net of shares returned to the Company in lieu of payment of taxes due on the vesting of these awards. The Company also issued 128 shares in connection with the ESPP Plan in 2021. During 2021, a stockholder exchanged 13,310 shares of Class B for an equivalent number of shares of Class A. In April 2020, the Company issues 173 shares of former Class B common stock in connection with the exercise of options for cash of $ 53 . These shares were exchanged for Class A common stock in connection with the Offering. On July 28, 2020, the Company sold 23,812 shares of Class A in connection with the Offering for $ 423,024 , net of underwriting fees. Offering costs paid from these proceeds aggregated $ 6,222 and are reflected as a reduction of additional paid in capital in stockholders’ equity. In connection with the Offering, the Company also issued an aggregate 564 shares of Class A related to the conversion of SARs into options and the immediate exercise of these options into shares, net of 860 shares returned to the Company in lieu of payment of the exercise price and taxes due on these exercises. In addition, in 2020 the Company issued 510 shares of Class A in connection with the exercise of stock options by option holders, net of 381 shares returned to the Company in lieu of payment of the exercise price and taxes due on these exercises. The Company also issued 890 Class A shares in connection with the exercise of outstanding options and 19 Class A shares in connection with RSAs granted at the Offering, which vested immediately. The Company also issued 890 Class A shares in connection with the exercise of outstanding options and 19 Class A shares in connection with RSAs granted at the Offering, which vested immediately. The Company also issued 59 shares in connection with the ESPP Plan in 2020. A stockholder exchanged 300 shares of Class B common stock for an equivalent number of shares of Class A common stock during the year ended December 31, 2020. Distributions The Board declared distributions of $ 4,010 ($ 0.03 per share) and $ 123,185 ($ 1.02 per share) during the three months ended March 31, and June 30, 2020, respectively, and $ 5,706 ($ 0.05 per share) through July 25, 2020, pro rata to stockholders of the former Class A and Class B common stock. Tax Sharing Agreement Payments In connection with termination of the Company’s S-Corporation status effective July 27, 2020, the Company entered into a Tax Sharing Agreement with the former S-Corporation shareholders. See Note 1. The Tax Sharing Agreement, as amended, requires the Company to finalize the S-Corporation income tax returns for the short period ended July 26, 2020 and settle any remaining liability for taxes to the former S-Corporation shareholders within 15 days thereafter. All obligations of the Company under the Tax Sharing Agreement are satisfied by adjustments of additional paid in capital. Through the year ended December 31, 2021, the Company distributed $ 2,733 to the former S-Corporation shareholders under the Tax Sharing Agreement. On March 15, 2022, the Company distributed $ 536 to the former S-Corporation shareholders under the Tax Sharing Agreement to settle the Company’s obligation for income taxes related to the allocation of taxable income to the S-Corporation short tax period ended July 26, 2020. ​ F-40 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) 11 . EARNINGS PER SHARE The tables below illustrate the calculation of basic and diluted net income (loss) per common share for the Class A common and Class B common for the periods reflected below. The weighted average shares outstanding have been retrospectively restated to reflect the Share Exchange for all periods prior to the Offering, resulting in the Class A shares representing non-Family-owned shares and Class B representing Family-owned shares for all periods presented prior to the Offering. See Note 10 for further information on the Share Exchange. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, Class A common stock: 2021 2020 2019 Numerator, basic: ​ ​ ​ ​ Net income (loss) attributable to all stockholders ​ $ ( 1,479 ) ​ $ ( 75,081 ) ​ $ 31,057 ​ Class A common stock as a percentage of total shares outstanding, basic ​ 24.12 % 8.44 % 0.08 % Net income (loss) attributable to Class A stockholders, basic ​ $ ( 357 ) ​ $ ( 6,335 ) ​ $ 23 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Numerator, diluted: ​ ​ ​ ​ Net income (loss) attributable to all stockholders ​ $ ( 1,479 ) ​ $ ( 75,081 ) ​ $ 31,057 ​ Class A common stock as a percentage of total shares outstanding, diluted ​ 24.12 % 8.44 % 3.11 % Net income (loss) attributable to Class A stockholders, diluted ​ $ ( 357 ) ​ $ ( 6,335 ) ​ $ 965 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Denominator, basic and diluted: ​ ​ ​ ​ Weighted average Class A common stock, basic ​ 35,647 ​ 11,096 ​ 118 ​ Dilutive effect of common stock equivalents (1), (2) ​ — ​ — ​ 3,743 ​ Weighted average Class A common stock, diluted ​ 35,647 ​ 11,096 ​ 3,861 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) per Class A share, basic ​ $ ( 0.01 ) ​ $ ( 0.57 ) ​ $ 0.20 ​ Net income (loss) per Class A share, diluted ​ $ ( 0.01 ) ​ $ ( 0.57 ) ​ $ 0.25 ​ 1 For the year ended December 31, 2021, the following weighted-average outstanding shares of common stock equivalents by award type were excluded from the computation of diluted net loss per share attributable to Class A stockholders because the impact of including them would have been anti-dilutive: 10,422 options (including 294 out-of-the-money options), 490 restricted stock awards, 387 restricted stock units and 29 shares under the ESPP . ​ 2 For the year ended December 31, 2020, the following weighted-average outstanding shares of common stock equivalents by award type were excluded from the computation of diluted net loss per share attributable to Class A stockholders because the impact of including them would have been anti-dilutive: 7,398 options, 289 restricted stock awards and 27 restricted stock units . ​ F-41 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, Class B common stock: 2021 ​ 2020 2019 Numerator, basic: ​ ​ ​ ​ Net income (loss) attributable