Q1 2021 Avalara Inc Earnings Call

Good day, and thank you for standing by and welcome to the Avalon for first quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.

For the speaker's presentation from that'd be a question and answer session.

Good question. During this session, we need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.

I'd now like to turn the conference call. Thank you for.

Today, Jennifer J M.

In other Vice President Investor Relations. Please go ahead.

Good afternoon, and welcome to Apple or its first quarter 2021 earnings call.

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 25th 'twenty, 'twenty, one 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 has been filed with the SEC and is also available on our website at Investor Day, Avalere Dot com.

With that let me turn the call over to Scott.

Thanks, Jennifer and welcome to everyone, joining our Q1 2021 earnings call.

Q1 was a great start to the year for Avalere on continuing the momentum we experienced in 2020.

We reported total revenue of $154 million.

Representing an increase of 38% year over year.

An acceleration in growth from the fourth quarter exceeding our expectations.

Calculated billings hit a quarterly record of $172 million, an increase of 47% year over year.

Our highest year over year growth rate since going public.

Our 38% year over year growth in total revenue was driven by continued strong execution across the business and the addition of strategic acquisition that we closed in Q4.

We were pleased to see new customer wins across a wide range of industry segments, and geographies and we experienced strong customer retention and solid upsell activity.

In addition, we.

We are winning large multi product deals and seeing more cross sell wins from our acquisition.

Our international business performed very well as the team saw increased uptake from our largest marketplace customer.

As you can see from our strong results customers are choosing avalere to automate their tax compliance at an excellent pace.

Our value proposition has never been more relevant.

And there is a massive market and category opportunity that's ahead of us.

We believe compliance automation is inevitable.

As the world begins to reopen.

In the broader environment begins to normalize we expect avalere to remain the durable long and strong business, we have built it to be.

As I've said before.

We have a bold vision to be part of every transaction in the world and I'm proud that we've found a working formula that allows us to deliver strong results today.

And aggressively build for global category defining cloud compliance platform.

Of the future.

Stepping back.

It took avalere for 16 years to hit a half million dollars in revenue in 2020, and since reaching that milestone. We are on track to hit an annual revenue run rate of $700 million in 2021.

As a start up back in the early two thousands.

We envisioned a flywheel effect, where our content partner moat and technology platform would come together to produce a truly unique and scalable business.

We believe that this year is an important inflection point travel era.

Over the past several years.

We've been making investments organically and through acquisitions that have positioned us for lead and shape the future of global compliance.

Regardless of our success to date. This journey is really just getting started.

We are benefiting from fundamental shifts in the fabric of commerce and regulatory obligations.

Along with rising adoption of cloud based infrastructure and ROI expectation in the market.

The growth of Omni channel Commerce is a generational opportunity for Avalere up.

Businesses are adopting or expanding e-commerce, our excellent prospects for us as their omnichannel complexity and compliance exposure growth.

Evelyn has often benefited from a consistent drumbeat of regulatory change.

When combined with other triggers these.

These changes act as important events that drive businesses to adopt tax automation.

As a recent example, Florida one of the last states to adopt the way fair economic Nexus standard is enacting it into law. This summer.

In addition.

Congress was amended the prevent all cigarette trafficking Act also known as pack.

Cover vaping products, starting this year.

Vaping products will now be treated like cigarettes, which requires the collection and reporting of excise taxes.

As a reminder, several years ago, we acquired a company with domain expertise and fuel.

And built it into an ex sized compliance business.

We have now leverage that platform to automate compliance related to vaping and tobacco products.

As more and more businesses of all sizes continue to replace on premises financial and business applications with cloud services. The concept of cloud compliance has become more broadly accepted in the market.

One of the drivers of this shift is it economic efficiency cloud services and automation delivers.

As the economy continues to resurrect from the challenges of the COVID-19 pandemic, we expect cost efficiency and ROI considerations to remain part of the new system acquisition discussions and our message on that front continues to resonate with our prospects.

We saw these trends play out with our customer and partner wins in the first quarter here.

Here are just a few example.

We won a large deal with a skin care company for a deal value of $245000, which includes annual recurring revenue one time software and services.

The company selected Avalere up based on our integration with a small e-commerce application.

Our largest marketplace partner.

S S T program.

And our Avalere a consumer use product.

We want a large international deal in India with a fast growing online gaming company for a deal value of $225000.

The deal is both an international win.

And an avid tax win.

We were excited to have won this large size deal after having launched our first products in India in the back half of last year.

We are seeing early successes winning deals with our Avalere I M. P T. Our go to market strategy.

Including an enterprise deal with an electric vehicle company for $53000 and a real estate technology company for $160000.

GTR was instrumental in helping us win the E b deal due to their content expertise around electric vehicle charging stations taxability and.

And parking fees.

Additionally.

We won several competitive and takeaway deal.

We Wanna takeaway of our global 2000 luxury brand retailer for a deal value of $164000.

This company selected Avalere I because of our avid tax integration with SAP ERP.

Our integration with a retail Pos application.

And our relationship with a tax consulting firm.

We displaced a competitor at a coffee company with a deal value of $112000 due to our integration with oracles JD Edwards enterprise one.

And our integration with our mobile and Pos platform.

We also wanted to deal with and Eyewear company for a deal value of $145000 due to our prebuilt integration with Oracle Atg Web commerce, and our partnership with an online digital Commerce consulting company.

And we had even more wins on ecommerce from.

We Wanna Pool Kid company for a deal value of $88000 due to our integration with net suite.

And then e-commerce platform.

We want our learnings product company for a deal value of $178000 due to our integrations with a well known accounting software application and a leading e-commerce platform.

And the cross border space, we won a $249000 deal with an ecommerce services company for our cross border calculation and item classification solution.

One of my favorite deals isn't identity monitoring company for a deal value of $70000.

This deal exemplifies what we are doing at Avalere and why stick for them to my belief that over time every business will automate tax compliance.

