AVLR - Earnings call transcript Q3 2021

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Avalara Third Quarter 2021 Earnings Conference Call. All participants lines are in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Jennifer Gianola, Vice President, Investor Relations. ahead go Please

Jennifer Gianola

welcome and third XXXX quarter Good to Call. Earnings afternoon Avalara's

CEO, announced discussing Reform today. press Avalara's statements, CFO, which be the contain will Litigation pursuant harbor call in Tennenbaum. With McFarlane; Today's Ross the are are close We Securities forward-looking market provisions XXXX. results our of Act will Private and of after release me to made Scott safe issued the

and should and of statements identified our include as business financial economic fourth be upon COVID-XX fiscal the be on regarding concerning quarter to financial business not opportunities statements business and by into impacts statements Forward-looking believe, synergies or undertake XXXX such update trends, integration only, and any our anticipate, duty the business future as expect, condition; our date arising performance our at and statements. will. expected and year today not do such global growth acquisitions and reflect of seek expectations any our conditions, we and These from plan, for the of these subsequent intend, views and relied our financial acquisitions; representing as and words views can guidance

matters Forward-looking results that could to to expectations. that statements cause differ nature by risks their address actual subject are and uncertainties materially from

and in periodic the Form Securities discussed February important with could on XXXX our affect that with risks the and press our annual factors SEC. discussion please filings Commission a and other material results, refer the other on filed the For to risks of release, XX, XX-K actual Exchange report today's our

press the of that which A also which discuss prepared Scott. has filed is call With also will generally accordance the GAAP investor.avalara.com. is our non-GAAP not with been we are me results reconciliation website and accepted to earnings let at and in in accounting included on turn call non-GAAP SEC financial available release, with our the measures principles. over the During

Scott McFarlane

great Thanks, Avalara, increase revenue XXXX joining the an business the and to another this strength public. of our best was for revenue in going When quarter terms half, total Jennifer, was reported in of our million, history. QX fiscal XX% $XXX quarters strongest welcome our demonstrating QX QX We growth with of and everyone model. rate representing earnings first call. year-to-date of the combined one performance year-over-year, of since durability

business the organic we Once many QX Our acquisitions strong was with a coming third and solid balanced in excited quarter strategic growth initiatives. key since performance the to success revenue points increased addition closed growth quarter XX% driven very acquisitions, from see excluding Even that by of I'm year-over-year. across the XXXX. again,

customers a exciting. Our wide success is in across attracting industry, range geographies very and segments new of

wins and large multiproduct We acquisitions. cross-sell deals are winning our from

solid retention was also IPO. of We rate legacy A activity. retention which upsell second net our is XXX%, great net strong customer XXX% our rate experienced of proof revised retention since point and highest the our and

was robust and and of must the in onboarding. in competition, not their registrations to We As largest partner theme and further than Powering that Virtual year technology content from best-in-class learning, distance leaders need most the to grow our to annual was history. believe event Commerce at with more dominate are platform, empowering event attendance global was best AI internationally. the knowledge the the to we business the success from powered excitement big the we pleased ourselves machine compliance expand future of mention, X,XXX of reach, part around on Inspire-XXXX very by have world, strategy this focused the even with The Global they our The number the integrations growth a flagship international and largest the with international our October. our and

As at our brisk streamline compliance their you are tax been customers Avalara results, more to And our relevant. from value pace. year-to-date proposition a choosing see can has never

greenfield we independent win innovation industry. businesses we Today we SaaS IDC third-party and serve from MarketScape our the recognition three our the customers worldwide making for validation, SMB, and leader honored small and leader cloud-enabled automation are years, around small dominate software, our international into in we teams in And pioneering covering all few significant aspirations to tax as reports the impact further leader expanding Being journey a IDC, further we successfully to across As and invested have the all recognized minimally validates demonstrating a opportunity three are started over to reach globe. recognized value-added tax. Stepping midsized IDC penetrated. enterprise and the enterprise, market with segments. the a as best are back categories, a Avalara are massive in segments. in delivering SMB the past our in

have before, we said bold part of I've the transaction a be and long-term journey to a it's every As world. in vision

we reports years recognition grow our validates continue leadership fully past will over saying been Our position to what as execute we in that and vision. expect these the our we've few industry analyst

are commerce along fabric As I've ROI and prospects us adopting as excellent all obligations, sizes, shifts of and before, fundamental adoption of trends rising and exposure expectations in is Business a for our omnichannel infrastructure the opportunity market. marketplaces their The expanding or complexity compliance the Avalara. is for growth cloud-based is generational position with selling the Avalara commerce e-commerce seeing in and regulatory of grows. unique benefit omnichannel impacting to businesses from a four including, mentioned in we major of

services, of concept in all has expectation to with from the replace cloud on-premise compliance market. shifted an cloud to novel a applications approach continue sizes of the businesses more As

investments encouraging we and this prospects. and in expect how this growth and economic remains to delivered of Even efficiency be know and backdrop, story shift ends. key drivers problem cost One so beyond a COVID, driver automated. to services resonate messaging this of we We priority, automation. solution the top awareness. is the by our our with Against to decisions ROI cloud Compliance will for continue efficiency be increase our our purchasing intend

Our as obligation future. to their most the leading address understand leader, a trends harness and the compliance competitor, to world the and Status companies quo powerful they helping it goal exposure the with solution. around is always and our cloud can of and how accelerate these catalytic intend process we been capture has our

