Q2 2021 Avalara Inc Earnings Call
All sizes continue to replace on premise applications with cloud services. The concept of cloud compliance has shifted from a novel approach to an expectation in the market.
1 of the drivers of this shift is the economic efficiency delivered by cloud services and automation.
Beyond Covid, we expect our cost efficiency and ROI messaging to continue to resonate and be a key driver of purchasing decisions with our prospects. We saw these trends play out with our customers and partners wins in the second quarter.
Here are just a few examples we want a large enterprise deal with the it infrastructure company for a deal value of the $233000, which includes annual recurring revenue onetime software and services. The company selected Avalere as do our unmatched partner integration strategy, where we were able to integrate with all of their.
Transactional systems, including net suite, 1 world of <unk>.
Well known E Commerce platform, our recurring billing system and the expense management platform. In addition, we won a large enterprise deal with 1 of the world's largest online wine marketplaces for a deal value of $157000. The.
The company selected <unk> due to our shipping verification product, a recently announced enhancements to our avalere a beverage alcohol industry solution.
We want a couple of large international deals, including 1 of Europe's fastest growing technology companies for a deal value of $280000. We won the deal based on our connector with a well known payment processing provider and our SSD program. This deal includes managed return services in 26 countries.
Fiscal rep in 6 countries and ongoing compliance positioning us as a global tax compliance provider.
In addition, we wanted to deal with a leading beauty product company in Switzerland.
At $250000. This is a multi product deal, including avid tax SST and third capture the company is also working with us on future projects to meet their global regulatory requirements, including VAT reporting Imposure <unk>.
Ctr fiscal wrapped in filings duties calculation and harmonized system classifications, as well as India and Brazil compliant.
With the leading cloud customer relations management platform.
And cross border, we went to med Spa company for a deal value of of $84000 due to our integrations with a leading sales cloud software platform and a popular customizable e-commerce platform.
We also want a malty product omnichannel deal, including TCR with a funeral products company for a deal value of $76000.
1 of my favorite deals as of fencing products company for a deal value of $32000.
This 20 year old Canadian company with selling their products in the United States and the business started to expand and grow rapidly 5 years ago. The.
The owner of reach out the Avalere after receiving a letter from 1 of the state where they sell the company was managing tax compliance manually and did not realize the business was at risk.
Winning this deal with the company that has been doing business for years and was significantly out of compliance exemplifies why I stick with the firm belief that overtime every business will automate tax compliance.
If you step back and think about it.
All of the customer examples of just discussed we are selling across the economy and nearly every industry from it services to fencing products the funeral services.
We believe we built 1 of the most defensible moats and all of the software with over 1000 signed partner integrations and growing.
We offer far more integrations with business applications than any other tax software provider and we never stopped working to add more.
As demonstrated by our broad and diverse customer wins Adler's partner moat continues to be a key enabler.
Especially as business of ship, the Omnichannel commerce and seek a single tax compliance platform that can integrate to multiple the spirit system.
Integration in the niche business applications are often major if not deciding factors when evaluating abelard. So the long tail strategy remains important.
We are continuing to expand and deepen our relationships with partners at all levels of our ecosystem and we're making good progress.
And E Commerce and marketplaces I'm excited to announce the expansion of our cross border business with 1 of the world's largest online marketplaces.
During a recent analyst day, we stated that we have of dedicated team to focus on 800, plus marketplaces globally and that investment is paying off.
As of March 31, we counted 228 marketplaces as customers and the occur in the seat at the table with the world's largest marketplaces by demonstrating our ability to help customers identify and address the compliance challenges.
No I'd like to talk a little bit about Adler's R&D machine and how our investments are accelerating our platform journey, allowing us the outpaced the market.
3 years ago, we started of major transformation, we tripled our investment in R&D head count and moved our cloud services.
Of the AWS.
Today, approximately 1 quarter of our employees working R&D we.
We hired engineers and engineering leaders with vast experience from major cloud companies to build modern cloud first solutions.
