Investor Day 2020 June 23, 2020 Agenda Vision | Scott McFarlane - - PowerPoint PPT Presentation
Investor Day 2020 June 23, 2020 Agenda Vision | Scott McFarlane Multi-Product Journey | Sanjay Parthasarathy Global Opportunity | Amit Mathradas Global Marketing | Jay Lee Strategic Partner Management | Greg Chapman U.S. Go-to-Market | Greg
June 23, 2020
Vision | Scott McFarlane Multi-Product Journey | Sanjay Parthasarathy Global Marketing | Jay Lee Strategic Partner Management | Greg Chapman U.S. Go-to-Market | Greg Stivers International Opportunity | Salim Ali Global Compliance | Liz Armbruester Finance | Ross Tennenbaum Global Opportunity | Amit Mathradas Q&A | Scott, Amit, Sanjay, Ross, Greg C.
This presentation contains “forward-looking” statements – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “may,” “might,” “plan,” “believe,” “continue,” “could,” “estimate,” “seek,” “see,” “likely,” “potential,” “predict,” “project,” “target,” “should,” “would,” “will,” or similar expressions. Forward-looking statements by their nature address matters that are, to different degrees,
statements include: our ability to sustain our revenue growth rate, to achieve or maintain profitability, and to effectively manage our anticipated growth; our ability to attract new customers on a cost-effective basis and the extent to which existing customers renew and upgrade their subscriptions; the impact of the novel coronavirus (COVID-19) pandemic and any associated economic downturn on our business operations, results, and financial position; the timing of our introduction of new solutions or updates to existing solutions; our ability to successfully diversify our solutions by developing or introducing new solutions or acquiring and integrating additional products, services, or content; our ability to maintain and expand our strategic relationships with third parties; our ability to deliver our solutions to customers without disruption or delay; our exposure to liability from errors, delays, fraud, or system failures, which may not be covered by insurance; our ability to expand our international reach and
Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward- looking statements. Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this presentation. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons why actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available in the future. This presentation includes certain non-GAAP financial measures as defined by the Securities and Exchange Commission (the “SEC”) rules. These non- GAAP financial measures are in addition to, and not a substitute for or superior to measures of financial performance prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. For example, other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. As required by Regulation G, we have provided a reconciliation of those measures to the most directly comparable GAAP measures, which is available in the appendix. 3
Founder & CEO
Biggest problem you’ve never heard of
At the center of four major tailwinds
Accelerating multi-product platform opportunity
Monetizing broad reach leveraged to eCommerce and Cloud
Driving efficient growth to a billion and beyond
6
E V E R Y Person
EMERGING MEDIUM ENTERPRISE
E V E R Y Business E V E R Y Day
Globalization eCommerce Mobile Digital Tax Collection
I N C R E A S I N G W I T H T I M E
eCommerce acceleration Cloud acceleration Focus on ROI Regulatory enforcement
7
Compliance is only becoming more challenging
8
Pre-built integrations
eCommerce Billing & POS Marketplaces
9
O UR V I S I O N :
10
Chief Product Officer
12
Get Advice Register Business Map Product Catalog Estimate Tax Manage Exemptions Calculate Tax Invoice File Returns Client Treasury Pay Jurisdictions Review Reports Manage Notices Manage Audits
13
Calculation Returns Compliance Documents Registration & Licensing Payments & Financial Services Insights
14
Tax types
Segments
Industries
Geographies
Content
Partners
15
Opportunity Calculation Returns Compliance Documents Registration & Licensing Payments & Financial Services Insights
16
Opportunity Calculation Returns Compliance Documents Registration & Licensing Payments & Financial Services Insights
17
Calculation Returns Compliance Documents Registration & Licensing Payments & Financial Services Insights Opportunity
18
Calculation Returns Compliance Documents Registration & Licensing Payments & Financial Services Insights Tax & ProductContent Enterprise Features Returns for New Audiences New Tax Types in Core Returns for New Tax Types Real-time Returns Federated Calc Opportunity Integrations
19
Calculation Returns Payments & Financial Services Insights Compliance Documents Registration & Licensing Opportunity New Doc Types New License Types Workflows Digital Locker Tax & ProductContent Returns for New Audiences New Tax Types in Core Returns for New Tax Types Real-time Returns Integrations Enterprise Features Federated Calc Geo
Financial Products Insights Content Subscriptions Expanded payment services Content & Calculation Delivery Network
20
Calculation New Doc Types New License Types Geo Workflows Digital Locker Returns Compliance Documents Registration & Licensing Payments & Financial Services Insights Opportunity Tax & ProductContent Returns for New Audiences New Tax Types in Core Returns for New Tax Types Real-time Returns Integrations Enterprise Features Federated Calc
