Q2 2020 Avalara Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Avalere second quarter 2020 earnings Conference call. At this time, all participants are not listen only mode. After the speakers presentation. Dolby question answer session ask a question during the second only to pop star one on your telephone.
He buys but she's conference is being recorded if you require any brothers. Please press star zero.
I would now would be the conference over to the first speaker today, Jennifer Gianola Vice President Investor Relations. Thank you. Please go ahead.
Good afternoon, and welcome to Avalere second quarter 2020 earnings calls.
We will be discussing the results announced in our press release issued after market close today.
With me are Avalere, CEO start Macfarlane and CFO Ross Tennenbaum.
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 likes 95.
Forward looking statements include statements concerning financial and business trends.
The impact of Cobot 19, our business.
Global economic conditions are expected future business and financial performance and financial condition, and our guidance for the third quarter and fiscal year and can be identified by words, such as expects anticipates 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 the could cause actual results to differ materially some expectations.
For discussion of the material risks and other important factors that could affect our actual results.
Please refer to the rest 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 FCC.
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 has been filed with the FCC and is also available on our website at investor Dot Apple or a dotcom.
With that let me turn the call over to Scott.
Thanks, Jennifer and welcome to everyone, joining our Q2 2020 earnings call.
You too was another strong quarter that exceeded our expectations amid a challenging business one.
Our revenue was 116.5 billion up 28% year over year.
I was pleased to see our momentum accelerate throughout the quarter with June representing our best non December total bookings month.
Our Q2 results validate the resiliency of the Avalere team, our business model and our value proposition, which we believe is resonating well with prospects in this difficult time.
ROI and efficiency have always been compelling aspects of our solutions, but they are even more critical in tougher times as businesses look to reduce costs and reallocate people or reduce their head count.
Automating was software is an effective way to facilitate that kind of efficiency.
I'm more confident than ever in our ability to build a lasting company with durable grade characteristics.
I'm, so proud of the team and we'd like to thank our employees for their hard work and their commitment to our customers.
You got the ability of Apple areas. During this crisis has been nothing short of amazing.
I've said before and I'll say it again.
Not all SAS businesses are created equal and in my view Avalere has structural advantages that allow us to thrive in both good and challenging times.
The cobot 19 pandemic.
[noise], either created or enhanced for macro trends that we believe will produce multiyear tailwinds for avalere.
The first is the acceleration of E commerce adoption globally every business is becoming an ecommerce business in the past many businesses have been able to get by managing sales tax compliance manually. If you have a few stores in a few fix locations you can probably managed sales tax without it.
But today. So many businesses are moving to ecommerce, which means they are selling across multiple channels stores web sites and one or multiple marketplaces.
And this format businesses become omni channel and national or even international E. Tailers.
This exponentially increases their tax compliance complexity.
Which amplifies our value proposition and make her solutions much more compelling and stickier.
The second trend is the acceleration of cloud adoption. The cope with 19 crisis is forcing businesses to modernize their systems to facilitate digital and remote workforces.
We believe this will accelerate the adoption of cloud solutions as businesses shed legacy inflexible on Prem system.
We see this trend play out daily as companies moved to the cloud.
We believe we offer the industry, leading cloud compliance platform to address these needs.
The third trends as I mentioned before is related to the growing emphasis on ROI and efficiency.
As businesses look to reduce cost would become more efficient it only makes sense to look at software solutions that help them automated business avalere facilitates efficiency and provides a compelling a demonstrably ROI for our customers.
As an example, a global technology services company selected Avalere due to the ROI of integrations with one of our key partners.
Rates are kept up to date automatically and automated tax jurisdiction information is transferred directly into the application.
Resulting in a reduction in the company's IC budget and applying these save costs towards revenue generating projects.
And lastly.
We think that increasing regulatory enforcement may become a tailwind for us.
And local government face a tremendous fiscal challenge.
And we believe stricter enforcement of tax losses on horizon.
As you May know Adler is one of the original streamline sales tax or SST certified service providers.
That's a few makes the process of selling into multiple states a lot easier by lowering the cost of compliance and reducing audit wrist for participating businesses.
Created in 2000, Yes see program is a cooperative arrangement among 24 U.S. state governments for the collection at payment of retail sales tax when the seller and the purchasers are located in different tax jurisdictions.
In the first half of Twentytwenty, our revenue from the SST program grew year over year by more than 100%.
And SST is a big differentiator for Avalere at some of our primary competitors are not currently certified as providers body SST organization.
Being part of this program helps weidner boat and has been a great growth engine for us.
We're seeing these trends play out.
Let me spend a moment and share a few customer examples.
One of our largest and recent logo deals was with a fortune 500 global leader of electrical industrial and communication products and services.
The customer evaluated other solutions on the market, but ultimately chose avalere for the strength of our cloud exemption certificate management solution.
This is the type of deal that would have been tougher for us two years ago, but because we've invested in enhancing our platform and enterprise product suite, we feel good about our ability to continue to wind up market.
At the other under the spectrum, let me share in emerging small business win.
A leading provider of medical supplies to federal health facilities slipped at Adler over the competition.