We are now witnessing the sharp advancement of Abu <unk> compliance cloud and as a result, we have a much bigger opportunity to serve our customers.
While others are building on premise of point solutions in the cloud the focus on tax.
We are building a global cloud compliance platform that will support a broader complement of compliance interaction.
Based on feedback from our portfolio wind, we believe 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.
In 2021, we expect the deliver more than a dozen new and significant products and major releases that will include documents central.
Transfer pricing of software version of cloud connect any new content subscription service for our product information.
We are expanding our mode with new content that we acquired through T. T. R and are opening up new industries to sell to we continue to expand our partner with our new integration studio Ah Loco No code way of building connectors and extractor is so we can accelerate the long <unk>.
<unk> of integration.
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 the space.
We leverage M&A to expand our tax content repository advil.
Add new capabilities and technology and expand our geographic expansion.
In today's digital first the economy merchants of any size have the ability to sell across multiple channels and geographies and employed multiple disparate systems. The power of the end customer experience, that's where avalere. It comes in with our unique and compelling value proposition.
As we discussed at our recent analyst day over time, we expect to add new content to support completely new areas of compliance flow.
Character and other leadership trade among soldiers.
Kristen trainee bring more than 50 years of combined leadership expertise and technical prowess across industries to our board.
The addition to the board will help ensure that we are able to continue to build a world class cloud platform and develop leaders who are equipped to guide our teams through our rapid global expansion, which are essential to avalere as future success.
As we've always said, we believe we are a long and strong business with low penetration in a large addressable market and of long term play based on automating statutorily required functions.
We believe we are outpacing the competition and driving the future of global compliance.
We are excited the raise our guidance yet again for fiscal year 'twenty 1.
And we believe we can grow and scale out valera into a multi product multibillion dollar revenue company over time.
Thank you and with that I'll turn it over to Ross.
Thanks Scott.
<unk> posted an outstanding Q2 performance across the board the next.
Exceeded our guided metrics.
Q2, billings exceeded our expectations driven by balanced execution across the business, including strong demand from new and existing customers strengthen the international which outgrew the 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 the E. Commerce continued to be of growth driver in Q2, and we believe we will remain the tailwind for the longer term.
Q2, total revenue was $169.1 million up 45% year over year or up 32% after excluding revenue from acquisitions since Q4.2020.
We were pleased with our strong organic revenue growth, especially given the impact of the reduction in the SST program compensation Formula starting in February of this year.
Subscription and returns revenue grew 40% year over year to $152.4 million or up 33%, excluding acquisitions and represented 90% of our total revenue.
<unk> services revenue was $16.6 million up 109% year over year the high growth rate in services revenue was largely driven inorganically by the Q4.2020 acquisitions of business licenses and PPR, which offer professional services for licensing and registration and tax recovery services.
During the second quarter of 2021, we revised our core customer calculation methodology to include revenue from our SSD customers, which results in additional customers being included in reported core customers.
In addition, during the second quarter of 2021, we also revised our net revenue retention rate calculation methodology to include revenue from SSP that previously was not included and to exclude professional services revenue as the services tend to be more onetime in nature.
We have included both the revised in previous key metrics methodologies for our core customers and net revenue retention in the table at the end of our financial results press release.
Our revised core customer count increased by 840 from the previous quarter to approximately 16570 at the end of Q2, 'twenty, 1 a year over year increase of 21%.
Our core customer count under our previous definition increased by 830.
Our revised net revenue retention rate was 116% up from 113% last quarter, resulting in a 115% 4 quarter average.
Our NR under our previous definition of increased to 110% up from 107% last quarter, resulting in a 107% 4 quarter average.
We were very pleased to see both NR rates improve as the result of strong sales execution with our existing customers, coupled with improving customer retention dynamics.
Q2 revenue from revised core customers grew 29% year over year to $135.4 million.
Q2 revenue from non core customers grew 59% year over year to $18.3 million, primarily driven by strong growth and execution in EMEA.
Q2 revenue from M&A was $15.4 million.
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 $125.2 million in Q2, representing a 74% gross margin.