International solutions
21
Vertical solutions Unified data infrastructure & content Unified platform & integrations Unified customer experience Calculation Returns Compliance Documents Registration & Licensing Payments & Financial Services Insights
22
Years of product buy strategy, transitioning to balanced build & buy strategy
Build Buy
Product 1 Product 2 Product 3 Product 4 Product 5 Product 6 CertExpress
2015 2016 2017 2018 2019 2020
Lodging VAT Brazil Cross Border Cross Border Beverage Alcohol Communications Content AI & ML
business needs
reduces compliance risk
23
A new service that automates consumer use tax assessment on purchases
AvaTax Item Classification
determination for 150+ jurisdictions
world-wide
experience for international buyers
Duty and import tax calculations at checkout
24
emerging small business segment
more than 5M emerging small businesses
calculated, from marketplaces and eCommerce platforms
25
A new entry level returns preparation and filing product
26
Advanced Rules VAT & GST Consumer Use Cross-Border Returns for Accountants Returns for Small Business Calculation Returns Compliance Documents Registration & Licensing Payments & Financial Services Insights
27
Support Deflection
Onboarding & Support Classification & Tax Code Mapping EU Returns Returns Console EU Registrations Calculation Returns Compliance Documents Registration & Licensing Payments & Financial Services Insights
28
R&D leadership and bench
Accelerating pace of product releases
Simple and unified experience
Continuous improvement on automation
President & Chief Operating Officer
Pre-built integrations
eCommerce Billing & POS Marketplaces
30
STORE MARKETPLACES ECOMMERCE
31
32
Billable Accounts
End Customers
Core Customers
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Note: Billable Accounts includes ~11K MyLodgeTaxcustomers that are not included in Core Customers, and excludes International; End Customers is the sum of Billable Accounts plus end customers of our eCommerce partners where we are providing calculation services paid for by the partner and end customer made at least one API call to Avalara in the last 90 days.
Mid Market
and $4bn; <10% penetrated
Cross-Border
NetSuite, Sage
increasing penetration
increases differentiation, ASPs, and share of wallet
requirements
What we’re doing to roll it up
34
TAM based on ~538k U.S. businesses with 20-99 employees and an Avalara ASP range of $1-5k plus ~91k U.S. businesses with 100-499 employees and an Avalara ASP range of $20-30k. Number of businesses based on 2016 U.S. census data.
Emerging Small Business (ESB)
businesses and $2bn; <10% penetrated
Business
marketplaces, Intuit, Xero
marketplaces, eCommerce and financial partner platforms
product
What we’re doing to roll it up
35
TAM based on ~5.3M U.S. businesses with 1-19 employees and an Avalara ASP range of $200-600. Number of businesses based on 2016 U.S. census data.
Enterprise
and $2bn; displacement market
Thomson Reuters
Consumer Use, Advanced Rules
Commerce Cloud, API integration
cloud platform – calc, returns, certs, cross border, international…
Consumer Use products
expertise What we’re doing to roll it up
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TAM based on ~19.7k U.S. businesses with 500+ employees and an Avalara ASP range of $50k-150k. Number of businesses based on 2016 U.S. census data.
International
largely greenfield
Thomson Reuters, smaller local players
VAT Reporting, Cross-Border, Calc (VAT and U.S.), e-Invoicing
partner moat
global provider for cross-border and compliance
global and local compliance needs
changes via government relations
What we’re doing to roll it up
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Leadership and bench strength — seen $1bn and beyond
Monetize multi-product platform
Build global scale and efficiencies Building for scale & efficient growth
Drive operating leverage — near-term gross margin emphasis
Increase partnership moat and monetization with focus on marketplace and eCommerce
Chief Marketing Officer
Key Messaging Channels
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Understand they have a tax problem Advertising, website, social ABM, webinars, PR, Partners, events (CRUSH)
AWARENESS
Automation is available Website, tools, banners, search
INTEREST
Avalara provides a strong ROI Direct mail, partner, inside sales
CONSIDERATION
Automate complexity today Sales
CONVERSION
You have the best technology and top experts for this problem CAMs, email
RELATIONSHIP
Realize efficient growth and reduce complexity CAMs, email, website, CUP, direct mail
LOYALTY
We can help you expand and grow Email, CAMs, virtual events, social
CROSS-SELL
Awareness of critical tax law changes is still moderate
“South Dakota vs. Wayfair” “Marketplace Facilitator Laws”
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Dec 2019 Jan 2020 Mar 2020 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Dec 2019 Jan 2020 Mar 2020 41
Emerging Small Businesses Enterprise Mid Market
29% 40% 42% 58% 62% 68% 69% 68% 52% 30% 56% 58% 32% 68% 64% 34% 50% 68% Notes: Avalara awareness surveys, 2020, “South Dakota vs Wayfair Inc. Supreme Court decision” and “Marketplace Facilitator Laws”.
