Q4 2020 Avalara Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Apple and there is fourth quarter and fiscal year, 'twenty and 'twenty earnings Conference call.
At this time all participants are no listen on me now after the speaker's presentation and there'll be a question and answer session.
Ask the questions on this session and I need to press star one on your telephone.
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I would now like to hand, the conference over to your Speaker today, Jennifer Ginola Vice President Investor Relations. Thank you. Please go ahead.
Good afternoon, and welcome to Apple there is fourth quarter and fiscal year, 'twenty and 'twenty earnings call. We will be discussing the results announced in our press release issued after market close today.
With me are Apple, our CEO, Scott Mcfarlane, and CFO Ross Tennenbaum.
Today's call will contain forward looking statements, which are made pursuant to the safe Harbor provisions on the private Securities Litigation Reform Act of 1995.
Forward looking statements include statements concerning financial and business trends.
The impacts of COVID-19 on our business and global economic conditions, our expectations related to our acquisitions, our expected future business and financial performance and financial condition and our guidance for the first quarter and fiscal year 'twenty 'twenty one and.
Can be identified by words, such as expect and.
Anticipate 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 that could cause actual results to differ materially from expectations.
For a discussion of the material risks and other important factors that could affect our actual results. Please refer to the risks discussed in today's press release, our annual report on form 10-K filed with the Securities and Exchange Commission on February 28th 'twenty, and 'twenty and our other periodic filings with the SEC.
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 happened filed with the SEC and is also available on our website at Investor Day, Apple our dotcom with.
With that let me turn the call over to Scott.
Thanks, Jennifer and welcome to everyone, joining our Q4 2020 earnings call.
I'd like to congratulate the entire Avalere a team for an outstanding performance in the fourth quarter and fiscal year 2020.
We beat our outlook from the beginning of the year, Despite COVID-19 challenges.
We ended the year, achieving half a billion dollars and revenue and increase of 31% year over year with a narrower than expected non-GAAP operating loss of $3 million.
We also reported record annual free cash flow of $34 million and increased our non-GAAP gross margin for 74%.
And Q4, we reported total revenue of $145 million representing.
And an increase of 35% year over year.
We also reported Q4 calculated billings growth of 38% year over year on.
35% total revenue growth rate was driven by continued strong execution across the business and the addition of a few highly strategic acquisition that we closed in Q4.
Our results demonstrate the strength and resilience of our business model and challenging time.
And 2020, while others were pulling back we released more new products than ever before and our history.
In addition, we announced our largest acquisition to bolster our content portfolio and enterprise capabilities and acquired companies to extend our offerings and licensing and registration and E invoicing and the end of the global insurance compliance market.
We have a bold vision.
And I'm proud that we have found a working formula that allows us to deliver strong results today.
And aggressively build the global category defining cloud compliance platform.
For the future, while we continue to focus on increasing penetration and our core mid market.
We are also investing in product development and acquisitions that we believe will accelerate our ambitions to deliver the end to end compliance journey to customers of all sizes globally.
Many of you asked how would we have done and a 2020 without COVID-19.
Our customer base is very diverse encompassing large fortune 500 enterprises, all the way to tiny emerging small businesses.
Our customers operate on business models, ranging from B to B direct sales to E commerce for brick and mortar retail and.
And increasingly our omni channel with various combinations of these.
And 2020, many companies adopted our solutions as they re and better their business model and rapidly adopted cloud and E Commerce solution.
We had to be direct sales companies, who did terrific and purchase our solutions or expanded their business with us who.
We have also had many direct sales and E commerce prospects that didn't do well and as a result chose to delay their tax automation plan to a future time.
We believe compliance automation is inevitable and.
Covid retreat, we expect <unk> to remain the durable long and strong business, we have built it to be.
The acceleration of E Commerce is our friend.
Businesses are adopting our expanding E commerce, our excellent prospects for us as their omni channel complexity and compliance exposure growth.
We expect the same for other trends that persisted during the pandemic.
Cloud solution adoption, and increasing regulatory complexity to say nothing of the imperative of cost efficiency and difficult economic environment.
And for the many businesses who have struggled and.
We will be there to support their needs as they returned to growth and begin again to experience the classic trigger events that might lead to the adoption of our solution.
We saw these trends play out with our customers during the fourth quarter.
We won our largest deal of 2020, a seven figure deal value, which includes annual recurring software plus one time fees and services with an international marketplace in the streaming media segment.
This is a great multi product example, including our Abbott tax communication sales tax and returns solution.
The company selected <unk> for its ability to handle real time calculations for both communication.
And sales tax use cases as.
As well as related filing requirements.
Other communication deals included a cellular network company.
And one of Colorado's fastest growing software company.
Additionally, we completed several competitive wins and takeaways, we want and enterprise deal with a food products company for a deal value of $40000 because of our integration with the spirit ERP system.
This is an example of how our partner centric business. It makes it easier for our customers to integrate our solutions into their application.
Next we want to deal with a multibillion dollar international food business.
Going head to head against the competition.
Use tax compliance was the main pain point for this customer.
We also want a global internet marketplace.
And a deal valued above $200000.
We want and against our competitors do it on a one stop shop strategy for all of their transactional tax compliance neat include.
Including U S sales and use tax calculation and returns streamlined sales tax vast determination and international returns.
Finally, we unseeded the incumbent to win $100000 takeaway deal value with an international medical device company.
Customer chose Avalere for the benefits of a single cloud platform for sales and use tax compliant and.
And our integration with their large multinational ERP vendor.
And the ecommerce space, we won a marquee Japanese maker of watch it.
Net suite recommended Avalere and <unk> due to our strength and omni channel Commerce and integration with net suite and Shopify plus.
In addition, we converted a big commerce customer of child safety product for more than $100000 and deal value due to our multi product capabilities and omni channel integration with a large multinational ERP vendor and big commerce as well as our SSP program.
Also our home decor company is in the process of moving to ecommerce and selected Apple era for $32000 deal value due to our prebuilt integration with Shopify, plus and a well known accounting software application.
