10-Q

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, 2022

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

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

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  ☒

As of April 28, 2022, the registrant had 87,859,718 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents

		Page
PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Consolidated Balance Sheets (unaudited)	3
	Consolidated Statements of Operations (unaudited)	4
	Consolidated Statements of Comprehensive Loss (unaudited)	5
	Consolidated Statements of Cash Flows (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	47
PART II	OTHER INFORMATION	49
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 6.	Exhibits	50
Signatures		51

i

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 forward-looking 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 for the year ended December 31, 2021, as amended by the Form 10-K/A for the year ended December 31, 2021 filed on May 5, 2022 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.

ii

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

AVALARA, INC.

Consolidated Balance Sheets

(In thousands, except for per share data)

	March 31,			December 31,
	2022			2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	1,481,853		$	1,514,064
Restricted cash		37,700			37,700
Trade accounts receivable—net of allowance for doubtful accounts of $5,772 and    $5,803, respectively		113,469			114,248
Deferred commissions		17,296			16,364
Prepaid expenses and other current assets		39,314			29,267
Total current assets before customer fund assets		1,689,632			1,711,643
Funds held from customers		64,359			62,509
Receivable from customers—net of allowance of $507 and $439, respectively		1,579			1,472
Total current assets		1,755,570			1,775,624
Noncurrent assets:
Deferred commissions		53,471			52,155
Operating lease right-of-use assets—net		43,225			44,385
Property and equipment—net		49,368			46,464
Intangible assets—net		89,775			96,818
Goodwill		671,431			672,381
Other noncurrent assets		10,827			10,704
Total assets	$	2,673,667		$	2,698,531
Liabilities and shareholders' equity
Current liabilities:
Trade payables	$	18,211		$	16,683
Accrued expenses		69,102			109,792
Deferred revenue		302,496			280,816
Accrued purchase price related to acquisitions		52,683			51,476
Accrued earnout liabilities		37,390			33,151
Operating lease liabilities		11,847			11,453
Total current liabilities before customer fund obligations		491,729			503,371
Customer fund obligations		66,368			64,302
Total current liabilities		558,097			567,673
Noncurrent liabilities:
Convertible senior notes—net		962,144			961,259
Deferred revenue		1,114			2,139
Accrued purchase price related to acquisitions		6,715			7,988
Accrued earnout liabilities		59,706			81,485
Operating lease liabilities		43,549			45,614
Deferred tax liability		5,383			5,158
Other noncurrent liabilities		751			761
Total liabilities	$	1,637,459			1,672,077
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.0001 par value – no shares issued and outstanding at   March 31, 2022, and December 31, 2021, and 20,000 shares authorized as of   March 31, 2022, and December 31, 2021		—			—
Common stock, $0.0001 par value – 87,785 and 87,087 shares issued and    outstanding at March 31, 2022, and December 31, 2021, respectively, and    600,000 shares authorized as of March 31, 2022, and December 31, 2021		9			9
Additional paid-in capital		1,776,400			1,732,742
Accumulated other comprehensive loss		(4,775	)		(3,428	)
Accumulated deficit		(735,426	)		(702,869	)
Total shareholders’ equity		1,036,208			1,026,454
Total liabilities and shareholders' equity	$	2,673,667		$	2,698,531

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

3

AVALARA, INC.

Consolidated Statements of Operations (unaudited)

(In thousands, except per share data)

	For the Three Months Ended March 31,
	2022			2021
Revenue:
Subscription and returns	$	186,866		$	139,318
Professional services		17,664			14,283
Total revenue		204,530			153,601
Cost of revenue:
Subscription and returns		50,077			38,033
Professional services		10,049			6,463
Total cost of revenue		60,126			44,496
Gross profit		144,404			109,105
Operating expenses:
Research and development		50,852			39,274
Sales and marketing		86,447			64,093
General and administrative		42,194			31,199
Total operating expenses		179,493			134,566
Operating loss		(35,089	)		(25,461	)
Other income (expense):
Fair value changes in earnout liabilities		4,001			(1,350	)
Interest income		186			24
Interest expense		(1,496	)		—
Other income (expense), net		126			(924	)
Total other income (expense), net		2,817			(2,250	)
Loss before income taxes		(32,272	)		(27,711	)
Provision for income taxes		(285	)		(2,357	)
Net loss	$	(32,557	)	$	(30,068	)
Net loss per share attributable to common shareholders,    basic and diluted	$	(0.37	)	$	(0.35	)
Weighted average shares of common stock outstanding,    basic and diluted		87,463			85,436

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

4

AVALARA, INC.

Consolidated Statements of Comprehensive Loss (unaudited)

(In thousands)

	For the Three Months Ended March 31,
	2022			2021
Net loss	$	(32,557	)	$	(30,068	)
Other comprehensive loss — Foreign currency    translation		(1,347	)		(390	)
Total comprehensive loss	$	(33,904	)	$	(30,458	)

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

5

AVALARA, INC.

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

	For the Three Months Ended March 31,
	2022			2021
Cash flows from operating activities:
Net loss	$	(32,557	)	$	(30,068	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		32,650			18,857
Depreciation and amortization		11,132			7,071
Amortization of debt issuance costs		885			—
Impairment of capitalized cloud computing costs		—			345
Deferred income tax expense		225			2,028
Non-cash operating lease costs		2,523			2,175
Fair value changes in earnout liabilities		(4,001	)		1,350
Non-cash bad debt expense		521			582
Other		(16	)		(389	)
Changes in operating assets and liabilities:
Trade accounts receivable		326			(14,695	)
Prepaid expenses and other current assets		(9,946	)		(9,186	)
Deferred commissions		(2,248	)		(2,360	)
Other noncurrent assets		(123	)		541
Trade payables		2,338			(1,895	)
Accrued expenses		(42,371	)		(15,634	)
Deferred revenue		20,655			15,841
Operating lease liabilities		(3,059	)		(2,810	)
Net cash used in operating activities		(23,066	)		(28,247	)
Cash flows from investing activities:
Purchase of property and equipment		(2,148	)		(1,366	)
Capitalized software development costs		(5,905	)		(2,311	)
Cash paid for acquisitions of businesses, net of cash and restricted cash equivalents acquired		—			(2,167	)
Net cash used in investing activities		(8,053	)		(5,844	)
Cash flows from financing activities:
Proceeds from exercise of stock options		2,281			5,529
Proceeds from purchases of stock under employee stock purchase plan		8,006			7,088
Acquisition-related post-closing payments		—			(1,971	)
Payments related to business combination earnouts		(10,770	)		—
Payments related to asset acquisition earnouts		(593	)		(690	)
Payments on financed asset purchases		(61	)		—
Net increase in customer fund obligations		2,066			3,598
Net cash provided by financing activities		929			13,554
Foreign currency effect		(160	)		6
Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents		(30,350	)		(20,531	)
Cash, cash equivalents, restricted cash, and restricted cash equivalents—Beginning of period		1,613,903			761,844
Cash, cash equivalents, restricted cash, and restricted cash equivalents—End of period	$	1,583,553		$	741,313
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Consolidated Balance Sheets, end of period:
Cash and cash equivalents	$	1,481,853		$	638,794
Restricted cash		37,700			68,886
Restricted cash equivalents—funds held from customers		64,000			33,633
Total cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period	$	1,583,553		$	741,313

6

	For the Three Months Ended March 31,
	2022		2021
Supplemental cash flow disclosures:
Cash paid for interest expense	$	1,140	$	—
Cash paid for operating lease liabilities		4,088		3,493
Cash paid for income taxes		506		153
Non-cash investing and financing activities:
Accrued value of earnout related to acquisitions of businesses		—		(1,802	)
Accrued purchase of intangible assets		304		178
Property and equipment additions in accounts payable and    accrued expenses		491		1,263
Capitalized internally developed software costs included in accounts payable and accrued expenses		482		—
Stock-based compensation costs capitalized to internally developed software		481		225
Operating lease right-of-use assets in exchange for lease obligations		1,362		43

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

7

AVALARA, INC.

Notes to Consolidated Financial Statements

(unaudited)

1.Summary of Significant Accounting Policies

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 and other product-related taxes such as sales and use tax, value-added tax (“VAT”), fuel excise tax, beverage alcohol, cross-border taxes (including tariffs and duties), lodging tax, communications tax, and insurance premium 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 outside of the U.S. in Brazil, Canada, Europe, and India, which conduct sales and operations and provide business development, software development, and support services.

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, 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as amended by the Form 10-K/A for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on May 5, 2022 (the “Amended 2021 Annual Report”). The accompanying interim consolidated balance sheet as of March 31, 2022, the consolidated interim statements of operations, consolidated statements of comprehensive loss, and the consolidated statements of cash flows for the three months ended March 31, 2022, 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, 2022, are not necessarily indicative of the results expected for the full year ending December 31, 2022.

Prior Period Restatements and Adjustments

While preparing the financial statements for the first quarter of 2022, the Company discovered an error in its recognition of stock-based compensation expense for restricted stock units (“RSUs”) impacting previously reported interim and annual consolidated financial statements. In the previously presented consolidated financial statements, the correction resulted in an increase of $0.1 million to stock-based compensation and an increase of $0.1 million to net loss on the consolidated statement of operations and the consolidated statement of cash flows for the three months ended March 31, 2021. The correction increased net loss and total comprehensive loss by $0.1 million on the consolidated statement of comprehensive loss for the three months ended March 31, 2021. The correction did not change total net cash used in operating activities on the consolidated statement of cashflows for the three months ended March 31, 2021. The correction increased additional paid-in capital and accumulated deficit by $0.1 million, with no change to total shareholders’ equity, on the consolidated statement of shareholders’ equity as of March 31, 2021. An explanation of the impact on the consolidated financial statements is contained in “Note 15—Correction of Previously Issued Consolidated Financial Statements” to the accompanying consolidated financial statements included in the Amended 2021 Annual Report, and the impact to each quarterly period consolidated statement of operations is included in “Quarterly Results of Operations” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” also included in the Amended 2021 Annual Report.

Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation.

Principles of Consolidation

The accompanying consolidated financial statements include those of the Company, its subsidiaries, and a variable interest entity for which the Company is the primary beneficiary, after elimination of all intercompany accounts and transactions.

8

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. Significant estimates and judgments related to revenue are described below in the Revenue Recognition Accounting Policy. Significant estimates impacting expenses include: expected credit losses associated with the allowance for doubtful accounts; the measurement of fair values of stock-based compensation award grants; the expected payout level of performance share unit grants; the expected earnout obligations in connection with acquisitions; the expected term of the customer relationship for capitalized contract cost amortization; the valuation and useful lives of acquired intangible assets; the valuation of the fair value of reporting units for analyzing goodwill; and the capitalization and useful life of capitalized software development costs. Actual results could materially differ from those estimates.

Fair Value of Financial Instruments

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, restricted cash equivalents, trade accounts receivable, trade payables, and accrued expenses, due to their short-term nature. The Company has measured the fair value of money market funds and available-for-sale securities based on quoted prices in active markets for identical assets and liabilities. The Company carries its Convertible Senior Notes at par value less unamortized debt issuance costs on its consolidated balance sheets and presents the fair value for disclosure purposes only.

Customer Funds Assets and Obligations

The Company has established a Delaware statutory trust (the “Customer Trust”) and appointed a federally insured bank as trustee, and the Customer Trust holds certain funds provided by its customers pending remittance to tax authorities. The Company is the sole beneficial owner of the Customer Trust. The Customer Trust is intended to be a bankruptcy-remote legal entity and meets the criteria in Accounting Standards Codification (“ASC”) Topic 810, Consolidation to be characterized as a variable interest entity (“VIE”). The Customer Trust is included in the Company’s consolidated financial statements because the Company determined it has a controlling financial interest in the Customer Trust as it has both (1) the power to direct the activities that most significantly impact the economic performance of the Customer Trust (including the power to make investment decisions for the trust) and (2) the right to receive benefits in the form of investment returns that could potentially be significant to the Customer Trust.

In 2021, certain customers began to remit tax payments to the Customer Trust with almost all customer funds remitted to and held by the Customer Trust as of December 31, 2021. Funds held from customers represent restricted cash equivalents and available-for-sale securities that, based upon the Company’s intent, are restricted solely for satisfying the obligations to remit funds relating to the Company’s tax remittance services. Customer fund obligations represent the Company’s contractual obligations to remit funds to satisfy customers’ tax obligations and are recorded on the consolidated balance sheets at the time that the Company or the Customer Trust collects funds from customers.

9

The following table details funds held from customers and customer fund obligations held by the Company and by the Customer Trust as of March 31, 2022 and December 31, 2021:

	March 31,		December 31,
	2022		2021
Funds held from customers (current assets):
Restricted cash equivalents – Company	$	647	$	13
Restricted cash equivalents – Customer Trust		63,353		62,126
Available-for-sale securities – Customer Trust		359		370
Funds held from customers	$	64,359	$	62,509
Customer fund obligations (current liabilities):
Customer fund obligations – Company		66,368		64,302
Customer fund obligations	$	66,368	$	64,302

Receivable from customers, net was $1.6 million and $1.5 million as of March 31, 2022, and December 31, 2021, respectively.

Business Combinations and Goodwill

The Company’s identifiable assets acquired and liabilities assumed in a business combination are recorded at their acquisition date fair values, which may be considered preliminary and subject to adjustment during the measurement period, which is up to one year from the acquisition date. The valuation requires management to make significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to:

• future expected cash flows from customer agreements, customer lists, distribution agreements, non-compete agreements, and proprietary content and technology;

• assumptions about the length of time the brand will continue to be used in the Company’s suite of solutions;

• royalty rates used to estimate the fees that could be charged to license the proprietary content and technology; and

• discount rates used to determine the present value of recognized assets and liabilities.

The Company’s estimates of fair value are based upon assumptions it believes to be reasonable, but that are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

Goodwill is calculated as the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets. Acquisition-related costs, including advisory, legal, accounting, valuation, and other costs, are expensed in the periods in which these costs are incurred. The results of operations of an acquired business are included in the consolidated financial statements beginning at the acquisition date. Goodwill is tested for impairment annually on October 31, or in the event of certain occurrences. There was no goodwill impairment recorded for the three months ended March 31, 2022 or 2021.

The Company estimates the fair value of the earnout liabilities related to business combinations using various valuation approaches, as well as significant unobservable inputs, reflecting the Company’s assessment of the assumptions market participants would use to value these liabilities. Following final determination of the acquisition date fair value, the fair value of the earnout is remeasured each reporting period, with any change in the value recorded as fair value changes in earnout liabilities in the consolidated statements of operation.    

Acquired Intangible Assets

Acquired intangible assets consist of developed technology, including in-process research and development (“IPR&D”), customer relationships, backlog, database content, noncompetition agreements, and tradenames and trademarks, resulting from the Company’s acquisitions. Acquired intangible assets are recorded at fair value on the date of acquisition and amortized over their estimated useful lives. IPR&D is initially capitalized at fair value as a developed technology intangible asset with an indefinite life and assessed for impairment thereafter. When an IPR&D project is completed, it is amortized over the asset’s estimated useful life.

The Company recognizes an earnout liability for acquisitions of intangible assets that are accounted for as an asset acquisition when the liability is earned and the amount is known. The earnout liability is capitalized as part of the cost of the assets acquired and amortized over the remaining useful life of the asset. Asset acquisition-related costs, primarily legal fees, are capitalized and included in the cost basis of the intangible asset when incurred.

10

Capitalized Software

Software development costs for internal-use software (i.e., cloud-based software solutions) are capitalized once the project is in the application development stage in accordance with the accounting guidance for internal-use software. These capitalized costs include external direct costs of services consumed in developing or obtaining the software and personnel expenses for employees who are directly associated with the development. Capitalization of these costs concludes once the project is substantially complete, and the software is ready for its intended purpose. Post-configuration training and maintenance costs are expensed as incurred. For the three months ended March 31, 2022 and 2021, $5.4 million and $2.5 million of software development costs were capitalized, respectively. Capitalized software development costs are amortized on a straight-line basis over the estimated useful life, generally 3 to 6 years. Software development costs are tested for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

In circumstances where software is developed for both cloud-based software solutions and for the purpose of being sold, leased, or otherwise marketed (i.e., customer hosted software), capitalization of development costs occurs after technological feasibility of the software is established and continues until the product is available for general release to customers. Since the Company’s developed software is available for general release concurrent with the establishment of technological feasibility, development costs are not capitalized in these circumstances.

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 three months ended March 31, 2022 or 2021.

Leases

Leases arise from contracts which convey the right to control the use of identified property or equipment for a period of time in exchange for consideration. The Company’s leasing arrangements are primarily for office space used to conduct operations. The Company determines whether an arrangement is or contains a lease at the inception date, based on whether there is an identified asset and whether the Company controls the use of the identified asset throughout the period of use. Leases commence when the lessor makes the asset available for use.

Leases are classified at commencement as either operating or finance leases. All the Company’s leases are classified as operating leases. Rent expense for operating leases is recognized on the straight-line method over the term of the agreement beginning on the lease commencement date. Lease-related costs, which are variable rather than fixed, are expensed in the period incurred. Variable lease costs consist primarily of common area maintenance and utilities costs for the Company’s office spaces that are due based on the actual costs incurred by the landlord. Lease payments that depend on an index or a rate are measured using the index or rate at the commencement date and are included in operating lease costs. Subsequent increases to lease payments due to a change in the index or rate are expensed as a variable lease cost.

Convertible Senior Notes

In August 2021, the Company completed a private offering of $977.5 million principal amount of 0.25% convertible senior notes due 2026 (the “2026 Notes”). The 2026 Notes are accounted for as debt, with no bifurcation of the embedded conversion feature. Debt issuance costs related to the Company’s issuance of the 2026 Notes consist primarily of purchaser’s discounts, commissions, and related costs. The debt issuance costs were recorded as a direct deduction from the liability associated with the 2026 Notes on the consolidated balance sheet and are amortized to interest expense over the term of the 2026 Notes.

In connection with the offering of the 2026 Notes, the Company purchased capped calls from certain financial institutions with respect to its common stock. As the capped calls are both legally detachable and separately exercisable from the 2026 Notes, the Company accounts for the capped calls separately from the 2026 Notes. The capped calls are indexed to the Company’s own common stock and classified in stockholder’s equity. As such, the premiums paid for the capped calls have been included as a net reduction to additional paid-in capital in the consolidated balance sheet as of March 31, 2022, and December 31, 2021.

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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 tax rates that will be in effect 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 a tax benefit or expense based upon management’s evaluation of the facts, circumstances, and information available at the reporting date.

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. The Company will recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact the consolidated financial statements.

Revenue Recognition

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 as services are provided in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

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 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 exposure to credit risk by requiring payments in advance. If collectability of substantially all consideration to which the Company is 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 collected and remitted to governmental authorities.

Subscription and Returns Revenue

Subscription and returns revenue primarily consist of contractually agreed upon fees paid for using the Company’s cloud-based solutions, which include tax calculation, preparing and filing transaction tax returns, compliance document management, and tax content subscription services. Under the Company’s subscription agreements, customers select a price plan that includes an allotted maximum number of transactions or number of jurisdictions 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. Fees paid for subscription services to tax content vary depending on the volume of tax information accessible to the customer.

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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.

The Company earns Streamlined Sales Tax (“SST”) revenue from participating state and local governments based on a percentage of the sales tax reported and paid.

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 historically most of the Company's customers are invoiced once at the beginning of the term, an increasing portion of customers are invoiced semi-annually, quarterly, or monthly.

Included in the total subscription fee for cloud-based solutions are non-refundable upfront fees that are typically charged to 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 from 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 generates professional services revenue from providing tax analysis and services, including business licenses and tax registrations, tax refund claims and recovery assistance, voluntary disclosure agreements, nexus studies, and back filing services. Additionally, the Company provides configurations, data migrations, integration, and training for its subscriptions and returns products. The Company invoices for professional service arrangements on a fixed fee, milestone, or time and materials basis. 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.

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 (sales commissions) 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, generally six years. The Company determines the period of benefit by taking into consideration 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.

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Stock-Based Compensation

The Company accounts for stock-based compensation by calculating the fair value of each option, RSU, or performance share unit (“PSU”) issued under the 2018 Equity Incentive Plan (the “2018 Plan”), or purchase rights issued under the 2018 Employee Stock Purchase Plan (“ESPP”), at the grant date. The fair value of stock options and purchase rights 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 or purchase 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 or PSU is determined using the fair value of the Company’s underlying common stock on the grant date. The stock-based compensation expense recognized over the performance period for PSUs will equal the fair value of the PSU on the grant date multiplied by the number of PSUs that are earned. Furthermore, the quarterly expense recognized during the performance period for PSUs is based on an estimate of the Company’s future performance and the expected payout level. Changes to management’s estimate of future performance result in adjustments to the stock-based compensation expense for PSUs and are recognized prospectively over the remaining service period. The Company accounts for forfeitures of stock-based awards as they occur.

Recently Adopted Accounting Standards

There are no accounting standards that have been recently adopted.

New Accounting Standards Not Yet Adopted

ASU 2021-08

In October 2021, the Financial Accounting Standards Board issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends the accounting related to contract assets and liabilities acquired in business combinations. Under current GAAP, an entity generally recognizes assets and liabilities acquired in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU 2021-08 requires that entities recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to businesses combinations occurring on or after the effective date of the amendment. Early adoption is permitted, including adoption in an interim period. The Company currently expects to adopt this new guidance in the first quarter of 2023 and is currently evaluating the impact of this new guidance on the consolidated financial statements.

2.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, 2022	Value		(Level 1)		(Level 2)		(Level 3)
Money market funds	$	1,405,965	$	1,405,965	$	—	$	—
Available-for-sale securities:
U.S. treasury securities		359		359		—		—
Earnouts related to business combinations		96,757		—		—		96,757

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			Fair Value Measurements Using
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Fair		Identical Assets		Inputs		Inputs
December 31, 2021	Value		(Level 1)		(Level 2)		(Level 3)
Money market funds	$	1,439,522	$	1,439,522	$	—	$	—
Available-for-sale securities:
U.S. treasury securities		370		370		—		—
Earnouts related to business combinations		113,978		—		—		113,978

Earnout Liability

Earnout liabilities recorded in connection with an acquisition accounted for as a business combination under ASC 805 are recorded at estimated fair value on a recurring basis. Business combinations included in the earnout liabilities table below are discussed in Note 4. Earnouts recorded in connection with asset acquisitions are recorded as earnout payments become known and are not remeasured on a recurring basis. As such, earnouts related to asset acquisitions, which are discussed in Note 6, are not included in these fair value disclosures.

Earnout liabilities related to business combinations 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 related to business combinations are recorded in fair value changes in earnout liabilities and included in total other income (expense), net in the consolidated statements of operations.

The Company estimates the fair value of earnout liabilities for business combinations using either probability-weighted discounted cash flows and Monte Carlo simulations or a scenario-based approach. 

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The following table provides summary information of the assumptions used to calculate the estimated earnout liabilities related to 2021 and 2020 acquisitions (in thousands):

						Discount Rate as of				Balance as of		Balance as of
Acquisition	Year of Acquisition		Earnout Target	Method	Earnout Period	March 31, 2022				March 31, 2022		December 31, 2021
CrowdReason		2021	Specific revenue growth thresholds through October 2024, a cap of $30.0 million is available; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	October 2024		5.0	%	(a)	$	24,368	$	26,320
Track1099		2021	Specific revenue growth thresholds through April 2023, with a cap of $12.5 million; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	April 2023		10.0	%	(a)		6,570		7,880
Davo		2021	Specific revenue growth thresholds through March 2023, with no cap; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	March 2023		8.0	%	(a)		34,940		35,885
Transaction Tax Resources (“TTR”)		2020	Specific revenue growth thresholds through December 2022, with cap of $26.4 million; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	December 2022		15.0	%	(c)		11,910		24,830
Business Licenses		2020	Achievement of certain performance metrics through November 2024, with cap of $20.7 million; to be settled in common stock.	Scenario-based approach	November 2024		6.2	%	(b)		18,969		19,063
Balance end of period										$	96,757	$	113,978
(a)   The discount rate was calculated using the build-up method with a risk-free rate commensurate with the term of the earnout based on the equity, asset and revenue betas, size premium, and the Company’s specific risk premium, as well as the market risk premium using a bottom-up approach.
(b)   The discount rate was based on the Company's estimated credit yield.  The Business Licenses earnout was assumed by management to have a high probability of achievement.
(c)   $13.2 million was paid on March 2, 2022 in satisfaction of the first earnout period for TTR.  The second earnout period, if achieved, is payable in March 2023.  The discount rate of 15% was only used for revenue that was non-contracted as of March 31, 2022. The discount rate of 15% was calculated using the build-up method with a risk-free rate commensurate with the term of the earnout based on the equity, asset and revenue betas, size premium, and the Company’s specific risk premium, as well as the market risk premium using a bottom-up approach. For contracted revenue, no risk adjusted discount rate was assumed, other than the cost of debt, as it is not subject to forecasting uncertainty.

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):

	For the Three Months Ended March 31,
	2022			2021
Earnout liabilities related to business combinations:
Balance beginning of period	$	113,978		$	34,501
Measurement period adjustments		—			1,802
Payments of earnout liabilities		(13,220	)		—
Fair value changes included in total other expense (income), net		(4,001	)		1,350
Balance end of period	$	96,757		$	37,653

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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, long-lived assets and deferred revenue, and the Company’s liabilities for the accrued purchase price related to acquisitions, are not required to be measured at fair value on a recurring basis. The estimation of fair value for these assets and liabilities requires the use of significant unobservable inputs, and as a result, the Company classifies these assets and liabilities as Level 3 within the fair value hierarchy.   

Fair Value of Other Financial Instruments

The Company has $977.5 million in principal amount of the 2026 Notes. See Note 9 for further details. The Company carries the 2026 Notes at par value less unamortized debt issuance costs on its consolidated balance sheet as of March 31, 2022, and December 31, 2021, and presents the fair value for disclosure purposes only. The estimated fair value of the 2026 Notes, based on a market approach as of March 31, 2022, was approximately $837.1 million, which represents a Level 2 valuation estimate. The estimated fair value was determined based on the actual bids and offers of the 2026 Notes in an over-the-counter market on the last trading day of the quarter.  

3.Balance Sheet Detail

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

	Useful	March 31,			December 31,
	Life (Years)	2022			2021
Computer equipment and software	3 to 5	$	21,240		$	19,923
Internally developed software	3 to 6		32,244			27,099
Furniture and fixtures	5		6,428			6,425
Office equipment	2 to 5		1,343			1,275
Leasehold improvements	1 to 10		30,102			30,046
			91,357			84,768
Accumulated depreciation			(41,989	)		(38,304	)
Property and equipment—net		$	49,368		$	46,464

Depreciation expense was $4.0 million for the three months ended March 31, 2022, and $2.6 million for the three months ended March 31, 2021.

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

	March 31,		December 31,
	2022		2021
Licenses and subscriptions	$	18,670	$	14,511
Prepaid and other current taxes		2,444		3,132
Deposits		4,903		3,746
Prepaid employee related expenses		2,755		2,780
Prepaid cloud computing implementation costs		2,262		1,708
Prepaid insurance		3,960		—
Other		4,320		3,390
Total	$	39,314	$	29,267

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Accrued expenses consisted of the following (in thousands):

	March 31,		December 31,
	2022		2021
Accrued bonus	$	11,476	$	40,853
Accrued partner commissions		14,133		13,088
Accrued payroll and related taxes		15,127		10,208
Employee stock purchase plan contributions		3,463		7,113
Accrued sales commissions		5,422		7,007
Contract liabilities		897		6,918
Accrued federal, state, local, and foreign taxes		3,574		3,926
Self-insurance reserves		2,471		2,401
Accrued interest payable on Convertible Senior Notes		414		944
Other		12,125		17,334
Total	$	69,102	$	109,792

4. Acquisitions of Businesses

April 2021 Acquisition of Inposia

On April 1, 2021, the Company acquired the outstanding equity of Inposia under a Share Purchase Agreement (the “Inposia Purchase”). Inposia is a German software company that delivers e-invoicing, digital tax reporting, and system and data integration to support digital transformation efforts and address real-time compliance requirements for businesses. Inposia will build upon Avalara’s existing e-invoicing capabilities in Brazil and India to support customers worldwide with real-time compliance. The Company accounted for the Inposia Purchase as a business combination. Acquisition-related costs of $1.5 million were primarily for legal and due-diligence related fees and were recorded in general and administrative expense, of which $1.0 million was incurred in the second half of 2020 and $0.5 million was incurred in 2021.

The total consideration transferred related to this transaction was €31.8 million (or approximately $37.4 million using the exchange rate on April 1, 2021), consisting of net cash consideration of $14.5 million and 164,416 shares of the Company’s common stock paid at closing with an acquisition date fair value of $23.0 million. Net cash consideration consists of $12.2 million cash paid at closing, and a $2.4 million cash deposit paid in the fourth quarter of 2020, offset by $0.2 million cash received by the Company in the third quarter of 2021 as a result of net working capital adjustments. A portion of shares issued are held in escrow as of March 31, 2022, and will be released to the Inposia shareholders during the 18 months following the acquisition, subject to reduction for certain indemnification and other potential obligations of the Inposia shareholders. The shares held in escrow are considered issued and outstanding and are recorded in shareholders’ equity on the consolidated balance sheet as of December 31, 2021 and March 31, 2022.  

Total consideration associated with this acquisition is presented below (in thousands):

	Total Consideration
Cash paid at closing (net of amounts returned)	$	14,456
Fair value of common stock issued at closing		22,971
Total consideration	$	37,427

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

	Fair Value
Assets acquired:
Cash and cash equivalents	$	1,264
Trade accounts receivable		1,767
Other current assets		268
Operating lease right-of-use assets		928
Property and equipment		98
Developed technology, customer relationships, and other intangibles		14,269
Goodwill		26,520
Other noncurrent assets		35
Total assets acquired		45,149
Liabilities assumed:
Trade payables and accrued expenses		1,478
Deferred revenue		810
Other liabilities, noncurrent		106
Operating lease liabilities		928
Deferred tax liability		4,400
Total liabilities assumed		7,722
Net assets acquired	$	37,427

The carrying amount of trade accounts receivable acquired in the Inposia Purchase approximates the fair value. The fair value of deferred revenue was estimated utilizing a discount rate of 4.0% based on the Company’s estimated pre-tax cost of debt.

The Company utilizes different valuation approaches and methodologies to determine the fair value of acquired intangible assets. The weighted-average amortization period for all intangibles acquired in the Inposia Purchase is 6.2 years. A summary of the valuation methodologies, significant assumptions, and estimated useful lives of acquired intangible assets in the Inposia Purchase are provided in the below table (in thousands):

Intangible	Fair Value		Valuation Methodology	Discount Rate	Estimated Useful Life
Customer relationships	$	3,288	Multi-period excess earnings-income approach	18.5%	8 years
Developed technology		9,572	Relief from royalty-income approach	18.5%	6 years
Noncompetition agreements		1,174	With-and-without valuation-income approach	21.0%	3 years
Tradename		235	Relief from royalty-income approach	18.5%	3 years

The excess of the purchase price over the net identified tangible and intangible assets is $26.5 million and has been recorded as goodwill, which includes synergies expected from the combined service offerings and the value of the assembled workforce. The goodwill is not expected to be deductible for tax purposes.

April 2021 Acquisition of Davo

On April 20, 2021, the Company acquired substantially all the assets of Davo under an Asset Purchase Agreement (the “Davo Purchase”). Davo helps emerging small businesses automate the daily and ongoing requirements for sales tax. As a result of the acquisition, Davo extends Avalara’s ability to provide integrated sales tax compliance processes to alleviate the burden of compliance on small businesses. The Company accounted for the Davo Purchase as a business combination. Acquisition-related costs of $0.1 million were primarily for legal and due-diligence related fees and were recorded in general and administrative expense.

