10-Q 1 avlr-10q_20190331.htm 10-Q avlr-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2019

OR

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

For the transition period from to

Commission File Number: 001-38525

 

AVALARA, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Washington

 

 

91-1995935

(State or other jurisdiction of

incorporation or organization)

 

 

(I.R.S. Employer

Identification No.)

 

 

 

 

255 South King Street, Suite 1800

Seattle, WA

 

 

98104

(Address of principal executive offices)

 

 

(Zip Code)

 

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

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

 

Small reporting company

 

 

  

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 

 

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

 

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

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $0.0001 Per Share

AVLR

New York Stock Exchange

 

As of April 30, 2019, the registrant had 69,950,469 shares of common stock, $0.0001 par value per share, outstanding.

 

 

i


Table of Contents

 

 

 

 

Page

PART I

FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

 

1

 

Consolidated Balance Sheets (unaudited)

 

1

 

Consolidated Statements of Operations (unaudited)

 

2

 

Consolidated Statements of Comprehensive Loss (unaudited)

 

3

 

Consolidated Statements of Cash Flows (unaudited)

 

4

 

Notes to Consolidated Financial Statements (unaudited)

 

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

45

Item 4.

Controls and Procedures

 

46

PART II

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

47

Item 1A.

Risk Factors

 

47

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

47

Item 6.

Exhibits

 

48

Signatures

 

49

 

 

 

 

ii


Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties.  All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding future events or our future results of operations, financial condition, business, strategies, financial needs, and the plans and objectives of management, are forward­looking statements. In some cases you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “likely,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. Forward-looking statements are based on information available to our management as of the date of this report and our management's good faith belief as of such date with respect to future events and are subject to a number of risks, uncertainties, and assumptions that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

 

our ability to sustain our revenue growth rate, to achieve or maintain profitability, and to effectively manage our anticipated growth;

 

our ability to attract new customers on a cost-effective basis and the extent to which existing customers renew and upgrade their subscriptions;

 

the timing of our introduction of new solutions or updates to existing solutions;

 

our ability to successfully diversify our solutions by developing or introducing new solutions or acquiring and integrating additional businesses, products, services, or content;

 

our ability to maintain and expand our strategic relationships with third parties;

 

our ability to deliver our solutions to customers without disruption or delay;

 

our exposure to liability from errors, delays, fraud, or system failures, which may not be covered by insurance;

 

our ability to expand our international reach; and

 

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

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

 

 

iii


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

AVALARA, INC.

Consolidated Balance Sheets

(In thousands, except for per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

146,878

 

 

$

142,322

 

Trade accounts receivable—net of allowance for doubtful accounts of $539 and

   $521, respectively

 

 

45,381

 

 

 

40,287

 

Deferred commissions

 

 

6,062

 

 

 

 

Prepaid expenses and other current assets

 

 

13,255

 

 

 

11,307

 

Total current assets before customer fund assets

 

 

211,576

 

 

 

193,916

 

Funds held from customers

 

 

19,365

 

 

 

13,113

 

Receivable from customers—net of allowance of $283 and $198, respectively

 

 

1,238

 

 

 

270

 

Total current assets

 

 

232,179

 

 

 

207,299

 

Noncurrent assets:

 

 

 

 

 

 

 

 

Property and equipment—net

 

 

33,819

 

 

 

33,373

 

Goodwill

 

 

78,842

 

 

 

61,300

 

Intangible assets—net

 

 

26,440

 

 

 

19,371

 

Deferred commissions

 

 

19,582

 

 

 

 

Other noncurrent assets

 

 

1,824

 

 

 

1,589

 

Total assets

 

$

392,686

 

 

$

322,932

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Trade payables

 

$

9,536

 

 

$

4,847

 

Accrued expenses

 

 

41,600

 

 

 

42,217

 

Deferred revenue

 

 

131,733

 

 

 

125,260

 

Total current liabilities before customer fund obligations

 

 

182,869

 

 

 

172,324

 

Customer fund obligations

 

 

20,502

 

 

 

13,349

 

Total current liabilities

 

 

203,371

 

 

 

185,673

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

Deferred revenue

 

 

981

 

 

 

9,393

 

Deferred tax liability

 

 

599

 

 

 

560

 

Deferred rent

 

 

16,927

 

 

 

17,317

 

Other noncurrent liabilities

 

 

1,835

 

 

 

436

 

Total liabilities

 

 

223,713

 

 

 

213,379

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value– no shares issued and outstanding at

   March 31, 2019 and December 31, 2018, and 20,000 shares authorized as of

   March 31, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock, $0.0001 par value– 69,903 and 66,769 shares issued and

   outstanding at March 31, 2019 and December 31, 2018, respectively, and

   600,000 shares authorized as of March 31, 2019 and December 31, 2018

 

 

7

 

 

 

7

 

Additional paid-in capital

 

 

640,996

 

 

 

599,493

 

Accumulated other comprehensive loss

 

 

(2,807

)

 

 

(2,345

)

Accumulated deficit

 

 

(469,223

)

 

 

(487,602

)

Total shareholders’ equity

 

 

168,973

 

 

 

109,553

 

Total liabilities and shareholders' equity

 

$

392,686

 

 

$

322,932

 

 

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

1


AVALARA, INC.

