Q3 2020 Avalara Inc Earnings Call
You require any further assistance. Please press star zero I'd I'd like to hear the conflict over to your first speaker today, Jennifer Jandola Vice President Investor Relations. Thank you. Please go ahead, good afternoon, and welcome to Abyla third quarter Twenty-twenty earnings call.
We will be discussing the results announced in our press release issued aftermarket close today.
With me are <unk> got Mcfarland and CFO lost tenenbaum.
Today's call will contain forward looking statements, which are made pursuant to the safe Harbor provisions of the private security is literate station Reform Act of 1995.
Forward looking statements include statements concerning financial and business trends the impact of COVID-19 on our business and global economic conditions are expected feature business and financial performance and financial conditions, and our guidance for the fourth quarter and fiscal year and can be identified by word such as expect anticipate and 10.
<unk> percent year over year.
It's great to see our top line year over year growth accelerate from last quarter.
Im proud to tell you that we hit a major milestone this quarter by reaching a half a billion dollar annual revenue run rate and I'm. So fortunate to be part of a great team that I believe will take us to a $1 billion in revenue and beyond.
I would like to thank all of our employees for their hard work and their commitment to our customers.
I and efficiency.
Since March Avalere has shifted our marketing and sales messaging to promote our compelling and demonstrably ROI.
Which continues to resonate with prospects and customers and has become a great tailwind in a challenging environment.
And lastly, we have highlighted that we expect the regulatory environment will continue to be a tailwind for avalere.
We are very excited about the future opportunities in this market.
Additionally, we completed several competitive takeaways in the enterprise space this quarter as I've said before we continue to expand our capabilities and move up market.
Most companies in this segment have an existing legacy tax solution.
And over time, they experienced trigger events that caused them to reevaluate their compliance programs, we want to be part of the consideration process every time that happens.
And to be there for every at bat.
Here are just a few examples of avalere winning during those at that.
First a modern American fashion brands decided the rip and replace their legacy on Prem solution with Avalere as cloud based platform rather than go through a costly upgrade cycle.
Second.
Traps and ornamental plants upgraded their AMETEK subscriptions and added managed to returns circ capture and SSP.
This is the type of conversion that we are focused on winning as we target and upsells, the shopify plus customer base.
The term strategy is it ambler offers far more prebuilt integrations and the applications companies use to run businesses at any competitive.
At our analysts day in June we reported that we had over 700 prebuilt integrations live on our platform.
If we include all signed agreements even if the integrations are not yet like the total is over 1000 today.
We believe this is a better way to look at it because this is the beginning of a commitment and a long term relationship with these partners.
It's great to know that in a competitive landscape. These companies continue to choose have alero.
And our launch team is fully engaged to get these partnerships up and running.
It seems that we said we were investing and doubling down even when other providers, we're pulling back I.
I am pleased to report that we continue to invest in deliver on T product releases, including the following highlights.
In September we announced the general availability of Adler it turned for small businesses.
Adults from ongoing automation efforts as well as the slower hiring pace than originally expected.
Isn't it.
Or in our pursuit of the enterprise market.
Sizes.
Let me tell you a bit about why this acquisition is so strategic travel era.
And those in construction such as for general contractor and Electricians Cat every elevator you ride or soda drink vending machine required a license large enterprises have to manage hundreds if not thousands of licenses and registrations across our businesses, which is a massive compliance challenge.
That is ripe for automation.
For example, a national home improvement retailer uses BL software and services to manage more than 8000 licenses feel has nearly 200 enterprise customers with a significant number of those customers in the fortune 1000 that uses it solutions to manage compliance.
Every year as excited to join forces would be able to extend our compliance capabilities as part of our burgeoning enterprise product portfolio.
Well Bill has enjoyed success in the enterprise an emerging small business segments. The company spent little time, focusing on the mid market segment.
Area, where avalere is strongest we see this as an opportunity to cross sell their solutions through our salesforce and to our existing customers.
On the partner side BL brings us new relationships with partners such as a leading legal technology company that services the emerging small business segment.
As we had beals products to our platforms.
Okay complexity that we believe will continue to drive our growth for many years, our business has been strong and stable and good and and challenging time. We are pleased that we were able to achieve Q3 billings and revenue growth in the 30% range.
These results were stronger than expected as we were able to close pent up demand that has lingered since it started the pandemic. We expect this paced the moderate in queue for in 2021.
We produce positive free cash flow and non-GAAP operating income during these challenging time.
And believe this shows that we can produce these results when appropriate.
We are a leader in a very large global market that we believe remain single digit penetrated.
As such we intend to invest aggressively to capitalize on the opportunities that we believe will allow us to continue building a sustainable business that compounds revenue at high rates of growth for the long term.
For the third quarter total revenue was 127.9 million up 30% year over year the.