Oracle D. R M rapid pass powered by NCR counterpoint and Sage business works.

Our total number of signed partner integration is over 1000 and growing.

We offer far more prebuilt integrations with business applications than any other tax software provider and plan to continue adding more.

Integration into niche business applications are often major if not deciding factors when evaluating Apple era. So the long tail strategy remains important.

It's great to know that in the competitive landscape.

These companies continue to choose avalere as their compliance provider for their customers.

And our launch team is fully engaged to get these new and emerging partnerships up and running.

Now I'd like to talk a little bit about adlers, R&D machine and how our investments are accelerating our platform journey.

Allowing us to outpace the market.

Avalere is and always has been a technology first and cloud first company.

We are technology first because we have put engineers and tax professionals together to design and build modern cloud for solution.

For meat complex tax and compliance challenges for our customers.

We've been cloud for since we started Adler in 2000 and for and hosted our first tax calculation service and our own cloud data Center.

What do I mean by cloud first.

For us means inherent scalability security.

Speed and high availability all based on a globally distributed platform.

Three years ago, we started a major transformation.

We have nearly tripled our investment in R&D head count and moved all our cloud services onto AWS.

Today, nearly one quarter of our employees work in R&D.

We hired engineers and engineering leaders with vast experience for major cloud companies to build modern cloud for a solution.

Our future focused multi product platform.

Avalere a compliance cloud consists of calculation returns compliance document management licensing and registration fiscal representation.

<unk> content and insight solution.

While others are building on premises or a point product in the cloud that focus on tax.

We are building a modern integrated global cloud compliance platform that will support a broader complement of global compliance interaction.

Based on feedback from our portfolio when customers buy into our long term product vision and future roadmap that means our upcoming products are just as important as the products we have today.

After a remarkable 2020 for product rollout.

We are excited about bolstering our portfolio again in 2021.

At our upcoming Analyst day, Sanjay Pathography, our chief product Officer, who will provide an update on our multi product journey and expanding platform vision for 2021 and beyond.

We also continue to charge ahead in our acquisition strategy, we are driving 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 been adding impressive talent and are aggregating some of the brightest minds.

And transaction tax.

On April six we announced the closing of our acquisition of imposing a German software company focused on invoicing.

Digital tax reporting and business and data integration to address real time compliance requirements for companies worldwide today.

Today.

Impose you serve more than 500 customers, primarily multinational European businesses.

And owns or manages 19 integration in the country level tax reporting system.

I'm excited to welcome Cofounders move Ste and hobby of impose yet as well as all the impose your employees.

The Avalere our families.

We look forward to our work with Imposure as governments continue to adopt and expand electronic reporting requirements.

The proliferation of real time compliance requirements from tax authorities around the world arose from the need for financial transparency and fraud reduction.

More than 60 countries rely on or have announced intent to move to invoicing systems for compliance.

On April 20th we announced the acquisition of the operational assets from Davos technologies.

Privately held.

Maine based company that helps small businesses automate sales tax.

David integrates with trusted point of sales systems, such as Clover square and others to support more than 4000 small businesses in the United States, including coffee shop bike stores flower shops, bakeries restaurants, and many other types of businesses.

Double is highly strategic for Avalere up for two reasons.

But first dabo accelerates our capabilities integrations and know how to advance our efforts in winning the low end of the market.

Combined with our own organic point of sale effort.

Which we have mostly been focused on the Midmarket and enterprise segments. We are paving the way to grow our large next generation point of sale business.

This is so important because it enables us to serve not only the brick and mortar.

Only merchant, but also the rapidly growing omni channel merchants that serve their customers through combinations of point of sale applications e-commerce platforms and marketplaces.

We believe we are building the only tax compliance company that can service any type of customers' omnichannel requirements.

Check in Davos design the solution in its capabilities to enable real time remittances.

It manifest a day through a managed compliance solution that sets aside funds daily and then filed and pays the taxes when due.

Dabble provides us with the capabilities to help complete our vision to enable real time compliance with variable split payments the government at the time of the transaction.

Tableau is a natural strategic fit and I'm excited to welcome Pete Davos, CEO and David Davos founder as well as all of the Diablo employees for the Avalere a fan.

Also I would like to update you on another previous acquisition.

In February 2019, we acquired index is AI technology and expertise.

Very excited to provide an update to you today for her.

Holy Grail of getting customers live is to automate tax code mapping.

Historically tax code mapping has been a challenging process for customers that onboard onto avatar.

Sometimes taking several months.

But in the last few weeks, we have shipped our new tax classification feature and it's available to all avid tax customers.

With Avalere is machine learning platform for tax code mapping.

Tax code recommendations come back in real time.

I've always believed that for when we must provide a holistic approach, including great products great content great integration.

And great Onboarding.

Big part of driving Great Onboarding is to automate tax code mapping.

It's difficult to overstate the significance of this holistic approach and making the lives of our customers easier.

Last but not least.

The Guy Dabbler, it's continued growth and innovation, we established the Avalere as founders for a dynamic group that includes the founders of companies that have been acquired by Avalere and who remain employees of the company. This group is a unique cohort of talented founders.

Who have the experience and industry know how to help Avalon drive forward into the future and realize our bold vision to build the global cloud compliance platform.

We will continue to move forward with the foundational elements of our business.

Acquisitions have been an important part of our success. We will continue to look for and close opportunities that we believe will improve and sustain avalere and.

And our growth objective.

I'm really excited to tell you that our annual crush conference is back this year on May 27.

And our first ever virtual only format.

This event is our fifth annual tax conference and industry gathering it.

It would be much broader bigger and more global than previous event.

We are aspiring to hit 10000 registered attendees 10 ex the attendance of 2019.

We are bringing together some great professionals and practitioner at the forefront of tax compliance commerce and technology.

We look forward to all of you joining US later this month at the event.