Consolidated Statements of Operations (unaudited)

(In thousands, except per share data)

 

 

 

For the Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

Subscription and returns

 

$

78,231

 

 

$

57,870

 

Professional services

 

 

6,739

 

 

 

3,507

 

Total revenue

 

 

84,970

 

 

 

61,377

 

Cost of revenue:

 

 

 

 

 

 

 

 

Subscription and returns

 

 

20,978

 

 

 

14,817

 

Professional services

 

 

4,329

 

 

 

2,692

 

Total cost of revenue

 

 

25,307

 

 

 

17,509

 

Gross profit

 

 

59,663

 

 

 

43,868

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

15,956

 

 

 

12,619

 

Sales and marketing

 

 

38,208

 

 

 

37,307

 

General and administrative

 

 

15,234

 

 

 

9,211

 

Total operating expenses

 

 

69,398

 

 

 

59,137

 

Operating loss

 

 

(9,735

)

 

 

(15,269

)

Other (income) expense:

 

 

 

 

 

 

 

 

Interest income

 

 

(767

)

 

 

(36

)

Interest expense

 

 

111

 

 

 

894

 

Other (income) expense, net

 

 

48

 

 

 

(30

)

Total other (income) expense, net

 

 

(608

)

 

 

828

 

Loss before income taxes

 

 

(9,127

)

 

 

(16,097

)

Provision for (benefit from) income taxes

 

 

116

 

 

 

(848

)

Net loss

 

$

(9,243

)

 

$

(15,249

)

 

 

 

 

 

 

 

 

 

Net loss per share attributable to common shareholders,

   basic and diluted

 

$

(0.14

)

 

$

(2.47

)

Weighted average shares of common stock outstanding,

   basic and diluted

 

 

68,381

 

 

 

6,170

 

 

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

2


AVALARA, INC.

Consolidated Statements of Comprehensive Loss (unaudited)

(In thousands)

 

 

 

For the Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Net loss

 

$

(9,243

)

 

$

(15,249

)

Other comprehensive income (loss)—Foreign currency translation

 

 

(462

)

 

 

603

 

Total comprehensive loss

 

$

(9,705

)

 

$

(14,646

)

 

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

 

3


AVALARA, INC.

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

 

 

 

For the Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(9,243

)

 

$

(15,249

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,681

 

 

 

2,990

 

Stock-based compensation

 

 

6,560

 

 

 

3,510

 

Deferred tax expense

 

 

39

 

 

 

(1,018

)

Amortization of deferred rent

 

 

(133

)

 

 

301

 

Non-cash change in earnout liability

 

 

 

 

 

(71

)

Non-cash bad debt expense

 

 

222

 

 

 

67

 

Other

 

 

58

 

 

 

180

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

(5,535

)

 

 

(6,428

)

Prepaid expenses and other current assets

 

 

(1,705

)

 

 

(1,907

)

Other long-term assets

 

 

(236

)

 

 

110

 

Trade payables

 

 

3,590

 

 

 

(1,736

)

Accrued expenses and other current liabilities

 

 

(10,373

)

 

 

(5,771

)

Deferred commissions

 

 

(6,377

)

 

 

 

Deferred revenue

 

 

9,031

 

 

 

11,647

 

Net cash used in operating activities

 

 

(10,421

)

 

 

(13,375

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Net increase in customer fund assets

 

 

(7,224

)

 

 

(18,527

)

Cash paid for acquired intangible assets

 

 

(131

)

 

 

 

Cash paid for acquisitions of businesses

 

 

(17,310

)

 

 

 

Purchase of property and equipment

 

 

(2,114

)

 

 

(3,625

)

Net cash used in investing activities

 

 

(26,779

)

 

 

(22,152

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from credit facility

 

 

 

 

 

18,000

 

Payments of deferred financing costs

 

 

(39

)

 

 

 

Net increase in customer fund obligations

 

 

7,143

 

 

 

18,527

 

Proceeds from exercise of stock options and common stock warrants

 

 

27,311

 

 

 

326

 

Proceeds from purchases of stock under employee stock purchase plan

 

 

7,664

 

 

 

 

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

 

 

(93

)

 

 

(2,016

)

Repurchase of shares

 

 

 

 

 

(819

)

Net cash provided by financing activities

 

 

41,986

 

 

 

34,018

 

Foreign currency effect on cash and cash equivalents

 

 

(230

)

 

 

56

 

Net change in cash and cash equivalents

 

 

4,556

 

 

 

(1,453

)

Cash and cash equivalents—Beginning of period

 

 

142,322

 

 

 

14,075

 

Cash and cash equivalents—End of period

 

$

146,878

 

 

$

12,622

 

(continued)

4


 

 

 

For the Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Cash paid for interest expense

 

$

63

 

 

$

770

 

Cash paid for income taxes

 

77

 

 

 

96

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Accrued purchase price related to acquisitions

 

$

2,984

 

 

$

 

Accrued value of earnout related to acquisitions of businesses

 

 

5,952

 

 

 

 

Stock issued for acquisitions of intangible assets

 

 

50

 

 

 

 

Property and equipment purchased under tenant improvement allowance

 

 

 

 

 

621

 

Property and equipment additions in accounts payable and accrued expenses

 

 

938

 

 

 

3,719

 

Deferred financing costs in accounts payable and accrued expenses

 

 

272

 

 

 

502

 

Cashless exercises of options and warrants

 

 

5

 

 

 

5,699

 

Cashless redemptions of options and warrants

 

 

98

 

 

 

7,715

 

 

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

 

(Concluded)

 

 

 

5


AVALARA, INC.

