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Avalara Announces Third Quarter 2020 Financial Results

Avalara, Inc. (NYSE: AVLR), a leading provider of tax compliance automation for businesses of all sizes, today announced financial results for its third quarter ended September 30, 2020.

“Avalara’s stellar third quarter performance exceeded our expectations, with revenue growth accelerating to 30 percent year-over-year, reaching a key milestone of a half a billion topline annual revenue run rate,” said Scott McFarlane, Avalara co-founder and chief executive officer. “Our results demonstrate the adaptability and resiliency of our business model during a changing business and economic environment presented by COVID-19. We continue to see a confluence of macro trends that are tailwinds for our business, from the accelerating growth of ecommerce to broader adoption of cloud-based solutions and a growing emphasis on efficiency to the increasing need for regulatory compliance enforcement. We believe that global demand for compliance automation is inevitable, and we are well positioned to capture the large opportunity in front of us.”

Third Quarter 2020 Financial Results

  • Revenue: Total revenue was $127.9 million in the third quarter of 2020, up 30% from $98.5 million in the third quarter of 2019. Subscription and returns revenue was $119.2 million, up 30% from $92.0 million in the same period last year. Professional services revenue was $8.7 million, up 33% from $6.5 million in the same period last year.
  • Gross Profit: GAAP gross profit was $92.9 million in the third quarter of 2020, representing a 73% gross margin, compared to a GAAP gross profit of $68.7 million and a 70% gross margin in the third quarter of 2019. Non-GAAP gross profit was $95.5 million, representing a 75% non-GAAP gross margin, compared to a non-GAAP gross profit of $70.8 million and a 72% non-GAAP gross margin in the third quarter of 2019.
  • Operating Loss: GAAP operating loss was $12.6 million in the third quarter of 2020, compared to a GAAP operating loss of $14.9 million in the third quarter of 2019. Non-GAAP operating income was $1.7 million in the third quarter of 2020, compared to a non-GAAP operating loss of $3.1 million in the third quarter of 2019.
  • Net Loss: GAAP net loss was $12.7 million in the third quarter of 2020, compared to a GAAP net loss of $13.3 million in the third quarter of 2019. Non-GAAP net income was $1.6 million in the third quarter of 2020, compared to a non-GAAP net loss of $1.5 million in the third quarter of 2019.
  • Net Loss per Share: GAAP basic and diluted net loss per share was $0.15 based on 82.3 million weighted-average shares outstanding in the third quarter of 2020, compared to a GAAP basic and diluted net loss per share of $0.17 based on 76.2 million weighted-average shares outstanding in the third quarter of 2019. Non-GAAP diluted net income per share was $0.02 based on 86.7 million weighted-average shares outstanding in the third quarter of 2020, compared to a non-GAAP diluted net loss per share of $0.02 based on 76.2 million weighted-average shares outstanding in the third quarter of 2019.
  • Deferred Revenue: Total deferred revenue was $180.6 million at September 30, 2020, up from $161.2 million at December 31, 2019. The current portion of deferred revenue was $178.9 million at September 30, 2020, up from $160.3 million at December 31, 2019.
  • Cash: Net cash provided by operating activities was $27.9 million in the third quarter of 2020, compared to $5.9 million provided by operating activities in the third quarter of 2019. Free cash flow was positive $25.8 million in the third quarter of 2020, compared to positive $3.6 million in the third quarter of 2019. Cash and cash equivalents totaled $1,064.1 million at September 30, 2020 compared to $467.0 million at December 31, 2019.
  • Calculated Billings: Calculated billings were $142.3 million in the third quarter of 2020, compared to calculated billings of $108.5 million in the third quarter of 2019.

Reconciliations of GAAP to non-GAAP financial measures have been provided in the tables included in this release.

