Company Cancels Earnings Call in Light of Transaction with Vista Equity Partners

Second Quarter Total Revenue of $208.6 Million

Total Revenue Growth of 23% From Second Quarter 2021

Avalara, Inc. (NYSE: AVLR), a leading provider of tax compliance automation for businesses of all sizes, today announced financial results for its second quarter ended June 30, 2022.

“We posted a solid second quarter delivering year-over-year total revenue growth of 23%, in line with our guidance and we outperformed on our operating income guidance. We remain focused on delivering on the 2025 growth and profitability targets that we laid out at our recent Investor Day,” said Scott McFarlane, Avalara co-founder and chief executive officer. “Despite ongoing macro uncertainties, we believe Avalara is a durable, diversified, and resilient business, and that we are in the early days of addressing a huge market to automate compliance for businesses of all sizes.”

Second Quarter 2022 Financial Results

  • Revenue: Total revenue was $208.6 million in the second quarter of 2022, up 23% from $169.1 million in the second quarter of 2021. Subscription and returns revenue was $189.8 million, up 24% from $152.4 million in the same period last year. Professional services revenue was $18.8 million, up 13% from $16.6 million in the same period last year.
  • Gross Profit: GAAP gross profit was $146.5 million in the second quarter of 2022, representing a 70% gross margin, compared to a GAAP gross profit of $119.8 million and a 71% gross margin in the second quarter of 2021. Non-GAAP gross profit was $155.6 million, representing a 75% non-GAAP gross margin, compared to a non-GAAP gross profit of $125.2 million and a 74% non-GAAP gross margin in the second quarter of 2021.
  • Operating Loss: GAAP operating loss was $56.0 million in the second quarter of 2022, compared to a GAAP operating loss of $30.2 million in the second quarter of 2021. Non-GAAP operating loss was $2.0 million in the second quarter of 2022, compared to non-GAAP operating income of $2.6 million in the second quarter of 2021.
  • Net Loss: GAAP net loss was $55.8 million in the second quarter of 2022, compared to a GAAP net loss of $31.0 million in the second quarter of 2021. Non-GAAP net loss was $1.9 million in the second quarter of 2022, compared to non-GAAP net income of $1.8 million in the second quarter of 2021.
  • Net Loss per Share: GAAP basic and diluted net loss per share was $0.63 based on 88.0 million weighted-average shares outstanding in the second quarter of 2022, compared to a GAAP basic and diluted net loss per share of $0.36 based on 86.1 million weighted-average shares outstanding in the second quarter of 2021. Non-GAAP diluted net loss per share was $0.02 based on 88.0 million weighted-average shares outstanding in the second quarter of 2022, compared to a non-GAAP diluted net income per share of $0.02 based on 89.5 million diluted weighted-average shares outstanding in the second quarter of 2021.
  • Deferred Revenue: Total deferred revenue was $307.7 million at June 30, 2022, up from $283.0 million at December 31, 2021. The current portion of deferred revenue was $306.8 million at June 30, 2022, up from $280.8 million at December 31, 2021.
  • Cash: Net cash provided by operating activities was $6.2 million in the second quarter of 2022, compared to $25.6 million in the second quarter of 2021. Free cash flow was essentially zero in the second quarter of 2022, compared to $20.2 million in the second quarter of 2021. Cash and cash equivalents totaled $1.5 billion at June 30, 2022, compared to $1.5 billion at December 31, 2021.
  • Calculated Billings: Calculated billings were $212.4 million in the second quarter of 2022, compared to calculated billings of $181.0 million in the second quarter of 2021.

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

Second Quarter 2022 and Recent Operating Highlights

  • Key Metrics: We ended the second quarter of 2022 with approximately 20,110 core customers, up from approximately 19,160 core customers at the end of the previous quarter and approximately 16,570 in the second quarter of 2021, representing a 21% increase year-over-year. Our net revenue retention rate was 113% in the second quarter of 2022 and has averaged 115% over the last four quarters.
  • We announced the appointment of human resources leader Ee Lyn Khoo as our new chief people officer. She has held human resource leadership roles at global companies, including Amazon and General Mills. Her responsibilities include overseeing all global people and culture-related initiatives, including human resources; talent management and acquisition; diversity and inclusion; learning and development; total rewards including compensation and benefits; and organizational development.