Notes to Consolidated Financial Statements

(unaudited)

1.

Nature of Operations

 

Avalara, Inc. (the “Company”) provides software solutions that help businesses of all types and sizes comply with transaction tax requirements worldwide. The Company offers a broad and growing suite of compliance solutions for transaction taxes, such as sales and use tax, value-added tax (VAT), excise tax, lodging tax, and communications tax. These solutions enable customers to automate the process of determining taxability, identifying applicable tax rates, determining and collecting taxes, preparing and filing returns, remitting taxes, maintaining tax records, and managing compliance documents. The Company, a Washington corporation, was originally incorporated in 1999 and is headquartered in Seattle, Washington.

 

The Company has wholly owned subsidiaries in the United Kingdom, Canada, Belgium, India, and Brazil that provide business development, software development, and support services.

2.

Significant Accounting Policies        

Interim Financial Information

The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2019. The accompanying interim consolidated balance sheet as of March 31, 2019, the consolidated interim statements of operations for the three months ended March 31, 2019 and 2018, the consolidated statements of comprehensive loss for the three months ended March 31, 2019 and 2018, and the consolidated statements of cash flows for the three months ended March 31, 2019 and 2018, are unaudited. The unaudited interim consolidated financial statements have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the consolidated financial statements. The operating results for the three months ended March 31, 2019 are not necessarily indicative of the results expected for the full year ending December 31, 2019.

The Company adopted the new revenue recognition accounting standard, Accounting Standards Codification (“ASC”) 606, effective January 1, 2019 on a modified retrospective basis (see Recently Adopted Accounting Standards). Financial results for reporting periods during 2019 are presented in compliance with the new revenue recognition standard. Historical financial results for reporting periods prior to 2019 are presented in conformity with amounts previously disclosed under the prior revenue recognition standard ASC 605. These financial statements include additional information regarding the impacts from the adoption of the new revenue recognition standard on the financial results for the three months ended March 31, 2019. This includes the presentation of financial results during 2019 under ASC 605 for comparison to the prior year.

 

Principles of Consolidation

The accompanying consolidated financial statements include those of the Company and its subsidiaries after elimination of all intercompany accounts and transactions.

Segments

The Company operates its business as one operating segment. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker, the Company’s Chief Executive Officer, in deciding how to allocate resources and assess performance. The Company’s chief operating decision maker allocates resources and assesses performance based upon discrete financial information at the consolidated level.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.

6


AVALARA, INC.

Notes to Consolidated Financial Statements

(unaudited)

 

Fair Value Measurements

The Company applies the fair value measurement and disclosure provisions of the Accounting Standards Codification. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs are quoted prices for similar assets and liabilities in active markets or quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3: Inputs are unobservable inputs based on the Company’s assumptions and valuation techniques used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.

The Company’s assessment of the significance of an input to the fair value measurement requires judgment, which may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. The carrying amounts reported in the consolidated financial statements approximate the fair value for cash equivalents, trade accounts receivable, trade payables, and accrued expenses due to their short-term nature. The carrying amount of the Company’s revolving credit facility, to the extent there is a carrying amount as of the balance sheet date, approximates fair value, considering the interest rate is based on the prime interest rate.

Long-Lived Assets

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. An impairment is recognized in the event the carrying value of such assets is not recoverable. If the carrying value is not recoverable, the fair value is determined and an impairment is recognized for the amount by which the carrying value exceeds the fair value. No impairment of long-lived assets occurred in the first quarter of 2019.

Income Taxes

The Company’s deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and income tax basis of assets and liabilities and are measured using the enacted tax rates expected to apply in the years when the differences are expected to reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. The Company assesses its income tax positions and records income taxes based upon management’s evaluation of the facts, circumstances, and information available at the reporting date.

The Company determines whether its uncertain tax positions are more likely than not to be sustained upon examination based on the technical merits of the position. For tax positions not meeting the more likely than not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant taxing authority.

Stock-Based Compensation

The Company accounts for stock-based compensation by calculating the fair value of each option, common stock warrant, restricted stock unit (“RSU”), or purchase right issued under the Company’s 2018 Employee Stock Purchase Plan (“ESPP”) at the date of grant. The fair value of stock options, common stock warrants, and purchase rights issued under the ESPP is estimated by applying the Black-Scholes option-pricing model. This model uses the fair value of the Company’s underlying common stock at the measurement date, the expected or contractual term of the option, warrant or right, the expected volatility of its common stock, risk-free interest rates, and expected dividend yield of its common stock. The fair value of an RSU is determined using the fair value of the Company’s underlying common stock on the date of grant.

 

7


AVALARA, INC.

Notes to Consolidated Financial Statements

(unaudited)

 

Revenue Recognition – ASC 606

The Company primarily generates revenue from fees paid for subscriptions to tax compliance solutions and fees paid for services performed in preparing and filing tax returns on behalf of its customers. Amounts that have been invoiced are recorded in trade accounts receivable and deferred revenue, contract liabilities, or revenue, depending upon whether the revenue recognition criteria have been met. Revenue is recognized once the customer is provisioned and services are provided in an amount that reflects the consideration expected to be entitled to in exchange for those services. The Company’s revenue recognition policy follows guidance from ASC 606, Revenue from Contracts with Customers.

