Market Overview

Avalara Announces Second Quarter 2018 Financial Results

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Total Revenue of $63.7 Million

Approximately 8,080 Core Customers as of June 30, 2018

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, 2018.

"In our first quarter as a public company, we delivered an excellent
performance in pursuit of a long-term growth opportunity. In the
quarter, we crossed the quarter billion dollar annual revenue run rate
and continued to extend our market leadership position," said Scott
McFarlane, Avalara co-founder and chief executive officer. "The momentum
in our business has continued to strengthen, and we believe we are well
positioned to be a long-term leader in a multi-billion dollar market
opportunity. Companies of all sizes are increasingly looking for modern,
cloud-based transaction tax compliance automation solutions as they
digitize their businesses and embrace powerful industry trends such as
e-commerce and globalization. We believe Avalara is a clear choice based
on our industry-leading platform and content, pre-built integrations,
and partner channel."

Second Quarter 2018 Financial Results

  • Revenue: Total revenue was $63.7 million, up 25% from $50.9
    million in the second quarter of 2017. Subscription and returns
    revenue was $59.7 million, up 24% from $48.3 million in the same
    period last year. Professional services and other revenue was $4.0
    million, up 56% from $2.6 million in the same period last year.
  • Gross Profit: GAAP gross profit was $45.1 million, representing
    a 71% gross margin, compared to a GAAP gross profit of $36.5 million
    and a 72% gross margin in the second quarter of 2017. Non-GAAP gross
    profit was $46.3 million, representing a 73% non-GAAP gross margin,
    compared to a non-GAAP gross profit of $37.7 million and a 74%
    non-GAAP gross margin in the second quarter of 2017.
  • Operating Loss: GAAP operating loss was $17.3 million, compared
    to a GAAP operating loss of $14.4 million in the second quarter of
    2017. Non-GAAP operating loss was $12.3 million, compared to a
    non-GAAP operating loss of $10.3 million in the second quarter of 2017.
  • Net Loss: GAAP net loss was $17.8 million, compared to a GAAP
    net loss of $15.4 million in the second quarter of 2017. Non-GAAP net
    loss was $12.8 million, compared to a non-GAAP net loss of $11.3
    million in the second quarter of 2017.
  • Net Loss per Share: GAAP net loss per share was $1.24 based on
    14.4 million weighted-average shares outstanding, compared to a GAAP
    net loss per share of $2.81 based on 5.5 million weighted-average
    shares outstanding in the second quarter of 2017. Non-GAAP net loss
    per share was $0.19 based on 66.0 million non-GAAP shares outstanding,
    compared to a non-GAAP net loss per share of $0.20 based on 56.4
    million non-GAAP shares outstanding in the second quarter of 2017.
  • Deferred Revenue: Total deferred revenue was $109.3 million at
    June 30, 2018, up from $103.9 million at March 31, 2018. The current
    portion of deferred revenue was $100.7 million at June 30, 2018, up
    from $95.5 million at March 31, 2018.
  • Cash: Net cash provided by operating activities was $2.1
    million, compared to $0.4 million provided in the second quarter of
    2017. Free cash flow was negative $2.4 million, compared to negative
    $4.7 million in the second quarter of 2017. Our cash and cash
    equivalents totaled $173.1 million at June 30, 2018.

