AVALARA, INC. [AVLR] Filings

10-Q 1 avlr-10q_20210930.htm 10-Q avlr-10q_20210930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38525

AVALARA, INC.

(Exact Name of Registrant as Specified in its Charter)

Washington			91-1995935
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

255 South King Street, Suite 1800 Seattle, WA			98104
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (206) 826-4900

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $0.0001 Per Share	AVLR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Small reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 29, 2021, the registrant had 86,915,885 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets (unaudited)	3
	Consolidated Statements of Operations (unaudited)	4
	Consolidated Statements of Comprehensive Loss (unaudited)	6
	Consolidated Statements of Cash Flows (unaudited)	7
	Notes to Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	60
PART II	OTHER INFORMATION	61
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 6.	Exhibits	62
Signatures		64

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding future events or our future results of operations, financial condition, business, strategies, financial needs, and the plans and objectives of management, are forward-looking statements. 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. Forward-looking statements are based on information available to our management as of the date of this report and our management's good faith belief as of such date with respect to future events and are subject to a number of risks, uncertainties, and assumptions that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

•

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;

•

the potential effects on our business of events beyond our control such as the current novel coronavirus (“COVID-19”) pandemic; and

•

other factors discussed in other sections of this Quarterly Report on Form 10-Q, including the sections of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and under Part II, Item 1A. “Risk Factors” and in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”) under Part I, Item 1A, “Risk Factors.”

You should not place undue reliance on our forward-looking statements and you should not rely on forward-looking statements as predictions of future events. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q speak only as of the date of this report. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

AVALARA, INC.

Consolidated Balance Sheets

(In thousands, except for per share data)

	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 of $5,394 and $3,983, respectively		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 of $912 and $593, respectively		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, $0.0001 par value – no shares issued and outstanding at September 30, 2021 and December 31, 2020, and 20,000 shares authorized as of September 30, 2021 and December 31, 2020		—			—
Common stock, $0.0001 par value – 86,843 and 85,058 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively, and 600,000 shares authorized as of September 30, 2021 and December 31, 2020		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

The accompanying notes are an integral part of these consolidated financial statements.

AVALARA, INC.

Consolidated Statements of Operations (unaudited)

(In thousands, except per share data)

	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		53,040			34,932
Gross profit		128,127			92,947
Operating expenses:
Research and development		42,574			32,562
Sales and marketing		75,867			49,057
General and administrative		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

The accompanying notes are an integral part of these consolidated financial statements.

AVALARA, INC.

Consolidated Statements of Operations (unaudited)

(In thousands, except per share data)

	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		146,386			102,516
Gross profit		357,449			253,293
Operating expenses:
Research and development		121,841			85,253
Sales and marketing		212,068			144,731
General and administrative		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

The accompanying notes are an integral part of these consolidated financial statements.

AVALARA, INC.

Consolidated Statements of Comprehensive Loss (unaudited)

(In thousands)

	For the Three Months Ended September 30,
	2021			2020
Net loss	$	(32,546	)	$	(12,729	)
Other comprehensive loss — Foreign currency translation		(1,172	)		(225	)
Total comprehensive loss	$	(33,718	)	$	(12,954	)

	For the Nine Months Ended September 30,
	2021			2020
Net loss	$	(90,184	)	$	(38,152	)
Other comprehensive (loss) income — Foreign currency translation		(1,240	)		835
Total comprehensive loss	$	(91,424	)	$	(37,317	)

The accompanying notes are an integral part of these consolidated financial statements.

AVALARA, INC.

Consolidated Statements of Cash Flows (unaudited)

(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
Asset impairments		—			794
Amortization of debt issuance costs		482			—
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 financing activities		933,303

AVALARA, INC. [AVLR] Filings
10-Q	[2021-11-05]
10-Q	[2021-08-06]
10-Q	[2021-05-07]
10-K	[2021-02-25]
10-Q	[2020-11-06]
10-Q	[2020-08-04]
10-Q	[2020-05-08]
10-K	[2020-02-28]
10-Q	[2019-11-06]
10-Q	[2019-08-08]
S-1	[2019-06-04]
10-Q	[2019-05-08]
10-K	[2019-02-28]
10-Q	[2018-11-08]
10-Q	[2018-08-10]
S-1	[2018-05-11]