Third Quarter Total Revenue of $181.2
Million
Total Revenue Growth of 42% From Third Quarter
2020
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, 2021.
“The third quarter was another great quarter for Avalara,
demonstrating the strength and durability of our business model. We
reported total revenue of $181 million, representing an increase of
42% year-over-year, one of our strongest quarters in history,” said
Scott McFarlane, Avalara co-founder and chief executive officer.
“We are in a unique position to benefit from four major trends we
see impacting businesses of all sizes, including fundamental shifts
in the fabric of commerce and regulatory obligations along with
rising adoption of cloud-based infrastructure and ROI expectations
in the market. 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 2021 Financial Results
- Revenue: Total revenue was $181.2 million in the third
quarter of 2021, up 42% from $127.9 million in the third quarter of
2020. Subscription and returns revenue was $164.2 million, up 38%
from $119.2 million in the same period last year. Professional
services revenue was $16.9 million, up 95% from $8.7 million in the
same period last year.
- Gross Profit: GAAP gross profit was $128.1 million in
the third quarter of 2021, representing a 71% gross margin,
compared to a GAAP gross profit of $92.9 million and a 73% gross
margin in the third quarter of 2020. Non-GAAP gross profit was
$133.2 million, representing a 74% non-GAAP gross margin, compared
to a non-GAAP gross profit of $95.5 million and a 75% non-GAAP
gross margin in the third quarter of 2020.
- Operating Loss: GAAP operating loss was $26.2 million in
the third quarter of 2021, compared to a GAAP operating loss of
$12.6 million in the third quarter of 2020. Non-GAAP operating
income was $3.5 million in the third quarter of 2021, compared to
non-GAAP operating income of $1.7 million in the third quarter of
2020.
- Net Loss: GAAP net loss was $32.5 million in the third
quarter of 2021, compared to a GAAP net loss of $12.7 million in
the third quarter of 2020. Non-GAAP net loss was $2.9 million in
the third quarter of 2021, compared to non-GAAP net income of $1.6
million in the third quarter of 2020.
- Net Loss per Share: GAAP basic and diluted net loss per
share was $0.38 based on 86.5 million weighted-average shares
outstanding in the third quarter of 2021, compared to a GAAP basic
and diluted net loss per share of $0.15 based on 82.3 million
weighted-average shares outstanding in the third quarter of 2020.
Non-GAAP diluted net loss per share was $0.03 based on 86.5 million
diluted weighted-average shares outstanding in the third quarter of
2021, compared to a non-GAAP diluted net income per share of $0.02
based on 86.7 million diluted weighted-average shares outstanding
in the third quarter of 2020.
- Deferred Revenue: Total deferred revenue was $257.9
million at September 30, 2021, up from $209.7 million at December
31, 2020. The current portion of deferred revenue was $256.2
million at September 30, 2021, up from $208.0 million at December
31, 2020.
- Cash: Net cash provided by operating activities was
$11.4 million in the third quarter of 2021, compared to $28.0
million provided by operating activities in the third quarter of
2020. Free cash flow was $6.4 million in the third quarter of 2021,
compared to $25.9 million in the third quarter of 2020. Cash and
cash equivalents totaled $1.5 billion at September 30, 2021,
compared to $673.6 million at December 31, 2020.
- Calculated Billings: Calculated billings were $196.4
million in the third quarter of 2021, compared to calculated
billings of $142.3 million in the third quarter of 2020.
Reconciliations of GAAP to non-GAAP financial measures have been
provided in the tables included in this release.
Third Quarter 2021 and Recent Operating Highlights
- Key Metrics: During the second quarter of 2021, we
revised our core customer calculation methodology to include
revenue from our Streamlined Sales Tax solution (SST), which
results in additional customers being included in reported core
customers. During the second quarter of 2021, we also revised our
net revenue retention rate calculation methodology to include
revenue from SST that previously was not included, and to exclude
professional services revenue, as these services tend to be more
one-time in nature. We have included both the revised and legacy
Key Metrics methodologies for core customers and net revenue
retention in a table at the end of this release. Under the revised
calculation methodology, we ended the third quarter of 2021 with
approximately 17,400 core customers, up from approximately 16,570
core customers at the end of the previous quarter and approximately
14,300 in the third quarter of 2020, representing a 22% increase
year-over-year. Under the revised calculation methodology, our net
revenue retention rate was 116% in the third quarter of 2021 and
has averaged 115% over the last four quarters.