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

Operating Highlights

  • Key Metrics: We ended the second quarter of 2018 with
    approximately 8,080 core customers, up from approximately 7,760 core
    customers at the end of the previous quarter. Net revenue retention
    rate was 108% in the second quarter of 2018 and has averaged 107% over
    the last four quarters.
  • New Partnerships: During the quarter, we signed 34 new
    partnerships.
  • Named EVP Engineering and CTO: Tech industry veteran Danny
    Fields joined as EVP Engineering and Chief Technology Officer. His
    responsibilities include shaping and leading the delivery and
    execution of our technology vision, and overseeing the global
    engineering teams. Fields brings 28 years of engineering and executive
    management experience.
  • Acquisition: We acquired intellectual property assets from
    Tradestream Technologies, a Canadian company developing global trade
    compliance solutions for merchants, marketplaces, platforms, and
    freight forwarders, third party logistic providers, and customs
    brokers.
  • Completed Initial Public Offering: We completed our Initial
    Public Offering (IPO) on the New York Stock Exchange on June 19, 2018.
    After the underwriters' exercise of the option to purchase additional
    shares, we sold a total of 8,625,000 shares of common stock to the
    public at a price of $24.00 per share for a total of $192.5 million in
    net proceeds. In connection with the IPO, all outstanding convertible
    preferred stock converted into 50,888,014 shares of common stock.

Financial Outlook

For the third quarter of 2018, the Company currently expects:

  • Total revenue between $66.0 and $66.5 million.
  • Non-GAAP operating loss between $10.0 and $11.0 million.

For the full year 2018, the Company currently expects:

  • Total revenue between $260.0 and $261.0 million.
  • Non-GAAP operating loss between $41.5 and $43.5 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, August 9, 2018, 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 7087827. 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 for one week
following the call 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 7087827.

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,
excise, communications, and other indirect tax types. Headquartered in
Seattle, Avalara has offices across the U.S. and around the world in the
U.K., Belgium, Brazil, and India. More information at 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 third quarter and full year 2018. 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 prospectus dated June 14, 2018, which was
filed with the Securities and Exchange Commission pursuant to Rule
424(b) under the Securities Act of 1933, as amended, on June 15, 2018,
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,
non-GAAP shares outstanding, and free cash flow, 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 the
    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 the
    stock-based compensation expense and amortization of acquired
    intangibles that is included in cost of revenue. We calculate non-GAAP
    gross margin as GAAP gross margin before the impact of stock-based
    compensation expense included in cost of revenue as a percentage of
    revenue and 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 shares outstanding as GAAP weighted-average
    shares outstanding during the period adjusted as if (1) the conversion
    of preferred stock into common stock had occurred at the beginning of
    each respective period presented and (2) the issuance of 8,625,000
    shares of common stock in our IPO had occurred as of January 1, 2018.
  • We calculate non-GAAP net loss per share as non-GAAP net loss divided
    by non-GAAP shares outstanding.
  • We define free cash flow as net cash used in operating activities less
    cash used for the purchases of property and equipment.

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 comparing
our financial results to those of other companies. We believe that
non-GAAP per share measures provide investors and other users of our
financial information consistency with our past financial performance.

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

Core Customers

We also use key business metrics, such as core customers and net revenue
retention rate. 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 billing system (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 last 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 who subscribe to our solutions through our
international subsidiaries or certain legacy billing systems primarily
related to past acquisitions. 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 who do
not meet the revenue threshold to be considered a core customer. These
customers provide us with market share and awareness, and we anticipate
that some may grow into core customers. We believe there is strategic
value to addressing the small business and self-serve segment of the
marketplace.

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 billing systems primarily
related to past acquisitions.

Reported Consolidated Results

 
AVALARA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 
For the Three Months Ended June 30,
2018   2017
Revenue:
Subscription and returns $ 59,675 $ 48,309
Professional services and other   4,034   2,582
Total revenue   63,709   50,891
Cost of revenue:
Subscription and returns 15,837 12,109
Professional services and other   2,795   2,258
Total cost of revenue (1)   18,632   14,367
Gross profit   45,077   36,524
Operating expenses:
Research and development (1) 12,428 10,291
Sales and marketing (1) 40,604 33,191
General and administrative (1)   9,341   7,484
Total operating expenses   62,373   50,966
Operating loss   (17,296 )   (14,442 )
Other (income) expense:
Interest income (269 ) (15 )
Interest expense 1,067 654
Other (income) expense, net   (442 )   509
Total other (income) expense, net   356   1,148
Loss before income taxes: (17,652 ) (15,590 )
Provision for (benefit from) income taxes   114   (141 )
Net loss $ (17,766 ) $ (15,449 )
 