This company selected Avalere because of one our prebuilt integration with quickbooks to our ability to offer SST and three our robust product suite, including exemption certificate management and our managed returned services.
Our largest deal in the quarter was $310000 in total contract value I'm, particularly excited about this deal because its international deal sold to a UK based multi channel retailers that purchased our solution, mainly because of our cross border product suite.
The company selected Avalere, because we're a platform provider that can support their global compliance needs, including cross border classifications.
Calculations of custom duties and import taxes.
And U.S. sales tax calculations and returns filed.
Additionally, we are proud to have won a deal with a large and prestigious west coast University that selected Avalere for our new consumer use product, which became available on June 1st This product is brand new and we're already winning large deals as a result.
We've also had new business success and the ecommerce marketplace.
As we discussed at a recent analyst day in 2019, we dedicated to sales and account management team to focus on 350 global marketplace.
And that investment has paid off.
Today 136 of those 350 global marketplaces leverage adlers determination compliance and or cross border services.
In addition to new logo wins were also focused on deepening our relationship with existing marketplace customers.
Example, a fast growing apparel marketplace, who has used our evertec solution for U.S. sales tax calculation since 2019 expanded their relationship with us by selecting our cross border calculation solution.
The above examples are indicative of the strategy, we are pursuing to maximize adlers opportunity and sustain healthy growth rates, whether its supporting new tax sites, such as consumer use in cross border.
Moving into new industries, or new geographies building more muscle across customer size segments or securing additional partnerships with marketplaces in E commerce platforms.
We are finding ways to build stronger relationships with new customer prospects existing customers and partners.
We are building a global cloud compliance platform company and our backing to separate with a product portfolio that is rapidly growing and a product development cadence that is accelerating.
And our analyst day, we told you we're transforming into a product machine and you heard a lot about or investment products, but I want to reiterate on a few key product initiatives.
Prior to our analyst day, we announced the availability of Avalere consumer use on June 1st.
After our analyst day, we announced enhanced capabilities for Adlers cross border solution.
The next big milestone is adlers return for small business, which is expected to be generally available in a few weeks.
We also continue to move forward with the foundational elements of our business acquisitions that expand our content solutions and international presence has always been an important part of our success M&A has been in our manifesto since we founded the company.
And nothing has changed on that front.
It's been longer than I like since our last deal.
But we have a robust pipeline.
We will continue to look for and close opportunities that we believe will improve avalere and sustain our growth objectives.
We are continuing to build out our world class Global corporate development team, including a new executive Vice President who will expand the team to include additional expertise in deal execution and integration.
And of course, I cant failed to mention our partners as you know Avalere has been a partner centric company since our founding and our partner strategy has created a competitive moat that also drives growth.
The result of this long term strategy is that Adler offers far more prebuilt integrations into applications companies used to run their business then any competitor.
In todays omni channel World. This creates a significant differentiator for us.
Strength of our offering and longstanding partner relationships play nicely to our advantage when working with prospects using the largest traditional business systems.
But our advantage that even greater in the long tail. The hundreds of smaller are specialized applications, where we are one of the few automation providers within integration.
Each quarter, we add new partners and new integrations to our mode and we will continue to do so as we drive towards our vision of becoming the global cloud compliance platform.
This combination of breadth and depth is incredibly difficult to replicate and represents a key strategic differentiator as we acquire new.
And grow with our existing customers.
Q2 was a strong quarter for Avalere.
Early quarter rebound in our marketing funnel continued to improve and drove sequentially improving bookings that resulted in a very strong June.
The results exceeded our expectations amid this precarious time, we saw solid results from the efforts we took the rapidly revamp our customer messaging to an ROI story.
Embrace our partners with mutually beneficial market strategies.
Reach our prospects in new and innovative ways.
And support our customers.
We are cautiously optimistic based on the encouraging data, we're seeing but the cobot 19 crisis remains a very fluid situation with headlines suggesting continued uncertainty.
We intend to keep our heads down to remain monopoly focused on expanding our cloud platform.
Extending our content.
And increasing our partnerships both through organic and inorganic means.
Take advantage of our large opportunity and the levers we have to sustain our cloud compliance platform leadership.
Our strong Q2 results.
Also included improvements in gross margin.
We have previously discussed our intense focus on improving gross margin over the long term and that hasn't changed.
The improvement in Q2 was largely driven by our Q2 hiring slowdown amid cobot 19.
We continue to make investments in automation that we believe will drive gross margin efficiencies in the future.
We're just beginning to see encouraging efficiencies from investments in our customer support processes and technologies that will enable us to scale with less additional headcount.
As well as investments in compliance automation that are increasing returns filed per employee.
Now I'd like to make a brief comment on a significant legal win for Avalere.
On may 27th the U.S. District Court dismissed all the remaining claims against Avalere into 2018 case brought by PTP one click.
The court's decision was a complete victory.
Not only to the court dismissed all the claims and invalidate Ppps patent the court also admonished the play to for its conduct and found these submitted a sham declaration in an attempt to avoid summary judgment.
We always knew the claims we are without merit and we're delighted to have this distraction behind this.
Thank you to our legal team.