Finally, I'm pleased to tell you that Avalere won the virtual wellbeing programs category Award for.

From Reagan's employee Communications award class of 2021.

This honor recognized adler's excellent and creating and executing exceptional internal communication campaigns programs benefits and initiatives that kept our work force Roma.

Or in person engaged and informed.

Especially throughout the challenges posed by the COVID-19 pandemic. In addition, we continue to make progress with our corporate sustainability initiatives, including the launch of our new leadership training program.

And a new employee resource group called access for.

On employees with disabilities, bringing.

Bringing our total number of employee resource groups to six.

As we've always said, we believe we are a long and strong business.

Single digit penetrated in a large addressable market and a long term play based on automating statutorily required function.

We believe we are outpacing the competition and driving the future of not only sales tax automation for global compliance.

We're excited to raise our guidance for fiscal year 'twenty, one and we believe we can grow and scale avalere up into a multi product multi billion dollar revenue company over time.

Thank you.

With that I'll turn it over to Ross.

Thanks Scott.

<unk> posted a strong Q1 performance across the board that exceeded our guided metrics Q1, billings exceeded expectations, driven by a notably balanced environment with strong demand from new and existing customers strength in international which outgrew North America and deals across all customer segments, including multi product deals with large deal.

Values.

The rise of omni channel driven by the generational shift to E. Commerce continued to be a growth driver in Q1, and we believe will remain a tailwind for the longer term.

Q1, total revenue was $153 6 million up 38 per cent year over year or up 28% after excluding revenue from acquisitions since Q4 2020.

I am pleased to tell you that this strong performance reflects the expected reduction in the S. S. T programs compensation Formula in February and March as January was the last months under the former compensation Formula We continue to add new SSD customers and worked down our backlog.

Subscription and returns revenue grew 32% year over year to $139 3 million or up 27%, excluding acquisitions and represented 91% of our total revenue for.

<unk> services revenue was $14 3 million up 142 per cent year over year or up 58% excluding acquisitions.

The high growth rate and organic services revenue reflects stronger demand for our services, which include Nexus studies voluntary disclosure agreements back filing services and implementations.

Inorganic growth was largely driven from strong licensing and registration work from our business licenses acquisition and to a lesser extent tax recovery services from GTR.

Our core customer count increased by 690 from the previous quarter to approximately 15580 at the end of Q1 'twenty one.

The year over year increase of 20 per cent.

Our net revenue retention rate was 107% up from 104% last quarter and resulting in a 106 per cent for quarter average.

This reflects healthy gross revenue churn consistent with last quarter.

While we were pleased to see in our or improve over Q4, we remind you that our <unk> is calculated using total revenue, which is subject to the impact of nonrecurring professional services.

And our are also currently excludes upsell revenue from our S. S. T program, which has been growing meaningfully.

In 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 in the earnings press release that was issued just before this call.

Gross profit was $113 2 million in Q1, representing a 74% gross margin.

This compares with gross profit of $79 6 million and a 71% gross margin in the same period last year.

Gross margin improvements have resulted from automation activities that slow head count growth in our compliance and content functions as well as improved pricing and more efficient consumption of our cloud infrastructure.

Sales and marketing expense was $58 5 million in Q1 for 38 per cent of total revenue an improvement of more than 300 basis points year over year.

We still intend to investing aggressively in sales and marketing capacity in 2021 as long as we continue to see a healthy demand environment.

Q1 research and development expense was $33 9 million or 22 per cent of revenue up slightly from 21% of revenue in Q1 'twenty.

We continue to invest aggressively in building, our global cloud platform integrating acquisitions and building new capabilities to drive long term growth and cost efficiencies.

Q1 general and administrative expense was $23 million or 15 per cent of revenue versus 16% of revenue in Q1 'twenty.

Q1, operating loss was $2 2 million, which was better than our guidance largely as a result of stronger than expected revenue and gross margin.

Q1 net loss per share was eight cents in the quarter based on 85 4 million shares outstanding.

Total deferred revenue at the end of Q1, 'twenty, one was $225 5 million up 36% from $165 4 million at the end of Q1, 'twenty and up 29% year over year, excluding acquisitions since Q4 'twenty.

Calculated billings is a non-GAAP metric that takes into consideration revenue and the change in deferred revenue as well as the change in contract liabilities.

Calculated billings was $171 8 million in Q1, 'twenty, one up 47% year over year or 37%, excluding the impact from acquisitions since Q4, 'twenty on revenue deferred revenue and contract liabilities.

We were excited to produce 37 per cent year over year organic calculated billings growth, which reflected a strong demand environment and an easier comparison from the COVID-19 impact on Q1 'twenty billings.

Free cash flow was negative $31 9 million in the first quarter compared to negative $26 1 million in the same quarter last year.

The level of cash consumption in Q1 was expected and was largely driven by the payment of our annual corporate bonuses large insurance renewals and the renewal of various large software licenses.

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

Our cash and cash equivalents were $638 8 million at the end of Q1, 'twenty one an increase of $188 3 million from $450 5 million at the end of Q1 'twenty.

I will now conclude the call by providing guidance on revenue and non-GAAP operating loss for Q2 and for the full year 2021.

We'd like to update you about our revenue mix expectations. We now expect a slightly higher mix of professional services and other revenue in the range of 8% to 9% of total 'twenty 'twenty. One revenues. This is predominantly due to our expectation of the mix from recent M&A and not a change in our core business strategy.

For Q2, 2021 we expect total revenue between 153, and 155 million, which represents a 32% year over year growth rate at the midpoint of the range or 25 per cent year over year, excluding revenue from acquisitions closed since Q4 'twenty.

These figures reflect the S. S T price reduction, which we believe produces a growth headwind of approximately three percentage points.

We expect our Q2 non-GAAP operating loss to be in the range of $8 million to $10 million, reflecting a ramp and more aggressive spending for M&A integration sales and marketing and research and development.