But my favorite deal this quarter with for a pet apparel company for $175000 deal value.
This deal exemplifies what we are doing it at Valero and why I stick firmed and my belief that over time every business will automate tax compliance.
The company has been around for more than 20 years and is only now adopted tax automation and the business evolved into an omni channel company supporting ecommerce transactions on shopify.
They found avalere and <unk> through our shopify relationship and trusted our solution for our prebuilt integrations with Shopify, plus and they're leading mid market ERP vendors.
Like many of our customers, who feel overwhelmed by the burdens of tax compliance. This customers rapid omni channel growth led them to and untenable state of noncompliance, they could no longer be addressed by their status quo.
This led to a multi product deal, including voluntary disclosure agreements next.
Nexus studies tax registration services sales.
Sales tax calculation integrated to our leading ERP and Shopify E Commerce platform.
Our third capture adventure and management and managed services offerings.
And our returns compliance solution.
As demonstrated through our customer win Avalere as partner moat continues to be a key differentiator, especially as businesses shift to omni channel and seek a single tax compliance platform that can integrate to multiple disparate systems.
That's why we continue to enhance our partner mode by actively forging new relationships that offer integrations with more business application and exposure to potential customers. We offer far more pre built integrations with these applications than any other tax software provider and plan to add more.
As a reminder, our total number of partner integration, including all of those that have been signed but are not yet live is over 1000.
It's great to know Gyn and the competitive landscape. These companies continue to choose Avalere on and our launch team is fully engaged to get these new and emerging partnerships.
Up and running.
Software developers, who build integration that connect solutions and services and the various business applications represent another essential partner segment for Avalere on.
Working to extend our relationships with this community, we recently held Avalere and net.
Our first ever code focused event, where we brought together developers from all over the world at the forefront of global Commerce and tax technology.
And he's learned about <unk> new product.
Tools and best practices to help build tax compliance into their business application.
Hundreds of registration.
Mix was an important opportunity for us to showcase our leadership position and the market build brand awareness.
Create valuable resources, including our updated developer portal and connect with and support the global Commerce and Tech technology community.
I'm excited to talk to you about the progress of our multi product platform journey.
2020 was a remarkable year for our product releases as we accelerated our transformation into a product machine.
We had a total of seven product releases, including Adler consumer use.
<unk> Cross border.
Adler returns for small businesses, Avalere, and India, GST and E invoicing solution Avalere for beverage alcohol compliant Avalere AMETEK advanced transaction rule.
And fiscal Rep service.
Our latest product availability release in January as Adler and manage returns for accounts also known as MRA MRA as our cloud sales tax returns solution designed exclusively for accounting for.
Another milestone event and our journey to build out our accounting channel business.
The Avalere for accountants industry team that we have attracted is an accomplished group with deep industry knowledge and experience selling competing tax compliance software technology product and the market.
Emory enables firms to extend their practice with automated sales tax preparation and filing services provide clients with the benefit of a fully managed returns service and add efficiency, while focusing on other high value services.
And I'd like to talk a little bit about our recent acquisition.
Rather than retreating amid the challenges of 2020, we drove hard organically and through M&A to continue building, our global cloud compliance platform and future proof our leadership in this space.
We leverage M&A to expand our tax content repository, and new capabilities and technology and further our geographic expansion.
In addition, we have added impressive talent and are aggregating some of the brightest minds and transactional tasks.
We are in a market, where M&A presents efficient opportunities to accelerate our product and go to market Roadmaps to address our near and long term ambition and.
And Q4, we substantially improved our enterprise and content offerings through the acquisition of transaction tax resources, Inc.
And we expanded our platform to include a complementary compliance solution for licensing and registration requirement with the acquisition of assets from business licenses.
Recently, we acquired and pendulum limited to enter the global insurance compliance market and we signed a definitive agreement to acquire Imposure, which we believe will hasten our entry into the rapidly growing real time compliance market and enabled a replication of our U S moat globally.
Now I'd like to share with you more details on <unk> and impose you.
On December 5th we acquired and pendulum to enter the global insurance compliance market I'm excited to welcome Chris James the founder and leading expert and insurance tax compliance as well as all of the intangible employees for.
For the Avalere on family.
And pendulum was a London based provider of insurance tax compliance technology and services.
Specializing and support for multinational insurance company.
Insurance premium taxes are just another slice of the indirect tax pie with funds a significant and growing revenue stream for governments around the world.
Like with our past acquisitions, and our communications fuel lodging and beverage alcohol compliance market. We believe the global insurance compliance market is right for automation and a natural addition to our global offering.
Now I'd like to talk to you about our most recent transaction on December 29, we signed a definitive agreement to acquire oppose you on this.
And this deal is expected to close and the first half of this year.
A satisfactory closing condition.
And <unk> is a German software company focused on E invoicing digital tax reporting and business and data integration.
To address real time compliance requirements for companies worldwide.
Why imposure and why now.
Our ambition is to see around corners, others have not had in their site.
Innovate a global compliance platform that serves the next generation of client required.
Which we believe will future proof avalere as business.
The future of taxes real time reporting where electronic invoicing will enable the customer vendor and taxing authority to all receipt invoice information and monies due at the same time, Inc.
That magic moment of calm.
We're compliance today, maybe a monthly or weekly requirement, we anticipate it will become real time, meaning tax authorities will be a live party to every transaction.
This will result in a more complex transactional tax environment, where calculation reporting and remittance are all real time like U S calculation is today.
Automation will be critical.
Winning in this environment would be no different from our strategy and the U S.
The winter must be able to connect any business application where transactions happen for any government around the globe and other words avalere off we'll need to recreate our U S. MAU globally, and we believe Imposure is a critical element to making that happen.
Impulsion expands our European footprint, and a real time compliance capability.
We believe that impose your provides and our central platform to connect sellers and suppliers and businesses and governments.
The trusted facilitation of data between these parties and across any business system is essential to success as governments move from the end of the transactional tax chain to the middle.