- In October 2021, we announced the acquisition of CrowdReason
Limited Liability Company, a developer of SaaS-based property tax
compliance applications, as well as a related property valuation
and advisory services business to help solve property tax
compliance challenges.
- In October 2021, we announced the acquisition of Track1099 LLC,
a company that provides online software and services for
cost-effectively managing, e-filing, and e-delivering IRS forms,
including 1099s, W-2s, W-9s, and more. Track1099 supported more
than 40,000 customers with their filing needs in tax year
2020.
- In September 2021, we acquired substantially all the assets of
3CE Technologies, Inc under an Asset Purchase Agreement. 3CE is a
Canadian company that provides software and services for Harmonized
Sales Tax code classifications and verifications, primarily to
government entities and logistics services providers.
- In September 2021, we announced the appointment of global
finance leader Marcela Martin to our board of directors. Martin is
chief financial officer of Squarespace, the all-in-one website
building platform, where she oversees the company’s finance and
corporate development functions. Prior to Squarespace, she was
chief financial officer at Booking.com, where she led finance
operations, risk management, corporate development, and M&A.
Martin brings more than 25 years of global finance and leadership
experience across consumer technology, software, and SaaS verticals
with high-growth companies to Avalara’s board.
- In August 2021, we issued $977.5 million aggregate principal
amount of 0.25% convertible senior notes due 2026, which includes
the exercise in full of the $127.5 million option granted to the
initial purchasers of the notes in a private offering. We received
net proceeds of $959.9 million, after deducting fees and expenses
payable by the company. We used approximately $75.3 million of the
net proceeds from the notes to pay the cost of the capped call
transactions entered into in connection with the offering.
Third Quarter 2021 and Recent Product Highlights
- In October 2021, Avalara was named a Leader in three IDC
MarketScape reports covering tax automation solutions for small and
mid-size businesses (SMB), enterprise, and value-added tax (VAT).
The 2021 reports for the Worldwide SaaS and Cloud-Enabled Tax
Automation Software market wherein Avalara is named a Leader are:
- IDC MarketScape: Worldwide SaaS and Cloud-Enabled Sales and Use
Tax Automation Software for Small and Midsize Businesses 2021
Vendor Assessment (doc #US47987521, October 2021)
- IDC MarketScape: Worldwide SaaS and Cloud-Enabled Sales and Use
Tax Automation Software for Enterprise 2021 Vendor Assessment (doc
#US47987421, October 2021)
- IDC MarketScape: Worldwide SaaS and Cloud Value-Added Tax
Software 2021 Vendor Assessment (doc #US47987321, October
2021)
Financial Outlook
For the fourth quarter of 2021, the Company currently
expects:
- Total revenue between $183.0 and $185.0 million.
- Non-GAAP operating loss between $5.0 and $7.0 million.
For the full year 2021, the Company currently expects:
- Total revenue between $687.0 and $689.0 million.
- Non-GAAP operating loss between $1.0 and $3.0 million.
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 4, 2021 to discuss its
financial results and business highlights. The conference call can
be accessed by dialing (888) 660-6196 from the United States or
(929) 203-1824 internationally with Conference ID 5816067. 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 11, 2021 and a
webcast replay will also be archived at investor.avalara.com. The
telephone replay will be available by dialing (800) 770-2030 from
the United States or (647) 362-9199 internationally with Conference
ID 5816067.
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
2021, our expectations for the integration of our acquisitions into
our business, and expected growth opportunities and synergies
arising from the acquisitions. 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, 2020, 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 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 operating
activities less cash used for the purchases of property and
equipment and capitalized software development costs.
