Q3 2021 Avalara Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Avalon third quarter 2021 earnings Conference call.
All participant lines are in a listen only mode. After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
To withdraw yourself from the queue Press Star one again.
Thank you I would now like to turn the call over to Jennifer <unk>, Vice President Investor Relations. Please go ahead.
Subject to risks and uncertainties that could cause actual results to differ materially from expectations.
For a discussion of the material risks and other important factors that could affect our actual results. Please refer to the risks discussed in today's press release, our annual report on Form 10-K filed with the Securities and Exchange Commission on February 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.
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 Dot Avalere Dot com.
With that let me turn the call over to Scott, Thanks, Jennifer and welcome to everyone. Joining our Q3 2021 earnings call.
Q3 was another great quarter for Avalere us demonstrating the strength and durability of our business model we.
We reported Q3 total revenue of $181 million, representing an increase of 42% year over year.
One of our strongest quarters in history.
When combined with the first half this was the best fiscal year to date performance in terms of revenue growth rate since going public.
Our strong growth was driven by solid performance across the business and the addition of strategic acquisitions that we close since Q4 2020.
Even excluding acquisitions organic revenue growth in the third quarter increased 29% year over year.
Once again I'm excited to see a very balanced quarter with success points coming for many key initiatives.
<unk> been more relevant.
As further validation we are honored to win significant independent third party recognition from IDC, demonstrating the impact we are making in the industry.
IDC recognized avalere as a leader in three reports covering worldwide SaaS and cloud enabled tax automation software for small and midsized businesses enterprise and value added tax.
Being recognized as a leader across all three IDC market skate categories. Further validates the pioneering innovation our teams are delivering to best serve our customers around the globe step.
Stepping back we started our journey in the SMB market with aspirations to dominate all segments.
Today, we are a leader in SMB, a massive greenfield opportunity and minimally penetrates and over the past few years, we have successfully invested in expanding our reach into the enterprise small and international segments.
As I've said before it's a long term journey and.
And we have a bold vision to be part of every transaction in the world.
Our leadership recognition validates what we've been saying over the past few years and we fully expect that our position in these industry analyst reports will continue to grow as we execute our vision.
As I've mentioned before Avalere is in a unique position to benefit from four major trends, we are seeing impacting businesses of all sizes.
Including the fundamental shifts in the fabric of commerce and regulatory obligations.
Along with rising adoption of cloud based infrastructure and ROI expectations in the market the growth of Omni channel Commerce is a generational opportunity Fravel era.
Businesses are adopting our expanding e-commerce and marketplaces, selling our excellent prospects for us as their omnichannel complexity and compliance exposure growth as more businesses of all sizes continue to replace on premise applications with cloud services the concept of cloud <unk>.
Clients has shifted from a novel approach.
Samples.
We want a large enterprise deal with an iron products company for a deal value of $224000.
Which includes annual recurring revenue, one time software and services.
We wanted the deal due to our prebuilt integrations with several disparate systems, including a leading ERP application, a leading finance and operations application.
An accounting software package and the business process management application. We also want an iconic American snack brands, great deal value of $75000 due to our ability to integrate through their entire quote to cash process, including our integration with a leading finance and operations application.
And two separate commerce platforms next we want a large international Multiproduct deal with a U K based sporty E Taylor for deal value of $295000, including cross border duty classifications.
Sales tax the termination in 40 states that G. S. T determination for the new European Union that regime called import one stop shop, or Iowa, and the UK governments, making tax digital as well as access to R. S. S T program.
We continue to see success, winning deals with our <unk> and T T or go to market strategy. As one example, we want an auto services company cordele value of $48000, including Abatacept, Sir capture and our battery entire content from T. T. R tax research the competition under deliver.
<unk>. So we brought in our T. T R experts and took the deal away. Additionally, we won several competitive wins and takeaways first we want a competitive take away for a screen company for a deal value of $143000, replacing an on premise vendors.
We wanted to steal by having all the required products, including Ametek's P. T. R research registrations, Sir capture and consumer use that.
Next we wanted e-commerce platform for a deal value of $97000, including Ametek's, Sir capture and S. S T.
To go and experienced rapid growth, but was managing the process manually and for only one state. This is a great example, where economic Nexus thresholds, where broached quickly in a complex product with state the state nuances of taxability created the trigger to call avalere up to keep them.