This compares with gross profit of $85.7 million and of 74% gross margin of the same period last year.
Subscription gross margins were 76% up slightly from the year ago period.
We continue to focus on increasing our subscription gross margin over time through our ongoing investments in automation. However, our improvement in subscription gross margin will be partially offset by gross margins on some of our acquisitions and less mature products are.
Our total gross margin will also be impacted by the mix of subscription and professional services revenue sales.
Sales and marketing expense was $63.8 million in Q2 or 38% of total revenue an improvement of more than 120 basis points year over year.
Assuming the healthy demand environment persists, we intend to invest more aggressively in sales and marketing capacity in the second half of 2021.
Q2 research and development expense of $34 million or 20% of revenue unchanged from 20% of revenue in Q2, 'twenty, but included a higher benefit from capitalized software in the current quarter.
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.
Q2 general and administrative expense was $24.8 million or 15% of revenue versus 13% of revenue in Q2 'twenty.
Q2, operating income was $2.6 million, which was better than our guidance largely as a result of strong revenue and gross margin and some expense favorability in R&D and other areas.
Q2, net income per share was <unk> <unk> in the quarter based on $89.5 million shares outstanding.
Total deferred revenue at the end of Q2, 'twenty, 1 was $239.4 million up 43% from $167.7 million at the end of Q2, 'twenty and up 34% year over year, excluding acquisitions since Q4 of <unk> calculated billings is a non-GAAP metric that takes into consideration of <unk>.
Revenue and the change in deferred revenue as well as the change of contract liabilities.
Calculated billings was $181 million from Q2, 'twenty, 1 of 52% year over year.
We were also excited of produced 38% year over year organic calculated billings growth, which reflected a strong demand environment and an easier comparison from the COVID-19 impact on Q2 'twenty building free.
Free cash flow was $20.2 million in the second quarter compared to $5.5 million of the same quarter last year.
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 <unk>.
Price reduction, which we believe produces a growth headwind of approximately 3 percentage points.
We expect our Q3 non-GAAP operating loss to be in the range of $5 million to $7 million, reflecting a more aggressive ramp in second half spending, especially in sales and marketing research and development and M&A integration.
For the full year 2021, we expect total revenue between 672 and $676 million.
Which represents a 35% year over year growth rate at the midpoint of the range or 26% year over year, excluding an expected $50 million in revenue from acquisitions closed since Q4 'twenty.
As a reminder, M&A as part of all of our DNA and we've 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 $10 million to $14 million, reflecting a more aggressive ramp in second half spending, especially in sales and marketing research and development and M&A integration.
We expect this level of non-GAAP operating loss should produce a modest level of positive free cash flow for 2021.
In closing, we have an exciting opportunity to continue building of durable growth compounding company.
We believe we are leader in a large market that is still early to adopt tax automation technology.
We are seeing of demand transformation as businesses become omni channel operating many jurisdictions and shift their business. The e-commerce in the cloud these changes coupled with an ever changing regulatory environment make it even more difficult to maintain tax compliant and we believe requires automation at.
At the same time, we are evolving to a platform company driving and the increased supply of products and capabilities to increase the value we are able to deliver to customers.
We also continued to invest to win upmarket downmarket and internationally.
Can continue to compound growth for the long term.
For all of these reasons it often feels like we're just getting started.
These notes were participate in upcoming conferences, including Canaccord Genuity City and Piper Sandler in the third quarter. Thank.
Thank you for participating in today's call at this point, we'd like to open up the call for your questions.
Thanks, very much Ross if you would like to ask a question. Please press star followed by 1 on your telephone keypad.
1 of the Pan to ask your question. Please ensure you Amit lately.
And if you would like to withdraw your question. Please press star followed by <unk>.
Our first question is from Bob sales from Bank of the Max Securities. Your line is open. Please go ahead.
Oh, great. Thanks, so much guys and congratulations on a real nice quarter here.
I wanted to ask about the expansion opportunity as you get into other compliance offerings here, you've obviously shown some real success going into licensing landed cost.