- We define calculated billings as total revenue plus the changes
in deferred revenue and contract liabilities in the period,
excluding the acquisition date impact of deferred revenue and
contract liabilities assumed in a business combination. Because we
generally 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 when 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 previous 12
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 that subscribe to our solutions through
our international subsidiaries and certain legacy and acquired
billing systems that have not yet been integrated into our primary
U.S. billing systems (e.g., recent acquisitions and 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 revised our core customer calculation methodology during the
second quarter of 2021. Under the prior methodology, revenue from
SST was not included in our calculation of total revenue during the
previous 12 months. This meant customers that would have otherwise
met the definition of a core customer, with inclusion of
attributable SST revenue, were excluded from our core customer
count as well as our disclosures on the percentage of total revenue
attributable to core customers. The revised methodology for core
customers includes revenue from SST.
We believe these changes improve the usefulness of this key
business metric, which is to measure both the growth of existing
customers into core customers and the acquisition of new customers
of a certain size.
We also have a substantial number of customers of various sizes
that do not meet the revenue threshold to be considered a core
customer. Many of these customers are in the emerging and small
business segment of the marketplace, which represents strategic
value and a growth opportunity for us. Customers who do not meet
the revenue threshold to be considered a core customer provide us
with market share and awareness, and we anticipate that some may
grow into core customers. In addition, we have numerous
enterprise-level customers that only utilize our services for small
segments of their business, providing opportunities over time for
us to extend our relationship and make them core customers.
In addition to customers with whom we have a direct
relationship, some of our customers are business application
publishers (including ecommerce platforms) that include automated
tax determination powered by Avalara. While those platform
providers may be core customers to Avalara, their end-user
customers generally are not.
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 subscription and returns revenue in the
current quarter from any billing accounts that generated revenue
during the corresponding quarter of the prior year by (b) total
subscription and returns 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.
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 and acquired
billing systems that have not been integrated into our primary U.S.
billing systems.
During the second quarter of 2021, we revised our net revenue
retention rate calculation methodology. Under the prior
methodology, revenue from SST was not included in our reported net
revenue retention rate. This meant that revenue expansion from
existing customers adopting our SST solution was not included,
while revenue contraction from customers replacing one or more of
Avalara’s other solutions with SST was included. The revised
calculation methodology for net revenue retention rate includes
revenue from SST. In addition, professional services revenue is no
longer included in the revised calculation methodology, as these
services tend to be more one-time in nature.
We believe these changes improve the usefulness of this key
business metric, which is to measure our ability to retain and grow
revenue from existing customers over time.
Reported Consolidated Results
AVALARA, INC. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