Net loss per share attributable to common shareholders, basic and
diluted
$ (1.24 ) $ (2.81 )
Weighted average shares of common stock outstanding, basic and
diluted
14,383 5,494
 
For the Three Months Ended June 30,
(1) The stock-based compensation expense included above was as
follows:
2018 2017
Cost of revenue $ 377 $ 237
Research and development 784 548
Sales and marketing 1,040 933
General and administrative   1,363   1,074

Total stock-based compensation

$ 3,564 $ 2,792
 
The amortization of acquired intangibles included above was as
follows:
 
Cost of revenue $ 887 $ 912
Research and development - -
Sales and marketing 507 455
General and administrative   7   29
Total amortization of acquired intangibles $ 1,401 $ 1,396
 
 
AVALARA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 
  For the Six Months Ended June 30,
2018   2017
Revenue:
Subscription and returns $ 117,545 $ 94,157
Professional services and other   7,541   5,699
Total revenue   125,086   99,856
Cost of revenue:
Subscription and returns 30,654 23,353
Professional services and other   5,487   4,577
Total cost of revenue (1)   36,141   27,930
Gross profit   88,945   71,926
Operating expenses:
Research and development (1) 25,047 19,973
Sales and marketing (1) 77,911 63,491
General and administrative (1)   18,552   18,097
Total operating expenses   121,510   101,561
Operating loss   (32,565 )   (29,635 )
Other (income) expense:
Interest income (305 ) (25 )
Interest expense 1,961 1,182
Other (income) expense, net   (472 )   945
Total other (income) expense, net   1,184   2,102
Loss before income taxes: (33,749 ) (31,737 )
Provision for (benefit from) income taxes   (734 )   (290 )
Net loss $ (33,015 ) $ (31,447 )
 
Net loss per share attributable to common shareholders, basic and
diluted
$ (3.21 ) $ (5.78 )
Weighted average shares of common stock outstanding, basic and
diluted
10,299 5,442
 
For the Six Months Ended June 30,
(1) The stock-based compensation expense included above was as
follows:
2018 2017
Cost of revenue $ 673 $ 463
Research and development 1,365 1,039
Sales and marketing 2,085 1,770
General and administrative   2,951   2,542
Total stock-based compensation $ 7,074 $ 5,814
 
The amortization of acquired intangibles included above was as
follows:
 
Cost of revenue $ 1,785 $ 1,827
Research and development - -
Sales and marketing 1,009 935
General and administrative   17   67
Total amortization of acquired intangibles $ 2,811 $ 2,829
 
 
AVALARA, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
  June 30,   December 31,
2018 2017
Assets  
Current assets:
Cash and cash equivalents $ 173,108 $ 14,075
Trade accounts receivable—net of allowance for doubtful accounts 28,681 26,596
Prepaid expenses and other current assets     6,375   7,016
Total current assets before customer fund assets 208,164 47,687
Funds held and receivable from customers—net of allowance for
doubtful accounts
    18,067   13,395
Total current assets     226,231   61,082
Property and equipment—net     32,437   25,394
Other assets:
Goodwill 70,692 72,482
Intangible assets—net 22,559 19,074
Other noncurrent assets     796   780
Total other assets     94,047   92,336
Total assets $   352,715 $ 178,812
 
Liabilities and shareholders' equity (deficit)
Current liabilities:
Accrued expenses and trade payables 36,351 38,164
Deferred revenue 100,664 83,778
Credit facility and notes payable     4,375   859
Total current liabilities before customer funds obligations     141,390   122,801
Customer funds obligations     18,502   14,061