Subscription and returns revenue grew 30% year over year, two 119.2 million, which represent a 93% of our total revenue.
We continue to be pleased with our subscription revenue growth rate given the COVID-19 pandemic.
And given the very strong year over year subscription revenue growth, we saw in Q3 19 professor.
Professional services revenue was 8.7 million up 33% year over year.
Our core customer account increased by 620 from the previous quarter to approximately 14180 at the end of Q3 2020, a year over year increase of 24%.
As a reminder, core customers as a lagging indicator Bravo Ara and we expected the increase to be moderate in Q3 as a result of earlier your impacts from COVID-19.
Despite the current macro environment compliance requirements for me.
Our customers must still calculate taxes and file returned and our business model and customer base. So far has shown stability and resiliency.
Our gross revenue turned continues to remain at levels that are meaningfully lower than 4%.
We define gross revenue turn of the annual revenue contribution associated with billing account that cancel all of their agreements with us <unk>.
Divided by the total annual revenue recognized during a measurement period.
As a reminder, our gross revenue turn does not include downgrade.
Our net revenue retention rate was 108% up from 107% last quarter, and resulting in a 108% for quarter average or net revenue retention rate is calculated using total revenue, which is subject to the impact of non-recurring professional services and.
In addition, the calculation currently excludes or streamline sales tax or S. S. T business, which has been growing significantly in 2020.
Year to date or revenue from the S. S. T program has grown year over year by more than 100 per cent. We're excited to tell you. The S. S. T governing board recently renewed the S. S. T program for another three year term covering January 1st 2021 to December 31st 2023.
That's S. T remains an important and differentiating program probably era, the changes to price and we're expected we anticipate the S. S. T program to grow in 2021, despite the reduced pricing as we continue to add new S. S T customers from our existing backlog and new sales in 2021.
And discussing the remainder of the income statements. Please note that unless otherwise stated all references to our expenses operating results and per share results.
Or on a non-GAAP basis and are reconciled to our GAAP results and the earnings press release that was issued just before this call.
Gross profit was 95.5 million in Q3, representing a 75% gross margin this.
This compares with gross profit of $78 million and 72% gross margin the same period last year.
We remained pleased with the gross margin improvement, we've been able to show with 75%, representing our highest gross margin right and 11 quarters.
And cute three we hired more slowly and unexpected and continue to realize early returns from some of our automation initiatives.
Going forward, we intend to increase our investments and caused the revenue and expect to return to more measured improvements from current levels.
Sales and marketing expense was $45.5 million in Q3, or 36% of total revenue and improvement of 360 basis points year over year.
Sales and marketing expense remained lower than normal due to reduce travel and sales related events.
We are seeing a healthy demand environment in queue for we plan to invest more aggressively in sales and marketing capacity.
Q3 research and development expense was $28.8 million or 23% of revenue up from 20% of revenue in Q3 19. This.
This increase was consistent with our expectations as we continued to invest in our global cloud platform, including a new products content and features to drive longterm sales growth and cost efficiency.
Two three general and administrative expense was $19.6 million or 15% of revenue versus 16% of revenue in Q3 19.
Q3, G&A expense included approximately 2 million for third party legal and professional fees and support of our recent M&A activity.
Two three non-GAAP operating income was 1.7 million, which was once again better than our guidance as a result of a stronger than expected revenue and gross margin flower hiring and reduce traveling and event expensive.
Non-GAAP diluted net income per share was two cents in the quarter based on 86.7 million diluted chairs outstanding.
We estimate business licenses would produce approximately 10 million and 2020, GAAP revenue and be breakeven non-GAAP operating income on a standalone full year base.
These figures exclude any impact of deferred revenue write downs and additional investments we intend to make in the business.
For Q4, 2020, we expect total revenue to be in the range of $132 million to $134 million.
This range includes $3 million in Q4 revenue from the October 5th acquisition of TTR and November 5th acquisition of business licenses. This.
This number includes our best estimate for deferred revenue write downs, which we expect to be meaningful in Q4.
Moving to non-GAAP operating loss, we delayed non essential operating expenses in the early stages of the COVID-19 pandemic, but.
But due to a healthy demand environment, we have resumed more aggressive spending.
We expect our Q4 non-GAAP operating loss to be in the range of $4 million to $6 million as.
As implied by our Q4 guidance, we are raising our full year 2020 revenue guidance from a range of $465 million to $470 million to a range of 488 to 490 million.
As implied by our Q4 guidance, we are improving our full year 2020, non-GAAP operating loss guidance from a range of $16 million to $20 million to a loss range of seven to 9 million.
We are in the early stages of our 2021 budget process and plan to provide detailed guidance on our fourth quarter conference call that said I would like to share some early thoughts on 2021.