Other tax categories, but as you get into some of these other areas.
Like like compliance $2.99 for example.
The property tax employment shipping logistics things things of that nature is there of different sales audience. These are these are mid sized organizations, but youre increasingly moving up market. So.
Perhaps.
If you could comment on how different that sales audiences. If at all or is there of some kind of common compliance organization that you find that sponsors avalere that you can then go into these other areas.
Thanks, Brad.
Appreciate it.
So.
The like we've stayed very close rate with the with the business licenses and registrations and doing 8 I mean returns and exemptions.
So I mean those are all the sort of the same audience that we are that we always that we always see now most of these taxes are sort of managed in the same arena, but we often see them as as different and buyers are different champions within the organization. So it's a little bit its stretch.
As the sales organization of little bit and in some cases, we will.
To continue building out the of.
A different sales force for those particular for those particular areas could be property tax something like that now I will say $10.99, <unk> of <unk> is something that avalere had tested the water and for many many years.
We had partnerships with the.
Yeah.
Various vendors that allowed us to do 10.99 of <unk> very very successfully.
It ended up that some of those partners got bought by other players and the like and we were.
We're unable to continue that line, but we know with our sales force that we can sell pending 10, 90 nines W. Nines W. Eights, because we've done it really really successfully in the past.
So I'm not really concerned about our ability to broaden our offering because I think that there is a huge thirst within the.
The tax community and within the businesses to automate these antiquated systems.
That's really what this is really about is how do you take compliance.
<unk> that.
<unk> really not had the attention of automation and bring that automation to bear that really helps the customer and does it in the trusted relationship and many of the the areas that we can add tie into our relationships with our ERP is where we have a unique situation.
<unk>, where we're tied into the backend of those accounting application. So although they might have a slightly different sales motion.
It does all fall into the same general area within the businesses.
<unk> indirect tax property tax and the like and we're really adept at doing that and have a great relationship with with our customers. So I'm excited to the V branching out because I think it works really really well.
That's great Scott. Thanks, So much and then 1 more if I may.
Obviously, multi omni channel Commerce is a key driver here and the results suggest acceleration there and those trends ERP upgrades has been another trigger that has been a catalyst for customers to adopt <unk> alara could you classify the environment for ERP upgrades.
Some channel feedback suggests that just across the ERP ecosystem, we have seen some pause, particularly in the large enterprise segment on the ERP upgrades for back office type projects during the pandemic.
What are you seeing in your end of the market and could that be of tailwind of the business, perhaps if things are improving there as we get into reopening but whenever that happens happens. Thank you so much.
Well.
I mean, let me just pull it up 1 level of real quickly and then we will go down there.
We're just really in a fortunate position and where we've got 4 really main major <unk> that are helping us right. We've talked about it in the past.
You've got E. Commerce, obviously, you said omni channel, but it's really driven by ecommerce you've got the regulatory sort of pressures that all of the businesses and everybody is playing on and then the.
ROI model.
The IRI.
Aspect of the business, which were really helping customers.
During difficult times, and helping them automate the back of the house and then cloud adoption in general I mean, those are the 4 big drivers that we're just fortunate to be involved with right now and I can say at least 2 of 2 or 3 of those are generational.
And the 1 you mentioned omni channel I mean, certainly as the has really been been driving it but that's the way that sales taxes going because it.
Body thinks about I need to get any of our peer I need to get our E Commerce I need to do other things. It's really the combination of all of those it's the all of the financial applications that you have to aggregate data from and then get to the government. So that's just the backdrop of of your question and I think that's what we're really benefiting from.
But specifically around ERP.
It's really.
That is we're seeing a comeback of that.
And of significant comeback of that.
<unk>.
In this quarter.
Really proud of the of the <unk>.
Partner team in and Amit and all of those that are just really taking advantage of the situation where look people are looking to make efficiencies theyre looking to that ROI that that.
Net ROI decision and part of that is ERP and the long what gets dragged along with the ERP is that trigger first for sales tax so.