With <unk>, we have the opportunity to further our vision of being the leading global compliance automation provider.
We continue to focus on integrating our acquired companies, including <unk> and business licenses.
Integration is not new for us and it is going as we expected.
Mission number one is for support and invest in the growth of the Standalone businesses that we've acquired.
Michigan number two is to cross sell products.
We are working well with both companies to begin to uncover opportunities, where we can sell to existing customers or share prospect.
We have and early but building pipeline of mostly large enterprise customers and partner opportunities.
We are co working with GTR and several deals we are already cross sell to one and others customers.
We are optimistic about our ability to integrate these companies and the avalere and pursue the cross sell synergy potential from these acquisitions.
M&A has been and our manifesto since we founded the company.
And we will continue to look for opportunities that we believe will improve and sustain avalere up and our growth objective.
We believe that we must build for the future and we're looking five years down the road to ensure that we remain relevant and a growing and ever changing market.
The investments, we've made and our product machine and acquisitions are paying off.
Both avenues provides us with new and enhanced products that we believe will provide fresh opportunities to acquire new customers upsell existing customers and better monetize our offering.
And as we've always said, we believe we are a long and strong business.
Double digit penetrated and a large addressable market.
And a long term play based on automating statutorily required function.
We're excited to have reached over half a billion and revenue and believe we can grow and scale avalere on into a multi product multi billion dollar revenue company over time.
Finally, I'm excited to tell you that in the fourth quarter, we launched the sustainability page on our Investor Relations website to highlight our progress and address investors' request for more disclosure.
We believe that sustainability is a key component to our long term value and business resiliency.
And I encourage you to go to our site for more information.
Thank you I will now turn the call over to Ross.
Thanks Scott.
We are very pleased with our full year 2020 results that exceeded our guidance provided at the beginning of 'twenty and 'twenty, despite a uniquely challenging year.
2020, and reaffirmed our strategy market leadership and belief that Abel areas building and durable long term business that can compound growth and the 20 to 25 per cent range as nearly every business automated tax compliance over time.
We achieved a new milestone by hitting the half billion dollar Mark for 'twenty and 'twenty revenue.
We did that a 31% year over year growth, while increasing our non-GAAP gross margin to 74% and delivering record free cash flow of $34 million on a non-GAAP operating loss of $3 1 million.
<unk> posted strong Q4 performance across the board and exceeded our guided metrics.
Q4, total revenue was $144 8 million up 35% year over year or up 28%. After excluding $6 5 million of revenue primarily from the October 5th acquisition of TCR, and then November 5th acquisition of business licenses.
Subscription and returns revenue grew 33% year over year to $132 6 million or up 29%, excluding acquisitions and represented 92% of our total revenue.
Professional services revenue was $12 2 million up 59% year over year or up 24% excluding acquisition and.
Our core customer count increased by 710 from the previous quarter to approximately 14890 at the end of Q4 2020, a year over year increase of 23% the.
The increase of seven and 10 was up from an increase of $6 20 and Q3.
While gross revenue churn expectedly ticked up in 2020, it remains at a level that is meaningfully lower than 4%.
And we defined gross revenue churn of the annual revenue contribution associated with Bill and good channel.
Cancel all of their agreements with us divided by the total annual revenue recognized during the measurement period.
As a reminder, our gross revenue churn does not include downgrades.
Our net revenue retention rate was 104% down from 108% last quarter, and resulting in a 107% for quarter average on.
<unk> is impacted by two factors first our NR is calculated using total revenue, which is subject to the impact of nonrecurring professional services.
Second our and our are currently excludes upsell revenue from our streamlined sales tax for SST program, which grew significantly in 2020 <unk>.
Conversely, our and our calculation includes revenue contraction.
They occur when an existing customer changes from our standard subscription and returns program to our SSP program.
While this downgrade is offset by the assets to upsell, our and our calculation only captures the value of the downgrade.
<unk> 'twenty and 'twenty revenue from SST was $39 3 million.
As a reminder, yes, that's T governing board recently renewed the SST program for another three year term every January one 2021 to December 31 2023.
The renewal included an unexpected reduction and the programs compensation formula percentage and we all absorbed in 'twenty and 'twenty one we.
We believe that absent this pricing change, we would realized $3 million or more of additional revenue per quarter, and 2021, which is factored into our 'twenty to 'twenty one revenue guidance.
Even though the SST program as a slight headwind to our growth rate, we still expect SSD revenue to grow in 2021, as we continue to add new SSD customers and worked on our existing backlog.
And discussing the remainder of the income statement. Please note that unless otherwise stated all references to our expenses operating results and share count are 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 $107 7 million and Q4, representing a 74% gross margin.
This compares with gross profit of $76 8 million and a 71% gross margin and the same period last year.
Sales and marketing expense was $53 5 million and Q4 are 37% of total revenue and improvement of more than 300 basis points year over year.
Sales and marketing expense again benefited from reduced travel and sales related events.
And we intend to invest aggressively in sales and marketing capacity and 2021 as long as we continue to see a healthy demand environment.
Q for research and development expense was $30 5 million for 21% of revenue down from 22% of revenue in Q4 and 19 we.
We expect R&D as a percent of revenue to increase in 'twenty and 'twenty, one as we invest more aggressively and building our global cloud platform integrating acquisitions and building new capabilities to drive long term growth and cost efficiencies.
Q for general and administrative expense was $24 3 million or 17% of revenue versus 14% on revenue in Q4 19.
And for G&A expense included approximately $1 6 million for third party legal and professional fees and support of our recent M&A activities.
Q4, operating loss was $600000, which was better than our guidance as a result of stronger than expected revenue and gross margin slower hiring and reduced travel and event expenses.
Q4 diluted net income per share was <unk> nine and the quarter based on $89 3 million diluted shares outstanding.
Looking now at our fiscal year, 'twenty and 'twenty results total revenue of $500 6 million was up 31% year over year or 29% after excluding $6 5 million and revenue per.
Primarily from the October 5th acquisition of GTR, and then November 5th acquisition a business license.