Business Database
Firmographic Information Financial Software New Business Alerts B2B Spend Data eComm Software Partner Lists Public Records Financial Data Key Triggers
Robust Universe Curation
Direct Mail Display ABM
Modeling and Scoring Partner & Direct Channels
Propensity Scoring Forecasting
42
Email Events Paid Syndication Paid Social Webinars Partner’s Channels Search
Business Model Channels Geographies Business Systems
Industry
Manufacturing & Wholesale Software & Technology Business & Consumer Svc Logistics & Transportation Communications Lodging & Hospitality Accounting Beverage Alcohol eCommerce & Retail B2B B2B2C B2C Online In-store Accounting Billing CRM
43
eCommerce ERP Fulfillment Order Management Payment Processing Procure to Pay Supply Chain Mgmt. Local Global National State
Segment
Enterprise ESB Mid-Market Distributors Fuel & Energy
44
Calculation
Cross-Border Sales Tax Sage
SalesForce Commerce Cloud
Business Model Channels Geographies Business Systems
Industry
Ecommerce & Retail B2B B2B2C B2C Online In-store Accounting Billing CRM Ecommerce ERP Fulfillment Order Management Payment Processing Procure to Pay Supply Chain Mgmt. Local Global National State
Segment
Enterprise ESB Mid-Market eCommerce & Retail B2C Online Accounting eCommerce Global Mid-Market Manufacturing & Wholesale Software & Technology Business & Consumer Svc Logistics & Transportation Communications Lodging & Hospitality Accounting Beverage Alcohol Fuel & Energy Returns Distributors In-store
Distributors Manufacturing & Wholesale
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Compliance Documents
Consumer Use Certificates Epicor Coupa
Business Model Channels Geographies Business Systems
Industry
eCommerce & Retail B2B B2B2C B2C Online Accounting Billing CRM eCommerce ERP Fulfillment Order Management Payment Processing Procure to Pay Supply Chain Mgmt. Local Global National State
Segment
Enterprise ESB Mid-Market Manufacturing & Wholesale B2B ERP Procure to Pay National Enterprise Distributors Software & Technology Business & Consumer Svc Logistics & Transportation Communications Lodging & Hospitality Accounting Beverage Alcohol Fuel & Energy Returns In-store
46
Other Product fit
Lost to competitor
14% 6% 3% Closed-Lost Reason Analysis – AvaTax Opportunities
(Trailing 12 months)
The primary reason for a lost deal was “status quo” Status quo detail includes:
“no tax problem” “not ready in next 6 months” “not enough ROI”
However, only 3% of opportunities were lost to a competitor
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% of Total Deals
(Running Sum of Opportunities)
AvaTax: First Response-to-Deal Closure In Days
~3 months ~1 year ~3 years
Of new deals, approximately 50% close within 3 months of their first response to Avalara Through continued nurture and education we achieve an 85% close rate after 3 years The need to automate becomes
trigger events have passed
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 10 20 30 40 51 61 71 83 94 107 120 137 154 169 189 211 233 251 285 313 336 360 379 404 441 482 530 587 629 687 749 833 947 1,043 1,129 1,178 1,274 1,388 1,575 1,693 1,764 1,946 2,079 2,274 2,621
# of Days to Close
No Previous Closed Lost Opp(s) Previous Closed Lost Opp(s) Running % of Total
50% 70% 85%
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Successful businesses expand channels and products as they grow Selling online quickly subjects you to Wayfair legislation – an immediate automation trigger Continued regulatory changes increases the risk of non-compliance
SKU’s& tax rules Jurisdictions & channels
HIGH NEED
