•

Revenue: Total revenue was $76.9 million, up 33% from $58.0 million in the fourth quarter of 2017. Subscription and returns revenue was $71.7 million, up 33% from $54.1 million in the same period last year. Professional services revenue was $5.2 million, up 33% from $3.9 million in the same period last year.

•

Gross Profit: GAAP gross profit was $54.7 million, representing a 71% gross margin, compared to a GAAP gross profit of $42.6 million and a 73% gross margin in the fourth quarter of 2017. Non-GAAP gross profit was $56.2 million, representing a 73% non-GAAP gross margin, compared to a non-GAAP gross profit of $43.8 million and a 76% non-GAAP gross margin in the fourth quarter of 2017.

•

Operating Loss: GAAP operating loss was $19.4 million, compared to a GAAP operating loss of $21.9 million in the fourth quarter of 2017. Non-GAAP operating loss was $13.3 million, compared to a non-GAAP operating loss of $9.2 million in the fourth quarter of 2017.

•

Net Loss: GAAP net loss was $18.4 million, compared to a GAAP net loss of $22.4 million in the fourth quarter of 2017. Non-GAAP net loss was $12.3 million, compared to a non-GAAP net loss of $9.8 million in the fourth quarter of 2017.

•

Net Loss per Share: GAAP net loss per share was $0.28 based on 66.7 million weighted-average shares outstanding, compared to a GAAP net loss per share of $3.78 based on 5.9 million weighted-average shares outstanding in the fourth quarter of 2017. Non-GAAP net loss per share was $0.19 based on 66.7 million non-GAAP shares outstanding, compared to a non-GAAP net loss per share of $0.17 based on 56.8 million non-GAAP shares outstanding in the fourth quarter of 2017.

•

Deferred Revenue: Total deferred revenue was $134.7 million at December 31, 2018, up from $118.2 million at September 30, 2018. The current portion of deferred revenue was $125.3 million at December 31, 2018, up from $109.3 million at September 30, 2018.

•

Cash: Net cash provided by operating activities was $7.0 million, compared to $2.0 million used in operating activities in the fourth quarter of 2017. Free cash flow was positive $4.5 million, compared to negative $5.6 million in the fourth quarter of 2017. Our cash and cash equivalents totaled $142.3 million at December 31, 2018.

•

Revenue: Total revenue was $272.1 million, up 28% from $213.2 million in fiscal 2017. Subscription and returns revenue was $254.1 million, up 27% from $199.9 million in the prior year. Professional services revenue was $18.0 million, up 37% from $13.2 million in the prior year.

•

Gross Profit: GAAP gross profit was $193.4 million, representing a 71% gross margin, compared to a GAAP gross profit of $155.2 million and a 73% gross margin in fiscal 2017. Non-GAAP gross profit was $199.1 million, representing a 73% non-GAAP gross margin, compared to a non-GAAP gross profit of $159.9 million and a 75% non-GAAP gross margin in fiscal 2017.

•

Operating Loss: GAAP operating loss was $76.1 million, compared to a GAAP operating loss of $63.3 million in fiscal 2017. Non-GAAP operating loss was $45.0 million, compared to a non-GAAP operating loss of $37.4 million in fiscal 2017.

•

Net Loss: GAAP net loss was $75.6 million, compared to a GAAP net loss of $64.1 million in fiscal 2017. Non-GAAP net loss was $44.5 million, compared to a non-GAAP net loss of $38.2 million in fiscal 2017.

•

Net Loss per Share: GAAP net loss per share was $1.95 based on 38.7 million weighted-average shares outstanding, compared to a GAAP net loss per share of $11.39 based on 5.6 million weighted-average shares outstanding in fiscal 2017. Non-GAAP net loss per share was $0.67 based on 66.2 million non-GAAP shares outstanding, compared to a non-GAAP net loss per share of $0.68 based on 56.5 million non-GAAP shares outstanding in fiscal 2017.

•

Cash: Net cash used in operating activities was $3.1 million, compared to $3.5 million used in operating activities in fiscal 2017. Free cash flow was negative $18.5 million, compared to negative $17.5 million in fiscal 2017.

•

Key Metrics: We ended the fourth quarter of 2018 with approximately 9,070 core customers, up from approximately 8,490 core customers at the end of the previous quarter and up from 7,490 at the end of the previous fiscal year. Net revenue retention rate was 108% in the fourth quarter of 2018 and has averaged 107% over the last four quarters.