On the leadership front I'm pleased to share the Kathleen Weslock recently joined Adler as Chief Human Resources Officer.
Kathleen has overseen human resources for publicly and privately held companies of all sizes across several industries, including Cisco Deloitte.
Yes, formally sungard data systems and more.
Gasoline is carrying on our ongoing mission to cement Adler as one of the best places to work in all of SAS by scaling our talent programs and building the most inclusive workplace culture in the country welcome Kathleen.
I'm also pleased to announce the Jamie Fishman recently joined Avalere as executive Vice President corporate development.
Jamie brings 20 years of experience in corporate development across the tapped technology and consulting industries to Avalere.
He ran sales business development and professional services that tax were now subsidiary of so books and most recently he served as president of the software Division for Ryan in company.
The largest tax consulting firms in North America.
Jamie as a true industry expert and we'll be working to expand our global compliance footprint as we continue to add new content technologies geography and customers welcome Jane.
Marcia Krish nearer.
Our outgoing head of corporate development and one of our founding employees, who has in the past lit nearly every aspect of our business.
We will remain at Avalere, helping to transition the corporate development role to Jamie.
Providing is unique industry expertise throughout the organization and working on various special global projects with me.
As you know we've continued to bolster the leadership team since becoming a public company.
The talent of our executive team was on full display at our virtual analyst day in June.
I Hope you had a chance to watch it.
So fortunate to be surrounded by executives that I believe will take us to a billion dollars in revenue and beyond.
I will now turn the call over to Ross to talk through our financial results.
Thank you Scott it feels like a longtime since our early May earnings call. My first call Izod Polaris CFO. When we were grappling with the many questions around the Kogan 19, and what ways will impact our customers and business.
Provided visibility on the impact to new sales than there were a glimpse into March going growth and caution that April would likely look a lot like March we noted that our April lead funnel was improving and we were hopeful. These leads would begin to turn into bookings in may and June.
That's for two today and I'm very pleased with our Q2 results.
Our team worked tirelessly day and night to market, our ROI value proposition and enhance our digital demand generation through evolved and innovate how we go to market with our partners to launch valuable new products and to become trusted advisors to our customers. When we were pleased to see these efforts drive meaningful sequential increases in booking.
Reflected in stronger May and June year over year billings growth.
We proceed from here with cautious optimism, we have proven our business is strong and good and in challenging times and that we can produce positive free cash flow and non-GAAP operating income when needed.
We remind investors that we are a leader in a very large global markets. We believe remained single digit penetrate.
June's performance include a pent up demand and can yet you called the trend.
And therefore, we are not modeling the second half based on June and nor should you.
We will continue to worked tirelessly to capitalize on all our opportunity and build a sustainable business that compounds revenue at high rates of growth for the long term.
Now, let's get into our second quarter results.
The second quarter total revenue was 116.5 million up 28% on a year over year basis.
Subscription returns revenue grew 28% year over year to 108.5 million, which represented 93% of our total revenue.
We were very pleased with our subscription growth rate given the cobot nights and pandemic.
And that Q2 19 at the time reflected the strongest year over year subscription revenue growth since going public.
Professional services revenue was 8 million up 27% year over year professional services revenue included approximately 1 million in one time adjustments.
Our core customer count increased by 590 from the previous quarter to approximately 13300 at the end of Q2 2020.
A year over year increase of 28%.
As a reminder, core customer does a lagging indicator father layer and the increase was expected to be moderates in Q2 as a result of the impact of co. Good night.
We have not previously included in our core customer count customers that terminated services. The Bible. There that we later one back we're revising our core customer disclosure to include these winback customers when they meet the definition of a core customer.
This change results in approximately 13560 core customers at the end of Q2 2020 for transparency, we have provided both numbers in our earnings press release.
Our net revenue retention rate was 107%, resulting in a 110% for quarter average, which is what we've previously stated is the percentage you should think about on a longer term basis.
As a reminder, our net revenue retention rate is calculated using total revenue, which is subject to the impact of nonrecurring professional services.
In addition, the calculation currently excludes our streamline sales tax or as a key business, which has been growing significantly in 2020 through upsells to existing customers as well as sales to new customers.
Despite the current macro environment, our customers must go calculate taxes of bio return on our business model and customer base. So far has shown the resiliency we expect.
To illustrate I'd like to provide you with more details on our stable customer base.
In Q2, the number of logos that turned out of our business again remained immaterial and was down year over year as a percentage of our renewal base.
Our gross revenue churn, which in the past we have set has been meaningfully lower than 4% remained in line with our last quarter.
We defined gross revenue churn at the annual revenue contribution associated with building accounts to cancel all for their agreements with off.
Divided by the total annual revenue recognized during a measurement period.
As a reminder, our gross revenue churn does not include downgrades.
In discussing the remainder of the income statement. Please note that unless otherwise stated all references to our expenses operating results and per share results are on a non-GAAP basis.
And are reconciled to our GAAP results in the earnings press release issued just before this call.
We told you on our Q1 earnings call that given cobot, 19th uncertainty and potential impact on our business, we would be responsible with our expenses in cash flow.
We spent considerable time modeling scenarios to ensure we were making only the most important investment.