Remove the burden of constant SKU tax treatments
HIGH NEED
Compliance automation simplifies rapid business expansion
REQUIRED
Your business complexity creates a clear automation ROI
LOW NEED
It is easy to implement so remove any unnecessary compliance risks
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Calculation Returns Compliance Documents Registration & Licensing Local store selling over 100 styles, decides to move online, sells in all 50 states
Sales Tax Sales Tax Managed Returns Cross Border CertCapture
Great success, decides to ship globally and sell wholesale (hats for colleges and clubs)
Consumer Use Consumer Use Returns
Opens more US offices but still centralizes purchases at the original headquarters
VAT Registrations VAT Calculation VAT Reporting
Expands offices and has single distribution to stores across Europe
Global Hat Supplier
(made in the USA)
SVP Business Development
Strategic Partner Management Customer Acquisition Customer Account Management
Land & launch new partners Acquire new logos Retain & upsell existing customers
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52
Leverage the long tail to become "the standard"
Monetize eCommerce and Marketplaces
Increase penetration
53
Partner Life Cycle Launch Emerging Established Business Development
Graduated to Tier 1 Up and coming Tier 1 partners Tier 2 and Tier 3 partners
54
Partner integrations
(% of ARR)
Top 20 Next 30
Additional 650 + API integrations
55
91%
share
Representative data from one of our top partners
56 Penetration of tax technology in partner's customer base
Share data from top partner website, which shows the number of integrations of Avalara and each of our primary competitors into their base; ~7.5% penetration based on Avalara and competitor installations as a percentage of the partner’s total customers as listed on partner’s website.
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States with marketplace facilitator laws
Marketplace: the act of marketing, selling, financing, or fulfilling the sale
Marketplaces are responsible for the following
Calculating and collecting tax Remittance of tax to the states Filing of returns to the states Potential audit exposure & legally liable for errors
Sellers must still report sales & track across multiple channels increasing the complexity for all parties 2017 2019 2020 2018 2021 2017 2019 2020 2018
58
Total global, known footprint
1 Million+ potential end customers >40,000 with active usage on Avalara ~1,700 upsold on more Avalara services
Note: potential end customers is based on total end customers of major eCommerce platforms (Shopify, BigCommerce, Wix, Magento, etc.); customers with active usage on Avalara based on end customers of eCommerce platforms that made at least one API call to Avalara within the last 90 days and calculation services are paid for by the eCommerce partner; upsold customers represent active usage customers that became direct Avalara customers after we upsold them on at least one additional product.
SVP Sales
Strategic Partner Management Customer Acquisition Customer Account Management
Land & launch new partners Acquire new logos Retain & upsell existing customers
62
Avalara Sales & Channel Team
Salespeople who can refer Avalara
Resellers, software integrators, and accountants
Prebuilt integrations
63
Channel Managers Sales Development Emerging Small Business Mid Market Enterprise
Direct partner referrals Create qualified
Sales Sales Sales
Resellers, SIs, and Accountants
bound/Free Trails
64
Note: only for NEW customer acquisition; excludes international and other strategic U.S. initiatives and products.