•

Announced 41 Newly-Certified Integrations into Business Applications: We recently announced the release of 41 newly-certified integrations with accounting, ERP, ecommerce, point-of-sale, mobile commerce, and CRM software applications. Certified integrations are built to ensure customers enjoy a fast, reliable, and easy process for embedding Avalara’s automated tax management into existing systems.  

•

Addition to Board of Directors: We recently announced the appointment of global business leader and innovator Kathleen Zwickert to our board of directors. Zwickert was formerly Chief People Officer at NetSuite (now Oracle NetSuite), a provider of cloud-based applications, where she transformed the company’s Human Resources function through technological innovations. Prior to NetSuite, Zwickert was EVP of Human Resources and Communications for Oclaro, a leading provider of optical communications solutions. She has more than 25 years of experience working with leaders, boards, and global teams to help companies scale and architect change.

•

Acquisitions: In January 2019, we acquired the operating assets of Compli, Inc., a provider of compliance services and technology to producers, distributors, and importers of alcoholic beverages in the United States.  In February 2019, we acquired intellectual property and other assets from Indix Corporation, an artificial intelligence company providing comprehensive product descriptions for more than 1 billion products sold and shipped worldwide.

•

Total revenue between $78.0 and $79.0 million.

•

Non-GAAP operating loss between $10.0 and $11.0 million.

•

Total revenue between $328.0 and $332.0 million.

•

Non-GAAP operating loss between $30.0 and $35.0 million.

•

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) provided by operating activities less cash used for the purchases of property and equipment.

•

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.

For the Three Months Ended December 31,

2018

2017

Revenue:

Subscription and returns

$

71,730

$

54,117

Professional services

5,193

3,918

Total revenue

76,923

58,035

Cost of revenue:

Subscription and returns

18,572

13,166

Professional services

3,700

2,222

Total cost of revenue (1)

22,272

15,388

Gross profit

54,651

42,647

Operating expenses:

Research and development (1)

13,577

10,890

Sales and marketing (1)

49,630

37,152

General and administrative (1)

10,816

8,097

Restructuring charges

-

(41

)

Goodwill impairment

-

8,418

Total operating expenses

74,023

64,516

Operating loss

(19,372

)

(21,869

)

Other (income) expense:

Interest income

(742

)

(29

)

Interest expense

113

768

Other (income) expense, net

(160

)

563

Total other (income) expense, net

(789

)

1,302

Loss before income taxes

(18,583

)

(23,171

)

Provision for (benefit from) income taxes

(151

)

(757

)

Net loss

$

(18,432

)

$

(22,414

)

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

$

(0.28

)

$

(3.78

)

Weighted average shares of common stock outstanding, basic and diluted

66,654

5,934

For the Three Months Ended December 31,

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

2018

2017

Cost of revenue

$

484

$

236

Research and development

908

591

Sales and marketing

1,818

1,034

General and administrative

1,300

900

Total stock-based compensation

$

4,510

$

2,761

The amortization of acquired intangibles included above was as follows:

Cost of revenue

$

1,114

$

952

Research and development

-

-

Sales and marketing

468

496

General and administrative

-

9

Total amortization of acquired intangibles

$

1,582

$

1,457

For the Year Ended December 31,

2018

2017

Revenue:

Subscription and returns (1)

$

254,056

$

199,942

Professional services

18,042

13,217

Total revenue

272,098

213,159

Cost of revenue:

Subscription and returns

66,556

48,849

Professional services

12,093

9,128

Total cost of revenue (2)

78,649

57,977

Gross profit

193,449

155,182

Operating expenses:

Research and development (2)

51,909

41,264

Sales and marketing (2)

168,817

133,794

General and administrative (2)

39,603

34,286

Restructuring charges

-

752

Goodwill impairment

9,174

8,418

Total operating expenses

269,503

218,514

Operating loss

(76,054

)

(63,332

)

Other (income) expense:

Interest income

(1,553

)

(77

)

Interest expense

2,608

2,585

Other (income) expense, net

(583

)

(495

)

Total other (income) expense, net

472

2,013

Loss before income taxes

(76,526

)

(65,345

)

Provision for (benefit from) income taxes

(976

)

(1,219

)

Net loss

$

(75,550

)

$

(64,126

)

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

$

(1.95

)

$

(11.39

)

Weighted average shares of common stock outstanding, basic and diluted

38,692

5,632

(1) Interest income on funds held for customers of $1.055 million was reclassified from Interest income within Total other (income) expense, net to Subscription and returns revenue in the fourth quarter of 2018. This reclass was done retrospectively, and impacted the reported second and third quarter 2018 consolidated statements of operations. See the Unaudited Reclassified Consolidated Statements of Operations at the end of this press release.