Compliance we believe we built one of the most defensible moats in all of software with over 1000 signed partner integrations and growing in fact, a recent IDC report highlighted our moat by stating and I quote Avalere as experience gained from thousands of customers using these integrations for you.
Years has made it a no brainer for buyers to pick Avalere and competitive situations. That's why our strategy from day, one has been to offer far more integrations with business applications than any other tax software provider and.
And we never stop working to add more we are continue to expand and deepen our relationships with partners at all levels of our ecosystem.
We have put ourselves in a leading position to expand our partner relationships across industries and tax types and we are seeing new opportunities. As one example, we are excited to announce that we recently signed a partnership with a leader in enterprise management software for convenience retail and petroleum wholesale markets.
This is a major win travel era. The company has agreed to rip and replace their own native reporting of returns module with Avalere as returns for X sight as their OEM reporting solution and be jointly name marketed and sold to their enterprise customers in oil and gas. The company also intends to build a connect.
Or into our calculation and determination engine with initial plans to make this available to enterprise customers next year, giving us a brand new channel in which to sell our entire technology stack for energy into some of the largest enterprises in oil and gas.
So at our analyst day in May we announced that we entered into an agreement to assist shopify and supporting their cross border duties and tax solutions I'm excited to share that as part of Shopify as recent shopify markets launch the duties and tax solutions are now available in early access.
This is scaling nicely with targeted plans to be generally available to all shopify merchants in the coming months.
This solution enables shopify merchants to classify their product catalogs with international tax codes and calculate cross border customs duties and taxes at the time of sale recently Shopify declared that now every merchant is global by default.
And we are excited to help shopify enable the future of global Commerce.
Station and added return.
And continue to expand into other indirect tax types over the last few years today, we are moving beyond indirect packs into areas of direct pets, such as 10, 99 and property tax increasing our Tam as we build the most robust compliant platform in the market to expand our range of compliance solutions we are.
Acquired track 10, 99, a provider of online software and services for cost effectively managing E filing and he delivering I R. S. Four including 10 99 W. Twos W. Nine and more track 10, 99 supported more than 40000 customers with their filing needs and tax.
You're 2020 by acquiring track 10, 99, we are adding technology content and expertise to our platform and team.
We are delighted to welcome founder Lindsey West and the team attract 10 99 for the Apple or a family next we acquired the assets of crowd reason a developer of SaaS based property tax compliance applications as well as a related property valuation and advisory service business to help solve property.
Tax challenges according to the U S census Bureau data from 2018 state and local governments collected a combined $547 billion in revenue from property tax or.
Or 17% of general revenue.
Property tax revenue as a percentage of state and local general revenue was higher than each of the general sales tax revenue individual income tax revenue in corporate income tax revenue in 2018, we are delighted to welcome founder Carl him Keith and the team a crowd reason to the Apple or a family.
Adding property tax content and software to our global compliant portfolio extends adler's footprint into a large and exciting new tax time, we believe our customers and partners will value our platform for end to end compliance automation and the consolidation of today's fragmented landscape.
Professional services revenue was 16.9 million up 95% year over year.
The high growth rate in services revenue was largely driven inorganically by the queue for 2020 acquisitions of business licenses and T. T R.
As a reminder, during the second quarter of 2021, we revised our core customer calculation methodology to include revenue from R. S. S T customers, resulting in additional customers being included in reported core customers.
We also revise our net revenue retention rate calculation methodology to include revenue from S. S. T that previously was not included and to exclude professional services revenue as these services tend to be more one time in nature.
We have included both the revised and previous key metrics methodologies for core customers in that revenue retention rate and a table at the end of our earnings press release.
Subscription and professional services revenue.
Sales and marketing expense was $67 3 million in Q3 or 37% of total revenue compared to 36% last year as we discussed last quarter. This reflects our intention to increase our investment in sales and marketing in the second half of 2021.
Q3 research and development expense was $36 3 million or 20% of revenue down from 23% of revenue in Q3, 'twenty, but included a higher benefit from capitalized software in the current quarter.
Absent the increased capitalization Q3, R&D expense would be roughly in line with the year ago comparable period.
Q3 general and administrative expense was $26 1 million or 14% of revenue down from 15% of revenue in Q3 'twenty Q.
