Business Wire | May 6, 2021 04:10PM EDT

Avalara Announces First Quarter 2021 Financial Results

May 06, 2021

SEATTLE--(BUSINESS WIRE)--May 06, 2021--Avalara, Inc. (NYSE: AVLR), a leading provider of tax compliance automation for businesses of all sizes, today announced financial results for its first quarter ended March 31, 2021.

"We are off to a great start in 2021, continuing the momentum we experienced in 2020. We experienced notable strength throughout our business, resulting in total revenue growth of 38% year-over-year in the first quarter and 47% year-over-year calculated billings growth," said Scott McFarlane, Avalara co-founder and chief executive officer. "The global market for automated tax compliance services is huge and we believe we are still in the early stages of penetrating it as we build out the category-defining global cloud compliance platform. Importantly, as the global economy reopens, we continue to benefit from several tailwinds supporting adoption of these services, such as the generational shift to omnichannel commerce and cloud-based solutions along with growing emphasis on efficiency and the ever-greater regulatory scrutiny and penalties for non-compliance."

First Quarter 2021 Financial Results

* Revenue: Total revenue was $153.6 million in the first quarter of 2021, up 38% from $111.4 million in the first quarter of 2020. Subscription and returns revenue was $139.3 million, up 32% from $105.5 million in the same period last year. Professional services revenue was $14.3 million, up 142% from $5.9 million in the same period last year.

* Gross Profit: GAAP gross profit was $108.9 million in the first quarter of 2021, representing a 71% gross margin, compared to a GAAP gross profit of $77.2 million and a 69% gross margin in the first quarter of 2020. Non-GAAP gross profit was $113.2 million, representing a 74% non-GAAP gross margin, compared to a non-GAAP gross profit of $79.6 million and a 71% non-GAAP gross margin in the first quarter of 2020.

* Operating Loss: GAAP operating loss was $25.4 million in the first quarter of 2021, compared to a GAAP operating loss of $19.7 million in the first quarter of 2020. Non-GAAP operating loss was $2.2 million in the first quarter of 2021, compared to a non-GAAP operating loss of $8.1 million in the first quarter of 2020.

* Net Loss: GAAP net loss was $30.0 million in the first quarter of 2021, compared to a GAAP net loss of $15.3 million in the first quarter of 2020. Non-GAAP net loss was $6.8 million in the first quarter of 2021, compared to a non-GAAP net loss of $3.7 million in the first quarter of 2020.

* Net Loss per Share: GAAP net loss per share was $0.35 based on 85.4 million weighted-average shares outstanding in the first quarter of 2021, compared to a GAAP net loss per share of $0.20 based on 77.9 million weighted-average shares outstanding in the first quarter of 2020. Non-GAAP net loss per share was $0.08 in the first quarter of 2021, compared to a non-GAAP net loss per share of $0.05 in the first quarter of 2020.

* Deferred Revenue: Total deferred revenue was $225.5 million at March 31, 2021, up from $209.7 million at December 31, 2020. The current portion of deferred revenue was $224.0 million at March 31, 2021, up from $208.0 million at December 31, 2020.

* Cash: Net cash used in operating activities was $28.2 million in the first quarter of 2021, compared to $24.5 million used in operating activities in the first quarter of 2020. Free cash flow was negative $31.9 million in the first quarter of 2021, compared to negative $26.1 million in the first quarter of 2020. Cash and cash equivalents totaled $638.8 million at March 31, 2021, compared to $673.6 million at December 31, 2020.

* Calculated Billings: Calculated billings were $171.8 million in the first quarter of 2021, compared to calculated billings of $116.7 million in the first quarter of 2020.

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

First Quarter 2021 and Recent Operating Highlights

* Key Metrics: We ended the first quarter of 2021 with approximately 15,580 core customers, up from approximately 14,890 core customers at the end of the previous quarter and approximately 12,940 in the first quarter of 2020, representing a 20% increase year-over-year. Our net revenue retention rate was 107% in the first quarter of 2021 and has averaged 106% over the last four quarters.

