Analyst DayMAY 27, 2021
SAFE HARBOR STATEMENT:This presentation contains “forward-looking ” statements – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “may,” “might,” “plan,” “believe,” “continue,” “could,” “estimate,” “seek,” “see,” “likely,” “potential,” “predict,” “project,” “target,” “should,” “would,” “will,” or similar expressions. 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 other risk factors discussed in our most recent annual report on Form 10-K filed with the SEC under the heading “Risk Factors.”
Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this presentation. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons why actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available in the future.
This presentation includes certain non-GAAP financial measures as defined by the Securities and Exchange Commission (the “SEC ”) rules. These non-GAAP financial measures are in addition to, and not a substitute for or superior to measures of financial performance prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. For example, other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. As required by Regulation G, we have provided a reconciliation of those measures to the most directly comparable GAAP measures, which is available in the appendix.
©Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 2
MAY
27
VI DEO
Avalara Demand Inflection
M EG HI GGI NS
eCommerce Momentum
S ANJAY PARTHAS ARATHY
Platform for Growth
AM I T M ATHRADAS
Expanding TAM
S COTT M CFARLANE
The Next 10 Years
ROS S TENNENBAUM
Monetizing More
02
03
04
05
06
01
07 Live Q&A with Presenters
A V A L A R A A N A L Y S T D A Y V I R T U A L | 3
©Avalara
Meg HigginsVice President/
General Manager,eCommerce & Marketplace
A V A L A R A A N A L Y S T D A Y V I R T U A L | 4
VI DEO
Avalara Demand Inflection
M EG HI GGI NS
eCommerce Momentum
S ANJAY PARTHAS ARATHY
Platform for Growth
AM I T M ATHRADAS
Expanding TAM
S COTT M CFARLANE
The Next 10 Years
ROS S TENNENBAUM
Monetizing More
03
04
05
06
01
07 Live Q&A with Presenters
©Avalara
MARKETPLACE
B2B DIRECT
ECOMMERCE
B2C STORES
A V A L A R A A N A L Y S T D A Y V I R T U A L | 5
C A S E S T U D Y : O M N IC HANN EL C O M P L E XITY
P R O D U C T S
C O N N E C T O R S
P A I N P O I N T S
Reporting & Registrations needed upon launch in 2017 43 states and growing for returns filings200%+ transaction growth Added ERP integration to address expansion
Shopify NetSuite One WorldC U S T O M E R V A L U E
$190,000
Consumer brands company
C U S T O M E R S I Z E
>150 employeesG E O G R A P H I E S
Global
Registrations Sales Tax Calc Managed Returns
SST ReturnsEnterprise Support
©Avalara A V A L A R A A N A L Y S T D A Y V I R T U A L | 6
Diverse eCommerce growth programs
AVALARA INCLUDED
“White label” calculation in platform
Partner subsidizes basic calc; future monetization from upsell
ECOMMERCE DIRECT
Built-in to platform through traditional connector
Partner refers, Avalara closes, commission paid
MARKETPLACE
Enterprise sale to platform for direct compliance
Services expansion; future sell-through potential
©Avalara A V A L A R A A N A L Y S T D A Y V I R T U A L | 7
Q1 20 Q1 21
©Avalara
eCommerce portfolio ARR growth(excl. SST revenue)
$167M
$120M+39%
A V A L A R A A N A L Y S T D A Y V I R T U A L | 8
eCommerce DirectAvalara Included MarketplaceNote: Represents total annual recurring revenue for all Marketplaces and customers that have at least one connector to an eCommerce platform. ARR is not allocated for customers with multiple connectors including non-eCommerce connectors, and category segmentation is calculated discretely.
Q1 20 Q1 21
©Avalara
SST rapid adoption from eCommerce channel(recognized revenue)
$6.2M
$1.9M
+224%
A V A L A R A A N A L Y S T D A Y V I R T U A L | 9
Note: Represents total quarterly recognized SST revenue for all Marketplaces and customers that have at least one connector to an eCommerce platform; Revenue is not allocated for customers with multiple connectors including non-eCommerce connectors, and category segmentation is calculated discretely
eCommerce DirectAvalara Included Marketplace
Early in monetization journeyAVALARA INCLUDED
©Avalara A V A L A R A A N A L Y S T D A Y V I R T U A L | 10
Cumulative Activations
140K+>100% y/y
Active Customers
60K+>100% y/y
ARR
$40M+>40% y/y
©Avalara
# OF MARKETPLACES
AVERAGEANNUALIZED
REV (>$3K)
# > $100K ANNUALIZED
REV
Q1 19 95 $70K 16
Q1 20 145 $88K 29
Q1 21 228 $106K 48
Increasing share
MARKETPLACE:
$1.3MLarge direct
marketplace customer
800+Target global marketplaces
A V A L A R A A N A L Y S T D A Y V I R T U A L | 11
Note: Annualized Revenue represents Q1’21 revenue multiplied by four quarters to annualize. Average Annualized Revenue >$3K only counts Marketplace customers with more than $3K in Q1’21 revenue.