The Company determines revenue recognition through the following five-step framework:

Identification of the contract, or contracts, with a customer;

Identification of the performance obligations in the contract;

Determination of the transaction price;

Allocation of the transaction price to the performance obligations in the contract; and

Recognition of revenue when, or as, the Company satisfies a performance obligation.

The Company identifies performance obligations in its contracts with customers, which primarily include subscription services and professional services. The transaction price is determined based on the amount to which the Company expects to be entitled to in exchange for providing the promised services to the customer. The transaction price in the contract is allocated to each distinct performance obligation on a relative standalone selling price basis. Revenue is recognized when performance obligations are satisfied.

Contract payment terms are typically net 30 days. Collectability is assessed based on a number of factors including collection history and creditworthiness of the customer, and the Company may mitigate exposures to credit risk by requiring payments in advance. If collectability of substantially all consideration to which we are entitled under the contract is determined to be not probable, revenue is not recorded until collectability becomes probable at a later date.

Revenue is recorded based on the transaction price excluding amounts collected on behalf of third parties, such as sales taxes, which are collected on behalf of, and remitted to, governmental authorities.

Subscription and Returns Revenue

Subscription and returns revenue primarily consists of contractually agreed upon fees paid for using the Company’s cloud-based solutions, which include tax determination and compliance management services, and fees paid for preparing and filing transaction tax returns on behalf of customers. Under the Company’s subscription agreements, customers select a price plan that includes an allotted maximum number of transactions over the subscription term. Unused transactions are not carried over to the customer’s next subscription term, and customers are not entitled to refunds of fees paid or relief from fees due in the event they do not use the allotted number of transactions. If customers exceed the maximum transaction level within their price plan, the Company will generally upgrade the customer to a higher transaction price plan or, in some cases, charge overage fees on a per transaction basis.

The Company’s subscription arrangements do not provide the customer with the right to take possession of the software supporting the cloud-based application services. The Company’s standard subscription contracts are non-cancelable except where contract terms provide rights to cancel in the first 60 days of the contract term. Cancellations under the Company’s standard subscription contracts are not material, and do not have a significant impact on revenue recognized. Tax returns processing services include collection of tax data and amounts, preparation of compliance forms, and submission to taxing authorities. Returns processing services are primarily charged on a subscription basis for an allotted number of returns to process within a given time period.

Revenue is recognized ratably over the contractual term of the arrangement, beginning on the date that the service is made available to the customer. The Company invoices its subscription customers for the initial term at contract signing and at each subscription renewal. Initial terms generally range from 12 to 18 months, and renewal periods are typically one year. Amounts that are contractually billable and have been invoiced, or which have been collected as cash, are initially recorded as deferred revenue or contract liabilities. While most of the Company’s customers are invoiced once at the beginning of the term, a portion of customers are invoiced semi-annually, quarterly, or monthly.

8


AVALARA, INC.

Notes to Consolidated Financial Statements

(unaudited)

 

Included in the total subscription fee for cloud-based solutions are non-refundable upfront fees that are typically charged to the Company’s new customers. These fees are associated with work performed to set up a customer with the Company’s services, and do not represent a distinct good or service. Instead, the fees are included within the transaction price and allocated to the remaining performance obligations in the contract. The Company recognizes revenue for these fees in accordance with the revenue recognition for those performance obligations.  

Also included in subscription and returns revenue is interest income on funds held for customers. The Company uses trust accounts at FDIC-insured institutions to provide tax remittance services to customers and collect funds from customers in advance of remittance to tax authorities. After collection and prior to remittance, the Company earns interest on these funds.

Professional Services Revenue

The Company bills for service arrangements on a fixed fee, milestone, or time and materials basis. Professional services revenue includes fees from providing tax analysis, configurations, data migrations, integration, training, and other support services. The transaction price allocated to professional services performance obligations is recognized as revenue as services are performed or upon completion of work.

Judgments and Estimates

The Company’s contracts with customers often include obligations to provide multiple services to a customer. Determining whether services are considered distinct performance obligations that should be accounted for separately from one another requires judgment. Subscription services and professional services are both distinct performance obligations that are accounted for separately.

Judgment is required to determine the standalone selling price (“SSP”) for each distinct performance obligation. The Company allocates revenue to each performance obligation based on the relative SSP. The Company determines SSP for performance obligations based on overall pricing objectives, which take into consideration observable prices, market conditions and entity-specific factors. This includes a review of historical data related to the services being sold and customer demographics. The Company uses a range of amounts to estimate SSP for performance obligations. There is typically more than one SSP for individual services due to the stratification of those services by information such as size and type of customer.

The revenue recognition accounting policy for ASC 605 is included in the Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on February 28, 2019. The revenue recognition accounting policy for ASC 605 is applied to the disclosures in Note 6, which include amounts presented for 2019. There were no changes to the ASC 605 policy during the first quarter of 2019.

