Avalara, Inc.

ladies and gentlemen thank you for standing by my name is brent and i will be your conference operator today at this time i would like to welcome everyone to the avalara first quarter 2022 earnings conference call all lines have been placed on mute to prevent any background noise after the speaker's remarks there will be a question and answer session if you would like to ask a question at that time simply press star followed by the number one on your telephone keypad If you would like to withdraw your question, again, press star one. Thank you. It is now my pleasure to turn today's call over to Jennifer Giannola, Vice President of Investor Relations.

Ma'am, please go ahead.

Good afternoon, and welcome to Avalare's first quarter 2022 earnings call. We will be discussing the results announced in our press release issued after market closed today. With me are Avalare CEO Scott McFarland and CFO Ross Tenenbaum. Today's call will contain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning financial and business trends, expectations regarding the integration of acquisitions into our business and growth opportunities, and synergies arising from such acquisitions. our expected future business and financial performance and financial condition, and our guidance for the second quarter and fiscal year 2022. N can be identified by words such as expect, anticipate, intend, plan, believe, seek, or will. These statements reflect our views as of today only, should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements by their nature address matters that are subject to risk and uncertainties that could cause actual results to differ materially from expectations. For 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 amended annual report on Form 10-K filed with the Securities and Exchange Commission after market closed today, 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.avalera.com. With that, let me turn the call over to Scott.

Thanks, Jennifer, and welcome to everyone joining our Q1 2022 earnings call. Q1 was another good quarter for Avalara. We reported total revenue of $204.5 million, an increase of 33% year over year, and delivered positive non-GAAP operating income of $4.7 million, exceeding our guidance expectations. We exceeded our top-line growth while deploying fewer resources, and we believe those efficiencies should accelerate our path towards profitability. We have delivered on expectations since our IPO. We have always intended to focus on growth but emphasize the level of efficiency that would keep us around break-even investment level while driving strong top-line growth performance. This has manifested in an impressive 37% revenue kegger since IPO. combined with three years of positive free cash flow and first positive year of non-GAAP operating income in 2021. Looking forward, as we meet and surpass $1 billion in revenue, we intend to provide even more focus on profitability as we continue to grow this year and beyond. Ross will share more details on improving operating margin performance later in the call and share even more details on our intermediate term targets at our upcoming analyst day in June. I want to reiterate what I've said before. Not all SaaS businesses enjoy the structural advantages we have. We help businesses become more efficient. We have a strong and sticky customer base that needs additional compliance. We believe we are a long and strong growth compounder and well-positioned to grow in good and in challenging times. Our thesis and vision have not changed. We remain a leader and category definer in a massive global market driven by statutory requirements, and we enjoy enviable tailwinds tied to the increasing adoption of cloud-based business applications and omni-channel selling platforms, ongoing ROI focus in purchasing decisions, and ever-increasing regulatory burdens. We believe that over the long term, every business will adopt tax automation, We are still early in this journey and we believe we are best positioned to capture the leading share in this expanding market. We see significant opportunities in front of us and I'm excited about leveraging our growing scale, competitive moats, ubiquity in the market to establish Avalara as the standard cloud compliance platform. We continue to focus on five areas of the business. One, our opportunity to cross-sell more products to our large customer base. Two, winning our second wave of partnership opportunities where many large partners from across the ecosystem are now focused on solutions we provide. Three, continuing to expand our reach up market to larger enterprises and down market to smaller businesses in addition to our core SMB market. Four, expanding our international presence and product portfolio in existing and new markets. And five, driving greater efficiency. Shifting now to customers. I'm excited that many deals are proving out the power of our multi-product value proposition. I believe they exemplify our leadership position, which has been built on years of investing in our differentiated strategy. They speak volumes to the value of our competitive most, including our content, broad product portfolio, and more than 1,200 signed partner integrations. These attributes help us win competitive deals across nearly every size segment, industry and geography. Over the years, it has been exciting to see the evolution of our customer wins, including larger deal values, more deals with multiple products and integrations, and more global customers. Here are just a few examples. During the first quarter, we won enterprise deals with a diverse group of companies. First, we won a large enterprise deal with an online travel agency for a deal value of $1.5 million, including annual recurring revenue, one-time software, and services. We won this deal due to our full end-to-end offering and our partnership with a Big Four accounting firm. Our success and capabilities in the hospitality area began several years ago with an acquisition of a business that offered an automated compliance solution for a short-term rental market. Over the years, we integrated that business into our calculation and returns engine, which allowed us to offer an enterprise class hospitality and lodging product. This win is a great testament to our M&A strategy and to the future of our lodging business. Next, we want a mobile phone services company for a deal value of $176,000, including AvaTax communications and sales tax and registrations across 48 states. This is a great example of Avalara's ability to solve compliance challenges across multiple tax types. The company had no compliance processes in place and was calculating tax for customers in only two states. We also want a large printer and copier supplier for a deal value of $125,000, including AvaTax, Exemption Certificate Management, and Avalara Tax Research, formerly known as TTR Research. We won due to our integration with the cloud-based field service management software and a new CFO transition. Finally, we want a well-known cookware company for a deal value of $250,000. due to our integrations with a leading ERP application, two leading commerce applications, and our exemption certificate management solution. Additionally, we compiled several competitive wins and takeaways. We won a competitive enterprise takeaway with a nationwide pet retailer for a deal value of $292,000, including AVA tax, exemption certificate management, and Avalara content generation for point of sale. supporting over 1,600 locations. We won due to our robust integrations with the leading e-commerce