* In April 2021, we acquired the operational assets of DAVO Technologies LLC, a company that helps emerging small businesses automate the daily and ongoing requirements for sales tax for cash consideration of $26 million, plus an earnout provision following the achievement of certain performance metrics. DAVO's technology automatically connects to point of sale (POS) systems to extract the amounts of tax owed, set sales tax funds aside daily, hold the funds, and then file and pay their sales tax for them when they are due to state and local tax authorities.

* In April 2021, we closed the acquisition of INPOSIA Solutions GmbH. INPOSIA is a German software company that delivers e-invoicing, digital tax reporting, and system and data integration to support digital transformation efforts and address real-time compliance requirements for businesses. The agreement to acquire INPOSIA Solutions GmbH was announced on December 29, 2020.

First Quarter 2021 and Recent Product Highlights

* In April 2021, we announced the availability of Avalara Shipping Verification for Beverage Alcohol (Avalara Shipping Verification). Avalara Shipping Verification is a new enhancement to Avalara for Beverage Alcohol, which provides a complete solution for direct-to-consumer (DTC) alcohol businesses across the compliance life cycle, from licensing and product registrations to tax calculations and returns.

* In February 2021, we announced the availability of Avalara Vendor Exemption Management, a new product that helps businesses eliminate the hassle of creating, sending, and tracking sales tax exemption documents at the time of purchase. This product helps businesses streamline compliance requirements by automating the vendor exemption process, centralizing exemption certificate storage, and reducing supply chain interruptions.

Financial Outlook

For the second quarter of 2021, the Company currently expects:

* Total revenue between $153.0 and $155.0 million. * Non-GAAP operating loss between $8.0 and $10.0 million.

For the full year 2021, the Company currently expects:

* Total revenue between $650.0 and $654.0 million. * Non-GAAP operating loss between $15.0 and $19.0 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, May 6, 2021 to discuss its financial results and business highlights. The conference call can be accessed by dialing (866) 393-4306 from the United States and Canada or (734) 385-2616 internationally with conference ID 5876383. 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, May 13, 2021 and a webcast replay will also be archived at investor.avalara.com. The telephone replay will be available by dialing (855) 859-2056 from the United States and Canada or (404) 537-3406 internationally with conference ID 5876383.

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 second 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 loss, non-GAAP net loss, non-GAAP net 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 loss as GAAP operating loss before stock-based compensation expense, amortization of acquired intangibles, and goodwill impairments. We calculate non-GAAP net loss as GAAP net loss before stock-based compensation expense, amortization of acquired intangibles, and goodwill impairments.

* We calculate non-GAAP net loss per share as non-GAAP net loss divided by weighted average shares outstanding.

* We define free cash flow as net cash 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 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 twelve months.

Currently, our core customer count includes only customers with unique account identifiers in our primary U.S. billing systems and does not include customers 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.

Net Revenue Retention Rate

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

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

Reported Consolidated Results

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

For the Three Months Ended March 31,

2021 2020

Revenue:

Subscription and returns $ 139,318 $ 105,546

Professional services 14,283 5,897

Total revenue 153,601 111,443

Cost of revenue:

Subscription and returns 38,163 29,517

Professional services 6,508 4,737

Total cost of revenue ^(1) 44,671 34,254

Gross profit 108,930 77,189

Operating expenses:

Research and development ^(1) 39,156 25,847

Sales and marketing ^(1) 64,304 49,634

General and administrative ^(1) 30,851 21,388

Total operating expenses 134,311 96,869

Operating loss (25,381 ) (19,680 )

Other (income) expense:

Interest income (24 ) (1,442 )

Other (income) expense, net 2,274 (3,372 )

Total other (income) expense, net 2,250 (4,814 )

Loss before income taxes (27,631 ) (14,866 )

Provision for income taxes 2,357 417

Net loss $ (29,988 ) $ (15,283 )



Net loss per share attributable to common $ (0.35 ) $ (0.20 )shareholders, basic and diluted

Weighted average shares of common stock 85,436 77,904 outstanding, basic and diluted



For the Three Months Ended March 31,

^(1) The stock-based compensation expense 2021 2020 included above was as follows:

Cost of revenue $ 2,207 $ 1,196

Research and development 5,286 2,394

Sales and marketing 4,266 2,815

General and administrative 7,018 3,326

Total stock-based compensation $ 18,777 $ 9,731



The amortization of acquired intangibles included above was as follows:

Cost of revenue $ 2,020 $ 1,230

Research and development - -

Sales and marketing 1,540 607

General and administrative 861 4

Total amortization of acquired intangibles $ 4,421 $ 1,841

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

March 31, December 31,

2021 2020

Assets

Current assets:

Cash and cash equivalents $ 638,794 $ 673,593

Restricted cash 31,083 19,953

Trade accounts receivable-net of allowance for 90,126 75,857 doubtful accounts

Deferred commissions 12,957 12,245

Prepaid expenses and other current assets 29,580 20,098

Total current assets before customer fund assets 802,540 801,746

Funds held from customers 33,633 30,598

Receivable from customers-net of allowance for 888 563 doubtful accounts

Total current assets 837,061 832,907

Noncurrent assets:

Restricted cash 37,803 37,700

Deferred commissions 40,273 38,625

Operating lease right-of-use assets-net 50,145 52,320

Property and equipment-net 36,347 34,713

Intangible assets-net 74,679 86,513

Goodwill 520,120 513,234

Other noncurrent assets 5,434 6,321

Total assets $ 1,601,862 $ 1,602,333



Liabilities and shareholders' equity

Current liabilities:

Trade payables 18,361 20,280

Accrued expenses 69,151 84,532

Deferred revenue 223,961 208,026

Accrued purchase price related to acquisitions 18,836 22,473

Accrued earnout liabilities 12,503 749

Operating lease liabilities 11,505 11,339

Total current liabilities before customer fund 354,317 347,399 obligations

Customer fund obligations 35,147 31,549

Total current liabilities 389,464 378,948

Noncurrent liabilities:

Deferred revenue 1,570 1,664

Accrued purchase price related to acquisitions 48,766 49,057

Accrued earnout liabilities 25,400 34,468

Operating lease liabilities 53,503 56,625

Deferred tax liability 1,171 1,031

Other noncurrent liabilities 542 380

Total liabilities 520,416 522,173

Commitments and contingencies

Shareholders' equity:

Preferred stock - -

Common stock 9 9

Additional paid-in capital 1,672,531 1,640,867

Accumulated other comprehensive loss (1,729 ) (1,339 )

Accumulated deficit (589,365 ) (559,377 )

Total shareholders' equity 1,081,446 1,080,160

Total liabilities and shareholders' equity $ 1,601,862 $ 1,602,333

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

For the Three Months Ended March 31,

2021 2020

Cash flows from operating activities:

Net loss $ (29,988 ) $ (15,283 )

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

Stock-based compensation 18,777 9,731

Depreciation and amortization 7,071 4,091

Impairment of capitalized cloud computing costs 345 -

Deferred tax expense 2,028 62

Non-cash operating lease costs 2,175 1,956

Non-cash change in earnout liability 1,350 (2,509 )

Non-cash bad debt expense 582 631

Other (389 ) (10 )

Changes in operating assets and liabilities:

Trade accounts receivable (14,695 ) (2,750 )

Prepaid expenses and other current assets (9,186 ) (4,745 )

Deferred commissions (2,360 ) (2,250 )

Other noncurrent assets 541 (384 )

Trade payables (1,895 ) 3,659

Accrued expenses (15,634 ) (18,568 )

Deferred revenue 15,841 4,128

Operating lease liabilities (2,810 ) (2,230 )

Net cash used in operating activities (28,247 ) (24,471 )

Cash flows from investing activities:

Purchase of property and equipment (1,366 ) (883 )

Capitalized software development costs (2,311 ) (717 )

Cash paid for acquisitions of businesses, net of (2,167 ) - cash and restricted cash equivalents acquired

Net cash used in investing activities (5,844 ) (1,600 )

Cash flows from financing activities:

Proceeds from exercise of stock options 5,529 7,928

Proceeds from purchases of stock under employee 7,088 5,716 stock purchase plan

Acquisition-related post-closing payments (1,971 ) -

Payments related to business combination earnouts - (3,760 )

Payments related to asset acquisition earnouts (690 ) (65 )

Net increase in customer fund obligations 3,598 3,915

Net cash provided by financing activities 13,554 13,734

Foreign currency effect 6 (365 )

Net change in cash, cash equivalents, restricted (20,531 ) (12,702 )cash, and restricted cash equivalents

Cash, cash equivalents, restricted cash, and 761,844 491,333 restricted cash equivalents-Beginning of period

Cash, cash equivalents, restricted cash, and $ 741,313 $ 478,631 restricted cash equivalents-End of period

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

Cash and cash equivalents $ 638,794 $ 450,535

Restricted cash 68,886 -

Restricted cash equivalents-funds held from 33,633 28,096 customers

Total cash, cash equivalents, restricted cash, and $ 741,313 $ 478,631 restricted cash equivalents, end of period

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 March 31,

2021 2020

Non-GAAP cost of revenue $ 40,444 $ 31,828

Non-GAAP gross profit $ 113,157 $ 79,615

Non-GAAP gross margin 74 % 71 %

Non-GAAP research and development $ 33,870 $ 23,453 expense

Non-GAAP sales and marketing expense $ 58,498 $ 46,212

Non-GAAP general and administrative $ 22,972 $ 18,058 expense

Non-GAAP operating loss $ (2,183 ) $ (8,108 )

Non-GAAP net loss $ (6,790 ) $ (3,711 )

Non-GAAP net loss per share $ (0.08 ) $ (0.05 )

Free cash flow $ (31,924 ) $ (26,071 )

Reconciliation of Non-GAAP Financial Measures:

For the Three Months Ended March 31,

2021 2020

Reconciliation of Non-GAAP Cost of Revenue:

Cost of revenue $ 44,671 $ 34,254

Stock-based compensation expense (2,207 ) (1,196 )

Amortization of acquired intangibles (2,020 ) (1,230 )

Non-GAAP Cost of Revenue $ 40,444 $ 31,828



Reconciliation of Non-GAAP Gross Profit:

Gross Profit $ 108,930 $ 77,189

Stock-based compensation expense 2,207 1,196

Amortization of acquired intangibles 2,020 1,230

Non-GAAP Gross Profit $ 113,157 $ 79,615



Reconciliation of Non-GAAP Gross Margin:

Gross margin 71 % 69 %

Stock-based compensation expense as a 1 % 1 %percentage of revenue

Amortization of acquired intangibles as a 1 % 1 %percentage of revenue

Non-GAAP Gross Margin 74 % 71 %



Reconciliation of Non-GAAP Research and Development Expense:

Research and development $ 39,156 $ 25,847

Stock-based compensation expense (5,286 ) (2,394 )

Amortization of acquired intangibles - -

Non-GAAP Research and Development Expense $ 33,870 $ 23,453



Reconciliation of Non-GAAP Sales and Marketing Expense:

Sales and marketing $ 64,304 $ 49,634

Stock-based compensation expense (4,266 ) (2,815 )

Amortization of acquired intangibles (1,540 ) (607 )

Non-GAAP Sales and Marketing Expense $ 58,498 $ 46,212



Reconciliation of Non-GAAP General and Administrative Expense:

General and administrative $ 30,851 $ 21,388

Stock-based compensation expense (7,018 ) (3,326 )

Amortization of acquired intangibles (861 ) (4 )

Non-GAAP General and Administrative Expense $ 22,972 $ 18,058

For the Three Months Ended March 31,

2021

2020

Reconciliation of Non-GAAP Operating Loss:

Operating loss

$

(25,381

)

$

(19,680

)

Stock-based compensation expense

18,777

9,731

Amortization of acquired intangibles

4,421

1,841

Non-GAAP Operating Loss

$

(2,183

)

$

(8,108

)

Reconciliation of Non-GAAP Net Loss:

Net loss

$

(29,988

)

$

(15,283

)

Stock-based compensation expense

18,777

9,731

Amortization of acquired intangibles

4,421

1,841

Non-GAAP Net Loss

$

(6,790

)

$

(3,711

)

Reconciliation of Non-GAAP Net Loss Per Share:

Net loss per share

$

(0.35

)

$

(0.20

)

Stock-based compensation expense per share

0.22

0.12

Amortization of acquired intangibles per share

0.05

0.02

Non-GAAP Net Loss Per Share

$

(0.08

)

$

(0.05

)

Free Cash Flow:

Net cash used in operating activities(1)

$

(28,247

)

$

(24,471

)

Less: Purchases of property and equipment(2)

(1,366

)

(883

)

Less: Capitalized software development costs(2)

(2,311

)

(717

)

Free Cash Flow

$

(31,924

)

$

(26,071

)

(1) We have presented corrected net cash used in operating activities for the three months ended March 31, 2020 to reflect the 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 used in operating activities resulted in a change of $0.2 million for the three months ended March 31, 2020.