The total consideration transferred related to this transaction was $56.7 million, consisting of $23.5 million cash paid at close, a $0.3 million cash deposit paid in the first quarter of 2021, an acquisition holdback with a fair value upon acquisition of $2.6 million, and an earnout provision with a fair value upon acquisition of $30.3 million. The acquisition holdback represents an additional $2.6 million of cash to be paid Davo shareholders during the 18 months following the acquisition date, subject to reduction for certain indemnifications and other potential obligations of Davo shareholders. The earnout will be calculated as a multiple of certain performance metrics during the 12-month measurement periods ending March 31, 2022, and 2023, and there is not a stated minimum or maximum payment required under the earnout.

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Total consideration associated with this acquisition is presented below (in thousands):

	Total Consideration
Cash paid through closing	$	23,818
Fair value of earnout provision		30,338
Fair value of holdbacks		2,591
Total consideration	$	56,747

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

	Fair Value
Assets acquired:
Cash and cash equivalents	$	198
Funds held from customers		12,464
Trade accounts receivable		119
Other current assets		58
Operating lease right-of-use assets		46
Developed technology, customer relationships, and other intangibles		4,651
Goodwill		51,911
Other noncurrent assets		2
Total assets acquired		69,449
Liabilities assumed:
Accrued expenses		117
Deferred revenue		75
Operating lease liabilities		46
Customer fund obligations		12,464
Total liabilities assumed		12,702
Net assets acquired	$	56,747

The carrying amount of trade accounts receivable and deferred revenue acquired in the Davo Purchase approximates the fair value.

The Company utilizes different valuation approaches and methodologies to determine the fair value of acquired intangible assets. The weighted-average amortization period for all intangibles acquired in the Davo Purchase is 5.4 years. A summary of the valuation methodologies, significant assumptions, and estimated useful lives of acquired intangible assets in the Davo Purchase are provided in the below table (in thousands):

Intangible	Fair Value		Valuation Methodology	Discount Rate	Estimated Useful Life
Customer relationships	$	2,050	Multi-period excess earnings-income approach and replacement cost method-cost approach	13.5%	6 years
Developed technology		1,950	Relief from royalty-income approach	13.5%	5 years
Noncompetition agreements		564	With-and-without valuation-income approach	15.5%	5 years
Tradename		87	Relief from royalty-income approach	13.5%	1 year

The excess of the purchase price over the net identified tangible and intangible assets is $51.9 million and 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 deductible for tax purposes.

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September 2021 Acquisition of 3CE Technologies, Inc

On September 7, 2021, the Company acquired substantially all the assets of 3CE under an Asset Purchase Agreement (the “3CE Purchase”). 3CE is a Canadian company that provides software and services for Harmonized System code classifications and verifications, primarily to government entities and logistics services providers. The acquisition will expand and improve Avalara’s Harmonized System classification content and provide a new self-service model to sell to the Company’s customers. The Company accounted for the 3CE purchase as a business combination. The total consideration related to this transaction is $11.2 million, consisting of $9.9 million cash paid at close and an acquisition holdback with a fair value upon acquisition of $1.3 million. The fair values of the assets acquired and the liabilities assumed in the 3CE Purchase as of the acquisition date include intangible assets of $3.7 million, primarily attributable to developed technology and customer relationships and goodwill of $7.1 million.

October 2021 Acquisition of Track1099

On October 1, 2021, the Company acquired substantially all the assets of Track1099 under an Asset Purchase Agreement (the “Track1099 Purchase”). Track1099 provides online software and services for cost-effectively managing, e-filing, and e-delivering Internal Revenue Service forms, including Forms 1099, W-2, and W-9. The Company accounted for the Track1099 Purchase as a business combination. Acquisition related costs of $0.1 million were primarily for legal and due-diligence related fees and were recorded in general and administrative expense.

The total consideration related to this transaction was $48.8 million, consisting of $35.0 million cash paid at close, an acquisition holdback with a fair value upon acquisition of $5.0 million, and an earnout provision with a fair value upon acquisition of $8.8 million. The acquisition holdback represents an additional $5.0 million of cash to be paid to the sellers 27 months following the acquisition date, subject to reduction for certain indemnifications and other potential obligations of the sellers. The earnout for Track1099 is calculated based on certain billing performance metrics during the 12-month measurement periods ending April 30, 2022 and April 30, 2023, not to exceed $12.5 million in total or $6.25 million in each earnout period.

Preliminary total consideration as of March 31, 2022, is presented below (in thousands):

	Total Consideration (preliminary)
Cash paid through closing	$	35,000
Fair value of earnout provision		8,820
Fair value of holdbacks		4,984
Total consideration	$	48,804

Preliminary estimated fair values of the assets acquired and the liabilities assumed in the Track1099 Purchase as of the acquisition date are provided in the following table (in thousands): 

	Fair Value (preliminary)
Assets acquired:
Prepaid and other current assets	$	2
Developed technology, customer relationships, and other intangibles		5,850
Goodwill		42,962
Total assets acquired		48,814
Liabilities assumed:
Current liabilities		1
Deferred revenue		9
Total liabilities assumed		10
Net assets acquired	$	48,804

The estimated fair values for certain acquired intangibles, the earnout, and holdback are preliminary in nature and subject to adjustment when the necessary information is available to complete the valuation.

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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 Track1099 Purchase are provided in the table below (in thousands):

Intangible	Assigned Value		Valuation Methodology	Discount Rate	Estimated Useful Life
Customer relationships	$	3,200	Multi-period excess earnings-income approach	28.0%	5 years
Developed technology		1,250	Relief from royalty-income approach	28.0%	2 years
Noncompetition agreement		1,300	With-and-without valuation-income approach	30.0%	5 years
Tradename		100	Relief from royalty-income approach	28.0%	2 years

The excess of the purchase price over the net identified tangible and intangible assets is $43.0 million and 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 deductible for tax purposes.

October 2021 Acquisition of CrowdReason and CorrelationAdvisors

On October 18, 2021, the Company acquired substantially all the assets of CrowdReason, Limited Liability Company and CorrelationAdvisors, LLC under an Asset Purchase Agreement (the “CrowdReason Purchase”). CrowdReason is a technology services company that provides software applications, solutions, and services for property tax compliance. CorrelationAdvisors provides consulting services related to property valuation and property tax compliance. The Company accounted for the CrowdReason Purchase as a business combination. Acquisition-related costs of $0.2 million were primarily for legal and due-diligence related fees and were recorded in general and administrative expense.

The total consideration transferred related to this transaction was $36.4 million, consisting of $8.3 million cash paid at close, acquisition holdbacks with a fair value upon acquisition of $1.7 million, and an earnout provision with a fair value upon acquisition of $26.3 million. The acquisition holdback represents an additional $1.7 million of cash to be paid to the sellers during the 18 months following the acquisition date, subject to reduction for certain indemnifications and other potential obligations of the sellers. The earnout is calculated as a multiple of revenue growth thresholds during the 12-month measurement periods ending October 31, 2022, 2023, and 2024, with the total purchase price, inclusive of earnouts, not to exceed $40.0 million.

Preliminary total consideration as of March 31, 2022, is presented below (in thousands):

	Total Consideration (preliminary)
Cash paid through closing	$	8,317
Fair value of earnout provision		26,320
Fair value of holdbacks		1,727
Total consideration	$	36,364

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

	Fair Value (preliminary)
Assets acquired:
Current assets	$	1,426
Developed technology, customer relationships, and other intangibles		10,300
Goodwill		25,415
Total assets acquired		37,141
Liabilities assumed:
Current liabilities		101
Deferred revenue & contract liabilities		676
Total liabilities assumed		777
Net assets acquired	$	36,364

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The estimated fair values for certain acquired intangibles, the earnout, and holdback are preliminary in nature and subject to adjustment when the necessary information is available to complete the valuation.

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 CrowdReason Purchase are provided in the table below (in thousands):

Intangible	Assigned Value		Valuation Methodology	Discount Rate	Estimated Useful Life
Customer relationships	$	5,700	Multi-period excess earnings-income approach	18.0%	5 to 8 years
Developed technology		3,900	Relief from royalty-income approach	18.0%	5 years
Backlog		450	Multi-period excess earnings-income approach	15.0%	1 year
Noncompetition agreements		100	With-and-without valuation-income approach	20.0%	5 years
Tradename		150	Relief from royalty-income approach	18.0%	2 years

The excess of the purchase price over the net identified tangible and intangible assets is $25.4 million and 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 deductible for tax purposes.

Pro Forma Financial Information (Unaudited)

The unaudited pro forma financial information in the table below summarizes the combined results of operations for Avalara and all 2021 acquisitions as though the companies were combined as of January 1, 2021. There were no acquisitions during the three months ended March 31, 2022. The unaudited pro forma financial information presented also includes certain business combination accounting effects resulting from the acquisitions, including amortization charges from acquired intangible assets. No adjustments were made for the fair value of deferred revenue and contract liabilities or fair value measurement adjustments for earnout liabilities. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had occurred on the dates indicated.

	For the Three Months Ended March 31,
	2022			2021
Total revenue	$	204,530		$	163,275
Pre-tax loss		(32,272	)		(27,806	)

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5.Revenue

See Note 1 for a description of the Company’s revenue recognition accounting policy.

Disaggregation of Revenue

The following table disaggregates revenue generated within the United States (“U.S.”) from revenue generated from customers outside of the U.S. Revenue for transaction tax compliance in the U.S. is further disaggregated based on the solutions or services purchased by customers. Total revenues consisted of the following (in thousands):

	For the Three Months Ended March 31,
	2022		2021
Revenue (U.S.):
Subscription and returns
Tax calculations	$	100,500	$	76,396
Tax returns and compliance management		73,727		52,847
Interest income on funds held for customers		208		141
Total subscription and returns		174,435		129,384
Professional services		16,041		13,288
Total revenue (U.S.)		190,476		142,672
Total revenue (non-U.S.)		14,054		10,929
Total revenue	$	204,530	$	153,601

Disclosures Related to Contracts with Customers

Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to contracts with customers. Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. To the extent a contract exists, as defined by ASC 606, these liabilities are classified as current and non-current deferred revenue. To the extent that a contract does not exist, as defined by ASC 606 (e.g., customer agreements with non-standard termination rights), these liabilities are classified as contract liabilities. Contract liabilities are transferred to deferred revenue at the point in time when the criteria that establish the existence of a contract are met.

Contract Liabilities

A summary of the activity impacting the contract liabilities during the three months ended March 31, 2022 and 2021, is presented below (in thousands):

	For the Three Months Ended March 31,
	2022			2021
Contract liabilities:
Balance beginning of period	$	6,918		$	10,134
Contract liabilities transferred to deferred revenue		(6,622	)		(3,866	)
Addition to contract liabilities		601			6,198
Balance end of period	$	897		$	12,466

As of March 31, 2022, contract liabilities are expected to be transferred to deferred revenue within the next 12 months and therefore are included in accrued expenses on the consolidated balance sheets. As of December 31, 2021 the majority of the contract liability balance related to a single marketplace partner. During the first quarter of 2022, the agreement with this partner was amended such that amounts are no longer presented separately as contract liabilities.

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Deferred Revenue

A summary of the activity impacting deferred revenue balances during the three months ended March 31, 2022 and 2021, is presented below (in thousands):

	For the Three Months Ended March 31,
	2022			2021
Deferred revenue:
Balance beginning of period	$	282,955		$	209,690
Revenue recognized		(204,530	)		(153,601	)
Additional amounts deferred		225,185			169,442
Balance end of period	$	303,610		$	225,531

As of March 31, 2022, $302.5 million of deferred revenue is expected to be recognized within the next 12 months and is included in current liabilities on the consolidated balance sheets. The remaining amount of deferred revenue is included in noncurrent liabilities and is expected to be recognized within the next 18 months.

Assets Recognized from the Costs to Obtain Contracts with Customers

Assets are recognized for the incremental costs of obtaining a contract with a customer if the benefit of those costs is expected to be longer than one year. These deferred commissions are amortized over an expected period of benefit of generally six years.

A summary of the activity impacting the deferred commissions during the three months ended March 31, 2022, is presented below (in thousands):

	For the Three Months Ended March 31,
	2022			2021
Deferred commissions:
Balance beginning of period	$	68,519		$	50,870
Additional commissions deferred		6,832			5,695
Amortization of deferred commissions		(4,584	)		(3,335	)
Balance end of period	$	70,767		$	53,230

As of March 31, 2022, $17.3 million of deferred commissions are expected to be amortized within the next 12 months and are included in current assets on the consolidated balance sheets. The remaining amount of deferred commissions is included in noncurrent assets. There were no impairments of assets related to deferred commissions during the three months ended March 31, 2022 or 2021. There were no assets recognized related to the costs to fulfill contracts during the three months ended March 31, 2022, or 2021 as these costs were not material.

Remaining Performance Obligations

Contracts with customers include amounts allocated to performance obligations that will be satisfied at a later date. These amounts include deferred revenue that has been invoiced and non-cancellable amounts that will be invoiced and recognized as revenue in future periods. As of March 31, 2022, the remaining performance obligations to which enforceable rights exist are $392.9 million, of which $377.2 million is expected to be recognized as revenue over the next 12 months with the remaining amount thereafter. Of the remaining performance obligations as of March 31, 2022, $89.3 million relates to non-cancellable amounts that have not yet been invoiced, of which $74.7 million is expected to be recognized as revenue over the next 12 months with the remaining amount thereafter.

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6.Intangible Assets

Intangible assets consisted of the following (in thousands):

		March 31, 2022
	Useful Life (Years)	Gross		Accumulated Amortization			Net
Backlog	1 to 7	$	4,500	$	(2,249	)	$	2,251
Customer relationships	5 to 10		75,162		(26,527	)		48,635
Developed technology (1)	1 to 6		73,204		(40,516	)		32,688
Noncompetition agreements	3 to 5		6,445		(2,064	)		4,381
Tradename and trademarks	1 to 3		7,272		(5,452	)		1,820
		$	166,583	$	(76,808	)	$	89,775
(1) Developed technology intangible assets include IPR&D of $0.4 million as of March 31, 2022, which is not subject to amortization.

		December 31, 2021
	Useful Life (Years)	Gross		Accumulated Amortization			Net
Backlog	3	$	4,500	$	(1,816	)	$	2,684
Customer relationships	3 to 10		75,188		(23,795	)		51,393
Developed technology (1)	3 to 8		72,723		(37,333	)		35,390
Noncompetition agreements	3 to 5		6,452		(1,725	)		4,727
Tradename and trademarks	1 to 4		7,267		(4,643	)		2,624
		$	166,130	$	(69,312	)	$	96,818
(1) Developed technology intangible assets include IPR&D of $0.4 million as of December 31, 2021, which is not subject to amortization.

Finite-lived intangible assets are amortized over their estimated useful life. Finite-lived intangible assets amortization expense was $7.1 million for the three months ended March 31, 2022, and $4.4 million for the three months ended March 31, 2021.

Acquisitions of finite-lived intangible assets

In May 2018, the Company acquired developed technology to facilitate cross-border transactions (e.g., tariffs and duties), from Tradestream Technologies Inc. and Wise 24 Inc. (the “Sellers”) for cash and common stock. This acquisition was accounted for as an asset acquisition. Total consideration for the purchase will not exceed $30 million, inclusive of an earnout computed on future billings recognized by the Company over six years post acquisition. The earnout is payable in cash or common stock at the end of each six-month measurement period ending on June 30 or December 31 through 2023. Through March 31, 2022, the sellers have earned approximately $2.6 million under the earnout provision since the acquisition date. An earnout liability of $0.3 million was recorded within the current portion of accrued earnout liabilities as of March 31, 2022, for the earnout period ending June 30, 2022, and is expected to be paid in cash to the sellers in the third quarter of 2022.

Goodwill

Changes in the carrying amount of goodwill for the three months ended March 31, 2022, are summarized as follows (in thousands):

Balance—December 31, 2021	$	672,381
Cumulative translation adjustments		(950	)
Balance—March 31, 2022	$	671,431

Goodwill is tested for impairment annually on October 31 at the reporting unit level or whenever circumstances occur indicating goodwill might be impaired. The impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds carrying value, the Company will conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, the Company will recognize an impairment loss in an amount equal to the excess, not to

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exceed the carrying value. The Company has three reporting units for goodwill impairment testing consisting of its U.S., European, and Brazilian operations. As of March 31, 2022, the Brazilian reporting unit had no associated goodwill.

7.Leases

Total lease cost, net of sublease income, was $3.8 million for the three months ended March 31, 2022, and $3.9 million for the three months ended March 31, 2021. Sublease income was $0.4 million for the three months ended March 31, 2022 and 2021. Leases that commenced in the first three months of 2022 increased operating lease right-of-use assets by $1.4 million.

8.Commitments and Contingencies

Contingencies

Loss contingencies may arise in connection with the ordinary conduct of the Company’s business activities. The Company considers all loss contingencies on a quarterly basis and based on known facts assesses whether potential losses are considered reasonably possible, probable, and estimable. The Company establishes an accrual for loss contingencies when the loss is both probable and reasonably estimable. If the estimated loss is a range of potential outcomes and there is no better estimate within the range, management accrues the amount at the low end of the range. These accruals represent management’s estimate of probable losses and, in such cases, there may be an exposure to loss in excess of the amounts accrued. Significant judgment is required to determine both likelihood of there being a probable loss and the estimated amount of a loss. If a loss contingency is not both probable and reasonably estimable, the Company does not establish an accrual, but will evaluate other disclosure requirements and continue to monitor the matter for developments that would make the loss contingency both probable and reasonably estimable. The ultimate outcome of any litigation relating to a loss contingency is uncertain and, regardless of outcome, litigation can have an adverse impact on the Company because of defense costs, negative publicity, diversion of management resources and other factors.

In its standard subscription agreements, the Company has agreed to indemnification provisions with respect to certain matters. Further, from time to time, the Company has also assumed indemnification obligations through its acquisition activity. These indemnification provisions can create a liability to the Company if its services do not appropriately calculate taxes due to tax jurisdictions, or if the Company is delinquent in the filing of returns on behalf of its customers. Although the Company’s agreements have disclaimers of warranties that limit its liability (beyond the amounts the Company agrees to pay pursuant to its indemnification obligations and guarantees, as applicable), a court could determine that such disclaimers and limitations are unenforceable as a matter of law and hold the Company liable for certain errors. Further, in some instances the Company has negotiated agreements with specific customers or assumed agreements in connection with the Company’s acquisitions that do not limit this liability or disclaim these warranties. It is not possible to reasonably estimate the potential loss under these indemnification arrangements.  

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9.Debt

Convertible Senior Notes

In August 2021, the Company completed a private offering of $977.5 million principal amount of 0.25% convertible senior notes due 2026 (the “2026 Notes”). The 2026 Notes are unsecured obligations and bear interest at a fixed rate of 0.25% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 2022. The 2026 Notes will mature on August 1, 2026, unless earlier converted, redeemed, or repurchased. The Company incurred $17.6 million of debt issuance costs in connection with the 2026 Notes offering consisting of the initial purchasers’ commissions and legal, accounting, and other direct costs of the offering. The total proceeds from the offering, net of the debt issuance costs, were $959.9 million. The Company used $75.3 million of the net proceeds from the sale of the 2026 Notes to pay the premiums of the capped call options described further below.

As of March 31, 2022, none of the conversion conditions of the 2026 Notes described in the Amended 2021 Annual Report were met.

The net carrying amount of the 2026 Notes was as follows (in thousands):

	March 31,			December 31,
	2022			2021
Principal	$	977,500		$	977,500
Unamortized debt issuance costs		(15,356	)		(16,241	)
Net carrying amount	$	962,144		$	961,259

The following table sets forth the interest expense recognized related to the 2026 Notes (in thousands):

	For the Three Months Ended March 31,
	2022
Contractual interest expense	$	611
Amortization of debt issuance costs		885
Total interest expense related to 2026 Notes	$	1,496

Capped Call Transactions

In connection with the offering of the 2026 Notes, the Company purchased capped calls from certain financial institutions with respect to its common stock. The capped calls each have an initial strike price of $238.44 per share of the Company’s common stock, which corresponds to the initial conversion price of the 2026 Notes. The capped calls each have an initial cap price of $323.30 per share and expire in incremental components on each trading date beginning on June 4, 2026, and ending on July 30, 2026. The capped calls are intended to offset potential dilution to the Company’s common stock or offset any cash payments the Company is required to make in excess of the principal amount, as the case may be, with such reduction or offset subject to the cap price. The capped calls are subject to adjustments for certain corporate events and standard anti-dilution provisions.

The Company paid an aggregate amount of $75.3 million for the capped calls, covering approximately 4.1 million shares of the Company’s common stock. As the capped calls are both legally detachable and separately exercisable from the 2026 Notes, the Company accounts for the capped calls separately from the 2026 Notes. The capped calls are indexed to the Company’s own common stock and classified in stockholders’ equity. As such, the premiums paid for the capped calls have been included as a net reduction to additional paid-in capital in the consolidated balance sheet.

10.Shareholders’ Equity

Authorized Capital—Common Stock and Preferred Stock

Under the Amended and Restated Articles of Incorporation, which became effective in June 2018, the Company is authorized to issue two classes of stock designated as common stock and preferred stock. The Company’s total authorized capital stock is 620,000,000 shares, consisting of 600,000,000 shares of common stock, $0.0001 par value per share, and 20,000,000 shares of undesignated preferred stock, $0.0001 par value per share.

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The changes to the Company’s shareholders’ equity during the three months ended March 31, 2022, is as follows (in thousands, except share data):

							Accumulated
					Additional		Other						Total
	Common Stock				Paid-In		Comprehensive			Accumulated			Shareholders’
	Shares		Amount		Capital		Loss			Deficit			Equity
Balance at January 1, 2022		87,086,665	$	9	$	1,732,742	$	(3,428	)	$	(702,869	)	$	1,026,454
Exercise of stock options		107,623				2,281								2,281
Vesting of restricted stock units		466,497
Vesting of performance share units		38,291
Stock-based compensation cost						33,371								33,371
Shares issued under employee stock    purchase plan		85,926				8,006								8,006
Loss on translation adjustment								(1,347	)					(1,347	)
Net loss											(32,557	)		(32,557	)
Balance at March 31, 2022		87,785,002	$	9	$	1,776,400	$	(4,775	)	$	(735,426	)	$	1,036,208

The changes to the Company’s shareholders’ equity for the three months ended March 31, 2021, is as follows (in thousands, except share data):

							Accumulated
					Additional		Other						Total
	Common Stock				Paid-In		Comprehensive			Accumulated			Shareholders’
	Shares		Amount		Capital		Loss			Deficit			Equity
Balance at January 1, 2021		85,057,727	$	9	$	1,648,741	$	(1,339	)	$	(567,251	)	$	1,080,160
Exercise of stock options		296,226				5,529								5,529
Vesting of restricted stock units		346,008
Stock-based compensation cost						19,127								19,127
Shares issued under employee stock    purchase plan		60,064				7,088								7,088
Loss on translation adjustment								(390	)					(390	)
Net loss											(30,068	)		(30,068	)
Balance at March 31, 2021		85,760,025	$	9	$	1,680,485	$	(1,729	)	$	(597,319	)	$	1,081,446

11.Equity Incentive Plans

The Company has stock-based compensation plans that provide for the award of equity incentives, including stock options, stock awards, RSUs, PSUs, and purchase rights. As of March 31, 2022, the Company had stock options outstanding under the 2018 Plan and the 2006 Equity Incentive Plan (the “2006 Plan”), RSUs and PSUs outstanding under the 2018 Plan, and purchase rights issued under the ESPP. The 2018 Plan became effective in connection with the Company’s initial public offering at which time the 2006 Plan was terminated. Outstanding awards under the 2006 Plan continue to be subject to the terms and conditions of the 2006 Plan.

As of March 31, 2022, 4,500,890 shares were subject to outstanding awards under the 2018 plan and 14,372,738 shares were available for issuance under the 2018 Plan. As of March 31, 2022, 1,093,901 shares were subject to outstanding stock options under the 2006 Plan.

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Stock-Based Compensation

The Company recognized total stock-based compensation cost related to equity incentive awards as follows (in thousands):

	For the Three Months Ended March 31,
	2022		2021
Stock-based compensation cost:
Stock options	$	2,161	$	3,223
Restricted stock units		22,128		11,769
Performance share units		7,813		2,832
Employee stock purchase plan		1,269		1,303
Total stock-based compensation cost	$	33,371	$	19,127

The amount of stock-based compensation cost above capitalized to internally developed software and cloud computing arrangements in accordance with the accounting guidance for internal-use software was $0.6 million and $0.2 million for the three months ended March 31, 2022 and 2021, respectively. The Company uses the straight-line attribution method for recognizing stock-based compensation expense.

Stock Options

The following table summarizes stock option activity for the Company’s stock-based compensation plans for the three months ended March 31, 2022:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
				Exercise		Contractual		Value
	Shares			Price		Life (in Years)		(in thousands)
Options outstanding as of January 1, 2022		2,278,789		$	33.52		6.30	$	217,824
Options granted		—		$	—
Options exercised		(107,623	)	$	21.20
Options cancelled or expired		(4,291	)	$	111.83
Options outstanding as of March 31, 2022		2,166,875		$	33.98		6.08	$	141,996
Options exercisable as of March 31, 2022		1,778,867		$	28.90		5.81	$	125,598

The total intrinsic value of options exercised during the three months ended March 31, 2022 and 2021 was $7.7 million and $41.9 million, respectively. As of March 31, 2022, $8.9 million of total unrecognized compensation cost related to stock options was expected to be recognized over a weighted average period of approximately 1.5 years.

Restricted Stock Units

The following table summarizes RSU activity for the Company’s stock-based compensation plans for the three months ended March 31, 2022:

				Weighted
				Average
				Grant Date Fair
	Restricted Stock Units			Value Per Share
RSUs outstanding as of January 1, 2022		2,861,963		$	99.41
RSUs granted		1,903,805			97.15
RSUs vested		(466,497	)		80.86
RSUs cancelled		(98,343	)		94.81
RSUs outstanding as of March 31, 2022		4,200,928		$	100.56

Stock-based compensation cost for RSUs is recognized on a straight-line basis in the consolidated statements of operations over the period during which the participant is required to perform services in exchange for the award, based on the fair value of the Company’s underlying common stock on the grant date. The vesting period of each RSU grant is generally three or four years for employees and one year for non-employee directors.

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As of March 31, 2022, $374.0 million of total unrecognized compensation cost related to RSUs was expected to be recognized over a weighted average period of approximately 2.8 years.

Performance Share Units

The following table summarizes PSU activity for the Company’s stock-based compensation plans for the three months ended March 31, 2022:

				Weighted
				Average
				Grant Date Fair
	Performance Share Units			Value Per Share
PSUs outstanding as of January 1, 2022		114,890		$	147.26
PSUs granted		223,363			98.90
PSUs vested		(38,291	)		147.26
PSUs cancelled		—			—
PSUs outstanding as of March 31, 2022		299,962		$	111.25

Stock-based compensation cost for PSUs is recognized on a graded vesting basis in the consolidated statements of operations over the period during which the participant is required to perform services in exchange for the award, based on the fair value of the Company’s underlying common stock on the grant date and the number of PSUs expected to be earned over the service period. Each PSU grant will vest in annual tranches over a three-year service period. Total PSUs earned for grants made in 2022 and 2021 may vary between 0% and 250% of the PSUs granted based on the attainment of company-specific performance targets during the related three-year period and continued service. The performance targets are established by the Compensation and Leadership Development Committee of the Board of Directors. All of the PSUs earned will be settled through the issuance of an equivalent number of shares of the Company’s common stock based on the payout level achieved.

As of March 31, 2022, $53.3 million of total unrecognized compensation cost related to PSUs was expected to be recognized over a weighted average period of approximately 2.0 years.

Employee Stock Purchase Plan

During the three months ended March 31, 2022, 85,926 shares of common stock were purchased under the ESPP.

As of March 31, 2022, there was approximately $1.7 million of unrecognized stock-based compensation cost related to the ESPP that is expected to be recognized over the remaining term of the offering period that began on February 1, 2022 and will end on July 31, 2022.

For the periods presented, the fair value of ESPP purchase rights was estimated using the Black-Scholes option-pricing model with the following assumptions:

	For the Three Months Ended March 31,
	2022		2021
Fair market value of common stock	$	111.00	$	152.35
Volatility	33%		34%
Expected term	0.5 years		0.5 years
Expected dividend yield	n/a		n/a
Risk-free interest rate	0.48%		0.08%

12.Net Loss Per Share Attributable to Common Shareholders

The Company calculates basic and diluted net loss per share attributable to common shareholders in conformity with the two-class method required for companies with participating securities.

The diluted net loss per share attributable to common shareholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. This includes using the if-converted method for calculating any potential dilutive effect of the convertible senior notes. For purposes of this calculation, all common stock equivalents have been excluded from the

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calculation of diluted net loss per share attributable to common shareholders as their effect is antidilutive. As a result, basic and diluted net loss per common share was the same for each period presented.

The following table sets forth the computation of basic and diluted net loss per common share (in thousands, except per share data):

	For the Three Months Ended March 31,
	2022			2021
Numerator:
Net loss attributable to common shareholders	$	(32,557	)	$	(30,068	)
Denominator:
Weighted-average common shares outstanding-basic		87,463			85,436
Dilutive effect of share equivalents resulting from stock options, RSUs, PSUs,    ESPP shares, and convertible senior notes (if converted)		—			—
Weighted-average common shares outstanding-diluted		87,463			85,436
Net loss per common share, basic and diluted	$	(0.37	)	$	(0.35	)

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share attributable to common shareholders for the periods presented because the impact of including them would have been antidilutive (in thousands):

	For the Three Months Ended March 31,
	2022		2021
Options to purchase common shares		2,236		3,396
Unvested RSUs		2,853		2,258
Unvested PSUs		243		75
ESPP shares		9		7
Convertible senior notes (if converted)		4,100		—
Total		9,441		5,736

13.Subsequent Events

On April 8, 2022, the Company released a $37.7 million general indemnification holdback to the sellers of TTR in connection with the October 2020 acquisition of TTR. The funds for payment of the TTR holdback were recorded as restricted cash – current and the liability was included in accrued purchase price related to acquisitions – current on the consolidated balance sheet as of March 31, 2022.

On May 5, 2022, the Company released an $11.1 million general indemnification holdback to the sellers of Business Licenses in connection with the November 2020 acquisition of Business Licenses. The liability was included in accrued purchase price related to acquisitions – current on the consolidated balance sheet as of March 31, 2022.

After March 31, 2022, but before the filing of this Form 10-Q, the Company acquired two businesses with closing cash payments that totaled $12.1 million.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and our Amended 2021 Annual Report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors,” in Part II, Item 1A of this Quarterly Report on Form 10-Q and our Amended 2021 Annual Report. See “Special Note Regarding Forward-Looking Statements” above.

Overview

We are a leading provider of tax compliance automation for businesses of all sizes. The Avalara Compliance Cloud includes calculation, returns, compliance document management, licensing and registration, fiscal representation, and tax content and insight solutions. We sell our solutions primarily on a subscription basis through our sales force, which focuses on selling to qualified leads provided by our marketing efforts and by partner referrals.    

We focus on maintaining and expanding our partner network, which has been and will continue to be an essential part of our growth. We continue to increase the available number of partner integrations, which are designed to link the Avalara Compliance Cloud to a wide variety of business applications, including accounting, ERP, ecommerce, marketplace, POS, recurring billing, and CRM systems. Through marketing activities, we generate awareness from many businesses, both large and small, and enhance communications with our existing customers.

We make substantial investments by increasing headcount, investing in better software tools and technologies, and making strategic acquisitions to continuously improve the Avalara Compliance Cloud. With these investments, we will continue scaling our platform for continued growth, adding new features and functionality, supporting new products and content types, and improving the user experience. We have made multiple acquisitions in the last few years to augment our tax content, serve the needs of customers in different geographies or industries, and improve additional aspects of tax compliance solutions. We expect to continue to make significant investments, both organically and through acquisitions, to gain new and relevant content, technology, and expertise that best serve the transaction tax needs of our customers.

During the first quarter of 2022, we continued to re-open certain of our office locations as many of the preventative measures to contain or mitigate the COVID-19 pandemic have begun to be lifted. We expect many of our employees to return to offices on a hybrid work model over the course of this year. We continue to host many customer activities and events virtually, and, where it is safe to do so, we have resumed some in-person customer activities and events. As health and safety conditions allow, we expect to increase in-person customer activities and events in 2022, which will increase marketing and travel costs from prior year levels. The extent and timing of the broader impact of the COVID-19 pandemic on our results of operations, overall financial performance and operating cash flows remains uncertain, including the impact on our future revenue growth, the timing of the resumption of normal operating expenses, and the extent to which any incremental expenses associated with the preventative and precautionary measures will be necessary.