Our moats our customer out are of our including proof expanding organically our that executing offerings and we wins are M&A. strategy and through building portfolio points

value for few software large recurring a examples. $XXX,XXX, won are deal iron a won and including with includes the disparate annual software integrations deal application, onetime application, of ERP due services. which leading We a a finance with prebuilt deal and systems Here enterprise package an business to and accounting management revenue, an We a operations products just company leading application. process our several a

an value quote-to-cash won for two integration a including application American with snack a leading to to our operations also We platforms. through and due their finance of iconic brand entire $XX,XXX ability process deal integrate separate commerce our and

Union called access VAT, we making $XXX,XXX UK Shop well regime to deal sales e-tailer, a determination UK-based XX classification, tax digital European as GST sporting with our states, for program. determination cross-border of SST including Import, new a Next, multiproduct government's IOSS deal or One-Stop VAT tax the as large duty value and for in a won international the

deals see success with We strategy. continue Avalara and to our go-to-market winning TTR

away. so $XXXXX under-delivered As auto content deal we for company of competition CertCapture Research. and from battery brought won a TTR we one our example, our Tax an experts The and services AvaTax, in TTR deal value the including tire took and

several we wins competitive takeaways. Additionally, won and

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prebuilt and value a won platform a SST. we solution and We AUD have a deal SST. to any exemption CertCapture. of deal and including for to due our Shopify AvaTax our products digital deal AvaTax, including an e-commerce $XXXXX won registered with The the did due won integrations of a Returns ERP. We deal nail and e-commerce calculations with VAT this won with an including integration integration being Next, and distributor value We AvaTax, We won the and SAP had $XXX,XXX value design a our for of SAP, not $XXXXX ERP. AvaTax state. our exposure for deal with yet in CertCapture competition platform an not company for company AvaTax, integration

of TTR for met AvaTax, Shopify process TTR. value parking one our of Finally for including a program. requirement deal our had with determination this The leveraging future with deal a offering. complex until Among AvaTax deal manual vendor and tariff Avalara-managed successes we $XXX,XXX and our customer to in and won company and the $XXXXXX deal a won our cross-border find marketplaces a company couldn't fit classification and for strong our a a a technology tax including commerce-as-a-services online a the partnerships for they world. Avalara with value largest SST We by was of cross-border

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our all to are with relationships and of expand partners at We levels ecosystem. our continuing deepen

relationships leading expand and partner our put ourselves we are tax have a We new and in seeing to types industries across opportunities. position

international into to As module sold in we native retail The rip their energy gas. reporting we reporting early solution to access. enterprise like deals been Avalara. has really Analyst adoption. they coming customers announced make classify Avalara. with duties targeted petroleum available enables cross-border solution Shopify product had in payment months. Day to because to leader launch, codes exciting generational building e-commerce wholesale to as that supporting are plans that This largest an catalogs agreed the we tax This to enterprise solidify to their jointly intends partnership deals nicely a sale. company. agreement generally oil It's for for with and and determination sell a recently duties reminds at for Shopify also and for we now cross-border major the all into next management after example and oil at returns to named some relationship year, enable vendors every merchants to convenience Shopify It new and marketplaces shift of the processes. in marketed to by excited gas. entire being merchants in OEM Shopify the are future enterprises are the a default in and These with is our excited tax in time is channel the May, a and we entered are calculation this and company software Also their I'm have towards now excise plans when giving into partnership time The knew early of which are the we and for to calculate connector be Avalara's their company excited replace customers the returns announce win a example to engine customs days e-commerce own watershed Shopify are and share in that available scaling tax This Markets position years. Recently solutions with us out commerce. declared of our and great an second those and deals available of accelerated by of help to solutions. And is as their technology our to merchant We global in enterprise This competitors. providers of and initial me the for and we what of to one with call signed I wave build during going our us, recent is brand-new win global Shopify markets. with Shopify's a platforms, this for that lock duties part taxes moment in and assist stack we of be ERP

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also to our advance We continue strategy. acquisition

TrackXXXX, potential offerings. of highlighted roots product announce entered expertise indirect beyond the our XXXXs compliance new We platform as types increasing hard years. talented At and the and we XXXXs, to including most in platform the automation, few tax TAM last forms, platform property IRS in inject to Today repository, W-Xs, business expansion. such and continue and compliance are adding moving additions compliance our of in and our content XXXXs, are tax. our we building cloud W-Xs are expand managing expand over range sales build this a than that to our XXXX. pleased for capabilities property robust and tax, direct expand year supported organically and our technology, into new tax needs We To provider to solutions, We tax of started and tax leadership space. returns XX,XXX into personnel and future-proof filing areas compliance our into other cost-effectively e-delivering their we market. Day, and we we as services expand TrackXXXX, leverage team. and with more. May extend and add tax customers TrackXXXX in driving I'm acquired to indirect family including M&A areas calculation our of to our and W-Xs continue geographic our acquiring our with more tax e-filing online software By through technology, global our to M&A new have we content Analyst added

Lindsey the family. We TrackXXXX to are and delighted team welcome the Avalara founder to at West

CrowdReason, compliance and well According and the as from data from business developer Property revenue Census valuation percentage governments each sales as of property of in XXXX, revenue. a of XXXX. tax related we tax local a revenue, Next acquired Bureau solve billion assets and revenue combined tax service corporate challenges. to revenue in XX% SaaS-based applications, their $XXX state revenue collected tax as local income to advisory property tax tax, higher general state or US property income of tax general was help property the and revenue general than of a individual the

value and Hoemke partners will extends Adding end-to-end We are fragmented Carl and the believe to customers landscape content family. and today's at and consolidation products. of automation our of large delighted Avalara compliance and founder welcome our the to software team our a compliant tax property We platform portfolio footprint into compliance to tax CrowdReason exciting type. global the for new Avalara's

and we believe We will our to that growth look close and objectives. will for sustain improve Avalara continue opportunities and

