Avalara (NYSE:AVLR) Reports Sales Below Analyst Estimates In Q2 Earnings

Jabin Bastian /
2022/08/08 7:36 am EDT

Tax compliance software maker Avalara (NYSE:AVLR) fell short of analyst expectations in Q2 FY2022 quarter, with revenue up 23.3% year on year to $208.5 million. Avalara made a GAAP loss of $55.8 million, down on its loss of $27.6 million, in the same quarter last year.

Is now the time to buy Avalara? Access our full analysis of the earnings results here, it's free.

Avalara (AVLR) Q2 FY2022 Highlights:

  • Revenue: $208.5 million vs analyst estimates of $209.1 million (small miss)
  • EPS (non-GAAP): -$0.02 vs analyst estimates of -$0.08 ($0.06 beat)
  • Free cash flow was negative $32 thousand, compared to negative free cash flow of $31.1 million in previous quarter
  • Net Revenue Retention Rate: 113%, in line with previous quarter
  • Customers: 20,110, up from 19,160 in previous quarter
  • Gross Margin (GAAP): 70.2%, down from 71.2% same quarter last year
  • Avalara has agreed to be acquired by Vista Equity Partners in an all-cash transaction that values Avalara at $8.4 billion.

“We posted a solid second quarter delivering year-over-year total revenue growth of 23%, in line with our guidance and we outperformed on our operating income guidance. We remain focused on delivering on the 2025 growth and profitability targets that we laid out at our recent Investor Day,” said Scott McFarlane, Avalara co-founder and chief executive officer.

Founded by Scott McFarlane in 2004, Avalara (NYSE:AVLR) offers software as a service that provides companies with real-time information on how much tax to charge and automates tax compliance.

The demand for easy to use, integrated cloud based finance software that integrates tax and accounting operations continues to rise in tandem with the difficulty workers find trying to use existing accounting tools like spreadsheets given the growing volume of finance data littered across a multitude of enterprise applications. A related demand driver is the secular increase of e-commerce and rising adoption of modern point of sales and payments platforms which easily integrate with backend financial software.

Sales Growth

As you can see below, Avalara's revenue growth has been very strong over the last year, growing from quarterly revenue of $169 million, to $208.5 million.

Avalara Total Revenue

Even though Avalara fell short of revenue estimates, its quarterly revenue growth was still up a very solid 23.3% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $4.06 million in Q2, compared to $9.38 million in Q1 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 21.2% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Customer Growth

You can see below that Avalara reported 20,110 customers at the end of the quarter, an increase of 950 on last quarter. That's in line with the customer growth we have seen over the last couple of quarters, suggesting that the company can maintain its current sales momentum.

Avalara Customers

Key Takeaways from Avalara's Q2 Results

With a market capitalization of $8.39 billion Avalara is among smaller companies, but its more than $1.46 billion in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

Avalara has agreed to be acquired by Vista Equity Partners in an all-cash transaction that values Avalara at $8.4 billion.

Should you invest in Avalara right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.