Q3, operating income was $3 5 million, which was better than our guidance largely as a result of strong revenue and gross margin and some expense favorability from capitalized software and slower hiring than forecast.
Q3, net loss per share was <unk> <unk> in the quarter based on 86 5 million shares outstanding.
And in more jurisdictions.
Revenues from this partner accounted for approximately half of Q3 international revenues with the remainder coming from our EU direct business as well as international sales efforts in other regions, including Brazil and India.
Free cash flow was $6 4 million in the third quarter compared to $25 9 million in 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 seasonality and levels of our billings and expenses as well as our overall level of investment in the business or.
Our cash and cash equivalents were $1 5 billion at the end of Q3, 'twenty, one an increase of $472 million from $1 1 billion at the end of Q3 'twenty joined.
During Q3, 'twenty, one we closed the convertible debt offering and raised $959 9 million in net proceeds after deducting fees and expenses.
I will now conclude the call by providing guidance on revenue and non-GAAP operating loss for Q4 and for the full year 2021, we continue to expect the mix of professional services revenue in the range of 9% to 10% of total 2021 revenues.
For Q4, 2021, we expect total revenue between 183 and $185 million, which represents a 27% year over year growth rate at the midpoint of the range or 23% year over year, excluding revenue from acquisitions closed since Q4 'twenty.
We expect our Q4 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.
For the full year 2021, and we expect total revenue between 687 and $689 million, which represents a 37% year over year growth rate at the midpoint of the range or 28% year over year, excluding an expected $57 million in revenue from acquisitions closed.
Since Q4 2020.
Expansion opportunities with a number of industry, leading partners and is gaining the attention of business is grappling with the complexities of both national and global E Commerce compliance requirements.
The international landscape is also changing fast we believe new regulations aimed to make calculating a reporting transactional taxes more real time, which will require software automation solutions. We also believe E. Commerce is increasingly enabling even small businesses to be global merchants, and thereby having to face a wide range of tax can.
Clients complexities that also require a software solution and finally, our recent organic and inorganic product additions will help us transition to a platform company, where we can offer a broader range of compliance solutions, thereby expanding the value we can provide our customers.
As we consider these great opportunities for additional investment efficient growth remains important to us we have demonstrated our ability to drive leverage and non-GAAP operating loss and based on our 20th 21 guidance expect to produce positive free cash flow for the third year in a row to complement or 36% three year.
Revenue growth CAGR how're.
However, we believe the momentum in our business compelling customer economics and unique position a large market all support more aggressive investment in 2022.
Again, we plan to provide detailed guidance on our fourth quarter conference call in February but our early 20th 22 investment plans result in a modest non-GAAP operating loss margin of just a couple of percentage points of 2022 expected total revenues.
In closing, we have an exciting opportunity to continue building a durable growth compounding company. We believe we are lead or any large market is still early to adopt tax compliance automation technology, we're seeing a demand transformation as business has become omnichannel operate in many jurisdictions and ship their business e-commerce in the cloud.
These changes coupled with an ever shifting regulatory environment make it even more difficult to maintain tax compliance without automation.
And at the same time, we are beginning to evolve to a platform company driving and an increased supply of products and capabilities to increase the value we deliver to our customers.
We also continue and invest to win additional segments and geographies. So that we can continue to compound growth for the long term. Please.
Please note, we will participate in upcoming conferences, including Bahrenburg and Stevens in the fourth quarter.
Thank you for participating in today's call at this point, we would like to open up the call for your questions.
Hello to focus on the the new Erp's, because it's it's such a great trigger for us and that's happening, but the you know the real the real challenge. The rail road ahead of US is how do we go deeper you know into you know the existing that the existing chant channels that aren't you know upgrading but they're having.
One of the other triggers like you know, they're moving into a different straight the state or they're going global you know or you know they've had a change in their accounting department and the C. F O New C F O or control. It comes it. So you know that's really that's what I'm really looking for is is how do we expand out into the base, but we're seeing a nice.
A trend with the with the new with the new yuppies as well.
Great to hear Sky, one more if I may I. Please just on the international side of the business, obviously, you're starting to see some real success. There yeah. It looks like it's outpacing the business overall could you remind us what what it takes to address international from a content standpoint are you there or do you feel like you have that footprint already in place to really go.
