Avalara, Inc.

on your telephone please be advised that today's conference is being recorded if you require any further assistance please press star zero i'd now like to hand the conference over to your speaker today jennifer giannola vice president investor relations thank you please go ahead good afternoon and welcome to avalera's fourth quarter and fiscal year 2020 earnings call we will be discussing the results announced in our press release issued after market closed today

With me are Avalare CEO Scott McFarland and CFO Ross Tenenbaum. Today's call will contain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning financial and business trends, the impacts of COVID-19 on our business and global economic conditions, our expectations related to our acquisitions, our expected future business and financial performance and financial condition, and our guidance for the first quarter and fiscal year 2021. It can be identified by words such as expect, anticipate, intend, plan, believe, seek, or will. These statements reflect our views as of today only, should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements by their nature address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to the risks discussed in today's press release, our annual report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2020, and our other periodic filings with the SEC. During the call, we will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of the GAAP and non-GAAP results is included in our earnings press release, which have been filed with the SEC and it's also available on our website at investor.avalera.com. With that, let me turn the call over to Scott.

Thanks, Jennifer, and welcome to everyone joining our Q4 2020 earnings call. I'd like to congratulate the entire Avalara team for an outstanding performance in the fourth quarter and fiscal year 2020. We beat our outlook from the beginning of the year despite COVID-19 challenges. We ended the year achieving half a billion dollars in revenue, an increase of 31% year over year, with a narrower than expected non-GAAP operating loss of 3 million. We also reported record annual free cash flow of $34 million and increased our non-GAAP gross margin to 74%. In Q4, we reported total revenue of $145 million, representing an increase of 35% year over year. We also reported Q4 calculated billings growth of 38% year over year. A 35% total revenue growth rate was driven by continued strong execution across the business and the addition of a few highly strategic acquisitions that we closed in Q4. Our results demonstrate the strength and resilience of our business model in challenging times. In 2020, while others were pulling back, we released more new products than ever before in our history. In addition, we announced our largest acquisition to bolster our content portfolio and enterprise capabilities and acquired companies to extend our offering in licensing and registration and e-invoicing and to enter the global insurance compliance market. We have a bold vision. And I'm proud that we have found a working formula that allows us to deliver strong results today and aggressively build the global category-defining cloud compliance platform of the future. While we continue to focus on increasing penetration in our core mid-market, we are also investing in product development and acquisitions that we believe will accelerate our ambitions to deliver the end-to-end compliance journey to customers of all sizes globally. Many of you ask, how would we have done in a 2020 without COVID? Our customer base is very diverse, encompassing large Fortune 500 enterprises all the way to tiny emerging small businesses. Our customers operate on business models ranging from B2B direct sales to e-commerce to brick-and-mortar retail and increasingly our omni-channel with various combinations of these. In 2020, many companies adopted our solutions as they reinvented their business models and rapidly adopted cloud and e-commerce solutions. We had B2B direct sales companies who did terrific and purchased our solutions or expanded their business with us. But we have also had many direct sales and e-commerce prospects that didn't do well and as a result chose to delay their tax automation plans to a future time. We believe compliance automation is inevitable. As COVID retreat, we expect Avalare to remain the durable, long and strong business we have built it to be. The acceleration of e-commerce is our friend. Businesses adopting or expanding e-commerce are excellent prospects for us as their omni-channel complexity and compliance exposure grows. We expect the same for other trends that persisted during the pandemic. cloud solution adoption and increasing regulatory complexity to say nothing of the imperative of cost efficiency in difficult economic environment. And for the many businesses who have struggled, we will be there to support their needs as they return to growth and begin again to experience the classic trigger events that might lead to the adoption of our solutions. We saw these trends play out with our customers during the fourth quarter. We won our largest deal of 2020, a seven-figure deal value, which includes annual recurring software plus one-time fees and services with an international marketplace in the streaming media segment. This is a great multi-product example, including our AvaTax communication, sales tax, and return solution. The company selected Avalara for its ability to handle real-time calculations for both communication and sales tax use cases, as well as related filing requirements. Other communication deals included a cellular network company and one of Colorado's fastest growing software companies. Additionally, we completed several competitive wins and takeaways. We won an enterprise deal with a food products company for a deal value of $40,000 because of our integration with the Spirit ERP system. This is an example of how our partner-centered business makes it easier for our