XX add and M&A talented am of corporate to her We Marcela Avalara's she continue to the streamlining Officer more to proud during of of that, of I Chief to finance with Global a-third oversees Marcela leaders operations, with operations integration experience tremendous quite Finance is growth of consumer than company's women. backgrounds technology, Leader, finance diverse. like periods will Board diverse Directors. years Avalara's and guiding companies experience, bring more Directors. global of Squarespace, is combined Financial Board. functions. welcome Marcela Board Board would made SaaS our value brings Martin across leadership to where the than onto development in Today, Her Board software, I high-growth Avalara's Board. Avalara's expertise with Avalara's verticals, and strategic is up of

by chairwomen. Board Avalara's are out committees addition, three of two led In

are future with low outpacing into in company and to are and we automating with compliance and multibillion-dollar addressable As competition, the can multi-product, we've penetration based over Ross. a always We business, believe a a Thank believe driving believe and you. the that, market, turn large I'll revenue and we a functions. grow Avalara And said, required over it play statutorily long-term we we long scale strong we of time. global on

Ross Tennenbaum

year-over-year, total returns XX% and up Professional million, Thanks, performance balanced up guided Scott. acquisitions QX XX% excluding of services revenue. XXXX. to since Avalara revenue million, QX posted up again grew inorganically great $XX.X XX% Subscription growth represented TTR. another and high was that our in our and business. the after licenses exceeded or business $XXX.X was revenue QX driven acquisitions, up largely revenue excluding acquisitions was QX by XX% metrics, across XX% revenue XX% execution or year-over-year, by driven was XXXX year-over-year. rate million, The total the revenue and of services in $XXX.X from

a include of we calculation customers. customers in revised in core our included our revenue during As being XXXX resulting methodology, the to from customer customers core second reminder, quarter SST reported additional

revenue as We and rate methodology to was nature. professional also include included net in be revised more retention to tend calculation revenue onetime not our previously SST services to that these revenue services exclude from

table customers previous revenue the revised end press metrics both at our retention core earnings the for and key methodologies included in and have We of net release. a rate

the customer year-over-year core XXXX, increased XXX XX,XXX previous by to increase quarter QX the at of of count a XX%. from approximately revised Our end

to revenue by rate unchanged our count average. customer quarter, in XXX, compared last net under resulting was XXX% increased a four-quarter core XXX% definition previous Our our retention XXX% revised

XXX% from last increased Our previous a to four-quarter resulting XXX% NRR quarter average. up our in XXX%, under definition

references QX was and sales our QX before improving retention results customers non-GAAP revenue XX% million. NRR compares $XXX.X to million primarily operating gross This core Gross our were Subscription customers customers share year. very QX QX count with $XX.X rates since was the remainder that, release basis XXXX period of are year. by among execution $XX.X grew on XX% million. all expenses year-over-year $XX.X press driven non-core stated, coupled otherwise revenue down to in reconciled from grew this call. million was with are strong from margin that the which to profit in the customer just to our our in are from EMEA. and the dynamics. results existing issued revised indicates a statement, earnings note $XXX.X QX, strong acquisitions in revenue XX% from same please million pleased gross gross unless the margins last period income growth We representing year-over-year, margin. gross a with last XX% discussing same GAAP of profit XX% a XX% and in In

We focus our continue our time on ongoing gross investments in to margin increasing subscription automation. through over

subscription margin less offset in and may of be products. lower acquisitions. on improvement However, gross some any our gross mature by margins

Our by was revenue. total XX% last and total gross revenue, margin year. Sales of professional mix will to of expense in also marketing $XX.X compared services subscription XX% or QX the be million impacted and

administrative As the XX% was that from was million, line we and discussed of operating last quarter, of or expense be our research the expense million, in capitalization, sales XXXX. of capitalized would and from a some QX deferred million, margin our the capitalized QX forecasted. in QX was higher XXXX $XXX.X from year-over-year. general QX as in $X.X liabilities. $XX.X Total in slower software loss of result revenue second the of as in was XX% and better QX $XXX.X guidance, software a deferred quarter, is up acquisitions and Absent $XXX.X and XX% $XX.X of XX% XXXX, revenue consideration was with based end revenue, the was roughly shares this million reflects gross revenue up XXXX. contract largely and billings XX% of a up expense revenue change down of QX which and or the million non-GAAP hiring QX well half QX than in revenue XXXX, our revenue, than $X.XX development R&D XXXX income intention quarter. share excluding QX metric comparable year-ago XXXX. current at but in from revenue, and period. takes down in increased XX.X Calculated change in included Calculated expense into was to million the XX% benefit as outstanding. investment increase QX marketing QX on the XX% from in billings the year-over-year, million net strong end favorability at per in

We points was the a organic XX% growth, produced new by EU customer our marketplace billings year-over-year in largest from of lower impacted couple calculated also growth partner. which billings with

to for partner's service. are we a VAT the for our this the filings compliance back-end reminder, registrations of platform partner a And and As controls marketplace. flow customers