Our actions resulted in strong expense savings that resulted in positive non-GAAP operating income and free cash flow.
Well, we are proud of these results and believe they demonstrate our ability to control expenses and deliver profitability. We believe our leadership position in a very large market warrants the resumption of a more aggressive level of spec versus Q2.
Gross profit was 85.7 million in Q2, representing a 74% gross margin.
This compares with gross profit of 65.9 million and a 72% gross margin in the same period last year.
We're pleased with the gross margin improvement, we've been able to show with 74% representing our highest gross margin rate in 10 quarters.
That said, we believe Q2 will represent our highest gross margin for the year as we resume investments to support our growth.
Sales and marketing expense was 42.5 million in Q2 were 37% of total revenue and improvement of 630 basis points year over year.
Sales and marketing expense was lower than normal due to slowed hiring.
Juice marketing program spend and reduced travel and sales related event.
As we've seen a pick up an end customer demand, we have started to more aggressively invest in sales and marketing.
Due to research and development expense was 23.8 million or 20% of revenue up slightly from 19% of revenue in Q2, 19th.
This increase was consistent with our expectations as we continue to invest in our global cloud platform, including a new products content and features to drive sales growth and cost efficiencies.
Due to general and administrative expense was 15.6 billion or 13% of revenue versus 14% of revenue in Q2 nights.
Q2, non-GAAP operating income was 3.8 million, which was better than our previous guidance and exceeded our expectations as a result of stronger than expected revenue lower hiring and reduce traveling events expenses.
Non-GAAP diluted net income per share was four cents in the quarter based on 83.4 million diluted shares outstanding.
Turning to our balance sheet and cash flow statement, our cash and cash equivalents were 474.4 million at the end of Q2 20, an increase of 23.9 million from 450.5 million at the end of Q1 to one.
Total deferred revenue as of Q2, 20 was 167.7 million compared to 165.4 million at the end of Q1 to one.
Calculated billings is a non-GAAP metric that takes into consideration revenue and the change in deferred revenue as well as the change in contract liability.
Calculated billings was 118.7 million in Q2, 20 up 22% year over year.
April year over year billings growth was similar to that of March at around 10%, while we saw an acceleration to above the mid 20% area in each of May and June.
We were very pleased with our billings result, given the covert 19 pandemic in a difficult 41% Q2 19 year over year comparison.
It is difficult to predict our future quarters billing and we're currently not modeling forward our June results.
As a reminder, as we saw in Q2 due to our strong performance in 2019, we will continue to face a difficult year over year comparison, both in Q3 and for the full year.
Free cash flow was 6.2 million.
Compared to 7.2 million in the same quarter last year.
Q2 free cash flow was negatively impacted by the launch of a special self promotion that included that 90 payment terms versus our normal net 30, but was positively impacted by a deferral of U.S. employer payroll tax payments under the carriers that.
I will now conclude the call by providing guidance on revenue and non-GAAP operating loss for Q3 and for the full year of 20 Twond.
Our guidance assumes a modest improvement in the economic environment in the third quarter.
We are further assuming that economic conditions will more broadly open up by the end of the year.
Clearly significant variation from these assumptions could cause us to modify our guidance higher or lower.
For Q3, 2020, we expect total revenue to be in the range of $115 million to $117 million and expect professional services revenue to be flat year over year.
Moving to non-GAAP operating loss, we did curtail and delay non essential operating expenses in early stages of the koby might see prices.
But due to our momentum and better demand conditions, we have resumed more aggressive hiring.
Therefore, we expect our Q3 non-GAAP operating loss to be in the range of $7 million to $9 million.
For the full year 2020, we're raising our total revenue guidance from a range of 455 to 465 million to arrange a $465 million to $470 million.
We're also raising our full year non-GAAP operating loss from a range of 18 to 22 million to range of $16 million to $20 million.
Our views on cash flow for the year have not changed and we continue expect a modest level of cash burn that's why it's one.
In closing I would like to emphasize a few points that Scott touched on in his prepared remarks.
Why our business is not immune from the Coven 19 crisis, our Q2 results validate the resiliency of our business model and value proposition.
I believe we are well positioned to take advantage of the large opportunity based on the for macro trends that are driving our business.
Finally after market close today, we announced that I've Valera has commenced a public offering of common stock. Please note that due to requirements of the securities laws.
We will not be able to answer questions regarding our proposal public offering for our July results during the QNX.
At this point, we would like to open up the call for your question.
Thank you as a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
Thank you please limit yourself to one question. Thank you. Your first question comes from Sterling Auty from JP Morgan Your line is open.
Oh, Thanks for taking my questions guys. This is Jackson ader on for Sterling.
Scott if we can certainly you the comment on M&A.
Thank you said it it's been longer than you'd like since your last deal.
What do you think spin the main driver there hasn't been the size and potential transactions hasn't been rice.
Is it fit where.
Execution and organization you know can you just give us a little bit of color as to why that would be.
Rejecting thanks, what I would say is look M&A is in our DNA I mean, it's been around since we started the company. We've done 21 tuck in acquisitions, you know to expand our IP and to expand a content and and all of those things and.