platform and POS application. Next, we won a rip and replace with a church organization for a deal value of $91,000, including AvaTax, business licenses, exemption certificate management, and our SST program. We won due to our integration with an open source e-commerce platform. Next, we won a competitive deal with a construction company for a deal value of $96,000, including AVA tax, exemption certificate management, returns, and our SST program. We won due to our partnership with a top 10 accounting and advisory services company and our Avalara Tax Research Service. On the international side, We beat the competition and won a Brazilian construction services company for a deal value of $250,000, including returns, e-invoicing, and compliance documents. In addition, we won a Finnish education tech company for a deal value of $96,000 to automate compliance in the United States for 46 states. And last week, we won one of the largest existing customer deals with a battery distributor company for a deal value of $509,000, including Avalara consumer use tax, our exemption certificate management solution, our SST program, Avalara tax research, and Avalara license management. This is an expansion of an existing customer and evidence of our potential cross-sell opportunity. As demonstrated through our customer wins, Avalara's partner moat continues to be a key differentiator especially as businesses shift to omni-channel and seek a single tax compliance platform that can integrate into multiple disparate systems. In fact, our long-tail partnerships are becoming even more formidable with an increase in multi-connector deals supporting the vast array of our smaller niche partners. That's why we continue to enhance our partner moat by actively forging new relationships that enable us to offer integration with more business applications and exposure to more potential customers. We offer far more pre-built integrations with these applications than any other tax software providers, and we plan to continue adding more. With that, today we are excited again to announce several new partnership deals that we expect to open up more opportunities for Avalara. These new relationships are great examples of what I call the second wave of partnership deals for Avalara. building on the first wave of ERP deals during the early days of the company. First, we executed an agreement in the first quarter with Shopify to expand our services supporting its merchant base beyond Shopify Plus that we supported for years. As a reminder, on our last earnings call, we discussed our expanded relationship with Shopify to power cross-border duty and import tax features. Next, we're pleased to share that we've signed a new partnership agreement with global small business accounting platform Xero. Founded in 2006, Xero has over 3 million subscribers globally and is a leader in cloud accounting in New Zealand, Australia, and the UK. Next, we signed a multi-million dollar deal to power next generation cross-border solution to sellers around the globe. These three partnerships are expected to replicate the same recipe from other partnerships and portend what we can do with them over time. And I am pleased to share we are making progress with our Avalara Returns for Accountants product, designed to efficiently scale tax compliance services for accounting practices. We are ahead of plan now with over 50 firms live with our solutions and many more in the pipeline and implementation phases. including some of the world's largest accounting firms. We believe these deals are just the beginning of more partnerships to come. We are engaged with providers, including e-commerce platforms, marketplaces, point-of-sale providers, and payment processors, and they are being accelerated by the generational shift to e-commerce adoption. We have been building towards this watershed moment for years. It reminds me of when we were going after ERP vendors during the early days of the company. We knew we had to win these deals to solidify our position and lock out competitors. We are witnessing the same thing now in a second wave where e-commerce, payment processing, and compliance converge. And we are succeeding and winning in head-to-head deals. At the beginning of the company, I had the vision that Avalara would one day be recognized and celebrated in the developer community. That's why I'm excited about the return of Avalara Next, our second annual virtual developer conference in march to be part of every transaction in the world we must engage developers to work with us on our global compliance end-to-end journey it's all about going from concept to a vibrant developer community with more integrations more embedded workflows and more apps to do this we announced the avalara integration studios a new low-code platform to help developers easily build integrations between Avalara's compliance platform and business applications, as well as two new APIs for sales tax returns and e-invoicing. Looking ahead, we see Avalara Integration Studio as the premier low-code platform for integration development to lead global compliance. During the event, we saw a tremendous level of interest and excitement and it's only the beginning. Also, I wanted to remind you that we'll be hosting our Virtual Crush Global on May 17th and 18th, our annual tech and technology event. We hope you'll be able to join us. We believe we're building the most robust compliance platform, both organically and through M&A. We entered 2022 with the strongest portfolio of products we've ever had, including more great technology, content, and talented teams that we acquired over the last year. International expansion remains a large opportunity and a key part of our long-term growth strategy. Last year, we acquired Imposia to address what I believe is the next significant compliance tailwind and a multi-decade opportunity. Our strategic bet is that the future will move to global adoption of e-invoicing compliance as governments leverage technology and automation to lead the way. If you look across the world, there are over 60 countries announcing new mandates or legislations that require e-invoicing or tax reporting in real time. We are building out our connectivity boat with Imposia e-invoicing services, expanding our connectors, and establishing Avalara as the digital bridge between ERP systems and real-time reporting portals of the tax authorities. Going forward, we will continue to aggressively pursue and grow our core business in indirect tax through organic investments and M&A. We expect M&A will be an important contributor to our international growth plans. On the leadership front, I'm pleased to share that Eileen Ku recently joined Avalara as our new Chief People Officer. Eileen was previously the Chief People Officer at Redfin and has held human resource leadership roles at global companies, including 13 years at Amazon. Eileen will carry on our ongoing mission to establish Avalara as one of the best places to work in all of SaaS, scale our talent programs, and build a more diverse and inclusive workplace culture. Finally, we published our inaugural environmental, social and governance report, including the results of our first materiality assessment. We encourage you to visit our investor relations website to view the full report. 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 a statutorily required function. We are excited that we are approaching a billion dollar annual revenue run rate and believe we can grow and scale Avalara into a multi-product, multi-billion dollar revenue company over time.