Assets Recognized from the Costs to Obtain a Contract with a Customer

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The Company has determined that certain costs related to employee sales incentive programs and partner commission programs represent incremental costs of obtaining a contract and therefore should be capitalized. Capitalized costs are included in deferred commissions on the consolidated balance sheets. These deferred commissions are amortized over an estimated period of benefit of generally six years. The Company determined the period of benefit by taking into consideration its past experience with customers, the expected life of acquired technology that generates revenue, industry peers, and other available information. The period of benefit is generally longer than the term of the initial contract because of anticipated renewals. The Company elected to apply the practical expedient to recognize the incremental costs of obtaining a contract as an expense if the amortization period of the asset would have been one year or less.

 

Recently Adopted Accounting Standards

 

As an “emerging growth company,” the Jumpstart Our Business Startups Act, or the JOBS Act, allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use the adoption dates applicable to private companies. As a result, the Company’s consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies.

 

9


AVALARA, INC.

Notes to Consolidated Financial Statements

(unaudited)

 

ASU No. 2014-09

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09 which, along with subsequent ASUs, amends the existing accounting standards for revenue recognition, and is codified as ASC 606. This guidance is based on principles that govern the recognition of revenue at the amount an entity expects to be entitled to receive as services are provided to customers. The Company adopted the new revenue recognition standard in the first quarter of 2019 on a modified retrospective basis and applied the new revenue recognition standard only to contracts that were not completed contracts prior to January 1, 2019.

 

The cumulative effect of the changes made to the consolidated January 1, 2019 balance sheet resulting from the adoption of ASC 606 was as follows (in thousands):

 

 

 

Balance at

December 31,

2018

 

 

Adjustments

due to

ASC 606

 

 

Balance at

January 1,

2019

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts receivable

 

$

40,287

 

 

$

(805

)

 

$

39,482

 

Deferred commissions, current portion

 

 

 

 

 

4,464

 

 

 

4,464

 

Deferred commissions, net of current portion

 

 

 

 

 

14,803

 

 

 

14,803

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

Accrued expenses

 

 

42,217

 

 

 

2,090

 

 

 

44,307

 

Deferred revenue, current portion

 

 

125,260

 

 

 

(3,157

)

 

 

122,103

 

Deferred revenue, net of current portion

 

 

9,393

 

 

 

(8,093

)

 

 

1,300

 

Accumulated deficit

 

 

(487,602

)

 

 

27,622

 

 

 

(459,980

)

 

The adoption changed the revenue recognition for non-refundable upfront fees included with new or upgraded subscriptions. Prior to the adoption of the new revenue recognition standard, the Company recognized revenue for these fees over the expected term of the customer relationship. Under the new guidance, the transaction price is allocated to distinct performance obligations. Because upfront fees do not represent a distinct performance obligation, any such fees will be recognized over the period in which distinct performance obligations in the contract are satisfied, which is typically the subscription term. The new revenue recognition standard also changed the determination of the contract term associated with subscriptions that were upgraded during the subscription term. Prior to the adoption of the new revenue recognition standard, additional fees associated with an upgraded subscription for services already delivered were recognized retrospectively upon upgrade. Under the new guidance, the fees related to the upgraded subscriptions are recognized prospectively over the contract term.

 

The adoption also changed the revenue recognition for contracts that include non-standard, extended customer cancellation provisions. Under the new guidance, a contract only exists for the period of time in which a contract cannot be cancelled, which generally corresponds to the termination notice period. Prior to the adoption of the new revenue recognition standard, non-standard, extended cancellation provisions were not a factor in determining the term of a contract. To the extent cash is received for a contract that includes a non-standard, extended cancellation provision, deferred revenue is recognized only for the amount for which the Company has an enforceable right. A contract liability is established for the remaining amount.

 

The new revenue recognition standard requires the Company to estimate variable consideration at contract inception as an increase or decrease to the transaction price. The total transaction price, inclusive of variable consideration, is allocated to performance obligations, or distinct service periods within a performance obligation, on a relative SSP basis and recognized as performance obligations are satisfied. Prior to the adoption of the new revenue recognition standard, overage fees, concessions, and cancellations allowed in the first 60 days of a standard subscription contract were recognized as they occurred.  

 

The new revenue recognition standard requires capitalization of certain incremental costs of obtaining a contract, such as certain employee sales commissions and partner commissions, which impacts the period in which the expense is recorded. Prior to the adoption of the new revenue recognition standard, those commission costs were expensed as incurred. Under the new revenue recognition standard, the Company is required to capitalize incremental costs of obtaining a contract and amortize them over the expected period of benefit, which is generally six years.  This results in a deferral of sales commission and partner commission expense each period.

 

For further discussion regarding the impacts of adopting the new revenue recognition standard, see Note 6.

 

10


AVALARA, INC.

Notes to Consolidated Financial Statements

(unaudited)

 

ASU No. 2016-15

 

In August 2016, the FASB issued ASU No. 2016-15, related to classification of certain cash receipts and payments. ASU No. 2016-15 is intended to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows and to eliminate the diversity in practice related to such classifications. The guidance in ASU No. 2016-15 is required for annual reporting periods beginning after December 15, 2018 for business entities that are not public, with early adoption permitted. The Company adopted the guidance on January 1, 2019. The adoption had no impact on the consolidated financial statements.