After it and material away are there still some gaps there uhm any color on that effort. Thank you so much.
No bread I I remind everybody in our company. This you know all the time I mean, when we when.
Organic development.
In your platform, even now from tax direct or indirect and business license and even even voicing it feels like you're becoming a block from where your intermediary between government agency in businesses. So who do you think that approach where do you see Ah the remaining opportunity how big is it.
The opportunity to help us like the area you could expand and and then as you are expanding how do you see is it more displacing smaller solutions there or is it more greenfield people are minute businesses are managing manually and you can come in and bring automation help us understand that opportunity.
Sure you know.
<unk> your priorities is it more on the R&D side integration or more tuck in acquisition or even like in the go to market enterprise sales could you help us a little bit on that.
Yeah, Yeah absolutely.
And if anyone missed the prepared remarks, we talked we gave some color on 2022, when we talked about just a great investment opportunities, we see and that we were thinking early thoughts and we're still in the budget process around a couple percentage points non-GAAP operating loss as a percent of revenue.
And so where where does that investment go with the question and the first area I think about as research and development we've been running.
Uh huh.
The low twenty's as a percent of revenue in R&D, we expect that to remain in a similar area for next year. So continue to invest heavily in that area as we look to build out the platform. They talk that Scott talked about expanding in the indirect and beyond Theres new products, we've been launching theres, new M&A that we're integrating.
Your next question comes from Brent <unk> of Piper Sandler.
Yeah.
Thank you and good afternoon, I guess, maybe we'll start with Ross.
Scott if I could Ross can you remind us what the S. T kind of revenue mix. It was in the quarter and I know that that contract was renegotiated entering the year and just remind us what the potential headwind from that contract renegotiation was in the quarter.
Yeah.
That's S T and we were trying to get away from calling it out because we've I think done a nice job of talking about it since last year to give everyone.
A true understanding of what was going to happen in walking you guys through what what what did happen and how it's affected the year and I think it's been a great year overall, even with that so I think we managed through it quite nicely youll see in the 10-Q. It will talk about S. S. T. A Q3 us SSD increased by $2 7 million.
So you you guys can do the math and you'll see it slightly below corporate revenue growth so consistent with our commentary over the last several quarters, we said coming into this year, it's going to grow fast it's going to start to come down throughout the year because of the pricing change.
Which is offset by volume additions and as we go into next year, we won't have that pricing headwind anymore. So things will normalize next year.
And for you know many many of the different you know a larger larger larger vendors and I think youre starting to see that you know as I called it out in my prepared remarks, you know the second wave.
Of these players coming along whether it'd be ebay square.
<unk> you know Shopify, you know some some of those and I just think.
You know for 17 years, we've put ourselves in a place where you know you have S. S. T. You have cross border you have the ability to take care of all their customers across their entire markets. You know you have all the connectors in place I think it's a it's a formidable moat.
As as to how those how those play out I think in our press release yesterday, you know with our explaining our.
New Shopify relationship I think that's a portion of it.
We build out cross border, which I think is a natural.
For E Commerce providers I Love, what Shopify said you know it's it's you know every business is global I've always believed that I think it's you know people need to deal with with the duties and and and.
Yeah.
I mean, all of that at the at the front end not down the road. So you know right at checkout. So I think it's a natural play and it tightens our relationship with <unk>.
With shopify, it and I think it shows it shows off are our strengths I mean, you know I think.
The IDC report I think it really captured the way I'm thinking about it you know we put ourselves in a position with our with our deep partnerships and all the customers that we have and those that we become a no brainer when people.
Go to choose a solution and we are the easy one to to do or you know we've got all the modern capabilities and so it's a natural for us and that's just the way we think about it how do we improve our position to be able to take on these larger and larger customers and earn.
You know earn the ability to do that we did that with ERP is we did that with the ecosystem and now with this second wave. We're in the process of doing it than I like and I like where we're standing in it.
That's great to see the partners, noting that strategy here. Thank you so much.
Okay.
And then as a reminder to ask a question. Please press star one also in consideration of time. Please limit to one question. Your next question comes from Matt Stotler at William Blair.
Hey, guys. Thanks for taking the question.
Yes.
Just just one in the interest of time, so we'd love to get an update on.