For the full year 2021 we expect total revenue between 650 and $654 million, which represents a 30% year over year growth rate at the midpoint of the range or 24% year over year, excluding an expected $37 million in revenue from acquisitions.

<unk> closed since Q4 20.

We estimate these figures are approximately three percentage points lower than they would've been without the S. S T 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 talent additional content, new technology and geographic expansion.

We expect our full year 2021, non-GAAP operating loss to be in the range of $15 million to $19 million.

Flexing your ramp in more aggressive investments for M&A integration sales and marketing and research and development.

We continue to expect a modest level of free cash burn in 2021, consistent with what we shared on our February 2021 earnings call.

Please note that our virtual analyst day will be held on Thursday may 27th in conjunction with our virtual crush annual users conference.

Also we will participate in upcoming conferences, including Bank of America, JP Morgan Needham Stifel and William Blair in the second quarter.

Thank you for participating in today's call at this point, we would like to open up the call for your questions.

As a reminder to ask a question you need to press star one on your telephone.

To your question press, the pound or hash key please standby, while we compile the Q&A Ross.

Our first question comes from Merrill.

For women with Goldman Sachs. Your line is open.

Okay. Thanks, so much for taking my question and congrats on the great results here.

I wanted to ask about the sales motion for the company I know you built this company Scott.

With each partner network, bringing leads closing those leads primarily in the ametek's platform historically, but now.

The product is involved in so much broader and youre doing enterprise level deals. So can you talk a bit about how that sales motion and culture has been evolving how the sales team is doing obviously in closing.

You know kind of some of these cross sell opportunities and you know.

Where I'm kind of going with this is just curious how we should be thinking about the net retention rate long term is the expansion opportunities keep keep growing within the base things.

Sure Chris Thanks for Thanks, a lot of what I'll, what I'll do is I'll talk a little bit about our sales motion and I'll, let you know Ross I talk a little bit about our net retention rate and how how he sees all that coming together, but I mean for US we've had a really simple formula I mean, we we know that you know as we've been emerging this market we have.

The build out you know a qualified team of inside sales people that could react to the leaves that we were creating throughout the business and that is both direct and indirect.

<unk> leads and over time that that was generally going to be you know a a it'll just a ground up effort. We also had to have a what I call. Our Sam team right, which is the team that is working with partners and growing partners. So those leads generally.

Continue to generate and we're keeping them and their sales teams engaged.

And then once you build out that team you know you have the ability to go after all of our partner you know all of the partner network that we have and I think that we were really successful in that and we talked a little bit about that at the other you know right. After the IPO and you started to see our our results of of the cash.

Cost of sales going down you know tremendously because once we build that out once we got that going.

We were able to add other partners along the line you know whether it'd be the large marketplaces. The large e-commerce solutions, where they were doing the selling for us and and we were just picking up the deal. So we've had a really strong motion of let's protect.

Our mode and once you earn the right and that's really what I've always said you must earn the right to go after these big E Commerce businesses. The large partners the large marketplaces and once you earn that right. Then you have the ability to sell to them at a much lower cost basis.

And we have been really successful at doing that and then you know on the upper end you know Chris what we what we really talk about is because we've sort of earn that right in the mid market because we've been building out our product level because we've been you know working with our partners we've been able to gradually.

Move up the the market in the first thing that I would say is is it new go to the upper end of the mid market and the upper end of the mid market. The sales motion is almost identical to the rest of the mid market. So it wasn't a huge you know transition for us now going up to the global 5000 or the fortune two.

Here in the United States, where it's really a you know a rip and replace I mean that said that takes a different motion that takes more tax technologists that takes you know deeper you know our industry knowledge by you know by your.

By your sales team and by the people that are supporting that that that team and obviously you have to support all of that on the on the backend as well, but but we've been able to do that and we've got work to do as we move even further and further up the market you know we've got to build out some of those those.

Those those different skill sets, but we're pretty good at taking Amit the opportunistic deals that we get and both doing you know takeaways and and and competitive wins in those spaces. So I'm really encouraged with where we're going at both you know the the upper end of the market.

And and at the lower end of the market with it through our partnerships and then obviously I you know we've always dominated that mid market. So Ross I mean, you can say a little bit how that sales motion works for them.

Hi, Chris.

You know the way, we think about in our first analyst day in a few weeks, we're going to talk more about it and we're going to update the definition to fix the U S. S. T issue, we've been calling out but you you got to really think about us as a platform for compliance. So everything we're doing organically by with the products. We've added through acquisition. The products. We've added it's all about we've mapped.

Compliance journey of our customers in tax and tangentially outside attacks and say, okay. How can we you know help our customers more and sell more to them in that compliance journey and monetize more the way. It manifests ourself is obviously in more ways to land new customer acquisition more tip of spear weighted for land and just with.

Asian manifest in more products upfront. So we're seeing more multi product deals upfront and I think you'll see more in analyst day, how we're seeing you know higher asps upfront and then of course, we want to continue to be able to sell more to our base and up sell our base and support our NR over time and certainly our ambition is to you know the sales much.

As we can and that's important and maybe even increase that and all the time, but that you know it's early in that journey and that'll that'll remain to be seen.

Perfect. Thanks, so much thanks, Chris.

Our next question comes from Brad So for.

America Your line is open.

Oh, Great Hey, Thanks, guys. Thanks for taking my question Congrats on a real nice quarter.

I wanted to ask about the success, you're seeing with business license. Obviously, you guys are getting more and more into avalere as a compliance platform not just sales tax automation, obviously, that's core but what does your success. There tell tell you about customers' willingness to kind of look to avalere as that platform provider, there's a lot of other.

For things in the works right now with 10, 99, and I know your customer power power of attorney.

Anything you are hearing from customers and kind of their propensity to kind of add more of these types of services just given the success you're seeing there.

Yeah, Brad I mean, they're saying, thanks, a bunch I'm you know.