It's been a it's been a good quarter for us and we're seeing a nice comeback there.
Thank you Scott.
Our next question comes from city panicked <unk> from Mizuho Securities. Your line is open. Please go ahead.
Hey, guys. Thanks for taking my question.
Congrats on the great quarter, so when I look at even the <unk> growth organic.
On the organic business, all sorts of such a big seasonal increase sequentially.
Im wondering how sustainable some of the trends.
Scott do you talked about going forward and and when you think about the opportunity you talked about moving up and down market multiple products going into <unk> and even made a lot of that because you said. So wondering what are the near term opportunity youre seeing thats going to contribute contribute versus some of the amount of long term.
Well I mean.
Again.
I just said I mean, we're really fortunate to be in this in the situation, where we've got 4 major <unk> that are that are driving us sort.
Of this very moment in time.
I mean.
Interestingly about sales tax and I always talk about this with everybody.
Indirect tax in general is it the statutory requirement.
So youre doing this for the calculation for a small business is the same as this calculation is for a big business now there may be some features and some things that you have to do in order to build the market, but moving up and down is not a difficulty because of that statutory now.
Now I think what makes it really interesting for <unk> and in general and what really drives us and why I think that this is.
Sustainable over the long the long term is that.
This is a partner business, we can't go to market.
Except by going to market with the people who are creating invoices and this is what we're really really good at so moving up and down the market is our ability to 2.
To really work with the partners like we have with the Shopify. The Wix is in all of those others and then for us to move upstream.
As as we're as we've been talking about so I, just really don't see our motion is significantly different we just have to continue to execute at the high level that we've been.
We've been that we've been doing Ross you may have some some thoughts on that as well yes.
1 of AD is when you say sustainability I'd say exactly we've always talked about this as a long and strong business.
And we're building of durable business and we want investors to think about us as a 10 year story, where we can compound growth and build a multibillion dollar company and so we think about ourselves is how do we drive sustainability, it's not how do we maximize growth in any quarter of year. It's about how do we sustain it and roll off of really big market and so when we talk about gone up debt market down market.
And our market meeting internationally, some people will say well of that too many things well no. It's not all in this quarter of this year, but it's about outpacing the competition running really fast and having a strategy and a vision for how we're going to went up market. However in the wind down market and then as Scott said, it's really just about execution, so with the ability to reach.
Sustainability is there and it comes down to having great talent and execution.
Let me just say 1 final thing because I think it just really.
Amplify is where we think we are and where we think the market is I mean look I mean.
We know how this plays out this is an interesting.
Business right, because we know what the end result is the end result is.
That.
Everybody is going to be automated around.
Around the sales tax and transactional taxes I mean, this concept of doing it manually in the digital World I've always said is absurd. So you know the end result, and Thats I mean, when you're when you're in that situation I mean, the sustainability of it is not actually the worry because you know where you where we're going we just.
Have to get the right partnerships, we have to execute the way that we have to mean that we have to do in order to get business efficiently and.
Grow as quickly as we need to that that's where the that's where our effort is but from a sustainability perspective I just really fundamentally believe that this is a really long and strong market.
So 1 of them.
Full of too that you talked about R&D investment of 1 third of your employee non working there, but in terms of investing in sales and marketing and mainly.
Customer success, what kind of changes you are making to address this kind of multi product multi segment customer of that youre targeting.
Yes.
That's a great that's of great question in <unk>.
I mean, I fundamentally believe that we have proven 1 of the things that we set out the prove after the IPO.
We could really scale and grow our sales, but did not have to do that in conjunction with cost, meaning the efficiency and I think that we have proven that and I think Ross has made this and he can comment for himself on this 1.
In the past that we've maybe turn the dial even a little bit too far on the efficiency around sales and around sales and marketing and I think 1 of the things that youre going to see in the.
The second.
Half of this year and in the next year, we're going to try to dial up some of the the noise on our sales and marketing. So we really get out there and let people know that sales taxes and issue.
<unk> is there to solve the to solve that problem will probably expand.