Third Quarter 2020 and Recent Operating Highlights

  • Key Metrics: We ended the third quarter of 2020 with approximately 14,180 core customers, up from approximately 13,560 core customers at the end of the previous quarter and approximately 11,400 in the third quarter of 2019, a 24% increase year-over-year. Our net revenue retention rate was 108% in the third quarter of 2020 and has averaged 108% over the last four quarters.
  • Acquired Transaction Tax Resources, Inc.: We announced the acquisition of Transaction Tax Resources, Inc. (TTR) for approximately $377 million in cash in early October. TTR, known as the tax answer company, serves businesses of all sizes, offering U.S. sales and use tax rates, laws, software, and customer support required for the biggest and most complex companies. Avalara and TTR bring together leading tax technology with trusted tax content, extending Avalara’s current products and content, adding new capabilities, and reaching new segments. TTR’s team, with its culture, training, and experience serving enterprise businesses, will add enterprise capabilities across Avalara’s content, product, sales, and customer support. TTR brings Avalara more than 1,400 customers, including blue chip customers that represent more than 30% of the Fortune 500, the largest or second largest company in each of 40 industries, 9 of the top 10 healthcare companies, 8 of the top 10 telecommunications companies and 5 of the top 10 IT services firms. TTR will operate as a subsidiary of Avalara, continuing to serve its customers with trusted solutions while integrating key products and content into Avalara’s automation tools. As companies of all sizes continue to introduce, accelerate, or mature their digital strategies, with the addition of TTR, Avalara will build an enterprise-ready tax automation suite.
  • Completed Follow-On Public Offering of Common Stock: We completed a public offering of 4,527,558 shares of common stock, including the full exercise of the underwriters’ option to purchase 590,551 additional shares of common stock, at a price of $127.00 per share. We received net proceeds of $556.3 million, after deducting underwriting discounts and commissions and before deducting offering expenses paid and payable of $0.7 million.

Product Highlights

  • Introduced E-invoicing Solution to Help Businesses Manage GST Compliance in India: We announced the availability of Avalara India GST e-Invoicing, an end-to-end solution that helps companies manage e-invoicing requirements and comply with India’s e-invoicing reform. The new offering builds on Avalara’s range of technological solutions available to improve the Goods and Services Tax (GST) compliance experience for businesses in India by validating, storing, and managing invoices, and providing the option to automate GST returns and e-way bills.
  • Unveiled Comprehensive Beverage Alcohol Compliance Solution for Wineries, Distilleries, Breweries, Importers, and Retailers: We announced the availability of Avalara AvaTax for Beverage Alcohol, a new offering for wineries, distilleries, breweries, importers, and retailers that locates and calculates sales and use tax plus beverage alcohol tax rates with rooftop-level accuracy, and connects to ecommerce or accounting software already in use by customers. AvaTax for Beverage Alcohol is a central component in the Avalara for Beverage Alcohol suite of products, which provides comprehensive support for beverage alcohol businesses across the compliance life cycle, from licensing and product registrations to tax calculations and returns, helping to reduce noncompliance and audit risk exposure.
  • Introduced New Capabilities to Help Sellers Manage Cross-Border Tax Compliance: We announced enhanced capabilities for Avalara’s cross-border solution, an integrated offering that helps businesses sell internationally by managing the complexity of customs duty and import tax compliance. The enhanced offering builds on Avalara’s range of technological solutions available to improve the cross-border compliance experience for businesses. Avalara’s cross-border solution consists of Avalara AvaTax Cross-Border and Avalara Item Classification, providing users with an integrated approach or stand-alone offerings to address the complex processes of classifying products and calculating custom duties and import taxes.

Financial Outlook

For the fourth quarter of 2020, the Company currently expects:

  • Total revenue between $132.0 and $134.0 million.
  • Non-GAAP operating loss between $4.0 and $6.0 million.

For the full year 2020, the Company currently expects:

  • Total revenue between $488.0 and $490.0 million.
  • Non-GAAP operating loss between $7.0 and $9.0 million.

Note: Our financial outlook above includes the impact of acquisitions that have closed to date during the fourth quarter of 2020.

Conference Call Information

Avalara will host a conference call at 2:00 p.m. Pacific Time (or 5:00 p.m. Eastern Time) today, November 5, 2020, to discuss its financial results and business highlights. The conference call can be accessed by dialing (866) 393-4306 from the United States and Canada or (734) 385-2616 internationally with conference ID 1473927. A live webcast of the call will also be available on the Avalara investor relations website at investor.avalara.com.

A telephone replay of the conference call will be available until 8:59 p.m. Pacific Time on Thursday, November 12, 2020 and a webcast replay will also be archived at investor.avalara.com. The telephone replay will be available by dialing (855) 859-2056 from the United States and Canada or (404) 537-3406 internationally with conference ID 1473927.

About Avalara, Inc.

Avalara helps businesses of all sizes get tax compliance right. In partnership with leading ERP, accounting, ecommerce, and other financial management system providers, Avalara delivers cloud-based compliance solutions for various transaction taxes, including sales and use, VAT, GST, excise, communications, lodging, and other indirect tax types. Headquartered in Seattle, Avalara has offices across the U.S. and around the world in Brazil, Europe, and India. More information at www.avalara.com.