The accounting firm channel, specifically and how that kind of partner ecosystem is building out both in terms of kind of the interest youre seeing.
And the investments you've made and product specific to that channel and any early traction there as.
As well as your thoughts on kind of a roadmap for continuing to enable that channel going forward.
Sure you know I've I've always been an enormous fan.
This of this initiative.
<unk>.
I think it's really important just to remind everybody you know.
What we've done is Wade I mean, and Avalere as history. When we started doing returns in 2006, we've built out a.
Fantastic platform for for ingesting and for information and getting it onto tax forms and getting those tax storms forms filed and have the ability to follow that up with the with the payments and we always thought that you know back in the day, we always thought that we would be able to.
Just build it and they will and they will come and as we became more mature in our in our thinking of the space. It's why should we fight with the big four why should we fight with accounting firms, let's let's just take what we have and provide them too to you know to the accounting firms and allow them.
Two to use what we've already built and can charge that as a revenue source, so rather than competing with the accounting channel, let's say, let's use the accounting channel and help them make money and build them. It's just part of our strategy of how do you always look to partner first.
And do that and so with that in mind I'm pretty pleased with where we mean with where we are mean, we started out with a group of beta with a group of beta users.
Users already built in I mean, I think we're proving out the concept every single day and and you know we're starting to see the you know the uptake. These are big changes for many of these firms. So it's not something that happens overnight, but I know that this is a a and an area that.
Will pay huge dividends for for Avalere up you know next year and the year and year going forward.
Your next question comes from Scott Berg of Needham.
Hey, everyone.
This is Michael Rackers I'm on for Scott Berg.
So much for taking my question and congrats on the quarter.
Just one quick one for me.
It sounded like content was really picking up a lot of steam for you guys.
And I'm just kind of curious on that side. You know are there any other areas of content and that you think you might need or you know would be beneficial to really excel in the enterprise market.
If there are any.
Thank you.
Sure I mean.
I wasn't I wouldn't characterize it as content is eating up I mean, because the way I would say it is the man that we started this company content was under four on the front burner.
The reality is this right. If you don't have the right content you it doesn't matter how many partnerships you have it doesn't matter. What you do you cannot calculate for them and so you know we've you know we've made a real effort over the years to build out our what I would consider a world class.
Our content team that spans many many areas from cross border to you know to to sales to VAT. So I mean, all all over the world. So I mean, we're on a long.
Long term journey of content. So having said that I mean, you know content does play a huge role for us, but not so much I would say you know is it in is it in enterprise or is it in mid market. Because I mean, you can be is it mean, if youre if youre doing candles I've always said this if youre doing candles.
You can do it you know out of your home and the taxability in the and all the content is the same if you're a big producer selling candles all over the world. So the comm has a tenant has to be there for big and small.
I mean, that's just a general that's just a general statement, but content for us right and where it does play with multinationals and where it does play throughout the world is when we want to go international.
The biggest thing that we have to solve is content you move into Asia. You know you have to have all of the appropriate content you move from Brazil, which were entrenched in and you wanted to go to Mexico or or Argentina, It's all about content.
And so content plays an important role for us in all your acquisitions are really acquisitions about doing.
Getting getting bigger and better and and the right content. So I mean, you know as we look at M&A as we look at all sorts of things content is always at the at the fore of what we do.
Okay.
Your next question comes from Stanislawski of Morgan Stanley.
Hi, guys. This is Ben on for Stan.
Thank you so much for taking my question.
Please provide details around FX impact on the quarter.
Uh Huh I didn't catch the name but.
FX.
Very minimal very minimal right now I don't think FX given international about 8% of revenue there is a little bit of impact, but it hasn't been enough to be calling it out so I would just say.
It's a minimal thing that that we don't that doesn't boil up to call out at this point.
Your next question comes from Peter Levine of Evercore ISI.
Great. Thanks for taking my question congrats on a good quarter.
Maybe just the first one or actually the only one within the Shopify E. Commerce channel I mean are you seeing an uptick in conversions ourselves I think the trends you've seen with ecommerce I would assume usage would pick up so I mean, maybe help us understand what does it take for these customers to kind of trigger a certain threshold of usage for you all.
To kind of be able to go back to them direct upsell them. So really just want to understand how the conversions upsells among that channel.
<unk> been trending thanks.
Sure.