In areas around our our partner relationships will start to the.
Add more more more salespeople throughout the throughout the organization and we will make a much larger.
A larger impact on on where we go from.
With people up in the enterprise, So I think youre going to just see us start to move the same way we've done in R&D.
We'll make a shift and start to do that.
In sales and marketing as well.
Thank you thanks for the color.
Thanks Eddie.
Ladies and gentlemen at the gym to remind debt piece, if we can just stick to 1 question.
Our next question comes from Sterling Auty from Jpmorgan Sterling. Your line is open. Please go ahead.
Hi, This is maria on interest bearing.
Clarifying question first of that 840 core customer net additions of that include customers from the acquisitions and I guess, that's still kind of what is that contribution.
Look like.
It does not yet include the acquisition as we add them into the core customers. We highlight that so now it does not include them yet.
Okay, Great and then I guess just in terms of the international expansion are you, mostly targeting from the end market customers.
This point or.
Or is it more broad based and cold tomo from hydropower.
What is the strategy there.
For the for the most part of our strategy internationally is slightly different than it is domestically here the.
Areas that we've targeted in in EMEA, and Brazil is really around multinationals.
Tom.
That's really where we see.
A lot of opportunity easy easy to get into.
Easy for us to.
The work with them I mean.
Don't want to say that we're not in the mid market, but it's.
It's mid market and upper multinational companies and I will say that.
With the.
Advent of the Internet and the business internationally. Many many companies at all sizes are multinational.
So we find ourselves.
Working with a variety of customers, but it really is more of a multinational focus.
Okay, great. Thank you.
Our next question comes from Brent price Lin from Piper Sander Brent. Your line is open. Please go ahead.
Hi, guys. This is actually Hannah of Rudolph on for Brent today. Thanks for taking my questions. I guess just building on the last question. It's good to hear about the strong international growth this quarter.
Regarding the impose the acquisition that gave you a stronger foothold into Europe I was wondering if you could share an update on what you've learned in any new challenges or opportunities.
<unk> seen as you address the tax complaining landscape in Europe.
Well, it's a little early for us to.
To be talking about Imposure.
But listen I mean.
We've always known that international is the big market, we say, it's a larger tam than we have in the U S.
Tom.
We're expecting it to outpace the.
The U S going forward, it's on smaller numbers today.
So we're really pleased with the way that the team is developing.
Developing us internationally and.
From as far as <unk> goes.
We know the basis of what Theyre doing invoicing is the future. So we have been working with them 1 to just grow that business.
Net standalone business, and we're doing that with them, but integrating it into the broader strategy and as that happens I mean, we know that it will open up more and more opportunities there is more and more multinational companies that want to.
To deal with the E invoicing.
<unk>.
The requirement so.
A little early to give you a bunch of specifics, but we're very very confident that this is the way of the future and building it into our into our offering from an end to end basis is going to make are going to make a difference Ross.
You have anything to add.
I think it's Scott I'd, just say international is going well.
I really think just bring you back of the quarter was really the gold medal quarter for my opinion I mean.
Total revenue of 45% year over year of growth billings of 52% NRI ticked up in international is another big highlight as well is sort of just starting attaching of new M&A in and so international on its own the direct business did well our large marketplace customer did well and impose the other contributors youll see it in the Q as a couple of million dollars in the quarter.
But that really just came online in April and so this is a big opportunity to expand our partner moat globally, the continuing to expand in the any day any connect to any application on 1 side and any government on the other side over time, and so we'll be integrating that into the platform in and it gives us a really good set of technology and capability.
<unk>.
To continue to drive forward long term of international So really pleased with the quarter really pleased with how international is doing and opposes the big part of our strategy.
Super helpful. Thank you.
Thanks Anna.
Our next question comes from Matt.
From William Blair. Your line is open. Please go ahead.
Hey, guys. Thank you for taking the question.
I guess from my question.
I'll just ask on the the vertical bundles I thought that was 1 of the really interesting things come out of the analyst day.
Any update you can provide in terms of.