For the Three Months Ended
September 30,
2021
2020
Revenue:
Subscription and returns
$
164,237
$
119,193
Professional services
16,930
8,686
Total revenue
181,167
127,879
Cost of revenue:
Subscription and returns
44,824
31,155
Professional services
8,216
3,777
Total cost of revenue (1)
53,040
34,932
Gross profit
128,127
92,947
Operating expenses:
Research and development (1)
42,574
32,562
Sales and marketing (1)
75,867
49,057
General and administrative (1)
35,887
23,885
Total operating expenses
154,328
105,504
Operating loss
(26,201
)
(12,557
)
Other (income) expense:
Interest income
(28
)
(36
)
Interest expense
815
—
Other (income) expense, net
6,168
(185
)
Total other (income) expense, net
6,955
(221
)
Loss before income taxes
(33,156
)
(12,336
)
(Benefit from) provision for income
taxes
(610
)
393
Net loss
$
(32,546
)
$
(12,729
)
Net loss per share attributable to common
shareholders, basic and diluted
$
(0.38
)
$
(0.15
)
Weighted average shares of common stock
outstanding, basic and diluted
86,530
82,288
For the Three Months Ended
September 30,
(1) The stock-based compensation expense
included above was as follows:
2021
2020
Cost of revenue
$
2,733
$
1,591
Research and development
6,234
3,781
Sales and marketing
5,448
3,157
General and administrative
8,903
4,292
Total stock-based compensation
$
23,318
$
12,821
The amortization of acquired intangibles
included above was as follows:
Cost of revenue
$
2,314
$
1,007
Research and development
—
—
Sales and marketing
3,096
447
General and administrative
930
4
Total amortization of acquired
intangibles
$
6,340
$
1,458
AVALARA, INC. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
For the Nine Months Ended
September 30,
2021
2020
Revenue:
Subscription and returns
$
455,997
$
333,258
Professional services
47,838
22,551
Total revenue
503,835
355,809
Cost of revenue:
Subscription and returns
123,970
89,451
Professional services
22,416
13,065
Total cost of revenue (1)
146,386
102,516
Gross profit
357,449
253,293
Operating expenses:
Research and development (1)
121,841
85,253
Sales and marketing (1)
212,068
144,731
General and administrative (1)
101,982
65,595
Total operating expenses
435,891
295,579
Operating loss
(78,442
)
(42,286
)
Other (income) expense:
Interest income
(75
)
(1,646
)
Interest expense
815
—
Other (income) expense, net
9,403
(3,435
)
Total other (income) expense, net
10,143
(5,081
)
Loss before income taxes
(88,585
)
(37,205
)
Provision for income taxes
1,599
947
Net loss
$
(90,184
)
$
(38,152
)
Net loss per share attributable to common
shareholders, basic and diluted
$
(1.05
)
$
(0.48
)
Weighted average shares of common stock
outstanding, basic and diluted
86,023
79,715
For the Nine Months Ended
September 30,
(1) The stock-based compensation expense
included above was as follows:
2021
2020
Cost of revenue
$
7,384
$
4,264
Research and development
17,589
9,255
Sales and marketing
14,915
8,928
General and administrative
25,442
12,352
Total stock-based compensation
$
65,330
$
34,799
The amortization of acquired intangibles
included above was as follows:
Cost of revenue
$
6,728
$
3,302
Research and development
—
—
Sales and marketing
7,541
1,603
General and administrative
2,685
12
Total amortization of acquired
intangibles
$
16,954
$
4,917
AVALARA, INC. UNAUDITED CONSOLIDATED BALANCE SHEETS (in
thousands)
September 30,
December 31,
2021
2020
Assets
Current assets:
Cash and cash equivalents
$
1,536,422
$
673,593
Restricted cash
37,700
19,953
Trade accounts receivable—net of allowance
for doubtful accounts
96,305
75,857
Deferred commissions
15,735
12,245
Prepaid expenses and other current
assets
31,102
20,098
Total current assets before customer fund
assets
1,717,264
801,746
Funds held from customers
79,884
30,598
Receivable from customers—net of allowance
for doubtful accounts
1,280
563
Total current assets
1,798,428
832,907
Noncurrent assets:
Restricted cash
—
37,700
Deferred commissions
47,896
38,625