 

ASU No. 2018-07

 

In June 2018, the FASB issued ASU No. 2018-07, related to stock compensation for nonemployee share-based awards. ASU No. 2018-07 expands the scope of Topic 718 – Compensation – Stock Compensation to include share-based payments issued to nonemployees, with certain exceptions, in order to align the accounting for employees and nonemployees. The guidance in ASU No. 2018-07 is required for annual reporting periods beginning after December 15, 2019 for business entities that are not public, with early adoption permitted. The Company adopted the guidance on January 1, 2019. The adoption had an immaterial impact on the consolidated financial statements.

 

New Accounting Standards Not Yet Adopted

 

ASU No. 2016-02

 

In February 2016, the FASB issued ASU No. 2016-02 which requires lessees to generally recognize most operating leases on the balance sheets but record expenses on the income statements in a manner similar to current accounting standards. The guidance is effective in 2020 for business entities that are not public with early adoption permitted. The Company is currently evaluating the impact this guidance will have on the Company’s consolidated financial statements. The Company currently expects that most operating lease commitments will be subject to the new standard and will be recognized as operating lease liabilities and right-of-use assets upon adoption. While the Company has not yet quantified the impact, these adjustments will increase total assets and total liabilities relative to such amounts reported prior to adoption.

 

ASU No. 2018-15

 

In August 2018, the FASB issued ASU No. 2018-15, related to implementation costs incurred in a cloud computing arrangement that is a service contract. The guidance in ASU No. 2018-15 is required for annual reporting periods beginning after December 15, 2020, for business entities that are not public, with early adoption permitted. The Company is currently evaluating the impact this guidance will have on the Company’s consolidated financial statements.

11


AVALARA, INC.

Notes to Consolidated Financial Statements

(unaudited)

 

3.

Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis

The following financial assets and liabilities are measured at fair value on a recurring basis. The fair values recognized in the accompanying consolidated balance sheets and the level within the fair value hierarchy in which the fair value measurements fall is as follows (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

Quoted Prices

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

in Active

 

 

Other

 

 

Significant

 

 

 

 

 

 

 

Markets for

 

 

Observable

 

 

Unobservable

 

 

 

Fair

 

 

Identical Assets

 

 

Inputs

 

 

Inputs

 

March 31, 2019

 

Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Money market funds

 

$

140,316

 

 

$

140,316

 

 

$

 

 

 

$

 

 

Earnout related to acquisitions

 

 

5,952

 

 

 

 

 

 

 

 

 

 

 

5,952

 

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

Quoted Prices

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

in Active

 

 

Other

 

 

Significant

 

 

 

 

 

 

 

Markets for

 

 

Observable

 

 

Unobservable

 

 

 

Fair

 

 

Identical Assets

 

 

Inputs

 

 

Inputs

 

December 31, 2018

 

Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Money market funds

 

$

138,483

 

 

$

138,483

 

 

$

 

 

 

$

 

 

Earnout related to acquisitions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnout Liability

 

In connection with an acquisition accounted for as a business combination under ASC 805, earnout liabilities are recorded at estimated fair value on a recurring basis. Acquisitions accounted for as business combinations that occurred during the first quarter of 2019 are discussed in Note 5.

 

The Company estimates the fair value of earnout liabilities for business combinations using the probability-weighted discounted cash flow and Monte Carlo simulations. As of March 31, 2019, the earnout liability associated with the 2019 acquisition of substantially all of the assets of Compli, Inc. (“Compli”) was valued utilizing a discount rate of 5.4%, and the earnout liability associated with the 2019 acquisition of substantially all of the assets of Indix Corporation (“Indix”) was valued utilizing discount rates ranging from 5.4% to 5.8%. Each 2019 acquisition was valued using a risk-free rate based on linear interpolated U.S. Treasury rates commensurate with the term of the earnout. As of December 31, 2018 and March 31, 2019, the earnout liability associated with the 2016 acquisition of Gyori was determined to be zero. 

 

Earnout liabilities are classified as Level 3 liabilities because the Company uses unobservable inputs to value them, reflecting its assessment of the assumptions market participants would use to value these liabilities. Changes in the fair value of earnout liabilities associated with business combinations are recorded as other (income) expense, net in the consolidated statements of operations.

A reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying consolidated balance sheets using significant unobservable (Level 3) inputs, is as follows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Earnout liability:

 

 

 

 

 

 

 

 

Balance beginning of period

 

$

 

 

$

380

 

Fair value of earnout liability originally recorded

 

 

5,952

 

 

 

 

Total unrealized (gains) losses included in other income

 

 

 

 

 

(380

)

Balance end of period

 

$

5,952

 

 

$

 

 

12


AVALARA, INC.

Notes to Consolidated Financial Statements

(unaudited)

 

As of March 31, 2019, the fair value of the earnout liabilities recorded during the first quarter of 2019 did not materially change from the fair value that was originally recorded at the date of acquisition.  

 

Assets and liabilities measured at fair value on a non-recurring basis

 

The Company’s non-financial assets and liabilities, which include goodwill, intangible assets, and long-lived assets, are not required to be measured at fair value on a recurring basis. There were no fair value measurements of these assets during the first quarter of 2019, except as discussed in Note 5.

 

 

4.