The progress of building those out of initial interest that you're seeing in the market for those and how you kind of expect that to develop going forward.
The Matt I'll take that 1.
And just for everybody in analyst day, we talked about our evolution to a platform company. Both the platform technology stack and how we think about platform as the company driving our future and expanding beyond within and beyond indirect tax and part of the evolution of our platform is having a solutions layer of pop where.
Sure.
In the past, we built applications SaaS applications that we sell count returns of specific applications that leverage everything underneath it that would be like our integrations API is our content layer and so what we wanted to do is where AEP API of buying everything so that we and our customers can start to attach to those capabilities in <unk>.
All of their own workflows.
They can buy SaaS apps that of pre package, where they can build their own workflows are complete apps and what we wanted to do is have of solutions layer, where we can reach down into the stack and we can.
The kids figure solutions that are geared towards geographies verticals.
In other other regional.
Industries basically verticals.
So that we can have basically deliver more.
Value to our customers and sell it in the way that they want to consume it I would say that's early that's just getting started that is what we're doing and are executing on.
But it is early we do have designs around different verticals and what are the core components that they want 1 of the things out of the base line must have 1 of the things that they're gonna attached to it.
But we still have some work to do and actually building those out as product type solutions and selling them in market. So I'd say stay tuned on that over the next bunch of quarters as we as we really build that out and getting into the market.
Just remind everybody that it mean tax.
The tax automation as we see it it's a multi dimensional problem. That's what's so cool about it right because I mean your question goes to 1 of them and when we're solving this multi dimensional problem. We're looking at tax types, whether it be sales tax or.
Whether its communication taxes or alcohol beverage taxes all of those different tax types. You also have geographies and everything is a little bit different industries.
But what you alluded to with the with the with the.
Of the different segments, and then and then all of the segments themselves.
Enterprise mid market and the like and.
We are taking a comprehensive look at how we tackle each and every 1 of those dimensions.
That's what I think makes it really really really special is the special industry to be in and I think avalere as approach to it is really 1 that that I'm proud of.
That's great. Thanks again.
Thanks, Matt.
Our next question comes from Daniel Jester from Citi. Daniel Your line is open. Please go ahead.
Great. Thanks, Good afternoon, Thanks for taking my question.
I appreciate the color on the enterprise win in the script I was just wondering are any of them cross sells from PTR customers and I guess just more generally how is that cross sell motion happening given the fortune 500 customer base. They have thank you.
So I mean, they're really short answer to it is yes, yes, yes. It is and it's in the pipeline is building as a result of it I mean these are not the main deals as everybody knows in the enterprise world that it that it is.
Happen overnight, but the pipeline some of these deals and many more in the pipeline are growing out of it because.
These customers they trust <unk>.
We are.
They they are.
Part of their extended tax family and as a result of that Avalere is getting pulled into discussions, but frankly, we would not have gotten pulled into at this moment in our in our in our growth in that market. So it is a strong growth area for us.
Great. Thanks.
Okay.
Yeah.
Our next question comes from Scott Berg from Needham Scott. Your line is open. Please go ahead.
Hey, guys. This is Josh on for Scott.
Just digging in on the ERP triggered question when you say youre seeing more activity from the ERP is driving business here in the quarter or is there also a lot of activity from the legacy of SAP and Oracle ecosystem.
Driving opportunities as well and is that creating the source of competitive takeaways from on premise competitors. Thanks guys.
Again, the short answer on that 1 is.
Yes, I mean.
Our second quarter results.
For our core sort of established market around ERP.
It was a significant improvement than what we saw last year doing during COVID-19 I mean, a significant increase and so the.
And that is the result of both new <unk>.
<unk> and existing.
Business.
And as a result of that new and existing especially existing it just puts a lot of pressure on the.
The established markets of <unk>.
<unk> of our competitors.
And.
We're winning our fair share of those those.
Those.
Opportunities.
Okay.
Our next question comes from Stan <unk> from Morgan Stanley Stanley. Your line is open. Please go ahead.