Operating lease right-of-use
assets—net
46,798
52,320
Property and equipment—net
42,645
34,713
Intangible assets—net
88,417
86,513
Goodwill
603,768
513,234
Other noncurrent assets
10,323
6,321
Total assets
$
2,638,275
$
1,602,333
Liabilities and shareholders'
equity
Current liabilities:
Trade payables
18,741
20,280
Accrued expenses
91,978
84,532
Deferred revenue
256,182
208,026
Accrued purchase price related to
acquisitions
48,869
22,473
Accrued earnout liabilities
29,456
749
Operating lease liabilities
11,839
11,339
Total current liabilities before customer
fund obligations
457,065
347,399
Customer fund obligations
81,955
31,549
Total current liabilities
539,020
378,948
Noncurrent liabilities:
Convertible senior notes—net
960,373
—
Deferred revenue
1,701
1,664
Accrued purchase price related to
acquisitions
3,889
49,057
Accrued earnout liabilities
46,416
34,468
Operating lease liabilities
48,416
56,625
Deferred tax liability
2,195
1,031
Other noncurrent liabilities
817
380
Total liabilities
1,602,827
522,173
Commitments and contingencies
Shareholders' equity:
Preferred stock
—
—
Common stock
9
9
Additional paid-in capital
1,687,579
1,640,867
Accumulated other comprehensive loss
(2,579
)
(1,339
)
Accumulated deficit
(649,561
)
(559,377
)
Total shareholders’ equity
1,035,448
1,080,160
Total liabilities and shareholders'
equity
$
2,638,275
$
1,602,333
AVALARA, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Three Months Ended
September 30,
2021
2020
Cash flows from operating
activities:
Net loss
$
(32,546
)
$
(12,729
)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Stock-based compensation
23,318
12,821
Depreciation and amortization
9,631
3,924
Amortization of debt issuance costs
482
—
Asset impairments
—
794
Deferred income tax (benefit) expense
(4,315
)
58
Non-cash operating lease costs
2,394
2,067
Non-cash change in earnout liability
6,180
—
Non-cash bad debt expense
350
72
Other
(677
)
213
Changes in operating assets and
liabilities:
Trade accounts receivable
(10,301
)
(3,214
)
Prepaid expenses and other current
assets
(3,158
)
(693
)
Deferred commissions
(2,988
)
(2,485
)
Other noncurrent assets
(2,122
)
(1,055
)
Trade payables
563
1,792
Accrued expenses
9,513
15,997
Deferred revenue
18,057
12,920
Operating lease liabilities
(2,959
)
(2,448
)
Net cash provided by operating
activities
11,422
28,034
Cash flows from investing
activities:
Purchase of property and equipment
(1,393
)
(976
)
Capitalized software development costs
(3,655
)
(1,142
)
Cash paid for acquisitions of businesses,
net of cash and restricted cash equivalents acquired
(9,546
)
—
Cash paid for purchases of customer fund
available-for-sale securities
(381
)
—
Net cash used in investing activities
(14,975
)
(2,118
)
Cash flows from financing
activities:
Proceeds from common stock offering, net
of underwriting discounts
—
556,312
Payments of deferred financing costs
—
(300
)
Proceeds from convertible senior notes
977,500
—
Payments of debt issuance costs
(17,343
)
—
Purchase of capped calls
(75,268
)
—
Proceeds from exercise of stock
options
7,949
5,294
Proceeds from purchases of stock under
employee stock purchase plan
7,358
5,621
Acquisition-related post-closing
payments
—
(2,763
)
Payments related to business combination
earnouts
(33
)
—
Payments related to asset acquisition
earnouts
(576
)
—
Net increase in customer fund
obligations
35,047
3,662
Net cash provided by financing
activities
934,634
567,826
Foreign currency effect
(310
)
(302
)
Net change in cash, cash equivalents,
restricted cash, and restricted cash equivalents
930,771
593,440
Cash, cash equivalents, restricted cash,
and restricted cash equivalents—Beginning of period
722,862
495,934
Cash, cash equivalents, restricted cash,
and restricted cash equivalents—End of period
$
1,653,633
$
1,089,374
Reconciliation of cash, cash equivalents,
restricted cash, and restricted cash equivalents to the
Consolidated Balance Sheets, end of period:
Cash and cash equivalents
$
1,536,422
$
1,064,077
Restricted cash
37,700
—
Restricted cash equivalents—funds held
from customers
79,511
25,297
Total cash, cash equivalents, restricted
cash, and restricted cash equivalents, end of period
$
1,653,633
$
1,089,374
AVALARA, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Nine Months Ended
September 30,
2021
2020
Cash flows from operating
activities:
Net loss
$
(90,184
)
$
(38,152
)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Stock-based compensation
65,330
34,799
Depreciation and amortization
25,732
11,923
Amortization of debt issuance costs
482
—
Asset impairments
—
794
Impairment of capitalized cloud computing
costs
345
—
Deferred income tax (benefit) expense
(2,036
)
193
Non-cash operating lease costs
7,102
6,027
Non-cash change in earnout liabilities
8,711
(2,325
)
Non-cash bad debt expense
1,326
1,445
Other
(799
)
(221
)
Changes in operating assets and
liabilities:
Trade accounts receivable
(18,713
)
(12,205
)
Prepaid expenses and other current
assets
(13,721
)
(4,179
)
Deferred commissions
(12,761
)
(7,425
)
Other noncurrent assets
(3,719
)
(2,698
)
Trade payables
(2,327
)
4,683
Accrued expenses
5,981
6,247
Deferred revenue
46,876
19,397
Operating lease liabilities
(8,900
)
(7,243
)
Net cash provided by operating
activities
8,725
11,060
Cash flows from investing
activities:
Purchase of property and equipment
(4,463
)
(2,968
)
Capitalized software development costs
(9,608
)
(2,706
)
Cash paid for acquisitions of businesses,
net of cash and restricted cash equivalents acquired
(33,555
)
—
Cash paid for acquired intangible
assets
(1,500
)
—
Cash paid for purchases of customer fund
available-for-sale securities
(381
)
—
Net cash used in investing activities
(49,507
)
(5,674
)
Cash flows from financing
activities:
Proceeds from common stock offering, net
of underwriting discounts
—
556,312
Payments of deferred financing costs
—
(300
)
Proceeds from convertible senior notes
977,500
—
Payments of debt issuance costs
(17,343
)
—
Purchase of capped calls
(75,268
)
—
Proceeds from exercise of stock
options
18,146
30,717
Proceeds from purchases of stock under
employee stock purchase plan
14,446
11,337
Acquisition-related post-closing
payments
(20,821
)
(2,763
)
Payments related to business combination
earnouts
(33
)
(3,760
)
Payments related to asset acquisition
earnouts
(1,266
)
(65
)
Net increase in customer fund
obligations
37,942
1,681
Net cash provided by investing
activities
933,303
593,159
Foreign currency effect
(732
)
(504
)
Net change in cash, cash equivalents,
restricted cash, and restricted cash equivalents
891,789
598,041
Cash, cash equivalents, restricted cash,
and restricted cash equivalents—Beginning of period
761,844
491,333
Cash, cash equivalents, restricted cash,
and restricted cash equivalents—End of period
$
1,653,633
$
1,089,374
Reconciliation of cash, cash equivalents,
restricted cash, and restricted cash equivalents to the
Consolidated Balance Sheets, end of period:
Cash and cash equivalents
$
1,536,422
$
1,064,077
Restricted cash
37,700
—
Restricted cash equivalents—funds held
from customers
79,511
25,297
Total cash, cash equivalents, restricted
cash, and restricted cash equivalents, end of period
$
1,653,633
$
1,089,374
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,
2021
2020
2021
2020
Non-GAAP cost of revenue
$
47,993
$
32,334
$
132,274
$
94,950
Non-GAAP gross profit
$
133,174
$
95,545
$
371,561
$
260,859
Non-GAAP gross margin
74
%
75
%
74
%
73
%
Non-GAAP research and development
expense
$
36,340
$
28,781
$
104,252
$
75,998
Non-GAAP sales and marketing expense
$
67,323
$
45,453
$
189,612
$
134,200
Non-GAAP general and administrative
expense
$
26,054
$
19,589
$
73,855
$
53,231
Non-GAAP operating income (loss)
$
3,457
$
1,722
$
3,842
$
(2,570
)
Non-GAAP net income (loss)
$
(2,888
)
$
1,550
$
(7,900
)
$
1,564
Non-GAAP basic net income (loss) per