C U S T O M E R V A L U E
$74,000
Consumer brands company
C U S T O M E R S I Z E
<100 employeesG E O G R A P H I E S
Global
C A S E S T U D Y : S E A M LE S S A N D F R I C T IONL ES S C O M P L IANC E
P R O D U C T S & S E R V I C E S
P A I N P O I N T S
Avalara client since 2017Decided to volunteer nexus in every state following the Wayfair decision Filing in 50 statesInternational compliance and upfront duties & tax calculation
RegistrationsSales Tax CalcManaged ReturnsSST Returns
Cross-Border Calc Item Classification Enterprise Support
©Avalara A V A L A R A A N A L Y S T D A Y V I R T U A L | 12
Capturing growth in Omni-Channel
ECOMMERCE DIRECT:
©Avalara
Omnichannel StoresOrder Management
POS
eCommerceSocial/Channels
Capturing growth in Omni-Channel
ECOMMERCE DIRECT:
©Avalara
Omnichannel
©Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 15
900+ Salesforce customers trust Avalara
ORDER MANAGEMENT
B2B COMMERCE
B2C COMMERCE
Tax compliance wherever companies transact across Salesforce
REVENUE CLOUD SALES CLOUD
©Avalara
eCommerce growth strategy
AVALARA INCLUDED:
Increase activationsExpand products on platform Digitally drive upsell conversion
ECOMMERCE DIRECT:
Dominate partner mindshareIncrease new customer land velocityAdd more partners
MARKETPLACE:
Increase market share Expand existing footprint Monetize sell-through
A V A L A R A A N A L Y S T D A Y V I R T U A L | 16
Avalara expands partnership withANNOUNCEMENT:
©Avalara A V A L A R A A N A L Y S T D A Y V I R T U A L | 17
©Avalara
Sanjay Parthasarathy
Executive Vice President & Chief Product Officer
A V A L A R A A N A L Y S T D A Y V I R T U A L | 18
VI DEO
Avalara Demand Inflection
M EG HI GGI NS
eCommerce Momentum
S ANJAY PARTHAS ARATHY
Platform for Growth
AM I T M ATHRADAS
Expanding TAM
S COTT M CFARLANE
The Next 10 Years
ROS S TENNENBAUM
Monetizing More
02
04
05
06
01
07 Live Q&A with Presenters
© Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 19
Investing to pull away
Making complex simple
Product machine
Growing platform
Risk management
Tax payment facilitation
Insights
Content subscriptions
Content & calculation delivery
network
Geo
New doc types
Workflows
Digital locker
New license typesTax & product content
Enterprise features Returns for new audiences
New tax typesin core
Returns for new tax types
Real-time returnsFederated calc
Integrations
© Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 20
Product Roadmap – Analyst Day 2020O
ppor
tuni
ty
Fiscal InsightsCalculation Returns & Reporting Documents Licenses
© Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 21
Execution since Analyst Day 2020
Tax & product content
Enterprise features:Advanced Rules, ACU
Returns for new audiences: RSB, MRA
New tax types in core: XB, VAT, GST, BEVALC
Returns for new tax types: VAT, GST
Real-timeFederated calc:
Fuel Excise
Integrations: 110+ NEW
Risk Management:
Fiscal Representation
Tax payment facilitation
Insights
Content subscriptions
Content & calculation delivery network:
Content Generation for POS
Geo
New doc types
Workflows: Know Your Customer
Digital locker
New license types
Fiscal InsightsCalculation Returns & Reporting Documents Licenses
Opp
ortu
nity
E-invoicing
Tax & product content: New Industries
Enterprise features: Add’l Cross Border
Returns for new audiences: ARA
New tax types in core: VAT
Returns for new tax types: Transfer Pricing
Real-time returnsFederated calc
Integrations: Integration Studio, ESB Suite
Tax payment facilitation
Insights
Content subscriptions:Product catalog
subscription
Content & calculation delivery network:Cloud Connect
software version
Geo
New doc types
Workflows
Digital locker: Document Central
New license types
© Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 22
2021 Roadmap Execution
Fiscal InsightsCalculation Returns & Reporting Documents Licenses
Opp
ortu
nity
E-invoicing
Risk management
© Avalara A V A L A R A A N A L Y S T D A Y V I R T U A L | 23
Calculation
Sales Tax
Returns & Reporting
Sales tax returns
U.S. Sales tax content
ERP integrations
SAAS
© Avalara.
Global Compliance Platform
A V A L A R A A N A L Y S T D A Y V I R T U A L | 24
Regions IndustriesSegments
SOLUTIONS
Calculation InsightsFiscalLicensesDocumentsReturns & Reporting
APPLICATIONS
Tax Content Compliance Content Product Content
CONTENT
DeliveryAPIs Integration
PLATFORM
PLATFORM
CONTENT
APPLICATIONS
SOLUTIONS
Solutions & Bundles
Product ContentCompliance ContentTax Content
©Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 25
Region: USASegment: Enterprise
Industry: Hospitality
CalculationsReturns & Reporting
Sales tax returnsMulti-tax returns
Business Licenses Sales Tax
RegistrationsLicense Management
Exemption Certificates NexusMulti-tax RatesTax Answers Subscription
LodgingSales TaxUse TaxAncillary
Hotel
MealsAlcohol
Advanced Transaction
Rules
Licenses Documents Fiscal Insights
Delivery
SaaSCloud ConnectPoint of Sale
Integrations
ERP | Res. Mgmt.Professional Services
Enterprise Support
API
Sandbox
Tax Codes Multi-tax Forms Product IDs
Region: USASegment: ESB
Industry: Retail eComm
PLATFORM
CONTENT
APPLICATIONS
SOLUTIONS
Returns for Small Business
License GuidanceRegistration
Exemption CertificatesCompliance Document
Management
Economic Nexus Insight
Tax Rate Download
Sales TaxUse Tax
CalculationsReturns & Reporting
Licenses Documents Fiscal Insights
Delivery
SaaSFree trial
Online buy
Integrations
ESB platform connectors and extractors
API
Embedded option Self serve onboardSimple, unified, guided
user experience
Solutions & Bundles
Product ContentCompliance ContentTax Content
©Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 26
Auto Tax Code Mapping
License Forms Item Catalog Enrichment
PLATFORM
DeliveryAPIs Integration
CONTENT
Tax Content Compliance Content Product Content
© Avalara A V A L A R A A N A L Y S T D A Y V I R T U A L | 27
Global Compliance Cloud
APPLICATIONS
InsightsFiscalLicensesDocumentsCalculation Returns & Reporting
SOLUTIONS
Regions IndustriesSegments
C A L C U L A T I O N
Broaden and deepen
Content driven calculation everywhere
Enterprise class detail, flexibility and use cases
Enterprise integrations
Delivery options
© Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 28
C A L C U L A T I O N
Leapfrog
Cross Border AI driven classification
Compliance super network
Next generation API
© Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 29
PLATFORM
CONTENT
Tax Content Compliance Content Product Content
© Avalara A V A L A R A A N A L Y S T D A Y V I R T U A L | 30
Global Compliance Cloud
DeliveryAPIs Integration
APPLICATIONS
InsightsFiscalLicensesDocumentsCalculation Returns & Reporting
SOLUTIONS
Regions IndustriesSegments
Global integration platform
E-invoicingAny to AnyPre-built integrations
Compliance super network
© Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 31
Delivery
Cloud data centers
Software cloud connect Point of sale Self-serve
content delivery
© Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 32
APIs
End to end compliance Unified Integration
studioDeveloper community
© Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 33
PLATFORM
DeliveryAPIs Integration
CONTENT
Tax Content Compliance Content Product Content
© Avalara A V A L A R A A N A L Y S T D A Y V I R T U A L | 34
Global Compliance Cloud
APPLICATIONS
InsightsFiscalLicensesDocumentsCalculation Returns & Reporting
SOLUTIONS
Regions IndustriesSegments
© Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 35
© Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 36
Product catalog
AI-driven classification UPC Expanded
Product IDsNew
use cases
© Avalara A V A L A R A A N A L Y S T D A Y V I R T U A L | 37
P R O D U C T E X P E R I E N C E :
Make complex simple
Designers & editors
Design & content systems
In productanswers & guidance
© Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 38
© Avalara. AVALARA ANALYST DAY VIRTUAL | 39
Global Compliance Platform
PLATFORM
CONTENT
APPLICATIONS
SOLUTIONS
Plug-and-play any system and government
Any compliance question
Every tax type & compliance task
Every industry, segment and region
PRODUCT VISION: Make the complex simple & autonomous
©Avalara
Amit MathradasPresident &
Chief Operating Officer
A V A L A R A A N A L Y S T D A Y V I R T U A L | 40
VI DEO
Avalara Demand Inflection
M EG HI GGI NS
eCommerce Momentum
S ANJAY PARTHAS ARATHY
Platform for Growth
AM I T M ATHRADAS
Expanding TAM
S COTT M CFARLANE
The Next 10 Years
ROS S TENNENBAUM
Monetizing More
02
03
05
06
01
07 Live Q&A with Presenters
©Avalara.