Headcount reductions Product expansion ERP & business system changes eCommerce shift Legislation changes Geographic expansion Cloud shift M&A Audits & notices
65
Change of staff
INTEGRATIONS
QuickBooks, Stripe, Magento $6K Bookings
PRODUCTS PURCHASED
Registrations AvaTax SST Managed Returns
RESULTS Freed up staff to focus on growth objectives. Automated nexus alerts eliminated need to spend time tracking as they continued to grow. TRIGGERS Very manual process with multiple systems with limited understanding of nexus. Geographic expansion ROI
Emerging Small Business
66
INTEGRATIONS
Competitive Win $16K Bookings
PRODUCTS PURCHASED
Registrations AvaTax Certificate Mgmt. Managed Returns SST Support Package
RESULTS The ability to support product taxability for machinery, software, and maintenance. Scalable solution as they expand into a more robust ERP and into Canada. TRIGGERS Needed to be registered in most states for remote
more support to scale nexus footprint. Product expansion ERP & business system changes
Emerging Small Business
67
INTEGRATIONS
QuickBooks + BigCommerce $19K Bookings
PRODUCTS PURCHASED
Registrations AvaTax SST Managed Returns
RESULTS Ability to scale as they grow into more complex states. Pre-built integration for BigCommerce and QuickBooks Desktop. TRIGGERS Needed to be registered and begin filing nationwide in 20+ states. Very manual and time-consuming in- house processes. Geographic expansion ERP & business system changes ROI
Emerging Small Business
68
INTEGRATIONS
QuickBooks $17K Bookings
PRODUCTS PURCHASED
AvaTax Returns Support Package
RESULTS Pre-built integration for Quickbooks Desktop (had a terrible experience when attempting to use competitor's QB integration). Visibility – one source of truth for everything related to transactional tax compliance. TRIGGERS The CEO needed a “life raft” and couldn’t continue to pay the steep rates paid for a 3rd party to file and did not have the resources to file in-house. ROI
Emerging Small Business
69
INTEGRATIONS
API + Displacement of 2 competitors $49K Bookings
PRODUCTS PURCHASED
AvaTax Returns
RESULTS Avalara displaced both 2 competitors by simplifying the solution and single source of truth. Ability to scale with a large volume of transactions. TRIGGERS Manually uploading monthly rate tables from competitors Managed Returns filing. ROI
Small to Medium Business
70
INTEGRATIONS
API + Stripe $35K Bookings
PRODUCTS PURCHASED
AvaTax CertCapture Managed Tax Returns SST Support Package
RESULTS Minimal IT involvement with our Modern REST API’s to calculate tax from an in-house webform. An automated way to incorporate exemption certificates into the invoicing logic. TRIGGERS Omnipresent nexus due to remote employees in 26 states. Hard to keep up with tax changes and calculations related to SaaS. Geographic expansion Audits and notices
Small to Medium Business
71
INTEGRATIONS
Accumatica + API $27K Bookings
PRODUCTS PURCHASED
Registrations AvaTax CertCapture Managed Returns SST Support Package
RESULTS A solution that integrates with Acumatica. And REST 2 API for their dealers portal, so dealers know how much sales tax to charge their customers. Single tax calculation, tax return, and Certificate management solution. TRIGGERS Established economic nexus in nearly every state. Manual processes for collecting, storing and managing exemption certificates. ROI Legislation changes Staffing changes
Small to Medium Business
72
INTEGRATIONS
Microsoft + Magento $72K Bookings
PRODUCTS PURCHASED
AvaTax CertCapture Returns SST Professional Services
RESULTS A solution that integrates with MS D365 Business Central and Magento. Manage certificates for exempt organizations who are their primary customers. TRIGGERS Accounting team short-staffed in order to manage full 50-state compliance. 50% of sales are to exempt entities. ROI Legislation changes Geographic expansion
Small to Medium Business
73
INTEGRATIONS
Microsoft $73K Bookings
PRODUCTS PURCHASED
AvaTax for Communications Tax Determination Managed Returns for Communications
RESULTS Cloud-based tax engine that can provide ALL applicable transactional tax calculations in the US, Canada, EU, and APAC via a single engine. Ability to tailor exemptions. TRIGGERS Resources burnt out to keep up with complex tax
tax decisions. ERP & business system changes Headcount reductions
Enterprise
74
INTEGRATIONS
Recurly $65K Bookings
PRODUCTS PURCHASED
AvaTax Managed Returns SST
RESULTS Cloud based solution with a pre-built integration into Recurly. Automated tax filing with SST and with ability to handle VAT for future growth. TRIGGERS Registered in small number of states, manual filing and remittance process, manual researching of rates with iffy reporting, and no tax strategy to accommodate growth. ROI Legislation Changes Product Expansion
Enterprise
75
Strategic Partner Management Customer Acquisition Customer Account Management
Land & launch new partners Acquire new logos Retain & upsell existing customers
76
We organize our customers into four segments based on the ARR value to Avalara
Segment details Segment Definition
Enterprise Emerging Mid-Market Mid-Market
>$100K ARR $6K - $100K ARR >$3K - $6K ARR
Emerging Small Biz
<$3K ARR
HIGH TOUCH / PROACTIVE LOW TOUCH / AUTOMATION
Engagement Strategy
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CU RRENT SU B SCRI PTI ONS
TRANSACTION MONITOR
TIER START DATE RENEWAL DATE OVERAGE RATE PLAN TIER PURCHASED START DATE RENEWAL DATE USAGE TO DATE DAYS REMAINING UNITS REMAINING DATE PROJECTED TO EXCEED
Trigger-based communications begin to customers 120 days before renewal CAMs execute renewal account reviews and leverage the Scorecard to understand customer product adoption, usage, and compliance risks and opportunities During renewal customers at risk of churn are identified, flagged and save plans are developed
80% ECONOMIC NEXUS ALERT According to AvaTax transaction data, it appears the customer has reached 80% towards the sales and/or transaction threshold in a state with economic nexus laws, however they do not have nexus selected for that state(s) within AvaTax ECONOMIC NEXUS ALERT According to AvaTax transaction data, it appears the customer has reached a sales or transaction threshold in a state with economic nexus laws, however they do not have nexus selected for the state(s) within AvaTax.