For the Year Ended December 31,

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

2018

2017

Cost of revenue

$

1,665

$

976

Research and development

3,179

2,391

Sales and marketing

5,492

3,789

General and administrative

5,585

4,601

Total stock-based compensation

$

15,921

$

11,757

The amortization of acquired intangibles included above was as follows:

Cost of revenue

$

4,020

$

3,717

Research and development

-

-

Sales and marketing

1,951

1,913

General and administrative

17

102

Total amortization of acquired intangibles

$

5,988

$

5,732

December 31,

December 31,

2018

2017

Assets

Current assets:

Cash and cash equivalents

$

142,322

$

14,075

Trade accounts receivable—net of allowance for doubtful accounts

40,287

26,596

Prepaid expenses and other current assets

11,307

7,016

Total current assets before customer fund assets

193,916

47,687

Funds held and receivable from customers—net of allowance for doubtful accounts

13,383

13,395

Total current assets

207,299

61,082

Noncurrent assets:

Property and equipment—net

33,373

25,394

Goodwill

61,300

72,482

Intangible assets—net

19,371

19,074

Other noncurrent assets

1,589

780

Total assets

$

322,932

$

178,812

Liabilities and shareholders' equity (deficit)

Current liabilities:

Accrued expenses and trade payables

47,064

38,164

Deferred revenue

125,260

83,778

Credit facility and notes payable

-

859

Total current liabilities before customer funds obligations

172,324

122,801

Customer funds obligations

13,349

14,061

Total current liabilities

185,673

136,862

Noncurrent liabilities:

Deferred revenue

9,393

8,453

Deferred tax liability

560

1,854

Credit facility

-

38,840

Deferred rent

17,317

14,689

Other noncurrent liabilities

436

785

Total liabilities

213,379

201,483

Convertible preferred stock

-

370,921

Shareholders' equity (deficit):

Common stock

7

1

Additional paid-in capital

599,493

18,121

Accumulated other comprehensive income (loss)

(2,345

)

338

Accumulated deficit

(487,602

)

(412,052

)

Total shareholders’ equity (deficit)

109,553

(393,592

)

Total liabilities and shareholders' equity (deficit)

$

322,932

$

178,812

For the Three Months Ended December 31,

2018

2017

Cash flows from operating activities:

Net loss

$

(18,432

)

$

(22,414

)

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

Depreciation and amortization

3,412

2,730

Goodwill impairment

-

8,418

Stock-based compensation

4,510

2,761

Deferred tax expense

(184

)

(581

)

Amortization of deferred rent

(41

)

(39

)

Non-cash change in earnout liability

28

281

Non-cash bad debt (recovery) expense

94

(307

)

Other

33

71

Changes in operating assets and liabilities:

Trade accounts receivable

(5,656

)

(4,135

)

Prepaid expenses and other current assets

(2,162

)

677

Other long-term assets

(259

)

169

Trade payables

(1,066

)

(917

)

Accrued expenses and other current liabilities

9,171

923

Deferred rent (lease incentives)

1,144

2,793

Deferred revenue

16,444

7,594

Net cash (used in) provided by operating activities

7,036

(1,976

)

Cash flows from investing activities:

Net (increase) decrease in customer fund assets

(1,935

)

(251

)

Cash paid for acquired intangible assets

-

-

Purchase of property and equipment

(2,569

)

(3,605

)

Net cash used in investing activities

(4,504

)

(3,856

)

Cash flows from financing activities:

Payments on credit facility

-

(1,373

)

Proceeds from credit facility

-

9,605

Payments of debt issuance costs

-

(469

)

Payment of deferred financing costs

-

(675

)

Taxes paid related to net share settlement of stock-based awards

(39

)

(543

)

Net increase (decrease) in customer fund obligations

1,935

251

Payment related to business combination earnouts

(1,523

)

(1,579

)

Proceeds from exercise of stock options and common stock warrants

1,254

375

Net cash provided by financing activities

1,627

5,592

Foreign currency effect on cash and cash equivalents

70

(34

)

Net change in cash and cash equivalents

4,229

(274

)

Cash and cash equivalents—Beginning of period

138,093

14,349

Cash and cash equivalents—End of period

$

142,322

$

14,075

For the Year Ended December 31,

2018

2017

Cash flows from operating activities:

Net loss

$

(75,550

)

$

(64,126

)

Adjustments to reconcile net loss to net cash used in operating

   activities:

Depreciation and amortization

12,802

10,859

Goodwill impairment

9,174

8,418

Stock-based compensation

15,921

11,757

Deferred tax expense

(1,294

)

(1,307

)

Amortization of deferred rent

190

(698

)

Non-cash change in earnout liability

(402

)

(715

)

Non-cash bad debt recovery

(288

)

(86

)

Other

559

270

Changes in operating assets and liabilities:

Trade accounts receivable

(13,508

)

159

Prepaid expenses and other current assets

(4,850

)

(1,055

)

Other long-term assets

(808

)

725

Trade payables

(4,419

)

(112

)

Accrued expenses and other current liabilities

15,266

2,124

Deferred rent (lease incentives)

1,723

10,494

Deferred revenue

42,422

19,752

Net cash used in operating activities

(3,062

)

(3,541

)

Cash flows from investing activities:

Net (increase) decrease in customer fund assets

118

(2,301

)

Cash paid for acquired intangible assets

(5,002

)

-

Purchase of property and equipment

(15,483

)

(13,955

)

Net cash used in investing activities

(20,367

)

(16,256

)

Cash flows from financing activities:

Proceeds from initial public offering, net of underwriting discounts

192,510

-

Payments on credit facility

(63,000

)

(2,935

)

Proceeds from credit facility

23,000

17,605

Payments of debt issuance costs

-

(469

)

Payments on capital leases

-

(14

)

Repurchase of shares

(1,806

)

-

Repayment of note payable

(234

)

-

Payment of deferred financing costs

(2,084

)

(1,240

)

Taxes paid related to net share settlement of stock-based awards

(2,365

)

(811

)

Net increase (decrease) in customer fund obligations

(118

)

2,301

Payment related to business combination earnouts

(1,523

)

(1,662

)

Proceeds from exercise of stock options and common stock warrants

7,041

920

Net cash provided by financing activities

151,421

13,695

Foreign currency effect on cash and cash equivalents

255

(53

)

Net change in cash and cash equivalents

128,247

(6,155

)

Cash and cash equivalents—Beginning of year

14,075

20,230

Cash and cash equivalents—End of year

$

142,322

$

14,075

For the Three Months Ended December 31,

For the Year Ended December 31,

2018

2017

2018

2017

Non-GAAP cost of revenue

$

20,674

$

14,200

$

72,964

$

53,284

Non-GAAP gross profit

56,249

43,835

199,134

159,875

Non-GAAP gross margin

73

%

76

%

73

%

75

%

Non-GAAP research and development expense

$

12,669

$

10,299

$

48,730

$

38,873

Non-GAAP sales and marketing expense

47,344

35,622

161,374

128,092

Non-GAAP general and administrative expense

9,516

7,188

34,001

29,583

Non-GAAP operating loss

(13,280

)

(9,233

)

(44,971

)

(37,425

)

Non-GAAP net loss

(12,340

)

(9,778

)

(44,467

)

(38,219

)

Non-GAAP net loss per share

(0.19

)

(0.17

)

(0.67

)

(0.68

)

Free cash flow

$

4,467

$

(5,581

)

$

(18,545

)

$

(17,496

)

For the Three Months Ended December 31,

For the Year Ended December 31,

2018

2017

2018

2017

Reconciliation of Non-GAAP Cost of Revenue:

Cost of revenue

$

22,272

$

15,388

$

78,649

$

57,977

Stock-based compensation expense

(484

)

(236

)

(1,665

)

(976

)

Amortization of acquired intangibles

(1,114

)

(952

)

(4,020

)

(3,717

)

Non-GAAP Cost of Revenue

$

20,674

$

14,200

$

72,964

$

53,284

Reconciliation of Non-GAAP Gross Profit:

Gross Profit

$

54,651

$

42,647

$

193,449

$

155,182

Stock-based compensation expense

484

236

1,665

976

Amortization of acquired intangibles

1,114

952

4,020

3,717

Non-GAAP Gross Profit

$

56,249

$

43,835

$

199,134

$

159,875

Reconciliation of Non-GAAP Gross Margin:

Gross margin

71

%

73

%

71

%

73

%

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

%

76

%

73

%

75

%

Reconciliation of Non-GAAP Research and Development Expense:

Research and development

$

13,577

$

10,890

$

51,909

$

41,264

Stock-based compensation expense

(908

)

(591

)

(3,179

)

(2,391

)

Amortization of acquired intangibles

-

-

-

-

Non-GAAP Research and Development Expense

$

12,669

$

10,299

$

48,730

$

38,873

Reconciliation of Non-GAAP Sales and Marketing Expense:

Sales and marketing

$

49,630

$

37,152

$

168,817

$

133,794

Stock-based compensation expense

(1,818

)

(1,034

)

(5,492

)

(3,789

)

Amortization of acquired intangibles

(468

)

(496

)

(1,951

)

(1,913

)

Non-GAAP Sales and Marketing Expense

$

47,344

$

35,622

$

161,374

$

128,092

Reconciliation of Non-GAAP General and Administrative Expense:

General and administrative

$

10,816

$

8,097

$

39,603

$

34,286

Stock-based compensation expense

(1,300

)

(900

)

(5,585

)

(4,601

)

Amortization of acquired intangibles

-

(9

)

(17

)

(102

)

Non-GAAP General and Administrative Expense

$

9,516

$

7,188

$

34,001

$

29,583

Reconciliation of Non-GAAP Operating Loss:

Operating loss

$

(19,372

)

$

(21,869

)

$

(76,054

)

$

(63,332

)

Stock-based compensation expense

4,510

2,761

15,921

11,757

Amortization of acquired intangibles

1,582

1,457

5,988

5,732

Goodwill impairment

-

8,418

9,174

8,418

Non-GAAP Operating Loss

$

(13,280

)

$

(9,233

)

$

(44,971

)

$

(37,425

)

Reconciliation of Non-GAAP Net Loss:

Net loss

$

(18,432

)

$

(22,414

)

$

(75,550

)

$

(64,126

)

Stock-based compensation expense

4,510

2,761

15,921

11,757

Amortization of acquired intangibles

1,582

1,457

5,988

5,732

Goodwill impairment

-

8,418

9,174

8,418

Non-GAAP Net Loss

$

(12,340

)

$

(9,778

)

$

(44,467

)

$

(38,219

)

Reconciliation of Non-GAAP Net Loss Per Share:

Net loss per share

$

(0.28

)

$

(3.78

)

$

(1.95

)

$

(11.39

)

Stock-based compensation expense per share

0.07

0.47

0.41

2.09

Amortization of acquired intangibles per share

0.02

0.25

0.15

1.02

Goodwill impairment per share

-

1.42

0.24

1.49

Non-GAAP unweighted adjustment to common and preferred shares issued (1) per share

-

1.48

0.48

6.11

Non-GAAP Net Loss Per Share

$

(0.19

)

$

(0.17

)

$

(0.67

)

$

(0.68

)

Computation of Non-GAAP Shares Outstanding:

Weighted average shares of common stock outstanding used in computing net loss per share

66,654

5,934

38,692

5,632

Non-GAAP adjustment to common and preferred shares issued (1)

-

50,888

27,555

50,888

Non-GAAP Shares Outstanding Used in Computing Non-GAAP Net Loss Per Share

66,654

56,822

66,247

56,520

Free Cash Flow:

Net cash (used in) provided by operating activities

$

7,036

$

(1,976

)

$

(3,062

)

$

(3,541

)

Purchases of property and equipment

(2,569

)

(3,605

)

(15,483

)

(13,955

)

Free Cash Flow

$

4,467

$

(5,581

)

$

(18,545

)

$

(17,496

)

(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.

Dec 31,

2018

Sep 30,

2018

Jun 30,

2018

Mar 31,

2018

Dec 31,

2017

Sep 30,

2017

Jun 30,

2017

Mar 31,

2017

Number of core customers

(as of end of period)

9,070

8,490

8,080

7,760

7,490

7,250

6,970

6,650

Net revenue retention rate

108%

105%

108%

109%

105%

107%

106%

109%

For the Three Months Ended

September 30, 2018

For the Three Months Ended

June 30, 2018

As Reported

As Reclassified

As Reported

As Reclassified

Revenue:

Subscription and returns (1)

$

64,219

$

64,611

$

59,675

$

59,845

Professional services

5,308

5,308

4,034

4,034

Total revenue

69,527

69,919

63,709

63,879

Cost of revenue:

Subscription and returns

17,330

17,330

15,837

15,837

Professional services

2,906

2,906

2,795

2,795

Total cost of revenue

20,236

20,236

18,632

18,632

Gross profit

49,291

49,683

45,077