Subscription and returns revenue contributed $465 8 million. This represented 93% of our total revenue and it grew 31% year over year for 30%, excluding our Q4 acquisitions.
Professional services and other revenue contributed $34 7 million.
Gross profit was $368 5 million for 2020, representing a 74% gross margin.
This compares with gross profit of $275 1 million and a 72% gross margin and 2019 is automation and reduced expenses due to COVID-19 lowered our investments and cost of revenue.
Operating loss for 2020 was $3 1 million compared with a $14 4 million operating loss and the prior year.
Our cash cash equivalents and restricted cash for $731 2 million at the end of Q4, 'twenty and increase of $264 3 million from $467 million at the end of Q4 and 19.
Total deferred revenue at the end of Q4, 'twenty was $209 7 million up 30% from $161 2 million at the end of Q4 and 19.
Calculated billings is a non-GAAP metric that takes into consideration revenue and the change in deferred revenue as well as the change and contract liabilities.
Calculated billings was $167 1 million and Q4, 'twenty up 38% year over year for 31%, excluding the impact from Q4 acquisitions on revenue deferred revenue and contract liabilities.
Free cash flow was $28 6 million and the fourth quarter compared to $14 2 million and the same quarter last year for 'twenty and 'twenty, we achieved record free cash flow of $34 million compared to $12 million for 2019.
I will now conclude the call by providing guidance on revenue and non-GAAP operating loss for Q1 and for the full year 2021.
Our strategy is clear Ovel Aaron's work hard everyday to deliver strong results like those produced in 2020, while simultaneously investing aggressively to build the compliance platform and the future.
We have a vision for the future of tax compliance and believe we can evolve our platform to maintain our leadership position that sustains our long term growth ambitions. As you have seen in 2020. This evolution has been built through a combination of organic product launches and acquisition.
Specific to 2021, our thesis has not changed we believe we are addressing a large low penetrated market and that Abel era is well positioned to deliver durable long term growth 20% to 25%.
We'd like to provide more clarity on revenue mix expectations.
For 2021, and we expect a higher mix of professional services and other revenue of approximately 8% of total 2021 revenues.
This is predominantly due to our expectation that the mix of our previously guided $30 million and 2021 revenue from Q4 acquisition will be split two thirds in subscription and returns revenue and one third and professional services and other revenue.
This is from the categorization of revenue for business licenses and not a change and our core business strategy.
For Q1, 'twenty and 'twenty, one we expect total revenue between 142, and 144 million, which represents a 28% year over year growth rate at the midpoint of the range or 22% year over year, excluding approximately $7 million and revenue from acquisitions closed in Q4 'twenty.
We estimate these figures are approximately $3 million for three percentage points lower than they would have been without the SSD price reduction.
We expect our Q1 non-GAAP operating loss to be and the range of $10 million to $12 million, reflecting a resumption and more aggressive spending and sales and marketing research and development and M&A integration.
Similar to prior years, we expect to have significant Q1 cash outflows for bonus payments and software and insurance renewals and other large expense.
For the full year 2021, we expect total revenue between 628% and $633 million.
<unk> represents a 26% year over year growth rate at the midpoint of the range or 22% year over year, excluding and expected $30 million and revenue from acquisitions closed in Q4 'twenty.
We estimate these figures are $12 million to $15 million or two and a half to three percentage points lower than they would have been without the SSD price reduction.
As a reminder, M&A as part of <unk> DNA and we have acquired dozens of companies since <unk> founding we don't acquire for revenue, but rather to accelerate our vision to become the global compliance platform through the acquisition of talents additional content, new technology and geographic expansion.
We expect our full year 2021, non-GAAP operating loss to be and a range of $18 million to $22 million, reflecting a resumption and more aggressive investments and sales and marketing research and development and M&A integrations.
In 'twenty and 'twenty, we made progress automating activities that drove gross margin leverage we also benefited from slower hiring and other savings from the COVID-19 pandemic.
We intend to continue investing and automation that we expect will improve gross margin for our core products and geographies. However, we expect these improvements may be offset by new products and recent acquisitions that carry lower gross margins until we automate and drive higher scale.
We expect this may result in a 2021 gross margin is similar to our 2020 results.
We continue to expect a modest level of free cash burn and 2021 consistent with what we shared on our November 2020 earnings call.
Please note that our virtual analyst day will be held on Thursday may 27 in conjunction with our virtual crush annual users conference also we will participate and upcoming conferences, including Goldman Sachs JMP Securities Morgan Stanley, Raymond James and Stephens and the first quarter.
Thank you for participating in today's call at this point, we would like to open up the call for your questions.
Thank you and you're reminded to ask a question. Please press star followed by the number one on your telephone keypad.
The first question comes from Chris Merwin from Goldman Sachs. Please go ahead. Your line is open.
Alright, well thanks for taking my question and congrats on a great finish to the year.
Wanted to ask about the enthusiasm acquisition can you talk a bit about what integrations that has today with core systems, like ERP, and and and governments and to rollout a product like this in the U S. Can you talk about some of the integration work that that would be required.
Hey, Chris.
Thanks, a bunch.
The way I the way I would say and this is really and international phenomenon, that's where I'm going to start with imposed.
And because.
Today that is.
And it really a reporting solution and bad in bad out means you do you're reporting what what what E invoicing does and what and Polish it dies.
Is it actually takes all of that transactional information and and does it in and in real time. So it's actually moving back closer to where we are in the U S right.
And making it making it transactional so the governments are getting in the middle.
The transaction so they know the information.
And.
That's going on with the invoice so they have an audit trail.
So that's the fundamental that's the fundamental difference is actually pushing that closer to where we are and transactional nature and the U S. So it's probably not something that's going to come you know to.
To the U S. It's actually making international more like more like what's happening here and the U S. I do think ultimately and the U S debt government's going to do the same thing here, but it's but you know we're we're not keen on government banking business.
Business, So I think it'll take a while for that debt for that to happen. So what you do is you take the impose yeah.
I mean the imposed.