The first.
And congratulations on the great quarter and thanks for.
At the time can you sort of about elaborate more on that.
We should be think of that net revenue retention and long term as you continue to expand upstream.
And also based on the back to back strong increases from the prior 2 quarters.
Yes, Yes, Ross, let me I'll give you some general commentary NRI, because we don't guide to it.
As you can see it's improved in our analyst day in May we came out with the revised metric, which we had been telegraphing for awhile that fix the SSD PSU and moves at the subscription revenue and exclude the professional services revenue. So we're reporting both numbers.
For the rest of for for the rest of the year. We will report both numbers. So you have it.
And both of them ticked up in Q2.
Pretty meaningfully and I think as we talked about last year, we hypothesize that in <unk>.
Covid, we had a little bit more churn.
Then net than prior to Covid, not nothing scary, but a little bit more churn and we have more down sell than prior to Covid and we had hypothesized that there was a wait there on IRR and that as we get get through Covid.
Things improve.
We hope that that weight would lift and therefore, the downside would alleviate and our upsell bookings in other words selling more things of our existing customers have been doing really well and so youre seeing a quarter here, where upsell bookings has been strong and I think we're getting a little weight, a little less pull down on the downside of the IRR and therefore it has improved.
You also have.
The easiest comp year over year to be fair. We're Q2 last year had some tough things in it from Covid.
So we're not guiding to where this is going to go it's a little bit too early at the new metric. We gotta go the more comfortable around things before we give you guys sort of of benchmark around it but what I would say that we talk about internally and this is really an ambition. This is really the sort of we believe we want to do not of commitments statement is we've got all of them of products organically Inorganically.
Nicley, we're mapping to the value chain of our customers and we've showed in our analyst day, how we've been able to raise the ASP per customer to new and existing and so our ambition is to keep ticking that up over the longer term not necessarily over the next quarter.
So I hope that gives it gives it gives it gives you some guidance, it's definitely inhibition of ours to keep moving up.
Our final question is from Peter Levine from Evercore. Your line is open. Please go ahead.
Oh, great. Thanks for squeezing me in sort of just 1 is could you update us on your ASI partnering opportunity, obviously, youre picking up or at least have enough influence with your customers that partners, who wanted to get more involved. So curious how you see partners influencing your pipelines close rates or even expectations on kind of what they bring on the support.
The service side. So just wondering if you guys a little bit more color around that thanks.
Sure.
From my perspective, I mean, <unk> was founded on the concept of being a partner based business.
I mean that is 1 of the things that we do.
Prided ourselves on and we never really want to be in a position, where we're competing with our with our with our channel.
And from an Si perspective, I mean, it's it's 1 of those those things that I've talked about.
We have to continue to expand that area, especially as we move up market, our relationships become more and more and more critical and our motion with them becomes more and more critical.
And so I mean.
I mean, my instruction to the team and everybody is is that we need to continue to push that both at the <unk> level and at the at the at the Big 4 accounting level. So.
That is 1 of our big areas and I have talked about how as we move upstream half 2 day.
Develop the muscle inside the company to work with what I call the Royals.
And the big 4 so.
I think the.
We're making really good progress there both in our product and in the.
The the talent that we're bringing into the organization and how we're moving upstream. So I'm really excited for that sort of phase of the business, where the the size and the in the and the big the big accounting firms play a much more important role in the business.
Thank you.
At this time, we have come to conclusion of our Q&A session. So I'll now hand back over to Scott Mcfarlane from the C. K.
K founder of Avalon.
So I'd like to take this opportunity to thank our employees customers and partners for their hard work.
And support.
For what I consider to be of gold medal quarter.
We look forward to talking to you all in and hopefully seeing you all on the next call Ross and I are back here in the office for the first time and it's nice to be sitting across from your off Ross. Thank you it's awesome.
Thanks, everybody talk to you soon.
Thank you all for joining today's earnings call you may now disconnect.
Disconnect your lines and have a lovely day.
Yeah.
Yeah.
Yeah.
Okay.