Our thesis and vision have not changed we are addressing a large low penetrated market opportunity and believe that idle era is well positioned to deliver durable long term top line growth of 20% to 25% as we continue to pursue building a global multi product multi billion dollar business.
On top of this we expect the acquisitions of TTR and business licenses to add approximately $30 million in 2021 revenue.
This number reflects our early thinking and includes preliminary expectations for deferred revenue write down.
We may refine this number on our fourth quarter conference call.
Efficient growth is important to us in 2020, we have demonstrated our ability to produce positive free cash flow and non-GAAP operating income. However, we believe the momentum in our business compelling customer economics and unique position a large market all support more aggressive investment in 2021, our early 2021 investment plan.
Plans, resulting in a non-GAAP operating loss margin in the low to mid single digit range and a modest level of free cash flow burn in 2021.
This includes additional investments to support our recent acquisitions and enhance our corporate development and integration team.
Thank you for participating todays call at this point, we would like to open up the call for your question.
Thank you if you'd like to ask a question. Please press star followed by the number one on your telephone keypad, Yes that you. Please limit yourself to one question and one follow up question. Thank you. Your first question comes from Chris Merwin Merlin from Goldman Sachs. Please go ahead. Your line is open.
Okay. Thanks, so much for taking my question and congrats on another great quarter, obviously, a lot going on this quarter a lot of good glad to get things I wanted to ask about shop.
Shopify actually so you talked about converting to shopify plus customer to a direct customer and when we think about that channel. Obviously theres a lot of businesses. There. So can you talk a bit more about the opportunity to create more direct relationships with some of the E commerce customers, particularly the larger ones and how that could give you more direct exposure through upselling and obviously.
To be able to cross sell as well, but more exposure through upsell to the structural growth in that vertical. Thank you.
Sure Chris. Thanks, Thanks, I'll start and then Roskind Ross can jump in.
Avalere included at these.
At these low end.
Not low end, but at the at these ecommerce.
Platforms and now we're just seeing how we can continue please push and monetize that that channel even more.
Okay, great. Thank you and maybe just a quick follow up on on TTR I know, it's still really early here, but from a pipeline perspective that.
That started to open up some opportunities in verticals, maybe where you havent had as big a footprint and the past and any commentary on the progress with the integration today. Thanks.
Oh, yes, yes, Chris.
For TTR, it's I mean, you know I'm really excited about that because any time that we have additional content. It opens the door for for other for for more business right. I mean, it's one of the levers that you have you can add more as we as I talked about in my.
Opening remarks.
You.
We can add more partners.
And that's a way to increase the market you can add content and every time you add content you are adding more customers too.
Your salesforce is ability to to do deal and and TTR has a really robust.
Set of sets of content, that's different than ours in many years in many areas and we're at able to add that now is going to take us a while to do that and I think I've said this before.
Before I mean, we bought content from TTR, we brought it into our into our platform before so we're familiar with doing that and we think that we can do that over the next year to 18 months and so each and every quarter, we'll be adding.
More more more current not more content so.
Sit for the sales teams.
Bag of tricks.
Chris I would add is Ross it's encouraging.
The integrations they take time as you know and their long term integration, but I would say, it's encouraging even in the early days as we one of the first things. We did was compared pipelines looked at deals there and looked at deals where and where those complement to charities and I've been involved in are aware of you know a few situations already were.
You know we are helping each other out.
Where there is opportunities that we can help each other out so I've been impressed with the with the early developments around.
The sales pipeline and the go to market.
Synergies, we can get from the deal.
Your next question comes from Sterling Auty from JP Morgan. Please go ahead. Your line is open.
Hi, This is just a little less on Sterling.
So can you give us more color on the demand then pick up this solution some international markets.
Ross why don't you know why don't you jump in on on just.
From a numbers perspective in a thought process and then I'll give you my follow.
Paul follow on color.
Yes, so international.
We're running the play book.
We've talked about earlier in the year in the first half with co bid.
International what was hit was hit pretty hard and you know, it's really come back in a nice way in Q3. So early on you.
We saw some softness there I think we've we've.
We've done well around it in Q3, we've got a strong team.
Great Great leadership bench, there and I think the good news in the EU is we've got good tailwinds at our back we've got we've got regulatory Tailwinds that we've highlighted weve.
We've got the product mix that we need.
We've got the sales team and marketing team in place so.
So thats an area where in the E. U we have what we need and we have high expectations and I think we're beyond some of the the challenges we have had with covance. So so we're optimistic there.
And then Scott can talk more about it but but we just launched a new product in India.
And so we're really moving in India from what's been what's been a an engineering center and a cost center to trying to promote.
Revenue Center there. So we've got some early customers new product launch in India, Scott can probably talk a little more about that one.