share
$
(0.03
)
$
0.02
$
(0.09
)
$
0.02
Non-GAAP diluted net income (loss) per
share
$
(0.03
)
$
0.02
$
(0.09
)
$
0.02
Free cash flow
$
6,374
$
25,916
$
(5,346
)
$
5,386
Reconciliation of Non-GAAP Financial Measures:
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2021
2020
2021
2020
Reconciliation of Non-GAAP Cost of
Revenue:
Cost of revenue
$
53,040
$
34,932
$
146,386
$
102,516
Stock-based compensation expense
(2,733
)
(1,591
)
(7,384
)
(4,264
)
Amortization of acquired intangibles
(2,314
)
(1,007
)
(6,728
)
(3,302
)
Non-GAAP Cost of Revenue
$
47,993
$
32,334
$
132,274
$
94,950
Reconciliation of Non-GAAP Gross
Profit:
Gross Profit
$
128,127
$
92,947
$
357,449
$
253,293
Stock-based compensation expense
2,733
1,591
7,384
4,264
Amortization of acquired intangibles
2,314
1,007
6,728
3,302
Non-GAAP Gross Profit
$
133,174
$
95,545
$
371,561
$
260,859
Reconciliation of Non-GAAP Gross
Margin:
Gross margin
71
%
73
%
71
%
71
%
Stock-based compensation expense as a
percentage of revenue
2
%
1
%
1
%
1
%
Amortization of acquired intangibles as a
percentage of revenue
1
%
1
%
1
%
1
%
Non-GAAP Gross Margin
74
%
75
%
74
%
73
%
Reconciliation of Non-GAAP Research and
Development Expense:
Research and development
$
42,574
$
32,562
$
121,841
$
85,253
Stock-based compensation expense
(6,234
)
(3,781
)
(17,589
)
(9,255
)
Amortization of acquired intangibles
—
—
—
—
Non-GAAP Research and Development
Expense
$
36,340
$
28,781
$
104,252
$
75,998
Reconciliation of Non-GAAP Sales and
Marketing Expense:
Sales and marketing
$
75,867
$
49,057
$
212,068
$
144,731
Stock-based compensation expense
(5,448
)
(3,157
)
(14,915
)
(8,928
)
Amortization of acquired intangibles
(3,096
)
(447
)
(7,541
)
(1,603
)
Non-GAAP Sales and Marketing
Expense
$
67,323
$
45,453
$
189,612
$
134,200
Reconciliation of Non-GAAP General and
Administrative Expense:
General and administrative
$
35,887
$
23,885
$
101,982
$
65,595
Stock-based compensation expense
(8,903
)
(4,292
)
(25,442
)
(12,352
)
Amortization of acquired intangibles
(930
)
(4
)
(2,685
)
(12
)
Non-GAAP General and Administrative
Expense
$
26,054
$
19,589
$
73,855
$
53,231
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2021
2020
2021
2020
Reconciliation of Non-GAAP Operating
Income (Loss):
Operating loss
$
(26,201
)
$
(12,557
)
$
(78,442
)
$
(42,286
)
Stock-based compensation expense
23,318
12,821
65,330
34,799
Amortization of acquired intangibles
6,340
1,458
16,954
4,917
Non-GAAP Operating Income
(Loss)
$
3,457
$
1,722
$
3,842
$
(2,570
)
Reconciliation of Non-GAAP Net Income
(Loss):
Net loss
$
(32,546
)
$
(12,729
)
$
(90,184
)
$
(38,152
)
Stock-based compensation expense
23,318
12,821
65,330
34,799
Amortization of acquired intangibles
6,340
1,458
16,954
4,917
Non-GAAP Net Income (Loss)
$
(2,888
)
$
1,550
$
(7,900
)
$
1,564
Reconciliation of Non-GAAP Basic Net
Income (Loss) Per Share:
Net loss per share
$
(0.38
)
$
(0.15
)
$
(1.05
)
$
(0.48
)
Stock-based compensation expense per
share
0.27
0.16
0.76
0.44
Amortization of acquired intangibles per
share
0.07
0.02
0.20
0.06
Non-GAAP Basic Net Income (Loss) Per
Share
$
(0.03
)
$
0.02
$
(0.09
)
$
0.02
Reconciliation of Non-GAAP Diluted Net
Income (Loss) Per Share:
Net loss per diluted share
$
(0.38
)
$
(0.15
)
$
(1.05
)
$
(0.48
)
Stock-based compensation expense per
share
0.27
0.15
0.76
0.42
Amortization of acquired intangibles per
share
0.07
0.02
0.20
0.06
Non-GAAP Diluted Net Income (Loss) Per
Share (1)
$
(0.03
)
$
0.02
$
(0.09
)
$
0.02
Shares used in computing non-GAAP diluted
net income (loss) per share
86,530
86,700
86,023
84,078
(1) For the three and nine months ended
September 30, 2021, all common stock equivalents have been excluded
from the diluted share count as their effect is antidilutive. For
the three and nine months ended September 30, 2020, the diluted
share count included approximately 4.4 million dilutive shares
related to employee stock options and stock-based awards.