Business licenses and in particular, we're talking about registrations here at least that there's that's where we started out you know doing registered I've always said that doing registrations and getting people signed up is one of the critical elements of an end to end compliance solution, I mean being able to get them Register.

In the states that they are and then doing new registrations as they grow and expand is really really really key so when when we started that partnership with business licenses. I mean, we had a really good idea the debt that was going to that was going to work out and we got the opportunity to prove that out with our.

Our partnership which is how.

We like to start a lot of our M&A activities.

So we had a really good idea that that was going to work, but we also knew that business licenses supported thousands tens of thousands of licensees around the country and customers had real problems with that and so it really wasn't a stretch for us to expand what we were doing and get our.

Both our Kam team. The people that are you know doing the the hunting on the existing on the existing accounts to start selling it and adding it on and we've seen a really nice uptick in our ability to do that and likewise, you know I'm I'm seeing a lot of new deals, adding it on as well.

Typically when we do these these acquisitions it usually starts out with the Cam group selling to the existing team, but I've been really impressed with how the new sales team have been able to pick this up a T T are up and and and make significant you know sales and progress and the add on it's just I mean it.

Just goes it's just it's a proof point for me personally. This is exactly what customers want because you know that they have huge compliance needs and when they are dealing with this they are in stress, they're having issues. They want it to go away and the more problems we can solve for.

For them the stickier or services you know the more we can can get get trusted the more we can do a M.

Other add on so I think this kind of you know add on just the guests you know.

More more more add ons and more trust and more business. So I am very.

Free very encouraged about where we are in the platform program.

Yeah.

Our next question comes from Sterling Auty with Jpmorgan. Your line is open.

Hi. This is my on for Sterling I was hoping you could just give more.

Mark higher on me integration from architects want for free for the Gargle, a profession and maybe from a fee contribution that you're expecting a credit for that.

Good day since we got it yeah.

Yeah. That's it thank you that's it.

That's a great. That's a great question I mean, so dabble I think is really really interesting one.

They are a.

As I said in my prepared remarks, there that we when we see them as a sort of an entre into the low end of the market and I mean, the low end of the market. This is where you know you're at the restaurants and it flower shops and they are not you know wanting to you know deal with sales tax so you've got the.

Obviously, the calculation and you have all of the issues that they'd go around.

You know solving that part of it part of the problem, but people don't want to have to dig deepen their pocket at the end of every month end and to find the money in order to in order to make.

Make their tax payment with Dabo does is it just at the end of every day. It collects the money in advance and so its the first step and really going to you know a split payment process and so for US. We know we're going to let Davos do what <unk> does today, and we're going to work with them on it.

And her grading into their P. O S solutions that they've become really really good at and Scott some great Pos relationships and so this is our entre into the split payment and and also at the lower end of the at the lower end of the market in particular around around T. O P O.

Ross, where there's a real burden on small on small businesses to do this and so for US. It will just be a gradual inclusion as split payments you know take you know take hold in the in the.

Governmental agencies and this in the states and jurisdictions and and and then also how we can go deeper in it and exploit the relationships that they've already chart.

Started you know with the with the POS vendors, which we think is a is a very very big market for us going forward.

And on the on the guidance question or the contribution from Davos.

Since we last book, we closed ARVO, we closed symposia and we're being really transparent on the calls with breakout organic and total growth, we're not going to talk about it for every acquisition anymore.

But what we said was we're going to for the year was going to be going from $30 million of revenue from M&A to $37 million and so you can see based on the numbers. I gave you was in Q1, we did $10 5 million of revenue from acquisition.

And part of that was a you can't just extrapolate that and multiply by four part of that was a really strong Q1, we had some really good strong performance in Q1 was a little more volatile non subscription and so I think about three ways number one we're feeling really good about the acquisitions. We've done we've had really good performance in Q1.

We've increased our confidence and visibility into how they're going to play out for the rest of the year and then we also layered in the impose yeah and Diablo acquisitions in that those three things combined gave us the other view to take it from 30 million to $37 million of revenue from M&A.

Our next question comes from Brent Rakers from Piper Sandler Your line is open.

Thanks for taking the question here and I do have one for Ross and a follow up for Scott If I could Ross I wanted to drill into the underlying strength for the quarter I. Appreciate the the organic billings growth figure you gave us there, but if I look at the <unk>.

Quarter over quarter change in short term deferred I think goes up over $15 million sequentially that by far is the strongest build we've seen really any Q1 by far so walk me through whats going on there or is it broad based is it more of an enterprise share just just trying to understand the <unk>.

Your line drivers of such a big seasonal increase sequentially in that deferred revenue number of things.

Yeah, no. Thanks for thanks for parsing that out.

Great thing about Q1, and I think really Q4 as well, but it was it's been really balance it's been really strong across the board.

We've seen a really good balance between new customer acquisition as well as upsell to the base Q1 International business outgrow the U S very strong performance in international.

Seen across our segments from ESB to mid market to enterprise, we've seen really healthy growth across all the segments.

We've seen a continued trend of landing a multi product multi connector deals really exciting deals we keep highlighting them on our calls, but but it is really exciting proof of this omni channel world and how the platform is coming to play by selling multiple products for our customers. So you know there's nothing.

There was nothing unusual or or or any sort of increased duration or or more enterprise or any of that is really really a nice quarter.

Very well balanced in Q1, so that's that's a general answer around.

Certainly help for US and then Scott getting a lot of questions from investors on.

<unk>, requiring taxed or getting access to kind of their own kind of tax calculation engine.

Have to get your thoughts like what what what I know that was a company a competitor and a low end of the marketplace you saw but walk us through your thoughts on stripe requiring tax charge, obviously validates the market, but would love to get your views on how that impacts or could impact your business. Thanks.

Thanks, Dave friend, Thanks, Thanks for asking that because I'm sure. It's on a lot of People's minds out there but.

Look at I mean sales taxes, it's a pretty small community. So I guess first off I'd, just like to say congrats to mark and his team right because it does validate this market I mean, I know you said that but it really does do that it's a proof point about how important sales tax compliance is.

In the marketplace today I mean.

Sales tax for compliance in general, it's not a sideshow anymore, It's front and center in Congress and that's essentially what what stripe was saying.

You know in their press release, and what and what they know and I know about as much about what theyre going to do as you do but the reality is is what they're doing mean.

There's really no no bearing on on really where we are we just fundamentally see the market differently.

I mean, we believe in an independent third party.

Across all competitive groups, where you can aggregate data and you can file and and you can deal with end to end compliance I mean, we just do not believe that this is a market where we're single platforms. Kenneth you know Kenny can exist you know look at every quarter I T.

For you about the moats I mean, yeah, we've been we've been doing I've been doing this for 17 years and the partner moat.

M <unk>.

Is really hard to develop and we have over a thousand different partners and that's what I'm talking about is aggregating and it's really important in an omnichannel world.

And when you get the content you know E content is really hard I mean, you think you've got it but there's always more that you can that you can do and we've been at this for 17 years doing not only the U S and around the around the world and we believe that in a.

L a.

The world of Internet anything anywhere anytime any place that you just have to be able to handle all that different compliance and and although you know like stripe can do whatever stripe can do it I mean, there are there are they are a big company. It's just.

A long journey to get to the point, where you can serve the full end to end customer base of partners. I mean, it's one thing to be able to deal with the smallest customers, but you have to be able to deal with their most complex customers and it doesn't do any good if you have to build out the small ones and then have.

The turnover the larger ones down the road and we get you know not I mean theyre not comes on the door of the phone rings every time customers start out small and then they have to go to a larger I mean, a larger more complex.

The omni channel tax environment, that's where avalere I really really shines and I don't see that changing at all at all.

Certainly be able to sell to their debt.

Their own their own base at the at the low end, but that's not where we see the market going in the long run. So we just fundamentally have a different approach to you know to wear to work to where they are and and as you can see from our customer wins and the things that we were talking about it really does play out in an omni channel.

Way I hope that helps.

It really does Scott certainly helpful and I appreciate your thoughts there. Thank you. Thanks, Brian Thank you.

Our next question comes from Matt Stotler with William Blair. Your line is open.

Hey, guys. Thanks for taking my questions.

We've got a couple on the enterprise opportunity starting off I mean, you you talked a little bit about the you know kind of development towards a.

Direct sales force and enterprise capabilities there.

But obviously the channel is just as important to the enterprise as it is in the core mid market.

So.

We'd love it if you could just maybe talk about where you are in establishing those enterprise focus partnerships and what you see as the most crucial relationships to be successful in that move up market and you know, particularly considering that the.

The strong relationships that potential enterprise partners may already have with income of providers in that segment of the market.

You know I'm going to I'm going to punt. This one to Ross share for a second because he does a really good job of explaining how we talk about the enterprise and the big deals I mean, because I think there's a difference between the large deal sizes and then enterprise in general and then I'll come back and give you a little bit of Oh.

The color on the partnerships, but I think to get a basis of how we think about it is probably the right place to start.

Yeah, I mean, I think when we think about enterprise when we talk about.

Companies with over 500 employees in enterprise and so for US Theres about 20000 of that was in the U S. M.

And you know what you'll say split that into 15005 thousands of 5000 is where Scott I'll come back and talk about what we're doing around partners and integrations and all the things that we're doing there to win the largest 5000.

I'd say its one for us it's about two things just doing bigger deals for any size customer whether it would be those 15000 mid market customers, even I think you'll be surprised when we get to analyst day, you know how how we're doing them at the lower end of the market in terms of Asps.

And so we've really been focused around the product expansion and the platform expansion and the go to market to be able to sell more to customers of any size and increase the value we're delivering to customers.

And then second really when those top 20000 and in the top 20000, I'll just take those 15000 upper mid market.

Our lower end enterprise, we really view that as our wheelhouse and an end and we see those deals all the time and these are deals that are complex their omni channel they usually one cloud.

They've got a they've got a.

They've got a cloud ERP, they've got an e-commerce platform. They may be on multiple marketplaces. So their omnichannel plays right into our strength, they're usually global and so theyre looking for U S content International content and then they usually need multiple products not just calculate turns but certs and in international and cross border and used tax and so we really.

Feel good about the the partnership base that we've that we've built and the strategy we've taken to Windows and now it's really about continuing to move up and win and win the 5000, which is more displacement than in what we're doing there is based on the on all that we built around product and platform and now really expanding the go to market and the partnership so Scott if you want to talk a little.

What about you know some of them some of the partner and channel things, we're doing share I think we've alluded this to.

I mean quite a bit in the past and I think Ross nailed it just right on the head I mean, those 15000 those are same partners those other partners we deal with today.

And we're just doing bigger deals with them and and as a result of that you know we you know, we we learn and build out our product. So it really goes to you know the largest cut kind of customers that are out there now as we move up to the fortune 2000, or the global 5000, I mean, that's a different that's a different.

Story, I always say that that that.

That group is dominated by the Royals and when I say the Royals I mean, those are the big the big for Ah and large integration groups and that's been an area for us that we've had to develop over time and you know the vertex is in the in the <unk>.

They've had a long term relationship with them on Prem and now with their fledgling E. They're they're flooding cloud.

Products, but as they move to the cloud it creates opportunity for us to to step in its a buying decision. Our job is is to maintain you know, adding the features and the.

A M.

Improving our products. So we can handle the most complex cases, which I believe that we are well on our way of.

Having done and continue to improve on and developing partnerships with the integrators and it's not only just the you know the upper end big for its the integrators that are doing the work on behalf of those.

Those are those those integrators that we've that we're developing relationships with so I've always said that that fortune 2000 is opportunistic for us at this time I mean, we continue to.

To push that envelope I M.

I know, we're putting pressure upstream and we're going to continue to do that and and you know the more we win the more that the upper end of the market has to take you know us into account because we are a player.

And we are going to be there and we are going to win our fair share of takeaways and deals up there. So I mean for me. This is just a long strong sort of approach to tier.

To moving moving upstream protect what we have at the at the mid market.

And they dominate in those 15000, as Ross said and end and when our way you know through the partnership's.

That we have to improve and build on at the enterprise level, but we're doing that every single day and we will continue to move upstream.

Right, Yeah, that's what I hope for color and maybe just a quick follow up on the kind of the new building the product to platform piece and obviously you've added a lot of kind of key components.

Last year or so use tax custom rules.

Exemption management stuff like that I guess, what's next right, where the remaining gaps in the product side that you're kind of focused on you know when you're looking at that kind of upper end of the enterprise. Thank you for you know like we've said you know like we said before mean from a from a compliance cloud platform perspective, I mean, it's already been mentioned on the call.

<unk> you know we've talked about 2000, 1910, 90 nines W. Nines W. Eights, you know there's other theres property tax that's out there you know we have to build out you know more international more international content.

You know we have to integrate the things that we already have I mean, I really think.

Doing the Imposure and all of the invoicing from a from an international perspective is really really important. So we've got a lot in the you know already in the company that we have to the build out, but but theres still quite a bit of the platform.

To go on and there's more document types. You know that you can that you can deal with so there's lots of things that we can that we can do both currently what we have and in the field and in the future.

Great. Thanks again, thank you.

Yeah.

Please limit yourself to one question and the other participants time for questions again, if you'd like to ask a question for star one on your telephone.

Our next question comes from.

Plenty plenty.

Your line is open.

Hey, Thanks for taking my question Scott.

Last year around this time, you talked about your vision to becoming a multi product company do an end to end complex smartphone moving upmarket downmarket. So help us understand how the journey has been in last one year in terms of Daus initiative are driving your growth and then you know.

For a previously you talked about Avalon being in meat 20 per cent Greer. So does this initiative now.

Changes your growth profile and if so like Ross.

How should we think about day.

You know, we've all I mean, I'll just start with the last part first and and you know we just fundamentally believe that this is a.

That's a long strong growing business and mean I don't think we see it changing dramatically over what we've been telling everybody along along the way even with the platform I mean, the platform is going to keep it you know going strong for Logmein.

A long period of time as we add all of those but I would say you know from my perspective.

And I'll change it slightly your question and go into you know how do I prioritize I mean, how do I think about you know what we're doing you know I wake up every single day, and I'm and I'm thinking how do we continue growth growth is my our primary M.

Objective.

Wanted to do it efficiently and we wanted to bring all the efficiencies we can but how do we build.

That that the platform to scale not only in the short term, but in the long term you know and if you want to break that down even further I say job number one for our for US here and I think we're doing an excellent job of that over the last year is to protect and scale our partner mode protect.

What we have continue to grow it you know expand and win more deals in the mid market move upstream as Ross and I just talked about.

We have to advance in the enterprise.

We have to win.

And protect the down the lower end of the market as we've talked.

And we have to break out even more in international and I think we've done an excellent job.

And balancing that that that those those objectives and I think you can see that in our results and and I think that those results will continue as a result of us being so focused on what what you might say are simplistic things, but for us that's how we see building this.

Business.

A quick follow up if I may you said, Florida for today is the last one launching this economic Nexus law, but have you started seeing states enforcing these laws they post pandemic.

I mean, they are all they are all enforcing it in their own their own way, but for the right for the for the time being right now they're focused on you know the.

The COVID-19.

Pandemic and dealing with that but they're all starting to as I've said in.

Previous calls they they start looking at you know the number of auditors that they have you know the number of you know how.

How theyre going with wood with digital.

With digital audit ways of looking at how people are performing and which ones have crossed over the net the nexus thresholds and so sending them letters that says you need to start you know file.

Filing here, we haven't seen that so they're all in different stages of how they're doing that but what I would point out to everybody and and and I've said this before and I think it's really important the governmental tailwind have been with us for 17 years, and theyre going to be with us for another hundred other.

I mean, that's just the reality of what governments do and and what and what that means is is that yes. They are a tailwind, but the trigger events and the things that are happening you know the ROI discussions how you know what what are they doing with the growth of their business and the growth of e-commerce different.

So those are the things that ultimately drive the drive it but it's but they're coming on the tails of real good strong tailwind and that's exactly what you're seeing in Florida. That's what you saw in <unk> and in the example of the Vaping law I mean, there's changes all the time, that's just forcing more and more compliance.

Our next question comes from Stephen King Your line is open.

Hi, Thanks for taking my question I.

I just wanted to know if there's maybe and I know you talked about in your prepared remarks about that takeaway deal that that she 2000 customers wanted to see if any reason where we can expect these takeaway used for main maybe a normal current in each quarter like maybe change the sales motion.

And to build upon that M. I was curious on any new features that you've recently added that you've seen have been widely adopted within enterprise level customers, whether new or existing or maybe any features that might have tipped the scales for them to sign with you.

So takeaway deals and competitive wins and I know we've pointed we pointed the one out here, but we've pointed those out in previous.

Quarters, I mean, we just see a steady stream of those I mean, I can't say it any other way I mean, we we win those deals and I would say you asked what what do we what do I attribute that to one I think our product is better I think our team.

Is better at identifying those and working with our partners and and and and and our selling motion and how to sell those bigger deals because it's a new motion for us and we're learning that as we as we go along so world. You know were you know very early in that in that process and we've got a you know a lot now.

Tank.

To continue to to fill out and grow there so but I would say the thing that really distinguishes us from everybody else is the omni channel aspect of what we do and these big customers don't have just one system and now with E Commerce and and.

P O S and all the things that they're dealing with they are looking for a solution that handles all of those and that can provide them with all of the tax research that they need at the at the at the at the back at the back end. So I mean, it's really a culmination of all the things that we've been talking about but we really.