(2) Capitalized software development costs were previously included in purchases of property and equipment and does not impact previously reported free cash flow.

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

For the Three Months Ended March 31,

2021 2020

Reconciliation of Non-GAAP Operating Loss:

Operating loss $ (25,381 ) $ (19,680 )

Stock-based compensation expense 18,777 9,731

Amortization of acquired intangibles 4,421 1,841

Non-GAAP Operating Loss $ (2,183 ) $ (8,108 )



Reconciliation of Non-GAAP Net Loss:

Net loss $ (29,988 ) $ (15,283 )

Stock-based compensation expense 18,777 9,731

Amortization of acquired intangibles 4,421 1,841

Non-GAAP Net Loss $ (6,790 ) $ (3,711 )



Reconciliation of Non-GAAP Net Loss Per Share:

Net loss per share $ (0.35 ) $ (0.20 )

Stock-based compensation expense per share 0.22 0.12

Amortization of acquired intangibles per 0.05 0.02 share

Non-GAAP Net Loss Per Share $ (0.08 ) $ (0.05 )



Free Cash Flow:

Net cash used in operating activities^(1) $ (28,247 ) $ (24,471 )

Less: Purchases of property and equipment^ (1,366 ) (883 )(2)

Less: Capitalized software development (2,311 ) (717 )costs^(2)

Free Cash Flow $ (31,924 ) $ (26,071 )

(1) We have presented corrected net cash used in operating activities forthe three months ended March 31, 2020 to reflect the correction identifiedin the fourth quarter of 2020 to the classification of funds held from customers in the Consolidated Statements of Cash Flows. The correction tonet cash used in operating activities resulted in a change of $0.2 millionfor the three months ended March 31, 2020.

(2) Capitalized software development costs were previously included inpurchases of property and equipment and does not impact previously reportedfree cash flow.

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

Three Months Ended

Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, 2021 2020 (1) 2020 2020 2020 2019 2019 2019

Total revenue $ 153,601 $ 144,760 $ 127,879 $ 116,487 $ 111,443 $ 107,627 $ 98,525 $ 91,299

Add:

Deferred revenue 225,531 209,690 180,640 167,719 165,369 161,241 148,466 138,811 (end of period)

Contractliabilities (end 12,466 10,134 7,673 6,195 6,330 5,197 4,843 4,508 of period)

Less:

Deferred revenue(beginning of (209,690 ) (180,640 ) (167,719 ) (165,369 ) (161,241 ) (148,466 ) (138,811 ) (132,714 )period)

Contractliabilities (10,134 ) (7,673 ) (6,195 ) (6,330 ) (5,197 ) (4,843 ) (4,508 ) (4,208 )(beginning ofperiod)

Deferred revenueassumed in - (9,194 ) - - - - - - businesscombinations

Calculated $ 171,774 $ 167,077 $ 142,278 $ 118,702 $ 116,704 $ 120,756 $ 108,515 $ 97,696 billings



^(1) The fourth quarter of 2020 includes reconciling adjustments to exclude theacquisition-date fair value of deferred revenue assumed in businesscombinations.

AVALARA, INC. UNAUDITED PRESENTATION OF KEY BUSINESS METRICS

Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, 2021 2020 2020 2020 2020 2019 2019 2019

Number ofcorecustomers 15,580 14,890 14,180 13,560 12,940 12,150 11,400 10,560 (as ofend ofperiod)

Netrevenue 107% 104% 108% 107% 109% 111% 113% 111% retentionrate

View source version on businesswire.com: https://www.businesswire.com/news/home/20210506006163/en/

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

CONTACT: Media Contact Tommy Morgan Avalara media@avalara.com 540-448-7551