In into lower QX, pricing expect believe platform. partner's through at volumes and new higher this prices with in and will that new addition, we customers rate we result serviced partner card contract a this enter to in for existing

approximately growth in these company $XX.X for offerings global business as flow result third with million the sales broader last quarter, $X.X small including realize of coming them and changes, and the remainder well on of from remain Revenues there was XXXX. with range billings additional in opportunities half compared by expect quarter relationship in a more other efforts partner accounted As important in are regions, to cash supporting as Free and headwind this this and partner expand in international revenue India. with revenues, a opportunity about of the our believe QX EU jurisdictions. the same Brazil to we excited direct compliance year. to a We international from our total million

caused quarter-to-quarter, in including timing as capital many our our business. stated As and levels investment will as of of of the billings cash well level on expenses, the seasonality factors our working flow from and calls, we overall have by the past free fluctuate

increase were of end XXXX. XXXX, equivalents and $XXX cash the billion of at cash the QX million $X.X Our billion an QX $X.X at of from end

net XXXX. raised deducting and the we fees call a operating and now and after QX for year conclude convertible loss non-GAAP guidance million the by in debt full closed will expenses. XXXX I revenue offering $XXX.X providing on proceeds and During QX for

expect professional continue of We services to X% XXXX of in the the total to revenue mix range of XX% revenues.

between of or total and we midpoint which year-over-year XXXX, at revenue range the expect QX acquisitions rate million, the million closed For $XXX since XXXX. XX% a year-over-year revenue represents excluding XX% from $XXX growth QX

expect half We be to range aggressive to operating reflecting $X a spending, non-GAAP second $X in sales ramp QX our in especially in loss of the more million million, and marketing.

For the a full XX% year XXXX, in between $XX rate and $XXX represents we expect the year-over-year since expected range, growth $XXX closed XX% from acquisitions QX the total an XXXX. million of year-over-year revenue at midpoint million million, revenue or which excluding

full our year million. $X operating in million be $X expect non-GAAP loss range the of to We to XXXX

cash positive for to expect produce flow free XXXX. We

the thoughts We XXXX. some process to detailed I budget early quarter said share guidance like in are plan That conference of to XXXX regarding and on early our provide stages would fourth call. our

not vision Our changed. thesis have and

year's revenue growth. XXXX revenue Licenses. and closing and other largest have inorganic of break Business TTR to next Avalara to a deliver XXXX low is a expect from make don't growth dollar continue contribution that material We XX% contribution XX% we are to believe to of to well-positioned We Please addressing dates not durable, large that multi-billion beginning will as lapped next out organic year, our and our acquisitions will we we business. as pursue organic building market two note penetrated the revenue believe line top a long-term, acquisitions

the long-term the solutions currently at believe of powerful driving are market innings to penetration. in center the and continue four opportunity early are our we provide forces We of

drivers with platform favorable business, acceleration see expanded growth and coupled for importance story. changes of awareness businesses, of The regulatory our marketplaces complexity international ecosystem, our Beyond opportunities the providers. and e-commerce we core new compliance to expand partner e-commerce our increased from tax of has and platform

is real of international exciting will also e-commerce expansion attention an landscape with gaining both automation a taxes global industry aim wave requirements. significant is believe partners of changing require The to We grappling of a national complexities of and the fast. opportunities this which leading software reporting us For more make regulations compliance the solutions. number transactional new calculating time, fueling and businesses is with

We increasingly wide having also compliance thereby merchants e-commerce is software our company a range believe And inorganic finally transition our that face compliance of the businesses product tax help be value solutions. to to we provide even broader and can will complexities also enabling require global solutions, additions range a where and we recent organic of thereby, customers. offer platform a us to expanding small our can

additional As we great investment us. these opportunities efficient to remains growth important consider for

We and have loss expect year XXXX non-GAAP our produce CAGR. in operating row three-year based complement the revenue ability our third to in a our leverage guidance drive demonstrated free XX%, on growth to for flow positive cash to

revenues. plan to a adopt detailed our believe more to position momentum XXXX. customer we our couple but compounding support provide we points result market all aggressive However, market company. guidance on have tax durable conference modest loss our early in early of in percentage of investment XXXX a believe in just operating the are in compelling business Again total of to a building growth call margin fourth plans we economics February and large in still unique quarter leader exciting opportunity in an a In investment a non-GAAP closing, compliance expected a we We automation continue technology. that's XXXX large

environment to transformation same and the beginning customers. our capabilities automation. as more regulatory operate it coupled at a become business shift with to without increase value the in to a an These make we to an difficult seeing compliance jurisdictions their to demand supply we tax of ever-shifting are maintain even And evolve businesses products time, We and omni-channel, platform the deliver e-commerce to changes in cloud. are increased company, driving many

questions. in long-term. and in would to to the we At this we up including today's can quarter. participate will continue additional for your Stephens note to like to you call. the growth upcoming so invest conferences also participating that and win in call continue for Please point We open fourth geographies compound for Berenberg segments we the Thank

Operator

is open first America. Brad for now floor Bank question questions. Instructions] comes Sills of The of Your from [Operator your

Brad Sills

seeing I Great. trigger my on for a are a ERP clear. we are some quarter. to pandemic. the saw going have that key that in headwinds that impact business. And that's all Obviously Hey taking of Congratulations the guys, upgrades But has of forward? really seeing you question. some thanks ask about nice evidence to and the the that what e-commerce end starting What from business? we're strong really for turn during you could end wanted ERP been

Scott McFarlane

throughout Scott. ERPs. rebounding that, But a is year across the in than adopt of all say a seeing trigger, Where that say, seeing because that a sort many the think in that other it's ERP pick the upgrades those just or that Sage bit. that lot and different penetrated Hey that and but we're But headroom -- new I and NetSuite of in already our in okay is now already Brad, during there that, in it's ERPs, pushing it's to it's Avalara or have already the of a for we having sales great really aren't one channel. tax ones has more would we're us, businesses I I triggers said think the this where is ERPs. -- that greenfields, are new important all of just Microsoft world reminder them we're time low to

a it's on important us existing challenge, of the do road real such great us a happening. ahead know into the it's how new But trigger we channels deeper go the because I So and real the ERPs they've is they're in. to for -- of state they're global that's focus their one CFO change accounting into aren't like going in CFO had but different that comes the and or upgrading, the having a new department or triggers they're controller moving or other

So that's how looking trend we're well. really we seeing that's I'm -- really ERPs what the out for the base, expand but into as nice a is new do with

Brad Sills

to if One Scott. Great please. I hear, may, more

like way? to in from see international overall. the gaps you you, business side some after Just to address effort. on Any feel it of some outpacing a Are there footprint on like there? looks so have it it's color you to content much. takes Do there? you there the you real Obviously, Are business. Thank the place Could that really standpoint? us, go remind and that success still material international you're in a what starting already

Scott McFarlane

the our remind mean, we have I a to you all when in this to able things, Brad. market, need time. company do calculation. Sure, enter certain I everybody right? You be

to in could rep have returns. be then It And do exemption States. to EU. able special got fiscal the in be services You certificate United the like you've

different their how that just right? content, those of are aspect not to used, all the thing. the all of how things what calculations have and return filed, information combined one So, It's how are it's do of then onto gets research all areas. they deep around special reports have forms those forms you So, done, and are

world, every things. you mean wherever but we enter. transaction in talked the to I take I this basis of and the two execute got mean a where mean, have be So, main I how two you about you to to place. need of go, you really content -- well, part bunch things is Brad I

you all all, connected the creating with around the and world. First major the be of in ERP are e-commerce to invoices who have and all of people

do is entering you accurate. those information and thing, so all it's you're to content, when have forms. when you second And when right remittances the do doing the you calculations that have are The on

talked the a have. And two most. those And so really on content our focuses world. two strongest are Avalara we that the combinations around those of that are has about we've the moats And team Avalara always

continents. Our learning adding that. AI in really, we're do order team able and content on seriously that be machine to and now take really We is to four

real important aspect. a it's So,

Brad Sills

hear. Scott. Thanks much, to so Great

Scott McFarlane

Brad. Thanks

Operator

of comes Panigrahi from Siti question Mizuho. next Your

Siti Panigrahi

Hey guys. Congratulations.

when and becoming I'm even you're you business strategy your when government organic looking -- e-invoicing. now direct tax platform where license from you're indirect appears and expanding So like a businesses. platform at Scott, intermediary even It acquisition to development, even a and between agency you're your

can are big displacing us opportunity. more remaining other opportunity? is more and are And think bring opportunity? is see, you the approach, as Help you that manually? you How Greenfield like you when could you is understand So solutions do expanding, do expand? there, -- Help see that managing it automation. come smaller businesses then, in or it And that where how you area us

Scott McFarlane

we'd stakes service if business. countries. in NATO knowing that mean that's you platform. beachhead was just being on the wasn't do -- a, had to Early always you anytime, have it And want place on about I sales the in And Sure. sales focused VAT. just about Internet vision our we anywhere anything was for any tax, because a be table that to to being this compliance compliance -- it tax XXX able

we the of the reach mean to I've see do. future-proofing it's But in and our today really TAM, other our and ERPs and is tax of of it's mean us And business. in this tax, into we that's like with trusted the how in is you and the And case to that the that always is So especially that, done dynamic And other itself. had we've become tax, said got of big, expanding now moat and for I and our care into strategy using them that groundwork the expanding VAT where interconnect Greenfield. having lay need a with I a I and largely have sales in expansions areas resource the services you've way allow other sales you we business indirect fantastic. all and expand -- partners. areas, the a TAM big to basic here take well international all doing VAT the the to But its that

of mean, for can then And trusted that that you is much of You other areas complex you for your that information natural just a relationship it's compliance extension. solve need one other. the customers. the I take need for enormously and information

go it market. synergy. developing really the the a adding and penetration is the driving there's further platform So the making revenue powerful and business throughout more Which with we for tool the to customers sticky, a is

Siti Panigrahi

follow-up priorities? like us your or help great. acquisition a Could investment understand of That's could when on enterprise you more investment go-to-market integration Ross, R&D think side XXXX quick areas you help -- of that? a or little you And us Is sales? bit it tuck-in on more

Ross Tennenbaum

missed thinking anyone a opportunities we about color early and when we we're of in Yeah, XXXX, we great the operating the see as process still percent gave percentage talked talked if just in revenue. couple remarks, thoughts budget we a the around some prepared investment -- loss Yeah. we're and that and Siti non-GAAP points

that percent running development. as is in does revenue the R&D. the where in about is think question. the investment so and I a We've first And research of been low-XXs, And area go

We similar next to in expect year. remain a that area for

we new and So that build area that the continue to invest about M&A out new we've platform the to integrating. beyond, There's, expanding And in to as a heavily continuing indirect and always that said special those investments platform make products indirect launching. to we're we just are in -- so build we really us. we've been think There's beyond. competition look really outrun important and Scott can in talked

are sales next Long-term for been some of and see there. opportunity. and plenty Since as sales things good in a marketing that of year. I percent percent we of ourselves a and new just in the of we've lot the revenue efficiencies. around a sell a side. opportunities of that we've just But and putting marketing deleveraging we sales tax find lot of M&A the and revenue really see really got Second magic there's good to marketing, opportunity of of in center bringing front-and-center getting and And IPO four forces as sales bit commerce think as little market on down at we'll moment efficiency marketing the and these with one of

-- a lot as percent getting de-leverage So build hope margin things on bit to margin as to infrastructure February we've in G&A, there, I'd saying guidance. little improvements bit see put when in of formal through of we'd G&A XXXX we'll improvement gross gross that little then a marketing. margin, these a out of sales in a I all we little we revenue. in to as been of like a and automation. more invest as in Gross little place. more still a And we're well have provide

talked also but and seen corporate or products a bit years, as of You've start put over at last couple our we've new come they some on that. little weight that about and so they the M&A margins sub in

margin will provide out how So play affect got gross call. we figure that color on but commentary the so forward in how margins, that XXXX given more and same I've the gross we'll -- will mix on to prior but

Siti Panigrahi

Thanks, Ross Great. colors. that for

Operator

MD Sandler. Bracelin Bracelin Research Piper & Brent from Piper of Co. comes Analyst Research Sandler - question & Division Brent next Senior Your Alan

Brent Bracelin

year? maybe us that finish from the remind in Ross, you the the could. the renegotiated we'll start with contract and headwind SST Thank us renegotiation is guess just Ross of was you and good I I afternoon. with was revenue entering can remind what kind what I if Scott, in quarter? contract that mix quarter? that the know And And potential

Ross Tennenbaum

Yes.

it how it it's to through did think managed that because even great with and what of understanding talking since nicely. and I we've what affected happen it calling I from through about a quite I year, trying year think it's happen And away we're so guys going a SST job of nice to been a the true done we think and you So out was get year. give last walking to overall everyone

about You'll QX see $X.X in increased million. SST. SST the XX-Q, by talk it will

can you the math. So you'll slightly guys revenue growth. corporate do see it's And below

won't into into year things So by the offset the is the start quarters, consistent down additions. going year. change, with It's volume next it's headwind have And to said pricing coming come over normalize we throughout several will of commentary which grow our last going so because this we pricing next year as anymore, to we fast. that go year to

Brent Bracelin

as shifting price here, you talked love Yes. Great. that you've well. seems Calcon week see Stripe/TaxJar. new is them Scott on the functionality strengthening there you're to at your good the all this market mean you low before. address Shopify with the end of get gears Curious love adjustment if with the even some the view in Well see, Would partnership get to that growing solution. to partnership to healthily I this the like announced of still I'd to kind about with seen there. to also It

that winning as Shopify at Stripe/TaxJar new and new through So relationship that developments of walk you're the us some some Thanks well. business

Scott McFarlane

Stripe/TaxJar mean what see past. in differently love really that would I at understand from they're the out build thinking. out say I've I what -- marketplace was that to understand platform. thing -- I they -- that always anything playing There was changes can happening in I see acquisition the I the in want Sure. don't what least the said. They it's same we

say able complicated. I end have lot put a all my lot And you I that Square, where lot along, those. of the of in you And as expertise you lot we I'll of order to happen. ability take I the a wave tax customers connectors, customers in across in remarks, again called have sizes. these be in eBay make some out that And needs in think centralized. see you're cross-border, Shopify the starting sort vendors. a care of think A it of second you larger and place ourselves prepared all have their be serve of to SST, be upmarket -- have content, that to markets. a takes it think to to to that coming of I is back needs will whether it Avalara players for just general entire for fundamentally their I XX years, of believe in of different It many compliance be it

have the place. all You in connectors

it's to out. those a think as I play formidable how moat,

is new business a Shopify that. in natural e-commerce I said. our think our Shopify I it. love every providers. I I've what always release cross-border, our believed think for -- explaining It's build We a think portion of which with I that's – global. is press yesterday relationship out

end the right at and front it's – road think to deal I at the so with of down checkout. people need not duties that all

a Shopify. I our with off I natural So think relationship and tightens it's it our shows And it play think strengths.

our have put it's thinking IDC of deep captured the modern all in the we and and a solution. become or those in we're that a we that position we've way all no-brainer our got the the natural when with We really the go ourselves choose about it to think to I'm about a easy customers I these partnerships capabilities the do report, for that's do it. one it do and a think And to to just And so people improve the earn be we larger how on to and larger customers able we position take way us. ability we're we with doing ERPs, it the the wave and did We of And now in that did standing that ecosystem. that? with with where second I the like process we're at.

Siti Panigrahi

validating to It's the here. the so partners Thank great strategy see you much.

Operator

[Operator Instructions] from of Blair. Your Stotler Matt next William question comes

Matt Stotler

question. taking for Thanks the guys. Hey,

So guess, one I in just of interest time. the

to early would the love firm on kind channels, kind and specifically seeing road in there, made channel you're terms get as to is channel in as the for accounting that and So going an of continuing out the the specific how any update that on enable of of to building and kind forward? both you've that product map investments interest ecosystem thoughts of kind partner traction of well

Scott McFarlane

been fan this always Sure. enormous I've an initiative. of

we as – always day to and the those in mean up Avalara's should thinking we always in we would it space, we fight when and the we've I be why of big what take returns revenue XXXX, ingesting our information source. doing it's mature I – we And that And able tax thought remind have the to what come. the built more getting we've and became and them back will history, with it firms a important started that to as they filed in ability Difficulty] allow forms to build getting we everybody, Let's already we've to built we that the think it's accounting in really [Technical for done and and forms on just a what charge with have use provide is just just tax out that and platform follow fantastic the that payments. to thought

and look and our accounting to just money do help than of the let's of rather that. you with make and channel them competing part first use the So channel always strategy how accounting build It's partner do them.