Forward-Looking Statements

This press release and the accompanying conference call contain forward-looking statements including, among others, statements about our financial outlook for the fourth quarter and full year 2020 and our expectations for the integration of TTR into our business. In some cases you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “likely,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms.

These forward-looking statements involve risks, uncertainties, and assumptions that could cause actual performance or results to differ materially from those expressed or suggested by the forward-looking statements. If any of these risks or uncertainties materialize, or if any of our assumptions prove incorrect, our actual results could differ materially from the results expressed or implied by these forward-looking statements. These risks and uncertainties include risks associated with: our ability to sustain our revenue growth rate, to achieve or maintain profitability, and to effectively manage our anticipated growth; our ability to attract new customers on a cost-effective basis and the extent to which existing customers renew and upgrade their subscriptions; the impact of the novel coronavirus (COVID-19) pandemic and any associated economic downturn on our business operations, results, and financial position; the timing of our introduction of new solutions or updates to existing solutions; our ability to successfully diversify our solutions by developing or introducing new solutions or acquiring and integrating additional businesses, products, services, or content; our ability to maintain and expand our strategic relationships with third parties; our ability to deliver our solutions to customers without disruption or delay; our exposure to liability from errors, delays, fraud, or system failures, which may not be covered by insurance; our ability to expand our international reach; and the risks described in the other filings we make with the Securities and Exchange Commission from time to time, including the risks described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and subsequent Quarterly Reports on Form 10-Q, and which should be read in conjunction with our financial results and forward-looking statements. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we do not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made, except as required by law.

Use of Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we have disclosed non-GAAP cost of revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP research and development expense, non-GAAP sales and marketing expense, non-GAAP general and administrative expense, non-GAAP operating income (loss), non-GAAP net income (loss), non-GAAP basic net income (loss) per share, non-GAAP diluted net income (loss) per share, free cash flow, and calculated billings, which are all non-GAAP financial measures. We have provided tabular reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure at the end of this release.

  • We calculate non-GAAP cost of revenue, non-GAAP research and development expense, non-GAAP sales and marketing expense, and non-GAAP general and administrative expense as GAAP cost of revenue, GAAP research and development expense, GAAP sales and marketing expense, and GAAP general and administrative expense before stock-based compensation expense and the amortization of acquired intangible assets included in each of the expense categories.
  • We calculate non-GAAP gross profit as GAAP gross profit before stock-based compensation expense and the amortization of acquired intangibles included in cost of revenue. We calculate non-GAAP gross margin as GAAP gross margin before the impact of stock-based compensation expense and the amortization of acquired intangibles included in cost of revenue as a percentage of revenue.
  • We calculate non-GAAP operating income (loss) as GAAP operating loss before stock-based compensation expense, amortization of acquired intangibles, and goodwill impairments. We calculate non-GAAP net income (loss) as GAAP net loss before stock-based compensation expense, amortization of acquired intangibles, and goodwill impairments.
  • We calculate non-GAAP basic net income (loss) per share as non-GAAP net income (loss) divided by basic weighted average shares outstanding.
  • We calculate non-GAAP diluted net income (loss) per share as non-GAAP net income (loss) divided by diluted weighted average shares outstanding. Diluted weighted average shares outstanding includes weighted average shares outstanding plus the dilutive effect, if any, of outstanding common stock equivalents.
  • We define free cash flow as net cash provided by (used in) operating activities less cash used for the purchases of property and equipment.
  • We define calculated billings as total revenue plus the changes in deferred revenue and contract liabilities in the period. Because we recognize subscription revenue ratably over the subscription term, calculated billings can be used to measure our subscription sales activity for a particular period, to compare subscription sales activity across particular periods, and as a potential indicator of future subscription revenue, the actual timing of which will be affected by several factors, including subscription start date and duration.

Management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, and to evaluate financial performance and liquidity. We believe that non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our results, prospects, and liquidity period-over-period without the impact of certain items that do not directly correlate to our performance and that may vary significantly from period to period for reasons unrelated to our operating performance, as well as comparing our financial results to those of other companies.

The company has not reconciled its expectations of non-GAAP financial measures to the corresponding GAAP measures primarily because stock-based compensation expense cannot be reasonably calculated or predicted at this time. Accordingly, a reconciliation is not available without unreasonable effort.