Second Quarter 2022 and Recent Product Highlights

  • We announced Avalara Exemption Certificate Management Pro, a new product that helps small-to-medium businesses (SMBs) simplify exemption certificate collection and compliance management. This new solution leverages AI and optical character recognition (OCR), expanding Avalara's existing exemption certificate management offerings for certificate review and validation. Avalara Exemption Certificate Management (ECM) Pro is a new solution that helps businesses automate the creation, collection, completion, usage, and storage of exemption certificates and other sales tax compliance documents.
  • We announced the availability of Avalara Transfer Pricing Reports for Accountants. This new solution, designed for use by transfer pricing experts and nonexperts working in firms of all sizes, delivers the automation to grow a global tax compliance service, providing U.S. and OECD transfer pricing reports to clients as needed for audit defense. Transfer Pricing Reports for Accountants automates the transfer pricing documentation process for any firm, supplying control and visibility, while enabling firms with or without in-house transfer pricing expertise to prepare transfer pricing reports for their clients in three simple steps: data collection, documentation review, and report generation.

Transaction with Vista Equity Partners

  • In a separate press release issued today, we announced our entry into a definitive agreement to be acquired by Vista Equity Partners. A copy of the press release can be found on the investor relations page of Avalara’s website at investor.avalara.com. Given the announced transaction, Avalara will not host an earnings conference call or provide financial guidance in conjunction with this earnings release. We also will not participate in previously scheduled conferences including the Canaccord Genuity Growth Conference and the Goldman Sachs Communacopia and Technology Conference. For further detail and discussion of Avalara’s financial performance please refer to Avalara’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, which will be filed later today with the SEC.

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 contains forward-looking statements including, among others, statements about expected growth opportunities. 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 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 amended Annual Report on Form 10-K/A for the year ended December 31, 2021, 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, respectively, 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 (used in) 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.

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 our core customer count 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 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.

Reported Consolidated Results

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

 

 

For the Three Months Ended June 30,

 

 

 

2022

 

 

2021 (1)

 

Revenue:

 

 

 

 

 

 

 

 

Subscription and returns

 

$

189,764

 

 

$

152,442

 

Professional services

 

 

18,829

 

 

 

16,625

 

Total revenue

 

 

208,593

 

 

 

169,067

 

Cost of revenue:

 

 

 

 

 

 

 

 

Subscription and returns

 

 

51,036

 

 

 

41,477

 

Professional services

 

 

11,036

 

 

 

7,836

 

Total cost of revenue (2)

 

 

62,072

 

 

 

49,313

 

Gross profit

 

 

146,521

 

 

 

119,754

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development (2)

 

 

56,647

 

 

 

41,234

 

Sales and marketing (2)

 

 

101,242

 

 

 

72,651

 

General and administrative (2)

 

 

44,592

 

 

 

36,113

 

Total operating expenses

 

 

202,481

 

 

 

149,998

 

Operating loss

 

 

(55,960

)

 

 

(30,244

)

Other income (expense):

 

 

 

 

 

 

 

 

Fair value changes in earnout liabilities

 

 

117

 

 

 

(1,181

)

Interest income

 

 

1,859

 

 

 

23

 

Interest expense

 

 

(1,497

)

 

 

 

Other income (expense), net

 

 

528

 

 

 

220

 

Total other income (expense), net

 

 

1,007

 

 

 

(938

)

Loss before income taxes

 

 

(54,953

)

 

 

(31,182

)

(Provision for) benefit from income taxes

 

 

(895

)

 

 

148

 

Net loss

 

$

(55,848

)

 

$

(31,034

)

 

 

 

 

 

 

 

 

 

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

 

$

(0.63

)

 

$

(0.36

)

Weighted average shares of common stock outstanding, basic and diluted

 

 

87,989

 

 

 

86,090

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

 

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

 

2022

 

 

2021 (1)

 

Cost of revenue

 

$

6,200

 

 

$

3,082

 

Research and development

 

 

14,641

 

 

 

7,192

 

Sales and marketing

 

 

11,905

 

 

 

5,955

 

General and administrative

 

 

13,954

 