Total current liabilities

    159,892   136,862
Noncurrent liabilities:
Deferred revenue 8,680 8,453
Deferred tax liability 887 1,854
Credit facility 25,218 38,840
Deferred rent 15,848 14,689
Other noncurrent liabilities     36   785
Total liabilities     210,561   201,483
Convertible preferred stock     -   370,921
Shareholders' equity (deficit):
Common stock 7 1
Additional paid-in capital 589,321 18,121
Accumulated other comprehensive income (loss) (2,107 ) 338
Accumulated deficit     (445,067 )   (412,052 )
Total shareholders' equity (deficit)     142,154   (393,592 )
Total liabilities and shareholders' equity (deficit) $   352,715 $ 178,812
 
 
AVALARA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
  For the Three Months Ended June 30,
2018   2017
Cash flows from operating activities:
Net loss $ (17,766 ) $ (15,449 )
Adjustments to reconcile net loss to net cash provided by operating
activities
Depreciation and amortization 3,002 2,608
Stock-based compensation 3,564 2,792
Deferred tax expense 51 (200 )
Amortization of deferred rent (38 ) (371 )
Non-cash change in earnout liability (391 ) 467
Non-cash bad debt (recovery) expense (152 ) (306 )
Other 61 (28 )
Changes in operating assets and liabilities:
Trade accounts receivable 4,406 1,759
Prepaid expenses and other current assets 1,763 486
Other long-term assets (126 ) 193
Trade payables (512 ) 436
Accrued expenses and other current liabilities 2,771 (202 )
Deferred rent (lease incentives) - 4,126
Deferred revenue   5,466   4,092
Net cash provided by operating activities   2,099   403
Cash flows from investing activities:
Net (increase) decrease in customer fund assets 13,942 (2,683 )
Cash paid for acquired intangible assets (4,881 ) -
Purchase of property and equipment   (4,544 )   (5,078 )
Net cash (used in) provided by investing activities   4,517   (7,761 )
Cash flows from financing activities:
Proceeds from initial public offering, net of underwriting discounts 192,510 -
Payments on credit facility (33,000 ) -
Proceeds from credit facility 5,000 3,000
Payments on capital leases - (2 )
Repurchase of shares (987 ) -
Repayment of note payable (234 ) -
Payment of deferred financing costs (622 ) -
Taxes paid related to net share settlement of stock-based awards (201 ) (215 )
Net increase (decrease) in customer fund obligations (13,942 ) 2,683
Proceeds from exercise of stock options and common stock warrants   5,254   361
Net cash provided by financing activities   153,778   5,827
Foreign currency effect on cash and cash equivalents   92   (42 )
Net change in cash and cash equivalents 160,486 (1,573 )
Cash and cash equivalents—Beginning of year   12,622   13,876
Cash and cash equivalents—End of year $ 173,108 $ 12,303
 
 
AVALARA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
  For the Six Months Ended June 30,
2018   2017
Cash flows from operating activities:
Net loss $ (33,015 ) $ (31,447 )
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 5,992 5,266
Stock-based compensation 7,074 5,814
Deferred tax expense (967 ) (403 )
Amortization of deferred rent 263 (445 )
Non-cash change in earnout liability (462 ) 835
Non-cash bad debt (recovery) expense (85 ) 103
Other 241 166
Changes in operating assets and liabilities:
Trade accounts receivable (2,022 ) 1,559
Prepaid expenses and other current assets (144 ) (230 )
Other long-term assets (16 ) 425
Trade payables (2,248 ) (1,062 )
Accrued expenses and other current liabilities (3,000 ) (652 )
Deferred rent (lease incentives) - 4,126
Deferred revenue   17,113   9,066
Net cash used in operating activities   (11,276 )   (6,879 )
Cash flows from investing activities:
Net (increase) decrease in customer fund assets (4,585 ) 710
Cash paid for acquired intangible assets (4,881 ) -
Purchase of property and equipment   (8,169 )   (6,115 )
Net cash used in investing activities   (17,635 )   (5,405 )
Cash flows from financing activities:
Proceeds from initial public offering, net of underwriting discounts 192,510 -
Payments on credit facility (33,000 ) -
Proceeds from credit facility 23,000 5,000
Payments on capital leases - (14 )
Repurchase of shares (1,806 ) -
Repayment of note payable (234 ) -
Payment of deferred financing costs (622 ) -
Taxes paid related to net share settlement of stock-based awards (2,217 ) (254 )
Net increase (decrease) in customer fund obligations 4,585 (710 )
Payment related to business combination earnouts - (83 )
Proceeds from exercise of stock options and common stock warrants   5,580   514
Net cash provided by financing activities   187,796   4,453
Foreign currency effect on cash and cash equivalents   148   (96 )
Net change in cash and cash equivalents 159,033 (7,927 )
Cash and cash equivalents—Beginning of year   14,075   20,230
Cash and cash equivalents—End of year $ 173,108 $ 12,303
 