Product and it has been integrated in with our connectors on a on a global basis. So when a transaction comes in and they know to be able to balance out to the.
For the government get approval.
Return that return on that information and it's stored and then reported on in real time, that's essentially what's taking place Chris.
Okay that makes a lot of sense and is there any opportunity for like and additional transaction fee with E. Invoicing component to this or is it just there's something that's gonna be brought into your sweet and sold as part of the.
And the broader package on a subscription basis.
No, it's really a bonus for travel era because.
Good day.
And.
In the and the VAT World doing calculations, just it's just not really a revenue generating area for US me and it's.
And it's really all about reporting.
And the United States, we have calculation and and then you you know we charged for for for returns.
And you know internationally. The VAT returns are very expensive and the calculation is not that much so by moving on.
T E invoicing, it's actually making our calculation module much more important and we will get all of the transactions that today, we don't internationally.
Okay, great. Thanks, so much Scott.
Thanks Ross.
Your next question comes from Bad Cellphone and Bank of America. Please go ahead. Your line is open.
Oh, Great Hey, guys. Thanks, so much for taking my question.
I wanted to ask about the enterprise traction and Scott you mentioned, some nice pipeline builds there can you remind us how different is the enterprise from a product and go to market standpoint, and the requirements there and how is that Valera made some changes to to meet those requirements.
Right.
Thanks, that's a great that's a great question.
And I'm a I'm a mid market Guy there is just no doubt about that right. That's where we started that's why on a home is that's where I feel most comfortable and so as we built out our opportunistic program for enterprise and what I mean by that is we're using the same go to market strategies today and when these.
And enterprise deals come up we you know we.
Turn our team towards that towards that goal and we are winning our fair share of those of those deals being both new deals and takeaway deals.
In the marketplace because most of the you know the the largest enterprise companies already have a solution. So most of them are our takeaways I've shied away from doing the rip and replace where we just go full bore into the enterprise for the longest time I mean, we've been doing this 16 17 years, but you know we declared that now.
And as the time to start moving upmarket. So we've spent a lot of time and and how we build out our product and we've done great work.
Our work to make our products more.
And at feature parity with all of the big businesses out there, but we do have a ways to go to building out our our processes and our operations. So I would say to be as good.
And enterprise as we are and the mid market. So we have we definitely have work to do and ordered a build out for.
The services, our go to market process, and and really just our ability to do high level.
Uh huh.
Technology consulting for the largest companies and so we're going to have to invest and add in the coming quarters in order to really being and enterprise machine.
Great. Thanks, so much Scott and then one more if I may please just.
If you could remind us kind of where you are with some of these new compliance offerings. Obviously avalere has done a great job expanding the footprint beyond sales tax and and things like landed cost and and licensing and more compliance related workflows and and at the analyst day last year, you talked about some interest and compliance.
Applications on top of the platform. So if you could just remind us kind of where those are and and when those might start to contribute and thanks. So much.
You know you really you really occurred in our examples and and and and I'm really proud of the team for the way we've been able to take thing things like use tax right. I mean, everybody has heard me talk about the four horsemen of sales of tax right sales tax use tax you've got returns and exemptions.
And a lot of the work that we did is building and goes out to really be you know.
Step up and functionality and and and and and usability for our customers and you know why do the deals that we are winning and enterprise and most people don't know this.
When it comes to enterprise selling use tax is one of the most their largest pain points and so improving our use tax and you you saw by by doing that and some of the examples that's what we actually lead within the enterprise and.
And the enterprise space. So I'm really pleased that we've been able to you know.
Continue our R. R sort of rinse and repeat model, which is look at and we started out with calculation. Then we added returns returns today and almost 40% of our of our of our revenue <unk>.
Exemption certificates, a big add to it. So we just continue to do that with use tax we're continuing to do that with cross border, where you know where that's where that is.
Growing significantly and then you add on TCR subscription services and business licenses and you can start to see the pattern of how we're doing this and how we're able to expand our footprint and in new sales and and and and and up sales and and I. Just really think that that's one of the unique aspects of <unk>.
Our business and what we've been able to do and we're going to continue to you know we're going to continue to up.
Keep our foot to the pedal on that one Brad.
That's great. Thanks, so much Scott.
Thanks, Brad.
Your next question comes from Sterling Auty from J P. Morgan. Please go ahead. Your line is open.
Yes, Thanks, guys. So Scott you talked about some potential customers pushing out tax solution.
Decisions because of the pandemic with that and mind, what should investors expect in terms of new customer additions throughout 2021, especially post pandemic.
So I'll talk in general and they are working to bring Ross and you know we got we got to wake him up over there. So he can he can he can chime in here.
So.
Look.
When I think about you know what we're doing is that the the large amount of our customers I mean, that's what so unbelievable. We have this huge cross section of businesses and I know everybody is focused on on E Commerce and I'm sure, we'll get questions on and on and.
And that.
But there are a lot of businesses that didn't do as well as everybody thinks about around the economy the ecommerce.
Area and and we know that there are people that want to do this but just decided that push out you know that decision making process until you know COVID-19 is over.
And they're back at work and and and the trigger events will start to.
Be it play again, so I mean, we know that there's a pent up group of <unk>.
Customers out there that want to continue to automate need to automate.
But are sitting on the sidelines a little bit so I expect that you know to the.
A tailwind for us as we move into.
2021 and beyond.
Ross.
Yeah, I mean, you said it well hi Sterling.
I think our point is its not bad or good. It just you know we have a very diverse customer base and the largest for the smallest and and every industry and so there's a number of businesses, whether they're E commerce brick and mortar direct sales and that unfortunately haven't done well amid the pandemic and as hopefully this recedes and the economy.
And the situation improves.
You would hope that those come back and and so many customers we saw in the past you know.
It would be back pursuing.
Compliance and and we will get those and in the meantime, a lot of people ask about E commerce and and.
Hey, how do you feel about 'twenty and 'twenty one given there was a surge in 'twenty and 'twenty and and if that received how is that going to impact your business and the good news for US as you know, we we get and with the with the platform as we get on with the partners and <unk>.