 

 

10,390

 

Total stock-based compensation

 

$

46,700

 

 

$

26,619

 

 

 

 

 

 

 

 

 

 

The amortization of acquired intangibles included above was as follows:

 

 

 

 

 

 

 

 

Cost of revenue

 

$

2,851

 

 

$

2,394

 

Research and development

 

 

 

 

 

 

Sales and marketing

 

 

3,603

 

 

 

2,905

 

General and administrative

 

 

839

 

 

 

894

 

Total amortization of acquired intangibles

 

$

7,293

 

 

$

6,193

 

 

(1) Prior year amounts have been adjusted to reflect the correction of an immaterial error related to stock-based compensation expense, which are further described in the Company’s 2021 Form 10-K/A.

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

 

 

For the Six Months Ended June 30,

 

 

 

2022

 

 

2021 (1)

 

Revenue:

 

 

 

 

 

 

 

 

Subscription and returns

 

$

376,630

 

 

$

291,760

 

Professional services

 

 

36,493

 

 

 

30,908

 

Total revenue

 

 

413,123

 

 

 

322,668

 

Cost of revenue:

 

 

 

 

 

 

 

 

Subscription and returns

 

 

101,113

 

 

 

79,510

 

Professional services

 

 

21,085

 

 

 

14,299

 

Total cost of revenue (2)

 

 

122,198

 

 

 

93,809

 

Gross profit

 

 

290,925

 

 

 

228,859

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development (2)

 

 

107,499

 

 

 

80,508

 

Sales and marketing (2)

 

 

187,689

 

 

 

136,744

 

General and administrative (2)

 

 

86,786

 

 

 

67,312

 

Total operating expenses

 

 

381,974

 

 

 

284,564

 

Operating loss

 

 

(91,049

)

 

 

(55,705

)

Other income (expense):

 

 

 

 

 

 

 

 

Fair value changes in earnout liabilities

 

 

4,118

 

 

 

(2,531

)

Interest income

 

 

2,045

 

 

 

47

 

Interest expense

 

 

(2,993

)

 

 

 

Other income (expense), net

 

 

654

 

 

 

(704

)

Total other income (expense), net

 

 

3,824

 

 

 

(3,188

)

Loss before income taxes

 

 

(87,225

)

 

 

(58,893

)

Provision for income taxes

 

 

(1,180

)

 

 

(2,209

)

Net loss

 

$

(88,405

)

 

$

(61,102

)

 

 

 

 

 

 

 

 

 

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

 

$

(1.01

)

 

$

(0.71

)

Weighted average shares of common stock outstanding, basic and diluted

 

 

87,728

 

 

 

85,765

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30,

 

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

 

2022

 

 

2021 (1)

 

Cost of revenue

 

$

9,959

 

 

$

5,114

 

Research and development

 

 

24,104

 

 

 

12,596

 

Sales and marketing

 

 

18,616

 

 

 

10,010

 

General and administrative

 

 

26,671

 

 

 

17,756

 

Total stock-based compensation

 

$

79,350

 

 

$

45,476

 

The amortization of acquired intangibles included above was as follows:

 

 

 

 

 

 

 

 

Cost of revenue

 

$

5,496

 

 

$

4,414

 

Research and development

 

 

 

 

 

 

Sales and marketing

 

 

7,209

 

 

 

4,445

 

General and administrative

 

 

1,693

 

 

 

1,755

 

Total amortization of acquired intangibles

 

$

14,398

 

 

$

10,614

 

 

(1) Prior year amounts have been adjusted to reflect the correction of an immaterial error related to stock-based compensation expense, which are further described in the Company’s 2021 Form 10-K/A.