COMPANIES: 1 STATE JURISDICATIONS: 17
COLLECTING NOT FILING Client has selected nexus in jurisdiction(s) without corresponding entry in Avalara Returns filing calendar. May require registration and
NEW NEXUS New nexus detected in the past 30 days; client should ensure proper registration and returns filing calendar setup.
COMPANIES: 1 STATE JURISDICATIONS: 7 COMPANIES: 1 STATE JURISDICATIONS: 1
40,000,000 Units January 29, 2020 January 28, 2021 $0.04 19,294,604 Units 64% 52% October 26, 2020
CU RRENT PLA N COMPLI A NCE MONI TOR
FILING MONITOR
Pre-Paid Returns 501-750 Returns 733 Returns February 28, 2020 February 27, 2021 ANNUAL FILING VOLUME ESTIMATE: RETURNS FILED LAST 12 MONTHS:
865 268
78
COMPANIES: 1 STATE JURISDICATIONS: 1
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Upgrades Increasing transaction tiers
Customers grow More transaction volume More geographies/nexus Price discounts increase to list
Cross Sell Customers purchase new products
New Product Offerings Additional connectors SST Returns Managed Returns Exemption Certificate Management Global Offerings Professional Services
80
Calculation Returns 2011: Launched eCommerce
2018: Added Premium Returns 2019: Audit led to need for Cert Capture document management Now: Avalara is used across 10 subsidiaries, 3M transactions, 1,500 returns and over 100K exemption certificates Compliance Documents
Wholesale restaurant supply company scales compliance after a negative audit result
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2016: First partnered on registrations to support growing nexus footprint 2017: Implemented AvaTax for ERP and Cert Capture to manage exemptions 2018: AvaTax scaled as company quickly grew from 500K to 2MT transactions annually Now: Moving ERP to Cloud and adding new connectors to support eComm and
Registration & Licensing Compliance Documents
Omnichannel construction materials distributor is focused on efficient growth and increased M&A activity
Calculation
82
2014: Launched large scale eComm platform for residential real estate 2015: After a major acquisition compliance strategy needed to be redefined 2019: Returns scaled to quickly meet a 50% increase in nexus exposure Now: Added Consumer Use product to increase efficiency and accuracy and reduce errors associated with use tax
Continuing to drive efficiency, reduce manual burden and redefine their compliance strategy to meet increased compliance demands
Returns Insights Calculation
SVP International
Cross-border trade & commerce accelerating Compliance reporting complexity increasing 165+ countries VAT/GST Gig economy going in direction of marketplace compliance Digital services
Avalara Compliance Cloud Coverage
Global customers doing business with US Customers doing business across VAT countries Intra-country compliance needs
84
85
The US context Tax calculation is the beachhead 50 states Sales tax Economic nexus
86
Supplier Manufacturer Distributor Retailer Consumer Collect VAT Track VAT paid Make payments Claim refunds Track exemptions File returns
Sales tax
87
VAT Reporting is the beachhead The England example Charged on a far wider range of activities
(digital goods; telecoms; alcohol; banking)
VAT Calc is easy VAT compliance is hard
VAT & GST spans 165+ countries
88
The EU example VAT Reporting becomes incrementally harder Different VAT rates across countries Language diversity contributes to VAT rules complexity Filing & return protocols differ Customs rules & import duties vary
89
Cross-border eCommerce is undermining countries’ traditional tax base Governments pivoting to indirect taxes with multiple legislatives triggers But massive fraud results in tax leakage Automation and live reporting seen as the solution
Examples of how Avalara leverages tax law reform to generate booking
90
PRODUCT NEED
HS Code Classification; Tariff calc; VAT Reporting, Fiscal Rep UK leaves EU Customs Union and VAT regime Tariffs and import VAT due for first time for ~500k businesses
PRODUCT NEED