And we try to you know.
Be built into those relationships.
And the relationship like Shopify, where they pay the bill for the calculation and we want to be built in and be calculating for everybody and then it gives us our own hunting ground into those customers and and our mission is to then upsell them and and you know Scott had a great example on the on on the prepared remarks on the pet the pet company, which wasn't business and 19.
99 guidance the E comm and 2018.
They were on Shopify, plus they then realized that Oh, my gosh, we're not a local player anymore, where national and maybe global and compliance is crazy I can't do the status quo and compliance that I've been doing and the past. So 20 years later they call. It they call job of fire Shopify and told them that come to US we're already doing the calculation and we up sold.
On them for you know 150000 plus deal on on pretty much every day getting back into compliance returns S. T. A.
Document management and so that's the type of you know our funnel.
Funnel, we're prosecuting and it's still early innings on those ecommerce customers are just become ecommerce companies made their business is that much more complex, but haven't realized all of the compliance obligations there under and we hope to continue to prosecute those you know for the for for the long term and and we hope that some other customers that didn't dwell on 'twenty and 'twenty.
No come back and pursue again so.
So I think it's all goes for the long strong strong model that debt that we talked about.
Ross just one quick housekeeping.
710, net customers added how many of those came from T. T R.
None there's no M&A and the core customers right now.
Perfect. Thank you.
Yeah.
Your next question comes from Todd <unk> from JMP. Please go ahead. Your line is open.
Oh, great. Thank you very much and congratulations you guys, Hey, Ross one for you to start can you just go over again the.
The net revenue retention and the downtick, there and maybe yes.
Break out what the biggest components of that were.
Yes, Thanks, Pat and I love, starting too so I'm all good.
Yeah, Scott always gets the start and I get I get tired.
So, yes, so net revenue retention rate and 104% debt that didn't surprise us and we called this out of the last few quarters, but I'm glad you asked because I want to be really explicit about it.
And I really think that the downtick is mostly due to this SST calculation issue, where you know, let's just pretend you are a customer pad and youre on all 50 states right. So you're calc and returns on all 50 states you enter into a subscription with us for both calc and returns on all of those states and then let's just say a year later upon renewal.
We bring it to you or you bring it to us that you want S. S T <unk> and 'twenty for those states and it's one platform and we're running one compliant solution for you whether it's asset SSD are not the only differences and S. S. T. The states are paying the bill through we clip a coupon and when we do the remittance versus outside.
And of SST States you the clients pay for subscription right. So that's the only real difference here and so Pat you say upon renewal Hey, I want to go with Us S T and the 24 states.
And what happens mechanically as we downgrade your 50 state subscription.
So that for the 26 states that are non S. S. T. And then we add on SSD for the 24 states on Rss T and so for the 'twenty for the SST States are paying the bill for the 26 year paying the bill but at the same offering but what happens in and our R is our and our calculation it picks up that down and so that I explained.
But it doesn't include that upsell and Youre, saying, yeah, well, that's silly why not well it's a it's unfortunate way it was set up and it's a data related thing that we can correct and we hope to come out with a revision and at some future day, but so that's what happens if you just think about asset and <unk> gone from around 15 million revenue and 2019 to around 40 and 20.
And 'twenty some of that increase.
It's from existing and and that's that's actually not even factor and dinner ourselves. So that that's what's putting weight and then theres a few other things down and you know theres down and there was more down sell and 2020 and then we've had in the past just from Covid and we think you know.
No nothing scary, but you would expect there was some more down sell and you know our <unk> business had some had some down sell on and just because of the end market and small numbers, but and market struggled and you know and there were some issues, there, but but but overall, it's really that SST calculation.
On a circumstance.
And lastly, we are awful and.
And and Pat and Ross We also include.
All of the professional services.
And the in the calculation, which goes away for next year. So it's it's really punitive from that regard.
Okay, and then Scott Big picture for you I mean, even for for those of us and serve and falling you from the beginning with you guys have a lot going on here.
What are like the one or two most important things you think that investors should take away from today.
So I mean, I really said it in my prepared remarks, and I really I mean, I'm I'm really proud of the business from this regard because I think we have found a stride we found our rhythm in delivering that and.
Delivering and over performing.
During the Covid crisis and all of that.
And it here and now me and the team is focused on delivering in the short term, but we have.
And and aid ability and the company to look beyond just performing today and look to where where this business is going and five years. You know Ross taught me a word and <unk>.
Proofing and I mean I.
Love that word now, but that's essentially what we're doing we're saying okay look at this is where VAT is going.
This is where.
This is where the market is going and we're always trying to be out in front and the best way I can describe that pad is to say look at what we did with SSP, we'd started SST and 2005 and here it is.
And just way fair when it's all come together and it's really an important factor and what where and what we've been doing I like to look at things that we can do in a day and help us for the short term, but really position us long term I think cross border is that way you know I think GTR is going to be it's going to be that way and and.
And all I'm really keen on you know our growing enterprise focus so if I were to say you know the growing enterprise focus.
I think integrating the businesses that we had and making sure that they continue to grow at a high rate.
I think it's what I think about paying.
And a day out Pat.
Alright, that's great. Thank you both.
Yeah.
Your next question comes from Brad and me back from default. Please go ahead. Your line is open.
Great. Thanks, very much Ross just one last one on the net dollar retention as we think about 'twenty 'twenty one should we expect it to stay on the four key range what would be the puts and takes if not.
Yes, and Brad.
Don't guide to it so I can't exactly answer how you want it.
I think my intention is to provide some kind of revision to the definition, so that it's including S. S T and and so it gives you guys a little bit better and better information in the past we've always said.
And I think about it as 110, plus or minus right and and I still I still believe in that but that was without the realization of this divergence from this issue. So I still ultimately if you just want to think long term, we've launched on a bunch of new products.
Some new businesses.