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

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021 (1)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,460,594

 

 

$

1,514,064

 

Restricted cash

 

 

 

 

 

37,700

 

Trade accounts receivable—net of allowance for doubtful accounts

 

 

115,523

 

 

 

114,248

 

Deferred commissions

 

 

18,629

 

 

 

16,364

 

Prepaid expenses and other current assets

 

 

43,244

 

 

 

29,267

 

Total current assets before customer fund assets

 

 

1,637,990

 

 

 

1,711,643

 

Funds held from customers

 

 

72,957

 

 

 

62,509

 

Receivable from customers—net of allowance for doubtful accounts

 

 

1,889

 

 

 

1,472

 

Total current assets

 

 

1,712,836

 

 

 

1,775,624

 

Noncurrent assets:

 

 

 

 

 

 

 

 

Deferred commissions

 

 

56,946

 

 

 

52,155

 

Operating lease right-of-use assets—net

 

 

44,874

 

 

 

44,385

 

Property and equipment—net

 

 

52,765

 

 

 

46,464

 

Intangible assets—net

 

 

86,986

 

 

 

96,818

 

Goodwill

 

 

677,496

 

 

 

672,381

 

Other noncurrent assets

 

 

12,565

 

 

 

10,704

 

Total assets

 

$

2,644,468

 

 

$

2,698,531

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Trade payables

 

$

19,188

 

 

$

16,683

 

Accrued expenses

 

 

80,897

 

 

 

109,792

 

Deferred revenue

 

 

306,834

 

 

 

280,816

 

Accrued purchase price related to acquisitions

 

 

5,597

 

 

 

51,476

 

Accrued earnout liabilities

 

 

38,135

 

 

 

33,151

 

Operating lease liabilities

 

 

12,076

 

 

 

11,453

 

Total current liabilities before customer fund obligations

 

 

462,727

 

 

 

503,371

 

Customer fund obligations

 

 

75,399

 

 

 

64,302

 

Total current liabilities

 

 

538,126

 

 

 

567,673

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

Convertible senior notes—net

 

 

963,029

 

 

 

961,259

 

Deferred revenue

 

 

859

 

 

 

2,139

 

Accrued purchase price related to acquisitions

 

 

6,720

 

 

 

7,988

 

Accrued earnout liabilities

 

 

59,424

 

 

 

81,485

 

Operating lease liabilities

 

 

43,620

 

 

 

45,614

 

Deferred tax liability

 

 

5,863

 

 

 

5,158

 

Other noncurrent liabilities

 

 

487

 

 

 

761

 

Total liabilities

 

 

1,618,128

 

 

 

1,672,077

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

Common stock

 

 

9

 

 

 

9

 

Additional paid-in capital

 

 

1,825,991

 

 

 

1,732,742

 

Accumulated other comprehensive loss

 

 

(8,386

)

 

 

(3,428

)

Accumulated deficit

 

 

(791,274

)

 

 

(702,869

)

Total shareholders’ equity

 

 

1,026,340

 

 

 

1,026,454

 

Total liabilities and shareholders' equity

 

$

2,644,468

 

 

$

2,698,531

 

 

 

(1) Prior year amounts have been adjusted to reflect the correction of an immaterial error related to stock-based compensation expense, which are further described in the Company’s 2021 Form 10-K/A.

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

 

 

For the Three Months Ended June 30,

 

 

 

2022

 

 

2021 (1)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(55,848

)

 

$

(31,034

)

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

46,700

 

 

 

26,619

 

Depreciation and amortization

 

 

11,594

 

 

 

9,030

 

Amortization of debt issuance costs

 

 

886

 

 

 

 

Impairment of capitalized cloud computing costs

 

 

136

 

 

 

 

Deferred income tax expense

 

 

435

 

 

 

251

 

Non-cash operating lease costs

 

 

2,618

 

 

 

2,533

 

Fair value changes in earnout liabilities

 

 

(117

)

 

 

1,181

 

Bad debt expense

 

 

788

 

 

 

394

 

Other

 

 

404

 

 

 

267

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

(2,683

)

 

 

6,283

 

Prepaid expenses and other current assets

 

 

(4,150

)

 

 

(1,377

)

Deferred commissions

 

 

(4,808

)

 

 

(7,413

)

Other noncurrent assets

 

 

(1,873

)

 

 

(2,138

)

Trade payables

 

 

463

 

 

 

(995

)

Accrued expenses

 

 

10,924

 

 

 

12,102

 

Deferred revenue

 

 

3,955

 

 

 

12,978

 

Operating lease liabilities

 

 

(3,220

)

 

 

(3,131

)

Net cash provided by operating activities

 

 

6,204

 

 

 

25,550

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(962

)

 

 

(1,704

)

