I decided to run another scan looking for some companies that are in the SaaS space and that are still somewhat young and not being followed. I came across Avalara who is a Cloud based SaaS company that operates in the US and is expanding internationally. I think they are entering the market at a good time when more and more companies are moving to the cloud and they use a subscription model to keep their customers locked in.
Avalara, Inc went public in June 2018 and the initial price to the public was set to $24.00 per share and they raised $192.5 million.
Avalara provides cloud-based solutions in order to automate the processes 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 serves various industries such as Retail and e-commerce, Manufacturing, Fuel and Energy, Communications, and Lodging and hospitality among others. It generates revenue in the form of subscriptions and professional services.
Acquisitions of finite-lived intangible assets
In May 2018, Avalara acquired certain intangible assets from Atlantax Systems, Inc (“Atlantax”) pursuant to a purchase arrangement structured to incent Atlantax to convert their existing customers to become Avalara customers. Total consideration for the purchase is based on an earnout computed on future revenue recognized by the Company over the next four years, up to a maximum of $1.9 million. At closing, the Company funded $0.4 million to Atlantax as a prepayment against future earnings. As of September 30, 2018, the total prepayment of $0.4 million was capitalized as a customer relationship intangible asset and will be amortized using an estimated useful life of five years. As future earnout payments become known, those costs will be capitalized as part of the customer relationship asset and amortized over the remaining useful life. The Company incurred immaterial legal costs related to the transaction that were capitalized as part of the customer relationship asset.
In May 2018, Avalara acquired developed technology to facilitate cross-border transactions (e.g., tariffs and duties), from Tradestream Technologies Inc. and Wise 24 Inc.
Total revenues: Total revenue for the nine months ended September 30, 2018 increased by $39.5 million, or 25%, compared to the nine months ended September 30, 2017.
Subscription and returns: revenue for the nine months ended September 30, 2018 increased by $35.9 million, or 25%, compared to the nine months ended September 30, 2017 (we generated approximately 94% of our revenue in North America and we are expanding our international presence to support transaction tax compliance in Europe, South America, and Asia.)
Professional services and other revenue: for the nine months ended September 30, 2018 increased by $3.6 million, or 38%, compared to the nine months ended September 30, 2017
Total gross profit: for the nine months ended September 30, 2018 increased $25.7 million, or 23%, compared to the nine months ended September 30, 2017
Total gross margin: was 71% for the nine months ended September 30, 2018 compared to 73% for the same period of 2017. This decrease was due primarily to higher software hosting costs.
Market Cap: 3.630B
Revenue (TTM): 272.10M
Revenue (Quarterly YoY Growth): 33.51%
Gross Profit Margin (Quarterly): 71.26%
Total Long Term Debt (Quarterly): 0.00
Sustainable Growth Rate (TTM): 675.2%
Free Cash Flow (Quarterly): 4.467M
We believe core customers is a key indicator of our market penetration, growth, and potential future revenue. The mid-market has been and remains our primary target market segment 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 September 30, 2018 and December 31, 2017, we had approximately 8,490 and 7,490 core customers, respectively, representing less than half of our total number of customers. In the first nine months of 2018, our core customers represented more than 85% of our total revenue.
Net Revenue Retention Rate: Net revenue retention rate was 105% for the quarter ended September 30, 2018 and on average has been 107% over the last four quarters ended September 30, 2018.
Significant competitors: There are a number of competing tax-specific software vendors, some of which have substantially greater revenue, personnel, and other resources than we do. Our larger competitors, such as CCH Incorporated (a subsidiary of Wolters Kluwer NV), ONESOURCE Indirect Tax (a division of Thomson Reuters), Sovos, and Vertex, Inc., as well as the state and local tax services offered by large accounting firms
GlassDoor rating: 3.4 (314 reviews)
# Analyst Following: 6
IBD RS Rating: 97
This is my first review of a stock for this board and I am hoping that I gave enough information for you to take a look at it and let me know what you think of the company and my review. Can I add any more or less information.