Key Business Metrics

We regularly review several metrics to evaluate growth trends, measure our performance, formulate financial projections, and make strategic decisions. We discuss revenue and the components of operating results under the section of this report titled, “Key Components of Consolidated Statements of Operations,” and we discuss other key business metrics below.

	Mar 31, 2022		Dec 31, 2021		Sep 30, 2021		Jun 30, 2021		Mar 31, 2021		Dec 31, 2020		Sep 30, 2020		Jun 30, 2020
Number of core customers    (as of end of period)		19,160		18,270		17,400		16,570		15,730		15,020		14,300		13,640
Net revenue    retention rate	115%		116%		116%		116%		113%		115%		116%		114%

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Number of Core Customers

We believe core customers is a key indicator of our market penetration, growth, and potential future revenue. The small and mid-market customer segments have been and remain our primary target market segments for marketing and selling our solutions. We use core customers as a metric to focus our customer count reporting on our primary target market segment. As of March 31, 2022 and December 31, 2021, we had approximately 19,160 and 18,270 core customers, respectively.

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 12 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.

In addition to customers with whom we have a direct relationship, some of our customers are business application publishers (including ecommerce platforms) that include automated tax determination powered by Avalara. While those platform providers may be core customers to Avalara, their end-user customers generally are not.

Net Revenue Retention Rate

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

Currently, our net revenue retention rate includes only customers with unique account identifiers in our primary U.S. billing systems and does not include customers who subscribe to our solutions through our international subsidiaries or certain legacy billing systems that have not been integrated into our primary U.S. billing systems. Our net revenue retention rate was 115% for the quarter ended March 31, 2022, and on average has been 116% over the last four quarters ended March 31, 2022.

Key Components of Consolidated Statements of Operations

Revenue

We generate revenue from two primary sources: (1) subscription and returns; and (2) professional services. Subscription and returns revenue is driven primarily by the acquisition of customers, customer renewals, and additional service offerings purchased by existing customers. Revenue from subscription and returns comprised approximately 91% of our revenue for both the three months ended March 31, 2022 and 2021.

Subscription and Returns Revenue. Subscription and returns revenue primarily consists of fees paid by customers to use our solutions. Subscription plan 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 our customers are not

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entitled to any refund of fees paid or relief from fees due if they do not use the allotted number of transactions. If a subscription plan customer exceeds the selected maximum transaction level, we will generally upgrade the customer to a higher tier or, in some cases, charge overage fees on a per transaction or return basis. Customers purchase tax return preparation on a subscription basis for an allotted number of returns. Fees paid for subscription services to tax content vary depending on the volume of tax information accessible to the customer.

Our standard subscription contracts are generally non-cancelable after the first 60 days of the contract term. Cancellations under our standard subscription contracts are not material, and do not have a significant impact on revenue recognized. We generally invoice our subscription customers for the initial term at contract signing and upon renewal. Our initial terms generally range from 12 to 18 months, and renewal periods are typically one year. Amounts that have been invoiced are initially recorded as deferred revenue or contract liabilities. Subscription revenue is recognized on a straight-line basis over the service term of the arrangement beginning on the date that our solution is made available to the customer and ending at the expiration of the subscription term.

Currently a small component of our total revenue, we offer SST services to businesses that are registered to participate in the program. We earn a fee (SST revenue) from participating state and local governments based on a percentage of the sales tax reported and paid, and as a result, we generally provide SST services at no cost to the seller.

Subscription and returns revenue also includes interest income generated on funds held from customers. In order to provide tax remittance services to customers, we hold funds from customers in advance of remittance to tax authorities. These funds are held in trust accounts at FDIC-insured institutions. Prior to remittance, we earn interest on these funds.

Professional Services. We generate professional services revenue from providing tax analysis and services, including business licenses and tax registrations, tax refund claims and recovery assistance, voluntary disclosure agreements, nexus studies, and back filing services. We also provide configurations, data migrations, integration, and training for our subscriptions and returns products. We bill for service arrangements on a fixed fee, milestone, or time and materials basis, and we recognize the transaction price allocated to professional services performance obligations as revenue as services are performed and are collectable under the terms of the associated contracts.

Costs and Expenses

Cost of Revenue. Cost of revenue consists of costs related to providing the Avalara Compliance Cloud and supporting our customers and includes employee-related expenses, including salaries, benefits, bonuses, and stock-based compensation and the amortization of capitalized software development costs. In addition, cost of revenue includes direct costs associated with information technology, such as software hosting costs, tax content maintenance, and certain services provided by third parties. Cost of revenue also includes allocated costs for certain information technology and facility expenses, along with depreciation of equipment and amortization of intangibles such as acquired technology from acquisitions. We plan to continue to significantly expand our infrastructure and personnel to support our future growth, including through acquisitions, which we expect to result in higher cost of revenue in absolute dollars.

Research and Development. Research and development expenses consist primarily of employee-related expenses for our research and development staff, including salaries, benefits, bonuses, and stock-based compensation, software hosting costs for research and product development activities, and the cost of third-party developers. Research and development costs, other than software development costs qualifying for capitalization, are expensed as incurred. Capitalized software development costs, which consist primarily of employee-related costs, are amortized as cost of subscription and returns revenue. Research and development expenses also include allocated costs for certain information technology and facility expenses, along with depreciation of equipment.

We devote substantial resources to enhancing and maintaining the Avalara Compliance Cloud, developing new and enhancing existing solutions, conducting quality assurance testing, and improving our core technology. We expect research and development expenses to increase in absolute dollars.

Sales and Marketing. Sales and marketing expenses consist primarily of employee-related expenses for our sales and marketing staff, including salaries, benefits, bonuses, sales commissions, and stock-based compensation, integration and referral partner commissions, costs of marketing and promotional events, corporate communications, online marketing, solution marketing, and other brand-building activities. As a result of the current COVID-19 pandemic, we suspended in-person promotional and customer events and converted many of these activities to virtual events, which temporarily reduced these types of marketing expenses. We began to gradually resume limited in-person marketing activities in the second half of 2021 where it was safe to do so. During 2022, we expect to continue to increase in-person marketing activities as conditions allow, although we do not expect these events to return to pre-pandemic levels in the near term. Sales and marketing expenses include allocated costs for certain information technology and facility

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expenses, along with depreciation of equipment and amortization of intangibles such as customer relationships, customer lists, and backlog from acquisitions.

We defer the portion of sales commissions that is considered a cost of obtaining a new contract with a customer in accordance with the revenue recognition standard and amortize these deferred costs over the estimated period of benefit, generally six years. We expense the remaining sales commissions as incurred. Sales commissions are earned when a sales order is completed. For most sales orders, deferred revenue is recorded when a sales order is invoiced, and the related revenue is recognized ratably over the subscription term. The rates at which sales commissions are earned varies depending on a variety of factors, including the nature of the sale (new, renewal, or add-on service offering), the type of service or solution sold, and the sales channel. At the beginning of each year, we set group and individual sales targets and update targets during the year as appropriate. Sales commissions are generally earned based on achievement against these targets.

We defer the portion of partner commissions that are considered a cost of obtaining a contract with a customer in accordance with the revenue recognition standard and amortize these deferred costs over the period of benefit. The period of benefit is separately determined for each partner and is either six years or corresponds with the contract term. We expense the remaining partner commissions costs as incurred. Our partner commission expense has historically been, and will continue to be, impacted by many factors, including the proportion of new and renewal sales, the nature of the partner relationship, and the sales mix among partners during the period. Integration partners may be paid a higher commission for the initial sale to a new customer and a lower commission for renewal sales. Additionally, we have several types of partners (e.g., integration and referral) that each earn different commission rates.

We intend to continue to invest in sales and marketing and expect spending in these areas to increase in absolute dollars as we continue to expand our business. We expect sales and marketing expenses to continue to be among the most significant components of our operating expenses.

General and Administrative. General and administrative expenses consist primarily of employee-related expenses for administrative, finance, information technology, legal, and human resources staff, including salaries, benefits, bonuses, and stock-based compensation, professional fees, insurance premiums, and other corporate expenses that are not allocated to the above expense categories. General and administrative expenses include amortization of intangibles such as tradenames and noncompetition agreements from acquisitions.

We expect our general and administrative expenses to increase in absolute dollars as we continue to expand our operations (in the U.S. and internationally), hire and train additional personnel, evaluate and integrate acquisitions, and incur costs as a public company. Specifically, we expect to continue to incur increased expenses related to accounting, tax and auditing activities, legal, insurance, acquisition evaluation and execution, SEC compliance, and internal control compliance.

Total Other Income (Expense), Net  

Total other income (expense), net consists of quarterly remeasurement of earnout liabilities for acquisitions accounted for as business combinations, interest income on cash and cash equivalents, interest expense related to our 2026 Notes, foreign currency gains and losses, and other non-operating gains and losses.

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Results of Operations

The following sets forth our results of operations for the periods presented and as a percentage of our total revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.

The comparability of periods covered by our financial statements is impacted by recent acquisitions. During the second quarter of 2021, we acquired substantially all the assets of Davo and the outstanding equity of Inposia. During the third quarter of 2021, we acquired substantially all the assets of 3CE Technologies. During the fourth quarter of 2021, we acquired substantially all the assets of Track1099 LLC and of CrowdReason Limited Liability Company and CorrelationAdvisors LLC (see Note 4 in the Notes to Consolidated Financial Statements).

	For the Three Months Ended March 31,
	2022			2021
	(in thousands)
Revenue:
Subscription and returns	$	186,866		$	139,318
Professional services		17,664			14,283
Total revenue		204,530			153,601
Cost of revenue:
Subscription and returns		50,077			38,033
Professional services		10,049			6,463
Total cost of revenue(1)		60,126			44,496
Gross profit		144,404			109,105
Operating expenses:
Research and development(1)		50,852			39,274
Sales and marketing(1)		86,447			64,093
General and administrative(1)		42,194			31,199
Total operating expenses		179,493			134,566
Operating loss		(35,089	)		(25,461	)
Other income (expense), net		2,817			(2,250	)
Loss before income taxes		(32,272	)		(27,711	)
Provision for income taxes		(285	)		(2,357	)
Net loss	$	(32,557	)	$	(30,068	)
(1) The stock-based compensation expense included above was as follows:
	For the Three Months Ended March 31,
	2022			2021
	(in thousands)
Cost of revenue	$	3,759		$	2,032
Research and development		9,463			5,404
Sales and marketing		6,711			4,055
General and administrative		12,717			7,366
Total stock-based compensation	$	32,650		$	18,857
The amortization of acquired intangibles included above was as follows:
	For the Three Months Ended March 31,
	2022			2021
	(in thousands)
Cost of revenue	$	2,645		$	2,020
Research and development		—			—
Sales and marketing		3,606			1,540
General and administrative		854			861
Total amortization of acquired intangibles	$	7,105		$	4,421

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The following sets forth our results of operations for the periods presented as a percentage of our total revenue for those periods:

	For the Three Months Ended March 31,
	2022			2021
Revenue:
Subscription and returns		91	%		91	%
Professional services		9	%		9	%
Total revenue		100	%		100	%
Cost of revenue:
Subscription and returns		24	%		25	%
Professional services		5	%		4	%
Total cost of revenue		29	%		29	%
Gross profit		71	%		71	%
Operating expenses:
Research and development		25	%		26	%
Sales and marketing		42	%		42	%
General and administrative		21	%		20	%
Total operating expenses		88	%		88	%
Operating loss		(17	)%		(17	)%
Other income (expense), net		1	%		(1	)%
Loss before income taxes		(16	)%		(18	)%
Provision for income taxes		0	%		(2	)%
Net loss		(16	)%		(20	)%

Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021

Revenue

	For the Three Months Ended March 31,				Change
	2022		2021		Amount		Percentage
	(dollars in thousands)
Revenue:
Subscription and returns	$	186,866	$	139,318	$	47,548		34	%
Professional services		17,664		14,283		3,381		24	%
Total revenue	$	204,530	$	153,601	$	50,929		33	%

Total revenue for the three months ended March 31, 2022, increased by $50.9 million, or 33%, compared to the three months ended March 31, 2021. Subscription and returns revenue for the three months ended March 31, 2022, increased by $47.5 million, or 34%, compared to the three months ended March 31, 2021. Professional services revenue for the three months ended March 31, 2022, increased by $3.4 million, or 24%, compared to the three months ended March 31, 2021.

Growth in total revenue was due primarily to increased demand for our services from new and existing customers. The increase in total revenue for the three months ended March 31, 2022, compared to the same period in 2021, was due primarily to $21.4 million from new U.S. customers, $13.7 million from existing U.S. customers, $11.4 million from recent acquisitions (including $6.7 million from the Track1099 acquisition), $3.3 million from SST revenue growth, and $1.1 million from revenue growth in our international operations. Substantially all of the revenue generated by Track1099 is recognized in the first quarter of each year. Excluding recent acquisitions, total revenue for the three months ended March 31, 2022, increased by $39.6 million, or 26%, compared to the three months ended March 31, 2021. Of the growth from recent acquisitions, $10.0 million was generated from subscriptions and returns and $1.4 million from professional services.

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Cost of Revenue

	For the Three Months Ended March 31,				Change
	2022		2021		Amount		Percentage
	(dollars in thousands)
Cost of revenue
Subscription and returns	$	50,077	$	38,033	$	12,044		32	%
Professional services		10,049		6,463		3,586		55	%
Total cost of revenue	$	60,126	$	44,496	$	15,630		35	%

Cost of revenue for the three months ended March 31, 2022, increased by $15.6 million, or 35%, compared to the three months ended March 31, 2021. The increase in cost of revenue was due primarily to an increase of $8.3 million in employee-related costs from higher headcount, an increase of $2.7 million in software hosting and third-party purchased software costs, an increase of $1.8 million in allocated overhead cost, an increase of $1.3 million in depreciation expense, and an increase of $0.6 million in amortization expense.

Cost of revenue headcount increased approximately 24% from the first quarter of 2021 to the first quarter of 2022. Employee-related costs increased due primarily to a $6.3 million increase in salaries and benefits, a $1.7 million increase in stock-based compensation expense, and a $0.3 million increase in compensation expense related to our bonus plans.

Software hosting and third-party purchased software costs increased due primarily to higher transaction volumes, new contract rates and incremental investment in new data analytics and security software licenses. Allocated overhead consists primarily of facility expenses and shared information technology expenses. Shared information technology expenses are higher compared to the prior period due primarily to higher headcount throughout our operations. Depreciation expense increased due primarily to an increase in capitalized software costs for projects placed into service in 2021. Amortization expense increased due primarily to acquired intangible assets from our recent acquisitions.

Gross Profit

	For the Three Months Ended March 31,						Change
	2022			2021			Amount			Percentage
	(dollars in thousands)
Gross profit
Subscription and returns	$	136,789		$	101,285		$	35,504			35	%
Professional services		7,615			7,820			(205	)		-3	%
Total gross profit	$	144,404		$	109,105		$	35,299			32	%
Gross margin
Subscription and returns		73	%		73	%
Professional services		43	%		55	%
Total gross margin		71	%		71	%

Total gross profit for the three months ended March 31, 2022, increased by $35.3 million, or 32% compared to the three months ended March 31, 2021. Total gross margin was 71% for the three months ended March 31, 2022, compared to 71% for the same period of 2021.

Research and Development

	For the Three Months Ended March 31,				Change
	2022		2021		Amount		Percentage
	(dollars in thousands)
Research and development	$	50,852	$	39,274	$	11,578		29	%

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Research and development expenses for the three months ended March 31, 2022, increased by $11.6 million, or 29%, compared to the three months ended March 31, 2021. The increase was due primarily to an increase of $11.4 million in employee-related costs from higher headcount.

Research and development headcount increased approximately 38% from the first quarter of 2021 to the first quarter of 2022. Employee-related costs increased due primarily to a $5.5 million increase in salaries and benefits, a $4.1 million increase in stock-based compensation expense, and a $1.8 million increase in compensation expense related to our bonus plans.

Sales and Marketing

	For the Three Months Ended March 31,				Change
	2022		2021		Amount		Percentage
	(dollars in thousands)
Sales and marketing	$	86,447	$	64,093	$	22,354		35	%

Sales and marketing expenses for the three months ended March 31, 2022, increased by $22.4 million, or 35%, compared to the three months ended March 31, 2021. The increase was due primarily to an increase of $11.9 million in employee-related costs, an increase of $3.1 million for partner commission expense, an increase of $2.9 million in marketing campaign expenses, an increase of $2.1 million in amortization expense, an increase of $1.8 million in allocated overhead cost, and an increase of $0.5 million in third-party purchased software costs.

Sales and marketing headcount increased approximately 21% from the first quarter of 2021 to the first quarter of 2022. Employee-related costs increased due primarily to a $6.8 million increase in salaries and benefits, a $2.7 million increase in stock-based compensation expense, a $1.3 million increase in sales commission expense, a $0.6 million increase in travel costs due to more in-person meetings and events, and a $0.5 million increase in contract and temporary employee costs. During 2022, we expect to continue to increase in-person marketing activities as conditions allow, which will increase travel costs.

Partner commission expense increased due primarily to higher revenues. Marketing campaign expenses increased due primarily to increased spending on online advertising (including pay-per-click advertising) on existing campaigns and new online advertising for recent acquisitions. Amortization expense increased due primarily to acquired intangible assets from our recent acquisitions and fair value adjustments to acquired intangibles. Third-party purchased software costs increased due primarily to additional investment in lead generation technology that improves information we use to target potential customers and increased spending for new marketing analytics tools.

General and Administrative

	For the Three Months Ended March 31,				Change
	2022		2021		Amount		Percentage
	(dollars in thousands)
General and administrative	$	42,194	$	31,199	$	10,995		35	%

General and administrative expenses for the three months ended March 31, 2022, increased by $11.0 million, or 35%, compared to the three months ended March 31, 2021. The increase was due primarily to an increase of $8.3 million in employee-related costs, an increase of $1.4 million in software hosting and third-party purchased software costs, an increase of $1.2 million in outside professional services expense, and an increase of $0.5 million in merchant fees, partially offset by a $0.3 million decrease in non-income tax expenses.

General and administrative headcount increased approximately 33% from the first quarter of 2021 to the first quarter of 2022. Employee-related costs increased due primarily to a $5.4 million increase in stock-based compensation expense, a $2.4 million increase in salaries and benefits, a $0.4 million increase in contract and temporary employee costs, and a $0.2 million increase in travel costs.

Software hosting and third-party purchased software costs increased due primarily to an increase in the number of licenses purchased due to increased headcount, higher subscription fees, and increased investment in security systems. Outside professional services expenses increased due primarily to increased investment in employee training and development programs, financial system enhancements, and acquisition-related costs. Merchant fees, which are credit card processing fees, increased due primarily to an increase in volume of credit card transactions. Non-income tax expenses decreased due primarily to lower state indirect taxes.  

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Total Other Income (Expense), Net

	For the Three Months Ended March 31,						Change
	2022			2021			Amount
	(dollars in thousands)
Other income (expense), net
Fair value changes in earnout liabilities	$	4,001		$	(1,350	)	$	5,351
Interest income		186			24			162
Interest expense		(1,496	)		—			(1,496	)
Other income (expense), net		126			(924	)		1,050
Total other income (expense), net	$	2,817		$	(2,250	)	$	5,067

Total other income (expense), net for the three months ended March 31, 2022, was $2.8 million of income compared to $2.3 million of expense for the three months ended March 31, 2021. Fair value changes in earnout liabilities were $4.0 million of income for the three months ended March 31, 2022, compared to $1.4 million of expense for the same period in 2021. During the three months ended March 31, 2022, post-acquisition fair value adjustments to earnout liabilities related to our acquisitions of TTR, Business Licenses, Davo, CrowdReason, and Track1099 resulted in other income of $4.0 million. During the three months ended March 31, 2021, post-acquisition fair value adjustments to earnout liabilities related to our acquisitions of TTR and Business Licenses resulted in other expense of $1.4 million. Interest income increased due primarily to an increase in the interest rate earned on our cash and cash equivalents enhanced by higher average cash balances in the first quarter of 2022. Interest expense was $1.5 million for the three months ended March 31, 2022, compared to zero for the three months ended March 31, 2021. Interest expense increased due to accrual of contractual interest and amortization of the issuance costs on our 2026 Notes issued in the third quarter of 2021, for which there is no comparable expense for the three months ended March 31, 2021. Other income (expense), net was $0.1 million income for the three months ended March 31, 2022, compared to $0.9 million expense for the three months ended March 31, 2021, due primarily to gains on foreign exchange rates in the current period compared to losses on foreign exchange rates in the prior period.

Provision for Income Taxes

	For the Three Months Ended March 31,						Change
	2022			2021			Amount
	(dollars in thousands)
Provision for income taxes	$	(285	)	$	(2,357	)	$	2,072

The provision for income taxes for the three months ended March 31, 2022, was $0.3 million compared to a provision for income taxes of $2.4 million for the three months ended March 31, 2021. The effective income tax rate was an expense of 0.9% for the three months ended March 31, 2022, compared to an expense of 8.5% for the three months ended March 31, 2021. The effective tax rate in both quarters differs from the U.S. Federal statutory rate due primarily to providing a valuation allowance on deferred tax assets. The decrease in expense and increase in effective rate is due primarily to income tax expense recorded in the first quarter of 2021 related to TTR purchase accounting adjustments that was not repeated in the first quarter of 2022.

We have assessed our ability to realize our deferred tax assets and have recorded a valuation allowance against such assets to the extent that, based on the weight of all available evidence, it is more likely than not that all or a portion of the deferred tax assets will not be realized. In assessing the likelihood of future realization of our deferred tax assets, we placed significant weight on our history of generating tax losses in the U.S., U.K., and Brazil, including in the first quarter of 2022. As a result, we have a full valuation allowance against our net deferred tax assets, including net operating loss carryforwards, and research and development tax credits. We expect to maintain a full valuation allowance for the foreseeable future.

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Liquidity and Capital Resources

We require cash to fund our operations, including outlays for infrastructure growth, acquisitions, geographic expansion, expanding our sales and marketing activities, research and development efforts, and working capital for our growth. We have financed our operations primarily through cash received from customers for our solutions, public offerings of our common stock, and a private offering of convertible senior notes. As of March 31, 2022, we had $1.5 billion of cash and cash equivalents, most of which was held in money market accounts.

Borrowings

In August 2021, we completed a private offering of the 2026 Notes. The 2026 Notes are unsecured obligations and bear interest at a fixed rate of 0.25% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 2022. The initial conversion price of the 2026 Notes represented a premium of 47.5% over the closing price of our common stock on August 10, 2021, the date the 2026 Notes offering was priced. The net proceeds from the sale of the 2026 Notes were $959.9 million after deducting the issuance costs. The 2026 Notes will mature on August 1, 2026, unless earlier converted, redeemed, or repurchased.

We used $75.3 million of the net proceeds from the 2026 Notes offering to pay for the cost of the capped call transactions entered into with certain financial institutions. The capped call instruments are intended to offset potential dilution to our common stock or offset any cash payments we are required to make in excess of the principal amount, as the case may be, with such reduction or offset subject to a cap. The capped call instruments are subject to adjustments for certain corporate events and standard anti-dilution provisions.

Future Cash Requirements

As of March 31, 2022, our cash and cash equivalents included proceeds from our previous public offerings of common stock and our private offering of the 2026 Notes. We intend to continue to increase our operating expenses and capital expenditures to support the growth in our business and operations. We expect to also use our cash and cash equivalents to continue to acquire complementary businesses, products, services, technologies, or other assets. We believe that our existing cash and cash equivalents of $1.5 billion as of March 31, 2022, will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our financial position and liquidity are, and will be, influenced by a variety of factors, including our growth rate, the timing and extent of spending to support research and development efforts, the continued expansion of sales and marketing spending, the introduction of new and enhanced solutions, the cash paid for any acquisitions, and the continued market acceptance of our solutions.

The following table shows our cash flows from operating activities, investing activities, and financing activities for the stated periods:

	For the Three Months Ended March 31,
	2022			2021
	(in thousands)
Cash (used in) provided by:
Operating Activities	$	(23,066	)	$	(28,247	)
Investing Activities		(8,053	)		(5,844	)
Financing Activities		929			13,554

Operating Activities

Our largest source of operating cash is cash collections from our customers for subscriptions and returns services. Our primary uses of cash from operating activities are for employee-related expenditures, commissions paid to our partners, marketing expenses, technology costs such as software hosting costs and subscriptions to a wide variety of software-as-a-service platforms, and facilities expenses. Cash used in operating activities is comprised of our net loss adjusted for certain non-cash items, including stock-based compensation, depreciation and amortization, other non-cash income and expense items, and net changes in operating assets and liabilities.

For the three months ended March 31, 2022, net cash used in operating activities was $23.1 million compared to net cash used of $28.2 million for the three months ended March 31, 2021. The decrease in cash used in operations of $5.2 million was due primarily to an increase in cash collected from customers compared to the same period in 2021. The increase in cash collected from customers is due primarily to growing demand for our subscription and returns services and customer credit terms returning to more typical levels in the current period. In the prior year, we provided extended payment terms to some of our customers that were impacted by the COVID-19 pandemic.

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Investing Activities

Our investing activities primarily include cash outflows related to purchases of property and equipment, additions of capitalized software assets, and business acquisitions.

For the three months ended March 31, 2022, cash used in investing activities was $8.1 million compared to cash used of $5.8 million for the three months ended March 31, 2021. The increase in cash used in investing activities of $2.2 million was due primarily to an increase in cash paid for capitalized software development costs of $3.6 million and an increase in capital expenditures of $0.8 million, partially offset by a decrease in cash paid for acquisitions of businesses of $2.2 million. In the first quarter of 2022, cash paid for current period additions of capitalized software increased $2.5 million and cash paid for capitalized software costs previously included in accrued expenses increased $1.1 million. In the first quarter of 2021, we paid $1.5 million of additional purchase price to finalize net working capital and other adjustments related to the 2020 acquisitions of TTR and Impendulo and a $0.2 million deposit for the acquisition of Davo that closed in the second quarter of 2021.

Financing Activities

Our financing activities primarily include cash inflows and outflows from issuance of common stock, our private offering of convertible senior notes, our employee stock purchase plan, deferred cash payments made in connections with acquisitions of businesses, and changes in customer fund obligations.

For the three months ended March 31, 2022, cash provided by financing activities was $0.9 million compared to cash provided of $13.6 million for the three months ended March 31, 2021. This decrease in cash provided by financing activities of $12.6 million was due primarily to a $10.8 million increase in deferred cash payments related to business combination earnouts, a $3.2 million decrease in cash proceeds from exercise of stock options, and a $1.5 million decrease from the net change in customer fund obligations, partially offset by a $2.0 million decrease in cash paid for purchase price holdbacks related to recent acquisitions, and a $0.9 million increase in cash proceeds from common stock purchased under our employee stock purchase plan.

Funds Held from Customers and Customer Fund Obligations

We maintain trust accounts with FDIC-insured financial institutions, which allows our customers to outsource their tax remittance functions to us. We have legal ownership over the accounts utilized for this purpose. Funds held from customers are not commingled with our operating funds but are typically deposited with funds also held on behalf of our other customers. Funds held from customers primarily represent restricted cash equivalents that, based upon our intent, are restricted solely for satisfying the obligations to remit funds relating to our tax remittance services. Additionally, a portion of funds held from customers is invested in available-for-sale securities. The cash flows related to the purchases of available-for-sale securities with customer funds are presented on a gross basis in investing activities. Changes in customer funds assets account that relate to activities paying for the trust operations, such as banking fees, are included as cash flows from operating activities.

Customer funds obligations represent our contractual obligations to remit collected funds to satisfy customer tax payments. Customer funds obligations are reported as a current liability on the consolidated balance sheets, as the obligations are expected to be settled within one year. Changes in customer funds obligations liability are presented as cash flows from financing activities.

Contractual Obligations and Commitments

For the three months ended March 31, 2022, our purchase commitments increased approximately $56.8 million compared to December 31, 2021, primarily related to software hosting and software license subscriptions that extend up to four years beyond March 31, 2022. There were no other material changes to our contractual obligations as of March 31, 2022, compared to December 31, 2021.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements in the three months ended March 31, 2022 or 2021.

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Use and Reconciliation of Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we have disclosed non-GAAP cost of revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP research and development expense, non-GAAP sales and marketing expense, non-GAAP general and administrative expense, non-GAAP operating income (loss), non-GAAP net income (loss), free cash flow, and calculated billings, which are all non-GAAP financial measures. We have provided tabular reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure.

• We calculate non-GAAP cost of revenue, non-GAAP research and development expense, non-GAAP sales and marketing expense, and non-GAAP general and administrative expense as GAAP cost of revenue, GAAP research and development expense, GAAP sales and marketing expense, and GAAP general and administrative expense, respectively, before stock-based compensation expense and the amortization of acquired intangible assets included in each of the expense categories.

• We calculate non-GAAP gross profit as GAAP gross profit before stock-based compensation expense and the amortization of acquired intangibles included in cost of revenue. We calculate non-GAAP gross margin as GAAP gross margin before the impact of stock-based compensation expense and the amortization of acquired intangibles included in cost of revenue as a percentage of revenue.

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

• We define free cash flow as net cash used in operating activities less cash used for the purchases of property and equipment and capitalized software development costs.

• We define calculated billings as total revenue plus the changes in deferred revenue and contract liabilities in the period, excluding the acquisition date impact of deferred revenue and contract liabilities assumed in a business combination. Because we generally recognize subscription revenue ratably over the subscription term, calculated billings can be used to measure our subscription sales activity for a particular period, to compare subscription sales activity across particular periods, and as a potential indicator of future subscription revenue, the actual timing of which will be affected by several factors, including subscription start date and duration.

Management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, and to evaluate financial performance and liquidity. We believe that non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our results, prospects, and liquidity period-over-period without the impact of certain items that do not directly correlate to our performance and that may vary significantly from period to period for reasons unrelated to our operating performance, as well as when comparing our financial results to those of other companies.

Our definitions of these non-GAAP financial measures may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.

We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view non-GAAP financial measures in conjunction with the related GAAP financial measure.