EXPANDING
TAM
PARTNERS(Hundreds Thousands)
GEOS(U.S. Global)
CHANNELS(ERP Omnichannel)
SEGMENTS(Mid Large and Small)
Multiple growth levers
PLATFORM(Product Platform)
41Note: Thousands of partners refers to our more than 1,000 signed partner integrations today and aspiration to continue to expand.
Strategy for customers of all sizes
©Avalara.
Emerging Small 1-19 EMPLOYEES
Greenfield
High velocity; digital-first
eComm partner “included” model
Enterprise500+ EMPLOYEES
Greenfield + displacement
Inside sales + higher touch GTM
SI-enabled partner model
Small & Mid20-499 EMPLOYEES
Greenfield
Velocity; inside sales
Partner-enabled referral model
A V A L A R A A N A L Y S T D A Y V I R T U A L | 42
MonetizingMore
©Avalara.
Bigger dealsAll customer segments
Bigger customersLarger deals
A V A L A R A A N A L Y S T D A Y V I R T U A L | 43
©Avalara.
Bigger deals: All customer segments
14
138
275
360
Emerging Small Mid Enterprise
Core customers >$100K TTM revenue
787
A V A L A R A A N A L Y S T D A Y V I R T U A L | 44
$53,000
$64,000
$71,000
Q1 2019 Q1 2020 Q1 2021
Avg. TTM revenue for 1,977 core customers >500 employees
Note: Core customers, inclusive of SST impact, and average TTM revenue as of 3/31/19, 3/31/20 and 3/31/21, respectively
C L I E N T V A L U E
$173,000
©Avalara.
Digital and direct-to-garment printing services
C U S T O M E R S I Z E
~300 employeesG E O G R A P H I E S
Global
C A S E S T U D Y : B I G G E R D E A L S – A N Y S I Z E C U S T O M E R
P R O D U C T S
C O N N E C T O R S
API
P A I N P O I N T S
No defined automation strategy amid strong growthGlobal business raises complex compliance challengesPoor management of exemption certificationsLean staff with low bandwidth
Sales Tax CalculationCertificate ManagementManaged ReturnsTTR ContentCross Border Classification
Cross Border CalculationVAT RegistrationVAT ReturnsEnterprise Support
A V A L A R A A N A L Y S T D A Y V I R T U A L | 45
U.S. Enterprise business>500 employees
Winning in enterprise
© Avalara.
Top 2,000Enterprises
Upper mid-market enterprises
Heritage mid-market strategyDisplacing status quo
18,000Upper Mid-Market Enterprises
Top 2,000 enterprises
“Surround and displace” strategyDisplacing incumbent technology and manual processes
20,000+
A V A L A R A A N A L Y S T D A Y V I R T U A L | 46
Enterprise “surround” strategy
©Avalara.
LEGACY
Calculations
ReturnsCertificate
Mgmt.
Comms.
Fuel Excise
A V A L A R A A N A L Y S T D A Y V I R T U A L | 47
Enterprise “surround” strategy
©Avalara.
LEGACY
Calculations
ReturnsCertificate
Mgmt.
Lodging
Beverage Alcohol
Comms.
Fuel Excise
CrossBorder
TTR Content Subscription
License & Reg. Mgmt.
A V A L A R A A N A L Y S T D A Y V I R T U A L | 48
Enterprise “displace” strategy
©Avalara.
Multi-tax, multi-geo calc
Integrated use tax
Multiple deployment options
Enhanced partnerships with Enterprise platform partners
Returns
Documents
Lodging
Beverage Alcohol
Comms.
Fuel ExciseTransfer Pricing
E-invoicing
CrossBorder
TTR Content Subscription
POS
License & Reg. Mgmt.
Calculations
A V A L A R A A N A L Y S T D A Y V I R T U A L | 49
Enterprise strategy
©Avalara.
PARTNERS:
Enhance partnerships with big Accounting and SI partnersPower accounting channel with Returns for Accountants
GTM:
Increasing enterprise quota carriersNamed accountsSolution selling with tax technologist overlay
DELIVERY:
Higher touch support modelPartner support and certificationExpert enterprise services
A V A L A R A A N A L Y S T D A Y V I R T U A L | 50
A V A L A R A A N A L Y S T D A Y V I R T U A L | 51
C L I E N T V A L U E
$192,000
©Avalara.
Cloud technology company
C U S T O M E R S I Z E
~6,000 employeesG E O G R A P H I E S
Global
C A S E S T U D Y : E N T E R P RIS E
P R O D U C T S
C O N N E C T O R S
P A I N P O I N T S
Aggressive growthIncreased auditsLooking to improve efficienciesReduce risk
Sales Tax CalculationCertificate Management
Exploring Managed Returns and VAT Registration & Filings
Oracle FusionFinancial Force
NetSuiteZuora
A V A L A R A A N A L Y S T D A Y V I R T U A L | 52
C L I E N T V A L U E
$147,000
©Avalara.
Luxury brand retailer
C U S T O M E R S I Z E
Global 2,000G E O G R A P H I E S
Global
C A S E S T U D Y : E N T E R P RIS E
P R O D U C T S
C O N N E C T O R S
Large ERP platform providerRetail Pro
P A I N P O I N T S
Issues with existing vendorRequired cloud-based solutionRequired guaranteed accuracy for sales tax calculations Multi-connector integration
Sales Tax CalculationCertificate Management
Managed Returns
Emerging & Small Business<100 Employees
Winning in small business
© Avalara.
500K+Small Business
Emerging small business
<20 employeesRequire simple, easy-to-use solutions
5 Million+Emerging Small Business
Small business
20-99 employeesTax complexity of mid-marketOmnichannel + multi-jurisdictional
5.5M+
A V A L A R A A N A L Y S T D A Y V I R T U A L | 53
Small business strategy
©Avalara.
PLATFORM:
SIMPLE, seamless experienceAuto-configure tax codes, integrations, & setupExpanded compliance offerings
PARTNERS:
Leverage partnerships with eComm & POS aggregatorsBroader compliance partnerships
GTM:
No touch digital demand genOnline buy
DELIVERY:
Instant Go LiveIntuitive UXDigital, scaled support
A V A L A R A A N A L Y S T D A Y V I R T U A L | 54
C L I E N T V A L U E
$21,000
©Avalara.
Vertically integrated manufacturing company in the defense sector
C U S T O M E R S I Z E
<100 employeesG E O G R A P H I E S
National
C A S E S T U D Y : S M A L L B U S I N E S S
P R O D U C T S
C O N N E C T O R S
P A I N P O I N T S
Grew fast and needed to address compliance problemRequired pre-built integrations with all of their systems Appreciate large partner integration moat to support future system changes
Sales Tax CalculationCertificate Management
Managed Returns
Adobe Commerce CloudQuickBooks
WooCommerce
A V A L A R A A N A L Y S T D A Y V I R T U A L | 55
C L I E N T V A L U E
$18,000
©Avalara.
Accessories for off-road vehicles
C U S T O M E R S I Z E
<30 employeesG E O G R A P H I E S
Global
C A S E S T U D Y : S M A L L B U S I N E S S
P R O D U C T S
C O N N E C T O R S
P A I N P O I N T S
Recent global expansionFast growthLack of internal resource to maintain
Sales Tax CalculationManaged ReturnsCross Border Calculation
Item ClassificationNexus Analysis
QuickBooks Desktop WooCommerce
A V A L A R A A N A L Y S T D A Y V I R T U A L | 56
Our partner moat is stronger than ever
©Avalara.
1,000+Signed partner integrations
40%of ARR from long-tail and API integrations*
3,500+Resellers, software integrators, and accountants
Marketplaces
eCommerce POS
ERP & Billing Applications
*Long-tail defined as integrations other than the Top 50 ARR contributors.
Expanding across regions
©Avalara.
NORTH AMERICA
BRAZIL
INDIA
SUPPORT
165+countries
A V A L A R A A N A L Y S T D A Y V I R T U A L | 58
EUROPE
Multiple vectors for customer expansion
©Avalara.
PRODUCT ADD-ONS PARTNER INTEGRATIONS
Cross-sell new products
Omnichannel –add more connectors
CUSTOMER GROWTH
More transactions, jurisdictions, geos
BUNDLING & PACKAGING
Solution sales and optimized pricing
A V A L A R A A N A L Y S T D A Y V I R T U A L | 59
Expanding TAM (U.S. View)
IPO (2018)
Fewer productsSMBSales-tax
TODAY
Multi-productMulti-segmentMulti-taxGlobal
FUTURE
Global compliance platform
©Avalara.
TAM
$8BTAM
$15BTAM
A V A L A R A A N A L Y S T D A Y V I R T U A L | 60
Path to multi-billion
PLATFORM
Multi-product
Solutions & bundles
Global integration platform
SEGMENT & GEOS
Up & down market
Global
Digital motion
Verticals
PARTNERS
Accounting and SIs
Deepen & increase partner relationships
eCommerce aggregators
©Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 61
©Avalara
Scott McFarlaneCo-founder &
Chief Executive Officer
A V A L A R A A N A L Y S T D A Y V I R T U A L | 62
VI DEO
Avalara Demand Inflection
M EG HI GGI NS
eCommerce Momentum
S ANJAY PARTHAS ARATHY
Platform for Growth
AM I T M ATHRADAS
Expanding TAM
S COTT M CFARLANE
The Next 10 Years
ROS S TENNENBAUM
Monetizing More
02
03
04
06
01
07 Live Q&A with Presenters
Compliance automation is inevitableBELIEVE IT:
A V A L A R A A N A L Y S T D A Y V I R T U A L | 63
The global cloud compliance platform- every transaction in the world
OUR VISION:
The journey is just getting started…
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total Revenue
©Avalara.
History of disruptive growth
Balanced strategy
Strong annual performance
Investing for long-term vision
Organic + M&A investments
=+
A V A L A R A A N A L Y S T D A Y V I R T U A L | 64
$501M
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
History of disruptive growth
2007Trustfile2006
SST
2008New Horizons
ISPI
2010Taxcient
2011Tax Solutions
Group
2013Avex Solutions
TTS (CertCapture)
2016Gyori
2020Impendulo
Business LicenseTTR
2021DAVOINPOSIA
2014
Zy TaxOmni channel partnerships with
SuitePlusApplianz
VATLive.com
2018
2019
Indix
2015
iVAT
A V A L A R A A N A L Y S T D A Y V I R T U A L | 65
2012Matrix Master
Lead the future of global compliance
OUR 10-YEAR VISION
©Avalara.
Broader compliance platform
Transactional tax compliance
A V A L A R A A N A L Y S T D A Y V I R T U A L | 66
SAAS
© Avalara.
Global Compliance Platform
A V A L A R A A N A L Y S T D A Y V I R T U A L | 67
Regions IndustriesSegments
SOLUTIONS
Calculation InsightsFiscalLicensesDocumentsReturns & Reporting
APPLICATIONS
Tax Content Compliance Content Product Content
CONTENT
DeliveryAPIs Integration
PLATFORM
Future of transactional tax compliance
ANY BUSINESS APPLICATION
ERP eCommercePoint-of-SaleBilling Marketplace
ANY GOVERNMENT
©Avalara
Expanding content moat
Existing Avalara content*
Additional content opportunities to pursue
General sales & gross receipts
Motor fuel sales
Other selective sales & gross receipts
Alcoholic beverage sales
License fees & taxes
Insurance premium sales
Property taxesPublic utilities sales
Tobacco product sales
Amusement sales
A V A L A R A A N A L Y S T D A Y V I R T U A L | 69Total U.S. Sales, Gross Receipts, and License Fees and Taxes
* Avalara doesn’t necessarily have 100% of the content in orange slices; we continue to broaden and deepen our content within orange slices and expand to cover grey slices.
©Avalara
Expanding content to broader compliance
1099
W-9 & W-8
Payroll
Know-your-customer
Insurance
Employment
Industry trade
Environmental
Hazardous waste
Shipping & logistics
Healthcare
A V A L A R A A N A L Y S T D A Y V I R T U A L | 70
TODAY:
Point-to-PointCertificate Mgmt.
FUTURE:
Avalara Certificate Network
©Avalara A V A L A R A A N A L Y S T D A Y V I R T U A L | 71
Networks of compliance disruption
Certificateregistry
Business
Individual
Business
Business Individual
Individual Business
Business
+ Newcertificate
Business
Individual
+ Newcertificate
Business
+ Newcertificate
Business
BusinessBusiness
The Avalara connected, compliance network
CONNECT ADD VALUE
EXPANDCONNECT & VERIFYSHARE VIA DOCUMENT CLOUD
Truck drivers Employees
Trade professionals
Health professionals Marketplaces
Avalara Integration
Network
Trade professional
websitesLinkedIn Compliance
reporting Insights
Manage documents
Create and renew
©Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 72
The Avalara connected, compliance network
ComplianceWallet
Powered by Avalara
L O G I N W I T H Y O U R C R E D E N T I A L S
Client ID
API ID
API Password
L O G I N
Compliance Wallet
NEVADA
Nursing LicenseEXP: DEC. 2021
73
Compliance Wallet
MANAGE OTHER DOCS:
NEVADA
Nursing LicenseEXP: DEC. 2021
RENEW NOW
W9 formInsurance policyExemption certificates
The next 10-year cloud growth opportunity
©Avalara
Increasing share of wallet
Capturing generational
shifts
ExpandingTAM
Bold 10-year compliance vision
ExpandingGTM
A V A L A R A A N A L Y S T D A Y V I R T U A L | 74
©Avalara
Ross Tennenbaum
Executive Vice President & Chief Financial Officer
A V A L A R A A N A L Y S T D A Y V I R T U A L | 75
VI DEO
Avalara Demand Inflection
M EG HI GGI NS
eCommerce Momentum
S ANJAY PARTHAS ARATHY
Platform for Growth
AM I T M ATHRADAS
Expanding TAM
S COTT M CFARLANE
The Next 10 Years
ROS S TENNENBAUM
Monetizing More
02
03
04
05
01
07 Live Q&A with Presenters
2020 HIGHLIGHTS
2020 was an outstanding yearduring unprecedented times
©Avalara.
107%4Q Avg. NRR*
$34MRecord FCF**
$501MTotal Revenue, +31% YoY
125%Total Stock Return***
~15KCore Customers
75%Subscription GM**
* Based on legacy NRR definition.** Non-GAAP – see appendix for reconciliation of Non-GAAP to GAAP financials.*** Based on the AVLR closing stock price on 12/31/2019 and 12/31/2020. A V A L A R A A N A L Y S T D A Y V I R T U A L | 76
$172MCalculated Billings*,
+47% YoY
$160MOrganic Calculated Billings*,
+37% YoY
Momentum Continues
2021:
Q1’2021 HIGHLIGHTS
$154MTotal Revenue,
+38% YoY
$143MOrganic Total Revenue,
+28% YoY
A V A L A R A A N A L Y S T D A Y V I R T U A L | 77*See appendix for reconciliation of non-GAAP to GAAP financials. Organic calculations exclude results from acquisitions since Q4’2020.
Driving the next 10-year cloud growth opportunity
2010 2020
©Avalara.
Just getting started…Omnichannel complexityExpanding platform Expanding GTM Expanding geographiesIncreasing TAM
Proven track record of durable growth
$501M40% 10-year revenue CAGR
A V A L A R A A N A L Y S T D A Y V I R T U A L | 78
CORE CUSTOMERS (revised to include SST)
BILLABLE ACCOUNTS END CUSTOMERS
15,730 27,000+ 87,000+(97K incl. MyLodge)
21% 26% 77%
Q1
2021
Y/Y
Gro
wth
A V A L A R A A N A L Y S T D A Y V I R T U A L | 79
Note: Core Customers as reported and revised to include adjustment for SST revenue; see appendix for definition. Billable Accounts is the sum of Core Customers, direct EMEA customers of ~2,000, and non-core customers. Prior Analyst Day Billable Accounts included ~11K MyLodge Tax customers which we have excluded due to year-over-year flatness from COVID impacts to hospitality market. End Customers is the sum of Billable Accounts and indirect active customers using our calculation solution through our Included program. All figures, unless otherwise noted, exclude our MyLodge and recent M&A customers.
CY '18 CY '19 CY '20
Revenue segmentation by customer type
©Avalara.
CORE CUSTOMER REV
15,730 Core Customers in Q1*
Customers >$3K in TTM revenue
Adjusted to include SST revenue which was previously “non-core”
Excludes customers from International, <$3K TTM revenue, M&A since Oct’20, indirect active customers on eComm partner platforms
Core CustomersA V A L A R A A N A L Y S T D A Y V I R T U A L | 80
87%
88%
88%$236M
$336M
$441M
+31%
+42%
*Q1 reported Core Customers of 15,580, revised to include SST; see appendix for revised core customer definition.
Revenue segmentation by customer type
©Avalara.
M&A REV
From M&A since Oct’20
NON-CORE CUSTOMER REV
Adjusted to move SST revenue to Core Customer revenue
Includes revenue from International, MyLodge Tax, and with <$3K in TTM revenue
CY '18 CY '19 CY '20
Core Customers Non-core Customers M&A CustomersA V A L A R A A N A L Y S T D A Y V I R T U A L | 81
87%
88%
88%13%
12%
11%
$272M
$382M
$501M
+42%
+31%
+14%
+29%
+41%
+31%
Note: see appendix for revised core customer definition.