See it at the upper end when we when we go to do Battle up there that the omni channel is the difference maker.

Yeah.

Yeah.

Our next question comes from Scott Berg with Needham Your line is open.

Hey, guys. This is Josh on for Scott.

Since you've introduced returns for small businesses with a lower price point curious how that product has increased your funnel of new customers, particularly from a competitive standpoint, when when paired with S. S. G for the other 25 states you're more competitive than ever on price and you have a broader product portfolio versus the competition in that segment.

Segment of the market there.

Yeah, I mean, it's a growing area for us and it's something that you know we've always we've always had in one form or another but but I think it's now taking a new price prom.

Prominence and how we're going to go to market with our big with our Big partners right in the end in the end I mean calculation is nice I mean, you know.

And people can build calculations, especially simple calculations and even at the lower end. They can do it with a single API call.

So, adding things like cross border simple cross border and things like that make you know all offerings, even at the ESB level, you know better but compliance is mandatory.

And we've just said we want to own that own that market, we do millions of of.

<unk>.

Tax returns every every year and you know we wanted to extend that down to that down to under that lowest possible possible in and it's not you know and I would just say when it's everybody. Just says hey, it's just simple to do returns are I I do returns, but there are state returns theirs.

There's local local and jurisdictional returns I mean, it's a it's a hard nut to crack and as you point out I think we have a real competitive advantage at that low end for the broader for for the broader compliance play and it's you know it's at the low end ESB.

But every one of our Big partners net suite, you know all of the different companies. They all have ESP customers and we want to be selling to.

To them and that's a that's a new motion for us. So we're really excited about that growing and that would be one of the future proofing parts of our business.

Our next question comes from.

With Morgan Stanley Your line is open.

Okay.

Hey, guys. Good afternoon, and thank you so much for taking my question.

Maybe going back to.

When you were talking about it recently.

Couple of questions ago, which is international.

With the acquisition of and Sylvia now under your belt.

How are you thinking about.

Growth in international for the remainder of this year.

And then I have a very quick follow up.

So I mean, I I mean real quickly you know we saw great traction in in Q4, and then continuing acceleration in Q in Q1 of international we have a I mean, I guess the best way to say it is is that we believe that the international market and in the U S market.

Or are equal and maybe even bigger internationally and so it has to have strong growth over time I mean, that's just a mathematical.

Certainty and we fundamentally believe that that that the markets are are equal. So we're you know we're expecting it to continue to grow and as we build out our product and we add more features like you said with impose yet and what we're doing with you know.

All of the E. Invoicing, we're gearing up for that to be a big part of our business not only at the end of this year, but you know in many many years to come.

Perfect.

Why don't you come back to.

Ross with net revenue retention for a second.

Very nice uptick sequentially versus <unk> versus Q4.

What drove the uptick in net revenue retention and how should we be thinking about it moving forward through the rest of the year. Thanks, guys, Yeah, and I think we will talk more about in a few weeks at analyst day.

Clean some of the.

The issues with it but I think what we're seeing now is last year.

Cause of COVID-19.

While churn was still has remained meaningfully below four per cent very healthy all along we did see some tick up in churn we saw some tick up in downgrades last year. So we've seen some improvement.

And those metrics and then you know from a on the upsell bookings side of the house continues to be consistently very very strong and.

And so we continue to do well there. So I think it's I think it's sort of getting through COVID-19 improvement in churn and down sell and and continued strong performance in up sell and then we will clean up the metric and get it get it in better shape for you in a few weeks.

Our next question comes from Peter Levine with ever.

Macquarie Your line is open.

Well, Greg Thanks for squeezing me in here.

There's one on the unresponsive five big Commerce partnerships, what has surprised you either I would say for the upside or downside. So far for this year and then are there any other partners connectors within your network worth calling out that doesn't necessarily get as much airtime as these two thanks.

You know.

Wait.

We are we have an excellent I think an excellent relationship and growing relationship with Shopify. You know, we're really we're really pleased with how how that's how that's developing and growing.

And the same is true for what we're doing with Amazon and some you know some of the others.

So you know from.

Our partner relationships is what avalere as distinguish itself itself on mean, we have found a way to you know to work with them to get them started learn with them monetize you know the business and that's changed and that's constantly being able to look at what we're doing together jointly and see how we can.

Do it.

Or oh through it through the through the partnership and I mean, I wouldn't call out any other ones that you know that that they probably don't get the airtime, but but I would say this just as a general rule of thumb everybody talks about these big all the Big partners and Ross has said this before.

I've said it before the long tail is so critical so those are the that's the unsung heroes of Avalere a right. Because you know everybody can say they go to the big ones, but man a lot of these big deals are driven by you know smaller e-commerce sites are small.

<unk> Erp's more specialized ERP in specific industries those thought I mean, those those 950 partnerships that we have that are in the top 50 that everybody knows about maybe we get a lot of business out of that Ross will talk a little bit about that in in.

Our analyst day, but you know the long tail. That's that's the that's the call out that I think that you are looking for and for US. There is no competition in that space there aren't other none of the other players have been chosen to be built out. These are the partners that are <unk>.

<unk> avalere into them on their what their own dollars right. So they don't want multiple players in it they don't want to have to do it. So you know and I think that that's really you know the the area that that I would call out.

Yeah.

Yeah.

There are no further questions at this time.

Turn the call back over to Scott Mcfarlane, co founder and CEO for closing comments sorry.

Sorry, we went a little long day at.

Like to take this final opportunity to thank all the employees here you know what avalere and all of the new employees that we have from the companies that we've purchased in and all the customers and partners for all their hard work and support in order to sort of make all of this come together. So we look forward to talking to you on our next call. Thank you all very.

Very much appreciate it.

This concludes today's conference call. Thank you for your participating you may now disconnect.

Okay.

[music].