Thank you very much. And I will now turn it over to Ross. Thanks, Scott.

Avalara posted a strong Q1 performance across the board that exceeded our guided metrics. We were very pleased to deliver 33% year-over-year revenue growth coupled with a non-GAAP operating profit of $4.7 million. As we near a $1 billion annual revenue run rate, we are more confident than ever that we have a long runway of durable, double-digit growth ahead of us, coupled with an increasingly attractive margin profile as we scale and drive operating efficiencies in the business. At our analyst day in June, we look forward to talking more about our operating model philosophy and providing additional color around intermediate-term targets. Q1 total revenue was $204.5 million, up 33% year over year, or 29% when we exclude the Q1 revenue from our Track 1099 acquisition, which represented the majority of acquisition revenue in Q1. As a reminder, Track 1099 is a seasonal business with all of its revenue occurring in the first quarter. Subscription and returns revenue grew 34% year over year to $186.9 million, and represented 91% of our total revenue. Subscription and returns revenue grew 29% year-over-year, excluding Track 1099. Professional services revenue was $17.7 million of 24% year-over-year and represented 9% of total revenue. While we ended the quarter with one of our highest ever professional services backlogs recorded, Due to very competitive labor markets, we experienced delays in onboarding incremental resources needed to convert that backlog into Q1 revenue. Our core customer count increased by 890 from the previous quarter to approximately 19,160 at the end of Q1 2022, a year-over-year increase of 22%. Our net revenue retention rate was 115% compared to 116% last quarter, resulting in a 116% four-quarter average, our highest four-quarter average since recording this revised metric. NRR can fluctuate from quarter to quarter, but we remain focused on continuing to improve this metric. 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. In addition, we filed and amended Form 10-K after market close. In preparing our first quarter financial statements, we discovered an error in our previous recognition of stock-based compensation expense for our restricted stock units. As a result of the error, we understated stock-based compensation expense by $10.4 million in 2021. Today, we filed an amendment to our Form 10-K correcting our previously issued financial statements, including each of the years ending 2021, 2020, and 2019. While we concluded that the error was not material to our financial statements, we have concluded that the error represents a material weakness in our internal controls as of December 31, 2021. The correction of this error increases our previously reported gap net losses for 2021, 2020, and 2019, but does not impact previously reported revenues, cash flows, or our non-gap metrics. In addition, we have taken steps we believe necessary to remediate the control issue, and we will be testing these new activities as they occur over the next several quarters. More information about the error and the impact are included in the amendment to our 10-K. Gross profit was 150.8 million in Q1, representing a 74% gross margin. This compares with gross profit of 113.2 million and a 74% gross margin in the same period last year. We continue to focus on improving our gross margin over time through automation and efficiency initiatives. Sales and marketing expense was 76.1 million in Q1, or 37% of total revenue, and improvement of nearly 90 basis points year-over-year. Sales and marketing expenses lower than expected due to delays in hiring and timing of marketing program expenses. Q1 research and development expense was $41.4 million, or 20% of revenue, down from 22% of revenue in Q1-21. Q1 general and administrative expense was $28.6 million, or 14% of revenue, versus 15% of revenue in Q1-21. Q1 operating profit was $4.7 million, which was significantly better than our guidance, largely as a result of delayed hiring, more robust revenue performance, optimization of our software hosting spend, improvements in sales or productivity and marketing funnel conversion rates, and faster realization of other spend optimization initiatives. Q1 diluted net income per share was $0.08, based on $88.9 million diluted weighted average shares outstanding. Total deferred revenue at the end of Q1 2022 was $303.6 million, up 35% from $225.5 million at the end of Q1 2021. 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 $219.2 million in Q1 2022, up 28% year over year, and 24% excluding the track 1099 acquisition. Organic billings growth is impacted by several factors, including a first half 2021 organic billings comparable of 38%, a year-over-year change in our billing duration, trending to a small but meaningful increase in the mix of quarterly and monthly billing at the expense of annual, and impacts on billings and revenue from international weakness, including from our largest EU marketplace partners. Free cash flow was negative 31.1 million in the first quarter compared to negative 31.9 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 level of our buildings and expenses, as well as our overall level of investment in the business. Our cash and cash equivalents were $1.5 billion at the end of Q1 2022, unchanged from $1.5 billion at the end of Q4 2021. I will now conclude the call by providing guidance on revenue and non-GAAP operating loss for Q2 and for the full year 2022. Our thesis and vision have not changed. Avalara is a simple story. In the long run, like other required back office functions such as payroll, We believe every company will automate their tax compliance. We are addressing a large, low penetrated market where we are a leader in the space with competitive moats and a differentiated business strategy. We are positioned to capture a leader's share of our market opportunity. To reiterate my earlier comments, our focus on the year is to sustain a high rate of revenue growth and couple that with an improving margin profile. We are on a journey to this valuable operating combination and we'll share more details in our June analyst day. We are being mindful of efficiency as demonstrated by three years in a row of positive free cash flow, our first year of non-GAAP operating profitability in 2021, and a strong outperformance in Q1 2022 non-GAAP operating profits. In Q1, we benefited from a difficult hiring environment, but also made choices that will help us accelerate our path to profitability. We believe our Q1 performance combined with our updated 2022 guidance demonstrates our focus on driving efficiency faster, and we will evaluate our ability to over-deliver as we progress through 2022. For Q2 2022, we expect total revenue between $208 and $210 million, which represents a 24% year-over-year growth rate at the midpoint of the range. As a reminder, in Q2, we do not expect any revenue from Track 1099, and in April, we lapped the acquisitions of Imposia and Davos. We expect our Q2 non-GAAP operating loss to be in the range of $6 to $8 million. For the full year 2022, we expect total revenue between $867 and $871 million, which represents a 24% year-over-year growth rate at the midpoint in the range. We are cutting our expected full year 2022 non-GAAP operating loss by more than half by guiding to an operating loss range of $6 to $8 million versus our previously guided operating loss range of $17 to $21 million. We further expect to be breakeven or better in Q4 2022. We continue to expect 2022 professional services revenue to be around 9% of total 2022 revenue. In closing, we have an exciting opportunity to continue building a durable growth compounding company. We believe we are a leader in a large market that is still early to adopt tax compliance automation technology. We are seeing a demand transformation as businesses become omnichannel, operate in many jurisdictions, and shift their business to e-commerce and the cloud. These changes, coupled with an ever-shifting regulatory environment, make it even more difficult to maintain tax compliance without automation. At the same time, we are continuing to evolve to a platform company, driving an increased supply of products and capabilities, which will deliver even more value to our customers. We also continue to invest to win additional segments and geographies so that we can continue to compound growth for the long term. Please note that our virtual Annals Day will be held on Tuesday, June 28th. Also, we will participate in upcoming conferences, including Bank of America, JP Morgan, Needham, 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.

Ladies and gentlemen, before we start today's Q&A session, I would like to turn the call back to the Chief Financial Officer, Ross Tenenbaum, for additional comments.

