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
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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
| ||||||||
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
| ||||||||
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
| For the Nine Months
| |||||||||||||||
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
| For the Nine Months
| |||||||||||||||
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
| For the Nine Months
| |||||||||||||||
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
| ||||||||||||||||
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
| ||||||||||||||||
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
| 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.
| ||||||||||||||||
AVALARA, INC.
UNAUDITED PRESENTATION OF CALCULATED BILLINGS AND RECONCILIATION TO REVENUE
Three Months Ended | |||||||||||||||||||||||||||||||
Sep 30,
| Jun 30,
| Mar 31,
| Dec 31,
| Sep 30,
| Jun 30,
| Mar 31,
| Dec 31,
| ||||||||||||||||||||||||
Total revenue | $ | 181,167 | $ | 169,067 | $ | 153,601 | $ | 144,760 | $ | 127,879 | $ | 116,487 | $ | 111,443 | $ | 107,627 | |||||||||||||||
Add: | |||||||||||||||||||||||||||||||
Deferred revenue (end of
| 257,883 | 239,395 | 225,531 | 209,690 | 180,640 | 167,719 | 165,369 | 161,241 | |||||||||||||||||||||||
Contract liabilities (end of
| 8,597 | 11,406 | 12,466 | 10,134 | 7,673 | 6,195 | 6,330 | 5,197 | |||||||||||||||||||||||
Less: | |||||||||||||||||||||||||||||||
Deferred revenue
| (239,395 | ) | (225,531 | ) | (209,690 | ) | (180,640 | ) | (167,719 | ) | (165,369 | ) | (161,241 | ) | (148,466 | ) | |||||||||||||||
Contract liabilities
period) | (11,406 | ) | (12,466 | ) | (10,134 | ) | (7,673 | ) | (6,195 | ) | (6,330 | ) | (5,197 | ) | (4,843 | ) | |||||||||||||||
Deferred revenue assumed in
| (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,
| Jun 30,
| Mar 31,
| Dec 31,
| Sep 30,
| Jun 30,
| Mar 31,
| Dec 31,
| ||||||||||||||||||||||||
Number of core
| 17,230 | 16,410 | 15,580 | 14,890 | 14,180 | 13,560 | 12,940 | 12,150 | |||||||||||||||||||||||
Number of core
| 17,400 | 16,570 | 15,730 | 15,020 | 14,300 | 13,640 | 13,000 | 12,240 | |||||||||||||||||||||||
Net revenue
| 112 | % | 110 | % | 107 | % | 104 | % | 108 | % | 107 | % | 109 | % | 111 | % | |||||||||||||||
Net revenue
| 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.
| |||||||||||||||||||||||||||||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20211104006026/en/
Contacts:
Jennifer Gianola
Avalara
jennifer.gianola@avalara.com
650-499-9837