Free Cash Flow:
Net cash provided by operating
activities(2)
$
11,422
$
28,034
$
8,725
$
11,060
Less: Purchases of property and
equipment(3)
(1,393
)
(976
)
(4,463
)
(2,968
)
Less: Capitalized software development
costs(3)
(3,655
)
(1,142
)
(9,608
)
(2,706
)
Free Cash Flow
$
6,374
$
25,916
$
(5,346
)
$
5,386
(2) We have presented corrected net cash
provided by operating activities for the three and nine months
ended September 30, 2020 to reflect a correction identified in the
fourth quarter of 2020 to the classification of funds held from
customers in the Consolidated Statements of Cash Flows. The
correction to net cash provided by operating activities resulted in
a change of $0.1 million and $0.8 million for the three months and
nine months ended September 30, 2020, respectively. (3) Capitalized
software development costs were previously included in purchases of
property and equipment and does not impact previously reported free
cash flow.
AVALARA, INC. UNAUDITED PRESENTATION OF CALCULATED BILLINGS
AND RECONCILIATION TO REVENUE
Three Months Ended
Sep 30, 2021 (1)
Jun 30, 2021 (1)
Mar 31, 2021
Dec 31, 2020 (1)
Sep 30, 2020
Jun 30, 2020
Mar 31, 2020
Dec 31, 2019
Total revenue
$
181,167
$
169,067
$
153,601
$
144,760
$
127,879
$
116,487
$
111,443
$
107,627
Add:
Deferred revenue (end of period)
257,883
239,395
225,531
209,690
180,640
167,719
165,369
161,241
Contract liabilities (end of period)
8,597
11,406
12,466
10,134
7,673
6,195
6,330
5,197
Less:
Deferred revenue (beginning of period)
(239,395
)
(225,531
)
(209,690
)
(180,640
)
(167,719
)
(165,369
)
(161,241
)
(148,466
)
Contract liabilities (beginning of
period)
(11,406
)
(12,466
)
(10,134
)
(7,673
)
(6,195
)
(6,330
)
(5,197
)
(4,843
)
Deferred revenue assumed in business
combinations
(430
)
(886
)
—
(9,194
)
—
—
—
—
Calculated billings
$
196,416
$
180,985
$
171,774
$
167,077
$
142,278
$
118,702
$
116,704
$
120,756
(1) These quarters include reconciling
adjustments to exclude the acquisition-date fair value of deferred
revenue assumed in business combinations.
AVALARA, INC. UNAUDITED PRESENTATION OF KEY BUSINESS
METRICS
Sep 30, 2021
Jun 30, 2021
Mar 31, 2021
Dec 31, 2020
Sep 30, 2020
Jun 30, 2020
Mar 31, 2020
Dec 31, 2019 (3)
Number of core customers
(as of end of period) -
legacy
17,230
16,410
15,580
14,890
14,180
13,560
12,940
12,150
Number of core customers
(as of end of period) -
revised(1)
17,400
16,570
15,730
15,020
14,300
13,640
13,000
12,240
Net revenue retention
rate - legacy
112
%
110
%
107
%
104
%
108
%
107
%
109
%
111
%
Net revenue retention
rate - revised(2)
116
%
116
%
113
%
115
%
116
%
114
%
117
%
N/A
(1) During the second quarter of 2021, we
revised the methodology for calculating core customers to include
revenue from SST (see Definitions of Key Business Metrics above for
details). The table above includes the number of core customers
using both the legacy and the revised methodologies. (2) During the
second quarter of 2021, we revised the methodology for calculating
net revenue retention rate to include revenue from SST. In
addition, professional services revenue is no longer included in
the revised calculation methodology, as these services tend to be
more one-time in nature (see Definitions of Key Business Metrics
above for details). The table above includes the net revenue
retention rate using both the legacy and the revised methodologies.
(3) Net revenue retention rate - revised is not presented for the
period ended December 31, 2019 due to certain prior period data
needed to complete the calculation being unavailable.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211104006026/en/
Investors Jennifer Gianola Avalara
jennifer.gianola@avalara.com 650-499-9837
Media Tommy Morgan Avalara media@avalara.com
540-448-7551
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