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

	For the Three Months Ended March 31,
	2022			2021
	(in thousands)
Reconciliation of Non-GAAP Cost of Revenue:
Cost of revenue	$	60,126		$	44,496
Stock-based compensation expense		(3,759	)		(2,032	)
Amortization of acquired intangibles		(2,645	)		(2,020	)
Non-GAAP Cost of Revenue	$	53,722		$	40,444
Reconciliation of Non-GAAP Gross Profit:
Gross Profit	$	144,404		$	109,105
Stock-based compensation expense		3,759			2,032
Amortization of acquired intangibles		2,645			2,020
Non-GAAP Gross Profit	$	150,808		$	113,157
Reconciliation of Non-GAAP Gross Margin:
Gross margin		71	%		71	%
Stock-based compensation expense as a percentage of revenue		2	%		1	%
Amortization of acquired intangibles as a percentage of revenue		1	%		1	%
Non-GAAP Gross Margin		74	%		74	%
Reconciliation of Non-GAAP Research and Development Expense:
Research and development	$	50,852		$	39,274
Stock-based compensation expense		(9,463	)		(5,404	)
Amortization of acquired intangibles		—			—
Non-GAAP Research and Development Expense	$	41,389		$	33,870
Reconciliation of Non-GAAP Sales and Marketing Expense:
Sales and marketing	$	86,447		$	64,093
Stock-based compensation expense		(6,711	)		(4,055	)
Amortization of acquired intangibles		(3,606	)		(1,540	)
Non-GAAP Sales and Marketing Expense	$	76,130		$	58,498
Reconciliation of Non-GAAP General and Administrative Expense:
General and administrative	$	42,194		$	31,199
Stock-based compensation expense		(12,717	)		(7,366	)
Amortization of acquired intangibles		(854	)		(861	)
Non-GAAP General and Administrative Expense	$	28,623		$	22,972
Reconciliation of Non-GAAP Operating Income (Loss):
Operating loss	$	(35,089	)	$	(25,461	)
Stock-based compensation expense		32,650			18,857
Amortization of acquired intangibles		7,105			4,421
Non-GAAP Operating Income (Loss)	$	4,666		$	(2,183	)
Reconciliation of Non-GAAP Net Income (Loss):
Net loss	$	(32,557	)	$	(30,068	)
Stock-based compensation expense		32,650			18,857
Amortization of acquired intangibles		7,105			4,421
Non-GAAP Net Income (Loss)	$	7,198		$	(6,790	)
Free cash flow:
Net cash used in operating activities	$	(23,066	)	$	(28,247	)
Less: Purchases of property and equipment		(2,148	)		(1,366	)
Less: Capitalized software development costs		(5,905	)		(2,311	)
Free cash flow	$	(31,119	)	$	(31,924	)

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The following table reflects calculated billings and reconciles to GAAP revenues (in thousands):

	Three Months Ended
	Mar 31, 2022			Dec 31, 2021 (1)			Sep 30, 2021 (1)			Jun 30, 2021 (1)			Mar 31, 2021			Dec 31, 2020 (1)			Sep 30, 2020			Jun 30, 2020
Total revenue	$	204,530		$	195,142		$	181,167		$	169,067		$	153,601		$	144,760		$	127,879		$	116,487
Add:
Deferred revenue    (end of period)		303,610			282,955			257,883			239,395			225,531			209,690			180,640			167,719
Contract liabilities    (end of period)		897			6,918			8,597			11,406			12,466			10,134			7,673			6,195
Less:
Deferred revenue (beginning    of period)		(282,955	)		(257,883	)		(239,395	)		(225,531	)		(209,690	)		(180,640	)		(167,719	)		(165,369	)
Contract liabilities (beginning    of period)		(6,918	)		(8,597	)		(11,406	)		(12,466	)		(10,134	)		(7,673	)		(6,195	)		(6,330	)
Deferred revenue and contract    liabilities assumed in    business combinations		—			(747	)		(430	)		(886	)		—			(9,194	)		—			—
Calculated billings	$	219,164		$	217,788		$	196,416		$	180,985		$	171,774		$	167,077		$	142,278		$	118,702
(1) These quarters include reconciling adjustments to exclude the acquisition-date fair value of deferred revenue and contract liabilities assumed in business combinations.

Critical Accounting Policies and Estimates

There have been no material updates or changes to our critical accounting policies and estimates compared to the critical accounting policies and estimates described in our Amended 2021 Annual Report.

Recent Accounting Pronouncements

For further information on recent accounting pronouncements, refer to Note 1 in the Notes to Consolidated Financial Statements contained within this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

We had cash and cash equivalents of $1.5 billion as of both March 31, 2022, and December 31, 2021. We maintain our cash and cash equivalents in deposit accounts and money market funds with financial institutions. Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates.

We hold funds on behalf of our customers for remittance to regulatory authorities primarily in cash and cash equivalents. We held $64.4 million and $62.5 million of our customers funds as of March 31, 2022, and December 31, 2021, respectively. Declines in interest rates could reduce future interest income earned on both cash and cash equivalents. We also invest a portion of our funds held from customers in marketable securities consisting primarily of treasury securities, which are classified as available-for-sale securities as of March 31, 2022, and December 31, 2021. Declines in interest rates would reduce future interest income earned on marketable securities. If we are forced to sell some or all of these securities at lower market values, we may incur investment losses. However, because we classify all marketable securities as available-for-sale, no gains or losses are recognized due to changes in interest rates or other factors until such securities are sold or when decreases in fair value are deemed due to expected credit losses. We have not recorded credit impairment losses on our portfolio to date.

In August 2021, we completed a private offering of convertible senior notes. As of March 31, 2022, we had an outstanding principal balance on the 2026 Notes of $977.5 million. As the interest rate on the 2026 Notes is fixed, we do not have exposure to interest rate risk.

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Foreign Currency Exchange Risk

Our revenue and expenses are primarily denominated in U.S. dollars. For our foreign operations, most of our revenues and expenses are denominated in other currencies, such as the Brazilian Real, British Pound, Euro, and Indian Rupee. Changes in the relative value of the U.S. dollar as compared to these currencies may negatively affect our revenue and other operating results as expressed in U.S. dollars. For both the three months ended March 31, 2022, and 2021, approximately 7% of our revenues, respectively, were generated in currencies other than U.S. dollars. We have experienced and will continue to experience fluctuations in our net loss as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. We recognized immaterial amounts of foreign currency gains and losses in each of the periods presented. We have not engaged in the hedging of our foreign currency transactions to date. We may in the future hedge selected significant transactions denominated in currencies other than the U.S. dollar as we expand our international operations, and our risk grows.

Inflation Risk

Inflationary factors, such as increases in our operating expenses, may adversely affect our results of operations, as our customers typically purchase services from us on a subscription basis over a period of time. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a continuing period of current rates of inflation or a further increase in the rate of inflation in the future may have an adverse effect on our levels of operating expenses as a percentage of revenue if we are unable to increase the prices for our subscription-based solutions to keep pace with these increased expenses.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation (pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act as of March 31, 2022.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective at the reasonable assurance level as of March 31, 2022, due to the material weakness related to a lack of adequate controls to correctly recognize stock-based compensation cost for RSUs identified as of March 31, 2022, and described in our Amended 2021 Annual Report. Management, under the direction and supervision of our Chief Executive Officer and Chief Financial Officer, has performed additional review and analyses and other post-closing procedures and has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP. 

Changes in Internal Control over Financial Reporting

Other than the material weakness described in our Amended 2021 Annual Report, there were no changes in our internal control over financial reporting in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent

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limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Remediation Activities

The Company has taken steps to remediate the material weakness by providing additional training on use of the system-generated reports and has reviewed the parameters that are selected when generating such reports. Additionally, the Company has enhanced its review control to ensure verification of report parameters and has added a control to review report parameters for all new stock awards. The material weakness cannot be considered remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are designed and operating effectively. Accordingly, management will continue to monitor and evaluate the effectiveness of our internal control over financial reporting in the activities affected by the material weakness described above.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may become involved in other legal proceedings or be subject to claims arising in the ordinary course of our business. Regardless of the outcome of any existing or future litigation, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

Item 1A. Risk Factors.

There have been no material changes to the Company’s Risk Factors as disclosed in our Amended 2021 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

There have been no recent sales of unregistered securities not previously disclosed in a Current Report on Form 8-K.

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Item 6. Exhibits.

In reviewing the agreements included as exhibits to this Quarterly Report on Form 10-Q, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreement. The agreements may contain representations and warranties that the parties made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the applicable agreement and may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating the terms of such agreement. In addition, such representations and warranties: (i) may not be accurate or complete as of any specified date; (ii) are modified and qualified in important part by the underlying disclosure schedules; (iii) may be subject to a contractual standard of materiality different from those generally applicable to investors; or (iv) may have been used for the purpose of allocating risk among the parties to the applicable agreement, rather than establishing matters as facts. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the applicable agreement, which subsequent information may or may not be fully reflected in Company’s public disclosures. For the foregoing reasons, the representations and warranties should not be relied upon as statements of factual information.

Exhibit Number	Description
2.1	Agreement and Plan of Merger, dated October 5, 2020, by and among Avalara, Inc., Tannin Merger Sub, Inc., Transaction Tax Resources, Inc., and Northwest Cloud Co. LLC (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K, filed October 6, 2020 (File No. 001-38525)).
2.2	Asset Purchase Agreement, dated November 5, 2020, by and among Avalara, Inc. and Business Licenses, LLC (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K, filed November 5, 2020 (File No. 001-38525)).
3.1	Amended and Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-Q, filed August 10, 2018 (File No. 001-38525)).
3.2	Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Form 10-Q, filed August 10, 2018 (File No. 001-38525)).
10.3*	Avalara Inc. 2022 Executive and Leadership Bonus Plan, as amended
31.1*	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AVALARA, INC.
Date:  May 6, 2022	By:	/s/ Ross Tennenbaum
		Ross Tennenbaum
		Chief Financial Officer and Treasurer (Principal Financial Officer)

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EX-10.3

Exhibit 10.3

2022 Executive and Leadership Bonus Plan

This 2022 Executive and Leadership Bonus Plan (the “Plan”) of Avalara, Inc. (the “Company”) covers the period from January 1, 2022 through December 31, 2022. The purpose of the Plan is to promote the success of the Company by rewarding leaders (“Leaders”) for outstanding business results, as well as promoting retention of high‑performing employees.

Performance bonuses are paid to our Leaders and are based on the achievement of (i) Company performance objectives and (ii) individual performance objectives that are determined by their managers; provided, however, that the Compensation and Leadership Development Committee (the “CLDC”) of the Board of Directors (the “Board”) shall approve the individual performance objectives applicable to the CEO. Each Leader’s performance objectives may change from year to year as the Company continues to evolve and different priorities are established and will remain subject to the review and approval of the CEO and/or the CLDC.

For 2022, performance bonuses may be earned under the Plan based on the attainment of a Company performance component and an individual performance component measured as of the end of calendar year 2022. Under the Plan, the Company performance component accounts for 80% of the total target performance bonus, and the individual performance component accounts for 20% of the total target performance bonus. The Plan details are as follows:

1. Company Performance Component =80%:

The Company performance component consists of four Company performance objectives, which may be earned, in whole or in part, based on actual performance compared to target and calculated on a sliding scale between 25% (threshold) and 200% (maximum). No amounts are earned if the actual performance compared to target is less than the threshold. Performance objectives for 2022 are as follows:

• New & Upsell Bookings:

New and upsell bookings are an estimate of the one-year (12 month) value of a new signed contract to use our services, including subscriptions, new and upsell orders, signed statements of work, signed but estimated contract values, signed but estimated returns usage, billed usage, and collected usage overages, as approved by the CEO and/or CFO. Company bookings, including new and upsell bookings, are calculated, reconciled, and reported monthly by Finance.

• Gross Margin (Non-GAAP):

Gross margin (non-GAAP) is definedas GAAP gross margin before the impact of stock-based compensation expense and the amortization of acquired intangibles included in cost of revenue as a percentage of revenue. Gross margin (non-GAAP) is calculated and reported quarterly by Finance in the Company’s financial statements as “Non-GAAP Gross Margin.”

• Operating Loss (Non-GAAP):

Operating loss (non-GAAP) is defined as GAAP operating loss before stock-based compensation expense, amortization of acquired intangibles, and goodwill impairments. Operating loss (non-GAAP) is calculated and reported quarterly by Finance in the Company’s financial statements as “Non-GAAP Operating Income (Loss).”

• CPO:

CPO is an index that provides a snapshot of customers at risk, which is the risk we run in losing a customer or having an unhappy captive customer. In aggregate, it is a measure of the health of the customer. The index ranges between 0 to 100. A CPO of 0 reflects a happy customer, and a CPO of 100 is a cancelled customer.  

2. Individual Performance Component (MBOs) =20%:

The individual performance component is determined by a Leader’s attainment of goals and performance targets as established in the Leader’s 2022 Individual Goal Setting & Performance Review Plan. MBO attainment follows the performance rating guidelines below:

• High Contributor – >100% (up to establishedcap)

• Core Contributor – up to100%

• Low Contributor – up to50%

3. Accelerators:

For each accelerator target achieved, the acceleration percentage will be applied to the final Company performance component of the bonus. For example, if the Company performance component is calculated to be 120% and one accelerator target has been met (i.e., 15%), the final Company performance component would be 138%. Below is the list of 2022 accelerators:

• 15% Accelerator – Employee Engagement at or above target by December 31, 2022.

• 15% Accelerator – Net Revenue Retention at or above target by December 31, 2022.

• Engagement is measured by Gallup and typically reported twice a year by HumanResources.

• Net Revenue Retention (i.e., revenue in a quarter from billing accounts that generated revenue during the corresponding quarter of the prior year divided by revenue in such corresponding quarter from such billing accounts) as calculated and reported quarterly by Finance.

4. PayoutSchedule:

The 2022 bonus will be paid out on or before March 15, 2023, in the U.S. and on the last scheduled payroll in March 2023 in all other countries.

5. Eligibility:

The Plan applies to Leaders at the VP level and above, as determined by the CEO. To qualify for the bonus payment under the Plan, a Leader must:

• Be actively employed with the Company or its subsidiaries for a minimum of three (3) months from January 1, 2022 through December 31,2022; and

• Be actively employed at the time the bonus is paid out.

Employees who participate in another short-term incentive program offered by the Company are ineligible for the Plan, even if they meet the eligibility criteria outlined above.

6. EligibleEarnings:

The bonus will be based on actual 2022 eligible earnings. Eligible earnings generally include all elements of base salary and hours worked including pay for regular hours worked, overtime, holidays, PTO, floating holidays, and sick time. Other bonus or incentive earnings, such as commissions, are not included in eligible earnings for Company bonus purposes.

7. Terms andConditions:

“Actively employed” means that the employee is a current employee of the Company.

The Company intends for the benefits provided under the Plan to comply with, or be exempt from, the requirements of Internal Revenue Code Section 409A, the state and federal Family Medical Leave Act, the Americans with Disabilities Act, USERRA, and all other applicable state and federal laws, and the Plan will be interpreted to that end. The Company reserves the right to amend the Plan as necessary to comply with applicable federal and state laws.

The CEO, with input from the CLDC, will approve the Company performance component achieved under the Plan and may make discretionary adjustments as he, in his sole discretion, deems appropriate; provided, however, that the CLDC will approve the Company performance component achieved with respect to participating Leaders who are Executive Officers of the Company, as specified by the Charter of the CLDC, and will approve all bonuses payable to such Executive Officers, including the CEO, under the Plan.

Performance bonuses made under the Plan are offered at the sole discretion of the Company. The Company reserves the right to change, modify, or eliminate any provision of the Plan at any time, without notice. The Plan is not intended as a contract or a contract of employment. All employment with the Company is “at will,” which means that the Company or an employee may terminate the employment relationship at any time, with or without cause, and with or without notice.

Questions regarding the Plan should be directed to the Chief Financial Officer or Chief People Officer. For further information on the Plan metrics, please see Exhibit A.

8. Clawback and Recovery of Compensation:  

Performance bonuses payable under the Plan are subject to the requirements of (i) Section 954 of the Dodd‑Frank Wall Street Reform and Consumer Protection Act (regarding recovery of erroneously awarded compensation) and any implementing rules and regulations thereunder, (ii) similar rules under the laws of any other jurisdiction, (iii) any compensation recovery or clawback policies adopted by the Company to implement any such requirements, or (iv) any other compensation recovery or clawback policies as may be adopted from time to time by the Company, including the Company’s Incentive Compensation Recoupment Policy, as amended from time to time, all to the extent determined by the CLDC in its discretion to be applicable to Leaders and/or required by applicable law.

In addition to the foregoing, if the Board or the CLDC determines that fraud, willful misconduct, gross negligence or violation of Company policy caused or otherwise contributed to the need for a material restatement of the Company’s financial results, the Board or the CLDC may require a Leader, to the extent permitted by applicable law and after a review of relevant facts and circumstances, to promptly repay to the Company any amount paid under the Plan if such amount received within the three years preceding the date on which the Board or the CLDC determines that such an event has occurred would have been materially lower had it been based on the restated results. The foregoing forfeiture and repayment obligations will be without prejudice to any other rights that the Company may have.

In determining whether to seek recovery under this Section 8, the Board or the CLDC will take into account such considerations as it deems appropriate, including whether the assertion of a claim may violate applicable law or prejudice the interests of the Company in any related proceeding or investigation and the cost of the recovery process versus the amount to be recovered.

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott McFarlane, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Avalara, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 6, 2022	By:	/s/ Scott McFarlane
		Scott McFarlane
		Chairman and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ross Tennenbaum, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Avalara, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 6, 2022	By:	/s/ Ross Tennenbaum
		Ross Tennenbaum
		Chief Financial Officer and Treasurer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Avalara, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 6, 2022	By:	/s/ Scott McFarlane
		Scott McFarlane Chairman and Chief Executive Officer
		(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Avalara, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 6, 2022	By:	/s/ Ross Tennenbaum
		Ross Tennenbaum
		Chief Financial Officer and Treasurer (Principal Financial Officer)

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2022	Apr. 28, 2022
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2022
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q1
Trading Symbol	AVLR
Entity Registrant Name	AVALARA, INC.
Entity Central Index Key	0001348036
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		87,859,718
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity File Number	001-38525
Entity Tax Identification Number	91-1995935
Entity Address, Address Line One	255 South King Street
Entity Address, Address Line Two	Suite 1800
Entity Address, City or Town	Seattle
Entity Address, State or Province	WA
Entity Address, Postal Zip Code	98104
City Area Code	206
Local Phone Number	826-4900
Entity Interactive Data Current	Yes
Title of 12(b) Security	Common Stock, Par Value $0.0001 Per Share
Security Exchange Name	NYSE
Entity Incorporation, State or Country Code	WA
Document Quarterly Report	true
Document Transition Report	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Current assets:
Cash and cash equivalents	$ 1,481,853	$ 1,514,064
Restricted cash	37,700	37,700
Trade accounts receivable—net of allowance for doubtful accounts of $5,772 and $5,803, respectively	113,469	114,248
Deferred commissions	17,296	16,364
Prepaid expenses and other current assets	39,314	29,267
Total current assets before customer fund assets	1,689,632	1,711,643
Funds held from customers	64,359	62,509
Receivable from customers—net of allowance of $507 and $439, respectively	1,579	1,472
Total current assets	1,755,570	1,775,624
Noncurrent assets:
Deferred commissions	53,471	52,155
Operating lease right-of-use assets—net	43,225	44,385
Property and equipment—net	49,368	46,464
Intangible assets—net	89,775	96,818
Goodwill	671,431	672,381
Other noncurrent assets	10,827	10,704
Total assets	2,673,667	2,698,531
Current liabilities:
Trade payables	18,211	16,683
Accrued expenses	69,102	109,792
Deferred revenue	302,496	280,816
Accrued purchase price related to acquisitions	52,683	51,476
Accrued earnout liabilities	37,390	33,151
Operating lease liabilities	11,847	11,453
Total current liabilities before customer fund obligations	491,729	503,371
Customer fund obligations	66,368	64,302
Total current liabilities	558,097	567,673
Noncurrent liabilities:
Convertible senior notes—net	962,144	961,259
Deferred revenue	1,114	2,139
Accrued purchase price related to acquisitions	6,715	7,988
Accrued earnout liabilities	59,706	81,485
Operating lease liabilities	43,549	45,614
Deferred tax liability	5,383	5,158
Other noncurrent liabilities	751	761
Total liabilities	1,637,459	1,672,077
Commitments and contingencies	0	0
Shareholders' equity:
Preferred stock, $0.0001 par value – no shares issued and outstanding at March 31, 2022, and December 31, 2021, and 20,000 shares authorized as of March 31, 2022, and December 31, 2021	0	0
Common stock, $0.0001 par value – 87,785 and 87,087 shares issued and outstanding at March 31, 2022, and December 31, 2021, respectively, and 600,000 shares authorized as of March 31, 2022, and December 31, 2021	9	9
Additional paid-in capital	1,776,400	1,732,742
Accumulated other comprehensive loss	(4,775)	(3,428)
Accumulated deficit	(735,426)	(702,869)
Total shareholders’ equity	1,036,208	1,026,454
Total liabilities and shareholders' equity	$ 2,673,667	$ 2,698,531

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Statement Of Financial Position [Abstract]
Trade accounts receivable, allowance for doubtful accounts	$ 5,772	$ 5,803
Receivable from customers, allowance	$ 507	$ 439
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Preferred stock, shares authorized	20,000,000	20,000,000
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares, issued	87,785,000	87,087,000
Common stock, shares, outstanding	87,785,000	87,087,000
Common stock, shares authorized	600,000,000	600,000,000

XML

Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Revenue:
Revenues	$ 204,530	$ 153,601
Cost of revenue:
Cost of revenues	60,126	44,496
Gross profit	144,404	109,105
Operating expenses:
Research and development	50,852	39,274
Sales and marketing	86,447	64,093
General and administrative	42,194	31,199
Total operating expenses	179,493	134,566
Operating loss	(35,089)	(25,461)
Other income (expense):
Fair value changes in earnout liabilities	4,001	(1,350)
Interest income	186	24
Interest expense	(1,496)
Other income (expense), net	126	(924)
Total other income (expense), net	2,817	(2,250)
Loss before income taxes	(32,272)	(27,711)
Provision for income taxes	(285)	(2,357)
Net loss	$ (32,557)	$ (30,068)
Net loss per share attributable to common shareholders, basic and diluted	$ (0.37)	$ (0.35)
Weighted average shares of common stock outstanding, basic and diluted	87,463	85,436
Subscription and Returns
Revenue:
Revenues	$ 186,866	$ 139,318
Cost of revenue:
Cost of revenues	50,077	38,033
Professional Services
Revenue:
Revenues	17,664	14,283
Cost of revenue:
Cost of revenues	$ 10,049	$ 6,463

XML

Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Statement Of Income And Comprehensive Income [Abstract]
Net loss	$ (32,557)	$ (30,068)
Other comprehensive loss — Foreign currency translation	(1,347)	(390)
Total comprehensive loss	$ (33,904)	$ (30,458)

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Cash flows from operating activities:
Net loss	$ (32,557)	$ (30,068)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	32,650	18,857
Depreciation and amortization	11,132	7,071
Amortization of debt issuance costs	885	0
Impairment of capitalized cloud computing costs	0	345
Deferred income tax expense	225	2,028
Non-cash operating lease costs	2,523	2,175
Fair value changes in earnout liabilities	(4,001)	1,350
Non-cash bad debt expense	521	582
Other	(16)	(389)
Changes in operating assets and liabilities:
Trade accounts receivable	326	(14,695)
Prepaid expenses and other current assets	(9,946)	(9,186)
Deferred commissions	(2,248)	(2,360)
Other noncurrent assets	(123)	541
Trade payables	2,338	(1,895)
Accrued expenses	(42,371)	(15,634)
Deferred revenue	20,655	15,841
Operating lease liabilities	(3,059)	(2,810)
Net cash used in operating activities	(23,066)	(28,247)
Cash flows from investing activities:
Purchase of property and equipment	(2,148)	(1,366)
Capitalized software development costs	(5,905)	(2,311)
Cash paid for acquisitions of businesses, net of cash and restricted cash equivalents acquired	0	(2,167)
Net cash used in investing activities	(8,053)	(5,844)
Cash flows from financing activities:
Proceeds from exercise of stock options	2,281	5,529
Proceeds from purchases of stock under employee stock purchase plan	8,006	7,088
Acquisition-related post-closing payments	0	(1,971)
Payments related to business combination earnouts	(10,770)	0
Payments related to asset acquisition earnouts	(593)	(690)
Payments on financed asset purchases	(61)	0
Net increase in customer fund obligations	2,066	3,598
Net cash provided by financing activities	929	13,554
Foreign currency effect	(160)	6
Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents	(30,350)	(20,531)
Cash, cash equivalents, restricted cash, and restricted cash equivalents—Beginning of period	1,613,903	761,844
Cash, cash equivalents, restricted cash, and restricted cash equivalents—End of period	1,583,553	741,313
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Consolidated Balance Sheets, end of period:
Cash and cash equivalents	1,481,853	638,794
Restricted cash	37,700	68,886
Restricted cash equivalents—funds held from customers	64,000	33,633
Supplemental cash flow disclosures:
Cash paid for interest expense	1,140	0
Cash paid for operating lease liabilities	4,088	3,493
Cash paid for income taxes	506	153
Non-cash investing and financing activities:
Accrued value of earnout related to acquisitions of businesses	0	(1,802)
Accrued purchase of intangible assets	304	178
Property and equipment additions in accounts payable and accrued expenses	491	1,263
Capitalized internally developed software costs included in accounts payable and accrued expenses	482	0
Stock-based compensation costs capitalized to internally developed software	481	225
Operating lease right-of-use assets in exchange for lease obligations	$ 1,362	$ 43

XML

Significant Accounting Policies

3 Months Ended

Mar. 31, 2022

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

1.Summary of Significant Accounting Policies

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 and other product-related taxes such as sales and use tax, value-added tax (“VAT”), fuel excise tax, beverage alcohol, cross-border taxes (including tariffs and duties), lodging tax, communications tax, and insurance premium 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 outside of the U.S. in Brazil, Canada, Europe, and India, which conduct sales and operations and provide business development, software development, and support services.

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, 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as amended by the Form 10-K/A for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on May 5, 2022 (the “Amended 2021 Annual Report”). The accompanying interim consolidated balance sheet as of March 31, 2022, the consolidated interim statements of operations, consolidated statements of comprehensive loss, and the consolidated statements of cash flows for the three months ended March 31, 2022, 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, 2022, are not necessarily indicative of the results expected for the full year ending December 31, 2022.

Prior Period Restatements and Adjustments

While preparing the financial statements for the first quarter of 2022, the Company discovered an error in its recognition of stock-based compensation expense for restricted stock units (“RSUs”) impacting previously reported interim and annual consolidated financial statements. In the previously presented consolidated financial statements, the correction resulted in an increase of $0.1 million to stock-based compensation and an increase of $0.1 million to net loss on the consolidated statement of operations and the consolidated statement of cash flows for the three months ended March 31, 2021. The correction increased net loss and total comprehensive loss by $0.1 million on the consolidated statement of comprehensive loss for the three months ended March 31, 2021. The correction did not change total net cash used in operating activities on the consolidated statement of cashflows for the three months ended March 31, 2021. The correction increased additional paid-in capital and accumulated deficit by $0.1 million, with no change to total shareholders’ equity, on the consolidated statement of shareholders’ equity as of March 31, 2021. An explanation of the impact on the consolidated financial statements is contained in “Note 15—Correction of Previously Issued Consolidated Financial Statements” to the accompanying consolidated financial statements included in the Amended 2021 Annual Report, and the impact to each quarterly period consolidated statement of operations is included in “Quarterly Results of Operations” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” also included in the Amended 2021 Annual Report.

Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation.

Principles of Consolidation

The accompanying consolidated financial statements include those of the Company, its subsidiaries, and a variable interest entity for which the Company is the primary beneficiary, 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. Significant estimates and judgments related to revenue are described below in the Revenue Recognition Accounting Policy. Significant estimates impacting expenses include: expected credit losses associated with the allowance for doubtful accounts; the measurement of fair values of stock-based compensation award grants; the expected payout level of performance share unit grants; the expected earnout obligations in connection with acquisitions; the expected term of the customer relationship for capitalized contract cost amortization; the valuation and useful lives of acquired intangible assets; the valuation of the fair value of reporting units for analyzing goodwill; and the capitalization and useful life of capitalized software development costs. Actual results could materially differ from those estimates.

Fair Value of Financial Instruments

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, restricted cash equivalents, trade accounts receivable, trade payables, and accrued expenses, due to their short-term nature. The Company has measured the fair value of money market funds and available-for-sale securities based on quoted prices in active markets for identical assets and liabilities. The Company carries its Convertible Senior Notes at par value less unamortized debt issuance costs on its consolidated balance sheets and presents the fair value for disclosure purposes only.

Customer Funds Assets and Obligations

The Company has established a Delaware statutory trust (the “Customer Trust”) and appointed a federally insured bank as trustee, and the Customer Trust holds certain funds provided by its customers pending remittance to tax authorities. The Company is the sole beneficial owner of the Customer Trust. The Customer Trust is intended to be a bankruptcy-remote legal entity and meets the criteria in Accounting Standards Codification (“ASC”) Topic 810, Consolidation to be characterized as a variable interest entity (“VIE”). The Customer Trust is included in the Company’s consolidated financial statements because the Company determined it has a controlling financial interest in the Customer Trust as it has both (1) the power to direct the activities that most significantly impact the economic performance of the Customer Trust (including the power to make investment decisions for the trust) and (2) the right to receive benefits in the form of investment returns that could potentially be significant to the Customer Trust.

In 2021, certain customers began to remit tax payments to the Customer Trust with almost all customer funds remitted to and held by the Customer Trust as of December 31, 2021. Funds held from customers represent restricted cash equivalents and available-for-sale securities that, based upon the Company’s intent, are restricted solely for satisfying the obligations to remit funds relating to the Company’s tax remittance services. Customer fund obligations represent the Company’s contractual obligations to remit funds to satisfy customers’ tax obligations and are recorded on the consolidated balance sheets at the time that the Company or the Customer Trust collects funds from customers.

The following table details funds held from customers and customer fund obligations held by the Company and by the Customer Trust as of March 31, 2022 and December 31, 2021:

	March 31,		December 31,
	2022		2021
Funds held from customers (current assets):
Restricted cash equivalents – Company	$	647	$	13
Restricted cash equivalents – Customer Trust		63,353		62,126
Available-for-sale securities – Customer Trust		359		370
Funds held from customers	$	64,359	$	62,509
Customer fund obligations (current liabilities):
Customer fund obligations – Company		66,368		64,302
Customer fund obligations	$	66,368	$	64,302

Receivable from customers, net was $1.6 million and $1.5 million as of March 31, 2022, and December 31, 2021, respectively.

Business Combinations and Goodwill

The Company’s identifiable assets acquired and liabilities assumed in a business combination are recorded at their acquisition date fair values, which may be considered preliminary and subject to adjustment during the measurement period, which is up to one year from the acquisition date. The valuation requires management to make significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to:

• future expected cash flows from customer agreements, customer lists, distribution agreements, non-compete agreements, and proprietary content and technology;

• assumptions about the length of time the brand will continue to be used in the Company’s suite of solutions;

• royalty rates used to estimate the fees that could be charged to license the proprietary content and technology; and

• discount rates used to determine the present value of recognized assets and liabilities.

The Company’s estimates of fair value are based upon assumptions it believes to be reasonable, but that are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

Goodwill is calculated as the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets. Acquisition-related costs, including advisory, legal, accounting, valuation, and other costs, are expensed in the periods in which these costs are incurred. The results of operations of an acquired business are included in the consolidated financial statements beginning at the acquisition date. Goodwill is tested for impairment annually on October 31, or in the event of certain occurrences. There was no goodwill impairment recorded for the three months ended March 31, 2022 or 2021.

The Company estimates the fair value of the earnout liabilities related to business combinations using various valuation approaches, as well as significant unobservable inputs, reflecting the Company’s assessment of the assumptions market participants would use to value these liabilities. Following final determination of the acquisition date fair value, the fair value of the earnout is remeasured each reporting period, with any change in the value recorded as fair value changes in earnout liabilities in the consolidated statements of operation.    

Acquired Intangible Assets

Acquired intangible assets consist of developed technology, including in-process research and development (“IPR&D”), customer relationships, backlog, database content, noncompetition agreements, and tradenames and trademarks, resulting from the Company’s acquisitions. Acquired intangible assets are recorded at fair value on the date of acquisition and amortized over their estimated useful lives. IPR&D is initially capitalized at fair value as a developed technology intangible asset with an indefinite life and assessed for impairment thereafter. When an IPR&D project is completed, it is amortized over the asset’s estimated useful life.

The Company recognizes an earnout liability for acquisitions of intangible assets that are accounted for as an asset acquisition when the liability is earned and the amount is known. The earnout liability is capitalized as part of the cost of the assets acquired and amortized over the remaining useful life of the asset. Asset acquisition-related costs, primarily legal fees, are capitalized and included in the cost basis of the intangible asset when incurred.

Capitalized Software

Software development costs for internal-use software (i.e., cloud-based software solutions) are capitalized once the project is in the application development stage in accordance with the accounting guidance for internal-use software. These capitalized costs include external direct costs of services consumed in developing or obtaining the software and personnel expenses for employees who are directly associated with the development. Capitalization of these costs concludes once the project is substantially complete, and the software is ready for its intended purpose. Post-configuration training and maintenance costs are expensed as incurred. For the three months ended March 31, 2022 and 2021, $5.4 million and $2.5 million of software development costs were capitalized, respectively. Capitalized software development costs are amortized on a straight-line basis over the estimated useful life, generally 3 to 6 years. Software development costs are tested for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

In circumstances where software is developed for both cloud-based software solutions and for the purpose of being sold, leased, or otherwise marketed (i.e., customer hosted software), capitalization of development costs occurs after technological feasibility of the software is established and continues until the product is available for general release to customers. Since the Company’s developed software is available for general release concurrent with the establishment of technological feasibility, development costs are not capitalized in these circumstances.