I'll address it at the front end and I'll, let Ross jump in and and and and and talk a little bit about the you know the numbers and trends and things like that but what I would say is is that you know are our relationships with these partners are all always strengthening and we've been seeing you know I would say.
I would characterize it is as we are seeing really good good progress and our ability to work with them and get the messaging out to their to their partners.
I'll just refer to shopify in and how they've jumped.
Jumping on the bandwagon and started to tell their customers that you know that they need to deal with this threshold they need to you know take.
Take care it takes sales tax Ah Ah Ah Ah.
I mean very.
Upfront and and they need to deal with it.
In their own rights and it really the minute they do that the minute. They do that it generates an enormous amount of calls and how where do I go to and you know being on their platform being the provider. That's that's there I mean, we've seen a nice you know a nice uptick so.
Pleased with that.
And you know that our conversion is it.
Has been improving as well and so I'm pleased with I am pleased with the direction, we're going I am pleased that we're able to add cross border to it as well because I think that that's an important aspect of it. So you know I just remind everybody. The way you win in this market I mean, it's just so important.
So the way that you deal with it is you must win that partner <unk>.
And so getting in there and dealing with calculation and being their back end support for that allows you then to come along and work with them to monetize things like returns to do cross border and to expand the relationship with all of these and so the first thing to do is win the deal you have.
Must win the deal and and Avalere has been doing that you know it's in a significant fashion bras got anything to add to that one.
No I mean, I think you covered it I just think I was going to say, where you were you said at the end, which is it's all about winning the partners that are aggregators of the E Commerce.
No I mean, I think you covered it I just think I was going to say, where you were you said at the end, which is it's all about winning the partners that are aggregators of the E Commerce.
Merchants and e-commerce merchants or their omnichannel, they've got E com they've got.
They often have ERP, sometimes they have stores. So they have multiple systems are doing business in multiple channels and we tie ins all of those and if you can do that and if you could box out other competitors, you're built in and now you've got that private hunting ground to go target them and sell them other things over time, and so what I've been saying is like.
Last year, you had a surge of E comm and everyone was like well sure.
<unk> is growing faster why aren't you going faster as are all of us like all these people that just became ecommerce providers in 'twenty 'twenty some of them expanded and use more of our services they needed returns and you'd certainly need other things and we convert them to core customers of ours, and we sell them more but there's many of them.
Haven't bought anymore. They just have calc in the shopify cart or another partners card and they haven't yet fully realized the complexity and the destiny of their tax complexities and over time, we have the opportunity some returns inserts and if they're doing cross border and how they can do it natively on shopify and many other products that we like.
And things registration PCR content subscriptions, all the stuff that we brought to bear we can now sell them. So.
That's the key that that seeds is consistent long strong growth picture that we have is just on the partners.
Have that have.
That be beyond habit people calculate it on your platform and then have the opportunity to sell much more over time, that's the strategy and I think that that's what we're trying to be very consistently.
Okay.
Yeah.
Your next question comes from DJ Hynes of Canaccord.
Hey, guys. This is Luke on for DJ. Thanks for squeezing me in here. So you mentioned last quarter that you had maybe turn the dial a little bit too far on efficiency around sales and marketing and that you were looking to find a better balance in the second half of this year. It sounds like this is playing out based on your commentary maybe you could just double click.
Nick for me there just to discuss sort of how that shift is going and maybe expand on some of the initiatives you are making within your sales are to to accomplish that.
It's a I do I mean, it's really true I mean, I think we demonstrated that we can really turn the dials and and really make you know our sales and marketing extremely extremely efficient I think that for me personally.
<unk>.
The leader is.
The leader in the space or one of the leaders in the space I mean, we we.
We have an obligation I think too to really Ah <unk>.
Talk about the problem, you know and bring more people to.
So the party if you will and our CMO Jay Lee I just he gave me the greatest analogy you know what.
At one of our one of our meetings was he said today Apple era has been aspirin for sales tax or transactional tax problems right I've got a problem I'm being audited or.
One of the trigger events. So therefore I'm going to go take aspirin and I'm going to go solve that problem with with Avalere off what I think what we're trying to signal to everybody is that we don't any longer Wanna be aspirin. We think we have an opportunity and sort of an obligation is in a position to be able to teach people.