Non-GAAP Financial Measures

The following schedule reflects our non-GAAP financial measures and
reconciles our non-GAAP financial measures to the related GAAP financial
measures:

 
AVALARA, INC.
UNAUDITED PRESENTATION AND RECONCILIATION TO NON-GAAP FINANCIAL
MEASURES
(in thousands, except per share amounts)
 
Summary of Non-GAAP Financial Measures:
 
  For the Three Months   For the Six Months
Ended June 30, Ended June 30,
2018   2017 2018   2017
Non-GAAP cost of revenue $ 17,368 $ 13,218 $ 33,683 $ 25,640
Non-GAAP gross profit 46,341 37,673 91,403 74,216
Non-GAAP gross margin 73% 74% 73% 74%
Non-GAAP research and development expense $ 11,644 $ 9,743 $ 23,682 $ 18,934
Non-GAAP sales and marketing expense 39,057 31,803 74,817 60,786
Non-GAAP general and administrative expense 7,971 6,381 15,584 15,488
Non-GAAP operating loss (12,331 ) (10,254 ) (22,680 ) (20,992 )
Non-GAAP net loss (12,801 ) (11,261 ) (23,130 ) (22,804 )
Non-GAAP net loss per share (0.19 ) (0.20 ) (0.35 ) (0.40 )
Free cash flow $ (2,445 ) $ (4,675 ) $ (19,445 ) $ (12,994 )
 
 

Reconciliation of Non-GAAP Financial Measures:

   
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2018   2017 2018   2017
Reconciliation of Non-GAAP Cost of Revenue:
Cost of revenue $ 18,632 $ 14,367 $ 36,141 $ 27,930
Stock-based compensation expense (377 ) (237 ) (673 ) (463 )
Amortization of acquired intangibles   (887 )   (912 )   (1,785 )   (1,827 )
Non-GAAP Cost of Revenue $ 17,368 $ 13,218 $ 33,683 $ 25,640
 
Reconciliation of Non-GAAP Gross Profit:
Gross Profit $ 45,077 $ 36,524 $ 88,945 $ 71,926
Stock-based compensation expense 377 237 673 463
Amortization of acquired intangibles   887   912   1,785   1,827
Non-GAAP Gross Profit $ 46,341 $ 37,673 $ 91,403 $ 74,216
 
Reconciliation of Non-GAAP Gross Margin:
Gross margin 71 % 72 % 71 % 72 %
Stock-based compensation expense as a percentage of revenue 1 % 0 % 1 % 0 %
Amortization of acquired intangibles as a percentage of revenue   1 %   2 %   1 %   2 %
Non-GAAP Gross Margin   73 %   74 %   73 %   74 %
 
Reconciliation of Non-GAAP Research and Development Expense:
Research and development $ 12,428 $ 10,291 $ 25,047 $ 19,973
Stock-based compensation expense (784 ) (548 ) (1,365 ) (1,039 )
Amortization of acquired intangibles   -   -   -   -
Non-GAAP Research and Development Expense $ 11,644 $ 9,743 $ 23,682 $ 18,934
 