Our definitions of these non-GAAP financial measures may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view non-GAAP financial measures in conjunction with the related GAAP financial measure.

Definitions of Key Business Metrics

We also use the key business metrics of core customers and net revenue retention rate.

Core Customers

We believe core customers is a key indicator of our market penetration, growth, and potential future revenue. We use core customers as a metric to focus our customer count reporting on our primary target market segment. We define a core customer as:

  • a unique account identifier in our primary U.S. billing systems (multiple companies or divisions within a single consolidated enterprise that each have a separate unique account identifier are each treated as separate customers);
  • that is active as of the measurement date; and
  • for which we have recognized, as of the measurement date, greater than $3,000 in total revenue during the last twelve months.

Currently, our core customer count includes only customers with unique account identifiers in our primary U.S. billing systems and does not include customers who subscribe to our solutions through our international subsidiaries and certain legacy billing systems that have not been integrated into our primary U.S. billing systems (e.g., our lodging tax compliance solution). As we increase our international operations and sales in future periods, we may add customers billed from our international subsidiaries to the core customer metric.

We also have a substantial number of customers of various sizes who do not meet the revenue threshold to be considered a core customer. These customers provide us with market share and awareness, and we anticipate that some may grow into core customers. We believe there is strategic value to addressing the small business and self-serve segment of the marketplace.

Net Revenue Retention Rate

We believe that our net revenue retention rate provides insight into our ability to retain and grow revenue from our customers, as well as their potential long-term value to us. We also believe it reflects the stability of our revenue base, which is one of our core competitive strengths. We calculate our net revenue retention rate by dividing (a) total revenue in the current quarter from any billing accounts that generated revenue during the corresponding quarter of the prior year by (b) total revenue in such corresponding quarter from those same billing accounts. This calculation includes changes during the period for such billing accounts, such as additional solutions purchased, changes in pricing and transaction volume, and terminations, but does not reflect revenue for new billing accounts added during the one-year period.

Currently, our net revenue retention rate includes only customers with unique account identifiers in our primary U.S. billing systems and does not include customers who subscribe to our solutions through our international subsidiaries or certain legacy billing systems primarily related to past acquisitions. Our Streamlined Sales Tax solution (SST) is not included in net revenue retention rate. This means that revenue expansion from existing customers adopting our SST solution is not included, while revenue contraction from customers downgrading one or more of Avalara’s other solutions in favor of SST is included.


Reported Consolidated Results

AVALARA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(
in thousands, except per share amounts)

For the Three Months Ended September 30,

2020

2019

Revenue:

Subscription and returns

$

119,193

$

91,986

Professional services

8,686

6,539

Total revenue

127,879

98,525

Cost of revenue:

Subscription and returns

31,155

25,621

Professional services

3,777

4,157

Total cost of revenue (2)

34,932

29,778

Gross profit

92,947

68,747

Operating expenses:

Research and development (2)

32,562

21,871

Sales and marketing (1)(2)

49,057

41,263

General and administrative (2)

23,885

20,511

Total operating expenses

105,504

83,645

Operating loss

(12,557

)

(14,898

)

Other (income) expense:

Interest income

(36

)

(2,202

)

Interest expense

2

Other (income) expense, net

(185

)

265

Total other (income) expense, net

(221

)

(1,935

)

Loss before income taxes

(12,336

)

(12,963

)

Provision for income taxes

393

341

Net loss

$

(12,729

)

$

(13,304

)

Net loss per share attributable to common shareholders, basic and diluted

$

(0.15

)

$

(0.17

)

Weighted average shares of common stock outstanding, basic and diluted

82,288

76,156

(1) In preparing our 2019 annual financial statements, we discovered an immaterial error in recording deferred sales commissions for the first three quarters of 2019 impacting our previously reported quarterly financial results. We have presented the corrected consolidated statements of operations data for the third quarter of 2019. The correction to sales commission expense resulted in additional sales and marketing expenses of $0.9 million for the three months ended September 30, 2019.