pretty in. mind, in that started with with of are. where already a out we group pleased users so beta with built And I'm We

think I big are year the out uptake. know these proving These we're to year we're I and is of that But day. forward. for so Avalara pay going it's area for next see dividends the overnight. starting firms huge that that an many something single will concept happens the every changes not And this

Operator

Berg Your from next Needham. question of comes Scott

Michael Rackers

for Scott everyone. on quarter. I'm much Hey, question and Berg. for the Michael my so Rackers. taking This congrats on Thanks is

Just of might any beneficial And on for or really me. in was like picking side. areas that market there you for need other one curious sounded you. are really kind you up guys. lot Are quick that content excel one steam if I'm there It would a be think the you to just enterprise any? content of of Thank

Scott McFarlane

partnerships reality right, if don't matter how you you I would mean company you wouldn't characterize this man front the is burner. eating what is calculate the we started I content, doesn't content the was Sure. cannot them. do, it as have it is many Because content way you the right up the matter because that have, doesn't I say on for it it

the sales, over world-class world. many, from spans And to content consider we've effort areas VAT a all many years so over made the would to out a team build real what I that cross-border to

a on we're content. So long-term of journey

can is and so if this, I've -- or of you're home all a your is be in that, the always doing I you're over selling a you're content us. huge same play it said if role -- doing But content the said out enterprise you candles is world. and would mid-market and -- it all having do you if the because much in So can taxability candles, candles does for producer say the it big not the

that want has big to So is international, thing the the it That's content. right solve general is where content and a where play statement. biggest go for does to we and small. But just and content to multi-nationals us there with have world the it be does for when we throughout play

Asia. into move You

You have content. appropriate have the of to all

in to from and you which or we're it's all want entrenched about Brazil, Mexico move go Argentina, You to content.

so really about for all plays doing acquisitions better the and And and your content. content an -- right us are acquisitions important getting bigger role and

as things, we of look the at we we of content core all M&A, do. at look is as sorts always what at So

Operator

question next of Morgan Stanley. Your Zlotsky comes Stan from

Unidentified Analyst

[ph] on much FX you Hi, my quarter? for Thank around impact question. taking Brandon details provide for you guys. on the This so Can is Stan. please

Scott McFarlane

little I bit of didn't of very is the Hey. get think out. name, enough right calling impact be given I minimal, but it revenue to international hasn't but FX very minimal it been now. there don't FX XX% a

just So boil that up don't it's thing this minimal I say would out to -- does point. call at we a that

Operator

Your of Evercore next Levine question ISI. comes from Peter

Peter Levine

questions. Thanks Great. good taking my a for on Congrats quarter.

the only The -- one. first actually one

conversions e-commerce, the seen big Shopify the channel, usage Within assume are think commerce seeing an I we'd uptick trend pick upsell? you the you've with so would up. in

have these customers is what trigger for take of the understand usage among kind of really just to of the all them able being conversions help kind Thanks. how been maybe direct back that go them to So understand to us channel a I to threshold mean for want upsell to to trending? certain you upsell

Scott McFarlane

and front things strengthening. I being really always with need the do jumped I really tax as will just and bandwagon our sales relationships need it the Sure. -- where own and their seeing to they to to characterize them in I'll that. take -- messaging been I'm platform And to bit deal with -- I they how that, tell that their it been is I progress What will see we've are started well. would very And amount that's on nice to and and as we need at and I say and partners. with that. so we've our in in the generates there the provider enormous get And do about would and jump talk a refer seen say to they minute they the conversion Shopify to good like their how Ross partners calls with they've that little and an And this a work would seeing it are end trends I go on improving upfront numbers uptick, these the deal our let just and customers threshold, has pleased ability to with do their being of to rights. out

it an the I And important pleased I'm that that we're as so of to cross-border direction I'm add that to aspect well, think that's able going. with we're it. pleased because

you way I'd win this just The way the is that So partner you first. it's that important. it just you must market, remind deal so everybody, with win

there to expand getting that, to back-end like to dealing of so cross-border relationship and their come along and and monetize things then the calculation these. do and in And with allows being all work with them for support you to with returns

to And do first is so the win deal. the thing

to a that Avalara You been doing fashion. add just has win the that must significant to anything deal you and in got Ross, one?

Ross Tennenbaum

merchants. at that to the think said got I I aggregators it. omnichannel. they e-comm. what you e-commerce And I often -- think their these merchants got which these it's winning They've I of e-commerce about are was covered -- is, No. going have are you just all ERPs. the partners mean say end, They've

Sometimes they stores. have

that doing go you've that time. So into tie things And do and over them out And private can if in all you're other multiple sell target you they multiple to systems. And we them have hunting They're channels. competitors those. got if built box and now of you ground can other business in.

now used convert you of well, them that them was And faster like, growing more. is and Why needed haven't is core providers brought all the cross-border, other services. we we registration, many you of doing became things ours licensings, if customers they certs all had that and Shopify It's bear TTR certain They well? of realized last year natively as stuff They calc that expanded they they their saying them another of them on the it in and we just do destiny fully opportunity products bought content them some And and have sell time of Shopify like cart. or they're And more and sell we returns. But there's sell the tax returns the complexities. and to been them. can over many cart these more complexity so, that I've we faster. that -- our XXXX, subscriptions, Shopify can the e-commerce in of growing to everyone aren't the and now people surge like other any we have haven't just to and partner's e-comm needed yet what

key. That's the platform your beyond that That strong we and have the trying to the sell strategy that's this what that's So seeds growth calculating long have consistently. consistent to -- that partners then is much and opportunity have over people picture and have on the think time. I those just we're that on more do very