Capitalized software development costs

 

 

(5,274

)

 

 

(3,642

)

Cash paid for acquisitions of businesses, net of cash and restricted cash equivalents acquired

 

 

(11,713

)

 

 

(21,842

)

Cash paid for acquired intangible assets

 

 

 

 

 

(1,500

)

Proceeds from maturity of customer fund available-for-sale securities

 

 

73

 

 

 

 

Net cash used in investing activities

 

 

(17,876

)

 

 

(28,688

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

1,816

 

 

 

4,668

 

Acquisition-related post-closing payments

 

 

(48,736

)

 

 

(18,850

)

Payments related to asset acquisition earnouts

 

 

(43

)

 

 

 

Payments on financed asset purchases

 

 

(64

)

 

 

 

Net increase (decrease) in customer fund obligations

 

 

9,031

 

 

 

(703

)

Net cash used in financing activities

 

 

(37,996

)

 

 

(14,885

)

Foreign currency effect

 

 

(617

)

 

 

(428

)

Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents

 

 

(50,285

)

 

 

(18,451

)

Cash, cash equivalents, restricted cash, and restricted cash equivalents—Beginning of period

 

 

1,583,553

 

 

 

741,313

 

Cash, cash equivalents, restricted cash, and restricted cash equivalents—End of period

 

$

1,533,268

 

 

$

722,862

 

Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Consolidated Balance Sheets, end of period:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,460,594

 

 

$

639,479

 

Restricted cash

 

 

 

 

 

37,803

 

Restricted cash equivalents—funds held from customers

 

 

72,674

 

 

 

45,580

 

Total cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period

 

$

1,533,268

 

 

$

722,862

 

 

(1) Prior year amounts have been adjusted to reflect the correction of an immaterial error related to stock-based compensation expense, which are further described in the Company’s Form 2021 10-K/A.

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

 

 

For the Six Months Ended June 30,

 

 

 

2022

 

 

2021 (1)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(88,405

)

 

$

(61,102

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

79,350

 

 

 

45,476

 

Depreciation and amortization

 

 

22,726

 

 

 

16,101

 

Amortization of debt issuance costs

 

 

1,771

 

 

 

 

Impairment of capitalized cloud computing costs

 

 

136

 

 

 

345

 

Deferred income tax expense

 

 

660

 

 

 

2,279

 

Non-cash operating lease costs

 

 

5,141

 

 

 

4,708

 

Fair value changes in earnout liabilities

 

 

(4,118

)

 

 

2,531

 

Bad debt expense

 

 

1,309

 

 

 

976

 

Other

 

 

388

 

 

 

(122

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

(2,357

)

 

 

(8,412

)

Prepaid expenses and other current assets

 

 

(14,096

)

 

 

(10,563

)

Deferred commissions

 

 

(7,056

)

 

 

(9,773

)

Other noncurrent assets

 

 

(1,996

)

 

 

(1,597

)

Trade payables

 

 

2,801

 

 

 

(2,890

)

Accrued expenses

 

 

(31,447

)

 

 

(3,532

)

Deferred revenue

 

 

24,610

 

 

 

28,819

 

Operating lease liabilities

 

 

(6,279

)

 

 

(5,941

)

Net cash used in operating activities

 

 

(16,862

)

 

 

(2,697

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(3,110

)

 

 

(3,070

)

Capitalized software development costs

 

 

(11,179

)

 

 

(5,953

)

Cash paid for acquisitions of businesses, net of cash and restricted cash equivalents acquired

 

 

(11,713

)

 

 

(24,009

)

Cash paid for acquired intangible assets

 

 

 

 

 

(1,500

)

Proceeds from maturity of customer fund available-for-sale securities

 

 

73

 

 

 

 

Net cash used in investing activities

 

 

(25,929

)

 

 

(34,532

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

4,097

 

 

 

10,197

 

Proceeds from purchases of stock under employee stock purchase plan

 

 

8,006

 

 

 

7,088

 

Acquisition-related post-closing payments

 

 

(48,736

)

 

 

(20,821

)

Payments related to business combination earnouts

 

 

(10,770

)

 

 

 

Payments related to asset acquisition earnouts

 

 

(636

)

 

 

(690

)