to all stockholders ​ $ ( 1,479 ) ​ $ ( 75,081 ) ​ $ 31,057 ​ Class B common stock as a percentage of total shares outstanding, basic ​ 75.88 % 91.56 % 99.92 % Net income (loss) attributable to Class B stockholders, basic ​ $ ( 1,122 ) ​ $ ( 68,746 ) ​ $ 31,034 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Numerator, diluted: ​ ​ ​ ​ Net income (loss) attributable to all stockholders ​ $ ( 1,479 ) ​ $ ( 75,081 ) ​ $ 31,057 ​ Class B common stock as a percentage of total shares outstanding, diluted ​ 75.88 % 91.56 % 96.89 % Net income (loss) attributable to Class B stockholders, diluted ​ $ ( 1,122 ) ​ $ ( 68,746 ) ​ $ 30,092 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Denominator, basic and diluted: ​ ​ ​ ​ Weighted average Class B common stock, basic ​ 112,133 ​ 120,415 ​ 120,417 ​ Dilutive effect of common stock equivalents ​ — ​ — ​ — ​ Weighted average Class B common stock, diluted ​ 112,133 ​ 120,415 ​ 120,417 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) per Class B share, basic ​ $ ( 0.01 ) ​ $ ( 0.57 ) ​ $ 0.26 ​ Net income (loss) per Class B share, diluted ​ $ ( 0.01 ) ​ $ ( 0.57 ) ​ $ 0.25 ​ ​ ​ 12 . EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS The Company maintains a 401(k) plan that covers eligible employees subject to certain age and length of service requirements. The Company matches up to 3 % of eligible compensation during the period in which an eligible participant contributes to the plan. Matching contributions were $ 4,062 , $ 4,011 and $ 3,419 for the years ended December 31, 2021, 2020 and 2019, respectively. In addition, a discretionary profit-sharing contribution of 3 % of eligible compensation for eligible employees was approved and aggregated $ 3,994 , $ 4,035 and $ 3,363 for the years ended December 31, 2021, 2020 and 2019, respectively, and is reflected in accrued salaries and benefits in the consolidated balance sheets. Long-Term Rewards Plan The Company had a long-term reward (“LTR”) compensation plan for certain key employees related to growth in certain financial measures over a three-year measurement period (the “Reward Performance Period’), subject to the terms of the plan. After December 31, 2020, no new awards will be granted under the LTR plan as future long-term awards will only be made under the 2020 Plan. Eligible LTR plan participants received an individual target award opportunity (“Award Opportunity”) for a new three-year Reward Performance Period (i.e., target award grant made in 2019 is for years 2019 through 2021). Compensation earned for growth in the financial measures over each Reward Performance Period is paid in cash in the year following the end of the respective Reward Performance Period, assuming the minimum net income target was achieved in the final year of the Reward Performance Period. Estimated compensation is recorded during each year of a Reward Performance Period (“accrued LTR Award Opportunities”). At December 31, 2021, the Company has two open Reward Performance Periods that would be eligible for payment in 2022 and 2023. Compensation expense associated with LTR plan was $ 3,059 , 3,027 , and $ 2,462 for the years ended December 31, 2021, 2020 and 2019, respectively. Amounts paid in 2021 and 2020 for the LTR plan was $ 1,981 and $ 2,796 , respectively. Amounts estimated to be paid in 2022 and 2023 for the LTR plan are $ 4,060 and $ 1,778 , respectively, which amounts are reflected in deferred compensation, current and deferred compensation, net of current portion, respectively, in the consolidated balance sheet as of December 31, 2021. F-42 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) Stock-Based Award Plans On the effective date of the Offering, the Company adopted the 2020 Plan and the ESPP. The 2020 Plan provides the ability to grant cash and equity-based incentive awards to eligible employees, directors and service providers in order to attract, retain and motivate those that make important contributions to the Company. The 2020 Plan provides for the award of stock options, RSAs, RSUs, SARs and other cash compensation. The ESPP provides eligible employees with rights during each six-month ESPP offering period to purchase shares of the Company’s Class A common at the ESPP discount through payroll deductions, or through lump sum payments during the initial offering period only (July 28 to November 30, 2020). Amounts withheld or received from participants are reflected in accrued salaries and benefits in the consolidated balance sheets until such shares are purchased. Amounts withheld from participants for the offering periods ending May 31, 2022 and 2021 aggregated $ 281 and $ 246 as of December 31, 2021 and 2020, respectively. Prior to the adoption of the 2020 Plan, the Company had a SAR plan for the purpose of providing incentives to key members of management and consultants to contribute to the growth and financial success of the Company. As a result of the Offering, SAR participants were offered the option to either redeem their SARs upon the occurrence of the Offering or amend their SARs pursuant to which, upon effectiveness of the 2020 Plan, such SARs would become options to purchase shares of Class A common stock under the 2020 Plan (the “SAR Exchange Offer”). All SAR participants eligible to receive the SAR Exchange Offer accepted and had their outstanding SARs, which aggregated 12,038 , converted to options with equivalent terms under the 2020 Plan at the Offering effective date (the “Converted SARs”). This was considered a modification of these SAR awards. The SAR plan was retired (“Retired SAR Plan”) and any future SARs will be granted under the 2020 Plan. Prior to the adoption of the 2020 Plan, the Company had options outstanding to purchase 3,676 shares of former Class B common stock. U pon the effectiveness of the Offering, these options were amended and exchanged for options to purchase an equivalent number of Class A shares at the same exercise price and vesting, subject to the terms of the 2020 Plan except with regard to certain terms of the original option agreements primarily with respect to expiration in connection with a Triggering Event (the “Amended Options”). 