Operator

Hynes Canaccord. DJ Your of next from comes question

Unidentified Analyst

This in DJ. squeezing Thanks on for me guys. Hey, Luke here. is for

far had you're balance and is looking just there, of sounds sales me that some based your It accomplish half a on little the org you're expand shift on that. making going around you Maybe double-click quarter like to the out discuss you within commentary. last your how initiatives that this this bit just maybe maybe could dial sort playing on second efficiency for that a is year. sales and find to of in and better mentioned you turned the too So marketing to

Scott McFarlane

It's really true.

demonstrated efficient. we and really I dials that extremely marketing and think the can sales turn make we really

people one greatest at I Avalara been transactional -- the right? aspirin really our CMO me to he Lee, sales of our an problem. the of got more I or the bring said, audited I've for just the gave space the today I a one we leader think obligation of being or to or events. was, and one that he tax talk party problem about And as think space, problems, in you meetings I'm Jay the analogy have me I'm will. has if tax the leaders the trigger personally, in for

is take want be problem with vitamins them. our think in have obligation what therefore, opportunity position What everybody go we to to think be to I to we're an to able go and longer So of that aspirin we Avalara. sort for preventative any like be solve going is I'm going don't I'm to to trying signal that, or an aspirin. and We medicine teach people that

of, have take pill out and the the moving I So a solve problem right problem. now,

going. everybody get Let's

to Let's the get everybody understand problem.

focused that And the Let's can what emergency. to get think going we're do. do medical I prevent on to what everybody we that's

I awareness you'll us up So think dial spend. see

next the what on we're to think and partners engaged I to going with level. doing them double down to with we're our get really

CAM do managers with and our work we'll have. the around to being think organize I both able that multiple that account products we'll internationally. think to team, domestically customer our I we And sell really

I challenge for I it's us. a So mean think

I think the that think I into And stepping to a for role grow. will up very very, be us it's company. for exciting opportunity real

Operator

of Raymond James. Your Alex from next question comes Sklar

Alex Sklar

kind that as opportunity think a you know in just environmental platform the compliance see about expansion I looks all? Scott vision Thanks. compliance of at like? in what past potential broader to reporting curious Thanks. expand talked you've as ESG any Great. the do the about compliance I'm area. we

Scott McFarlane

on fantastic documents to -- when vision fuel our we have think do in can and lots to something a moves can being although Having are now I've -- able - radar to this get that my about in move there the because documents in. not state lots and and around. of to with nothing deal said we screen we way of it They're and is that environmental mean, And that have something state and I I that build experience involved to we being that is how there documents able particular we that's out. to it's that I documents today. platform when environmental before move in concept I love vision platform do just there's compliance another just tax we one a to right And right? from platform with degree goods it's documents don't out prove tax. to compliance company fuel we mean my the filed you that right be continue when that that have for

Operator

next Your comes Markets from of Capital Andrew Berenberg question DeGasperi -- Management

Andrew DeGasperi

that. for Thanks

you on of I know of have in wondering the next terms guidance that number. that improvement year and still don't brought wondering points the you XXXX your new day to come in earnings. contracts. percentage price function I I out that marketplace being the volume if was But just could QX on benefits of some apply couple we will Just up is particular. a was in finalizing headwind giving later you're until given the and one see just that just one so on probably conservative

Ross Tennenbaum

Andrew, Yes. it's Ross.

close I was I growth When in were We it the said that next op a QX you year. look couple about on just was about for loss XX% we of non-GAAP want point revenue So correct. to at a percentage talked XX%. couple explaining of billings say the didn't loss. to points when op US we're What percentage headwind talking that we unpack is you the and US. organic first of

what we're over go where you opportunities like that what to all the expand front end to international when and and the geographies marketplace expand the filing we think flow future on registration have solution and great time partner. I they're VAT they opportunities the and of But with and control And sell there beyond where -- a and important it you partner -- be. So just there's end customers. market very their lot partner. caused the back the a -- many we're And it's where diversifying with them -- And of them. want We've was one that then XX%. some the that's delta partner. you -- at reminding to is everyone number was had within then look there's feels look very and I important it's large specific international We just that US that it we between a got so

little out a to QX less year wanted billing going flowing in going this And of be with international. rates. prior Again quarters. organic in So SST. a really be it. We've SST. the of a contract I But to change is called It's and inorganic transparency. called been that contract. it's we're a monthly And revised will there'll It's I than bit people there out next bit to over-index from there's -- change. there annual be smaller partner go going growth to to duration us into in so of through a contained fast. call growing we're pricing were really out to than I don't on just customers mean spirit We want that

job with all good -- we a that. all did navigating think I really

give is than color. in it it But again to we And small XXXX. said it SST we wanted QX haven't smaller about on thing that a not it. context the would in transparent be. talk may call so some this on I But have a -- just over-index and need that more headwind put We'll we if

Scott McFarlane

small particular it's for part. a that headwind Yes,

Operator

the back call. session today's additional Scott turn will over for any McFarlane floor remarks. or for the closing now This to concludes I question-and-answer

Scott McFarlane

on like to their Take next all We look Be forward customers, employees, of for care. to support hard of you Thanks partners our and certain. trying talking during call. everybody. safe. to I'd times the Thanks. work take to for this all opportunity thank

Operator

gentlemen, for and participation. concludes Thank your this you event. Ladies today's

disconnect. now may You

Avalara (AVLR) 5 Nov 212021 Q3 Earnings call transcript