Payments on financed asset purchases

 

 

(125

)

 

 

 

Net increase in customer fund obligations

 

 

11,097

 

 

 

2,895

 

Net cash used in financing activities

 

 

(37,067

)

 

 

(1,331

)

Foreign currency effect

 

 

(777

)

 

 

(422

)

Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents

 

 

(80,635

)

 

 

(38,982

)

Cash, cash equivalents, restricted cash, and restricted cash equivalents—Beginning of period

 

 

1,613,903

 

 

 

761,844

 

Cash, cash equivalents, restricted cash, and restricted cash equivalents—End of period

 

$

1,533,268

 

 

$

722,862

 

Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Consolidated Balance Sheets, end of period:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,460,594

 

 

$

639,479

 

Restricted cash

 

 

 

 

 

37,803

 

Restricted cash equivalents—funds held from customers

 

 

72,674

 

 

 

45,580

 

Total cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period

 

$

1,533,268

 

 

$

722,862

 

 

(1) Prior year amounts have been adjusted to reflect the correction of an immaterial error related to stock-based compensation expense, which are further described in the Company’s Form 2021 10-K/A.

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 June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Non-GAAP cost of revenue

 

$

53,021

 

 

$

43,837

 

 

$

106,743

 

 

$

84,281

 

Non-GAAP gross profit

 

$

155,572

 

 

$

125,230

 

 

$

306,380

 

 

$

238,387

 

Non-GAAP gross margin

 

 

75

%

 

 

74

%

 

 

74

%

 

 

74

%

Non-GAAP research and development expense

 

$

42,006

 

 

$

34,042

 

 

$

83,395

 

 

$

67,912

 

Non-GAAP sales and marketing expense

 

$

85,734

 

 

$

63,791

 

 

$

161,864

 

 

$

122,289

 

Non-GAAP general and administrative expense

 

$

29,799

 

 

$

24,829

 

 

$

58,422

 

 

$

47,801

 

Non-GAAP operating income (loss)

 

$

(1,967

)

 

$

2,568

 

 

$

2,699

 

 

$

385

 

Non-GAAP net income (loss)

 

$

(1,855

)

 

$

1,778

 

 

$

5,343

 

 

$

(5,012

)

Non-GAAP basic net income (loss) per share

 

$

(0.02

)

 

$

0.02

 

 

$

0.06

 

 

$

(0.06

)

Non-GAAP diluted net income (loss) per share

 

$

(0.02

)

 

$

0.02

 

 

$

0.06

 

 

$

(0.06

)

Free cash flow

 

$

(32

)

 

$

20,204

 

 

$

(31,151

)

 

$

(11,720

)

 

Reconciliation of Non-GAAP Financial Measures:

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2022

 

 

2021 (1)

 

 

2022

 

 

2021 (1)

 

Reconciliation of Non-GAAP Cost of Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

$

62,072

 

 

$

49,313

 

 

$

122,198

 

 

$

93,809

 

Stock-based compensation expense

 

 

(6,200

)

 

 

(3,082

)

 

 

(9,959

)

 

 

(5,114

)

Amortization of acquired intangibles

 

 

(2,851

)

 

 

(2,394

)

 

 

(5,496

)

 

 

(4,414

)

Non-GAAP Cost of Revenue

 

$

53,021

 

 

$

43,837

 

 

$

106,743

 

 

$

84,281

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Non-GAAP Gross Profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

$

146,521

 

 

$

119,754

 

 

$

290,925

 

 

$

228,859

 

Stock-based compensation expense

 

 

6,200

 

 

 

3,082

 

 

 

9,959

 

 

 

5,114

 

Amortization of acquired intangibles

 

 

2,851

 

 

 

2,394

 

 

 

5,496

 

 

 

4,414

 

Non-GAAP Gross Profit

 

$

155,572

 

 

$

125,230

 

 

$

306,380

 

 

$

238,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Non-GAAP Gross Margin:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

70

%

 

 

71

%

 

 

70

%

 

 

71

%

Stock-based compensation expense as a percentage of revenue

 

 

3

%

 

 

2

%

 

 

2

%

 

 

2

%

Amortization of acquired intangibles as a percentage of revenue

 

 

1

%

 

 