So I'm really I'm really impressed with the with the team and in their resiliency as Ross who is talking about and we've said this before I think we said it on the last earnings call, where we where.
The E U is our most mature market from a international perspective me. It's really it's one we've had the longest we feel really comfortable.
Our product offering gets better all the time, but the sales the sales team is really doing well, we talked about our leader shipped position with our with our with our trade with arch. Our show there that we got 3000 people to come in and listened and listened about.
All that's going on international, but what I'm really impressed with that is that the majority I mean, the vast majority of those were not avalere customers they were prospects.
So I mean, I think we're doing we're doing really well from that from that from that perspective, and then Latin America. We in Brazil. In particular is a you know is a good market for US a lot of you know.
Businesses have you I mean, you know us the most difficult tax regime and a lot of business have you know a lot of difficulty so were really helping our international customers out in that area. India is the is the least developed and as Rob said, it's just a brand new area, but but it really simplifies a what's happening internationally.
Finally mean, India changed its tax regime, when it changed the GST and created this immense opportunity that are.
Our teams in Avalere.
Built a product got it out and we're in the marketing we're starting to sell so.
What I like about international it goes across the whole the whole gamut from more mature to really emerging and then obviously international will expand beyond just those just those three markets saw as we move into future.
Future quarters.
Okay. So just a follow up on the business that acquisition, so how does that impact.
Employee count and lot of what we've been revenue.
Yes.
Yes, we have.
Right around I think 3000 employees and this was and this is an additional 100 as I said in my read remarks, so its a.
It's a it's a smaller number of people and and I'm hearing you hear all in the United States. So, it's just sort of business as usual from our from our perspective.
Yeah and on the revenue side.
Just that on the revenue side, we said in the prepared remarks, but think about TTR.
Four and we were one of the three original companies to get approved for that and I think it gradually one of those things that made Adler what it is today because we we distinguish the ourselves from everybody else and when we were doing O. M deals you couldn't that that it was not going to be this really you know power.
Full force now it turned out not to be that big of a deal in the very beginning either way fair.
Be it just blossomed again, because now all of these are all of these businesses I mean at me all these states at a program where they were paying for the customers to do transactions, they're paying us a percentage for the transactions. They are doing so it's a win win <unk>.
Everybody the states get collects the the the the revenue we get paid by the state and the transactions are free to the businesses.
Mean, that's a tremendous tailwind you know for us and so you know we've you know just really develop that that that that you know S. S. T program into something I think it's it's a meaningful competitive advantage for us and it it really helps to cut it helps the customer but for the most part.
It's not something that they grow into in your specific question I mean, if they grow as their transactions grow what the minute that they do it all of their transactions are free to them. So there and send it to do whatever they need to do there and we get a percentage of the tax collected from the space So right off the.
Bath the minute they start doing it. It's it's it's it's it's meaningful to to Adler and the customer.
That's great.
Scott and then one more if I may Ross you mentioned, you know some pent up demand that kinda you caught up.
Caught up in in Q3, yet you know some of the trends you've mentioned earlier in the call that are driving this.
Celebration ecommerce cloud Omnichannel these are very compelling.
You know tailwind that you would think are are ongoing it just trying to parse out you know how much of your your success you saw in Q3 came from some of that pent up demand when the underlying trends in the business. You know some of these these drivers of growth seemed to be you know very compelling if not accelerating.
Yeah, I mean like the security question the underlying drivers that we talk about.
E Commerce cloud Roy we've always said and we still believe these are long term sustainable drivers until wins for our business and you know to me they sustain an aura with covid or without Goin'. So I think we've shown that that that this business is strong and and good and challenging times I wouldn't over into.
It's on the pent up demand point, Brad I think when you think about you know billings as a proxy for that and market demand.
He said we were happy that we accelerated from 22% growth last quarter to 31% this quarter and commented that the first half of the quarter was higher than that on the growth rate and the second half was was lower than that and so the point is there's a little bit of lumpiness than than than usual because I think there's some lingering D.
<unk> and the pipeline that you know what it closed earlier in the year.
But because of Covid people have delayed so that's really the point and as we think about modeling forward. We think about what we saw on the back half of the quarter as as as the buildings growth rate that we're thinking about modeling for.
Your next question comes from Patois Ravens G. M. P. Please go ahead your line is open.
Hey, guys isn't getting ready to take on for Pat. Thank you for the question Scott.
Scott I was hoping you could talk about a T R and why is that so important for enterprise businesses.
Thank you.
Sure.
So it.
Indiana in our standard business in in the standard mid market.
Business. They are concerned about getting sales tax write they're concerned about but but it's not something they wanted to spend a lot of time on.
And they just wanted done for them.
As you move upstream all of these the larger businesses all have big tax department and they and they all have their own research teams and they all have their own ways of thinking about how they want to classify their products how they wanted tax they make you know.