 

For the Three Months Ended September 30,

(2) The stock-based compensation expense included above was as follows:

2020

2019

Cost of revenue

$

1,591

$

828

Research and development

3,781

1,781

Sales and marketing

3,157

2,135

General and administrative

4,292

5,178

Total stock-based compensation

$

12,821

$

9,922

The amortization of acquired intangibles included above was as follows:

Cost of revenue

$

1,007

$

1,235

Research and development

Sales and marketing

447

605

General and administrative

4

4

Total amortization of acquired intangibles

$

1,458

$

1,844

 

AVALARA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

For the Nine Months Ended September 30,

2020

2019

Revenue:

Subscription and returns

$

333,258

$

255,225

Professional services

22,551

19,569

Total revenue

355,809

274,794

Cost of revenue:

Subscription and returns

89,451

69,537

Professional services

13,065

12,883

Total cost of revenue (2)

102,516

82,420

Gross profit

253,293

192,374

Operating expenses:

Research and development (2)

85,253

56,823

Sales and marketing (1) (2)

144,731

122,324

General and administrative (2)

65,595

53,764

Total operating expenses

295,579

232,911

Operating loss

(42,286

)

(40,537

)

Other (income) expense:

Interest income

(1,646

)

(4,251

)

Interest expense

286

Other (income) expense, net

(3,435

)

694

Total other (income) expense, net

(5,081

)

(3,271

)

Loss before income taxes

(37,205

)

(37,266

)

Provision for income taxes

947

629

Net loss

$

(38,152

)

$

(37,895

)

Net loss per share attributable to common shareholders, basic and diluted

$

(0.48

)

$

(0.53

)

Weighted average shares of common stock outstanding, basic and diluted

79,715

72,064

(1) In preparing our 2019 annual financial statements, we discovered an immaterial error in recording deferred sales commissions for the first three quarters of 2019 impacting our previously reported quarterly financial results. We have presented the corrected consolidated statements of operations data for the first nine months of 2019. The correction to sales commission expense resulted in additional sales and marketing expenses of $3.1 million for the nine months ended September 30, 2019.

 

For the Nine Months Ended September 30,

(2) The stock-based compensation expense included above was as follows:

2020

2019

Cost of revenue

$

4,264

$

2,277

Research and development

9,255

4,700

Sales and marketing

8,928

6,411

General and administrative

12,352

12,518

Total stock-based compensation

$

34,799

$

25,906

The amortization of acquired intangibles included above was as follows:

Cost of revenue

$

3,302

$

3,635

Research and development

Sales and marketing

1,603

1,653

General and administrative

12

11

Total amortization of acquired intangibles

$

4,917

$

5,299

AVALARA, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(
in thousands)

September 30,

December 31,

2020

2019

Assets

Current assets:

Cash and cash equivalents

$

1,064,077

$

466,950

Trade accounts receivable—net of allowance for doubtful accounts

63,056

51,644

Deferred commissions

11,035

9,279

Prepaid expenses and other current assets

18,306

14,127

Total current assets before customer fund assets

1,156,474

542,000

Funds held from customers

25,297

24,383

Receivable from customers—net of allowance for doubtful accounts

535

420

Total current assets

1,182,306

566,803

Noncurrent assets:

Deferred commissions

34,806

29,137

Operating lease right-of-use assets—net

50,387

49,321

Property and equipment—net

33,553

34,997

Intangible assets—net

18,139

22,932

Goodwill

101,670

101,224

Other noncurrent assets

5,551

2,853

Total assets

$

1,426,412

$

807,267

Liabilities and shareholders' equity

Current liabilities:

Trade payables

16,642

11,693

Accrued expenses

62,760

62,104

Deferred revenue

178,918

160,271

Accrued earnout liabilities

465

4,120

Operating lease liabilities

10,698

8,756

Total current liabilities before customer fund obligations

269,483

246,944

Customer fund obligations

26,669

24,783

Total current liabilities

296,152

271,727

Noncurrent liabilities:

Deferred revenue

1,722

970

Accrued earnout liabilities

9,835

Operating lease liabilities

55,781

58,301

Deferred tax liability

530

337

Other noncurrent liabilities

5,537

2,375

Total liabilities

359,722

343,545

Commitments and contingencies

Shareholders' equity:

Preferred stock

Common stock

8

8

Additional paid-in capital

1,616,912

976,627

Accumulated other comprehensive loss

(1,884

)

(2,719

)

Accumulated deficit

(548,346

)

(510,194

)

Total shareholders’ equity

1,066,690

463,722

Total liabilities and shareholders' equity

$

1,426,412

$

807,267

 

AVALARA, INC.
U
NAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

For the Three Months Ended
September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

Net loss

$

(12,729

)

$

(13,304

)

Adjustments to reconcile net loss to net cash provided by operating activities

Stock-based compensation

12,821

9,922

Depreciation and amortization

3,924

4,016

Asset impairments

794

Deferred tax expense

58

60

Non-cash operating lease costs (1)