And you know Theres a lot of outcomes from that but one of those outcomes is being able to more fully monetize the NDA and compliance journey of our customers and I think that sets us up for a lot and the bag to go upsell our customers. So the metric isn't working for you right now that's on me and I got to correct for you.
But by my expectation and our internal focus is to really he was really drive more through the channel to our accounts through to our customers and drive that thing.
Upwards over time, but I can't give you specifics for 'twenty and 'twenty one.
No problem that's super helpful. Thank you.
Thanks, Brian.
Your next question comes from Scott Berg from Needham. Please go ahead. Your line is open.
Hi, Scott and Ross Congrats on a great quarter. Thanks for taking my question.
Scott I wanted to start with the day.
On the enterprise segment strength that you've seen and it's kind of a follow up on Brad's question, but if there was a particular functionality set or feature that you've introduced maybe over the last 12 to 18 months, what would that be that's driving some of that.
Ex size successors.
I mean the thing.
Thanks Scott.
Look we did not have a main feature parity with the.
The best Enterprise solutions out.
I mean, it just means and the areas that we just did not focus on over the past you know over the last few years, we've decided that that is something that we that we needed to do and its you know its there is feature parity.
And then there is service and and and sort of operational parity and I wanted to distinguish between those I think you know we're starting to fill the gap fill the gaps and you know one of those is complex custom rules, which we didn't have and.
And now we do and.
But it's also filling the gaps around operations and the go to market motion.
And when I say go to market motion tax technologists play an important role and the integration process, whether we're doing it or whether you know what is the you know the big for.
Big for doing it and.
And and we've had to we have to build that that functionality out.
In order to be called to the table.
Hi, Bob Hi, Bob coined this phrase inside the company that the big for really play and a huge roll in and and.
And what happens and the enterprise and I I call them the Royal.
On the Royals, you know really determine who gets the biggest business.
The biggest businesses out there and we have to improve our relationship with the big for the Royals, If you will and really in order to.
Find a way for us to continue to grow and expand and the.
And in the marketplace and I think I mean, we're making the.
Definite steps to do that it'll take us a bit of time and and I'm pretty pleased with you know with the wins that we're getting both competitive takeaway and and the new sales when they come when they come our way. So we're in the game and and we've got to get better over there.
For the coming quarters.
Helpful. Scott. Thank you and then a quick follow up Ross you had mentioned revenues from kind of other marketplaces and platforms and one of your earlier comments one of the questions I've had a lot. This year is what's kind of the ecommerce site, maybe not in your direct customer segment, but.
How should we think about some of the revenue contributions or tailwind that you've received from your exposure to some of these platforms that have obviously seen.
<unk> seen great acceleration for their businesses.
Yeah. Thanks, Scott.
I mean look E commerce marketplace, but just the whole E commerce trend I would say my view and Scott's been doing and since the beginning is it's got to be top two drivers for Abel Aaron's business long term I mean, this and cloud are the generational shift that would drive us long term. So maybe we'll quantify it like we did last year and.
Analysts day, and this year, but if you think about doing 500 million and 31% year over year growth and.
And the performance we delivered.
And that was exceeded our original guide and the year in a pandemic.
You got it you got to appreciate that ecommerce was a big driver and it really comes down for that Omni channel point that we keep making it's just when you were a storefront and 20 years ago and people walked into the store you can figure out how to do calc and returns you didn't have a lot of products. You didn't you had one geography, but what happens is once you go E com and your.
And usually not just economy on marketplaces, you or maybe you have stores, maybe a direct business or you're usually omni channel.
You're transacting now not locally but nationally or globally.
And so the first thing you think of the customers and I got up calc and so that's our first mission make sure. We're built into these platforms for the accounts and then the customer feels really good because they've got calc and check out all works and they're like feeling really good until they get notices and they realize that Oh gosh I'm in 50 states, maybe on global and on out of compliance.
And many of those and now I've got a compliance problem I got back filings I got to figure out where I Gotta do V D as I.
And I Gotta get registered on all these states I Gotta do collect all these states I gotta do and the filings.
Clients document management, and there's just all kinds of headaches and so just and you can imagine, saying I'm going to do this status quo the way I've done it for the last 20 years like the Pet Apparel example, just is not tenable and many cases and so that's what drives it and my only point again. The question everyone wants to ask the question.
And some businesses and you all cover have seen this surge in 'twenty and 'twenty from Covid and we know that's going to back off post COVID-19 and so they worry and what's going to happen novel IRA and I, just say look if and when we talk inside and we've said this publicly one of the things that we feel like we're still trying to get perfect is that funnel to where we're upselling shopify or big cash.
<unk> customers on everything else, you know, we're doing pretty well, but we're not dialed into where we want to be yet and we continue to focus on the monetization and so there's just a lot of those out there that we're just very early innings on and you know we believe over time, they're going to adopt and automate more fulsome way and we have a really good position us as the one.
And their calculation in many cases to go get them. So I think it just again it goes it goes to like we keep knocking them down day and day out some people want us to accelerated hard to do they have to have their trigger events.
But over time, they're going to keep adopting.
Awesome. Thanks for the clarification congrats on a good quarter.
Scott.
Your next question comes from J D. J Hynes from Canaccord. Please go ahead. Your line is open.
Hey, Thanks, guys and congrats on the results and good numbers.
Thank you Jay So first maybe I'm curious, where you think the market is in terms of regulatory enforcement I think there was an expectation that 2020 could be a big year for states to figure out ways, there and and then obviously COVID-19 hit and so I'm curious.
How youre thinking about 'twenty, one along those lines and and I guess the related question is.
How many customers turn to you after having a compliance issue versus trying to get ahead of one.
Gosh.
A lot there are a lot there to unpack on I'll start at the end and and try to work My way work my way back so.
So you know I think we've said this before.
You know the majority of Cfos out there, how you're doing with sales tax.
Answer is is that you know, we're probably not doing it right. So there's a high.
Degree of understanding that whatever they're doing and the marketplace is is not is not is not right.
They're trying to do the best they can and we've always talked about those trigger events I mean, what what is the thing that makes them change and obviously you know audit audit is one of those but it's actually not and that's the biggest one there's just a host of other things that you know that.