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 three months ended March 31, 2022 or 2021.

Leases

Leases arise from contracts which convey the right to control the use of identified property or equipment for a period of time in exchange for consideration. The Company’s leasing arrangements are primarily for office space used to conduct operations. The Company determines whether an arrangement is or contains a lease at the inception date, based on whether there is an identified asset and whether the Company controls the use of the identified asset throughout the period of use. Leases commence when the lessor makes the asset available for use.

Leases are classified at commencement as either operating or finance leases. All the Company’s leases are classified as operating leases. Rent expense for operating leases is recognized on the straight-line method over the term of the agreement beginning on the lease commencement date. Lease-related costs, which are variable rather than fixed, are expensed in the period incurred. Variable lease costs consist primarily of common area maintenance and utilities costs for the Company’s office spaces that are due based on the actual costs incurred by the landlord. Lease payments that depend on an index or a rate are measured using the index or rate at the commencement date and are included in operating lease costs. Subsequent increases to lease payments due to a change in the index or rate are expensed as a variable lease cost.

Convertible Senior Notes

In August 2021, the Company completed a private offering of $977.5 million principal amount of 0.25% convertible senior notes due 2026 (the “2026 Notes”). The 2026 Notes are accounted for as debt, with no bifurcation of the embedded conversion feature. Debt issuance costs related to the Company’s issuance of the 2026 Notes consist primarily of purchaser’s discounts, commissions, and related costs. The debt issuance costs were recorded as a direct deduction from the liability associated with the 2026 Notes on the consolidated balance sheet and are amortized to interest expense over the term of the 2026 Notes.

In connection with the offering of the 2026 Notes, the Company purchased capped calls from certain financial institutions with respect to its common stock. As the capped calls are both legally detachable and separately exercisable from the 2026 Notes, the Company accounts for the capped calls separately from the 2026 Notes. The capped calls are indexed to the Company’s own common stock and classified in stockholder’s equity. As such, the premiums paid for the capped calls have been included as a net reduction to additional paid-in capital in the consolidated balance sheet as of March 31, 2022, and December 31, 2021.

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 tax rates that will be in effect 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 a tax benefit or expense based upon management’s evaluation of the facts, circumstances, and information available at the reporting date.

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. The Company will recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact the consolidated financial statements.

Revenue Recognition

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 as services are provided in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

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 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 exposure to credit risk by requiring payments in advance. If collectability of substantially all consideration to which the Company is 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 collected and remitted to governmental authorities.

Subscription and Returns Revenue

Subscription and returns revenue primarily consist of contractually agreed upon fees paid for using the Company’s cloud-based solutions, which include tax calculation, preparing and filing transaction tax returns, compliance document management, and tax content subscription services. Under the Company’s subscription agreements, customers select a price plan that includes an allotted maximum number of transactions or number of jurisdictions 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. Fees paid for subscription services to tax content vary depending on the volume of tax information accessible to the customer.

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.

The Company earns Streamlined Sales Tax (“SST”) revenue from participating state and local governments based on a percentage of the sales tax reported and paid.

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 historically most of the Company's customers are invoiced once at the beginning of the term, an increasing portion of customers are invoiced semi-annually, quarterly, or monthly.

Included in the total subscription fee for cloud-based solutions are non-refundable upfront fees that are typically charged to 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 from 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 generates professional services revenue from providing tax analysis and services, including business licenses and tax registrations, tax refund claims and recovery assistance, voluntary disclosure agreements, nexus studies, and back filing services. Additionally, the Company provides configurations, data migrations, integration, and training for its subscriptions and returns products. The Company invoices for professional service arrangements on a fixed fee, milestone, or time and materials basis. 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.

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 (sales commissions) 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, generally six years. The Company determines the period of benefit by taking into consideration 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.

Stock-Based Compensation

The Company accounts for stock-based compensation by calculating the fair value of each option, RSU, or performance share unit (“PSU”) issued under the 2018 Equity Incentive Plan (the “2018 Plan”), or purchase rights issued under the 2018 Employee Stock Purchase Plan (“ESPP”), at the grant date. The fair value of stock options and purchase rights 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 or purchase 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 or PSU is determined using the fair value of the Company’s underlying common stock on the grant date. The stock-based compensation expense recognized over the performance period for PSUs will equal the fair value of the PSU on the grant date multiplied by the number of PSUs that are earned. Furthermore, the quarterly expense recognized during the performance period for PSUs is based on an estimate of the Company’s future performance and the expected payout level. Changes to management’s estimate of future performance result in adjustments to the stock-based compensation expense for PSUs and are recognized prospectively over the remaining service period. The Company accounts for forfeitures of stock-based awards as they occur.

Recently Adopted Accounting Standards

There are no accounting standards that have been recently adopted.

New Accounting Standards Not Yet Adopted

ASU 2021-08

In October 2021, the Financial Accounting Standards Board issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends the accounting related to contract assets and liabilities acquired in business combinations. Under current GAAP, an entity generally recognizes assets and liabilities acquired in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU 2021-08 requires that entities recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to businesses combinations occurring on or after the effective date of the amendment. Early adoption is permitted, including adoption in an interim period. The Company currently expects to adopt this new guidance in the first quarter of 2023 and is currently evaluating the impact of this new guidance on the consolidated financial statements.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements

2.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, 2022	Value		(Level 1)		(Level 2)		(Level 3)
Money market funds	$	1,405,965	$	1,405,965	$	—	$	—
Available-for-sale securities:
U.S. treasury securities		359		359		—		—
Earnouts related to business combinations		96,757		—		—		96,757

			Fair Value Measurements Using
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Fair		Identical Assets		Inputs		Inputs
December 31, 2021	Value		(Level 1)		(Level 2)		(Level 3)
Money market funds	$	1,439,522	$	1,439,522	$	—	$	—
Available-for-sale securities:
U.S. treasury securities		370		370		—		—
Earnouts related to business combinations		113,978		—		—		113,978

Earnout Liability

Earnout liabilities recorded in connection with an acquisition accounted for as a business combination under ASC 805 are recorded at estimated fair value on a recurring basis. Business combinations included in the earnout liabilities table below are discussed in Note 4. Earnouts recorded in connection with asset acquisitions are recorded as earnout payments become known and are not remeasured on a recurring basis. As such, earnouts related to asset acquisitions, which are discussed in Note 6, are not included in these fair value disclosures.

Earnout liabilities related to business combinations 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 related to business combinations are recorded in fair value changes in earnout liabilities and included in total other income (expense), net in the consolidated statements of operations.

The Company estimates the fair value of earnout liabilities for business combinations using either probability-weighted discounted cash flows and Monte Carlo simulations or a scenario-based approach. 

The following table provides summary information of the assumptions used to calculate the estimated earnout liabilities related to 2021 and 2020 acquisitions (in thousands):

						Discount Rate as of				Balance as of		Balance as of
Acquisition	Year of Acquisition		Earnout Target	Method	Earnout Period	March 31, 2022				March 31, 2022		December 31, 2021
CrowdReason		2021	Specific revenue growth thresholds through October 2024, a cap of $30.0 million is available; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	October 2024		5.0	%	(a)	$	24,368	$	26,320
Track1099		2021	Specific revenue growth thresholds through April 2023, with a cap of $12.5 million; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	April 2023		10.0	%	(a)		6,570		7,880
Davo		2021	Specific revenue growth thresholds through March 2023, with no cap; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	March 2023		8.0	%	(a)		34,940		35,885
Transaction Tax Resources (“TTR”)		2020	Specific revenue growth thresholds through December 2022, with cap of $26.4 million; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	December 2022		15.0	%	(c)		11,910		24,830
Business Licenses		2020	Achievement of certain performance metrics through November 2024, with cap of $20.7 million; to be settled in common stock.	Scenario-based approach	November 2024		6.2	%	(b)		18,969		19,063
Balance end of period										$	96,757	$	113,978
(a)   The discount rate was calculated using the build-up method with a risk-free rate commensurate with the term of the earnout based on the equity, asset and revenue betas, size premium, and the Company’s specific risk premium, as well as the market risk premium using a bottom-up approach.
(b)   The discount rate was based on the Company's estimated credit yield.  The Business Licenses earnout was assumed by management to have a high probability of achievement.
(c)   $13.2 million was paid on March 2, 2022 in satisfaction of the first earnout period for TTR.  The second earnout period, if achieved, is payable in March 2023.  The discount rate of 15% was only used for revenue that was non-contracted as of March 31, 2022. The discount rate of 15% was calculated using the build-up method with a risk-free rate commensurate with the term of the earnout based on the equity, asset and revenue betas, size premium, and the Company’s specific risk premium, as well as the market risk premium using a bottom-up approach. For contracted revenue, no risk adjusted discount rate was assumed, other than the cost of debt, as it is not subject to forecasting uncertainty.

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):

	For the Three Months Ended March 31,
	2022			2021
Earnout liabilities related to business combinations:
Balance beginning of period	$	113,978		$	34,501
Measurement period adjustments		—			1,802
Payments of earnout liabilities		(13,220	)		—
Fair value changes included in total other expense (income), net		(4,001	)		1,350
Balance end of period	$	96,757		$	37,653

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, long-lived assets and deferred revenue, and the Company’s liabilities for the accrued purchase price related to acquisitions, are not required to be measured at fair value on a recurring basis. The estimation of fair value for these assets and liabilities requires the use of significant unobservable inputs, and as a result, the Company classifies these assets and liabilities as Level 3 within the fair value hierarchy.   

Fair Value of Other Financial Instruments

The Company has $977.5 million in principal amount of the 2026 Notes. See Note 9 for further details. The Company carries the 2026 Notes at par value less unamortized debt issuance costs on its consolidated balance sheet as of March 31, 2022, and December 31, 2021, and presents the fair value for disclosure purposes only. The estimated fair value of the 2026 Notes, based on a market approach as of March 31, 2022, was approximately $837.1 million, which represents a Level 2 valuation estimate. The estimated fair value was determined based on the actual bids and offers of the 2026 Notes in an over-the-counter market on the last trading day of the quarter.  

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Balance Sheet Detail

3 Months Ended

Mar. 31, 2022

Balance Sheet Related Disclosures [Abstract]

Balance Sheet Detail

3.Balance Sheet Detail

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

	Useful	March 31,			December 31,
	Life (Years)	2022			2021
Computer equipment and software	3 to 5	$	21,240		$	19,923
Internally developed software	3 to 6		32,244			27,099
Furniture and fixtures	5		6,428			6,425
Office equipment	2 to 5		1,343			1,275
Leasehold improvements	1 to 10		30,102			30,046
			91,357			84,768
Accumulated depreciation			(41,989	)		(38,304	)
Property and equipment—net		$	49,368		$	46,464

Depreciation expense was $4.0 million for the three months ended March 31, 2022, and $2.6 million for the three months ended March 31, 2021.

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

	March 31,		December 31,
	2022		2021
Licenses and subscriptions	$	18,670	$	14,511
Prepaid and other current taxes		2,444		3,132
Deposits		4,903		3,746
Prepaid employee related expenses		2,755		2,780
Prepaid cloud computing implementation costs		2,262		1,708
Prepaid insurance		3,960		—
Other		4,320		3,390
Total	$	39,314	$	29,267

Accrued expenses consisted of the following (in thousands):

	March 31,		December 31,
	2022		2021
Accrued bonus	$	11,476	$	40,853
Accrued partner commissions		14,133		13,088
Accrued payroll and related taxes		15,127		10,208
Employee stock purchase plan contributions		3,463		7,113
Accrued sales commissions		5,422		7,007
Contract liabilities		897		6,918
Accrued federal, state, local, and foreign taxes		3,574		3,926
Self-insurance reserves		2,471		2,401
Accrued interest payable on Convertible Senior Notes		414		944
Other		12,125		17,334
Total	$	69,102	$	109,792

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Acquisitions of Businesses

3 Months Ended

Mar. 31, 2022

Business Combinations [Abstract]

Acquisitions of Businesses

4. Acquisitions of Businesses

April 2021 Acquisition of Inposia

On April 1, 2021, the Company acquired the outstanding equity of Inposia under a Share Purchase Agreement (the “Inposia Purchase”). Inposia is a German software company that delivers e-invoicing, digital tax reporting, and system and data integration to support digital transformation efforts and address real-time compliance requirements for businesses. Inposia will build upon Avalara’s existing e-invoicing capabilities in Brazil and India to support customers worldwide with real-time compliance. The Company accounted for the Inposia Purchase as a business combination. Acquisition-related costs of $1.5 million were primarily for legal and due-diligence related fees and were recorded in general and administrative expense, of which $1.0 million was incurred in the second half of 2020 and $0.5 million was incurred in 2021.

The total consideration transferred related to this transaction was €31.8 million (or approximately $37.4 million using the exchange rate on April 1, 2021), consisting of net cash consideration of $14.5 million and 164,416 shares of the Company’s common stock paid at closing with an acquisition date fair value of $23.0 million. Net cash consideration consists of $12.2 million cash paid at closing, and a $2.4 million cash deposit paid in the fourth quarter of 2020, offset by $0.2 million cash received by the Company in the third quarter of 2021 as a result of net working capital adjustments. A portion of shares issued are held in escrow as of March 31, 2022, and will be released to the Inposia shareholders during the 18 months following the acquisition, subject to reduction for certain indemnification and other potential obligations of the Inposia shareholders. The shares held in escrow are considered issued and outstanding and are recorded in shareholders’ equity on the consolidated balance sheet as of December 31, 2021 and March 31, 2022.  

Total consideration associated with this acquisition is presented below (in thousands):

	Total Consideration
Cash paid at closing (net of amounts returned)	$	14,456
Fair value of common stock issued at closing		22,971
Total consideration	$	37,427

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

	Fair Value
Assets acquired:
Cash and cash equivalents	$	1,264
Trade accounts receivable		1,767
Other current assets		268
Operating lease right-of-use assets		928
Property and equipment		98
Developed technology, customer relationships, and other intangibles		14,269
Goodwill		26,520
Other noncurrent assets		35
Total assets acquired		45,149
Liabilities assumed:
Trade payables and accrued expenses		1,478
Deferred revenue		810
Other liabilities, noncurrent		106
Operating lease liabilities		928
Deferred tax liability		4,400
Total liabilities assumed		7,722
Net assets acquired	$	37,427

The carrying amount of trade accounts receivable acquired in the Inposia Purchase approximates the fair value. The fair value of deferred revenue was estimated utilizing a discount rate of 4.0% based on the Company’s estimated pre-tax cost of debt.

The Company utilizes different valuation approaches and methodologies to determine the fair value of acquired intangible assets. The weighted-average amortization period for all intangibles acquired in the Inposia Purchase is 6.2 years. A summary of the valuation methodologies, significant assumptions, and estimated useful lives of acquired intangible assets in the Inposia Purchase are provided in the below table (in thousands):

Intangible	Fair Value		Valuation Methodology	Discount Rate	Estimated Useful Life
Customer relationships	$	3,288	Multi-period excess earnings-income approach	18.5%	8 years
Developed technology		9,572	Relief from royalty-income approach	18.5%	6 years
Noncompetition agreements		1,174	With-and-without valuation-income approach	21.0%	3 years
Tradename		235	Relief from royalty-income approach	18.5%	3 years

The excess of the purchase price over the net identified tangible and intangible assets is $26.5 million and has been recorded as goodwill, which includes synergies expected from the combined service offerings and the value of the assembled workforce. The goodwill is not expected to be deductible for tax purposes.

April 2021 Acquisition of Davo

On April 20, 2021, the Company acquired substantially all the assets of Davo under an Asset Purchase Agreement (the “Davo Purchase”). Davo helps emerging small businesses automate the daily and ongoing requirements for sales tax. As a result of the acquisition, Davo extends Avalara’s ability to provide integrated sales tax compliance processes to alleviate the burden of compliance on small businesses. The Company accounted for the Davo Purchase as a business combination. Acquisition-related costs of $0.1 million were primarily for legal and due-diligence related fees and were recorded in general and administrative expense.

The total consideration transferred related to this transaction was $56.7 million, consisting of $23.5 million cash paid at close, a $0.3 million cash deposit paid in the first quarter of 2021, an acquisition holdback with a fair value upon acquisition of $2.6 million, and an earnout provision with a fair value upon acquisition of $30.3 million. The acquisition holdback represents an additional $2.6 million of cash to be paid Davo shareholders during the 18 months following the acquisition date, subject to reduction for certain indemnifications and other potential obligations of Davo shareholders. The earnout will be calculated as a multiple of certain performance metrics during the 12-month measurement periods ending March 31, 2022, and 2023, and there is not a stated minimum or maximum payment required under the earnout.

Total consideration associated with this acquisition is presented below (in thousands):

	Total Consideration
Cash paid through closing	$	23,818
Fair value of earnout provision		30,338
Fair value of holdbacks		2,591
Total consideration	$	56,747

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

	Fair Value
Assets acquired:
Cash and cash equivalents	$	198
Funds held from customers		12,464
Trade accounts receivable		119
Other current assets		58
Operating lease right-of-use assets		46
Developed technology, customer relationships, and other intangibles		4,651
Goodwill		51,911
Other noncurrent assets		2
Total assets acquired		69,449
Liabilities assumed:
Accrued expenses		117
Deferred revenue		75
Operating lease liabilities		46
Customer fund obligations		12,464
Total liabilities assumed		12,702
Net assets acquired	$	56,747

The carrying amount of trade accounts receivable and deferred revenue acquired in the Davo Purchase approximates the fair value.

The Company utilizes different valuation approaches and methodologies to determine the fair value of acquired intangible assets. The weighted-average amortization period for all intangibles acquired in the Davo Purchase is 5.4 years. A summary of the valuation methodologies, significant assumptions, and estimated useful lives of acquired intangible assets in the Davo Purchase are provided in the below table (in thousands):

Intangible	Fair Value		Valuation Methodology	Discount Rate	Estimated Useful Life
Customer relationships	$	2,050	Multi-period excess earnings-income approach and replacement cost method-cost approach	13.5%	6 years
Developed technology		1,950	Relief from royalty-income approach	13.5%	5 years
Noncompetition agreements		564	With-and-without valuation-income approach	15.5%	5 years
Tradename		87	Relief from royalty-income approach	13.5%	1 year

The excess of the purchase price over the net identified tangible and intangible assets is $51.9 million and 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 deductible for tax purposes.

September 2021 Acquisition of 3CE Technologies, Inc

On September 7, 2021, the Company acquired substantially all the assets of 3CE under an Asset Purchase Agreement (the “3CE Purchase”). 3CE is a Canadian company that provides software and services for Harmonized System code classifications and verifications, primarily to government entities and logistics services providers. The acquisition will expand and improve Avalara’s Harmonized System classification content and provide a new self-service model to sell to the Company’s customers. The Company accounted for the 3CE purchase as a business combination. The total consideration related to this transaction is $11.2 million, consisting of $9.9 million cash paid at close and an acquisition holdback with a fair value upon acquisition of $1.3 million. The fair values of the assets acquired and the liabilities assumed in the 3CE Purchase as of the acquisition date include intangible assets of $3.7 million, primarily attributable to developed technology and customer relationships and goodwill of $7.1 million.

October 2021 Acquisition of Track1099

On October 1, 2021, the Company acquired substantially all the assets of Track1099 under an Asset Purchase Agreement (the “Track1099 Purchase”). Track1099 provides online software and services for cost-effectively managing, e-filing, and e-delivering Internal Revenue Service forms, including Forms 1099, W-2, and W-9. The Company accounted for the Track1099 Purchase as a business combination. Acquisition related costs of $0.1 million were primarily for legal and due-diligence related fees and were recorded in general and administrative expense.

The total consideration related to this transaction was $48.8 million, consisting of $35.0 million cash paid at close, an acquisition holdback with a fair value upon acquisition of $5.0 million, and an earnout provision with a fair value upon acquisition of $8.8 million. The acquisition holdback represents an additional $5.0 million of cash to be paid to the sellers 27 months following the acquisition date, subject to reduction for certain indemnifications and other potential obligations of the sellers. The earnout for Track1099 is calculated based on certain billing performance metrics during the 12-month measurement periods ending April 30, 2022 and April 30, 2023, not to exceed $12.5 million in total or $6.25 million in each earnout period.

Preliminary total consideration as of March 31, 2022, is presented below (in thousands):

	Total Consideration (preliminary)
Cash paid through closing	$	35,000
Fair value of earnout provision		8,820
Fair value of holdbacks		4,984
Total consideration	$	48,804

Preliminary estimated fair values of the assets acquired and the liabilities assumed in the Track1099 Purchase as of the acquisition date are provided in the following table (in thousands): 

	Fair Value (preliminary)
Assets acquired:
Prepaid and other current assets	$	2
Developed technology, customer relationships, and other intangibles		5,850
Goodwill		42,962
Total assets acquired		48,814
Liabilities assumed:
Current liabilities		1
Deferred revenue		9
Total liabilities assumed		10
Net assets acquired	$	48,804

The estimated fair values for certain acquired intangibles, the earnout, and holdback are preliminary in nature and subject to adjustment when the necessary information is available to complete the valuation.

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 Track1099 Purchase are provided in the table below (in thousands):

Intangible	Assigned Value		Valuation Methodology	Discount Rate	Estimated Useful Life
Customer relationships	$	3,200	Multi-period excess earnings-income approach	28.0%	5 years
Developed technology		1,250	Relief from royalty-income approach	28.0%	2 years
Noncompetition agreement		1,300	With-and-without valuation-income approach	30.0%	5 years
Tradename		100	Relief from royalty-income approach	28.0%	2 years

The excess of the purchase price over the net identified tangible and intangible assets is $43.0 million and 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 deductible for tax purposes.

October 2021 Acquisition of CrowdReason and CorrelationAdvisors

On October 18, 2021, the Company acquired substantially all the assets of CrowdReason, Limited Liability Company and CorrelationAdvisors, LLC under an Asset Purchase Agreement (the “CrowdReason Purchase”). CrowdReason is a technology services company that provides software applications, solutions, and services for property tax compliance. CorrelationAdvisors provides consulting services related to property valuation and property tax compliance. The Company accounted for the CrowdReason Purchase as a business combination. Acquisition-related costs of $0.2 million were primarily for legal and due-diligence related fees and were recorded in general and administrative expense.

The total consideration transferred related to this transaction was $36.4 million, consisting of $8.3 million cash paid at close, acquisition holdbacks with a fair value upon acquisition of $1.7 million, and an earnout provision with a fair value upon acquisition of $26.3 million. The acquisition holdback represents an additional $1.7 million of cash to be paid to the sellers during the 18 months following the acquisition date, subject to reduction for certain indemnifications and other potential obligations of the sellers. The earnout is calculated as a multiple of revenue growth thresholds during the 12-month measurement periods ending October 31, 2022, 2023, and 2024, with the total purchase price, inclusive of earnouts, not to exceed $40.0 million.

Preliminary total consideration as of March 31, 2022, is presented below (in thousands):

	Total Consideration (preliminary)
Cash paid through closing	$	8,317
Fair value of earnout provision		26,320
Fair value of holdbacks		1,727
Total consideration	$	36,364

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

	Fair Value (preliminary)
Assets acquired:
Current assets	$	1,426
Developed technology, customer relationships, and other intangibles		10,300
Goodwill		25,415
Total assets acquired		37,141
Liabilities assumed:
Current liabilities		101
Deferred revenue & contract liabilities		676
Total liabilities assumed		777
Net assets acquired	$	36,364

The estimated fair values for certain acquired intangibles, the earnout, and holdback are preliminary in nature and subject to adjustment when the necessary information is available to complete the valuation.

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 CrowdReason Purchase are provided in the table below (in thousands):

Intangible	Assigned Value		Valuation Methodology	Discount Rate	Estimated Useful Life
Customer relationships	$	5,700	Multi-period excess earnings-income approach	18.0%	5 to 8 years
Developed technology		3,900	Relief from royalty-income approach	18.0%	5 years
Backlog		450	Multi-period excess earnings-income approach	15.0%	1 year
Noncompetition agreements		100	With-and-without valuation-income approach	20.0%	5 years
Tradename		150	Relief from royalty-income approach	18.0%	2 years

The excess of the purchase price over the net identified tangible and intangible assets is $25.4 million and 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 deductible for tax purposes.

Pro Forma Financial Information (Unaudited)

The unaudited pro forma financial information in the table below summarizes the combined results of operations for Avalara and all 2021 acquisitions as though the companies were combined as of January 1, 2021. There were no acquisitions during the three months ended March 31, 2022. The unaudited pro forma financial information presented also includes certain business combination accounting effects resulting from the acquisitions, including amortization charges from acquired intangible assets. No adjustments were made for the fair value of deferred revenue and contract liabilities or fair value measurement adjustments for earnout liabilities. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had occurred on the dates indicated.

	For the Three Months Ended March 31,
	2022			2021
Total revenue	$	204,530		$	163,275
Pre-tax loss		(32,272	)		(27,806	)

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Revenue

3 Months Ended

Mar. 31, 2022

Revenue From Contract With Customer [Abstract]

Revenue

5.Revenue

See Note 1 for a description of the Company’s revenue recognition accounting policy.

Disaggregation of Revenue

The following table disaggregates revenue generated within the United States (“U.S.”) from revenue generated from customers outside of the U.S. Revenue for transaction tax compliance in the U.S. is further disaggregated based on the solutions or services purchased by customers. Total revenues consisted of the following (in thousands):

	For the Three Months Ended March 31,
	2022		2021
Revenue (U.S.):
Subscription and returns
Tax calculations	$	100,500	$	76,396
Tax returns and compliance management		73,727		52,847
Interest income on funds held for customers		208		141
Total subscription and returns		174,435		129,384
Professional services		16,041		13,288
Total revenue (U.S.)		190,476		142,672
Total revenue (non-U.S.)		14,054		10,929
Total revenue	$	204,530	$	153,601

Disclosures Related to Contracts with Customers

Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to contracts with customers. Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. To the extent a contract exists, as defined by ASC 606, these liabilities are classified as current and non-current deferred revenue. To the extent that a contract does not exist, as defined by ASC 606 (e.g., customer agreements with non-standard termination rights), these liabilities are classified as contract liabilities. Contract liabilities are transferred to deferred revenue at the point in time when the criteria that establish the existence of a contract are met.

Contract Liabilities

A summary of the activity impacting the contract liabilities during the three months ended March 31, 2022 and 2021, is presented below (in thousands):

	For the Three Months Ended March 31,
	2022			2021
Contract liabilities:
Balance beginning of period	$	6,918		$	10,134
Contract liabilities transferred to deferred revenue		(6,622	)		(3,866	)
Addition to contract liabilities		601			6,198
Balance end of period	$	897		$	12,466

As of March 31, 2022, contract liabilities are expected to be transferred to deferred revenue within the next 12 months and therefore are included in accrued expenses on the consolidated balance sheets. As of December 31, 2021 the majority of the contract liability balance related to a single marketplace partner. During the first quarter of 2022, the agreement with this partner was amended such that amounts are no longer presented separately as contract liabilities.

Deferred Revenue

A summary of the activity impacting deferred revenue balances during the three months ended March 31, 2022 and 2021, is presented below (in thousands):

	For the Three Months Ended March 31,
	2022			2021
Deferred revenue:
Balance beginning of period	$	282,955		$	209,690
Revenue recognized		(204,530	)		(153,601	)
Additional amounts deferred		225,185			169,442
Balance end of period	$	303,610		$	225,531

As of March 31, 2022, $302.5 million of deferred revenue is expected to be recognized within the next 12 months and is included in current liabilities on the consolidated balance sheets. The remaining amount of deferred revenue is included in noncurrent liabilities and is expected to be recognized within the next 18 months.

Assets Recognized from the Costs to Obtain Contracts with Customers

Assets are recognized for the incremental costs of obtaining a contract with a customer if the benefit of those costs is expected to be longer than one year. These deferred commissions are amortized over an expected period of benefit of generally six years.

A summary of the activity impacting the deferred commissions during the three months ended March 31, 2022, is presented below (in thousands):

	For the Three Months Ended March 31,
	2022			2021
Deferred commissions:
Balance beginning of period	$	68,519		$	50,870
Additional commissions deferred		6,832			5,695
Amortization of deferred commissions		(4,584	)		(3,335	)
Balance end of period	$	70,767		$	53,230

As of March 31, 2022, $17.3 million of deferred commissions are expected to be amortized within the next 12 months and are included in current assets on the consolidated balance sheets. The remaining amount of deferred commissions is included in noncurrent assets. There were no impairments of assets related to deferred commissions during the three months ended March 31, 2022 or 2021. There were no assets recognized related to the costs to fulfill contracts during the three months ended March 31, 2022, or 2021 as these costs were not material.

Remaining Performance Obligations

Contracts with customers include amounts allocated to performance obligations that will be satisfied at a later date. These amounts include deferred revenue that has been invoiced and non-cancellable amounts that will be invoiced and recognized as revenue in future periods. As of March 31, 2022, the remaining performance obligations to which enforceable rights exist are $392.9 million, of which $377.2 million is expected to be recognized as revenue over the next 12 months with the remaining amount thereafter. Of the remaining performance obligations as of March 31, 2022, $89.3 million relates to non-cancellable amounts that have not yet been invoiced, of which $74.7 million is expected to be recognized as revenue over the next 12 months with the remaining amount thereafter.

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Intangible Assets

3 Months Ended

Mar. 31, 2022

Goodwill And Intangible Assets Disclosure [Abstract]

Intangible Assets

6.Intangible Assets

Intangible assets consisted of the following (in thousands):

		March 31, 2022
	Useful Life (Years)	Gross		Accumulated Amortization			Net
Backlog	1 to 7	$	4,500	$	(2,249	)	$	2,251
Customer relationships	5 to 10		75,162		(26,527	)		48,635
Developed technology (1)	1 to 6		73,204		(40,516	)		32,688
Noncompetition agreements	3 to 5		6,445		(2,064	)		4,381
Tradename and trademarks	1 to 3		7,272		(5,452	)		1,820
		$	166,583	$	(76,808	)	$	89,775
(1) Developed technology intangible assets include IPR&D of $0.4 million as of March 31, 2022, which is not subject to amortization.

		December 31, 2021
	Useful Life (Years)	Gross		Accumulated Amortization			Net
Backlog	3	$	4,500	$	(1,816	)	$	2,684
Customer relationships	3 to 10		75,188		(23,795	)		51,393
Developed technology (1)	3 to 8		72,723		(37,333	)		35,390
Noncompetition agreements	3 to 5		6,452		(1,725	)		4,727
Tradename and trademarks	1 to 4		7,267		(4,643	)		2,624
		$	166,130	$	(69,312	)	$	96,818
(1) Developed technology intangible assets include IPR&D of $0.4 million as of December 31, 2021, which is not subject to amortization.

Finite-lived intangible assets are amortized over their estimated useful life. Finite-lived intangible assets amortization expense was $7.1 million for the three months ended March 31, 2022, and $4.4 million for the three months ended March 31, 2021.

Acquisitions of finite-lived intangible assets

In May 2018, the Company acquired developed technology to facilitate cross-border transactions (e.g., tariffs and duties), from Tradestream Technologies Inc. and Wise 24 Inc. (the “Sellers”) for cash and common stock. This acquisition was accounted for as an asset acquisition. Total consideration for the purchase will not exceed $30 million, inclusive of an earnout computed on future billings recognized by the Company over six years post acquisition. The earnout is payable in cash or common stock at the end of each six-month measurement period ending on June 30 or December 31 through 2023. Through March 31, 2022, the sellers have earned approximately $2.6 million under the earnout provision since the acquisition date. An earnout liability of $0.3 million was recorded within the current portion of accrued earnout liabilities as of March 31, 2022, for the earnout period ending June 30, 2022, and is expected to be paid in cash to the sellers in the third quarter of 2022.