They they they do custom rules and that's what the advanced rules does it allows them the flexibility to create the taxing environment in our software that day.
Fits them and their needs as they see it.
So we've been focused on making it simple and easy for businesses that don't have that kind of you know.
Technical.
And and.
Tax expertise in their business.
This allows you know the the most advanced you know people in tax to do what and when they want to do and so it's just one of those things that that you know if you're going to be in the enterprise space and I've said this all the way along the line you need that functionality for many of those customers and it just wasn't something.
Thing that we had on our on our radar screen for a <unk> you know a number of years, we were opportunistic we got deals that it didn't require that but but there are a lot out there that do and it was just time for us to step up get that done add that to things like cross border add that to exemption.
Certificate management, and then consumer use those those things together main <unk> create a a really strong enterprise offerings.
Mhm Super helpful. Thanks, guys.
Thanks.
Your next question comes from Bradbury back from Sniffle. Please go ahead. Your line is open.
Great. Thanks, very much Ross back on your commentary around the second half of the quarter slowing from the first half of the quarter.
Without getting too granular here, but can you give us a sense of November.
On October I should say, we saw affirming of the demand pipeline.
No I'm I'm not going to you know we never comment on the you know the current quarter, Brad How may look overall Q3 strong quarter. You saw results billings accelerated from 20 to 31 revenue accelerating 30 gross margin, 75% positive offering free cash flow positive.
Operating income so you know.
Businesses working it's working in the enterprise is we're going to be a market working ESB, it's working internationally.
Uhm, we're benefiting from E commerce were benefited from cloud repenting for tomorrow.
So we feel really good about the business and things are working.
I'm just you know I've been giving you guys color we stood in there and guided from the beginning we gave monthly color. So we can be transparent so.
So I just wanted to give you a little color you know June Juliet strong bookings and and I think July 1st half a Q3 benefited on the billing number in the back half was also a strong Ah billings, but but it was just it was just it was lower so so not nothing to worry about Brian Uhm I'm, just trying to just trying to give you a.
Little extra color.
Perfect. Thanks very much.
Your next question comes from C. T plenty cohee for me to have please go ahead you line is open.
A thanks for taking my question I just wanted to ask you about your succes going down market.
You you guys introduce couple of products.
For a small business and again, so I'll send us tax and then we saw market <unk> first movie theater laws Dark was enactors now some of this market because they're doing sales calculation, sending grandfather to you. So I'm wondering like what sort of sucks to see I've seen you know on the such as in Q T and how big is that all parties.
<unk> going down market.
Sure.
Look.
We we really believe in we've said this all the way along the lines as we talk about it the biggest market.
In this space is the mid market.
It's where the biggest that's where the biggest tan is and.
And that's where that's where we started but having said that.
We wanted to move downstream too.
Capture the businesses as they start to grow because nobody starts out as a business, it's an enterprise company or even a mid market basically start out at the lower end and that is a play that has to be done through partnerships.
And as I as.
I've always said or at least our playbook in our strategy is is that you must win that mid market and once you win that mid market. You then get the the street Cred, if you will to be able to move down stream and to be able to do those large partnership deal you cannot go after the low end of the market.
Without winning the large partnerships.
And and so and then we sat down that I'm not I think on the first question. Once you win those large partnership then for the rest of you know attorney you are working there too.
Monetize that business and if you can do that and when you do that means that there is a you know a substantial you know a substantial tam and a substantial market to to to have their but it just takes a little bit longer to develop than it does at the at the at the at the mid market and even if.
The enterprise at even at the enterprise space because you know you you you.
You have to work through those partners over a period of time to you know to monetise it with products other than packed calculation. So it's I think it can be a a fantastic market for us. It just is going to take time to evolve and monetise as as.
Uhm.
As as we as we pushed through that that that that market.
That's a great [laughter].
The key to it though is is you must win those deals I mean every one of those deals are competitive and you must be the one that people.
Shoot so you have to have a good cat tax calculation you have to be able to do registrations.
You have to be able to do returns you have to be able to onboard those customers. So it's it's it's one of the things that plays really strongly that to Abu whereas sort of competitive mode. If you will.
Alright, that's a good color start so well I never had never question about state enforcement, we saw almost lost here almost all stance started him acting this economic next US laws. Then this year, we are seeing most of the sense now struggling in terms of revenue what could they do.
Have you studied C states enforcing this kind of love.
So so I mean, that's a that's a great. That's a great question because I mean, the states are really in a tough spot if you stop and think about it because you know one they they.
Obviously, they need revenue, but the the minute Covid came out everybody started to say how can we help small businesses. How can we help businesses and the first thing that everybody did was say okay. We're not gonna we're going to give you a hall pass on you know.