Sort of come before that but I guess the basis is and the answered. The question is as most everybody knows they're not doing it right.
And they would like to do it better they don't have the time or the resources or the or the inclination. At this particular time, they know that they will have to get around to doing it and and some trigger event usually kicks them.
And.
And to making that happen, having said that.
You know.
I've always said that you know where where we're swimming with the tide when it comes to government regulate and government regulations, and then enforcement how that's going to happen I mean, it's still sort of TBD I mean.
Every state is trying to figure out how they can get in and get more information more data to understand what business, they're doing so they can you know.
And do enforcement mean, I would say COVID-19 put a big hold on that this year I think COVID-19 continues to do that because I think many other states.
<unk> right now is just figure out how to get some federal money to be able to bail them out of that but at the same time, they're all working on ideas and ways to enforce so enforcement is a tailwind it will happen how to what degree it'll happen.
Interesting I mean, I think it's way more acute internationally than it is domestically here mean international where they're really outside of the transaction, they're trying to get into that and you're seeing.
A lot of activities, you know with with countries and over you know between now and 2022 to 2020 for I mean, Cole and France, Spain.
Got you know the Philippines, a bunch of different companies and countries that are really taking a strong look at Ian voicing and and they have particular measures that they are doing in order to.
To make you know Oh.
And the regulatory environment much more stringent transactional.
Yes, yes, okay. That's super helpful color, and then and then Scott maybe maybe one more if I can.
Sure Oh at what pace should we expect to see you expand into other compliance categories right.
His business licenses just a toe on the water or is it is it the first of a bunch of others to come it just seems like there's such a big opportunity, obviously and your core tax compliance market wondering how to think about all these other adjacencies.
Well I mean again job number one and and I just want to reiterate this job number one is always you know strong growth in and are in our core area right like I said, we've I just I'm really happy with the way we've been able to focus on the here and now and at the same time be able to build out our clients or our SaaS cloud.
Compliance platform, you know I mean, because that's really the ultimate goal and and we have some unique aspects of the way we work with integrations that allow us to move different things down the channel and the build out.
Our cloud compliance platform, which I think you know is the ultimate goal. So I mean, I think what you've seen and what we've said.
And our platform allows us to do things like 10, 99 W. Nines W. Eight property tax I mean, there is lots of areas that that you you we can take our existing platform and expand it because it's all really about.
Content and if you get the content, we have the engines to be able to do that with integrations and then and then.
And that with the calculations returns and reporting to the government. So I think we're well positioned to continue to do that.
And and and I think we've said that that's a direction that we're going to continue to move in.
Yes very helpful. Okay. Congrats guys. Thanks.
Thank you.
Your next question comes from Brian Peterson from Raymond James. Please go ahead. Your line is open.
Hi, gentlemen, thanks for taking my question. So just one for me high level.
And there's really a lot going on there's a lot of growth initiatives I'm, just curious how the hiring environment looks and and as you're thinking about adding people and particularly and the go to market and.
The product side and how should we think about those efforts over the next few years. Thank you.
You know I'd start out by saying I mean that is one of the criteria and one other reasons that you know we've been acquisitive over the years I mean, I think you know finding great.
Tak technologists tax people and and and innovative developers.
And it's been one other it's only been on the.
One of the great things through our acquisitions and we've built out I would say.
You know just a world class team of people that understand.
Tax technology, and and I think we benefit from that all the all the time, so acquisitions have been a great way for us to do it.
And our space, we have not found it to be.
Exceedingly difficult, it's always difficult, but exceedingly difficult to find the talent that.
That we need I mean, you know avalere is well positioned I think the when we hire good people they bring along good people and I will say that our we have on.
Most of you know almost 1000 people in India, and finding people in India and developers in India and in the in our and our locations is it is a challenge for us at times.
So so domestically and internationally I mean, it stretches us a bit but I think we've got a really good program to be able to to be able to hone in on it with you know our.
Our recruiting teams and through acquisition.
Thanks Scott.
Your last question will come from Sydney Penny Gandhi from Mizuho. Please go ahead. Your line is open.
And thanks for taking my question.
So Scott and Ross.
For 2020, you kind of like E. Commerce was one of the tailwind and and then you had talked about so many products and expanding like seven products going upmarket Downmarket and Eaton and therefore, so as you look at 2021, 24% and organic growth. So what are you. Most excited about what do you think that the key driver.
For you and 2021.
Sure.
No.
As you say, we have a lot and we are a lot going on and Theres just on a lot to be excited about what what I get when I get excited about is I think our ability to start moving upmarket more I think it will it will stretch us it will challenge us as we as we as we move into that.
And of that space, but I think it's a big opportunity for us I think monetization of our partnerships.
It would be with Amazon or shopify or war or a big commerce all of those all of those really dynamic partnerships that we have how we monetize them. How we grow them you know how we can push that pushed them for it with a variety of products I think is.
It is really really really really exciting I think SSD has been a fantastic.
Program for us and and I can and I know that that despite the reduction in the in the in the contract price I know that we're going to grow we're going to grow that area. So you know and I stopped and I think about it. It's like okay. We just have to take care of our moat, we have to take care of the the the mid market.
We've been so strong and for all those years, but you know monetize. These other you know these other avenues.
And you know TCR and pulling that and so we've got we've got a lot to be a lot to be thankful for I mean, a lot in sort of in our bag and I think if we just stay focused we can you know.
Cross sell upsell and and use those partnerships to really drive some nice business.
That's great color. Thank you.
This will conclude today's Q&A session I would now like to turn the call back over to Scott Mcfarlane, co founder and CEO for closing remarks.
Hey, I'd just like to take this opportunity to thank our employees our customers and partners for all their hard work in this difficult in this difficult 2020 and.
And we look forward to talking to all of you on our next call. Thanks very much for your support and we appreciate it. Thank you.
Ladies and gentlemen, this concludes today's call. Thank you for your participation you may now disconnect.
Okay.
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