So we're always looking to do to do deals.
And you know we know a lot of the people in the space and so there's lots of Theres discussions you know that go on all the time or around US we brought on a new executive team. We've been focused on really doing things internally getting everybody settled in there in their jobs focused.
Hang on what we you know what we can do you know around efficiency and growth and I think that the deals took a back seat to that organization and as I've said, we're always continually looking to a you know to do at to do acquisitions. So nothing has changed on that front.
Okay.
And then a follow up for you Ross on without.
You know getting into two what happened in July did.
You see in June.
Did you feel like there was any actual demand for good all four or was it all adds up from previous deals that Didnt, maybe in April and made it came in India.
Yep. Thanks, X. I don't I don't think it was pull forward I think it was probably more pent up demand you know as you know March and April were the height of the Covance situation and everyone grappling with how to deal with that and so I think that there was some some pent up demand as as are our business on our customers.
We're trying to figure out how to progress forward and that's starting to fall out.
In May and June and we saw a nice increase in our billings growth rate and end market demand. So I think it was more pent up than any pull forward.
Thanks, guys.
Thank you.
Your next question comes from Pat Walravens from JMP. Your line is open.
Oh, great. Thank you very much and congratulations.
Got my ears Perked up when you were talking about the when that had a cross border element to it and customs duties.
You know long time ago I covered a company that did this and I remember, there's some real opportunities in terms of the ROI.
And people getting their money back from the government. If you track all this stuff right can you just lay out what the opportunity is on the cross border.
Thanks.
Hey, Matt. Thanks, We you know I've said this before I am such a huge proponent of cross border I mean, I mean, I think it mean, it's one of those kinds of things that in there in the world of Commerce, and especially E. Commerce people ought to know boat buyer and seller ought to know exactly.
The cost is at the time of the of the purchase right. I mean, this concept of having it segregated I in the marketplace, where you place in E. Commerce Order. You know then you go to a third than they have to go to a third party and deliberate and when it gets to the to the consumer they have to pay another bill is really absurd I mean in today.
Digital World It should all happened right at the moment of of of clicking the buy and and and acquiring that product and so I've always fundamentally believe that it was this yeah I mean important aspect to add that to two all transactions at the time of of the man.
I think moment of commerce, and so I think as ecommerce goes I think it's just a huge benefit to the ecommerce be the E commerce publishers because they don't have to deal with you know people, saying I don't want the product. They didnt I don't need that product, especially if I have to pay the extra duty in this extra costs ship it back.
Right or take it back I don't want it and so abandonment is a huge issue for ecommerce.
Manufactures and.
We do away with all of that we helped the consumer do the classifications, we helped the the the manufacturer and make sure that all of the rates and everything are right and it's a huge a competitive advantage for us because nobody in the space actually does best other than Avalon.
At the time and and so we think it's a it's a huge advantage for manufacturers and a great benefit to to the customer.
Great and that's just a quick follow ups is that an area, where there's M&A to do like is there more content that you could acquire that that would help or do you have everything you need today.
You know so we started that internally started building. It then announced the acquisition of of trade stream and then we did acquisition of Port way.
Around classification, and making sure that you know all the Hs codes are are a aligned to the product codes in our system and so we've made two acquisitions in that area and we're always looking for more content and more you know a you know more IP that will help improve the service so.
I mean, I think the you know the answer is yes, we're always looking for that.
Great. Thank you.
[music].
I am I don't we asked.
It's up to one question. Thank you. Your next question comes from factory back from Stifel. Your line is open.
Brad Reback your line is open.
Sorry, it was on mute.
Ross as you guys become more of a Multiproduct company much like we were just talking there on on a cross border trade compliance how should we think about that impacting net.
Net revenue expansion rates going forward.
Yeah.
Thanks, Brad.
You know I I think that as you guys know net net retention is based on.
Churn, a one factor, which as we talk on the call has been really healthy it's based on up sell and on our sorta, new booking side up sells really healthy and then and then down so which and in coal, but it's been a little bit higher normally it's a non issue with all that a little bit higher but nothing to be concerned about I think.
As we go forward with these new products and they most of them have just been launched we talked about him a little before analyst day in at Analyst Day in June a as we go forward. Our goal is do you know not only use them to land new customers, but you use them to expand our existing customers and so.
The cross border is a great example, you know going back to companies that are E com companies and by definition or national and International Etailers.
Calling them back and saying How're you doing cross border.
You should add this on and it's built into that connector or going back and saying how you doing consumer use you know we should be going back to our customers. So I think you know overtime, we should we it should be a benefit to two we should be expanding our customer mers more I still say, we've always said that never touched revenue to think about at 110%.
Plus or minus.
And so right now it's been a little bit south of that due to some of the downside from Cowen <unk>.
I expect that will improve overtime and I expect in a long term you know most of what we'll see more out of expansion from our existing customers.
Great. Thanks very much.
Your next question comes from Chris and I went from Goldman Sachs. Your line is open.
Hey, Thanks, very much for taking my question.
You talked in the prepared remarks about a 300000 dollar deal, which was really exciting to here and I imagine this is.