1

%

 

 

1

%

 

 

1

%

Non-GAAP Gross Margin

 

 

75

%

 

 

74

%

 

 

74

%

 

 

74

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Non-GAAP Research and Development Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

56,647

 

 

$

41,234

 

 

$

107,499

 

 

$

80,508

 

Stock-based compensation expense

 

 

(14,641

)

 

 

(7,192

)

 

 

(24,104

)

 

 

(12,596

)

Amortization of acquired intangibles

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Research and Development Expense

 

$

42,006

 

 

$

34,042

 

 

$

83,395

 

 

$

67,912

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Non-GAAP Sales and Marketing Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

$

101,242

 

 

$

72,651

 

 

$

187,689

 

 

$

136,744

 

Stock-based compensation expense

 

 

(11,905

)

 

 

(5,955

)

 

 

(18,616

)

 

 

(10,010

)

Amortization of acquired intangibles

 

 

(3,603

)

 

 

(2,905

)

 

 

(7,209

)

 

 

(4,445

)

Non-GAAP Sales and Marketing Expense

 

$

85,734

 

 

$

63,791

 

 

$

161,864

 

 

$

122,289

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Non-GAAP General and Administrative Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

$

44,592

 

 

$

36,113

 

 

$

86,786

 

 

$

67,312

 

Stock-based compensation expense

 

 

(13,954

)

 

 

(10,390

)

 

 

(26,671

)

 

 

(17,756

)

Amortization of acquired intangibles

 

 

(839

)

 

 

(894

)

 

 

(1,693

)

 

 

(1,755

)

Non-GAAP General and Administrative Expense

 

$

29,799

 

 

$

24,829

 

 

$

58,422

 

 

$

47,801

 

 

(1) Prior year amounts have been adjusted to reflect the correction of an immaterial error related to stock-based compensation expense, which are further described in the Company’s 2021 Form 10-K/A.

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2022

 

 

2021 (1)

 

 

2022

 

 

2021 (1)

 

Reconciliation of Non-GAAP Operating Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

$

(55,960

)

 

$

(30,244

)

 

$

(91,049

)

 

$

(55,705

)

Stock-based compensation expense

 

 

46,700

 

 

 

26,619

 

 

 

79,350

 

 

 

45,476

 

Amortization of acquired intangibles

 

 

7,293

 

 

 

6,193

 

 

 

14,398

 

 

 

10,614

 

Non-GAAP Operating Income (Loss)

 

$

(1,967

)

 

$

2,568

 

 

$

2,699

 

 

$

385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Non-GAAP Net Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(55,848

)

 

$

(31,034

)

 

$

(88,405

)

 

$

(61,102

)

Stock-based compensation expense

 

 

46,700

 

 

 

26,619

 

 

 

79,350

 

 

 

45,476

 

Amortization of acquired intangibles

 

 

7,293

 

 

 

6,193

 

 

 

14,398

 

 

 

10,614

 

Non-GAAP Net Income (Loss)

 

$

(1,855

)

 

$

1,778

 

 

$

5,343

 

 

$

(5,012

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share

 

$

(0.63

)

 

$

(0.36

)

 

$

(1.01

)

 

$

(0.71

)

Stock-based compensation expense per share

 

 

0.53

 

 

 

0.31

 

 

 

0.90

 

 

 

0.53

 

Amortization of acquired intangibles per share

 

 

0.08

 

 

 

0.07

 

 

 

0.16

 

 

 

0.12

 

Non-GAAP Basic Net Income (Loss) Per Share

 

$

(0.02

)

 

$

0.02

 

 

$

0.06

 

 

$

(0.06

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per diluted share

 

$

(0.63

)

 

$

(0.35

)

 

$

(0.99

)

 

$

(0.71

)

Stock-based compensation expense per share

 

 

0.53

 

 

$

0.30

 

 

 

0.89

 

 

 

0.53

 

Amortization of acquired intangibles per share

 

 

0.08

 

 

$

0.07

 

 

 

0.16

 

 

 

0.12

 

Non-GAAP Diluted Net Income (Loss) Per Share (2)

 

$

(0.02

)

 

$

0.02

 

 

$

0.06

 

 

$

(0.06

)

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

 

 

87,989

 