Thanks, Brett. Hi, everybody. I know this question is on everyone's mind, so I'd like to address it here up front. I think it'll make the call go smoother. I'd say don't over-index on the e-commerce growth slowdown and draw conclusions about Avalara. because that's simply not the case. Our customer base is very diverse, including customers of every size, from nearly every industry and many geographies. And as a matter of fact, our customer base is more weighted to B2B than B2C. We are also a subscription model business and not tied to GMV. Even our calculation business, which is tied to transaction volumes, is now less than 50% of revenue and has shown its resiliency throughout the pandemic due to our wide pricing bands designed to reduce volatility of customers having to move up and down tiers. And in our compliance business, our customers must file compliance documents where required, regardless of how well or poor their business is performing. The last two years' acceleration of e-commerce indeed benefited us, but it didn't have anywhere near the financial benefit on our business that it had on e-commerce and GMV-related businesses. For example, We grew organic revenue by 29% in each of the last two years, a great result, but hardly an accelerated pull forward in demand. In addition, we believe our broad customer diversity helps insulate us from shocks to e-commerce in the broader economy. As evidence of this diversity, when we map our customer database to third-party data, we find that less than 20% of our Q1 2022 revenue comes from retail customers. In addition, Only around 10% of Q1 2022 revenue came from marketplaces and our Avalara-included relationships, including Shopify, BigCommerce, and Wix, among others. When we add in our direct e-commerce partners, including partners such as Salesforce and Adobe, the total comes to approximately one-third of Q1 2022 revenue, though we see many larger customers and a higher mix of B2B customers with these direct e-commerce partners. In addition, These numbers reflect total revenue from customers with these connectors, which would incorporate all channels of activity, even outside of e-commerce. Lastly, while other companies greatly benefited in the last years by e-commerce acceleration, we saw less of that benefit and continue to believe the acceleration of e-commerce is one of the strongest trends for our business as it greatly increases the complexity of managing tax and therefore the need for automation. Customers of all sizes and in all industries are more quickly becoming omnichannel, having to deal with tax compliance across multiple systems and in more jurisdictions, even globally. This greatly increases their tax compliance complexity and renders manual status quo solutions ineffective. The millions of new e-commerce customers created over the last two years will need to deal with this reality, and we capture tens of thousands of them and still growing using our calculation on our e-commerce partners' platforms. This offers us a large number of prospects to upsell additional compliance products beyond just calculation, and we believe provides us with a steady drumbeat of future business and growth, even if not one more company adopts e-commerce this year. In fact, in Q1, the vast majority of Avalare included customer bookings came from cohorts activated in prior years. Thank you very much. I'll now turn it back to Brent to open it up to Q&A.

At this time, I would like to remind everyone In order to ask a question, press star followed by the number one on your telephone keypad. Your first question comes from the line of Brad Sills with Bank of America Securities. Your line is open.

Oh, wonderful. Thanks for taking my question, guys. I wanted to ask about the net revenue retention. A real nice result here this quarter. You saw some acceleration there. Could you help us unpack that a little bit? Was there some cross-upsell in the broader stack? I know you have a wider stack now with 1099, Eposia, TTR. We hear that from the channel. So any color on the upsell activity this quarter? Thank you.

Yeah. Hi, Brad. Thanks a lot. Yeah, I mean, we're really excited about NRR, 116% of four-quarter average, which was the highest that we posted since reporting the metric. I think, you know, it's two things. One, We continue to have a really good result around the churn and downsell side. So, you know, some of that that was more difficult in COVID has continued to improve. And so we like where that is. It feels really healthy. And then on the upside part of NRR, you know, cross-sell, as we've talked about a lot, going from a couple of products to many products, we've got a huge opportunity in our base. We think it's hundreds of millions of dollars to go start to add additional products. We're early in that journey, but we're seeing some really good momentum and proof points. In fact, we had our largest, one of our largest deals to existing customers, about a half a million dollar deal just recently where we were able to sell use tax, our TTR product, our business license licensing product, and several, our Surcapture product and several other things. And so we've got more evidence of deals like that where we're cross-selling more products. We've seen a really good adoption of CertCapture, which we've had for a long time, but it's benefiting from the investments we're making to really drive the cross-sell business. That's doing really well. We're seeing really good results from TTR as well. So we still have work to do, but we're really happy with where it's headed.

Awesome. That's great to hear, Ross. Thanks. And then the question on everyone's mind, not just for you, but for software in general, anything you're seeing internationally, you mentioned some weakness, some softness maybe is a better categorization. What are you seeing in some of the international geographies, particularly in Europe, with what's happening over there? Thank you.

Yeah. Hey, Brad. Scott, you know, look, I mean, international business right now is a challenge, but it's a huge opportunity in green space for Avalara going forward. You know, selling, you know, Avatax, just our basic business into global companies is is a is a real big great green field for us and you know many many companies are are trying to do you know more and more business inside the united states so we you know we enjoy that that that that that tailwind um you know we're always working on our you know our projects uh internationally and and i think that that's going to continue to grow and i think we've been really clear about what we're thinking i mean amalura's business you know historically internationally has really been around you know, the great improvements that we've made in the UK. And as we talked about in past earnings, I mean, you know, moving beyond the UK into, you know, more of EMEA is a real opportunity for us to continue to do that. And that's exactly what we're gearing up to do. I mean, it's not a, you know, a one quarter, you know, program, but over the rest of this year and into next year, you know, we, we really think that that's a, you know, great opportunity for us to, us to grow. And we always continually talk about, you know, moving beyond just EMEA, you know, growing out in, in growing our business into LATAM and then Asia. So there's, there's considerable opportunity for Avalara to continue to grow and, and, and, uh, you know, build the type of moats that we've done, you know, here in the past. And as I said in my, my, my, my notes, uh, my prepared notes here on the earnings call is that, you know, e-invoicing is a really significant driver that I think can really help build Avalara's business going forward.

That's great to hear. Thanks, Scott. Your next question is from the line of Gabriela Borges with Goldman Sachs. Your line is open.

Hi, you're Callie. I'm for Gabriella. Congrats on the quarter. My question would be just following up on some of the e-commerce comments. Thank you for all the detail there. But what are you seeing in the pipeline for customers tied to e-commerce regarding demand and willingness to invest versus other verticals? And could you remind us of some of the other key vertical exposures you have?

Rosh, you did such a great job on the intro. Why don't you continue on with that one?

Yeah. Yeah. Hi, Kelly. Vertical exposure. I would just reiterate that we are very diverse. You know, we threw out the retail, our exposure to retail that I just said in the prepared remarks of 19%. But we are very diverse across vertical. So I wouldn't say that there's any major concentration. You can see online our last year's analyst day that has a pie chart of that. So we're good there. And on the e-commerce pipeline, I think the way people have to think about it is, you know, we look at the cohorts back, you know, quarterly for the last few years and just look at, you know, you become an e-commerce company, let's say on, you know, pick your favorite e-commerce platform and you're using calculation for us. And then we get some small fee from that. But those fees over the last couple of years, you know, they're meaningful. We like them, but, you know, they're relatively small fees. We have a relationship with the platforms to provide them with the calculation so that there's calculation in the cart. The big opportunity and the value that we've been able to create over the years has been to then upsell those end customers on additional products because they probably have calculation in other channels. They have to do returns. They may have to do cross-border. They probably have to use tax certs. A bunch of other things have to happen to be compliant well beyond calculation. And so that's the game for us is to market to them and to upsell them. And we've been doing that for years. And so my point in the prepared remarks was that a lot of the bookings that we saw in Q1, for example, are coming from customers that already became e-commerce companies in a cohort over the last few years that we were able to, you know, convert and upsell with more. And so therefore, you know, it's not in quarter, you know, you're seeing GMV slow down and you're seeing new customer e-commerce adoption slow down. We're not really dependent on that as much as continuing to convert this large pool of customers that is using us for calculation and monetize them. And so I call it top of funnel, and we've got to keep on trying to help them understand the value proposition of what we do, the gaps that they have in compliance, and that what we do is more cost effective and better than the manual status quo.