An enterprise customers. So going forward can you talk about any changes we might see to go to market motion to reach more customers like that obviously it sounds like it landed this customer being the go to market motion you have today with with the 750 cross partner integrations, but as you think about.
Further broadening out the product suite in solving more and more problems for large businesses. Just curious how you think about that that go to market motion.
Moving in time as well thank you.
Sure Chris I mean, do you know as well as anybody because we've talked about it which is I mean, avalere has always been selling to enterprise customers, but we've we've always called it we were doing an opt in.
Opportunistically that we that we that we use our existing sales motion to find that the customers that want to move from on Prem to the cloud and that's typically the impetus that we see when when people start to make that make that transition and I don't see that's changing.
For Us I mean, you know we're going to continue to push that that that envelope around being opportunistic, but I've also said that you.
We have not had all the product features in our salespeople bag that they need to sell at that upper level to everybody and we said that by the end of 2020, we would have all of those things there for them and so you know advanced rules, adding.
Consumer use you know, adding the cross border. These are all the things that enterprise customers want to talk about and now you know we have those or will have them in the very short period of time. So I would say that we would be stepping up our approach to you know.
Opportunistic, but I don't think it's going to be a huge change in the way we go to market at least now not not for the foreseeable future.
Thanks Mark.
Thanks.
Your next question comes from Scott Berg from Needham Your line is open.
[noise] Hi, Scott Ross, Thanks for taking my questions today, Congrats on a good quarter I guess to switch gears, a little bit in an area haven't heard you guys chat about recently.
Can you comment on the contributions are momentum that you're having with either the different E. Commerce platform vendors for the market places we've seen some of those vendors report GMP volumes up nearly 100% year over year due to the current pandemic didn't know if your revenues are the opportunities from.
Those partners are kind of in line with that with a substantial growth rates or not.
I'll start out on this one and then I'll turn it over the Rockies, Egypt, all fired up about this top of funnel program.
But so look I mean from E. Commerce ecommerce is been around with travelers since our beginning right in the beginning of Avalere, We did ERP and we really nailed that both and we really got all of the Midmarket ERP you know.
Tied up.
Back in the day, there weren't as many ecommerce platforms, but they all called it a pie so we were selling our SDK.
Plus business around that then ecommerce platforms came out and we started seeing huge uptick in that you know so we do a you know a significant portion of our business you know with E Commerce and marketplaces, you know to today and I guess, what I would say before I turn it over to Ross.
Is that the first thing that you have to do the only thing that really matters is you money. When these partners because I mean, it's the same thing that happened in ERP you must win the stages in the Epicor isn't that net suite to all those [noise].
In order to protect the mode and so the first thing that we have focused on more than anything is winning the shopify winning the wix.
Winning the big Commerce, and winning all of those kinds of deals because that's the first product prospects process.
And in monetizing these relationships Ross I'm going to turn it over to you because I know you look pocket.
Yeah, I mean, Scott, it's a great question and we're really happy if I'm happy with Shopify Big Commerce, and our E. Com platforms are doing great and we've all seen the stats about the acceleration ecommerce and three four months versus you know out 10 years, what the way I would think about it is there a top of funnel for us we love it because they see it right away G.M.B. Mahesh.
Model they gotta moving in Congress shows up right away and if they have like shopify plus they have more customers that roll on our platform as you know shopify pays a fee for each one so we get nice growth from that we really like that but then our game really takes hold you know we then there on our platform calculating we know where they are we.
Can then mark can do them returns and search and consumer use in cross border at all or other products convert them through a direct customer of ours and grow that grow them in the core customers et cetera, and so I would just really think about it as these are our future customers their top of funnel, but for us as we've always said.
No its quarters than years, but they will evolve and we all convert them a and a large them on our on our platform with more products.
Your next question comes from Brian Peterson from Raymond James Your line is something.
Hi, Thanks for taking the questions. Scott you mentioned some commentary on enforcement, but that might be on the horizon. Under 2020 spent an interesting year I'm just curious what you've seen or heard odd that that maybe I guess in the near term that maybe gives you confidence in that and how you think about that unfolding over the next few years. Thank you.
Well I got it.
Anecdotes that I'll, then I will share, but I think that what I always tell everybody here at our company is a reality will impose itself and I mean, the reality of all of the.
The deficit all of the relief programs that states countries. You know our our are coming up with we'll have to be paid back in some way shape or form. So I don't think it's a stretch to say that you know more more enforcement is coming I'd say.
It's just a continuation of the trend that was already there whether it's wayfair its marketplace rules or it you know invoicing in the in the in the in the EU in and around the World mean these are all programs that are designed to ensure that people are.
Paying what they are supposed to be paying and that there are no. There are no free lunches out there and I mean this has played out around the world I'm, even more so than in the U.S.
Where where people are looking for for the companies that are not paying their fair share and doing invoicing that live reporting.
Noted for Scott how are all programs to ensure that the government knows transactions are happening real time and that is going to continue and in earnest you know once this once we what's this pandemic sort of plays itself out a little bit.
Well said that Scott.
Your next question comes from Brent Bracelin from Piper Sandler Your line is open.
I think so it doesn't for us kind of Ross to weigh in here a little surprised to hear the assessed Ti contribution I think it was up over a triple digits a year over year. This quarter I mean were two years.
Off of a Wayfair could you just talk a little bit about the drivers of that was there. Some pent up demand was it just offline to online E. Commerce Tailwinds is there some sort of do state programs promoting SST just any color on.
Two years after Wayfair why assess Ti contribution is triple digits here would be helpful. Thanks.
Well I'll start out that's just P is really disassociated from Wayfair in at least in practice right. There theoretically things that that or do the same things, but SSD was a set up pre wayfair. So it was a program where whereby the state.
I would pay the csps, which would be avalere.
Customers to sign up and end to end to end, the dry and to drive revenue.
So.
But so but wayfair has actually obviously.
But this at the forefront everybody's thinking about it but I have to grip give huge kudos to the two our sales and marketing team you don't have really dialed in the message right. The message or you know you can save money.
In doing your in doing your transaction with Avalere, because the governments are paying for it and so it's a win win for everybody. The state get paid you know the customers get a break on that on the.
On the cost.
And and Avalere you know Ken.
Can benefit as well so I just wonder those things. It's just really worked out well we've dialed in the message we know how to make that that work and customers are taking advantage of it because they see a real real cost effective.
Aspect to the program.
Got it cost the cost benefit seem to be helping there. It's very helpful. Absolutely. Yeah. We're in we're very good at articulating it now.
Yes, Brad the executions really really been grade there were really dialed it up last year and I want to make a point because I'm sure. Some are going to ask about that retention and we called out on the remarks.
As says he is currently not included in that net retention rate that all the revenue from SSD is not included so what's happening is you know the upsell that we're getting to existing is not getting counted.
And sometimes when existing customer adoption SST they may downgrade other services.
To to get into the SST program. So we pick up the downgrades, but we don't pick up the upsells. So it's something we're gonna go look at a in Q3 I take a look at the metric not promising we're going to change it I'm not saying, it's going to be higher or lower I. Just think it's something we're going to look out.
Helpful color. Thank you.
Our next question comes from not Stotler from William Blair. Your line is open.
Everyone. Congrats on the good quarter, this actually check or bearish on for Matt.
But I'm just curious in terms of establishing enterprise focus partnerships.
Which relationships do you think are most crucial to the success in your move up market I know you've kind of talked about the various products.
In Europe, and these cross border transactions, but just curious if you could provide more color on that.
Sure.
We've been doing SPP, and Oracle and and all of the off market.
An exit.
I mean, that's I mean, that's the first and most important aspect of starting to cut to do that.
And and so.
So we need to mean work closer with S&P, we're closer with Oracle you know I mean, I'm on the phone with them.
Constantly trying to promote that promote that aspect, but the area that I think that would really benefit avalere most as we move forward.
Is developing and even better relationships with the with the big for accounting firms I mean, that's not something that would mean, we have a nice relationship with them and it's opportunistic but we need to be you know that go to people that that they're using is there in their pitches to customers.
As we move forward and that's something that we're really we're really keen on on on on focusing on and and I think that that will develop even more overtime.
And I guess I would say one of the most interesting aspects.
So that relationship is the the feature.
Around.
Complex custom rules countless custom rules allows.
Hey, aside from or big for to be able to take content and build it into an S&P Oracle system and that's different than sort of the motion Avalere has always had in the past because we'd provide content all of our customers. So this time.
So you don't have to provide content because they're getting at someplace else is is it something now that you know this new functionality that were relief thing you know second half of this year will allow us to do it will allow us to have a much more meaningful relationship you know with the you know what these with these big ESI firms.
Because they can actually take their content or somebody else is content and put it into you know the bigger implementation.
Sounds good thanks for the color and congrats again on the Grey corridor.
Thanks, Jay I appreciate it.
Your next question comes from David Hynes from Canaccord. Your line is open.
Hey, Thanks, guys. So Scott we heard it at the analyst day, and we heard again in your prepared remarks today.
You know really a renewed focus on kind of ROI, driven selling right, which I guess is.
Maybe a bit of a change from what's been more of the an event driven model and ask it can you just talk a little bit about how you're communicating and delivering that ROI message to the market and it doesn't feel like a real change in a salesman.
Yeah. It does actually I mean, it you know when you're event driven because I think thats, a fantastic way of describing that David.
You are event driven you are talking about Oh, you're upgrading your ERP you know why don't you think about sales tax we know that you know we know that you know that you're not doing sales tax right. So let US help you at this moment of time when you're doing ERP.
It's it's it's as you say event driven you know you've had an off.
Audit event, driven ROI is actually the fast and most meaningful message that we have because when this is really what this is really all about is efficiency it's about.
Doing something you know how debated that you have no business doing in a manual format. I mean look at sales tax free creates not no benefit for the end user for the customer for the customer. It has no benefit only create liability. So when you have the ability to talk that.
Them and that the best time to talk to them is in these uncertain times about their ability to produce results with minimal effort and the into decrease liability and outsource this kind of functionality. It is ABS.