Goodwill

Changes in the carrying amount of goodwill for the three months ended March 31, 2022, are summarized as follows (in thousands):

Balance—December 31, 2021	$	672,381
Cumulative translation adjustments		(950	)
Balance—March 31, 2022	$	671,431

Goodwill is tested for impairment annually on October 31 at the reporting unit level or whenever circumstances occur indicating goodwill might be impaired. The impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds carrying value, the Company will conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, the Company will recognize an impairment loss in an amount equal to the excess, not to

exceed the carrying value. The Company has three reporting units for goodwill impairment testing consisting of its U.S., European, and Brazilian operations. As of March 31, 2022, the Brazilian reporting unit had no associated goodwill.

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Leases

3 Months Ended

Mar. 31, 2022

Leases [Abstract]

Leases

7.Leases

Total lease cost, net of sublease income, was $3.8 million for the three months ended March 31, 2022, and $3.9 million for the three months ended March 31, 2021. Sublease income was $0.4 million for the three months ended March 31, 2022 and 2021. Leases that commenced in the first three months of 2022 increased operating lease right-of-use assets by $1.4 million.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2022

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

8.Commitments and Contingencies

Contingencies

Loss contingencies may arise in connection with the ordinary conduct of the Company’s business activities. The Company considers all loss contingencies on a quarterly basis and based on known facts assesses whether potential losses are considered reasonably possible, probable, and estimable. The Company establishes an accrual for loss contingencies when the loss is both probable and reasonably estimable. If the estimated loss is a range of potential outcomes and there is no better estimate within the range, management accrues the amount at the low end of the range. These accruals represent management’s estimate of probable losses and, in such cases, there may be an exposure to loss in excess of the amounts accrued. Significant judgment is required to determine both likelihood of there being a probable loss and the estimated amount of a loss. If a loss contingency is not both probable and reasonably estimable, the Company does not establish an accrual, but will evaluate other disclosure requirements and continue to monitor the matter for developments that would make the loss contingency both probable and reasonably estimable. The ultimate outcome of any litigation relating to a loss contingency is uncertain and, regardless of outcome, litigation can have an adverse impact on the Company because of defense costs, negative publicity, diversion of management resources and other factors.

In its standard subscription agreements, the Company has agreed to indemnification provisions with respect to certain matters. Further, from time to time, the Company has also assumed indemnification obligations through its acquisition activity. These indemnification provisions can create a liability to the Company if its services do not appropriately calculate taxes due to tax jurisdictions, or if the Company is delinquent in the filing of returns on behalf of its customers. Although the Company’s agreements have disclaimers of warranties that limit its liability (beyond the amounts the Company agrees to pay pursuant to its indemnification obligations and guarantees, as applicable), a court could determine that such disclaimers and limitations are unenforceable as a matter of law and hold the Company liable for certain errors. Further, in some instances the Company has negotiated agreements with specific customers or assumed agreements in connection with the Company’s acquisitions that do not limit this liability or disclaim these warranties. It is not possible to reasonably estimate the potential loss under these indemnification arrangements.  

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Debt

3 Months Ended

Mar. 31, 2022

Debt Disclosure [Abstract]

Debt

9.Debt

Convertible Senior Notes

In August 2021, the Company completed a private offering of $977.5 million principal amount of 0.25% convertible senior notes due 2026 (the “2026 Notes”). The 2026 Notes are unsecured obligations and bear interest at a fixed rate of 0.25% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 2022. The 2026 Notes will mature on August 1, 2026, unless earlier converted, redeemed, or repurchased. The Company incurred $17.6 million of debt issuance costs in connection with the 2026 Notes offering consisting of the initial purchasers’ commissions and legal, accounting, and other direct costs of the offering. The total proceeds from the offering, net of the debt issuance costs, were $959.9 million. The Company used $75.3 million of the net proceeds from the sale of the 2026 Notes to pay the premiums of the capped call options described further below.

As of March 31, 2022, none of the conversion conditions of the 2026 Notes described in the Amended 2021 Annual Report were met.

The net carrying amount of the 2026 Notes was as follows (in thousands):

	March 31,			December 31,
	2022			2021
Principal	$	977,500		$	977,500
Unamortized debt issuance costs		(15,356	)		(16,241	)
Net carrying amount	$	962,144		$	961,259

The following table sets forth the interest expense recognized related to the 2026 Notes (in thousands):

	For the Three Months Ended March 31,
	2022
Contractual interest expense	$	611
Amortization of debt issuance costs		885
Total interest expense related to 2026 Notes	$	1,496

Capped Call Transactions

In connection with the offering of the 2026 Notes, the Company purchased capped calls from certain financial institutions with respect to its common stock. The capped calls each have an initial strike price of $238.44 per share of the Company’s common stock, which corresponds to the initial conversion price of the 2026 Notes. The capped calls each have an initial cap price of $323.30 per share and expire in incremental components on each trading date beginning on June 4, 2026, and ending on July 30, 2026. The capped calls are intended to offset potential dilution to the Company’s common stock or offset any cash payments the Company is required to make in excess of the principal amount, as the case may be, with such reduction or offset subject to the cap price. The capped calls are subject to adjustments for certain corporate events and standard anti-dilution provisions.

The Company paid an aggregate amount of $75.3 million for the capped calls, covering approximately 4.1 million shares of the Company’s common stock. As the capped calls are both legally detachable and separately exercisable from the 2026 Notes, the Company accounts for the capped calls separately from the 2026 Notes. The capped calls are indexed to the Company’s own common stock and classified in stockholders’ equity. As such, the premiums paid for the capped calls have been included as a net reduction to additional paid-in capital in the consolidated balance sheet.

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Shareholders' Equity

3 Months Ended

Mar. 31, 2022

Stockholders Equity Note [Abstract]

Shareholders' Equity

10.Shareholders’ Equity

Authorized Capital—Common Stock and Preferred Stock

Under the Amended and Restated Articles of Incorporation, which became effective in June 2018, the Company is authorized to issue two classes of stock designated as common stock and preferred stock. The Company’s total authorized capital stock is 620,000,000 shares, consisting of 600,000,000 shares of common stock, $0.0001 par value per share, and 20,000,000 shares of undesignated preferred stock, $0.0001 par value per share.

The changes to the Company’s shareholders’ equity during the three months ended March 31, 2022, is as follows (in thousands, except share data):

							Accumulated
					Additional		Other						Total
	Common Stock				Paid-In		Comprehensive			Accumulated			Shareholders’
	Shares		Amount		Capital		Loss			Deficit			Equity
Balance at January 1, 2022		87,086,665	$	9	$	1,732,742	$	(3,428	)	$	(702,869	)	$	1,026,454
Exercise of stock options		107,623				2,281								2,281
Vesting of restricted stock units		466,497
Vesting of performance share units		38,291
Stock-based compensation cost						33,371								33,371
Shares issued under employee stock    purchase plan		85,926				8,006								8,006
Loss on translation adjustment								(1,347	)					(1,347	)
Net loss											(32,557	)		(32,557	)
Balance at March 31, 2022		87,785,002	$	9	$	1,776,400	$	(4,775	)	$	(735,426	)	$	1,036,208

The changes to the Company’s shareholders’ equity for the three months ended March 31, 2021, is as follows (in thousands, except share data):

							Accumulated
					Additional		Other						Total
	Common Stock				Paid-In		Comprehensive			Accumulated			Shareholders’
	Shares		Amount		Capital		Loss			Deficit			Equity
Balance at January 1, 2021		85,057,727	$	9	$	1,648,741	$	(1,339	)	$	(567,251	)	$	1,080,160
Exercise of stock options		296,226				5,529								5,529
Vesting of restricted stock units		346,008
Stock-based compensation cost						19,127								19,127
Shares issued under employee stock    purchase plan		60,064				7,088								7,088
Loss on translation adjustment								(390	)					(390	)
Net loss											(30,068	)		(30,068	)
Balance at March 31, 2021		85,760,025	$	9	$	1,680,485	$	(1,729	)	$	(597,319	)	$	1,081,446

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Equity Incentive Plans

3 Months Ended

Mar. 31, 2022

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Equity Incentive Plans

11.Equity Incentive Plans

The Company has stock-based compensation plans that provide for the award of equity incentives, including stock options, stock awards, RSUs, PSUs, and purchase rights. As of March 31, 2022, the Company had stock options outstanding under the 2018 Plan and the 2006 Equity Incentive Plan (the “2006 Plan”), RSUs and PSUs outstanding under the 2018 Plan, and purchase rights issued under the ESPP. The 2018 Plan became effective in connection with the Company’s initial public offering at which time the 2006 Plan was terminated. Outstanding awards under the 2006 Plan continue to be subject to the terms and conditions of the 2006 Plan.

As of March 31, 2022, 4,500,890 shares were subject to outstanding awards under the 2018 plan and 14,372,738 shares were available for issuance under the 2018 Plan. As of March 31, 2022, 1,093,901 shares were subject to outstanding stock options under the 2006 Plan.

Stock-Based Compensation

The Company recognized total stock-based compensation cost related to equity incentive awards as follows (in thousands):

	For the Three Months Ended March 31,
	2022		2021
Stock-based compensation cost:
Stock options	$	2,161	$	3,223
Restricted stock units		22,128		11,769
Performance share units		7,813		2,832
Employee stock purchase plan		1,269		1,303
Total stock-based compensation cost	$	33,371	$	19,127

The amount of stock-based compensation cost above capitalized to internally developed software and cloud computing arrangements in accordance with the accounting guidance for internal-use software was $0.6 million and $0.2 million for the three months ended March 31, 2022 and 2021, respectively. The Company uses the straight-line attribution method for recognizing stock-based compensation expense.

Stock Options

The following table summarizes stock option activity for the Company’s stock-based compensation plans for the three months ended March 31, 2022:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
				Exercise		Contractual		Value
	Shares			Price		Life (in Years)		(in thousands)
Options outstanding as of January 1, 2022		2,278,789		$	33.52		6.30	$	217,824
Options granted		—		$	—
Options exercised		(107,623	)	$	21.20
Options cancelled or expired		(4,291	)	$	111.83
Options outstanding as of March 31, 2022		2,166,875		$	33.98		6.08	$	141,996
Options exercisable as of March 31, 2022		1,778,867		$	28.90		5.81	$	125,598

The total intrinsic value of options exercised during the three months ended March 31, 2022 and 2021 was $7.7 million and $41.9 million, respectively. As of March 31, 2022, $8.9 million of total unrecognized compensation cost related to stock options was expected to be recognized over a weighted average period of approximately 1.5 years.

Restricted Stock Units

The following table summarizes RSU activity for the Company’s stock-based compensation plans for the three months ended March 31, 2022:

				Weighted
				Average
				Grant Date Fair
	Restricted Stock Units			Value Per Share
RSUs outstanding as of January 1, 2022		2,861,963		$	99.41
RSUs granted		1,903,805			97.15
RSUs vested		(466,497	)		80.86
RSUs cancelled		(98,343	)		94.81
RSUs outstanding as of March 31, 2022		4,200,928		$	100.56

Stock-based compensation cost for RSUs is recognized on a straight-line basis in the consolidated statements of operations over the period during which the participant is required to perform services in exchange for the award, based on the fair value of the Company’s underlying common stock on the grant date. The vesting period of each RSU grant is generally three or four years for employees and one year for non-employee directors.

As of March 31, 2022, $374.0 million of total unrecognized compensation cost related to RSUs was expected to be recognized over a weighted average period of approximately 2.8 years.

Performance Share Units

The following table summarizes PSU activity for the Company’s stock-based compensation plans for the three months ended March 31, 2022:

				Weighted
				Average
				Grant Date Fair
	Performance Share Units			Value Per Share
PSUs outstanding as of January 1, 2022		114,890		$	147.26
PSUs granted		223,363			98.90
PSUs vested		(38,291	)		147.26
PSUs cancelled		—			—
PSUs outstanding as of March 31, 2022		299,962		$	111.25

Stock-based compensation cost for PSUs is recognized on a graded vesting basis in the consolidated statements of operations over the period during which the participant is required to perform services in exchange for the award, based on the fair value of the Company’s underlying common stock on the grant date and the number of PSUs expected to be earned over the service period. Each PSU grant will vest in annual tranches over a three-year service period. Total PSUs earned for grants made in 2022 and 2021 may vary between 0% and 250% of the PSUs granted based on the attainment of company-specific performance targets during the related three-year period and continued service. The performance targets are established by the Compensation and Leadership Development Committee of the Board of Directors. All of the PSUs earned will be settled through the issuance of an equivalent number of shares of the Company’s common stock based on the payout level achieved.

As of March 31, 2022, $53.3 million of total unrecognized compensation cost related to PSUs was expected to be recognized over a weighted average period of approximately 2.0 years.

Employee Stock Purchase Plan

During the three months ended March 31, 2022, 85,926 shares of common stock were purchased under the ESPP.

As of March 31, 2022, there was approximately $1.7 million of unrecognized stock-based compensation cost related to the ESPP that is expected to be recognized over the remaining term of the offering period that began on February 1, 2022 and will end on July 31, 2022.

For the periods presented, the fair value of ESPP purchase rights was estimated using the Black-Scholes option-pricing model with the following assumptions:

	For the Three Months Ended March 31,
	2022		2021
Fair market value of common stock	$	111.00	$	152.35
Volatility	33%		34%
Expected term	0.5 years		0.5 years
Expected dividend yield	n/a		n/a
Risk-free interest rate	0.48%		0.08%

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Net Loss Per Share Attributable to Common Shareholders

3 Months Ended

Mar. 31, 2022

Earnings Per Share [Abstract]

Net Loss Per Share Attributable to Common Shareholders

12.Net Loss Per Share Attributable to Common Shareholders

The Company calculates basic and diluted net loss per share attributable to common shareholders in conformity with the two-class method required for companies with participating securities.

The diluted net loss per share attributable to common shareholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. This includes using the if-converted method for calculating any potential dilutive effect of the convertible senior notes. For purposes of this calculation, all common stock equivalents have been excluded from the

calculation of diluted net loss per share attributable to common shareholders as their effect is antidilutive. As a result, basic and diluted net loss per common share was the same for each period presented.

The following table sets forth the computation of basic and diluted net loss per common share (in thousands, except per share data):

	For the Three Months Ended March 31,
	2022			2021
Numerator:
Net loss attributable to common shareholders	$	(32,557	)	$	(30,068	)
Denominator:
Weighted-average common shares outstanding-basic		87,463			85,436
Dilutive effect of share equivalents resulting from stock options, RSUs, PSUs,    ESPP shares, and convertible senior notes (if converted)		—			—
Weighted-average common shares outstanding-diluted		87,463			85,436
Net loss per common share, basic and diluted	$	(0.37	)	$	(0.35	)

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share attributable to common shareholders for the periods presented because the impact of including them would have been antidilutive (in thousands):

	For the Three Months Ended March 31,
	2022		2021
Options to purchase common shares		2,236		3,396
Unvested RSUs		2,853		2,258
Unvested PSUs		243		75
ESPP shares		9		7
Convertible senior notes (if converted)		4,100		—
Total		9,441		5,736

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Subsequent Events

3 Months Ended

Mar. 31, 2022

Subsequent Events [Abstract]

Subsequent Events

13.Subsequent Events

On April 8, 2022, the Company released a $37.7 million general indemnification holdback to the sellers of TTR in connection with the October 2020 acquisition of TTR. The funds for payment of the TTR holdback were recorded as restricted cash – current and the liability was included in accrued purchase price related to acquisitions – current on the consolidated balance sheet as of March 31, 2022.

On May 5, 2022, the Company released an $11.1 million general indemnification holdback to the sellers of Business Licenses in connection with the November 2020 acquisition of Business Licenses. The liability was included in accrued purchase price related to acquisitions – current on the consolidated balance sheet as of March 31, 2022.

After March 31, 2022, but before the filing of this Form 10-Q, the Company acquired two businesses with closing cash payments that totaled $12.1 million.

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Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2022

Accounting Policies [Abstract]

Interim Financial Information

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, 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as amended by the Form 10-K/A for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on May 5, 2022 (the “Amended 2021 Annual Report”). The accompanying interim consolidated balance sheet as of March 31, 2022, the consolidated interim statements of operations, consolidated statements of comprehensive loss, and the consolidated statements of cash flows for the three months ended March 31, 2022, 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, 2022, are not necessarily indicative of the results expected for the full year ending December 31, 2022.

Prior Period Restatements and Adjustments

Prior Period Restatements and Adjustments

While preparing the financial statements for the first quarter of 2022, the Company discovered an error in its recognition of stock-based compensation expense for restricted stock units (“RSUs”) impacting previously reported interim and annual consolidated financial statements. In the previously presented consolidated financial statements, the correction resulted in an increase of $0.1 million to stock-based compensation and an increase of $0.1 million to net loss on the consolidated statement of operations and the consolidated statement of cash flows for the three months ended March 31, 2021. The correction increased net loss and total comprehensive loss by $0.1 million on the consolidated statement of comprehensive loss for the three months ended March 31, 2021. The correction did not change total net cash used in operating activities on the consolidated statement of cashflows for the three months ended March 31, 2021. The correction increased additional paid-in capital and accumulated deficit by $0.1 million, with no change to total shareholders’ equity, on the consolidated statement of shareholders’ equity as of March 31, 2021. An explanation of the impact on the consolidated financial statements is contained in “Note 15—Correction of Previously Issued Consolidated Financial Statements” to the accompanying consolidated financial statements included in the Amended 2021 Annual Report, and the impact to each quarterly period consolidated statement of operations is included in “Quarterly Results of Operations” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” also included in the Amended 2021 Annual Report.

Reclassifications

Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation.

Principles of Consolidation

Principles of Consolidation

The accompanying consolidated financial statements include those of the Company, its subsidiaries, and a variable interest entity for which the Company is the primary beneficiary, after elimination of all intercompany accounts and transactions.

Segments

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

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. Significant estimates and judgments related to revenue are described below in the Revenue Recognition Accounting Policy. Significant estimates impacting expenses include: expected credit losses associated with the allowance for doubtful accounts; the measurement of fair values of stock-based compensation award grants; the expected payout level of performance share unit grants; the expected earnout obligations in connection with acquisitions; the expected term of the customer relationship for capitalized contract cost amortization; the valuation and useful lives of acquired intangible assets; the valuation of the fair value of reporting units for analyzing goodwill; and the capitalization and useful life of capitalized software development costs. Actual results could materially differ from those estimates.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

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, restricted cash equivalents, trade accounts receivable, trade payables, and accrued expenses, due to their short-term nature. The Company has measured the fair value of money market funds and available-for-sale securities based on quoted prices in active markets for identical assets and liabilities. The Company carries its Convertible Senior Notes at par value less unamortized debt issuance costs on its consolidated balance sheets and presents the fair value for disclosure purposes only.

Customer Funds Assets and Obligations

Customer Funds Assets and Obligations

The Company has established a Delaware statutory trust (the “Customer Trust”) and appointed a federally insured bank as trustee, and the Customer Trust holds certain funds provided by its customers pending remittance to tax authorities. The Company is the sole beneficial owner of the Customer Trust. The Customer Trust is intended to be a bankruptcy-remote legal entity and meets the criteria in Accounting Standards Codification (“ASC”) Topic 810, Consolidation to be characterized as a variable interest entity (“VIE”). The Customer Trust is included in the Company’s consolidated financial statements because the Company determined it has a controlling financial interest in the Customer Trust as it has both (1) the power to direct the activities that most significantly impact the economic performance of the Customer Trust (including the power to make investment decisions for the trust) and (2) the right to receive benefits in the form of investment returns that could potentially be significant to the Customer Trust.

In 2021, certain customers began to remit tax payments to the Customer Trust with almost all customer funds remitted to and held by the Customer Trust as of December 31, 2021. Funds held from customers represent restricted cash equivalents and available-for-sale securities that, based upon the Company’s intent, are restricted solely for satisfying the obligations to remit funds relating to the Company’s tax remittance services. Customer fund obligations represent the Company’s contractual obligations to remit funds to satisfy customers’ tax obligations and are recorded on the consolidated balance sheets at the time that the Company or the Customer Trust collects funds from customers.

The following table details funds held from customers and customer fund obligations held by the Company and by the Customer Trust as of March 31, 2022 and December 31, 2021:

	March 31,		December 31,
	2022		2021
Funds held from customers (current assets):
Restricted cash equivalents – Company	$	647	$	13
Restricted cash equivalents – Customer Trust		63,353		62,126
Available-for-sale securities – Customer Trust		359		370
Funds held from customers	$	64,359	$	62,509
Customer fund obligations (current liabilities):
Customer fund obligations – Company		66,368		64,302
Customer fund obligations	$	66,368	$	64,302

Receivable from customers, net was $1.6 million and $1.5 million as of March 31, 2022, and December 31, 2021, respectively.

Business Combinations and Goodwill

Business Combinations and Goodwill

The Company’s identifiable assets acquired and liabilities assumed in a business combination are recorded at their acquisition date fair values, which may be considered preliminary and subject to adjustment during the measurement period, which is up to one year from the acquisition date. The valuation requires management to make significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to:

• future expected cash flows from customer agreements, customer lists, distribution agreements, non-compete agreements, and proprietary content and technology;

• assumptions about the length of time the brand will continue to be used in the Company’s suite of solutions;

• royalty rates used to estimate the fees that could be charged to license the proprietary content and technology; and

• discount rates used to determine the present value of recognized assets and liabilities.

The Company’s estimates of fair value are based upon assumptions it believes to be reasonable, but that are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

Goodwill is calculated as the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets. Acquisition-related costs, including advisory, legal, accounting, valuation, and other costs, are expensed in the periods in which these costs are incurred. The results of operations of an acquired business are included in the consolidated financial statements beginning at the acquisition date. Goodwill is tested for impairment annually on October 31, or in the event of certain occurrences. There was no goodwill impairment recorded for the three months ended March 31, 2022 or 2021.

The Company estimates the fair value of the earnout liabilities related to business combinations using various valuation approaches, as well as significant unobservable inputs, reflecting the Company’s assessment of the assumptions market participants would use to value these liabilities. Following final determination of the acquisition date fair value, the fair value of the earnout is remeasured each reporting period, with any change in the value recorded as fair value changes in earnout liabilities in the consolidated statements of operation.    

Acquired Intangible Assets

Acquired Intangible Assets

Acquired intangible assets consist of developed technology, including in-process research and development (“IPR&D”), customer relationships, backlog, database content, noncompetition agreements, and tradenames and trademarks, resulting from the Company’s acquisitions. Acquired intangible assets are recorded at fair value on the date of acquisition and amortized over their estimated useful lives. IPR&D is initially capitalized at fair value as a developed technology intangible asset with an indefinite life and assessed for impairment thereafter. When an IPR&D project is completed, it is amortized over the asset’s estimated useful life.

The Company recognizes an earnout liability for acquisitions of intangible assets that are accounted for as an asset acquisition when the liability is earned and the amount is known. The earnout liability is capitalized as part of the cost of the assets acquired and amortized over the remaining useful life of the asset. Asset acquisition-related costs, primarily legal fees, are capitalized and included in the cost basis of the intangible asset when incurred.

Capitalized Software

Capitalized Software

Software development costs for internal-use software (i.e., cloud-based software solutions) are capitalized once the project is in the application development stage in accordance with the accounting guidance for internal-use software. These capitalized costs include external direct costs of services consumed in developing or obtaining the software and personnel expenses for employees who are directly associated with the development. Capitalization of these costs concludes once the project is substantially complete, and the software is ready for its intended purpose. Post-configuration training and maintenance costs are expensed as incurred. For the three months ended March 31, 2022 and 2021, $5.4 million and $2.5 million of software development costs were capitalized, respectively. Capitalized software development costs are amortized on a straight-line basis over the estimated useful life, generally 3 to 6 years. Software development costs are tested for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

In circumstances where software is developed for both cloud-based software solutions and for the purpose of being sold, leased, or otherwise marketed (i.e., customer hosted software), capitalization of development costs occurs after technological feasibility of the software is established and continues until the product is available for general release to customers. Since the Company’s developed software is available for general release concurrent with the establishment of technological feasibility, development costs are not capitalized in these circumstances.

Long-Lived Assets

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 three months ended March 31, 2022 or 2021.

Leases

Leases

Leases arise from contracts which convey the right to control the use of identified property or equipment for a period of time in exchange for consideration. The Company’s leasing arrangements are primarily for office space used to conduct operations. The Company determines whether an arrangement is or contains a lease at the inception date, based on whether there is an identified asset and whether the Company controls the use of the identified asset throughout the period of use. Leases commence when the lessor makes the asset available for use.

Leases are classified at commencement as either operating or finance leases. All the Company’s leases are classified as operating leases. Rent expense for operating leases is recognized on the straight-line method over the term of the agreement beginning on the lease commencement date. Lease-related costs, which are variable rather than fixed, are expensed in the period incurred. Variable lease costs consist primarily of common area maintenance and utilities costs for the Company’s office spaces that are due based on the actual costs incurred by the landlord. Lease payments that depend on an index or a rate are measured using the index or rate at the commencement date and are included in operating lease costs. Subsequent increases to lease payments due to a change in the index or rate are expensed as a variable lease cost.

Convertible Senior Notes

Convertible Senior Notes

In August 2021, the Company completed a private offering of $977.5 million principal amount of 0.25% convertible senior notes due 2026 (the “2026 Notes”). The 2026 Notes are accounted for as debt, with no bifurcation of the embedded conversion feature. Debt issuance costs related to the Company’s issuance of the 2026 Notes consist primarily of purchaser’s discounts, commissions, and related costs. The debt issuance costs were recorded as a direct deduction from the liability associated with the 2026 Notes on the consolidated balance sheet and are amortized to interest expense over the term of the 2026 Notes.

In connection with the offering of the 2026 Notes, the Company purchased capped calls from certain financial institutions with respect to its common stock. As the capped calls are both legally detachable and separately exercisable from the 2026 Notes, the Company accounts for the capped calls separately from the 2026 Notes. The capped calls are indexed to the Company’s own common stock and classified in stockholder’s equity. As such, the premiums paid for the capped calls have been included as a net reduction to additional paid-in capital in the consolidated balance sheet as of March 31, 2022, and December 31, 2021.

Income Taxes

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 tax rates that will be in effect 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 a tax benefit or expense based upon management’s evaluation of the facts, circumstances, and information available at the reporting date.

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. The Company will recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact the consolidated financial statements.

Revenue Recognition

Revenue Recognition

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 as services are provided in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

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 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 exposure to credit risk by requiring payments in advance. If collectability of substantially all consideration to which the Company is 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 collected and remitted to governmental authorities.

Subscription and Returns Revenue

Subscription and returns revenue primarily consist of contractually agreed upon fees paid for using the Company’s cloud-based solutions, which include tax calculation, preparing and filing transaction tax returns, compliance document management, and tax content subscription services. Under the Company’s subscription agreements, customers select a price plan that includes an allotted maximum number of transactions or number of jurisdictions 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. Fees paid for subscription services to tax content vary depending on the volume of tax information accessible to the customer.

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.

The Company earns Streamlined Sales Tax (“SST”) revenue from participating state and local governments based on a percentage of the sales tax reported and paid.

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 historically most of the Company's customers are invoiced once at the beginning of the term, an increasing portion of customers are invoiced semi-annually, quarterly, or monthly.

Included in the total subscription fee for cloud-based solutions are non-refundable upfront fees that are typically charged to 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 from 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 generates professional services revenue from providing tax analysis and services, including business licenses and tax registrations, tax refund claims and recovery assistance, voluntary disclosure agreements, nexus studies, and back filing services. Additionally, the Company provides configurations, data migrations, integration, and training for its subscriptions and returns products. The Company invoices for professional service arrangements on a fixed fee, milestone, or time and materials basis. 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.

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

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 (sales commissions) 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, generally six years. The Company determines the period of benefit by taking into consideration 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.

Stock-Based Compensation

Stock-Based Compensation

The Company accounts for stock-based compensation by calculating the fair value of each option, RSU, or performance share unit (“PSU”) issued under the 2018 Equity Incentive Plan (the “2018 Plan”), or purchase rights issued under the 2018 Employee Stock Purchase Plan (“ESPP”), at the grant date. The fair value of stock options and purchase rights 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 or purchase 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 or PSU is determined using the fair value of the Company’s underlying common stock on the grant date. The stock-based compensation expense recognized over the performance period for PSUs will equal the fair value of the PSU on the grant date multiplied by the number of PSUs that are earned. Furthermore, the quarterly expense recognized during the performance period for PSUs is based on an estimate of the Company’s future performance and the expected payout level. Changes to management’s estimate of future performance result in adjustments to the stock-based compensation expense for PSUs and are recognized prospectively over the remaining service period. The Company accounts for forfeitures of stock-based awards as they occur.

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

There are no accounting standards that have been recently adopted.

New Accounting Standards Not Yet Adopted

New Accounting Standards Not Yet Adopted

ASU 2021-08

In October 2021, the Financial Accounting Standards Board issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends the accounting related to contract assets and liabilities acquired in business combinations. Under current GAAP, an entity generally recognizes assets and liabilities acquired in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU 2021-08 requires that entities recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to businesses combinations occurring on or after the effective date of the amendment. Early adoption is permitted, including adoption in an interim period. The Company currently expects to adopt this new guidance in the first quarter of 2023 and is currently evaluating the impact of this new guidance on the consolidated financial statements.

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Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2022

Accounting Policies [Abstract]

Summary of Funds Held from Customers and Customer Fund Obligations Held by Company and by Customer Trust

The following table details funds held from customers and customer fund obligations held by the Company and by the Customer Trust as of March 31, 2022 and December 31, 2021:

	March 31,		December 31,
	2022		2021
Funds held from customers (current assets):
Restricted cash equivalents – Company	$	647	$	13
Restricted cash equivalents – Customer Trust		63,353		62,126
Available-for-sale securities – Customer Trust		359		370
Funds held from customers	$	64,359	$	62,509
Customer fund obligations (current liabilities):
Customer fund obligations – Company		66,368		64,302
Customer fund obligations	$	66,368	$	64,302

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2022

Fair Value Disclosures [Abstract]

Schedule of Assets and Liabilities Measured at Fair Value on 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, 2022	Value		(Level 1)		(Level 2)		(Level 3)
Money market funds	$	1,405,965	$	1,405,965	$	—	$	—
Available-for-sale securities:
U.S. treasury securities		359		359		—		—
Earnouts related to business combinations		96,757		—		—		96,757

			Fair Value Measurements Using
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Fair		Identical Assets		Inputs		Inputs
December 31, 2021	Value		(Level 1)		(Level 2)		(Level 3)
Money market funds	$	1,439,522	$	1,439,522	$	—	$	—
Available-for-sale securities:
U.S. treasury securities		370		370		—		—
Earnouts related to business combinations		113,978		—		—		113,978

Summary of Assumptions Used to Calculate the Estimated Earnout Liabilities

The following table provides summary information of the assumptions used to calculate the estimated earnout liabilities related to 2021 and 2020 acquisitions (in thousands):

						Discount Rate as of				Balance as of		Balance as of
Acquisition	Year of Acquisition		Earnout Target	Method	Earnout Period	March 31, 2022				March 31, 2022		December 31, 2021
CrowdReason		2021	Specific revenue growth thresholds through October 2024, a cap of $30.0 million is available; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	October 2024		5.0	%	(a)	$	24,368	$	26,320
Track1099		2021	Specific revenue growth thresholds through April 2023, with a cap of $12.5 million; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	April 2023		10.0	%	(a)		6,570		7,880
Davo		2021	Specific revenue growth thresholds through March 2023, with no cap; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	March 2023		8.0	%	(a)		34,940		35,885
Transaction Tax Resources (“TTR”)		2020	Specific revenue growth thresholds through December 2022, with cap of $26.4 million; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	December 2022		15.0	%	(c)		11,910		24,830
Business Licenses		2020	Achievement of certain performance metrics through November 2024, with cap of $20.7 million; to be settled in common stock.	Scenario-based approach	November 2024		6.2	%	(b)		18,969		19,063
Balance end of period										$	96,757	$	113,978
(a)   The discount rate was calculated using the build-up method with a risk-free rate commensurate with the term of the earnout based on the equity, asset and revenue betas, size premium, and the Company’s specific risk premium, as well as the market risk premium using a bottom-up approach.
(b)   The discount rate was based on the Company's estimated credit yield.  The Business Licenses earnout was assumed by management to have a high probability of achievement.
(c)   $13.2 million was paid on March 2, 2022 in satisfaction of the first earnout period for TTR.  The second earnout period, if achieved, is payable in March 2023.  The discount rate of 15% was only used for revenue that was non-contracted as of March 31, 2022. The discount rate of 15% was calculated using the build-up method with a risk-free rate commensurate with the term of the earnout based on the equity, asset and revenue betas, size premium, and the Company’s specific risk premium, as well as the market risk premium using a bottom-up approach. For contracted revenue, no risk adjusted discount rate was assumed, other than the cost of debt, as it is not subject to forecasting uncertainty.