customers to integrate our solutions into their application. Next, we want to deal with a multibillion-dollar international food business going head-to-head against the competition. Use tax compliance was the main pain point for this customer. We also want a global Internet marketplace in a deal valued above $200,000. We won against our competitors due to our one-stop-shop strategy for all their transactional tax compliance needs, including U.S. sales and use tax calculation and returns, streamlined sales tax, VAT determination, and international returns. Finally, we unseated the incumbent to win a $100,000 takeaway deal value with an international medical device company. The customer chose Avalara for the benefits of a single cloud platform for sales and use tax compliance and our integration with their large multinational ERP vendor. In the e-commerce space, we want a marquee Japanese maker of watches. NetSuite recommended Avalara due to our strength in omni-channel commerce and integration with NetSuite and Shopify Plus. In addition, We converted a big commerce customer of child safety products for more than $100,000 in deal value due to our multi-product capabilities and omni-channel integration with a large multinational ERP vendor and big commerce, as well as our FFT program. also a home decor company is in the process of moving to e-commerce and selected avalera for a 32 000 deal value due to our pre-built integration with shopify plus and a well-known accounting software application but my favorite deal this quarter was for a pet apparel company for a hundred and seventy five thousand dollar deal value this deal exemplifies what we are doing at avalera and why i stick firm to my belief that over time Every business will automate tax compliance. The company has been around for more than 20 years and has only now adopted tax automation. The business evolved into an omni-channel company supporting e-commerce transactions on Shopify. They found Avalara through our Shopify relationship and trusted our solution for our pre-built integration with Shopify Plus and their leading mid-market ERP vendors. Like many of our customers who feel overwhelmed by the burdens of tax compliance, this customer's rapid omni-channel growth led them to an untenable state of non-compliance that could no longer be addressed by their status quo. This led to a multi-product deal, including voluntary disclosure agreements, nexus studies, tax registration services, sales tax calculations integrated to a leading ERP and Shopify e-commerce platform. our cert capture exemption management and managed services offering, and our returns compliance solution. As demonstrated through our customer wins, Avalara's partner moat continues to be a key differentiator, especially as businesses shift to omnichannel and seek a single tax-compliant platform that can integrate to multiple disparate systems. That's why we continue to enhance our partner mode by actively forging new relationships that offer integration with more business applications and exposure to potential customers. We offer far more pre-built integrations with these applications than any other tax software provider and plan to add more. As a reminder, our total number of partner integrations, including all of those that have been signed but are not yet live, is over 1,000. It's great to know that in a competitive landscape, these companies continue to choose Avalara, and our launch team is fully engaged to get these new and emerging partnerships up and running. Software developers who build integration that connects solutions and services into various business applications represent another essential partner segment for Avalara. Working to extend our relationships with this community, we recently held Avalara Next, Our first ever CodeFocus event, where we brought together developers from all over the world at the forefront of global commerce and tax technology. Attendees learned about Avalara's new products, APIs, tools, and best practices to help build tax compliance into their business applications. With hundreds of registrations, NEXT was an important opportunity for us to showcase our leadership position in the market. build brand awareness, create valuable resources, including our updated developer portal, and connect with and support the global commerce and tech technology community. I'm excited to talk to you about the progress of our multi-product platform journey. 2020 was a remarkable year for our product releases as we accelerated our transformation into a product machine. We had a total of seven product releases, including Avalara Consumer Use, Avalara Cross Border, Avalara Returns for Small Businesses, Avalara India GSD and E-Invoicing Solution, Avalara for Beverage Alcohol Compliance, Avalara AvaTax Advanced Transaction Rules, and Fiscal Rep Service. Our latest product availability release in January is Avalara Managed Returns for Accountants, also known as MRA. MRA is our cloud sales tax return solution designed exclusively for accounting firms. Another milestone event in our journey to build out our accounting channel business. The Avalara for Accountants industry team that we have attracted is an accomplished group with deep industry knowledge and experience selling competing tax compliance software technology products in the market. MRA enables firms to extend their practice with automated sales tax preparation and filing services, provide clients with the benefit of a fully managed return service, and add efficiency while focusing on other high-value services. Now I'd like to talk a little bit about our recent acquisitions. Rather than retreating amid the challenges of 2020, we drove hard organically and through M&A to continue building our global cloud compliance platform and future-proof our leadership in this space. We leveraged M&A to expand our tax content repository, add new capabilities and technology, and further our geographic expansions. In addition, we have added