2020 Plan Upon commencement of the 2020 Plan, an aggregate of 16,500 shares of our Class A common stock were available for issuance. The number of shares available for issuance will be increased annually on January 1 of each calendar year beginning in 2021 and ending in and including 2030, equal to the lesser of (i) 4 % of the shares of Class A and Class B common stock outstanding on the final day of the immediately preceding calendar year and (ii) a smaller number of shares as determined by the Board. No more than 3,000 shares of Class A common may be issued under the 2020 Plan upon the exercise of incentive stock options. Shares available under the 2020 Plan may consist of authorized but unissued shares, shares purchased on the open market, or treasury shares. If an award under the 2020 Plan expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, or canceled without having been fully exercised or forfeited, any unused shares subject to the award will again be available for new grants under the 2020 Plan. Awards granted under the 2020 Plan in substitution for any options or other stock or stock-based awards granted by an entity before the entity’s merger or consolidation with or acquisition by the Company of the entity’s property or stock will not reduce the shares available for grant under the 2020 Plan but will count against the maximum number of shares that may be issued upon the exercise of incentive stock options. As of December 31, 2021, 6,490 shares of our Class A common were available for issuance under the 2020 Plan. No incentive stock options that would be subject to the 3,000 Class A share limit were issued or outstanding under the 2020 Plan at December 31, 2021. F-43 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) Awards issued under the 2020 Plan vest based on service criteria established by the Board. The Company has elected to account for forfeitures as they occur rather than estimate forfeitures at date of grant. Retired SAR Plan The Retired SAR Plan enabled the Company to grant awards (“SAR Awards”) as a fixed number of shares of former Class B common stock (“SAR Units”). SAR Units outstanding aggregated 12,276 at December 31, 2019. SAR Units were issued at the equivalent of the fair value of the equivalent number of shares of the Company’s former Class B common stock on the grant date (“Base Value”), as determined by the Board with assistance from management and an independent third-party valuation provider, and compensation recorded based upon the appreciation of the SAR Units in excess of the Base Value over the requisite service period. SAR Awards were exercisable upon 50 % vesting or upon the occurrence of a triggering event. SAR Awards were settled in cash only, not through the issuance of shares. The SAR Exchange Offer resulted in eligible SAR participants amending their SAR Units pursuant to which, upon effectiveness of the Company’s 2020 Plan, such SAR Units were exchanged for options under the 2020 Plan. Effective July 13, 2020, the SAR Exchange Offer period ended and all SAR participants eligible to receive the offer accepted and had their outstanding SAR Units converted to options with equivalent terms under the 2020 Plan on the effective date of the plan upon the Offering. This was considered an accounting modification of these SAR Awards. Converted SARs with either no expiration date or that expired during calendar year 2020 were converted to options and automatically exercised into shares (the “Auto Exercise New Options”) on the effective date of the Offering. Shares issued in connection with the Auto Exercise New Options were net of the number of shares of common stock necessary to satisfy the aggregate exercise price and the tax withholding obligation of such options of $ 13,835 . The Auto Exercise New Option participants also had the ability to require the Company to repurchase all or a portion of these on the Offering effective date for cash based on the Offering price of $ 19.00 per share, which aggregated $ 9,054 . The aggregate of these amounts of $ 22,889 is reflected as a reduction of cash provided by operating activities as these payment requirements arose when the original SARs were liability-classified prior to their conversion and exercise. Management continued to record changes in the intrinsic value of the SAR Units in 2020 up to the date on which management determined the Company was considered to have become a public entity. Management measured the change in accounting policy of $ 2,422 in accordance with ASC 718 during the year ended December 31, 2021, which included $ 1,299 of vested Converted SARs that were recognized as compensation expense during this period, with the remaining $ 1,122 of unvested Converted SARs being recognized as compensation expense over the remaining service period of one to five years through 2025. The additional incremental increase in fair value of the Converted SARs after the date on which management was considered to have become a public entity and up to the time of the exchange on the Offering effective date resulting from the modification was recorded as compensation expense. The fair value of the Converted SARs, estimated using the Black-Scholes model, was $ 197,708 , of which $ 153,366 was vested as of the Offering date. Management recorded additional compensation expense of $ 57,079 for vested Converted SARs from July 1 to the Offering effective date, which included the $ 1,299 impact of the change in accounting of vested Converted SARs. The remaining $ 44,342 of unvested Converted SAR liability, which includes the $ 1,122 of unvested Converted SARs in connection with the change in accounting policy, will be recognized as compensation expense over the remaining service period of one to five years through 2025. Upon modification, the Converted SARs are no longer being recorded as a liability under ASC 718 and the accumulated liability balance, net of amounts for payment of tax withholding and redemption, was reclassified to stockholders’ equity. No incremental compensation expense arose in connection with the SAR modification. F-44 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) The assumptions used in the Black-Scholes model to determine the fair value of the Converted SARs on the modification date are as follows: ​ ​ ​ ​ ​ ​ Fair market value of common stock ​ $ 19.00 ​ Volatility 36.7 % Expected term (years) 6.5 ​ Expected dividend yield — % Risk-free interest rate 0.4 % ​ As of the modification date, the Company lacked sufficient historical data on the volatility of its stock price. Selected volatility is representative of expected future volatility and was based on the historical and implied volatility of comparable publicly traded companies over a similar expected term. The expected term represents the term of the Converted SARs, which ranges from within one year to ten years . The Company does not expect to pay dividends after the Offering. The risk-free interest rate was based on the rate for a U.S. Treasury zero-coupon issue with a term that closely approximates the expected term of the SAR grants. Prior to the Offering, the fair value of the common stock underlying the SAR Awards was determined by the Board with assistance from management and an independent third-party valuation firm. The determination of value used the market and income approaches, with an adjustment for marketability discount pertinent to private company entities in arriving at the per share fair value (the “valuation methodology”). Under the market approach, the guideline public company method is used, which estimates the fair value of the Company based on market prices of stock of guideline public companies. The income approach involves projecting the future benefits of owning an asset and estimating the present value of those future benefits by discounting them based upon the time value of money and the investment risks associated with ownership. At the end of 2019, due to the consideration by the Board of pursuing the Offering, the valuation methodology began to consider the impact of such an event on the value of the Company’s common stock underlying the awards. As the Company approached the Offering effective date, this resulted in increases in the value of the SAR Awards which resulted in corresponding increases to compensation expense for the year ended December 31, 2020 which exceeded historical results. The below table represents SAR activity for the following periods: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Units Range of ​ Vested Nonvested Total Grant Values Outstanding at January 1, 2019 5,889 4,782 10,671 ​ $ 0.92 –$ 3.17 Granted 297 2,112 2,409 ​ $ 3.73 Exercised ( 609 ) — ( 609 ) ​ $ 1.31 –$ 2.50 Forfeited — ( 195 ) ( 195 ) ​ $ 2.13 –$ 2.50 Vested 630 ( 630 ) — ​ Outstanding at December 31, 2019 6,207 6,069 12,276 ​ $ 0.92 –$ 3.73 Granted 21 681 702 ​ $ 4.70 Exercised ( 877 ) — ( 877 ) ​ $ 1.31 –$ 2.50 Forfeited — ( 63 ) ( 63 ) ​ $ 2.50 Vested 1,410 ( 1,410 ) — ​ Converted ( 6,761 ) ( 5,277 ) ( 12,038 ) ​ $ 0.92 –$ 4.70 Outstanding at December 31, 2020 — — — ​ ​ ​ ​ Prior to the Offering, the weighted average grant date intrinsic value of the SARs on grant date was zero as the Company’s Board granted all awards at a price per share not less than the per share fair value of the Company’s former Class B common stock underlying such awards on the date of grant. F-45 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) At the Offering effective date, the liability for total recognized compensation for vested SAR Awards of $ 143,519 was reclassified to additional paid in capital as these awards were reclassified to equity-based awards on this date subject to the terms of the 2020 Plan. Unrecognized compensation for unvested SAR awards of $ 44,342 will be recognized as compensation expense under the 2020 Plan over the respective service periods of one to five years . Amended Options On July 20, 2020, the Amended Options resulted from the Board amending the outstanding options to provide for their exchange for options to purchase an equivalent number of Class A shares available under the 2020 Plan at the same exercise price, vesting and term . The amendment of the options was deemed an accounting modification. No incremental compensation was recorded in connection with this modification as it was determined that the value of the Amended Options was the same both before and after the modification. The Amended Options remain exercisable upon: (i) the option holder no longer serving as an employee of the Company or a member of the Board; (ii) the Grantee’s death or disability; (iii) the occurrence of a Partial Triggering Event (as defined below); or (iv) the occurrence of a Triggering Event (as defined below). Prior to being amended, the option agreements provided employee option holders with the ability to exercise a portion of their options between April 15 and April 30 of each year based upon the fair value of the Class B common stock as of December 31 of the prior calendar year, provided that certain Company performance is achieved. Upon amendment, the options are instead now subject to restrictions on trading during certain periods (“blackout dates”). Option holders are permitted to satisfy tax withholding obligations incurred in connection with the exercise by exchanging exercised options in lieu of payment of income taxes paid by the Company on their behalf. In the event of the sale of at least 50 % of the Company’s stock or all the assets of the Company (“Triggering Event”) in a single or multiple transactions, the option holders have the right to exercise their options and sell their related shares in connection with the transactions. Unexercised options expire after a Triggering Event. In the event of a sale of at least 25 % of the Company’s assets to an unrelated third-party in a single or multiple transactions (“Partial Triggering Event”), the option holders have the right to exercise a portion of their options pro rata based on the sales price and sell their related shares in connection with the transaction. Unexercised options remaining after a Partial Triggering Event remain outstanding. In addition, in the event stockholders owning at least 51 % of the outstanding stock of the Company (the “selling stockholders”) sell a portion of their stock to an unrelated third-party, the option