Summary of Reconciliation of Beginning and Ending Balances of Recurring Fair Value Measurements

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):

	For the Three Months Ended March 31,
	2022			2021
Earnout liabilities related to business combinations:
Balance beginning of period	$	113,978		$	34,501
Measurement period adjustments		—			1,802
Payments of earnout liabilities		(13,220	)		—
Fair value changes included in total other expense (income), net		(4,001	)		1,350
Balance end of period	$	96,757		$	37,653

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Balance Sheet Detail (Tables)

3 Months Ended

Mar. 31, 2022

Balance Sheet Related Disclosures [Abstract]

Schedule of Property and Equipment, Net

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

	Useful	March 31,			December 31,
	Life (Years)	2022			2021
Computer equipment and software	3 to 5	$	21,240		$	19,923
Internally developed software	3 to 6		32,244			27,099
Furniture and fixtures	5		6,428			6,425
Office equipment	2 to 5		1,343			1,275
Leasehold improvements	1 to 10		30,102			30,046
			91,357			84,768
Accumulated depreciation			(41,989	)		(38,304	)
Property and equipment—net		$	49,368		$	46,464

Schedule of Prepaid Expense And Other Current Assets

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

	March 31,		December 31,
	2022		2021
Licenses and subscriptions	$	18,670	$	14,511
Prepaid and other current taxes		2,444		3,132
Deposits		4,903		3,746
Prepaid employee related expenses		2,755		2,780
Prepaid cloud computing implementation costs		2,262		1,708
Prepaid insurance		3,960		—
Other		4,320		3,390
Total	$	39,314	$	29,267

Schedule of Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	March 31,		December 31,
	2022		2021
Accrued bonus	$	11,476	$	40,853
Accrued partner commissions		14,133		13,088
Accrued payroll and related taxes		15,127		10,208
Employee stock purchase plan contributions		3,463		7,113
Accrued sales commissions		5,422		7,007
Contract liabilities		897		6,918
Accrued federal, state, local, and foreign taxes		3,574		3,926
Self-insurance reserves		2,471		2,401
Accrued interest payable on Convertible Senior Notes		414		944
Other		12,125		17,334
Total	$	69,102	$	109,792

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Acquisitions of Businesses (Tables)

3 Months Ended

Mar. 31, 2022

Business Acquisition [Line Items]

Schedule of Pro Forma Financial Information (Unaudited)

	For the Three Months Ended March 31,
	2022			2021
Total revenue	$	204,530		$	163,275
Pre-tax loss		(32,272	)		(27,806	)

Inposia | Fair Value

Business Acquisition [Line Items]

Summary of Total Consideration

Total consideration associated with this acquisition is presented below (in thousands):

	Total Consideration
Cash paid at closing (net of amounts returned)	$	14,456
Fair value of common stock issued at closing		22,971
Total consideration	$	37,427

Schedule of Estimated Fair Value of Assets Acquired and Liabilities Assumed

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

	Fair Value
Assets acquired:
Cash and cash equivalents	$	1,264
Trade accounts receivable		1,767
Other current assets		268
Operating lease right-of-use assets		928
Property and equipment		98
Developed technology, customer relationships, and other intangibles		14,269
Goodwill		26,520
Other noncurrent assets		35
Total assets acquired		45,149
Liabilities assumed:
Trade payables and accrued expenses		1,478
Deferred revenue		810
Other liabilities, noncurrent		106
Operating lease liabilities		928
Deferred tax liability		4,400
Total liabilities assumed		7,722
Net assets acquired	$	37,427

Summary of Valuation Methodologies, Significant Assumptions and Estimated Useful Lives

A summary of the valuation methodologies, significant assumptions, and estimated useful lives of acquired intangible assets in the Inposia Purchase are provided in the below table (in thousands):

Intangible	Fair Value		Valuation Methodology	Discount Rate	Estimated Useful Life
Customer relationships	$	3,288	Multi-period excess earnings-income approach	18.5%	8 years
Developed technology		9,572	Relief from royalty-income approach	18.5%	6 years
Noncompetition agreements		1,174	With-and-without valuation-income approach	21.0%	3 years
Tradename		235	Relief from royalty-income approach	18.5%	3 years

Davo | Fair Value

Business Acquisition [Line Items]

Summary of Total Consideration

Total consideration associated with this acquisition is presented below (in thousands):

	Total Consideration
Cash paid through closing	$	23,818
Fair value of earnout provision		30,338
Fair value of holdbacks		2,591
Total consideration	$	56,747

Schedule of Estimated Fair Value of Assets Acquired and Liabilities Assumed

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

	Fair Value
Assets acquired:
Cash and cash equivalents	$	198
Funds held from customers		12,464
Trade accounts receivable		119
Other current assets		58
Operating lease right-of-use assets		46
Developed technology, customer relationships, and other intangibles		4,651
Goodwill		51,911
Other noncurrent assets		2
Total assets acquired		69,449
Liabilities assumed:
Accrued expenses		117
Deferred revenue		75
Operating lease liabilities		46
Customer fund obligations		12,464
Total liabilities assumed		12,702
Net assets acquired	$	56,747

Summary of Valuation Methodologies, Significant Assumptions and Estimated Useful Lives

A summary of the valuation methodologies, significant assumptions, and estimated useful lives of acquired intangible assets in the Davo Purchase are provided in the below table (in thousands):

Intangible	Fair Value		Valuation Methodology	Discount Rate	Estimated Useful Life
Customer relationships	$	2,050	Multi-period excess earnings-income approach and replacement cost method-cost approach	13.5%	6 years
Developed technology		1,950	Relief from royalty-income approach	13.5%	5 years
Noncompetition agreements		564	With-and-without valuation-income approach	15.5%	5 years
Tradename		87	Relief from royalty-income approach	13.5%	1 year

Track1099 LLC | Fair Value

Business Acquisition [Line Items]

Summary of Total Consideration

Preliminary total consideration as of March 31, 2022, is presented below (in thousands):

	Total Consideration (preliminary)
Cash paid through closing	$	35,000
Fair value of earnout provision		8,820
Fair value of holdbacks		4,984
Total consideration	$	48,804

Schedule of Estimated Fair Value of Assets Acquired and Liabilities Assumed

Preliminary estimated fair values of the assets acquired and the liabilities assumed in the Track1099 Purchase as of the acquisition date are provided in the following table (in thousands): 

	Fair Value (preliminary)
Assets acquired:
Prepaid and other current assets	$	2
Developed technology, customer relationships, and other intangibles		5,850
Goodwill		42,962
Total assets acquired		48,814
Liabilities assumed:
Current liabilities		1
Deferred revenue		9
Total liabilities assumed		10
Net assets acquired	$	48,804

Summary of Valuation Methodologies, Significant Assumptions and Estimated Useful Lives

A summary of the valuation methodologies, significant assumptions, and estimated useful lives of acquired intangible assets in the Track1099 Purchase are provided in the table below (in thousands):

Intangible	Assigned Value		Valuation Methodology	Discount Rate	Estimated Useful Life
Customer relationships	$	3,200	Multi-period excess earnings-income approach	28.0%	5 years
Developed technology		1,250	Relief from royalty-income approach	28.0%	2 years
Noncompetition agreement		1,300	With-and-without valuation-income approach	30.0%	5 years
Tradename		100	Relief from royalty-income approach	28.0%	2 years

CrowdReason LLC and CorrelationAdvisors | Fair Value

Business Acquisition [Line Items]

Summary of Total Consideration

Preliminary total consideration as of March 31, 2022, is presented below (in thousands):

	Total Consideration (preliminary)
Cash paid through closing	$	8,317
Fair value of earnout provision		26,320
Fair value of holdbacks		1,727
Total consideration	$	36,364

Schedule of Estimated Fair Value of Assets Acquired and Liabilities Assumed

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

	Fair Value (preliminary)
Assets acquired:
Current assets	$	1,426
Developed technology, customer relationships, and other intangibles		10,300
Goodwill		25,415
Total assets acquired		37,141
Liabilities assumed:
Current liabilities		101
Deferred revenue & contract liabilities		676
Total liabilities assumed		777
Net assets acquired	$	36,364

Summary of Valuation Methodologies, Significant Assumptions and Estimated Useful Lives

A summary of the valuation methodologies, significant assumptions, and estimated useful lives of acquired intangible assets in the CrowdReason Purchase are provided in the table below (in thousands):

Intangible	Assigned Value		Valuation Methodology	Discount Rate	Estimated Useful Life
Customer relationships	$	5,700	Multi-period excess earnings-income approach	18.0%	5 to 8 years
Developed technology		3,900	Relief from royalty-income approach	18.0%	5 years
Backlog		450	Multi-period excess earnings-income approach	15.0%	1 year
Noncompetition agreements		100	With-and-without valuation-income approach	20.0%	5 years
Tradename		150	Relief from royalty-income approach	18.0%	2 years

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Revenue (Tables)

3 Months Ended

Mar. 31, 2022

Revenue From Contract With Customer [Abstract]

Summary of Total Revenues

The following table disaggregates revenue generated within the United States (“U.S.”) from revenue generated from customers outside of the U.S. Revenue for transaction tax compliance in the U.S. is further disaggregated based on the solutions or services purchased by customers. Total revenues consisted of the following (in thousands):

	For the Three Months Ended March 31,
	2022		2021
Revenue (U.S.):
Subscription and returns
Tax calculations	$	100,500	$	76,396
Tax returns and compliance management		73,727		52,847
Interest income on funds held for customers		208		141
Total subscription and returns		174,435		129,384
Professional services		16,041		13,288
Total revenue (U.S.)		190,476		142,672
Total revenue (non-U.S.)		14,054		10,929
Total revenue	$	204,530	$	153,601

Summary of Activity Impacting Contract Liabilities

A summary of the activity impacting the contract liabilities during the three months ended March 31, 2022 and 2021, is presented below (in thousands):

	For the Three Months Ended March 31,
	2022			2021
Contract liabilities:
Balance beginning of period	$	6,918		$	10,134
Contract liabilities transferred to deferred revenue		(6,622	)		(3,866	)
Addition to contract liabilities		601			6,198
Balance end of period	$	897		$	12,466

Summary of Activity Impacting Deferred Revenue

A summary of the activity impacting deferred revenue balances during the three months ended March 31, 2022 and 2021, is presented below (in thousands):

	For the Three Months Ended March 31,
	2022			2021
Deferred revenue:
Balance beginning of period	$	282,955		$	209,690
Revenue recognized		(204,530	)		(153,601	)
Additional amounts deferred		225,185			169,442
Balance end of period	$	303,610		$	225,531

Summary of Activity Impacting Deferred Commissions

A summary of the activity impacting the deferred commissions during the three months ended March 31, 2022, is presented below (in thousands):

	For the Three Months Ended March 31,
	2022			2021
Deferred commissions:
Balance beginning of period	$	68,519		$	50,870
Additional commissions deferred		6,832			5,695
Amortization of deferred commissions		(4,584	)		(3,335	)
Balance end of period	$	70,767		$	53,230

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Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2022

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Finite-lived Intangible Assets

Intangible assets consisted of the following (in thousands):

		March 31, 2022
	Useful Life (Years)	Gross		Accumulated Amortization			Net
Backlog	1 to 7	$	4,500	$	(2,249	)	$	2,251
Customer relationships	5 to 10		75,162		(26,527	)		48,635
Developed technology (1)	1 to 6		73,204		(40,516	)		32,688
Noncompetition agreements	3 to 5		6,445		(2,064	)		4,381
Tradename and trademarks	1 to 3		7,272		(5,452	)		1,820
		$	166,583	$	(76,808	)	$	89,775
(1) Developed technology intangible assets include IPR&D of $0.4 million as of March 31, 2022, which is not subject to amortization.

		December 31, 2021
	Useful Life (Years)	Gross		Accumulated Amortization			Net
Backlog	3	$	4,500	$	(1,816	)	$	2,684
Customer relationships	3 to 10		75,188		(23,795	)		51,393
Developed technology (1)	3 to 8		72,723		(37,333	)		35,390
Noncompetition agreements	3 to 5		6,452		(1,725	)		4,727
Tradename and trademarks	1 to 4		7,267		(4,643	)		2,624
		$	166,130	$	(69,312	)	$	96,818
(1) Developed technology intangible assets include IPR&D of $0.4 million as of December 31, 2021, which is not subject to amortization.

Schedule of Changes in Carrying Amount of Goodwill

Changes in the carrying amount of goodwill for the three months ended March 31, 2022, are summarized as follows (in thousands):

Balance—December 31, 2021	$	672,381
Cumulative translation adjustments		(950	)
Balance—March 31, 2022	$	671,431

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Debt (Tables)

3 Months Ended

Mar. 31, 2022

Debt Disclosure [Abstract]

Summary of Net Carrying Amount of Notes

The net carrying amount of the 2026 Notes was as follows (in thousands):

	March 31,			December 31,
	2022			2021
Principal	$	977,500		$	977,500
Unamortized debt issuance costs		(15,356	)		(16,241	)
Net carrying amount	$	962,144		$	961,259

Summary of Interest Expense Recognized

The following table sets forth the interest expense recognized related to the 2026 Notes (in thousands):

	For the Three Months Ended March 31,
	2022
Contractual interest expense	$	611
Amortization of debt issuance costs		885
Total interest expense related to 2026 Notes	$	1,496

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Shareholders' Equity (Tables)

3 Months Ended

Mar. 31, 2022

Stockholders Equity Note [Abstract]

Summary of Changes of Shareholders' Equity

The changes to the Company’s shareholders’ equity during the three months ended March 31, 2022, is as follows (in thousands, except share data):

							Accumulated
					Additional		Other						Total
	Common Stock				Paid-In		Comprehensive			Accumulated			Shareholders’
	Shares		Amount		Capital		Loss			Deficit			Equity
Balance at January 1, 2022		87,086,665	$	9	$	1,732,742	$	(3,428	)	$	(702,869	)	$	1,026,454
Exercise of stock options		107,623				2,281								2,281
Vesting of restricted stock units		466,497
Vesting of performance share units		38,291
Stock-based compensation cost						33,371								33,371
Shares issued under employee stock    purchase plan		85,926				8,006								8,006
Loss on translation adjustment								(1,347	)					(1,347	)
Net loss											(32,557	)		(32,557	)
Balance at March 31, 2022		87,785,002	$	9	$	1,776,400	$	(4,775	)	$	(735,426	)	$	1,036,208

The changes to the Company’s shareholders’ equity for the three months ended March 31, 2021, is as follows (in thousands, except share data):

							Accumulated
					Additional		Other						Total
	Common Stock				Paid-In		Comprehensive			Accumulated			Shareholders’
	Shares		Amount		Capital		Loss			Deficit			Equity
Balance at January 1, 2021		85,057,727	$	9	$	1,648,741	$	(1,339	)	$	(567,251	)	$	1,080,160
Exercise of stock options		296,226				5,529								5,529
Vesting of restricted stock units		346,008
Stock-based compensation cost						19,127								19,127
Shares issued under employee stock    purchase plan		60,064				7,088								7,088
Loss on translation adjustment								(390	)					(390	)
Net loss											(30,068	)		(30,068	)
Balance at March 31, 2021		85,760,025	$	9	$	1,680,485	$	(1,729	)	$	(597,319	)	$	1,081,446

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Equity Incentive Plans (Tables)

3 Months Ended

Mar. 31, 2022

Summary of Stock-Based Compensation Expense Related to Equity Incentive Rewards

The Company recognized total stock-based compensation cost related to equity incentive awards as follows (in thousands):

	For the Three Months Ended March 31,
	2022		2021
Stock-based compensation cost:
Stock options	$	2,161	$	3,223
Restricted stock units		22,128		11,769
Performance share units		7,813		2,832
Employee stock purchase plan		1,269		1,303
Total stock-based compensation cost	$	33,371	$	19,127

Summary of Stock Option Activity

Stock Options

The following table summarizes stock option activity for the Company’s stock-based compensation plans for the three months ended March 31, 2022:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
				Exercise		Contractual		Value
	Shares			Price		Life (in Years)		(in thousands)
Options outstanding as of January 1, 2022		2,278,789		$	33.52		6.30	$	217,824
Options granted		—		$	—
Options exercised		(107,623	)	$	21.20
Options cancelled or expired		(4,291	)	$	111.83
Options outstanding as of March 31, 2022		2,166,875		$	33.98		6.08	$	141,996
Options exercisable as of March 31, 2022		1,778,867		$	28.90		5.81	$	125,598

Summary of RSU Activity

The following table summarizes RSU activity for the Company’s stock-based compensation plans for the three months ended March 31, 2022:

				Weighted
				Average
				Grant Date Fair
	Restricted Stock Units			Value Per Share
RSUs outstanding as of January 1, 2022		2,861,963		$	99.41
RSUs granted		1,903,805			97.15
RSUs vested		(466,497	)		80.86
RSUs cancelled		(98,343	)		94.81
RSUs outstanding as of March 31, 2022		4,200,928		$	100.56

Summary of PSU Activity

The following table summarizes PSU activity for the Company’s stock-based compensation plans for the three months ended March 31, 2022:

				Weighted
				Average
				Grant Date Fair
	Performance Share Units			Value Per Share
PSUs outstanding as of January 1, 2022		114,890		$	147.26
PSUs granted		223,363			98.90
PSUs vested		(38,291	)		147.26
PSUs cancelled		—			—
PSUs outstanding as of March 31, 2022		299,962		$	111.25

2018 Employee Stock Purchase Plan

Summary of Fair Value Estimated Using Black-Scholes Option Pricing Model Assumptions

For the periods presented, the fair value of ESPP purchase rights was estimated using the Black-Scholes option-pricing model with the following assumptions:

	For the Three Months Ended March 31,
	2022		2021
Fair market value of common stock	$	111.00	$	152.35
Volatility	33%		34%
Expected term	0.5 years		0.5 years
Expected dividend yield	n/a		n/a
Risk-free interest rate	0.48%		0.08%

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Net Loss Per Share Attributable to Common Shareholders (Tables)

3 Months Ended

Mar. 31, 2022

Earnings Per Share [Abstract]

Schedule of Computation of Basic and Diluted Net Loss Per Common Share

The following table sets forth the computation of basic and diluted net loss per common share (in thousands, except per share data):

	For the Three Months Ended March 31,
	2022			2021
Numerator:
Net loss attributable to common shareholders	$	(32,557	)	$	(30,068	)
Denominator:
Weighted-average common shares outstanding-basic		87,463			85,436
Dilutive effect of share equivalents resulting from stock options, RSUs, PSUs,    ESPP shares, and convertible senior notes (if converted)		—			—
Weighted-average common shares outstanding-diluted		87,463			85,436
Net loss per common share, basic and diluted	$	(0.37	)	$	(0.35	)

Schedule of Potential Shares Not Included in the Computation of Diluted Earnings Per Share

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share attributable to common shareholders for the periods presented because the impact of including them would have been antidilutive (in thousands):

	For the Three Months Ended March 31,
	2022		2021
Options to purchase common shares		2,236		3,396
Unvested RSUs		2,853		2,258
Unvested PSUs		243		75
ESPP shares		9		7
Convertible senior notes (if converted)		4,100		—
Total		9,441		5,736

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Significant Accounting Policies - Additional Information (Details)	3 Months Ended
	Mar. 31, 2022 USD ($) Segment	Mar. 31, 2021 USD ($)	Dec. 31, 2021 USD ($)	Aug. 31, 2021 USD ($)
Accounting Policies [Line Items]
Number of operating segment | Segment	1
Receivable from customers, net	$ 1,579,000		$ 1,472,000
Goodwill impairment	0	$ 0
Capitalized software development Costs	5,400,000	2,500,000
Impairment of long-lived assets	$ 0	0
Tax position likely of being realized upon ultimate settlement	greater than 50%
Percentage of likelihood of realization of tax position upon ultimate settlement, minimum	50.00%
Contract payment net terms	30 days
Concessions and cancellations period allowed for standard subscription contract prior to adoption	60 days
Revenue recognition, contractual renewal period	1 year
Deferred commission amortized period	6 years
2026 Notes
Accounting Policies [Line Items]
Principal amount	$ 977,500,000		$ 977,500,000	$ 977,500,000
Fixed interest rate				0.25%
Minimum
Accounting Policies [Line Items]
Revenue recognition initial contractual term	12 months
Maximum
Accounting Policies [Line Items]
Revenue recognition initial contractual term	18 months
Internally Developed Software | Minimum
Accounting Policies [Line Items]
Property and equipment, Useful Life	3 years
Internally Developed Software | Maximum
Accounting Policies [Line Items]
Property and equipment, Useful Life	6 years
Restatement Adjustment | Accounting Standards Update 2016-18
Accounting Policies [Line Items]
Increase of stock based compensation due to correction		100,000
Increase of net loss due to correction		100,000
Change in net cash used in operating activities due to correction		0
Increase of comprehensive loss due to correction		100,000
Increase of additional paid in capital due to correction		100,000
Increase of accumulated deficit due to correction		100,000
Change in total shareholders equity due to correction		$ 0

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Significant Accounting Policies - Summary of Funds Held from Customers and Customer Fund Obligations Held by Company and by Customer Trust (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Funds held from customers (current assets):
Funds held from customers	$ 64,359	$ 62,509
Customer fund obligations (current liabilities):
Customer fund obligations	66,368	64,302
Company
Customer fund obligations (current liabilities):
Customer fund obligations	66,368	64,302
Restricted Cash Equivalents | Company
Funds held from customers (current assets):
Funds held from customers	647	13
Restricted Cash Equivalents | Customer Trust
Funds held from customers (current assets):
Funds held from customers	63,353	62,126
Available-for-sale Securities | Customer Trust
Funds held from customers (current assets):
Funds held from customers	$ 359	$ 370

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Fair Value Measurements - Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) - Recurring Basis - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Earnouts Related to Business Combinations
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair Value, Liabilities	$ 96,757	$ 113,978
Significant Unobservable Inputs (Level 3) | Earnouts Related to Business Combinations
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair Value, Liabilities	96,757	113,978
Money Market Funds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair Value, Assets	1,405,965	1,439,522
Money Market Funds | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair Value, Assets	1,405,965	1,439,522
U.S. Treasury Securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair Value, Available-for-sale securities	359	370
U.S. Treasury Securities | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair Value, Available-for-sale securities	$ 359	$ 370

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Fair Value Measurements - Summary of Assumptions Used to Calculate the Estimated Earnout Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Dec. 31, 2021
Summary Of Assumptions Used To Calculate Estimated Earnout Liabilities [Line Items]
Estimated earnout liabilities	$ 96,757	$ 113,978
CrowdReason LLC and CorrelationAdvisors
Summary Of Assumptions Used To Calculate Estimated Earnout Liabilities [Line Items]
Year of Acquisition	2021
Earnout Target	Specific revenue growth thresholds through October 2024, a cap of $30.0 million is available; to be settled in cash.
Method	Probability-weighted discounted cash flows and Monte Carlo simulation
Earnout Period	2024
Discount Rate	5.00%
Estimated earnout liabilities	$ 24,368	26,320
Track1099 LLC
Summary Of Assumptions Used To Calculate Estimated Earnout Liabilities [Line Items]
Year of Acquisition	2021
Earnout Target	Specific revenue growth thresholds through April 2023, with a cap of $12.5 million; to be settled in cash.
Method	Probability-weighted discounted cash flows and Monte Carlo simulation
Earnout Period	2023
Discount Rate	10.00%
Estimated earnout liabilities	$ 6,570	7,880
Davo Technologies LLC
Summary Of Assumptions Used To Calculate Estimated Earnout Liabilities [Line Items]
Year of Acquisition	2021
Earnout Target	Specific revenue growth thresholds through March 2023, with no cap; to be settled in cash.
Method	Probability-weighted discounted cash flows and Monte Carlo simulation
Earnout Period	2023
Discount Rate	8.00%
Estimated earnout liabilities	$ 34,940	35,885
Transaction Tax Resources, Inc.
Summary Of Assumptions Used To Calculate Estimated Earnout Liabilities [Line Items]
Year of Acquisition	2020
Earnout Target	Specific revenue growth thresholds through December 2022, with cap of $26.4 million; to be settled in cash.
Method	Probability-weighted discounted cash flows and Monte Carlo simulation
Earnout Period	2022
Discount Rate	15.00%
Estimated earnout liabilities	$ 11,910	24,830
Business Licenses
Summary Of Assumptions Used To Calculate Estimated Earnout Liabilities [Line Items]
Year of Acquisition	2020
Earnout Target	Achievement of certain performance metrics through November 2024, with cap of $20.7 million; to be settled in common stock.
Method	Scenario-based approach
Earnout Period	2024
Discount Rate	6.20%
Estimated earnout liabilities	$ 18,969	$ 19,063

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Fair Value Measurements - Summary of Assumptions Used to Calculate the Estimated Earnout Liabilities (Parenthetical) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Summary Of Assumptions Used To Calculate Estimated Earnout Liabilities [Line Items]
Earnout paid	$ 10,770,000	$ 0
CrowdReason LLC and CorrelationAdvisors
Summary Of Assumptions Used To Calculate Estimated Earnout Liabilities [Line Items]
Earnout target, capital available to be settled in cash	$ 30,000,000.0
Earnout target, specific revenue growth thresholds period	2024-10
Discount Rate	5.00%
Earnout Period	2024
Method	Probability-weighted discounted cash flows and Monte Carlo simulation
Track1099 LLC
Summary Of Assumptions Used To Calculate Estimated Earnout Liabilities [Line Items]
Earnout target, capital available to be settled in cash	$ 12,500,000
Earnout target, specific revenue growth thresholds period	2023-04
Discount Rate	10.00%
Earnout Period	2023
Method	Probability-weighted discounted cash flows and Monte Carlo simulation
Davo Technologies LLC
Summary Of Assumptions Used To Calculate Estimated Earnout Liabilities [Line Items]
Earnout target, capital available to be settled in cash	$ 0
Earnout target, specific revenue growth thresholds period	2023-03
Discount Rate	8.00%
Earnout Period	2023
Method	Probability-weighted discounted cash flows and Monte Carlo simulation
Transaction Tax Resources, Inc.
Summary Of Assumptions Used To Calculate Estimated Earnout Liabilities [Line Items]
Earnout target, capital available to be settled in cash	$ 26,400,000
Earnout target, specific revenue growth thresholds period	2022-12
Earnout paid	$ 13,200,000
Discount Rate	15.00%
Earnout Period	2022
Method	Probability-weighted discounted cash flows and Monte Carlo simulation
Transaction Tax Resources, Inc. | Second Earnout Period
Summary Of Assumptions Used To Calculate Estimated Earnout Liabilities [Line Items]
Earnout Period	2023
Method	build-up method with a risk-free rate commensurate with the term of the earnout based on the equity, asset and revenue betas, size premium, and the Company’s specific risk premium, as well as the market risk premium using a bottom-up approach.
Business Licenses
Summary Of Assumptions Used To Calculate Estimated Earnout Liabilities [Line Items]
Earnout target, capital available to be settled in cash	$ 20,700,000
Earnout target, specific revenue growth thresholds period	2024-11
Discount Rate	6.20%
Earnout Period	2024
Method	Scenario-based approach

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Fair Value Measurements - Summary of Reconciliation of Beginning and Ending Balances of Recurring Fair Value Measurements (Details) - Recurring Basis - Significant Unobservable Inputs (Level 3) - Earnout Related to Acquisitions - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Earnout liabilities related to business combinations:
Balance beginning of period	$ 113,978	$ 34,501
Measurement period adjustments	0	1,802
Payments of earnout liabilities	(13,220)	0
Fair value changes included in total other expense (income), net	(4,001)	1,350
Balance end of period	$ 96,757	$ 37,653

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Fair Value Measurements - Additional Information (Details) - 2026 Notes - Significant Other Observable Inputs (Level 2) $ in Millions	Mar. 31, 2022 USD ($)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Principal amount	$ 977.5
Estimated fair value	$ 837.1

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Balance Sheet Detail - Property and Equipment, Net (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Dec. 31, 2021
Property Plant And Equipment [Line Items]
Property and equipment, gross	$ 91,357	$ 84,768
Accumulated depreciation	(41,989)	(38,304)
Property and equipment—net	49,368	46,464
Computer Equipment and Software
Property Plant And Equipment [Line Items]
Property and equipment, gross	$ 21,240	19,923
Computer Equipment and Software | Minimum
Property Plant And Equipment [Line Items]
Property and equipment, Useful Life	3 years
Computer Equipment and Software | Maximum
Property Plant And Equipment [Line Items]
Property and equipment, Useful Life	5 years
Internally Developed Software
Property Plant And Equipment [Line Items]
Property and equipment, gross	$ 32,244	27,099
Internally Developed Software | Minimum
Property Plant And Equipment [Line Items]
Property and equipment, Useful Life	3 years
Internally Developed Software | Maximum
Property Plant And Equipment [Line Items]
Property and equipment, Useful Life	6 years
Furniture and Fixtures
Property Plant And Equipment [Line Items]
Property and equipment, gross	$ 6,428	6,425
Property and equipment, Useful Life	5 years
Office Equipment
Property Plant And Equipment [Line Items]
Property and equipment, gross	$ 1,343	1,275
Office Equipment | Minimum
Property Plant And Equipment [Line Items]
Property and equipment, Useful Life	2 years
Office Equipment | Maximum
Property Plant And Equipment [Line Items]
Property and equipment, Useful Life	5 years
Leasehold Improvements
Property Plant And Equipment [Line Items]
Property and equipment, gross	$ 30,102	$ 30,046
Leasehold Improvements | Minimum
Property Plant And Equipment [Line Items]
Property and equipment, Useful Life	1 year
Leasehold Improvements | Maximum
Property Plant And Equipment [Line Items]
Property and equipment, Useful Life	10 years

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Balance Sheet Detail - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Balance Sheet Related Disclosures [Abstract]
Depreciation expense	$ 4.0	$ 2.6

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Balance Sheet Detail - Prepaid Expenses and Other Current Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Prepaid Expense And Other Assets Current [Abstract]
Licenses and subscriptions	$ 18,670	$ 14,511
Prepaid and other current taxes	2,444	3,132
Deposits	4,903	3,746
Prepaid employee related expenses	2,755	2,780
Prepaid cloud computing implementation costs	2,262	1,708
Prepaid insurance	3,960
Other	4,320	3,390
Total	$ 39,314	$ 29,267

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Balance Sheet Detail - Accrued Expenses (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021	Mar. 31, 2021	Dec. 31, 2020
Accrued Liabilities Current [Abstract]
Accrued bonus	$ 11,476	$ 40,853
Accrued partner commissions	14,133	13,088
Accrued payroll and related taxes	15,127	10,208
Employee stock purchase plan contributions	3,463	7,113
Accrued sales commissions	5,422	7,007
Contract liabilities	897	6,918	$ 12,466	$ 10,134
Accrued federal, state, local, and foreign taxes	3,574	3,926
Self-insurance reserves	2,471	2,401
Accrued interest payable on Convertible Senior Notes	414	944
Other	12,125	17,334
Total	$ 69,102	$ 109,792