impressive talent and are aggregating some of the brightest minds in transactional tasks. We are in a market where M&A presents efficient opportunities to accelerate our product and go-to-market roadmaps to address our near and long-term ambition. In Q4, we substantially improved our enterprise and content offerings through the acquisition of Transaction Tax Resources, Inc., And we expanded our platform to include a complimentary compliance solution for licensing and registration requirements with the acquisition of assets from business licenses. Recently, we acquired Impendulo Limited to enter the global insurance compliance market, and we signed a definitive agreement to acquire Imposia, which we believe will hasten our entry into the rapidly growing real-time compliance market and enable the replication of our U.S. moat globally. Now, I'd like to share with you more details on Impendulo and Imposia. On December 5th, we acquired Impendulo to enter the global insurance compliance market, I'm excited to welcome Chris James, the founder and leading expert in insurance tax compliance, as well as all of the Impendulo employees to the Avalara family. Impendulo is a London-based provider of insurance tax compliance technology and services, specializing in support for multinational insurance companies. Insurance premium taxes are just another slice of the indirect tax pie that funds a significant and growing revenue stream for governments around the world. Like with our past acquisitions to enter communications, fuel, lodging, and beverage alcohol compliance markets, we believe the global insurance compliance market is ripe for automation and a natural addition to our global offering. Now I'd like to talk to you about our most recent transaction. On December 29th, we signed a definitive agreement to acquire Imposia. This deal is expected to close in the first half of this year, subject to satisfactory closing conditions. Imposia is a German software company focused on e-invoicing, digital tax reporting, and business and data integration to address real-time compliance requirements for companies worldwide. So why Imposia, and why now? Our ambition is to see around corners others have not had in their sight, to innovate a global compliance platform that serves the next generation of client requirements, which we believe will future-proof Avalara's business. The future of tax is real-time reporting, where electronic invoicing will enable the customer, vendor, and taxing authority to all receive invoice information and monies due at the same time in that magic moment of commerce. Where compliance today may be a monthly or weekly requirement, we anticipate it will become real-time, meaning tax authorities will be a live party to every transaction. This will result in a more complex transactional tax environment where calculation, reporting, and remittance are all real-time like U.S. calculation is today. Automation will be critical. Winning in this environment would be no different from our strategy in the U.S. The winner must be able to connect any business application where transactions happen to any government around the globe. In other words, Avalara will need to recreate our U.S. moat globally, and we believe Imposia is a critical element to making that happen. Imposia expands our European footprint and our real-time compliance capabilities. We believe that Imposia provides an essential platform to connect sellers and suppliers and businesses and governments. The trusted facilitation of data between these parties and across any business system is essential to success as governments move from the end of the transactional tax chain to the middle. With Imposia, we have the opportunity to further our vision of being the leading global compliance automation provider. We continue to focus on integrating our acquired companies, including TTR and business licenses. Integration is not new for us, and it is going as we expected. Mission number one is to support and invest in the growth of the standalone businesses that we've acquired. Mission number two is to cross-sell products. We are working well with both companies to begin to uncover opportunities where we can sell to existing customers or shared prospects. We have an early but building pipeline of mostly large enterprise customers and partner opportunities that we are co-working with PTR. In several deals, we are already cross-sold to one another's customers. We are optimistic about our ability to integrate these companies into Avalara and pursue the cross-sell synergy potential from these acquisitions. M&A has been in our manifesto since we founded the company. and we will continue to look for opportunities that we believe will improve and sustain Avalara and our growth objectives. We believe that we must build for the future, and we are looking five years down the road to ensure that we remain relevant in a growing and ever-changing market. The investments we have made in our product machine and acquisitions are paying off. Both avenues provide us with new and enhanced products that we believe will provide fresh opportunities to acquire new customers, upsell existing customers, and better monetize our offering. As we've always said, we believe we are a long and strong business, single-digit penetrated in a large addressable market, and a long-term play based on automating statutorily required functions. We're excited to have reached over a half a billion in revenue and believe we can grow and scale Avalara into a multi-product, multi-billion dollar revenue company over time. Finally, I'm excited to tell you that in the fourth quarter, we launched the sustainability page on our investor relations website to highlight our progress and address investors' requests for more disclosure. We believe that sustainability is a key component to our long-term value in business resiliency, and I encourage you to go to our site for more information. Thank you. I will now turn the call over to Ross.