2,067

1,213

Non-cash change in earnout liability

134

Non-cash bad debt expense

72

152

Other

101

32

Changes in operating assets and liabilities:

Trade accounts receivable

(3,214

)

(5,920

)

Prepaid expenses and other current assets

(693

)

(2,678

)

Deferred commissions

(2,485

)

(3,838

)

Other noncurrent assets

(1,055

)

(49

)

Trade payables

1,792

2,350

Accrued expenses

15,997

5,706

Deferred revenue

12,920

9,655

Operating lease liabilities (1)

(2,448

)

(1,599

)

Net cash provided by operating activities

27,922

5,852

Cash flows from investing activities:

Purchase of property and equipment

(2,118

)

(2,246

)

Cash paid for acquisitions of businesses

(13,000

)

Cash paid for acquired intangible assets

(8

)

Net (increase) decrease in customer fund assets

(3,662

)

7,892

Net cash used in investing activities

(5,780

)

(7,362

)

Cash flows from financing activities:

Proceeds from common stock offering, net of underwriting discounts

556,312

Payments of deferred financing costs

(300

)

(157

)

Proceeds from exercise of stock options

5,294

11,166

Proceeds from purchases of stock under employee stock purchase plan

5,621

4,629

Taxes paid related to net share settlement of stock-based awards

(1,090

)

Acquisition-related post-closing payments

(2,763

)

Payments related to business combination earnouts

(375

)

Net increase (decrease) in customer fund obligations

3,662

(7,811

)

Net cash provided by financing activities

567,826

6,362

Foreign currency effect on cash and cash equivalents

(302

)

127

Net change in cash and cash equivalents

589,666

4,979

Cash and cash equivalents—Beginning of period

474,411

441,584

Cash and cash equivalents—End of period

$

1,064,077

$

446,563

 

(1) Avalara adopted the new lease accounting standard as of January 1, 2019 in our Annual Report on Form 10-K for the year ended December 31, 2019. We have presented cash flows from operating activities for the quarter ended September 30, 2019 to include adjustments for the adoption of the new lease accounting standard. The adjustments do not impact previously disclosed net cash provided by operating activities.

 

AVALARA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

For the Nine Months Ended
September 30,

2020

2019

Cash flows from operating activities:

Net loss

$

(38,152

)

$

(37,895

)

Adjustments to reconcile net loss to net cash provided by operating activities:

Stock-based compensation

34,799

25,906

Depreciation and amortization

11,923

11,684

Asset impairments

794

Deferred tax expense

193

138

Non-cash operating lease costs (1)

6,027

3,380

Non-cash change in earnout liability

(2,325

)

610

Non-cash bad debt expense

1,445

602

Other

546

227

Changes in operating assets and liabilities:

Trade accounts receivable

(12,205

)

(9,648

)

Prepaid expenses and other current assets

(4,179

)

(3,274

)

Deferred commissions

(7,425

)

(13,215

)

Other noncurrent assets

(2,698

)

(831

)

Trade payables

4,683

4,818

Accrued expenses

6,247

2,305

Deferred revenue

19,397

24,782

Operating lease liabilities (1)

(7,243

)

(4,158

)

Net cash provided by operating activities

11,827

5,431

Cash flows from investing activities:

Purchase of property and equipment

(5,674

)

(7,196

)

Cash paid for acquisitions of businesses

(30,310

)

Cash paid for acquired intangible assets

(139

)

Net (increase) in customer fund assets

(1,681

)

(3,986

)

Net cash used in investing activities

(7,355

)

(41,631

)

Cash flows from financing activities:

Proceeds from common stock offering, net of underwriting discounts

556,312

274,705

Payments of deferred financing costs

(300

)

(555

)

Proceeds from exercise of stock options

30,717

51,583

Proceeds from purchases of stock under employee stock purchase plan

11,337

12,293

Taxes paid related to net share settlement of stock-based awards

(1,183

)

Acquisition-related post-closing payments

(2,763

)

Payments related to business combination earnouts

(3,760

)

(375

)

Payments related to asset acquisition earnouts

(65

)

Net increase in customer fund obligations

1,681

3,986

Net cash provided by financing activities

593,159

340,454

Foreign currency effect on cash and cash equivalents

(504

)

(13

)

Net change in cash and cash equivalents

597,127

304,241

Cash and cash equivalents—Beginning of period

466,950

142,322

Cash and cash equivalents—End of period

$

1,064,077

$

446,563

(1) Avalara adopted the new lease accounting standard as of January 1, 2019 in our Annual Report on Form 10-K for the year ended December 31, 2019. We have presented cash flows from operating activities for the nine months ended September 30, 2019 to include adjustments for the adoption of the new lease accounting standard. The adjustments do not impact previously disclosed net cash provided by operating activities.