holders have the right to exercise and sell an amount of options in the same proportion as the selling stockholders (a “tag-along right”). The option holders may also be required to exercise all their outstanding options and sell all related shares in the event the selling stockholders sell at least 51 % of their ownership to an unrelated third-party (a “drag-along right”). Prior to the amendment, the options permitted holders to put their exercised shares back to the Company, thus the options were classified as temporary equity and included in “Options for Redeemable Shares” on the consolidated balance sheets. The Company recorded increases in the value of Options for Redeemable Shares of $ 51,833 and $ 2,763 during the years ended December 31, 2020 and 2019, respectively. The option holders’ ability to put the exercised Amended Option shares to the Company in order to attain liquidity was exchanged for the right by the holders to exercise these options and sell the related shares on the NASDAQ exchange. As a result of this put right no longer being applicable, the options were no longer considered temporary equity and were reclassified to stockholders’ equity in the amount of $ 69,177 during the year ended December 31, 2020. F-46 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) The following table summarizes activity for the Amended Options for the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ Average ​ ​ ​ ​ ​ ​ ​ Average ​ Remaining ​ Aggregate ​ ​ ​ ​ ​ Exercise ​ Contractual ​ Intrinsic Amended Option Activity ​ Units ​ ​ Price ​ Life (Years) ​ Value Outstanding at January 1, 2019 ​ 4,125 ​ $ 0.20 ​ * ​ $ 14,581 Exercised ​ ( 276 ) ​ $ 0.25 ​ ​ ​ $ 957 Outstanding at December 31, 2019 ​ 3,849 ​ $ 0.19 ​ * ​ $ 17,344 Exercised through June 30 ​ ( 173 ) ​ $ 0.30 ​ ​ ​ $ 759 Amendment and exchange of options ​ ( 3,676 ) ​ $ 0.19 ​ * ​ $ 69,177 Outstanding at December 31, 2020 ​ — ​ ​ ​ ​ ​ ​ ​ ​ *Options have indefinite contractual lives ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Options under 2020 Plan The following table summarizes activity for options outstanding under the 2020 Plan for the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ Average ​ ​ ​ ​ ​ ​ ​ Average ​ Remaining ​ Aggregate ​ ​ ​ ​ ​ Exercise ​ Contractual ​ Intrinsic 2020 Plan Option Activity ​ Units ​ ​ Price ​ Life (Years) ​ Value Outstanding at January 1, 2020 ​ — ​ ​ — ​ ​ ​ ​ ​ Issued in connection with Converted SARs ​ 12,038 ​ $ 2.76 ​ ​ ​ ​ ​ Issued in connection with Amended Options ​ 3,676 ​ $ 0.19 ​ * ​ ​ ​ Total options granted ​ 15,714 ​ $ 2.16 ​ ​ ​ ​ ​ Forfeited ​ ( 156 ) ​ $ 3.29 ​ ​ ​ ​ ​ Exercised ​ ( 3,682 ) ​ $ 1.21 ​ ​ ​ ​ ​ 2020 Plan options outstanding at December 31, 2020 ​ 11,876 ​ $ 2.44 ​ 5.3 ​ $ 384,883 Granted ​ 779 ​ $ 23.06 ​ ​ ​ ​ ​ Forfeited ​ ( 292 ) ​ $ 4.06 ​ ​ ​ ​ ​ Exercised ​ ( 2,863 ) ​ $ 2.04 ​ ​ ​ ​ ​ 2020 Plan options outstanding at December 31, 2021 ​ 9,500 ​ $ 4.20 ​ 5.2 ​ $ 110,843 2020 Plan options exercisable at December 31, 2021 6,169 ​ $ 2.39 3.9 ​ $ 83,188 *Amended Options have indefinite contractual lives ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ F-47 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) The detail of options outstanding, vested and exercisable under the 2020 Plan as of December 31, 2021 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Options Outstanding ​ Options Vested and Exercisable ​ ​ Weighted ​ Weighted ​ ​ ​ ​ Average ​ ​ ​ Average Exercise Prices ​ Units ​ Life (Years) ​ Units ​ Life (Years) $ 0.15 to $ 0.71 1,854 — 1,854 — $ 2.15 462 3.1 462 3.1 $ 2.50 2,186 4.5 2,186 4.5 $ 2.67 419 5.2 42 5.1 $ 3.17 1,196 6.3 446 6.3 $ 3.73 ​ 1,932 ​ 7.8 ​ 1,061 ​ 7.8 $ 4.70 ​ 683 ​ 8.1 ​ — ​ — $ 18.47 ​ 213 ​ 9.9 ​ — ​ — $ 18.96 ​ 235 ​ 9.6 ​ 105 ​ 9.6 $ 19.00 69 9.7 — — $ 32.16 251 9.2 13 9.2 ​ 9,500 ​ ​ 6,169 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The Board intends all options granted to be exercisable at a price per share not less than the per share fair market value of the Company’s Class A common stock underlying the options on the date of grant. Compensation expense for new option awards issued subsequent to the Offering to participants under the 2020 Plan are measured based on the grant date fair value of the awards and recognized in the consolidated statements of comprehensive income (loss) over the period during which the participant is required to perform the requisite services. The vesting period is generally one to four years . The Company issued 779 options under the 2020 Plan during various quarters in 2021. The assumptions used in the Black-Scholes models to determine the value of the options issued during these periods are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Option Valuation Period ​ ​ Q1 2021 ​ Q2 2021 ​ Q3 2021 Q3 2021 ​ ​ Q4 2021 ​ Fair market value of common stock ​ $ 32.16 ​ ​ $ 17.66 ​ ​ $ 18.96 ​ $ 19.00 ​ ​ $ 18.47 ​ Volatility 36.8 % ​ 36.8 % ​ 37.1 % ​ 37.1 % ​ 37.4 % Expected term (years) 6.0 ​ ​ 6.0 ​ ​ 5.0 ​ ​ 5.0 ​ ​ 5.0 ​ Expected dividend yield — % ​ — % ​ — % ​ — % ​ — % Risk-free interest rate 0.4 % ​ 0.4 % ​ 0.8 % ​ 0.9 % ​ 1.3 % ​ The fair market value of common stock reflects the market closing price on NASDAQ on the respective option grant date. As of the valuation dates, the Company lacked sufficient historical data on the volatility of its stock price. Selected volatility is representative of expected future volatility and was based on the historical and implied volatility of comparable publicly traded companies over a similar expected term. The expected term represents the term the options are expected to be exercised over, which differs from the term of the option grants which is ten years . The Company does not expect to pay dividends. The risk-free interest rate was based on the rate for a U.S. Treasury zero-coupon issue with a term that closely approximates the expected term of the option grants. At December 31, 2021, $ 18,742 of unrecognized compensation expense associated with the options and Converted SARs is expected to be recognized over a weighted average period of approximately 2.8 years. F-48 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) Restricted Stock Units The following table summarizes RSU activity for the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ Average ​ ​ ​ ​ Grant Date Fair ​ ​ Units ​ Value Per Share Outstanding at January 1, 2020 — ​ ​ ​ Granted 101 ​ $ 23.80 Total at December 31, 2020 ​ 101 ​ ​ 23.80 Granted ​ 478 ​ ​ 27.07 Vested ( 15 ) ​ ​ 29.67 Forfeited ( 34 ) ​ ​ 25.18 Outstanding at December 31, 2021 ​ 530 ​ $ 26.49 ​ Stock-based compensation cost for RSUs is measured based on the fair value of the Company’s underlying common stock on the date of grant. Compensation cost will be recognized on a straight-line basis in the consolidated statements of comprehensive income (loss) over the period during which the participant is required to perform services in exchange for the award, which is generally one to four years . At December 31, 2021, $ 11,222 of unrecognized compensation cost for RSUs is expected to be recognized over a weighted average period of approximately 3.2 years. In connection with the Taxamo acquisition, certain continuing employees of Taxamo received RSUs with service and performance conditions. At December 31, 2021, there are 1,007 shares of our Class A common stock (“PSUs”) with an aggregate grant date fair value of $ 17,779 that will be accounted for as post-acquisition compensation expense over the vesting period if targets are achieved. The performance-based condition will be satisfied upon meeting certain performance targets for the year ended 2023. As of December 31, 2021, it is not probable that these targets will be met, thus no compensation expense has been recorded to date related to these PSUs. Restricted Stock Awards The following table summarizes RSA activity for the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ Average ​ ​ ​ ​ Grant Date Fair ​ ​ Units ​ Value Per Share Outstanding at January 1, 2020 — ​ ​ ​ Granted 694 ​ $ 19.00 Vested ( 21 ) ​ 19.00 Forfeited ( 3 ) ​ 19.00 Outstanding at December 31, 2020 ​ 670 ​ ​ 19.00 Granted ​ 59 ​ ​ 17.66 Vested ​ ( 363 ) ​ ​ 19.00 Forfeited ​ ( 40 ) ​ ​ 19.00 Outstanding at December 31, 2021 326 ​ $ 18.76 ​ Stock-based compensation cost for RSAs is measured based on the fair value of the Company’s underlying common stock on the date of grant. Compensation cost will be recognized on a straight-line basis in the consolidated statements of comprehensive income (loss) over the period during which the participants are required to perform services in exchange F-49 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) for the award, which is generally one to four years . At December 31, 2021, $ 4,013 of unrecognized compensation cost for RSAs is expected to be recognized over a weighted average period of approximately 1.8 years. Employee Stock Purchase Plan The ESPP permits participants to purchase Class A common stock primarily through payroll deductions of up to a specified percentage of their eligible compensation. The maximum number of shares that may be purchased by a participant during any offering period is determined by the plan administrator in advance of each offering period. On the first trading day of each offering period, each participant will automatically be granted an option to purchase shares of Class A common. The option will expire at the end of the applicable offering period and will be exercised at that time to the extent of the payroll deductions accumulated or contributions made during such offering period. The purchase price of the shares, in the absence of a contrary designation, is 85 % of the lower of the fair value of the Class A common on the first or last day of the ESPP offering period. Participants may voluntarily end their participation in the plan at any time during a specified period prior to the end of the applicable offering period and will be paid their accrued payroll deductions and related contributions, if applicable, that have not yet been used to purchase shares of Class A common. If a participant withdraws from the plan during an offering period, the participant cannot rejoin until the next offering period. Participation ends automatically upon a participant's termination of employment. As of December 31, 2021 and 2020 there was approximately $ 233 and $ 218 , respectively, of unrecognized ESPP stock-based compensation cost that is expected to be recognized on a straight-line basis over the remaining term of the offering periods ending on May 31 2022 and 2021, respectively. The fair value of ESPP purchase rights is comprised of the value of the 15 % ESPP discount and the value associated with the Call/Put over the ESPP offering period. The value of the Call/Put for the respective offering periods was estimated using the Black-Scholes model with the following assumptions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Offering Period Ending ​ ​ 11/30/2020 ​ 5/31/2021 ​ 11/30/2021 ​ 5/31/2022 Fair market value of common stock $ 19.00 ​ ​ $ 25.83 ​ ​ $ 18.89 ​ ​ $ 17.38 ​ Volatility ​ 35.0 % ​ 35.1 % ​ 35.1 % ​ 37.3 % Expected term (years) ​ 0.3 ​ ​ 0.5 ​ ​ 0.5 ​ ​ 0.5 ​ Expected dividend yield ​ - % ​ - % ​ - % ​ - % Risk-free interest rate ​ 0.1 % ​ 0.1 % ​ 0.1 % ​ 0.1 % ​ The Company lacks sufficient historical data on the volatility of its stock price. Selected volatility is representative of expected future volatility and was based on the historical and implied volatility of comparable publicly traded companies over a similar expected term. The expected term represents the term of the ESPP offering period, which is generally six months except for the initial offering period which was from July 28 to November 30, 2020. The Company does not expect to pay dividends after the Offering. The risk-free interest rate was based on the rate for a U.S. Treasury zero-coupon issue with a term that closely approximates the expected term of the award at the date nearest the offering term. F-50 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) Stock-Based Compensation The Company recognized total stock-based compensation cost related to stock-based awards and the ESPP as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ 2021 2020 2019 Stock-based compensation expense: ​ ​ ​ SARs and Converted SARs ​ $ 16,023 ​ $ 143,123 ​ $ 9,460 Stock options ​ 1,510 ​ — ​ — RSUs ​ 2,964 ​ 171 ​ — RSAs ​ ​ 5,126 ​ ​ 4,284 ​ ​ — ESPP ​ 537 ​ 326 ​ — Total stock-based compensation expense ​ $ 26,160 ​ $ 147,904 ​ $ 9,460 ​ The Company recognized stock-based compensation cost in the consolidated statements of comprehensive income (loss) as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ 2021 2020 2019 Stock-based compensation expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenues, software subscriptions ​ $ 2,336 ​ $ 14,663 $ 946 Cost of revenues, services ​ 2,648 ​ 21,472 1,419 Research and development ​ 2,620 ​ 14,694 946 Selling and marketing ​ 6,371 ​ 29,551 1,892 General and administrative ​ 12,185 ​ 67,524 4,257 Total stock-based compensation expense ​ $ 26,160 ​ $ 147,904 ​ $ 9,460 ​ ​ The total recognized tax benefit related to the stock-based compensation expense for the years ended December 31, 2021, 2020 and 2019 was $14,683, $19,853 and $44, respectively. ​ 13. RELATED PARTIES During 2019, certain stockholders of the Company repaid non-interest bearing amounts due to the Company of a short-term nature and no amounts were outstanding at December 31, 2020. ​ 14. COMMITMENTS AND CONTINGENCIES The Company may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. The Company is not aware of any such legal proceedings or claims that management believes will have a material adverse effect on its business, financial condition, or operating results. ​ ​ ​ 15. INCOME TAXES Prior to revocation of the S-Election on July 27, 2020, the Company had historically been taxed as an S-Corporation for U.S. federal income tax purposes and income tax purposes in most states. As a result, income was not subject to U.S. federal income taxes or state income taxes in those states where the S-Corporation status was recognized. Therefore, previous to July 27, 2020, no provision or liability for federal or state income tax had been provided in the consolidated F-51 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) financial statements except for those states where the S-Corporation status was not recognized, or where states imposed a tax on S-Corporations. The provision for income tax in the historical periods prior to the Offering consisted of these state taxes and taxes from certain foreign jurisdictions where the Company was subject to tax. Upon revocation of the S-Election, the Company converted to a C-Corporation resulting in tax at the corporate level on net income or losses for subsequent periods. The revocation of the S-Corporation status was treated as a change in tax status resulting in the recording of the deferred tax effects of such change to income from continuing operations on the date the S-Corporation status revoked. The termination of the S-Corporation election had a material impact on the Company’s 2020 results of operations and financial condition. As such, the Company’s income tax provision for periods subsequent to the C-Corporation conversion will not be comparable to periods prior to such conversion. For U.S. corporate income tax purposes, the Company apportioned its 2020 results between the S-Corporation and C-Corporation periods. This allocation effectively resulted in a blended income tax rate for the 2020 year, as only the C-Corporation net losses were subject to both U.S. federal and state corporate income tax, while the S-Corporation earnings were only subject to tax in those states that tax S-Corporations or do not recognize S-Corporation status. Deferred income taxes for the year ended December 31, 2020, includes an adjustment for the three months ended September 30, 2020 of $3,856 recorded in connection with the understatement of certain stock award exercise activity in connection with the Company’s Offering, which occurred in such quarter. Refer to Note 1, Revision of Previously Issued Financial Statements. The components of net income (loss) before income taxes, by geography, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2021 2020 2019 U.S. ​ $ 5,608 ​ $ ( 107,959 ) ​ $ 32,131 Foreign ​ ( 9,534 ) ​ 90 ​ ( 1,229 ) Net income (loss) before income taxes ​ $ ( 3,926 ) ​ $ ( 107,869 ) ​ $ 30,902 ​ Income tax expense (benefit) consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2021 2020 2019 Current income taxes: ​ ​ ​ Federal ​ $ — ​ $ — ​ $ — State and local ​ ​ 155 ​ ​ 617 ​ ​ 578 Foreign ​ 468 ​ 94 ​ 115 Total current ​ 623 ​ 711 ​ 693 Deferred income taxes: ​ ​ ​ Federal ​ ​ ( 1,849 ) ​ ​ ( 27,076 ) ​ ​ — State and local ​ ( 7 ) ​ ( 6,491 ) ​ ( 677 ) Foreign ​ ( 1,214 ) ​ 68 ​ ( 171 ) Total deferred ​ ( 3,070 ) ​ ( 33,499 ) ​ ( 848 ) Income tax benefit ​ $ ( 2,447 ) ​ $ ( 32,788 ) ​ $ ( 155 ) ​ During the year ended December 31, 2021, the Company recognized a $ 89 income tax expense in accumulated other comprehensive loss relating to recognized gains from foreign currency translation adjustments and revaluations. During the year ended December 31, 2020, the Company recognized a $ 55 income tax benefit in accumulated other comprehensive loss relating to recognized losses from foreign currency translation adjustments and revaluations. F-52 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) ​ The reconciliation of the effective tax rate to tax at the statutory rates for the years ended December 31 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 ​ ​ Total ​ Tax Rate ​ Total ​ Tax Rate Total ​ Tax Rate Pretax net (loss) income ​ $ ( 3,926 ) ​ $ ( 107,869 ) ​ $ 30,902 ​ Taxes: ​ ​ ​ ​ U.S. federal income tax at statutory rate ​ $ ( 825 ) 21.0 % $ ( 22,652 ) 21.0 % $ 6,489 21.0 % State income taxes ​ ​ 678 ( 17.3 ) % ​ ( 1,811 ) 1.7 % ​ ( 98 ) ( 0.3 ) % Tax effect of S-Corporation status ​ ​ — ​ — % ​ 21,325 ​ ( 19.8 ) % ​ ( 6,489 ) ​ ( 21.0 ) % Impact of change in tax status ​ ​ — ​ — % ​ ( 25,396 ) ​ 23.5 % ​ — ​ — % Stock-based compensation expense ​ ​ ( 4,550 ) ​ 115.9 % ​ ( 5,809 ) ​ 5.4 % ​ — ​ — % Impact of foreign operations ​ 954 ​ ( 24.3 ) % ( 56 ) ​ 0.1 % ( 57 ) ( 0.2 ) % Return to provision adjustments ​ ​ ( 464 ) ​ 11.8 % ​ — ​ — % ​ — ​ — % Transaction costs ​ ​ 1,082 ​ ( 27.6 ) % ​ — ​ — % ​ — ​ — % US taxation of foreign earnings ​ ​ 144 ​ ( 3.7 ) % ​ 81 ​ ( 0.1 ) % ​ — ​ — % Nondeductible compensation ​ ​ 682 ​ ( 17.4 ) % ​ 883 ​ ( 0.8 ) % ​ — ​ — % Tax credits ​ ​ ( 488 ) ​ 12.4 % ​ ( 44 ) ​ 0.0 % ​ — ​ — % Change in valuation allowance ​ ​ 373 ​ ( 9.5 ) % ​ 109 ​ ( 0.1 ) % ​ — ​ — % Profit sharing deduction ​ ​ ( 46 ) ​ 1.2 % ​ — ​ — % ​ — ​ — % Other permanent items, net ​ ​ 13 ( 0.2 ) % ​ 582 ( 0.5 ) % ​ — ​ — % Taxes and effective tax rate ​ $ ( 2,447 ) 62.3 % $ ( 32,788 ) 30.4 % $ ( 155 ) ( 0.5 ) % ​ The effective tax rate in 2021 increased to 62.3 % from 30.4 % in 2020. The income tax benefit in 2021 was primarily driven by exercises and vestings of stock awards partially offset by the unfavorable impact of limitations on deductions of certain employees’ compensation under Internal Revenue Code Section 162(m) and acquisition costs. The effective tax rate in 2020 increased to 30.4 % from 0.5 % in 2019. For the year ended December 31, 2020, the Company recorded a $ 25,396 deferred tax benefit related to the remeasurement of its U.S. deferred tax assets and liabilities due to the change in tax status from an S-Corporation to a C-Corporation. ​ F-53 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) Significant components of the Company’s net deferred tax assets (liabilities) are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, Deferred tax assets: 2021 2020 Deferred revenue ​ $ 3,788 ​ $ 3,189 State operating loss carry forwards ​ 3,894 ​ 2,595 Federal and foreign loss carry forwards ​ 21,617 ​ 13,388 Accrued expenses ​ 2,023 ​ 2,324 Accrued variable compensation ​ 3,110 ​ 3,414 Deferred and stock-based compensation ​ 24,971 ​ 29,188 Operating lease liabilities ​ ​ 7,204 ​ ​ 2,429 Tax credits ​ ​ 532 ​ ​ 44 Other ​ 53 ​ 303 Deferred tax assets ​ 67,192 ​ 56,874 Valuation allowance ​ ( 1,839 ) ​ ( 1,507 ) Total deferred tax assets ​ 65,353 ​ 55,367 Deferred tax liabilities: ​ ​ Depreciation and amortization ​ ( 26,269 ) ​ ( 19,998 ) Prepaid expenses ​ ​ ( 1,329 ) ​ ​ ( 1,557 ) Right of use asset ​ ( 5,120 ) ​ — Total deferred tax liabilities ​ ( 32,718 ) ​ ( 21,555 ) Net deferred tax asset ​ $ 32,635 ​ $ 33,812 ​ ​ ​ ​ ​ ​ ​ Classification in the consolidated balance sheets: ​ ​ ​ ​ ​ ​ Deferred income tax asset ​ $ 35,298 ​ $ 33,830 Deferred other liabilities ​ ​ ( 2,663 ) ​ ​ ( 18 ) Net deferred tax asset ​ $ 32,635 ​ $ 33,812 ​ At December 31, 2021, the Company has available U.S. federal operating loss carry forwards of $ 89,594 , and U.S. state operating loss carry forwards of $ 71,013 . The federal operating loss will carryforward indefinitely and the state operating loss will expire at varying dates beginning in 2028. The Company also has $532 of federal tax credits available that begin to expire in 2040. Management expects to fully use these U.S. federal and U.S. state operating loss and credit carry forwards. At December 31, 2021, the Company has available foreign operating losses of approximately $ 15,318 , which carry forward indefinitely. In addition, the Company has $ 55 of foreign non-operating losses, which carry forward indefinitely. A valuation allowance for a portion of the foreign operating and all of the foreign non-operating losses are recorded at December 31, 2021 and 2020. At December 31, 2021 and 2020, the Company has a valuation allowance of ($ 1,839 ) and ($ 1,507 ), respectively, primarily against certain net deferred tax assets, including losses, in foreign jurisdictions. The net increase in the total valuation allowance of ($ 322 ) during December 31, 2021 primarily related to the recording of a valuation allowance on net deferred tax assets in a foreign jurisdiction that, in the judgment of management, are not more likely than not to be realized, as well as changes in foreign exchange rates. The net increase in the valuation allowance of ($ 1,461 ) during December 31, 2020, primarily related to recognizing valuation allowances through purchase accounting related to net operating losses associated with Systax. The Company does not assert any earnings to be permanently reinvested with respect to the undistributed earnings of its foreign subsidiaries. F-54 Table of Contents Vertex, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Amounts in thousands, except per share data) The Company files tax returns as prescribed by the tax laws of the jurisdictions in which the Company operates. Under applicable U.S. federal statutes, tax years ended December 31, 2018 through December 31, 2021 remain subject to examination. Under applicable statutes, state and foreign corporate tax returns filed for the Company and its respective foreign subsidiaries for years ended December 31, 2016 through December 31, 2021 remain subject to examination by the respective authorities. 16. SUBSEQUENT EVENTS On March 8, 2022, the Company entered into the Second Amendment to Credit Agreement (the “Second Amendment”), with a banking syndicate, which amended the Credit Agreement providing for, among other modifications, (a) a new term loan in the aggregate amount of $ 50,000 (the “New Term Loan”), (b) an extension of the maturity date of the revolving facility from March 2025 to March 2027, (c) an upsize in the revolving credit commitment to an aggregate amount of $ 200,000 (the “Amended Line of Credit”), (d) the Company’s option to select an applicable interest rate at either the bank base rate plus an applicable margin (the “New Base Rate Option”) or term SOFR plus an applicable margin (the “Term SOFR Option”), (e) modifications to the financial covenant performance levels which determine applicable margins and (f) modifications to certain covenants and events of default. As of the date we entered into the Second Amendment, the applicable margin with respect to the New Base Rate Option and Term SOFR Option applicable to the Amended Line of Credit and New Term Loan borrowings were 0.00 % and 1.00 %, respectively. Net proceeds from the New Term Loan shall be used to fund ongoing working capital, capital expenditures, permitted distributions, permitted acquisitions and general corporate purposes of the Company and its subsidiaries. The New Line of Credit had no outstanding borrowings at March 16, 2022. ​ ​ F-55