And I would point out, and I would point out on top of that is, I mean, a couple of things. In the verticals, you know, during COVID, you know, we were reported that travel, you know, was under pressure. I mean, and just remind everybody of one of the deals that we identified as one of our, you know, one of our larger deals, you know, over a million dollars was, you know, a travel, an online travel company. So, you know, some of the verticals that have been under pressure before are are coming back and adding more resilience to the overall business. I mean, the great thing about, you know, tax is that there's just so many, all types of businesses are affected by it. And, you know, it sort of insulates Avalara, you know, from the good and the bad up and down that everybody's worried about. That's what I think is so unique about know about this about this about this business and i'll just point out you know uh everybody talks about uh you know how does you know how how do partnerships you know uh get affected during during these good and bad times the the first thing that you have to do is win them and you know that's the most important thing for avalara in these ones so expanding our relationship with shopify know to do more customers and to do to do more business with them you know to continue to uh you know add uh the low end of the market was zero um and then doing the you know the the the really large multi-million dollar deal that that that we had with another third party you know vendor so i mean winning these partnerships is the most important thing that you have because then you've got you know a long-term relationship that you can grow and build over time. So I'm really proud of the fact that we were able to continue to do that and dominate, you know, from a partner perspective.

Okay, thank you for standing on that. That was helpful. One more from me, would you see any changes you would call out from a competitive perspective as Vertex ramps its cloud offering on the enterprise side? And if you could give us an update on what you're seeing in terms of win rates and customer feedback. and where there's room for improvement on the product, stock, or service experience?

You know, we're not seeing any significant change in competition than what's out there. I mean, Avalara remains, you know, dominant in the mid-market. You know, we're winning businesses upstream, and we're creating partnerships like Xero and downstream and then you know tightening our relationships with the omni-channel world you know doing things with you know shopify and other partners to really solidify our you know our our position and i think that that's the the telltale sign of of you know of avalera and and and how a company is doing in this space it's are they winning the key partnerships are are those things you know uh you know future proofing the business so it can grow and continue to sell in the omnichannel world. So I think as we reported along the line, we'll just continue to add more of the long tail customers. We're winning those second wave businesses. And I think that that's the best evidence of what's happening from competitively in the marketplace.

Thank you. Congrats again on the quarter.

Thank you.

Your next question comes from the line of Pat Walvarens with JMP. Your line is open.

Oh, great. Thank you. And let me add my congrats. Hey, Ross, can you just help us with why your profitability for the year improved so much? So if I got it right, last time it was negative 17 to negative 21, and now it's negative six to eight. So just walk us through some of the key points on that, because that's what everyone's nervous about.

And it's turning out not to be that big a deal. That's right. Thanks, Pat. How you doing? Yeah, I mean, look, Q1, we had a, you know, big beat compared to where we got. I think it was around $15 million. You know, and I will say we, like our peers, are in this difficult hiring environment, and so we are behind on hiring. And so that contributes to the benefit, and we may give a little bit of that back. But overall, you've got to go back to last summer. when we internally started talking about the next few years and what our model looks like and, you know, we started laying out our version of the Rule 40 model, something that sustains growth rates and starts to really drive operating leverage. And we're going to share that with you in June in analyst day and go through those details. But what we wanted to do when we've been working, you know, hard, you know, late last year and in Q1 is what are some things we can start to do now and can we accelerate any of these? And so, you know, around hiring, you know, we found areas of efficiencies where we can stretch and do a little more with less, things that we may not exactly need that we had in the plan. In cost of revenue, we looked at some things we could do around efficiencies with hosting and some of our other functions there. In R&D, you know, we're working on, you know, just prioritization modeling and And, you know, how do we get to the most important things we want to get done and be really innovative? But, you know, where can we, you know, maybe do a little bit more with less on the heads? Sales and marketing, while we're a little behind on sales capacity, we were able to drive some good productivity improvements, which helped offset that. And then G&A is just kind of scaling, you know, slowly as you would expect. So I would say this is a three-year view that we're going to share more of in June. It's something that we think that in Q1 we could take advantage of the environment, but also make some decisions that would help accelerate that path. And that's what you're seeing. And we'll be very judicious as we proceed through the year to see if we can continue to drop more to the bottom line.

Okay. That's super. Thank you. And Scott, this is a little bit of an unfair question, but I'll ask anyways. I mean, what do you do about sort of the morale and retention of people, you know, who came in and got their RSUs or options or whatever used priced at the wrong point. Now the stock is down 45% year to date. And it's a little unfair because, you know, another company that's reporting right now, their stock is down 63% year to date. And, you know, even worse there. And I didn't ask them. But how do tech companies deal with this? What are you guys going to do?

know it's it's a it's a good question pat um i mean everybody as you say everybody's dealing with it but the reality is is i mean one i think it's really important that you have a well-defined culture that's built out of your business model right so everybody you know everybody understands where you're going and for us it's being part of every transaction in the world and you know you can't go up with the good times and you can't go down with the with with the with with the bad times so when people believe in the model when they believe in the direction that you're going it just gives you a little bit of an insulation now reality always imposes itself as i say and and people are going to be you know being dealing with that but the market in general is is is is dealing with that so you just have to create the best environment make sure that people understand their roles and responsibilities, and they're fulfilled at work and have good engagement. And if you can do those things, then you can weather these difficult times. And you're just true to, you know, if you're authentic to your culture and to your business. Pat, that's the best way I can answer it.

Okay, good. Thank you both.

Your next question is from the line of Brent Bracelin with Piper Sandler. Your line is open.

Hi, guys. This is Hannah Rudolph on for Brent today. Thank you for taking my questions. First one is, you talked about the second wave of partnerships helping drive the next leg of growth. I guess, could you talk about which partnerships you're most excited for and what the roadmap for continued traction with these partners looks like?

Yeah, I mean, I said a little bit about it, and so I'll just reiterate it, right? I mean, you want to win these deals. And we won Shopify Plus a long time ago. I don't know whether it's six, seven years ago. And we've been working with them to build out that business and then to sell them more things. It was cross-border. Now we're talking about expanding that relationship even further. And the most important thing is to win those. That's the first act in doing it. And You know, there's lots of players out there that we still want to win and do business with, right? You know, we don't have them all. Our goal is to get them all. And so they really fall into, you know, multiple players. And they're all the large aggregators, right? You know, the businesses that we don't have that are doing large aggregation around e-commerce. You know, you've got POF. You've got the squares of the world that fall into sort of multiple categories there. I mean, those are the kinds of deals that we want to win. And payment processing. Love to have a relationship with PayPal and the like. So those are the kinds of deals that we continue to fight for. And what's great is that sales tax, when we started the business, was like, why do we need to focus on this? Now, all vendors, all of our financial service companies that we deal with, they all understand that this is something that everybody needs to deal with. It needs to be part of their offering. And so that's why we call it the second wave. These players that we've wanted to have in the past that we have not gotten are now coming to the table And we now have the opportunity to sell and win those. That's what's happening here today. And it's what I would call the next step in the journey of being part of every transaction in the world. Because I've always said that there's only two things that matter, right? You have to have a partnership with the people who create the invoices. And you have to have all the content on the other end in order to calculate the tax compliance around the world. And that's what Avalara is focused on, winning those deals, getting part of every transaction in the world, and then building out the content so when we calculate it, it's right and accurate.

Great. That makes a lot of sense, and that's good to hear. Second question for me, Ross, it was nice to see the 890 net customer ads this quarter. Anything out of the ordinary to note there? And I may have missed it, but did you disclose the revenue from core customers this quarter?

Yeah, the 890, we were pleased with it. It was 22% growth again, and nothing to note. It doesn't still exclude the M&A, the recent M&A. When we add those in, we would call those out. So as we've talked about, we want to continue to drive that kind of consistent growth algorithm in the new customer ads. And on the other one, no, we didn't put that out there. We didn't disclose that in the prepared remarks.

All right. Thank you.

Ladies and gentlemen, in the interest of time, please limit yourself to one question. Your next question comes from the line of Matt Stotler with William Blair. Your line is open.

Hey guys, this is Hallie Mokhan for Matt Stotler. Thanks for taking the question. I wanted to touch on the accounting firm products a little bit. Could you provide any color on the demand or the traction that you're seeing with these products? And how big do you think that that opportunity could become over time?

I think Ross and I will tag team this one a little bit, but I'll start out by saying, you know, compliance, We talk about tax calculation and that's where Avalara started, but doing returns and actually complying with the compliance part is the critical aspect of doing sales tax properly. And nobody has ever built out an automated solution in the marketplace. I mean, taking calculation data and transaction and being able to seamlessly uh you know provide you know tax returns um is is one of the most important most important and most difficult things that's done in compliance and to do it end to end with a single thread is is is is really is really really hard and when we did that you know we realized that our our our product the ones that we're using And I'll just remind everybody, when I started this company and we built this business, we had 100 people doing 100,000 returns. It was manual. Today, we have 100 people doing millions of returns. And so we've built a very efficient system domestically here in the United States for that. And we got the idea that instead of being able to you know just have everybody use us why don't we use accountants both large accountants and small accountants the big four all the way down to the smallest accountants and provide them the back of the house uh solution that they actually can do the returns themselves and we just become the back-end provider. This is another way that Avalara is using the channel to its advantage because that's what Avalara is really all about. I mean, you know, partnerships are, is what made Avalara what it is today. And so these products just enable partners to be able to, you know, expand the compliance opportunity. And as I said in my prepared remarks, you know, we're seeing really nice traction in small and large businesses. And, you know, we think that, you know, this has the opportunity, you know, to get us to be part of every return in the world, right? I mean, that's how we think of, you know, this thing. You've got calculation and through our own work with customers doing returns and with our partners doing returns gives us this, you know, huge opportunity in the marketplace.

Ross, do you want to add anything to that?

No, I think that's perfect. But if you want to talk about efficiency, I mean, if you can get the 60, 70, 80,000 accounting firms and bookkeepers in the U.S. and grab share through that versus onesie, twosie through sales reps and give them new revenue streams and have ability to sell through them. just a massive potential to grab massive share and efficiency so we we love it i i think it's the most exciting potential future thing that we've developed your next question is from the line of city panagrahi with mizuho your line is open thanks for taking my question uh scott uh just want to ask about the cross-border

A few years back, you invested in that, and I think one of the pretty strong offering you have in the cross-border side. And also, I think Shopify markets, they launched in February as well. Wondering how is that trending and what have you seen in the early days in the Shopify markets? And also, overall, how is that helping you even getting some of the larger deals and landing enterprises?

Thanks. Let me just review for a second. I mean, when you're in the tax calculation business, you know, doing calculations and integrating with ERPs, especially some that even aren't cloud-based, you know, they're still on-prem, you know, that's difficult work to be done. It's really hard to do an efficient integration with ERPs. With e-commerce companies, doing tax calculation is not as difficult. I mean, it's many, many lines of code in ERP, but it's generally just an API call into e-commerce. I mean, this is what we've known for a long time. And so when we were growing the company, my idea was is that this concept of doing cross-border work, where cross-border is done by a third party, after the transaction is absurd. It just makes no sense. I mean, you've got people shipping things around the world and somebody showing up the door and saying, hey, you owe this for duties and taxes. They should know that the moment they are buying, it should be included in the checkout process. And so we've had that idea that for e-commerce, e-commerce especially should support cross-border activities. And we went out and built that and made some acquisitions around that to come up with, I think, the most innovative cross-border solution in the marketplace. And it's not only just for e-commerce, it's for all businesses. And we think that this can be a very large business going forward as we've reported before, hundreds of millions of dollars. And the reason that we did it originally was not only for the revenue that I've just talked about, but to protect our moat. And that's exactly what Cross Border has done for us. I mean, it helped us solidify our relationship with Shopify. It's helping us solidify all of our relationships with e-commerce vendors. And it's one of the reasons that we are winning the second generation wave of partners that's out there. I mean, because businesses can't bet against businesses not wanting to do international commerce. And so not only is it a great upside potential, it is one of those things that distinguishes us tremendously from anybody else in the marketplace. That's why I think it's so powerful.

Your next question is from the line of Scott Berg with Needham. Your line is open.

Hey guys, thanks for taking my question. This is Josh on for Scott. Core customer growth was once again really strong in the quarter. Can you just discuss how much of that Is cross-sell contributing to growing existing customers who maybe weren't spending 3K on a trailing 12-month basis but are entering that category with a few additional products versus net new customer growth? Thanks.

Yeah, you're right. You've been focused on it for a while because there is, just for everyone's benefit, you become a core customer when you're trailing 12 months of $3,000 of revenue or greater. And so you could be a customer that we signed up nine months ago and We added something, and you went over the 3,000 mark. Historically, the vast majority, let's just put it that way because we haven't quantified it, is from new customers, and we haven't seen a shift in that. So I would think about that number pretty indicative of new customers coming in.

Your next question is from Robert Galvin with Stifel.

Your line is open.

Hi, this is Rob Galvin. I'm from Bradbury. Thanks for taking the question. I have a two-part question. First, I'm wondering what the benefit in Q1 was from holding customer funds? And second, what is modeled for the remainder of the year in terms of customer funds held and the benefit from them? Thank you.

I think the question was, what was the benefit in Q1 from customer funds and what's modeled for the rest of the year? So the customer funds, these are the funds that we pull from our customers and then remit to government agencies with the returns. We hold those funds for, I think, an average of around five-ish days, plus or minus. Pre-COVID, when interest rates were higher, we were on a path to around $1.5 million, $4 million a year. Then interest rates went to zero, and we've had really no benefit In Q1, there was pretty much, even though interest rates are going up, we have not, there's a little bit of delay in what we are going to get from that. And so I'd say Q1, there was almost no benefit from that piece. And we have not modeled anything of significant increase for the year. So that, you know, if rates were to really meaningfully rise and we were to start to get revenue, that would be upside, though I would not, I don't think that'll be meaningful for this year yet.

Your next question is from the line of Keith Weiss with Morgan Stanley.

Your line is open.

Excellent. Thank you guys for taking the call. Really nice quarter. You guys did a really nice job of sort of referencing e-commerce and explaining why it You guys don't see the same impacts that the e-commerce vendors themselves see. But there is just the broader kind of macro malaise that we're all worried about. You mentioned a little bit of softness in Europe. When you guys were looking at the FY22 guide and you brought up the guidance for the full year more than what you beat Q1 by, was there any increased conservatism that you put into that forecast for the top line for the revenues that And then on the operating margin side of the equation, it sounds like most of the spending savings or the efficiencies was not really by choice. It was more so it is just a difficult hiring environment. But am I wrong in that? Was there any element that you're looking to be a little bit more conservative given the environment?

Yeah, let me try to hit that. If you go back two years from now, I'm sorry to always go back, but at the beginning of the pandemic, there was a question amongst all of us to guide or not to guide. And many of our peers withdrew their guidance. And we looked at it and said, hey, we're a subscription model. We should have pretty good visibility into the rest of the year. There is a lot of uncertainty. We'll be conservative. And obviously, there's a dose of conservatism that goes into that. It all worked out pretty nicely. So as we stand here now, There is a lot of uncertainty, right, as you highlight. And, you know, I think that we would proceed in a guidance that has de-risked that, those risks. So I would say we're guiding, you know, like we did two years ago, a time of uncertainty. We feel good about the business overall. Yeah, you know, there's some challenges in international. You know, there's some hiring challenges that put some challenges into the business. But overall, I think we have good visibility. I think we've got some cushion and conservatism to de-risk the plan for the year. And, you know, we feel pretty good. On the spending side, it's hard to break out what's by choice and what not. Yeah, you got it right that we're behind on hiring, I think like everybody. It's a challenging hiring environment. And that contributed to savings in the year. And I think that flywheel of hiring would hopefully accelerate. Maybe we give a little bit of that back. But as I said earlier in the call, we've made intentional choices that are part of really getting going on this Rule 40 model that we're going to lay out for you in June to try to accelerate those efficiency gains. And those are things that are like in cost of revenue around hosting optimization, some things that we're doing with some of our execution teams in cost of revenue where we think we can do a little more with less, areas in R&D and sales and marketing where we think we can hire a little bit less than we originally planned, not meaning that we're behind, but meaning choosing not to because we found other ways to achieve our objectives with less. So I'd say we are definitely actively tightening the screws and driving efficiencies faster than we thought we could otherwise do. And we look forward to getting more into the details with you on June 28th and the analyst day.

The only thing I would add to that is that, you know, I just want to remind everybody, and we said it again in the prepared remarks, but I think it warrants an emphasis on it. I've always said that Avalara is in this unique position because it's positioned to be good in good times and not as bad as others and maybe even good in bad times because we have a unique ROI message. I mean, taking, you know, automating sales tax is a message that works in both environments. And our business is sort of set up to be a low beta business. so it doesn't rise with all the fads and it doesn't go down with all of the bad time. And that's what I think you're seeing in our comments and feelings about the business.

Your next question comes from the line of Peter Levine with Evercore. Your line is open.

Great. Thanks for squeezing me in. Maybe, Ross, just you called out those services backlog impacted revenue recognition in the quarter. Can you quantify what the 1Q impact, you know, what the impact that was and then what the impact could or will be for the year considering or you think, you know, current labor constraints, you know, will remain, you know, persistent at these levels?

Yeah. I don't think we'll quantify it. I mean, it's a small, you know, it's a small probably couple million bucks, but it's, you know, we expected a little bit more in professional services revenue. I think we were pleased we had one of the highest backlogs that we've had in professional services revenue. And really it was behind on hiring. As you know, to get PS revenue, you have to hit milestone and complete projects. And so being at capacity and under hired on the PS reps, allowed us to complete fewer jobs and recognize less revenue than we wanted to. I think we're on top of it, and right now we hope to be able to make it up in the air. But it wasn't a big delta. I was just calling it out because if you look sequentially, it looks a little bit weird, and it may be a question on people's minds, so I wanted you to know it was just a little bit light in the quarter because of that. Nothing concerning, and we were pleased with the robust backlog we're seeing.

Your next question comes from the line of DJ Hines with Canaccord. Your line is open.

Hey, guys. Congrats on the nice quarter here. Scott, so you're pretty fresh off your developer conference. I'd love to hear you talk about the engagement you're seeing with the low-code studio and maybe from there kind of Talk about the path and general timeline to monetizing this partner activity.

You know, it's a great question, actually, because I think it really points to one of the distinguishing factors about Avalara. I mean, from the day we started this company, we were an API business. I mean, that's how we connect into all of our... all of our publishers, I mean, all of the financial applications. But what I think is really unique about our new integration studio is that it just makes it simpler and simpler and simpler for people to be able to take our code and not only build it into the traditional way of connecting into integration, but to go outside and create products and connections that we've never had in the past. I mean, one of the first things I challenged the team on, you know, back in the day was I want to be famous in the developer community. Because I think that that's ultimately, you know, the way that you, you know, dominate an industry and go beyond just what you can do and turn on the power, you know, of, you know, other developers in the activities that, you know, that they want to see done for their customer base. And so I think that this is a big step forward. I mean, it's just, to me, it's mind-blowing how well that they created this. So it just makes it simple for anybody on a low-code basis to integrate taxes and returns into a workflow that they want to create. So I think it's a huge opportunity for us to step out and continue to lead and dominate in this space. It really was a big step forward.

Very impressive and very proud of the team. Your next question is from Alex Scalar with Raymond James.

Your line is open.

Ross, I appreciate all the organic call-outs. Can you quantify the revenue and billings, Edwin, in the corner from the European Marketplace partner renegotiation? And are there any opportunities to expand with that particular partner in other geographies? Thanks.

Yeah, thanks, Alex. Yeah, I mean, we're not going to call it out specifically every quarter. We said going into the year, we thought it would be a few points. And I would just say for... In the last couple of quarters, we said, look, we're not going to break out total and organic revenue anymore because the 2021 acquisitions were small and it creates an insignificant delta. And between that and the offset on the EU marketplace, it's roughly offsets. And we thought the reported numbers are pretty good representation. But we did call out the track 1099 this quarter. Track 1099 is our 1099 acquisition, obviously in the name. And the revenue is all in Q1. It's seasonal business on Q1. And so because that created a wider delta between reported revenue of 33% and organic of about 29%, we wanted to call that out for you to understand it. On the billing side, I would just say this. As you guys do all your permutations of billings and organic billings, Billings in the past has been a good leading indicator metric for us. I would say right now it's not a perfect metric for us. As you think about billings, you know, I think it detaches a little bit as an indicator of future revenue growth. And here's what's interesting. If you go back to Q1 2020, beginning of the pandemic, we did 21% billings growth organic, and we had a 29% revenue growth year organic. You go to Q1 2021, we did 37% or 8% billings growth because off the easy comp. And we again did 29% revenue growth, very, very consistent each year. Here we are now looking at the 38% organic billings comp. And I think that that weighs on the billings result this quarter, coupled with the marketplace partner point. And then we've had a little bit of a mixed shift over the last year. from annual billings to monthly and quarterly. That's kind of a result of the pandemic where we were giving easier terms to customers, which I think was a good trade-off. But that movement adds probably a couple points in Q1 impact to billing. So there's some puts and takes there. But I think overall, really good billings result for the quarter. I think it's a little bit less indicative of future revenue growth. And so, I think you should just focus in on sort of revenue guidance and all the other commentary that we provided around how we're feeling about the business.

Your next question comes from the line of Andrew De Gasperi with Barenburg. Your line is open.

Thanks for fitting me in. I apologize if this already got asked. A few earnings calls were juggling. Just on the first quarter bookings, can you clarify, did you say that the majority came from the existing base? And if so, shouldn't we see the net retention rate inch up from that, greater than what it was? And then maybe any comments in terms of, are you seeing any change in the top of Cuomo in terms of e-commerce levels? Thanks.

I didn't say that, Andrew. You lost me. I think what you may be referring to, as I said, in our e-commerce business from the Avalara Included business with the Shopify's and the BigCommerce's of the world, most of the bookings come from customers that activated on those platforms in prior cohorts. In other words, we didn't need somebody to sign up for e-commerce this quarter to produce the bookings. We are monetizing through conversion and upsell of people that came onto the platform in prior quarters. And that goes with what we've always been saying, that we have a large funnel. From all these people that became e-commerce, they have calc in their cart from their platform, but they haven't necessarily dealt with other channels, with returns, with certs, with cross-border, with use tax, et cetera. And it's our opportunity to start converting and upselling them. there's tens of thousands, you know, even more of those out there, you know, that where we're doing calc and we can go convert it up cell. So that doesn't really affect the NRR calculation. It's a separate point, Andrew. I lost the rest of what you were asking as I was trying to figure out that question.

Your final question comes from the line of Daniel Jester with BMO. Your line is open.

Great. Thanks for squeezing me in. Could you just talk a little bit about how you're viewing sort of your acquisition strategy this year? Obviously, it's been part of your DNA in the past, but you talked about sort of the cost control and some macro volatility. Just wondering how you're thinking about the acquisition environment, age-changing valuation, I think would be helpful there. Thank you.

Yeah. Look, as you said, DNA, I mean, M&A is part of our DNA. It's important to grow tax types. It's important to grow content. It's important to grow internationally. And I think that we're looking at doing all of those things, but we're paying more attention to what's the impact on gross margin, bottom line. But there's no question that to move know uh beyond where we want to go internationally that you know m a is going to play you know an important an important role in that you know i think we're you know being very selective about what we look at when we think about you know indirect taxes um you know you we probably will not expand out as greatly you know into other tax you know areas that we have in the past so you know we'll be you know, we'll be more mindful of, you know, of, you know, the overall, I mean, the overall efficiency of the company. But in order to grow internationally and to build out e-invoicing, I would expect M&A to be focused, you know, in those kinds of areas. The same as we've, you know, sort of had in the past and we've told everybody. So it's not a big change. We're just, you know, just a little bit more focused on efficiency and, and making sure that we have the right prioritizations.

There are no further questions at this time. I would now like to turn the call back over to the co-founder and chief executive officer, Mr. Scott McFarlane. Please go ahead.

Hey, I'd just like to close today by taking the opportunity to thank all of the Avalara employees, all of our customers and partners for all their hard work and support you know, during a trying time. And we look forward to talking to everybody on the next call. And thank you all so much for your questions today. Appreciate it.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now