Reconciliation of Non-GAAP Sales and Marketing Expense:
Sales and marketing $ 40,604 $ 33,191 $ 77,911 $ 63,491
Stock-based compensation expense (1,040 ) (933 ) (2,085 ) (1,770 )
Amortization of acquired intangibles   (507 )   (455 )   (1,009 )   (935 )
Non-GAAP Sales and Marketing Expense $ 39,057 $ 31,803 $ 74,817 $ 60,786
 
Reconciliation of Non-GAAP General and Administrative Expense:
General and administrative $ 9,341 $ 7,484 $ 18,552 $ 18,097
Stock-based compensation expense (1,363 ) (1,074 ) (2,951 ) (2,542 )
Amortization of acquired intangibles   (7 )   (29 )   (17 )   (67 )
Non-GAAP General and Administrative Expense $ 7,971 $ 6,381 $ 15,584 $ 15,488
 

(continued)

   
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2018   2017 2018   2017
Reconciliation of Non-GAAP Operating Loss:
Operating loss $ (17,296 ) $ (14,442 ) $ (32,565 ) $ (29,635 )
Stock-based compensation expense 3,564 2,792 7,074 5,814
Amortization of acquired intangibles   1,401   1,396   2,811   2,829
Non-GAAP Operating Loss $ (12,331 ) $ (10,254 ) $ (22,680 ) $ (20,992 )
 
Reconciliation of Non-GAAP Net Loss:
Net loss $ (17,766 ) $ (15,449 ) $ (33,015 ) $ (31,447 )
Stock-based compensation expense 3,564 2,792 7,074 5,814
Amortization of acquired intangibles   1,401   1,396   2,811   2,829
Non-GAAP Net Loss $ (12,801 ) $ (11,261 ) $ (23,130 ) $ (22,804 )
 
Reconciliation of Non-GAAP Net Loss Per Share:
Net loss per share $ (1.24 ) $ (2.81 ) $ (3.21 ) $ (5.78 )
Stock-based compensation expense per share 0.25 0.51 0.69 1.07
Amortization of acquired intangibles per share 0.10 0.25 0.27 0.52
Non-GAAP unweighted adjustment to common and preferred shares issued
(1) per share
  0.70   1.85   1.90   3.79
Non-GAAP Net Loss Per Share $ (0.19 ) $ (0.20 ) $ (0.35 ) $ (0.40 )
 
Computation of Non-GAAP Shares Outstanding:
Weighted average shares of common stock outstanding used in
computing net loss per share
14,383 5,494 10,299 5,442
Non-GAAP adjustment to common and preferred shares issued (1)   51,665   50,893   55,568   50,893
Non-GAAP Shares Outstanding Used in Computing Non-GAAP Net Loss
Per Share
  66,048   56,387   65,867   56,335
 
Free Cash Flow:
Net cash (used in) provided by operating activities $ 2,099 $ 403 $ (11,276 ) $ (6,879 )
Purchases of property and equipment   (4,544 )   (5,078 )   (8,169 )   (6,115 )
Free Cash Flow $ (2,445 ) $ (4,675 ) $ (19,445 ) $ (12,994 )
 
(1)   The Company's IPO closed on June 19, 2018 and 8,625,000 shares of
common stock were issued. In connection with the IPO, the Company's
outstanding convertible preferred stock converted into 50,888,014
shares of common stock. See description of adjustment in "Use of
Non-GAAP Financial Measures" section.
 

(concluded)

 
AVALARA, INC.
UNAUDITED PRESENTATION OF KEY BUSINESS METRICS
 
  Mar 31,     Jun 30,     Sep 30,     Dec 31,     Mar 31,     Jun 30,
2017 2017 2017 2017 2018 2018

Number of core customers (as of end of period)

6,650 6,970 7,250 7,490 7,760 8,080
Net revenue retention rate 109% 106% 107% 105% 109% 108%
 

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