When and how you pay sales tax and it just further really pushes them down now without stimulus packages and things like that businesses and and and are still struggling. So I think states are reluctant to really jump in and be you know the import the enforcement arm right now, but having said.
Said that the states are are are are developing digital ways.
See what businesses are doing so so what what are you know who who was selling in their states who's not registered with their states because that's a key thing registrations. That's how they know they're matching registration's with a market with with marketplaces I mean information is starting to.
To be developed for them and businesses are starting to be able to provide that kind of matching to to the state and they will start taking that and and and and and enforcing it in the <unk> in the future and there's all sorts of different things that they're that they're that they're looking to do but.
In the end that's what the the bottom line is how do we get visibility into who's doing business in our state and and matching at the registration.
Your next question comes from David Heins from can't Accord. Please go ahead you line is open.
Hey, guys. This is look on for D. J.
So you've said in the past that I think E commerce stripes around half as customer transaction volume a are are related to e-commerce customers is granted at around a 50% kinker over the last three years. Historically, so you know just thinking about it.
You've provided some color here already but I was just wondering if you could.
Just expand on on how you're thinking about the.
The recent acceleration an E commerce adoption impacting demand for your products that going forward. Thanks.
Ross you wanted to do you want to jump in on that on that one out but we can talk about your co beta status and things like that so.
Yeah D. J look it's or look like him to call.
We're definitely better benefiting from ecommerce we've got a lot of customers that are either full ecommerce businesses or hybrid you know it's hard to think about a customer anymore. That's just the point of sale retail store business. You know everybody is getting into E commerce, and we stand to benefit from that.
And when do you think about about the pipeline that we've caught out in the past you know there there's over 1 million E commerce users on the shop, a five and the big Commerce's and and and all of those and we're or getting them.
Cause of our relationships with those platforms than were built in when shopify add the user to shop, if I plus you know they they they.
They come on our platform and then and then we do the calculation for them and so the so the name of the game is Sky was talking about before is to continue to deepen the partnership with these customers and to get more and more of their customers calculate our platform and then we know who they are and then our job.
Is to target them and sell them on other solutions that we have and now we have many solutions for tax compliance that we can sell and so every quarter. We're focused on upselling. These customers converting them to Avalon direct customers and monetizing more fully and so that that that's that's really that's real.
How how it's working quarter and quarter out for us.
Let me, let me see if I can't I mean, I missed a great question and and I'm glad you asked that because I think this <unk> this will help.
Understand help everybody understand why Adler is a special special company in this case.
First off when when we in a little color around monetization, what does that mean, okay, where where where you are in the lower end of the markets. The witches Big you know big Commerce isn't and Shopify a lot a lot of customers down there. The key is is that you're doing calculations for their E commerce business.
But people don't file out of their E commerce solution, they file out of their ER they file out of their ERP.
And what's interesting about that so the minute we get the big Commerce customer you then want to.
Go get their ERP AB Alero with 1000 partnerships is in the best position to be able to aggregate all of their transaction because that's what this is about aggregating transactions because not everybody's doing everything on on just on on Shopify, They may be doing it on.
And many different types of platforms you pull all of your transactions together and then you file and the ability to actually do that.
Is it is just how you monetise you know the.
E Commerce relationship and yes. The E commerce market is doing really really well, but as I was saying, where where a low beta right I mean customers by huge transactions for us and so for being with us and bands and it doesn't go up oftentimes as as much as you might think but.
It does not as we've proven through this covid does not go down as well. So yes, it's a it's a tremendous market for us, it's very very steady and the minute. We get it we have this ability to to upsell monetize and and to get their the rest of their business.
I hope that helps.
Yeah that helps a lot. Thanks, a lot guys I appreciate it.
Your next question comes from Alex Sklar from Raymond James. Please go ahead you line is open.
Great. Thank you Scott <unk>, you've got a lot of new products and upgraded features and functionality that if it this year and that are coming up in the medium term roadmap, but but T. T R and the B L. N B L acquisition, both seem like they're they're solutions that your salesforce can actually lead wood.
Curious how much that was factored into the acquisitions and would your existing product portfolio any other products that you've had success in terms of landing new logos outside of calculations. Thanks.
So it may have to <unk> <unk>, it's a really good question and a good observation I mean, what we're always looking for I mean, I talk about the four horsemen of sales tax or five if you include fast right you've got you've got the sales tax you've got consumer use.
You've got exemption certificates and returns every business in the United States has one of one or all of those as a problem. So our sale. So what we're trying to do is provide entry places for our sales teams to to talk to customers. If you if you don't <unk>.
LS tax highly likely that you're doing consumer use for your doing exemption, you know and and and everybody's doing returns. So you have an avenue to talk to them now.
I've always I love as I said in before I Love the T. T T R. Because some businesses start with you because they just want to buy a subscription for their for their for their for their tax expert, but once you have you know once you're engaged with them. They understand your you know all.
Of your tax rules, and you're helping them with audits and all the other things that they're doing then then it's a nice upsell too calculation and returns and the and the light and the same thing with business licenses look at it. This is that it's a great.
Position to be in one small businesses have to come to you. So register because the minute. They register you then have a chance to talk to them about returns are about calculations or about other licenses and in the end you're always trying to add more products to them because it makes it a stickier sale and.
And.
You you you just get advantages that way so yeah. It's it's it's it's a strategy that we've you know we've employed and we're going to continue to and we're going to continue to do that.
Okay, Great and then just one follow up for you Scott just in terms of the B L acquisition, you you already had a licensing and registration product. This obviously some expand this as it expands on that was there something that your customers were already asking you to go to I know I know you have a broader kind of vision to be part of.
<unk> of global compliance. So I'm just curious if this is an area that you've been asked to go and if there's any other ancillary kind of compliance here is that had been pinpoints that you've been asked to go by your customers. Thanks.
You know.
Well I really like this one I I I mean, I I mean, I've known David and Alex throw up for for a for a long time I've known him for a long time. They were in this business and they actually came up with the first.
The sales tax file that would be sold to.
Businesses and they ended up selling their business and then starting this because it was a duck.
A niche in the market that they saw that there was a lot of demand and so I've watched them and talk to them about what they've done for many many years I've seen.
You know how their how their business has grown how they can take that content sell it just like we do and and I've known all the way along the line that we could take their services and sell that to our customers because there's a need for businesses to do that so we don't leave.
Lead with it you know I don't get at a trade show Nobody comes up to me and says Hey, do do licenses, but we've watched what they've done and watched what they've developed and and had that partnership with them selling you know business licenses registrations and we knew that we could add that to the.
The bag and sell it down through our channel. So it is a little bit of a of a divergence for us. It's a lot like a cross border you asked do have other examples cross border would be just just that same way mean.
Cross border doing duties and customs is something that should happen at the time of of check out it just should.
That's where it makes the most sense now every once in a while a customer will say that but when when you develop and put it in there. It's like Oh My gosh, that's exactly what I need that's exactly where it should be so yes, you're talking to customers, yes, you're getting an idea but in the end you mean, sometimes we can see that even in advance of.
Of where the customers are and and and really help and really help them out.
Your next question comes from Frank Bracelet from Piper Sandler. Please go ahead. Your line is open.
Thank you.
Scott Uhm.
Now had it looks like what 30 days since announcing T. T. R. A large enterprise or partner feedback that surprised you so far.
Well you know I I I think I said this when we were you know we did our conference call into like which is shocked me to no end was how much the T T. Our customers Love I mean love them I mean with a 76 I think that's what it was a 76.
N T S.
Score and then all of our due diligence and follow up with their what their customers. It was amazing how you know how much they're trusted and and like five by their customers. What what I've also seen you know because Shawn is shared many many of the must have.
The feedback to me.
What's our customers is is it that they appreciated the sale to <unk>.
So that's I mean, that's what was also interesting that they would reach out.
Hey, you know glad you're glad you. So if you you know if your trusted how are we just to have a <unk> I mean, just the feedback that were getting with with with me was amazing and it and it really validated why I think it was a great acquisition for it.
Great and then I guess Ross Uhm.
I appreciate the the tempered enthusiasm here I think billing room smiling out there somewhere but I'm gonna push it back a little bit.
Uhm subscription revenue I think it was at 10% sequentially. That's the the highest sequential rebound uhm.
Any quarter of COVID-19, and 2020, so far highest two three sequential increase I think at four years appreciate kind of the pent up demand.
You know, having some contribution but it does feel like there is something kind of different happening here you got a lot of new products moving upmarket moving down market. The econ tailwind. It just feels like there's a lot of momentum and the strength feels like it's broad based in so.
Just trying to understand as you think about the components of what drove you.
<unk> highest sequential increase in subscription revenue it'll in quite some time, how much of that.
Is sustainable is durable and is tied to a lot of the trends you guys have been working on for the last couple of years.
Yeah.
What was your question I mean look I think as I said earlier.
It was a good quarter across the board everything's working across the different customer segments Geography's, the new products and acquisition, that's pretty new So you know I'm not gonna say that we had we have some early successes on some of those cross borders working we're seeing some nice results out of consumer use.
So where do you are seeing some results from these products, but these are these are longterm things and these are long term trends.
We had you know a few million more than we expected this quarter, you know and and that's why I called out I think that there was some you know some some extra some extra demand. It's been that's been in the pipeline that didn't come in in queue to because of Covid that came through.
And so I think there's a little extra then that that delivered more of a higher resolve this year or this quarter than it has in past years. So like overall all overall brown business is working well, we're proceeding with cautious optimism. We're pleased with the results and we you know we want to be cautious going for it we're still.
Sitting here in a pandemic my kids are still we're still doing school from home. We don't know when I was just gonna N S.
And you know, we're happy with the business, but we want to be cautious moving forward.
Totally makes sense I appreciate that thanks, guys.
Yeah last question comes from that Stotler. Some William Blair. Please go ahead. Your line is open.
Hey, guys. Thanks for taking my questions can be pretty priest in order.
It's been a long one call. So just in terms of enterprise functionality. Obviously, you guys have been adding a lot of key pieces. This year. So I'm use tax integrated cross border custom loss of two T. R a condition et cetera.
And then your commentary that this kind of reached a stage, where you see yourselves as you know kind of on on par from a fundamentally perspective with some of the enterprise competitors out there I would love to just get some color.
In terms of I guess, what the enterprise or sorry engineering focuses from here in terms of kind of.
Outside of just continuing to out of the constant database. What are you focusing on in terms of Romanian crucial pieces of functionality going forwards or should we now expect to see more of a shift towards adjacent market opportunities, which we I was just kind of flavor for with would be all.
It's a it's a it's a great mass great question. Thanks, what I think what you're gonna continue to see us US do is is really focus on usability, making everything that we do you know completely simple integrating all of these products into one.
<unk> and the and the one you ex experience and we'll just continue to build out all of our you know all of our areas right. I mean, there's a lot more that we can do in cross border. There's there's considerably more that we can do.
In and driving you know some of the the vertical that we were talking about <unk> fuel hospitality working on partnerships.
One of the things I said in our in my my prepared remarks is you know will continue to push you know returned for small businesses and physical representation. So I I would say that what we would do is is that we're in the you know the V. One V. Two development of all of these things and.
And it's gonna get better and better all the way down that you know down the line and then as you said I think we've signal that you know that we want to be it'll global cloud compliance platform and so you know you'll see lots of things happening you know as we pull all of these things that we've got.
<unk> together and and you know we you know explore how we can.
Grow our our international presence.
And that's the only thing I would add is.
As you know on the story, we've been opportunistic and wait enterprise and so it's moving from being there when customers want to displace or want to adopt and have being in that fight and winning you know a good fair share ideals to taking all the pieces you mentioned them all consumer.
Here's cross border a T. R. G T R business licenses everything that we have and really making it an enterprise suite like a is an integrated enterprise sweetest got called out and shifting to go to market to really you know like like really focused on on on on marketing that actively to the enterprise.
Rise customers out there so that we're increasing our our game up there from from being what we'd call. It opportunistic do something you know more forward leaning than that so so that that's all coming together now between the go to market and all of these great products that we have.
Got it Super helpful. And then just one one more follow up on the enterprise.
One thing that enterprise customers plays a lot of value on is obviously this was white glove support you're looking for technology providers would be more partners and vendors. So as you move a market you'll just thoughts on you know how you expect to build out those capabilities is that something that you expect to do internally or what is your strategy more <unk>.
Partners or what are you gonna do to try and provide this kind of deep level of service in that segment of the market.
Oh, great great Great observation, you know one of the things that we've done it in in building Apple Arab part of our playbook of what you've been entering markets like some of the strategic initiative markets like we've done with fuel telco hospitality all of those have come up.
With you know a large enterprise focus you know I mean, we do nine and 10 super fuel companies and <unk> and exercise but.
And so we've been learning the white glove process. I mean, you know where we were amid monk a mid market company. When we started we've been buying these businesses learning at T. T. R was a significant step forward in in building the muscle around you know white gloved little White Glove service, so it's something that.
We're gonna have to you know build and invest in you know in the coming in the coming year. We're gonna continue to you know where we're gonna continue to to to drive to do that because you have to do that as you say now the one interesting thing that you've talked about which is are you gonna do that internally or are you gonna do that through partners hebeler as a partner sense.
<unk> company. So the very first thing that we think about is how can we you know you utilize that you know the big four how can we use system integrators, how can we develop that that that relationships, which is which is something that's new and different <unk> you know for Apple error at that high end of the of the of the of the.
The market and we're gonna continue to push and develop that muscle.
And you know it's it's some of the lower ends of the the the the the market there will be doing a lot of that you know professional services ourselves.
But whenever we can use a partner that's our first choice.
We have no further questions I would now like to turn the call over to Scott Mcfarland co founder and CEO for closing remarks.
I'd like to thank everyone for joining US today, you know would continue to focus on bolstering gamblers leadership position driving growth in achieving our vision to become the global cloud compliant platform for every transaction in the world.
I just have to everybody that you know please stay how can it is safe and healthy and we look forward to next quarter's call. Thanks, everybody really appreciate it.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.
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