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Acquisitions of Businesses - Additional Information (Details) € in Millions							3 Months Ended				6 Months Ended	12 Months Ended
	Oct. 18, 2021 USD ($)	Oct. 01, 2021 USD ($)	Sep. 07, 2021 USD ($)	Apr. 20, 2021 USD ($)	Apr. 01, 2021 USD ($) shares	Apr. 01, 2021 EUR (€) shares	Mar. 31, 2022 USD ($)	Sep. 30, 2021 USD ($)	Mar. 31, 2021 USD ($)	Dec. 31, 2020 USD ($)	Dec. 31, 2020 USD ($)	Dec. 31, 2021 USD ($)
Business Acquisition [Line Items]
Goodwill							$ 671,431,000					$ 672,381,000
Accrued value of earnout related to acquisition							$ 0		$ 1,802,000
Inposia
Business Acquisition [Line Items]
Business acquisition, effective date of acquisition							Apr. 01, 2021
Acquisition-related costs					$ 1,500,000						$ 1,000,000.0	$ 500,000
Total consideration transferred					37,400,000	€ 31.8	$ 37,427,000
Cash received on net working capital adjustments								$ 200,000
Consideration in cash					$ 12,200,000		$ 14,456,000	$ 14,500,000		$ 2,400,000
Common stock paid at acquisition closing | shares					164,416	164,416
Common stock consideration					$ 23,000.0
Term of releasing shares issued are held in escrow							18 months
Fair value discount rate based on estimated pre-tax cost of debt					4.00%	4.00%
Weighted average amortization period for intangibles					6 years 2 months 12 days	6 years 2 months 12 days
Goodwill					$ 26,500,000
Davo Technologies LLC
Business Acquisition [Line Items]
Business acquisition, effective date of acquisition							Apr. 20, 2021
Acquisition-related costs				$ 100,000
Total consideration transferred				56,700,000			$ 56,747,000
Consideration in cash				$ 23,500,000			23,818,000		$ 300,000
Weighted average amortization period for intangibles				5 years 4 months 24 days
Goodwill				$ 51,900,000
Acquisition holdbacks with a fair value upon acquisition				2,600,000			2,591,000
Accrued value of earnout related to acquisition				30,300,000			$ 30,338,000
Business combination, additional cash to be paid, as consideration, during eighteen months following acquisition date				$ 2,600,000
3CE Technologies, Inc.
Business Acquisition [Line Items]
Business acquisition, effective date of acquisition							Sep. 07, 2021
Total consideration transferred			$ 11,200,000
Consideration in cash			9,900,000
Goodwill			7,100,000
Acquisition holdbacks with a fair value upon acquisition			1,300,000
Developed technology, customer relationships, and other intangibles			$ 3,700,000
Track1099 LLC
Business Acquisition [Line Items]
Business acquisition, effective date of acquisition							Oct. 01, 2021
Acquisition-related costs		$ 100,000
Total consideration transferred		48,800,000					$ 48,804,000
Consideration in cash		35,000,000.0					35,000,000
Goodwill		43,000,000.0
Acquisition holdbacks with a fair value upon acquisition		5,000,000.0					4,984,000
Accrued value of earnout related to acquisition		8,800,000					$ 8,820,000
Additional cash to be paid, as consideration, in twenty seven months		5,000,000.0
Maximum payout earned		12,500,000
Maximum payout earned in each earnout period		$ 6,250,000
Earnout arrangement term		12 months
CrowdReason LLC and CorrelationAdvisors
Business Acquisition [Line Items]
Business acquisition, effective date of acquisition							Oct. 18, 2021
Acquisition-related costs	$ 200,000
Total consideration transferred	36,400,000						$ 36,364,000
Consideration in cash	8,300,000						8,317,000
Goodwill	25,400,000
Acquisition holdbacks with a fair value upon acquisition							1,727,000
Accrued value of earnout related to acquisition	26,300,000						$ 26,320,000
Maximum payout earned	$ 40,000,000.0
Earnout arrangement term	12 months
Additional cash to be paid as fair value of acquisition holdbacks	$ 1,700,000

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Acquisitions of Businesses - Summary of Total Consideration (Details) $ in Thousands, € in Millions				3 Months Ended
	Apr. 20, 2021 USD ($)	Apr. 01, 2021 USD ($)	Apr. 01, 2021 EUR (€)	Mar. 31, 2022 USD ($)	Sep. 30, 2021 USD ($)	Mar. 31, 2021 USD ($)	Dec. 31, 2020 USD ($)
Business Acquisition [Line Items]
Fair value of earnout provision				$ 0		$ 1,802
Inposia
Business Acquisition [Line Items]
Cash paid at closing (net of amounts returned)		$ 12,200		14,456	$ 14,500		$ 2,400
Fair value of common stock issued at closing				22,971
Total consideration		$ 37,400	€ 31.8	37,427
Davo Technologies LLC
Business Acquisition [Line Items]
Cash paid at closing (net of amounts returned)	$ 23,500			23,818		$ 300
Fair value of earnout provision	30,300			30,338
Fair value of holdbacks	2,600			2,591
Total consideration	$ 56,700			$ 56,747

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Acquisitions of Businesses - Schedule of Estimated Fair Value of Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021	Oct. 18, 2021	Oct. 01, 2021	Apr. 20, 2021	Apr. 01, 2021
Assets acquired:
Goodwill	$ 671,431	$ 672,381
Inposia
Assets acquired:
Goodwill						$ 26,500
Inposia | Fair Value
Assets acquired:
Cash and cash equivalents						1,264
Trade accounts receivable						1,767
Other current assets						268
Operating lease right-of-use assets						928
Property and equipment						98
Developed technology, customer relationships, and other intangibles						14,269
Goodwill						26,520
Other noncurrent assets						35
Total assets acquired						45,149
Liabilities assumed:
Trade payables and accrued expenses						1,478
Deferred revenue						810
Other liabilities, noncurrent						106
Operating lease liabilities						928
Deferred tax liability						4,400
Total liabilities assumed						7,722
Net assets acquired						$ 37,427
Davo Technologies LLC
Assets acquired:
Goodwill					$ 51,900
Davo Technologies LLC | Fair Value
Assets acquired:
Cash and cash equivalents					198
Funds held from customers					12,464
Trade accounts receivable					119
Other current assets					58
Operating lease right-of-use assets					46
Developed technology, customer relationships, and other intangibles					4,651
Goodwill					51,911
Other noncurrent assets					2
Total assets acquired					69,449
Liabilities assumed:
Accrued expenses					117
Deferred revenue					75
Operating lease liabilities					46
Customer fund obligations					12,464
Total liabilities assumed					12,702
Net assets acquired					$ 56,747
Track1099 LLC
Assets acquired:
Goodwill				$ 43,000
Track1099 LLC | Fair Value
Assets acquired:
Prepaid and other current assets	2
Developed technology, customer relationships, and other intangibles	5,850
Goodwill	42,962
Total assets acquired	48,814
Liabilities assumed:
Current liabilities	1
Deferred revenue	9
Total liabilities assumed	10
Net assets acquired	48,804
CrowdReason LLC and CorrelationAdvisors
Assets acquired:
Goodwill			$ 25,400
CrowdReason LLC and CorrelationAdvisors | Fair Value
Assets acquired:
Current assets	1,426
Developed technology, customer relationships, and other intangibles	10,300
Goodwill	25,415
Total assets acquired	37,141
Liabilities assumed:
Current liabilities	101
Deferred revenue & contract liabilities	676
Total liabilities assumed	777
Net assets acquired	$ 36,364

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Acquisitions of Businesses - Summary of the Valuation Methodologies Significant Assumptions, and Estimated Useful Lives of Acquired Intangible Assets (Details) - USD ($) $ in Thousands					3 Months Ended	12 Months Ended
	Oct. 18, 2021	Oct. 01, 2021	Apr. 20, 2021	Apr. 01, 2021	Mar. 31, 2022	Dec. 31, 2021
Customer Relationships | Minimum
Business Acquisition [Line Items]
Estimated Useful Life					5 years	3 years
Customer Relationships | Maximum
Business Acquisition [Line Items]
Estimated Useful Life					10 years	10 years
Customer Relationships | Inposia
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value				$ 3,288
Valuation Methodology				Multi-period excess earnings-income approach
Discount Rate				18.50%
Estimated Useful Life				8 years
Customer Relationships | Davo Technologies LLC
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value			$ 2,050
Valuation Methodology			Multi-period excess earnings-income approach and replacement cost method-cost approach
Discount Rate			13.50%
Estimated Useful Life			6 years
Customer Relationships | Track1099 LLC
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value		$ 3,200
Valuation Methodology		Multi-period excess earnings-income approach
Discount Rate		28.00%
Estimated Useful Life		5 years
Customer Relationships | CrowdReason LLC and CorrelationAdvisors
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value	$ 5,700
Valuation Methodology	Multi-period excess earnings-income approach
Discount Rate	18.00%
Customer Relationships | CrowdReason LLC and CorrelationAdvisors | Minimum
Business Acquisition [Line Items]
Estimated Useful Life	5 years
Customer Relationships | CrowdReason LLC and CorrelationAdvisors | Maximum
Business Acquisition [Line Items]
Estimated Useful Life	8 years
Developed Technology | Minimum
Business Acquisition [Line Items]
Estimated Useful Life					1 year	3 years
Developed Technology | Maximum
Business Acquisition [Line Items]
Estimated Useful Life					6 years	8 years
Developed Technology | Inposia
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value				$ 9,572
Valuation Methodology				Relief from royalty-income approach
Discount Rate				18.50%
Estimated Useful Life				6 years
Developed Technology | Davo Technologies LLC
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value			$ 1,950
Valuation Methodology			Relief from royalty-income approach
Discount Rate			13.50%
Estimated Useful Life			5 years
Developed Technology | Track1099 LLC
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value		$ 1,250
Valuation Methodology		Relief from royalty-income approach
Discount Rate		28.00%
Estimated Useful Life		2 years
Developed Technology | CrowdReason LLC and CorrelationAdvisors
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value	$ 3,900
Valuation Methodology	Relief from royalty-income approach
Discount Rate	18.00%
Estimated Useful Life	5 years
Backlog
Business Acquisition [Line Items]
Estimated Useful Life						3 years
Backlog | Minimum
Business Acquisition [Line Items]
Estimated Useful Life					1 year
Backlog | Maximum
Business Acquisition [Line Items]
Estimated Useful Life					7 years
Backlog | CrowdReason LLC and CorrelationAdvisors
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value	$ 450
Valuation Methodology	Multi-period excess earnings-income approach
Discount Rate	15.00%
Estimated Useful Life	1 year
Noncompete Agreements | Minimum
Business Acquisition [Line Items]
Estimated Useful Life					3 years	3 years
Noncompete Agreements | Maximum
Business Acquisition [Line Items]
Estimated Useful Life					5 years	5 years
Noncompete Agreements | Inposia
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value				$ 1,174
Valuation Methodology				With-and-without valuation-income approach
Discount Rate				21.00%
Estimated Useful Life				3 years
Noncompete Agreements | Davo Technologies LLC
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value			$ 564
Valuation Methodology			With-and-without valuation-income approach
Discount Rate			15.50%
Estimated Useful Life			5 years
Noncompete Agreements | Track1099 LLC
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value		$ 1,300
Valuation Methodology		With-and-without valuation-income approach
Discount Rate		30.00%
Estimated Useful Life		5 years
Noncompete Agreements | CrowdReason LLC and CorrelationAdvisors
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value	$ 100
Valuation Methodology	With-and-without valuation-income approach
Discount Rate	20.00%
Estimated Useful Life	5 years
Tradename and Trademarks | Minimum
Business Acquisition [Line Items]
Estimated Useful Life					1 year	1 year
Tradename and Trademarks | Maximum
Business Acquisition [Line Items]
Estimated Useful Life					3 years	4 years
Tradename and Trademarks | Inposia
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value				$ 235
Valuation Methodology				Relief from royalty-income approach
Discount Rate				18.50%
Estimated Useful Life				3 years
Tradename and Trademarks | Davo Technologies LLC
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value			$ 87
Valuation Methodology			Relief from royalty-income approach
Discount Rate			13.50%
Estimated Useful Life			1 year
Tradename and Trademarks | Track1099 LLC
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value		$ 100
Valuation Methodology		Relief from royalty-income approach
Discount Rate		28.00%
Estimated Useful Life		2 years
Tradename and Trademarks | CrowdReason LLC and CorrelationAdvisors
Business Acquisition [Line Items]
Intangible assets Fair Value/ Assigned Value	$ 150
Valuation Methodology	Relief from royalty-income approach
Discount Rate	18.00%
Estimated Useful Life	2 years

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Acquisitions of Businesses - Summary of Preliminary Total Consideration (Details) - USD ($) $ in Thousands			3 Months Ended
	Oct. 18, 2021	Oct. 01, 2021	Mar. 31, 2022	Mar. 31, 2021
Business Acquisition [Line Items]
Fair value of earnout provision			$ 0	$ 1,802
Track1099 LLC
Business Acquisition [Line Items]
Cash paid at closing (net of amounts returned)		$ 35,000	35,000
Fair value of earnout provision		8,800	8,820
Fair value of holdbacks		5,000	4,984
Total consideration		$ 48,800	48,804
CrowdReason LLC and CorrelationAdvisors
Business Acquisition [Line Items]
Cash paid at closing (net of amounts returned)	$ 8,300		8,317
Fair value of earnout provision	26,300		26,320
Fair value of holdbacks			1,727
Total consideration	$ 36,400		$ 36,364

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Acquisitions of Businesses - Schedule of Pro Forma Financial Information (Unaudited) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Business Acquisition Pro Forma Information [Abstract]
Total revenue	$ 204,530	$ 163,275
Pre-tax loss	$ (32,272)	$ (27,806)

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Revenue - Summary of Total Revenues (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Disaggregation Of Revenue [Line Items]
Revenues	$ 204,530	$ 153,601
U.S.
Disaggregation Of Revenue [Line Items]
Revenues	190,476	142,672
Non-U.S.
Disaggregation Of Revenue [Line Items]
Revenues	14,054	10,929
Subscription and Returns, Tax Calculations | U.S.
Disaggregation Of Revenue [Line Items]
Revenues	100,500	76,396
Subscription and Returns, Tax Returns and Compliance Management | U.S.
Disaggregation Of Revenue [Line Items]
Revenues	73,727	52,847
Subscription and Returns, Interest Income on Funds Held for Customers | U.S.
Disaggregation Of Revenue [Line Items]
Revenues	208	141
Subscription and Returns
Disaggregation Of Revenue [Line Items]
Revenues	186,866	139,318
Subscription and Returns | U.S.
Disaggregation Of Revenue [Line Items]
Revenues	174,435	129,384
Professional Services
Disaggregation Of Revenue [Line Items]
Revenues	17,664	14,283
Professional Services | U.S.
Disaggregation Of Revenue [Line Items]
Revenues	$ 16,041	$ 13,288

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Revenue - Summary of Activity Impacting Contract Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Contract Liabilities [Rollforward]
Balance beginning of period	$ 6,918	$ 10,134
Contract liabilities transferred to deferred revenue	(6,622)	(3,866)
Addition to contract liabilities	601	6,198
Balance end of period	$ 897	$ 12,466

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Revenue - Summary of Activity Impacting Deferred Revenue (Details) - Deferred Revenue - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Deferred Revenue Rollforward
Balance beginning of period	$ 282,955	$ 209,690
Revenue recognized	(204,530)	(153,601)
Additional amounts deferred	225,185	169,442
Balance end of period	$ 303,610	$ 225,531

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Revenue - Additional Information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Revenue Initial Application Period Cumulative Effect Transition [Line Items]
Deferred commissions amortization expected period	6 years
Deferred contract costs, expected to be amortized within next 12 Months	$ 17,296,000		$ 16,364,000
Impairments of deferred contract costs	0	$ 0
Assets recognized related to costs to fulfill contracts	0	$ 0
Remaining performance obligations	392,900,000
Non-cancellable Amount Not Yet Invoiced
Revenue Initial Application Period Cumulative Effect Transition [Line Items]
Remaining performance obligations	89,300,000
Current Liabilities
Revenue Initial Application Period Cumulative Effect Transition [Line Items]
Deferred revenue expected to be recognized within next 12 months	302,500,000
Prepaid Expenses and Other Current Assets
Revenue Initial Application Period Cumulative Effect Transition [Line Items]
Deferred contract costs, expected to be amortized within next 12 Months	$ 17,300,000

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Revenue - Summary of Activity Impacting Deferred Commissions (Details) - Deferred Commissions - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Capitalized Contract Cost [Line Items]
Balance beginning of period	$ 68,519	$ 50,870
Additional commissions deferred	6,832	5,695
Amortization of deferred commissions	(4,584)	(3,335)
Balance end of period	$ 70,767	$ 53,230

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Revenue - Additional Information (Details 1) $ in Millions	Mar. 31, 2022 USD ($)
Revenue Initial Application Period Cumulative Effect Transition [Line Items]
Remaining performance obligations	$ 392.9
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2022-04-01
Revenue Initial Application Period Cumulative Effect Transition [Line Items]
Remaining performance obligations	$ 377.2
Revenue expected to be recognized with remaining amount	12 months
Non-cancellable Amount Not Yet Invoiced
Revenue Initial Application Period Cumulative Effect Transition [Line Items]
Remaining performance obligations	$ 89.3
Non-cancellable Amount Not Yet Invoiced | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2022-04-01
Revenue Initial Application Period Cumulative Effect Transition [Line Items]
Remaining performance obligations	$ 74.7
Revenue expected to be recognized with remaining amount	12 months

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Intangible Assets - Schedule of Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2022	Dec. 31, 2021
Finite Lived Intangible Assets [Line Items]
Gross	$ 166,583	$ 166,130
Accumulated Amortization	(76,808)	(69,312)
Net	89,775	$ 96,818
Backlog
Finite Lived Intangible Assets [Line Items]
Useful Life (Years)		3 years
Gross	4,500	$ 4,500
Accumulated Amortization	(2,249)	(1,816)
Net	$ 2,251	2,684
Backlog | Minimum
Finite Lived Intangible Assets [Line Items]
Useful Life (Years)	1 year
Backlog | Maximum
Finite Lived Intangible Assets [Line Items]
Useful Life (Years)	7 years
Customer Relationships
Finite Lived Intangible Assets [Line Items]
Gross	$ 75,162	75,188
Accumulated Amortization	(26,527)	(23,795)
Net	$ 48,635	$ 51,393
Customer Relationships | Minimum
Finite Lived Intangible Assets [Line Items]
Useful Life (Years)	5 years	3 years
Customer Relationships | Maximum
Finite Lived Intangible Assets [Line Items]
Useful Life (Years)	10 years	10 years
Developed Technology
Finite Lived Intangible Assets [Line Items]
Gross	$ 73,204	$ 72,723
Accumulated Amortization	(40,516)	(37,333)
Net	$ 32,688	$ 35,390
Developed Technology | Minimum
Finite Lived Intangible Assets [Line Items]
Useful Life (Years)	1 year	3 years
Developed Technology | Maximum
Finite Lived Intangible Assets [Line Items]
Useful Life (Years)	6 years	8 years
Noncompete Agreements
Finite Lived Intangible Assets [Line Items]
Gross	$ 6,445	$ 6,452
Accumulated Amortization	(2,064)	(1,725)
Net	$ 4,381	$ 4,727
Noncompete Agreements | Minimum
Finite Lived Intangible Assets [Line Items]
Useful Life (Years)	3 years	3 years
Noncompete Agreements | Maximum
Finite Lived Intangible Assets [Line Items]
Useful Life (Years)	5 years	5 years
Tradename and Trademarks
Finite Lived Intangible Assets [Line Items]
Gross	$ 7,272	$ 7,267
Accumulated Amortization	(5,452)	(4,643)
Net	$ 1,820	$ 2,624
Tradename and Trademarks | Minimum
Finite Lived Intangible Assets [Line Items]
Useful Life (Years)	1 year	1 year
Tradename and Trademarks | Maximum
Finite Lived Intangible Assets [Line Items]
Useful Life (Years)	3 years	4 years

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Intangible Assets - Schedule of Intangible Assets (Parenthetical) (Details) - USD ($) $ in Millions	Mar. 31, 2022	Dec. 31, 2021
IPR&D
Indefinite Lived Intangible Assets By Major Class [Line Items]
Indefinite-lived intangible assets, net	$ 0.4	$ 0.4

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Intangible Assets - Additional Information (Details)	1 Months Ended	3 Months Ended
	May 31, 2018 USD ($)	Mar. 31, 2022 USD ($) Unit	Mar. 31, 2021 USD ($)	Dec. 31, 2021 USD ($)
Finite Lived Intangible Assets [Line Items]
Finite-lived intangible assets, amortization expense		$ 7,100,000	$ 4,400,000
Earnout liability		$ 37,390,000		$ 33,151,000
Number of goodwill impairment reporting units | Unit		3
Goodwill impairment charge		$ 0	$ 0
Goodwill		671,431,000		$ 672,381,000
Brazilian Reporting Unit
Finite Lived Intangible Assets [Line Items]
Goodwill		0
Accrued Expenses
Finite Lived Intangible Assets [Line Items]
Earnout liability		300,000
Tradestream Technologies Inc. and Wise 24 Inc
Finite Lived Intangible Assets [Line Items]
Future revenue recognized period	6 years
Earnout provision		$ 2,600,000
Tradestream Technologies Inc. and Wise 24 Inc | Maximum
Finite Lived Intangible Assets [Line Items]
Total consideration	$ 30,000,000

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Intangible Assets - Schedule of Changes in Carrying Amount of Goodwill (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2022 USD ($)
Goodwill And Intangible Assets Disclosure [Abstract]
Balance—December 31, 2021	$ 672,381
Cumulative translation adjustments	(950)
Balance—March 31, 2022	$ 671,431

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Leases - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Leases [Abstract]
Total lease cost, net of sublease income	$ 3.8	$ 3.9
Sublease income	0.4	$ 0.4
Increase in operating lease right-of-use assets	$ 1.4

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Debt - Additional Information (Details) - 2026 Notes - USD ($) $ / shares in Units, $ in Thousands, shares in Millions	1 Months Ended	3 Months Ended
	Aug. 31, 2021	Mar. 31, 2022	Dec. 31, 2021
Debt Instrument [Line Items]
Principal amount	$ 977,500	$ 977,500	$ 977,500
Description of interest rate		The 2026 Notes are unsecured obligations and bear interest at a fixed rate of 0.25% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 2022.
Fixed interest rate	0.25%
Debt instrument, description of maturity date		The 2026 Notes will mature on August 1, 2026, unless earlier converted, redeemed, or repurchased.
Debt instrument, maturity date	Aug. 01, 2026
Debt issuance costs	$ 17,600
Proceeds from offering, net of debt issuance costs	959,900
Net proceeds from sale of convertible senior notes used to purchase the capped calls	$ 75,300
Capped Call Transactions
Debt Instrument [Line Items]
Initial strike price		$ 238.44
Initial cap price		$ 323.30
Aggregate amount for capped calls		$ 75,300
Shares of common stock covered		4.1

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Debt - Summary of Net Carrying Amount of Notes (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021	Aug. 31, 2021
Debt Instrument [Line Items]
Net carrying amount	$ 962,144	$ 961,259
2026 Notes
Debt Instrument [Line Items]
Principal	977,500	977,500	$ 977,500
Unamortized debt issuance costs	(15,356)	(16,241)
Net carrying amount	$ 962,144	$ 961,259

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Debt - Summary of Interest Expense Recognized (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Debt Instrument [Line Items]
Amortization of debt issuance costs	$ 885	$ 0
2026 Notes
Debt Instrument [Line Items]
Contractual interest expense	611
Amortization of debt issuance costs	885
Total interest expense related to 2026 Notes	$ 1,496

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Shareholders' Equity - Additional Information (Details)	3 Months Ended
	Mar. 31, 2022 Class $ / shares shares	Dec. 31, 2021 $ / shares shares
Equity [Abstract]
Number of classes of stock | Class	2
Capital stock, authorized shares	620,000,000
Common stock, shares authorized	600,000,000	600,000,000
Common stock, par value | $ / shares	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, par value | $ / shares	$ 0.0001	$ 0.0001

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Shareholders' Equity - Summary of Changes of Shareholders' Equity (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Class Of Stock [Line Items]
Beginning balance	$ 1,026,454	$ 1,080,160
Exercise of stock options	$ 2,281	5,529
Exercise of stock options, Shares	107,623
Stock-based compensation cost	$ 33,371	19,127
Shares issued under employee stock purchase plan	8,006	7,088
Gain (Loss) on translation adjustment	(1,347)	(390)
Net loss	(32,557)	(30,068)
Ending balance	1,036,208	1,081,446
Common Stock
Class Of Stock [Line Items]
Beginning balance	$ 9	$ 9
Beginning balance, Shares	87,086,665	85,057,727
Exercise of stock options, Shares	107,623	296,226
Vesting of restricted stock units and performance share units	466,497	346,008
Shares issued under employee stock purchase plan, Shares	85,926	60,064
Ending balance	$ 9	$ 9
Ending balance, Shares	87,785,002	85,760,025
Common Stock | Performance Share Units
Class Of Stock [Line Items]
Vesting of restricted stock units and performance share units	38,291
Additional Paid-In Capital
Class Of Stock [Line Items]
Beginning balance	$ 1,732,742	$ 1,648,741
Exercise of stock options	2,281	5,529
Stock-based compensation cost	33,371	19,127
Shares issued under employee stock purchase plan	8,006	7,088
Ending balance	1,776,400	1,680,485
Accumulated Other Comprehensive Income (Loss)
Class Of Stock [Line Items]
Beginning balance	(3,428)	(1,339)
Gain (Loss) on translation adjustment	(1,347)	(390)
Ending balance	(4,775)	(1,729)
Accumulated Deficit
Class Of Stock [Line Items]
Beginning balance	(702,869)	(567,251)
Net loss	(32,557)	(30,068)
Ending balance	$ (735,426)	$ (597,319)

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Equity Incentive Plans - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares subject to outstanding awards	2,166,875		2,278,789
Stock-based compensation cost capitalized	$ 0.6	$ 0.2
Total intrinsic value of options exercised	7.7	$ 41.9
Stock Options
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Total unrecognized compensation expense related to stock options	$ 8.9
Unrecognized compensation expense expected to be recognized over weighted average period	1 year 6 months
Restricted Stock Units (RSUs)
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Unrecognized compensation expense expected to be recognized over weighted average period	2 years 9 months 18 days
Total unrecognized compensation expense expected to be recognized	$ 374.0
Restricted Stock Units (RSUs) | Employees | Minimum
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock options vesting period	3 years
Restricted Stock Units (RSUs) | Employees | Maximum
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock options vesting period	4 years
Restricted Stock Units (RSUs) | Non Employee Directors
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock options vesting period	1 year
Performance Share Units (PSUs)
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Unrecognized compensation expense expected to be recognized over weighted average period	2 years
Stock options vesting period	3 years
Total unrecognized compensation expense expected to be recognized	$ 53.3
Vesting term, description	Each PSU grant will vest in annual tranches over a three-year service period. Total PSUs earned for grants made in 2022 and 2021 may vary between 0% and 250% of the PSUs granted based on the attainment of company-specific performance targets during the related three-year period and continued service.
Service period	3 years
Performance Share Units (PSUs) | Minimum
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting percentage	0.00%
Performance Share Units (PSUs) | Maximum
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting percentage	250.00%
2018 Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares subject to outstanding awards	4,500,890
Shares available for future issuance	14,372,738
2006 Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares subject to outstanding awards	1,093,901
Employee Stock Purchase Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Common stock, shares purchased	85,926
2018 Employee Stock Purchase Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Total unrecognized compensation expense related to stock options	$ 1.7

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Equity Incentive Plans - Summary of Stock-Based Compensation Expense Related to Equity Incentive Rewards (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation cost	$ 33,371	$ 19,127
Stock Options
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation cost	2,161	3,223
Restricted Stock Units (RSUs)
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation cost	22,128	11,769
Performance Share Units (PSUs)
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation cost	7,813	2,832
Employee Stock Purchase Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation cost	$ 1,269	$ 1,303

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Equity Incentive Plans - Summary of Stock Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2022	Dec. 31, 2021
Shares
Options outstanding beginning balance	2,278,789
Options exercised	(107,623)
Options cancelled or expired	(4,291)
Options outstanding ending balance	2,166,875	2,278,789
Options exercisable	1,778,867
Weighted Average Exercise Price
Options outstanding beginning balance	$ 33.52
Options exercised	21.20
Options cancelled or expired	111.83
Options outstanding ending balance	33.98	$ 33.52
Options exercisable	$ 28.90
Weighted Average Remaining Contractual Life (in Years)
Options outstanding	6 years 29 days	6 years 3 months 18 days
Options exercisable	5 years 9 months 21 days
Aggregate Intrinsic Value
Options outstanding	$ 141,996	$ 217,824
Options exercisable	$ 125,598

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Equity Incentive Plans - Summary of RSU Activity (Details) - Restricted Stock Units (RSUs)	3 Months Ended
	Mar. 31, 2022 $ / shares shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
RSUs/PSUs outstanding as of January 1, 2022, Shares | shares	2,861,963
RSUs/PSUs granted, Shares | shares	1,903,805
RSUs/PSUs vested, Shares | shares	(466,497)
RSUs/PSUs cancelled, Shares | shares	(98,343)
RSUs/PSUs outstanding as of March 31, 2021, Shares | shares	4,200,928
RSUs/PSUs outstanding as of January 1, 2022, Weighted average grant date fair value per share | $ / shares	$ 99.41
RSUs/PSUs granted, Weighted average grant date fair value per share | $ / shares	97.15
RSUs/PSUs vested, Weighted average grant date fair value per share | $ / shares	80.86
RSUs/PSUs cancelled, Weighted average grant date fair value per share | $ / shares	94.81
RSUs/PSUs outstanding as of March 31, 2022, Weighted average grant date fair value per share | $ / shares	$ 100.56

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Equity Incentive Plans - Summary of PSU Activity (Details) - Performance Share Units (PSUs)	3 Months Ended
	Mar. 31, 2022 $ / shares shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
RSUs/PSUs outstanding as of January 1, 2022, Shares | shares	114,890
RSUs/PSUs granted, Shares | shares	223,363
RSUs/PSUs vested, Shares | shares	(38,291)
RSUs/PSUs outstanding as of March 31, 2021, Shares | shares	299,962
RSUs/PSUs outstanding as of January 1, 2022, Weighted average grant date fair value per share | $ / shares	$ 147.26
RSUs/PSUs granted, Weighted average grant date fair value per share | $ / shares	98.90
RSUs/PSUs vested, Weighted average grant date fair value per share | $ / shares	147.26
RSUs/PSUs outstanding as of March 31, 2022, Weighted average grant date fair value per share | $ / shares	$ 111.25

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Equity Incentive Plans - Summary of Fair Value of ESPP Purchase Rights Was Estimated Using Black-Scholes Option-pricing Model Assumptions (Details) - 2018 Employee Stock Purchase Plan - $ / shares	3 Months Ended
	Mar. 31, 2022	Sep. 30, 2021
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Fair market value of common stock	$ 111.00	$ 152.35
Volatility	33.00%	34.00%
Expected term	6 months	6 months
Expected dividend yield	0.00%	0.00%
Risk-free interest rate	0.48%	0.08%

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Net Loss Per Share Attributable to Common Shareholders - Schedule of Computation of Basic and Diluted Net Loss Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Numerator:
Net loss attributable to common shareholders	$ (32,557)	$ (30,068)
Denominator:
Weighted-average common shares outstanding-basic	87,463	85,436
Dilutive effect of share equivalents resulting from stock options, RSUs, PSUs, ESPP shares, and convertible senior notes (if converted)	0	0
Weighted-average common shares outstanding-diluted	87,463	85,436
Net loss per common share, basic and diluted	$ (0.37)	$ (0.35)

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Net Loss Per Share Attributable to Common Shareholders - Schedule of Potential Shares Not Included in the Computation of Diluted Earnings Per Share (Details) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount	9,441	5,736
Options To Purchase Common Stock
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount	2,236	3,396
Unvested RSUs
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount	2,853	2,258
Unvested PSUs
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount	243	75
ESPP Shares
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount	9	7
Convertible Senior Notes
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount	4,100	0

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Subsequent Events - Additional Information (Details) - Subsequent Event - USD ($)	Aug. 08, 2022	May 05, 2022
Subsequent Event [Line Items]
Consideration in cash		$ 12,100,000
TTR
Subsequent Event [Line Items]
General indemnification holdback to the sellers	$ 37,700
Business Licenses
Subsequent Event [Line Items]
General indemnification holdback to the sellers		$ 11,100