 

 

89,518

 

 

 

89,080

 

 

 

85,765

 

 

(2) For the three months ended June 30, 2022, all common stock equivalents have been excluded from the diluted share count as their effect is antidilutive. Non-GAAP diluted net income per share for the three months ended June 30, 2021, was calculated using the diluted share count which includes approximately 3.4 million dilutive shares related to employee stock options and stock-based awards. Non-GAAP diluted net income per share for the six months ended June 30, 2022, was calculated using the diluted share count which includes approximately 1.4 million dilutive shares primarily related to employee stock options. For the six months ended June 30, 2021, all common stock equivalents have been excluded from the diluted share count as their effect is antidilutive.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Free Cash Flow:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

6,204

 

 

$

25,550

 

 

$

(16,862

)

 

$

(2,697

)

Less: Purchases of property and equipment

 

 

(962

)

 

 

(1,704

)

 

 

(3,110

)

 

 

(3,070

)

Less: Capitalized software development costs

 

 

(5,274

)

 

 

(3,642

)

 

 

(11,179

)

 

 

(5,953

)

Free Cash Flow

 

$

(32

)

 

$

20,204

 

 

$

(31,151

)

 

$

(11,720

)

 

(1) Prior year amounts have been adjusted to reflect the correction of an immaterial error related to stock-based compensation expense, which are further described in the Company’s 2021 Form 10-K/A.

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

 

Three Months Ended

 

 

Jun 30,

2022

 

 

Mar 31,

2022

 

 

Dec 31,

2021 (1)

 

 

Sep 30,

2021 (1)

 

 

Jun 30,

2021 (1)

 

 

Mar 31,

2021

 

 

Dec 31,

2020 (1)

 

 

Sep 30,

2020

 

Total revenue

$

208,593

 

 

$

204,530

 

 

$

195,142

 

 

$

181,167

 

 

$

169,067

 

 

$

153,601

 

 

$

144,760

 

 

$

127,879

 

Add:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue (end of period)

 

307,693

 

 

 

303,610

 

 

 

282,955

 

 

 

257,883

 

 

 

239,395

 

 

 

225,531

 

 

 

209,690

 

 

 

180,640

 

Contract liabilities (end of period)

 

643

 

 

 

897

 

 

 

6,918

 

 

 

8,597

 

 

 

11,406

 

 

 

12,466

 

 

 

10,134

 

 

 

7,673

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue (beginning of period)

 

(303,610

)

 

 

(282,955

)

 

 

(257,883

)

 

 

(239,395

)

 

 

(225,531

)

 

 

(209,690

)

 

 

(180,640

)

 

 

(167,719

)

Contract liabilities (beginning of period)

 

(897

)

 

 

(6,918

)

 

 

(8,597

)

 

 

(11,406

)

 

 

(12,466

)

 

 

(10,134

)

 

 

(7,673

)

 

 

(6,195

)

Deferred revenue and contract liabilities assumed in business combinations

 

 

 

 

 

 

 

(747

)

 

 

(430

)

 

 

(886

)

 

 

 

 

 

(9,194

)

 

 

 

Calculated billings

$

212,422

 

 

$

219,164

 

 

$

217,788

 

 

$

196,416

 

 

$

180,985

 

 

$

171,774

 

 

$

167,077

 

 

$

142,278

 

 

(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

 

Jun 30, 2022

 

 

Mar 31, 2022

 

 

Dec 31, 2021

 

 

Sep 30, 2021

 

 

Jun 30, 2021

 

 

Mar 31, 2021

 

 

Dec 31, 2020

 

 

Sep 30, 2020

 

Number of core customers (as of end of period)

 

20,110

 

 

 

19,160

 

 

 

18,270

 

 

 

17,400

 

 

 

16,570

 

 

 

15,730

 

 

 

15,020

 

 

 

14,300

 

Net revenue retention rate

 

113

%

 

 

115

%

 

 

116

%

 

 

116

%

 

 

116

%

 

 

113

%

 

 

115

%

 

 

116

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investor Contact Jennifer Gianola Avalara jennifer.gianola@avalara.com 650-499-9837 Media Contact Tommy Morgan Avalara media@avalara.com 540-448-7551

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