Balance Sheet Detail

Property and equipment, net consisted of the following (in thousands):

 

 

 

Useful

 

March 31,

 

 

December 31,

 

 

 

Life (Years)

 

2019

 

 

2018

 

Computer equipment and software

 

3

 

$

13,948

 

 

$

12,904

 

Internally developed software

 

6

 

 

4,075

 

 

 

3,620

 

Furniture and fixtures

 

5

 

 

6,462

 

 

 

5,850

 

Office equipment

 

5

 

 

586

 

 

 

586

 

Leasehold improvements

 

1 to 10

 

 

27,108

 

 

 

26,788

 

 

 

 

 

 

52,179

 

 

 

49,748

 

Accumulated depreciation

 

 

 

 

(18,360

)

 

 

(16,375

)

Property and equipment—net

 

 

 

$

33,819

 

 

$

33,373

 

 

Depreciation expense was $2.0 million for the three months ended March 31, 2019 and $1.6 million for the three months ended March 31, 2018.

 

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Prepaid expenses

 

$

11,080

 

 

$

9,578

 

Deferred financing costs

 

 

853

 

 

 

643

 

Deposits

 

 

115

 

 

 

325

 

Other

 

 

1,207

 

 

 

761

 

Total

 

$

13,255

 

 

$

11,307

 

 

 

Accrued expenses consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Accrued payroll and related taxes

 

$

5,359

 

 

$

3,800

 

Accrued state, federal, and local taxes

 

 

1,902

 

 

 

1,827

 

Accrued bonus

 

 

3,252

 

 

 

10,766

 

Employee stock purchase plan contributions

 

 

1,990

 

 

 

6,473

 

Accrued sales commissions

 

 

3,504

 

 

 

6,889

 

Accrued partner commissions

 

 

6,105

 

 

 

5,535

 

Accrued earnout liabilities

 

 

5,980

 

 

 

116

 

Contract liabilities

 

 

4,208

 

 

 

 

Accrued  purchase price related to acquisitions

 

 

1,584

 

 

 

 

Other

 

 

7,716

 

 

 

6,811

 

Total

 

$

41,600

 

 

$

42,217

 

 

Contract liabilities represent amounts that are collected in advance of the satisfaction of performance obligations under the new revenue recognition standard. See Recently Adopted Accounting Standards in Note 2 and Contract Liabilities in Note 6.

 

 

13


AVALARA, INC.

Notes to Consolidated Financial Statements

(unaudited)

 

5.

Acquisitions of Businesses

January 2019 Acquisition of Compli

On January 22, 2019, the Company completed the acquisition of substantially all of the assets of Compli under an Asset Purchase Agreement (the “Compli Purchase”). Compli is a provider of compliance services, technology, and software to producers, distributors, and importers of alcoholic beverages in the United States. The Company accounted for the Compli Purchase as a business combination. As a result of the acquisition, the Company expanded its ability to provide transaction tax solutions and content for the alcoholic beverage industry. The transaction costs associated with the acquisition were not material.

The total consideration transferred related to this transaction was $17.1 million, consisting of $11.8 million paid in cash at closing, an additional $1.6 million of cash to be paid out after twelve months, and an earnout provision fair valued upon acquisition at $3.8 million. The earnout provision is for a one-time payment and has a maximum payout of $4.0 million based on revenue recognized by the Company from the acquired operating assets for the twelve-month period ending January 31, 2020. The earnout was originally recognized at fair value at the date of the business combination and is recorded as an accrued earnout liability in accrued expenses on the consolidated balance sheet as of March 31, 2019. The earnout is adjusted to fair value quarterly (see Note 3).

Estimated fair values of the assets acquired and the liabilities assumed in the Compli Purchase as of the acquisition date are provided in the following table (in thousands):    

 

Assets acquired:

 

 

 

 

Current assets

 

$

505

 

Developed technology, customer relationships, and other intangibles

 

 

4,288

 

Goodwill

 

 

12,807

 

Total assets acquired

 

 

17,600

 

Liabilities assumed:

 

 

 

 

Current liabilities

 

 

482

 

Total liabilities assumed

 

 

482

 

Net assets acquired

 

$

17,118

 

 

The estimated fair values are preliminary in nature and subject to adjustments, which could be material. The Company is currently in the process of finalizing the valuations related to the acquired intangible assets and contingent consideration. The valuations will be finalized when certain information arranged to be obtained has been received and the Company’s review of that information has been completed.

The Company utilizes different valuation approaches and methodologies to determine the fair value of acquired intangible assets. A summary of the valuation methodologies, significant assumptions, and estimated useful lives of acquired intangible assets in the Compli Purchase are provided in the below table (in thousands):

 

Intangible

 

Assigned Value

 

 

Valuation Methodology

 

Discount Rate

 

 

Estimated Useful

Life

Customer relationships

 

$

3,250

 

 

Multi-period excess

earnings-income approach

 

 

13

%

 

6 years

Trademarks and trade names

 

 

32

 

 

Relief from royalty-

income approach

 

 

13

%

 

2 years

Developed technology and

   customer database

 

 

910

 

 

Relief from royalty-

income approach

 

 

13

%

 

6 years

Noncompetition agreements

 

 

96

 

 

With-and-without valuation-

income approach

 

 

13

%

 

3 years

 

The excess of the purchase price over the net identified tangible and intangible assets of $12.8 million has been recorded as goodwill, which includes synergies expected from the combined service offerings and the value of the assembled workforce. The goodwill is expected to be non-deductible for tax purposes.

14


AVALARA, INC.