A V A L A R A A N A L Y S T D A Y V I R T U A L | 82
Q1' 21 Customers Q1' 21 Revenue
15,73021% YoY
~9K24% YoY
~10K0% YoY
~2K, 51% YoY
$127M28% YoY
$4M 19% YoY
$2M, 4% YoY
Core Customers <3K TTM Rev International MyLodge M&A
N/A
$10M, 47% YoY
60K+, 100% YoY
Indirect eComm
$11M, NA YoY
Future Monetization
Note: International customers includes only EMEA customers and excludes customers monetized through our large marketplace partner and customers in Brazil and India. Approximately 50% of International revenue is from our large marketplace partner. Q1’21 revenue total also includes interest income, which is not represented with a color, given small contribution.
$154M~97K
Potential Future
Customer Growth
Avg. Rev. / Cust.
Customer Growth
Avg. Rev. / Cust.
Customer Growth
Avg. Rev. / Cust.
Customer Growth
Avg. Rev. / Cust.
Customer Growth
Avg. Rev. / Cust.
N/A
N/ATo
tal E
nd C
usto
mer
s
Bill
able
Acc
ount
s
Cor
e C
usto
mer
s
82% of total Q1 revenue
Highly diversified
28%
21%
11%
10%
6%
5%
4%
4%
4%3% 2% 2%% of ARR by Partner
All other partners
API
ERP #1
ERP #2
ERP #3
eComm #1
eComm #2
ERP #4
ERP #5
ERP #6
eComm #3
ERP #7
©Avalara A V A L A R A A N A L Y S T D A Y V I R T U A L | 83
23%
22%
18%
10%
6%
% of ARR by Industry
Wholesale &DistributionManufacturing
Retail
Software / Tech
Professional &Scientific
Note: % of ARR by Partner assumes an ARR allocation for multi-connector customers. Some partners may have a larger % of ARR when counting total ARR of a customer that has multiple connectors without allocation.
Monetizing more
© Avalara.
Core customers with >$100K TTM revenue
>$100K core customer segmentation
Avg. TTM revenueper core customer segment ($000)
556 616
668 732
787
52% 52% 49%44% 42%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
100
200
300
400
500
600
700
800
900
1Q 20 2Q 20 3Q 20 4Q 20 1Q 21
Core Customers Growth YoY
$53
$64 $71
$29 $32
$36
$18 $20 $23
$13 $13 $14
1Q 19 1Q 20 1Q 21
ENT Mid Small Emerging
A V A L A R A A N A L Y S T D A Y V I R T U A L | 84
360
275
138 14
ENT Mid Small Emerging
787
Note: See appendix for revised core customer definition.
Strong dollar retentionGross annual revenue churn below 4%
1Q 19 2Q 19 3Q 19 4Q 19 1Q 20 2Q 20 3Q 20 4Q 20 1Q 21
A V A L A R A A N A L Y S T D A Y V I R T U A L | 85
Meaningfully below 4%
COVID impact on 2020
Excludes downgrades
Note: See appendix for definition of gross annual revenue churn.
1Q 20 2Q 20 3Q 20 4Q 20 1Q 21
Expanding customersQuarterly Net revenue retention (revised)
LEGACY:104%REVISED:115%
LEGACY:107%REVISED:113%
A V A L A R A A N A L Y S T D A Y V I R T U A L | 86
LEGACY:108%REVISED:116%
LEGACY:107%REVISED:114%
LEGACY:109%REVISED:117%
Note: See appendix for definition of net revenue retention rate.
Revised NRR definition excludes PS revenue, includes SST
More meaningful expansion
Drivers: customer expansion, add-on, price optimization
Early in add-on journey
Expanding total available market (U.S. View)
IPO (2018) TODAYPlatform play
FUTUREGlobal compliance platform
©Avalara.
$8BTAM
$15BTAM
Monetization of more products
Expansion beyond tax to broader compliance
A V A L A R A A N A L Y S T D A Y V I R T U A L | 87
©Avalara.
Expanding U.S. TAM by numbers
CUSTOMER SEGMENT IPO TODAY 90TH
PERCENTILE
Enterprise500+ employees $500M+ revenue
$2.0B 19,699 firms$50K-150K $2.0B 20,139 firms
$50K-150K $129K
Mid Market100-499 employees$50-499M revenue
$2.3B 90,742 firms$20K-30K $3.0B 92,358 firms
$25K-40K $70K
Small20-99 employees$5-49M revenue
$1.6B 538,283 firms$1K-5K $8.2B 544,485 firms
$10K-20K $39K
Emerging Small<20 employees<$5M revenue
$2.1B 5,305,960 firms$200-600 $2.1B 5,339,918 firms
$200-600 $6K
$8.0B Total AvailableMarket (U.S.) $15.3B Total Available
Market (U.S.)
Source: # of firms at IPO and Today based on 2015 and 2017 US Census Data, respectively; Average revenue per customer ranges at IPO based on internal data at time of IPO in 2018. Today’s average revenue per customer based on data and analysis of trailing twelve months as of March 31, 2021 for representative customers in segment. A V A L A R A A N A L Y S T D A Y V I R T U A L | 88
Significant improvements in Non-GAAP operating loss and free cash flow
Non-GAAP Operating Loss ($M) Free Cash Flow ($M)
($45)
($14)
($3)
2018 2019 2020
($18)
$12
$34
2018 2019 2020
A V A L A R A A N A L Y S T D A Y V I R T U A L | 89Note: See appendix for reconciliation of non-GAAP to GAAP financials.
Well capitalized for growth
STRONG BALANCE SHEET
Modest cash burn$639 million in cash end of Q1’2021No debtFinancial flexibility
INVESTING FOR GROWTH
Maintain leadership positionInvest to pull awayPlatform companyExpanding segments and geographiesStrategic M&A and integration
©Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 90
Gross margin (Non-GAAP) PrioritiesConsolidate legacy platformsIncrease content and compliance automationIaaS consumption efficiencyGoLive and Support
Leverage“Core Avalara” continue to see leverageNew product, M&A, and PS mix impact on gross margin
0%
20%
40%
60%
80%
$0
$100
$200
$300
$400
FY18 FY19 FY20 Q120 Q121
Gross Profit % of Revenue
Quarterly72%73%
74%
$80
74%71%
$113
$199
$275
$369
Annual
A V A L A R A A N A L Y S T D A Y V I R T U A L | 91Note: See appendix for reconciliation of non-GAAP to GAAP financials.
Sales and marketing (Non-GAAP) PrioritiesRamping marketing program spend and quota carriersFocus on new and strategic productsExpand customer segs and geos
LeverageIncrease as % of revenue with increased focus on growth
Annual
0%
20%
40%
60%
80%
$0
$50
$100
$150
$200
FY18 FY19 FY20 Q120 Q121
S&M Expense % of Revenue
Quarterly$188
41%
59%
37%$46
38%41%
$58
$158$161
A V A L A R A A N A L Y S T D A Y V I R T U A L | 92Note: See appendix for reconciliation of non-GAAP to GAAP financials.
Research and development (Non-GAAP)
PrioritiesNew productsPlatformModern architectureM&A integration
LeverageConsistent % of rev as we focus on pace and platform
0%
5%
10%
15%
20%
25%
$0
$20
$40
$60
$80
$100
$120
FY18 FY19 FY20 Q120 Q121
R&D Expense % of Revenue
Quarterly
$49
$76
$10620%
18% 21%
$23
22%21%
$34
Annual
A V A L A R A A N A L Y S T D A Y V I R T U A L | 93Note: See appendix for reconciliation of non-GAAP to GAAP financials.
General and administrative (Non-GAAP)
PrioritiesLeadershipCorp. Dev. & Integration teamScale shared services for growth
LeverageFlat to improve as % of rev
0%
4%
8%
12%
16%
20%
$0
$20
$40
$60
$80
$100
FY18 FY19 FY20 Q120 Q121
G&A Expense % of Revenue
Quarterly
$34
$56
$7815%12%
15%
$18
15%16%
$23
Annual
A V A L A R A A N A L Y S T D A Y V I R T U A L | 94Note: See appendix for reconciliation of non-GAAP to GAAP financials.
Long-term Target Model (Non-GAAP)
% OF REVENUE 2018 2019 2019 2020 LT TARGET
Gross Margin 73% 72% 72% 74% 80-82%
Sales and Marketing 59% 46% 41% 37% 33-35%
Research and Development 18% 20% 20% 21% 14-16%
General and Administrative 12% 15% 15% 15% 8-10%
Operating Margin -17% -9% -4% -1% 20-25%
ASC 605 ASC 606
A V A L A R A A N A L Y S T D A Y V I R T U A L | 95Note: See appendix for reconciliation of non-GAAP to GAAP financials.
Financial highlights
©Avalara.
Large, expanded market; early days
Land larger, expand higher, monetize more
Long-term growth compounder
Efficiently investing for growth
Built-in long-term leverage
A V A L A R A A N A L Y S T D A Y V I R T U A L | 96
MAY
27
VI DEO
Avalara Demand Inflection
M EG HI GGI NS
eCommerce Momentum
S ANJAY PARTHAS ARATHY
Platform for Growth
AM I T M ATHRADAS
Expanding TAM
S COTT M CFARLANE
The Next 10 Years
ROS S TENNENBAUM
Monetizing More
02
03
04
05
06
01
Live Q&A with Presenters
A V A L A R A A N A L Y S T D A Y V I R T U A L | 97
Appendix:Financial definitions and reconciliations
©Avalara. A V A L A R A A N A L Y S T D A Y V I R T U A L | 98
A V A L A R A A N A L Y S T D A Y V I R T U A L | 99
Metric Legacy Definition Revised DefinitionCore 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.
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.
Prior to May 2021, revenue from our Streamlined Sales Tax solution (SST) was not included in our calculation of total revenue during the previous twelve months. This meant customers that would have otherwise met the definition of a core customer, with inclusion of attributable SST revenue, were excluded from our core customer count as well as our disclosures on the percentage of total revenue attributable to core customers. In May 2021, we revised the methodology for core customers to include revenue from SST.
We believe these changes improve the usefulness of this key business metric, which is to measure both the growth of existing customers into core customers and the acquisition of new customers of a certain size.
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.
Core Customers: Legacy and Revised DefinitionsProviding Greater Transparency & Usefulness
Note: This presentation includes core customers and net revenue retention rate for each of the periods presented based on both the legacy and revised definitions for comparison purposes.
Net Revenue Retention (NRR): Legacy and Revised DefinitionsProviding Greater Transparency & Usefulness
A V A L A R A A N A L Y S T D A Y V I R T U A L | 100
Metric Legacy Definition Revised Definition
Net Revenue Retention (NRR)
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.
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.
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.
Prior to May 2021, our Streamlined Sales Tax solution (SST) was not included in our reported net revenue retention rate. This meant that revenue expansion from existing customers adopting our SST solution was not included, while revenue contraction from customers replacing one or more of Avalara’s other solutions with SST was included.
In May 2021, we revised the calculation methodology for net revenue retention rate to include revenue from SST. In addition, professional services revenue is no longer included in the revised calculation methodology, as these services tend to be more one-time in nature.
We believe these changes improve the usefulness of this key business metric, which is to measure our ability to retain and grow revenue from existing customers over time.
Note: This presentation includes core customers and net revenue retention rate for each of the periods presented based on both the legacy and revised definitions for comparison purposes.
Gross Annual Revenue Churn: Definition
A V A L A R A A N A L Y S T D A Y V I R T U A L | 101
Metric Definition
Gross Annual Revenue Churn
We define gross annual revenue churn as the annual revenue contribution associated with billing accounts that cancel all of their agreements with us divided by the total annual revenue recognized during a measurement period.
As a reminder our gross annual revenue churn does not include downgrades 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).
Reconciliation to Non-GAAP Financial Measures ($000)
A V A L A R A A N A L Y S T D A Y V I R T U A L | 102
ASC 605 ASC 605 ASC 606 ASC 606 ASC 606 ASC 606
2018 2019 2019 2020 Q120 Q121
Reconciliation of Non-GAAP Gross Profit:
Gross Profit 193,449$ 267,122$ 267,122$ 357,474$ 77,189$ 108,930$
Stock-based compensation expense 1,665$ 3,122$ 3,122$ 5,909$ 1,196$ 2,207$
Amortization of acquired intangibles 4,020$ 4,854$ 4,854$ 5,166$ 1,230$ 2,020$
Non-GAAP Gross Profit 199,134$ 275,098$ 275,098$ 368,549$ 79,615$ 113,157$
Reconciliation of Non-GAAP Gross Margin:
Gross margin 71% 70% 70% 71% 69% 71%
Stock-based compensation expense as a percentage of revenue 1% 1% 1% 1% 1% 1%
Amortization of acquired intangibles as a percentage of revenue 1% 1% 1% 1% 1% 1%
Non-GAAP Gross Margin 73% 72% 72% 74% 71% 74%
Reconciliation of Non-GAAP Research and Development Expense:
Research and development 51,909$ 82,442$ 82,442$ 119,710$ 25,847$ 39,156$
Stock-based compensation expense (3,179)$ (6,666)$ (6,666)$ (13,226)$ (2,394)$ (5,286)$
Amortization of acquired intangibles -$ -$ -$ -$ -$ -$
Non-GAAP Research and Development Expense 48,730$ 75,776$ 75,776$ 106,484$ 23,453$ 33,870$
Non-GAAP Research and Development Expense (% of Revenue) 18% 20% 20% 21% 21% 22%
Reconciliation to Non-GAAP Financial Measures ($000)
A V A L A R A A N A L Y S T D A Y V I R T U A L | 103
ASC 605 ASC 605 ASC 606 ASC 606 ASC 606 ASC 606
2018 2019 2019 2020 Q120 Q121
Reconciliation of Non-GAAP Sales and Marketing Expense:
Sales and marketing 168,817$ 187,783$ 168,634$ 204,490$ 49,634$ 64,304$
Stock-based compensation expense (5,492)$ (8,736)$ (8,736)$ (12,147)$ (2,815)$ (4,266)$
Amortization of acquired intangibles (1,951)$ (2,271)$ (2,271)$ (4,664)$ (607)$ (1,540)$
Non-GAAP Sales and Marketing Expense 161,374$ 176,776$ 157,627$ 187,679$ 46,212$ 58,498$
Non-GAAP Sales and Marketing Expense (% of Revenue) 59% 46% 41% 37% 41% 38%
Reconciliation of Non-GAAP General and Administrative Expense:
General and administrative 39,603$ 71,918$ 71,918$ 95,242$ 21,388$ 30,851$
Stock-based compensation expense (5,585)$ (15,825)$ (15,825)$ (16,888)$ (3,326)$ (7,018)$
Amortization of acquired intangibles (17)$ (15)$ (15)$ (819)$ (4)$ (861)$
Non-GAAP General and Administrative Expense 34,001$ 56,078$ 56,078$ 77,535$ 18,058$ 22,972$
Non-GAAP General and Administrative Expense (% of Revenue) 12% 15% 15% 15% 16% 15%
Reconciliation of Non-GAAP Operating Loss:
Operating loss (76,054)$ (74,435)$ (55,872)$ (61,968)$ (19,680)$ (25,381)$
Stock-based compensation expense 15,921$ 34,349$ 34,349$ 48,170$ 9,731$ 18,777$
Amortization of acquired intangibles 5,988$ 7,140$ 7,140$ 10,649$ 1,841$ 4,421$
Goodwill impairment 9,174$ -$ -$ -$ -$ -$
Non-GAAP Operating Loss (44,971)$ (32,946)$ (14,383)$ (3,149)$ (8,108)$ (2,183)$
Non-GAAP Operating Margin (% of Revenue) -17% -9% -4% -1% -7% -1%
Reconciliation to Non-GAAP Financial Measures ($000)
A V A L A R A A N A L Y S T D A Y V I R T U A L | 104
ASC 605 ASC 605 ASC 606 ASC 606 ASC 606 ASC 606
2018 2019 2019 2020 Q120 Q121
Free Cash Flow:
Net cash used in operating activities (2,913)$ 22,150$ 22,150$ 42,618$ (24,471)$ (28,247)$
Purchases of property and equipment (14,373)$ (7,885)$ (7,885)$ (4,501)$ (883)$ (1,366)$
Capitalized software development costs (1,110)$ (2,295)$ (2,295)$ (4,159)$ (717)$ (2,311)$
Free Cash Flow (18,396)$ 11,970$ 11,970$ 33,958$ (26,071)$ (31,924)$
ASC 606
Q121
Reconciliation of Non-GAAP Subscription Gross Profit:
Subscription Gross Profit 101,155$
Stock-based compensation expense 1,699$
Amortization of acquired intangibles 1,068$
Non-GAAP Subscription Gross Profit 103,922$
Reconciliation of Non-GAAP Subscription Gross Margin:
Gross margin 73%
Stock-based compensation expense as a percentage of revenue 1%
Amortization of acquired intangibles as a percentage of revenue 1%
Non-GAAP Subscription Gross Margin 75%
Reconciliation to Non-GAAP Financial Measures ($000)
A V A L A R A A N A L Y S T D A Y V I R T U A L | 105
Calculated Billings
Organic
Calculated
Billings
Q119 Q219 Q319 Q419 Q120 Q220 Q320 Q420 Q121 Adjustments(1) Q121
Reconciliation of Calculated Billings:
Total Revenue 84,970$ 91,299$ 98,525$ 107,627$ 111,443$ 116,487$ 127,879$ 144,760$ 153,601$ (10,601)$ 143,000$
Add:
Deferred revenue (end of period) 132,714$ 138,811$ 148,466$ 161,241$ 165,369$ 167,719$ 180,640$ 209,690$ 225,531$ (12,537)$ 212,994$
Contract liabilities (end of period) 4,208$ 4,508$ 4,843$ 5,197$ 6,330$ 6,195$ 7,673$ 10,134$ 12,466$ (518)$ 11,948$
Impact of adoption of ASC 606 on deferred revenue 11,250$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$
Less:
Deferred revenue (beginning of period) (134,653)$ (132,714)$ (138,811)$ (148,466)$ (161,241)$ (165,369)$ (167,719)$ (180,640)$ (209,690)$ 11,575$ (198,115)$
Contract liabilities (beginning of period) -$ (4,208)$ (4,508)$ (4,843)$ (5,197)$ (6,330)$ (6,195)$ (7,673)$ (10,134)$ 463$ (9,671)$
Impact of adoption of ASC 606 on contract liabilities (2,090)$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$
Deferred revenue assumed in business combinations -$ -$ -$ -$ -$ -$ -$ (9,194)$ -$ -$ -$
Calculated Billings 96,399$ 97,696$ 108,515$ 120,756$ 116,704$ 118,702$ 142,278$ 167,077$ 171,774$ (11,618)$ 160,156$
(1) Adjustments relate to amounts attributable to acquisitions since October 2020.