Absolutely the perfect time to do it in it and its way easier to talk about efficiency and outsourcing in the in the in the times like we're seeing right now than it is when the market is just going crazy because nobody wants to face it may face into that and so.
What we have to develop is the muscle memory to do this in the in the in a difficult times and continue that even in the best of times and using the other you know a trigger events when they are appropriate because I mean, everybody is doing all they are having those trigger events as well so it's a combination of both.
Your next question comes from Michael Bird from you do how your line is open.
Hi, there congrats on great quarter, I want to ask on competition, how specifically vertex. They recently went public and I was wondering if you I was he doesn't move up market are seeing them or any other competitors more or less often.
I was wondering when the vertex question would come up today.
I really I seriously I wanted to just wish vertex the very very very best we've known them forever.
You know when we started that our business there that 900 pound gorilla that we were chasing all of the time. The family you know that there's been running that business is that as the dear friend of ours and and it's been it's been fantastic to see what what they've done.
Look at we we have designed by moving up market we do.
You know, we're doing it I, but optimistic I mean opportunistically.
As we as as we move forward because I think that that's the right way to do it I've always said, it's a fools errand to try to run in and and this place Wal Mart.
Pos system and put something else it until they're ready to do it. The key is is to have your product Youre team Youre Your company in a position where when those things happen when those events happen you can be in the conversation you can jump on it and move and move forward.
And we've done that in a variety of ways. I mean were certified in S&P were certified and Oracle. We have we have the basis for do it for doing this mean, we have a team that's experienced in doing it on we have a SaaS model that the leading the leader in doing that we're so.
Strong internationally, we're strong in cross border consumer use mean, we have all of the pieces in place and we have relationships with a lot of these players through you know different means whether it be our exemption certificate business, our fuel business you know our telecom business.
This means we have surrounded you know many of these enterprise customers you know in our in our approach. So you know, we're just going to continue to do what we've done.
And add the features that I've talked about and we will just.
Gradually move up move up market.
Yeah, I mean, the only thing I'd add my hope is I think when we say opportunity that some people here it does.
Different from what we mean and feel like we're half and half out and I I would just say yeah. We are in the enterprise business, we have and enterprise sales team. We have an enterprise marketing team, we went to enterprise deals every quarter.
It's Scott point I'm optimistic is.
It's a displacement market edits and it's it's hard to convince Walmart or pick your take your favorite company Hey, now the time to go change out your systems and reevaluate attack technology, along with it but they all we believe they all will as we've always said at some point, especially as they are trying to deal with coded as they're trying to all the ecommerce are backend system.
Our news and they're going to reevaluate and that will include the tax technology and we just want to be there in all those conversations to have that that because we think with the work we've done over the past few years on the platform. We can now deliver an end to end, Sweden, and we have a lot of great capabilities to two to deliver for what their requirements ourselves.
We expect to be in those conversations everything we can win our fair share.
Your last question comes from Brett Huff from Stephens. Your line is open.
Good evening, Thanks for taking my question and glad to see the value proposition really resonating in the Kobin world.
Question somebody asked about going up market on its called up going down market. One of the questions. We always having great business models like this in the near the Middle market, It's always making sure that were defending our flank on the very low end with good enough products and so I'm thinking I know you guys are going after some of that but how are those conversations changed either directly with some of the folks I think you gave.
An example directly with the Quickbooks customer, but also with the with the distributors you're working through there how is that resonating and are we seeing just the you know what give us some examples of that value prop resonating. Thanks.
You know that that's a I mean a great.
Question, Brett because for me for me personally right I mean, focusing on the up market Weve talk about being opportunistic on the Midmarket is sort of where our bread and butter as we dominate that but have always fearful.
The innovators dilemma I'm always fearful of.
It'll being displaced by something from below and the only way to really protect yourself in this world is through partnerships and it's one of the things that Apple there just Ics it mean exceed the exceed that right. I mean, we're very very good at that that partner model, what I mean by that is is it.
It's it's also a fools errand to try to win the low end of the market on a one off basis. So your relationships with the Shopifys in the Big Commerce is in the West in particular, and you know and and.
All of those kinds of players is what you're barrier is to entry and that's why I've said, it's so important that you when those Ross talked about how we're going to monetize those in the future, but the most important thing is is to protect yourself and the deliver things like you know returns for small businesses returns risk.
Small businesses, which we we I said in my script.
My Analyst day would come out the next couple of weeks I'm proud to say that they got it out a little bit early and it's on the market now, which which allows you know some of these oh.
E commerce and marketplace sellers to be able to sell a returns package along with the calculations that they're already doing so there. So what do you have is you have to win these and venue monetize them with you know with something like returns are exemption certificates or other things that.
Registrations other things that date that they need but the key the key is is to win those deals to grow those deals the zeros in the fresh fresh books and all of those kinds of things. That's how you win the and that's how you defend yourself at the low end to the market.
We have no further questions I'd like to turn the call back over to I believe its co founder and gotten <unk> filing for closing remarks.
Well. Thank you all for your interest in Avalere and we look forward to taking talking to you on our next call Gil Thanks for everybody joining in thanks to the ABL Larry and.
We all appreciate the support thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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