 

AVALARA, INC.
UNAUDITED PRESENTATION AND RECONCILIATION TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share amounts)

The following schedules reflect our non-GAAP financial measures and reconcile our non-GAAP financial measures to the related GAAP financial measures:

 

Summary of Non-GAAP Financial Measures:

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,

2020

2019

2020

2019

Non-GAAP cost of revenue

$

32,334

$

27,715

$

94,950

$

76,508

Non-GAAP gross profit

95,545

70,810

260,859

198,286

Non-GAAP gross margin

75

%

72

%

73

%

72

%

Non-GAAP research and development expense

$

28,781

$

20,090

$

75,998

$

52,123

Non-GAAP sales and marketing expense

45,453

38,523

134,200

114,260

Non-GAAP general and administrative expense

19,589

15,329

53,231

41,235

Non-GAAP operating income (loss)

1,722

(3,132

)

(2,570

)

(9,332

)

Non-GAAP net income (loss)

1,550

(1,538

)

1,564

(6,690

)

Non-GAAP basic net income (loss) per share

0.02

(0.02

)

0.02

(0.09

)

Non-GAAP diluted net income (loss) per share

0.02

(0.02

)

0.02

(0.09

)

Free cash flow

$

25,804

$

3,606

$

6,153

$

(1,765

)

Reconciliation of Non-GAAP Financial Measures:

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,

2020

2019

2020

2019

Reconciliation of Non-GAAP Cost of Revenue:

Cost of revenue

$

34,932

$

29,778

$

102,516

$

82,420

Stock-based compensation expense

(1,591

)

(828

)

(4,264

)

(2,277

)

Amortization of acquired intangibles

(1,007

)

(1,235

)

(3,302

)

(3,635

)

Non-GAAP Cost of Revenue

$

32,334

$

27,715

$

94,950

$

76,508

Reconciliation of Non-GAAP Gross Profit:

Gross Profit

$

92,947

$

68,747

$

253,293

$

192,374

Stock-based compensation expense

1,591

828

4,264

2,277

Amortization of acquired intangibles

1,007

1,235

3,302

3,635

Non-GAAP Gross Profit

$

95,545

$

70,810

$

260,859

$

198,286

Reconciliation of Non-GAAP Gross Margin:

Gross margin

73

%

70

%

71

%

70

%

Stock-based compensation expense as a percentage of revenue

1

%

1

%

1

%

1

%

Amortization of acquired intangibles as a percentage of revenue

1

%

1

%

1

%

1

%

Non-GAAP Gross Margin

75

%

72

%

73

%

72

%

Reconciliation of Non-GAAP Research and Development Expense:

Research and development

$

32,562

$

21,871

$

85,253

$

56,823

Stock-based compensation expense

(3,781

)

(1,781

)

(9,255

)

(4,700

)

Amortization of acquired intangibles

Non-GAAP Research and Development Expense

$

28,781

$

20,090

$

75,998

$

52,123

Reconciliation of Non-GAAP Sales and Marketing Expense:

Sales and marketing

$

49,057

$

41,263

$

144,731

$

122,324

Stock-based compensation expense

(3,157

)

(2,135

)

(8,928

)

(6,411

)

Amortization of acquired intangibles

(447

)

(605

)

(1,603

)

(1,653

)

Non-GAAP Sales and Marketing Expense

$

45,453

$

38,523

$

134,200

$

114,260

Reconciliation of Non-GAAP General and Administrative Expense:

General and administrative

$

23,885

$

20,511

$

65,595

$

53,764

Stock-based compensation expense

(4,292

)

(5,178

)

(12,352

)

(12,518

)

Amortization of acquired intangibles

(4

)

(4

)

(12

)

(11

)

Non-GAAP General and Administrative Expense

$

19,589

$

15,329

$

53,231

$

41,235

 

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,

2020

2019

2020

2019

Reconciliation of Non-GAAP Operating Income (Loss):

Operating loss

$

(12,557

)

$

(14,898

)

$

(42,286

)

$

(40,537

)

Stock-based compensation expense

12,821

9,922

34,799

25,906

Amortization of acquired intangibles

1,458

1,844

4,917

5,299

Non-GAAP Operating Income (Loss)