That you know be like vitamins or preventative medicine for them. So moving out of I have a problem right now take the pill and solve the problem, let's get everybody going Oh, let's get everybody to understand the problem, let's get everybody you know.
Focused on what we can do to prevent you know them.
Medical emergency and and and I think that that's that's what we're going and that's what we're going to do so I think youll see us dial up awareness spend you know I think we're going to double down on and what we're doing with our partners and really you know.
Engaged with them to get to the get to the next level.
Think will work with our our Kam team our customer account managers.
To really sell the multiple you know you know.
The multiple products that we have and I think we will organize around being able to do that both domestically and internationally. So I mean, I think it's a I think it's a you know.
A challenge for US I think you know stepping up into that role will be it will be very very exciting for the for the company and I think it's a real opportunity for us to grow.
Okay.
Okay.
Your next question comes from Alex Sklar of Raymond James.
Great. Thanks, Scott as we think about the broader compliance platform and if you see any opportunity to expand into ESG reporting compliance at all I know in the past you've kind of talked about environmental compliance as a potential expansion area I'm just curious if that vision looks like.
Hey, you know.
I I mean I.
Love that concept right I mean, you know being able to you know when we do it to a degree right today and I've said this before when we move when we tax fuel and fuel moves from one state to another state Theres lots of compliance documents that have nothing to do with tax Theyre just compliance documents that have to be.
Filed when you move goods around having that experience there are lots of environmental.
Documents that we can get involved in and although it's not something that's on my radar screen.
Right now it's something that is there and we continue to to two to think about how we can how we can build that out because in our platform and our platform vision and the platform vision that we have for the for the company being able to deal with.
Document documents and environmental documents in particular.
It's just a fantastic way to.
To prove that out.
Your next question comes from Andrew de Gasperi of Baron capital market management.
Okay. Thanks.
Thanks for that.
I just have one in particular I know you're still.
Finalizing your 2022 guidance you are giving that out in Q4.
But I was just wondering.
You brought up the couple of percentage points headwind next year in terms of the new marketplace contract. I was just wondering if that is just a function of you being conservative given that the price will probably apply them day, one and the volume benefits don't come until later on.
So we could see some improvement for that number.
Yeah, Andrew withdraws.
I just wanted to correct didn't say couple of percentage point headwind next year.
When we're talking about op loss, we've talked about a couple of percentage points of revenue and non-GAAP op loss.
While we were explaining is on the organic billings growth for Q3, it was 26%.
When you unpack that.
You look at the U S first and that was close to 30% in the U S. So it feels like where we all want it to be and then there was some.
When you go when you look international and with internationally you look at one specific very important partner.
We had a you know that's what caused the delta between that U S number in the 26%.
And that is just I was reminding everyone that there is a it's a very important large partner, we've got many opportunities with them over time to expand geographies expand what we sell with them and I think it's just a great partner to have in and Theres a lot of future opportunities and we're diversifying beyond that partner.
But but.
And where the market, where the V. A T registration and filing solution on their marketplace and they are the front end, where the backend so they control the flow of customers. So in Q3.
There are less customers flowing into us in prior quarters, it's been growing really fast and I just wanted to call out that.
We're going through a revised contract and.
With that contract.
You know there's going to be.
Gonna go from annual billing to monthly next year, so there'll be a little bit of duration change and although there'll be a bit of a pricing change, but I don't want people to over index on it I mean this is.
Smaller than S. S T.
Again, it's contained to a partner in international.
It's really the spirit of transparency, we called out organic inorganic growth rates, we called out S. S. T. I think we did a really good job with all navigating all that and so this is a smaller than SSD thing that we just wanted to give some transparent color, but we havent. We said it may have a small headwind on 2022.
Well, we'll talk more about it in the Q4 call if need be.
But again I wouldn't I would put it in that context and not over index on.
Yeah, it's a small headwind for that particular park.
Okay.
This concludes the question and answer session for today's call I will now turn the floor back over to Scott Mcfarlane for any additional or closing remarks.
Thanks, a lot.
To take this opportunity to thank all of our employees customers partners for all of their hard work and support during trying times for certain you know we look forward to talking to you on the next call. Thanks, everybody take care be safe.
Ladies and gentlemen. This concludes today's event. Thank you for your participation you may now disconnect.
[music].