Notes to Consolidated Financial Statements

(unaudited)

 

For the period from the date of the Compli acquisition through March 31, 2019, revenue was $0.8 million and pre-tax loss was $0.1 million from the Compli business.

 

February 2019 Acquisition of Indix

On February 6, 2019, the Company completed the acquisition of substantially all of the assets of Indix under an Asset Purchase Agreement (the “Indix Purchase”). Indix is an artificial intelligence company providing comprehensive product descriptions for more than one billion products sold and shipped worldwide. The Company accounted for the Indix Purchase as a business combination. As a result of the acquisition, the Company intends to use the Indix artificial intelligence to maintain and expand its tax content database. The transaction costs associated with the acquisition were not material.

The total consideration transferred related to this transaction was $9.1 million, consisting of $5.5 million paid in cash at closing, an additional $1.4 million cash to be paid after eighteen months, and an earnout provision valued upon acquisition at $2.2 million. The earnout provision has a maximum payout of $3.0 million based on the successful transition and achievement of development milestones established in the purchase agreement. The earnout provides for payouts of $0.5 million within three months of closing, $0.65 million within seven months of closing, $0.65 million within eight months of closing, and $1.2 million within 12 months of closing. The earnout was originally recognized at fair value at the date of the business combination and is recorded in accrued expenses on the consolidated balance sheet. The earnout is adjusted to fair value quarterly (see Note 3).

Estimated fair values of the assets acquired and the liabilities assumed in the Indix Purchase as of the acquisition date are provided in the following table (in thousands):    

 

Assets acquired:

 

 

 

 

Current assets

 

$

94

 

Developed technology

 

 

4,472

 

Goodwill

 

 

4,953

 

Total assets acquired

 

 

9,519

 

Liabilities assumed:

 

 

 

 

Current liabilities

 

 

392

 

Total liabilities assumed

 

 

392

 

Net assets acquired

 

$

9,127

 

 

15


AVALARA, INC.

Notes to Consolidated Financial Statements

(unaudited)

 

These estimated fair values are preliminary in nature and subject to adjustments, which could be material. The Company is currently in the process of finalizing the valuations related to the acquired intangible assets and contingent consideration. The valuations will be finalized when certain information arranged to be obtained has been received and the Company’s review of that information has been completed.

The Company utilizes different valuation approaches and methodologies to determine the fair value of acquired intangible assets. A summary of the valuation methodologies, significant assumptions, and estimated useful lives of acquired intangible assets in the Indix Purchase are provided in the below table (in thousands):

 

Intangible

 

Assigned Value

 

 

Valuation Methodology

 

Discount Rate

 

Estimated Useful

Life

Developed technology

 

$

4,472

 

 

Relief from royalty-

income approach

 

24.5%

 

6 years

 

The excess of the purchase price over the net identified tangible and intangible assets of $5.0 million has been recorded as goodwill, which includes cost savings expected from the use of the acquired technology and the value of the assembled workforce. The goodwill is expected to be non-deductible for tax purposes.

For the period from the date of the Indix acquisition through March 31, 2019, pre-tax loss was $0.7 million from the Indix business.

 

6.

Revenue

 

The Company adopted the new revenue recognition accounting standard ASC 606 effective January 1, 2019 on a modified retrospective basis and applied the new standard only to contracts that were not completed contracts prior to January 1, 2019. See Note 2 for a description of the Company’s ASC 606 revenue recognition accounting policy. Financial results for reporting periods during 2019 are presented in compliance with the new revenue recognition standard. Historical financial results for reporting periods prior to 2019 have not been retroactively restated and are presented in conformity with amounts previously disclosed under ASC 605. This note includes additional information regarding the impacts from the adoption of the new revenue recognition standard on the financial results for the three months ended March 31, 2019. This includes the presentation of financial results during 2019 under ASC 605 for comparison to the prior year. The revenue recognition accounting policy for ASC 605 is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on February 28, 2019. There were no changes to the Company’s ASC 605 policy during the first quarter of 2019.

 

16


AVALARA, INC.

Notes to Consolidated Financial Statements

(unaudited)

 

Consolidated Balance Sheets – Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard

 

The following schedule summarizes the impacts from the adoption of the new revenue recognition standard on the consolidated balance sheet as of March 31, 2019 (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

As Reported

(ASC 606)

 

 

Impacts from

Adoption

 

 

Without

Adoption

(ASC 605)

 

 

As Reported

(ASC 605)

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

146,878

 

 

$

 

 

$

146,878

 

 

$

142,322

 

Trade accounts receivable—net of allowance for doubtful

   accounts

 

 

45,381

 

 

 

919

 

 

 

46,300

 

 

 

40,287

 

Deferred commissions

 

 

6,062

 

 

 

(6,062

)

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

13,255

 

 

 

 

 

 

13,255

 

 

 

11,307

 

Total current assets before customer fund assets

 

 

211,576

 

 

 

(5,143

)

 

 

206,433

 

 

 

193,916

 

Funds held from customers

 

 

19,365

 

 

 

 

 

 

19,365

 

 

 

13,113

 

Receivable from customers—net of allowance for doubtful

   accounts

 

 

1,238

 

 

 

 

 

 

1,238

 

 

 

270

 

Total current assets

 

 

232,179

 

 

 

(5,143

)

 

 

227,036

 

 

 

207,299

 

Noncurrent assets: