Avalara – Growth Trajectory & Competitive Dynamics

Could you give an overview of Avalara’s operating environment, highlighting 2-3 key trends or drivers we should be monitoring?

Could you expand on the strength of Avalara’s mid-market competitive moat in global trade services? What enables the company to hold such a strong position with those customers and why do you think this is something competitors may not be able to replicate?

Are there any headwinds or tailwinds to the growth outlook or overall state of demand for sales tax compliance software in automation, aside from cross-border tax compliance? Out of the ability of players such as Avalara, Sovos and Vertex to further penetrate markets, could you expand on what some of the other pieces of demand are?

Do you think customers or buyers really need a compliance cloud, as we’ve seen Avalara launch its broader compliance cloud in tax collect platform, or are they just trying to solve specific pain points, as you mentioned?

Could you expand on the product differentiation between Avalara and the key vendors in enterprise? What key factors drive competitive differentiation, and what are the key technical differentiating factors from a product front that enable Avalara to successfully compete against Vertex, Sovos, TaxJar or others?

Could you dive down onto the other end of the market? You mentioned TaxJar. Who are the key competitors and what are the key dynamics downmarket in SMB?

You mentioned Avalara’s growth outlook, and we discussed the product’s stickiness when I asked you about the competitive moat. The company has roughly 18,000 customers now at 116% net dollar retention. Can you discuss its evolution from a 2-3-product company to a 6-7-product company, and its ability to cross-sell that many products across the install base? Which features or products could primarily drive up those up- and cross-sell motions respectively?

Can Avalara cross-sell that many products, all of the ones you outlined across the platform and everything it’s acquired in its buying spree over the last couple years? You mentioned the strategic partnerships and the company’s partner ecosystem more broadly. Could you expand on whether it should or may become more reliant on indirect sales and partnerships as it increases and moves into more functionalities and adjacencies and continues to build up? How do you assess the width of its partner moat?

Avalara recently announced a strategic partnership with a company called Xero, a payroll and accounting automation solutions provider that, on face value, would seem to be a Quickbooks competitor, which Avalara AvaTax has a connector with. As this partnership ecosystem expands and the company adds new partners on, how does it square its potential coopetition or frenemy-type dynamics that it might get involved with between some of its partners, who could become future competitors? How could the partner-competitor relationships evolve as it continues to target the enterprise and potentially focus more downmarket, and expands both ways more broadly?

Could you discuss Avalara’s relationship with Amazon and Amazon merchants, and the connectors built out there for sales tax compliance across that platform? I believe it has Avalara Extractor in that segment. How do you see that relationship evolving compared to the deep publisher and partner relationships you mentioned earlier?

Avalara’s Q4 2021 gross margins came in roughly 72.8%, just below 73%, and a part of that seemed to be infrastructure costs rising. Do you think the company has the power or ability to optimise its software hosting spend, become more efficient and compete outside the mid-market more broadly?

You mentioned CrowdReason and some of the other acquisitions earlier. What are the primary drivers behind Avalara’s acquisition spree over the past couple of years and the acquisitions it made recently? What is your view on the company’s inorganic growth strategy and opportunities moving forward? Could there continue to be attractive targets for it, and what makes an attractive profile for it in terms of M&A opportunity?

Where should Avalara’s next step be in terms of the product roadmap and innovations to better augment its product suite? It seems as if there have been acquisitions in W-9, W-8, property, etc, and other areas. Is there anything we can look at to potentially monitor probable next steps that would better improve the company’s growth trajectory?

Avalara reported about roughly 33% YoY top-line revenue growth in its Q1 2022 earnings. What might be sustainable or achievable for the company on a revenue growth rate perspective, given everything we’ve discussed in the aggregate?