$

1,722

$

(3,132

)

$

(2,570

)

$

(9,332

)

Reconciliation of Non-GAAP Net Income (Loss):

Net loss

$

(12,729

)

$

(13,304

)

$

(38,152

)

$

(37,895

)

Stock-based compensation expense

12,821

9,922

34,799

25,906

Amortization of acquired intangibles

1,458

1,844

4,917

5,299

Non-GAAP Net Income (Loss)

$

1,550

$

(1,538

)

$

1,564

$

(6,690

)

Reconciliation of Non-GAAP Basic Net Income (Loss) Per

Share:

Net loss per share

$

(0.15

)

$

(0.17

)

$

(0.48

)

$

(0.53

)

Stock-based compensation expense per share

0.16

0.13

0.44

0.36

Amortization of acquired intangibles per share

0.02

0.02

0.06

0.07

Non-GAAP Basic Net Income (Loss) Per Share

$

0.02

$

(0.02

)

$

0.02

$

(0.09

)

Reconciliation of Non-GAAP Diluted Net Income (Loss) Per

Share:

Net loss per share

$

(0.15

)

$

(0.17

)

$

(0.45

)

$

(0.53

)

Stock-based compensation expense per share

0.15

0.13

0.41

0.36

Amortization of acquired intangibles per share

0.02

0.02

0.06

0.07

Non-GAAP Diluted Net Income (Loss) Per Share (1)

$

0.02

$

(0.02

)

$

0.02

$

(0.09

)

Shares used in computing non-GAAP diluted net income (loss) per share

86,700

71,568

84,078

69,983

 

(1) Non-GAAP diluted net income (loss) per share for the three and nine months ended September 30, 2020 was calculated using the diluted share count which includes approximately 4.4 million dilutive shares related to employee stock options and stock-based awards. For the three and nine months ended September 30, 2019, all common stock equivalents have been excluded from the diluted share count as their effect is antidilutive.

 

Free Cash Flow:

Net cash provided by operating activities

$

27,922

$

5,852

$

11,827

$

5,431

Purchases of property and equipment

(2,118

)

(2,246

)

(5,674

)

(7,196

)

Free Cash Flow

$

25,804

$

3,606

$

6,153

$

(1,765

)

 

AVALARA, INC.
UNAUDITED PRESENTATION OF CALCULATED BILLINGS AND RECONCILIATION TO REVENUE

Three Months Ended

Sep 30,
2020

Jun 30,
2020

Mar 31,
2020

Dec 31,
2019

Sep 30,
2019

Jun 30,
2019

Mar 31,
2019 (1)

Dec 31,
2018

Total revenue

$

127,879

$

116,487

$

111,443

$

107,627

$

98,525

$

91,299

$

84,970

$

76,923

Add:

Deferred revenue (end of

period)

180,640

167,719

165,369

161,241

148,466

138,811

132,714

134,653

Contract liabilities (end of

period)

7,673

6,195

6,330

5,197

4,843

4,508

4,208

Impact of adoption of

ASC 606 on deferred

revenue

11,250

Less:

Deferred revenue

(beginning of

period)

(167,719

)

(165,369

)

(161,241

)

(148,466

)

(138,811

)

(132,714

)

(134,653

)

(118,209

)

Contract liabilities

(beginning of

period)

(6,195

)

(6,330

)

(5,197

)

(4,843

)

(4,508

)

(4,208

)

Impact of adoption of

ASC 606 on contract

liabilities

(2,090

)

Calculated billings

$

142,278

$

118,702

$

116,704

$

120,756

$

108,515

$

97,696

$

96,399

$

93,367

 

  (1) The first quarter of 2019 includes reconciling adjustments to exclude the one-time impact of adoption of ASC 606 as of January 1, 2019.

AVALARA, INC.
UNAUDITED PRESENTATION OF KEY BUSINESS METRICS

Sep 30,
2020

Jun 30,
2020

Mar 31,
2020

Dec 31,
2019

Sep 30,
2019

Jun 30,
2019

Mar 31,
2019

Dec 31,
2018

Number of core

customers

(as of end

of period)

14,180

13,560

12,940

12,150

11,400

10,560

9,800

9,150

Net revenue

retention rate

108

%

107

%

109

%

111

%

113

%

111

%

107

%

108

%

Contacts:

Investor Contact
Jennifer Gianola
Avalara
jennifer.gianola@avalara.com
650-499-9837

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