Tariffs calc; VAT Reporting; MRS for sellers; Fiscal Rep Tax authorities control issuing
Poland, Greece, France follow Italy, Spain and Hungary and global trend
PRODUCT NEED
Digital signature invoices; live VAT calc; submission to tax authorities
December 2020
Brexit Tax Breakaway
2021
E-invoices
Marketplaces and couriers become VAT deemed supplier from 2021
2021
EU Marketplace Reforms
91
EMEA ❑ VAT Registrations
Registrations & licensing
EMEA ❑ VAT Calculation ❑ Cross-Border customs & duties ❑ Item Classification LATAM ❑ Calc Brazil ASIA ❑ India GST
Calculation
EMEA ❑ VAT Reporting ❑ E-Invoicing ❑ Managed Returns LATAM ❑ Returns Brazil ASIA ❑ India GST
Returns & reporting
EMEA ❑ E-invoicing LATAM ❑ TaxDocs Monitor ❑ Validate
Document management
Global database of tax and product content Infrastructure to serve, scale and protect your data Largest network of integrations into business tools
Business Government
91
Avalara market success
Local government coverage Ecosystem & moat established Deliver on customer experience
1 2 3 4
Align with local policies & decision makers Ensure Automated Filing Capabilities & Certifications Cover inbound global customer,
local compliance needs Focus on Whole Solution (product + tax content + app connectors) Establish Local GTM routes (direct and local partners) Global and local partner connector coverage Ensure Local SLA capabilities Fulfill compliance obligations Product meets compliance needs
92
93
KEY CATALYSTS BREXIT TAX BREAKAWAY DEC 2020 | UK MTD APRIL 2021 | EU DEEMED SUPPLIER 2021 First emea-specific organic product launches this year; vat portfolio on way GOING BEYOND INCUBATE
ANY BUSINESS SELLING INTO THE US
AVATAX
LARGER ENTERPRISE VAT NEEDS
VAT REPORTING
SMB VAT OFFERING
MANAGED RETURNS
New cl clou
d offerings ent ntering ng gene neral availability in n Q3 Q3
CURRENT OFFERINGS (with Tax Authority Certifications)
AVATAX VAT DETERMINATION FISCAL REP X-BORDER CLASSIFICATION & DUTY
NET-NEW OFFERINGS
FILLING OUT OUR COMPLIANCE SUITE
94
Avalara Compliance Cloud Coverage
Global customers doing business with US Customers doing business across VAT countries Intra-country compliance needs Meet global compliance needs
LATAM EMEA India New Markets
SVP Global Compliance Operations
96
Calculation Returns Compliance Documents Registration & Licensing Payments & Financial Services Insights Calculation Compliance Documents Payments & Financial Services Insights
10,000 15,000 20,000 25,000 30,000 35,000
1,000,000 1,500,000 2,000,000 2,500,000 Sales and Use Telecommunications Lodging
Returns Efficiency - US
Returns Volume Returns/Person
10,000 15,000 20,000 25,000 30,000 35,000
1,000,000 1,500,000 2,000,000 2,500,000 VAT
Returns Efficiency - International
Returns Volume Returns/Person
Automated Manual
97
Content Automation Instantaneous GoLive Returns Platform
98
CFO
Leader in large, global market – center of four major tailwinds
Accelerating multi-product platform opportunity
Monetizing broad reach leveraged to eCommerce and Cloud
Stable, diversified customer base with low churn and high retention
Significant operating leverage as we grow to a billion and beyond
102
500+ Employees 19,699 firms $50K-150K ASP Range $2.0B 100–499 Employees 90,742 firms $20K-30K ASP Range
20–99 Employees 538,283 firms $1K-5K ASP Range
<20 Employees 5,305,960 firms $200-600 ASP Range
Total Available Market (U.S.)
More opportunistic in enterprise
Use and Advanced Rules
enterprises modernize backend systems Driving down market
Marketplace partners
Avalara has historically focused on “mid- market” orgs with 20-500 employees
Source: # of firms based on 2016 US Census Data; ASPs based on Avalara internal data from May 2019
103 $0 $50 $100 $150 $200 $250
Demonstrated success monetizing multiple products
Calculation Returns Certificates
2019 revenue by major product
Advanced Rules VAT & GST Consumer Use Cross-Border Returns for Accountants Returns for Small Business
New products add upsell opps and additional ways to acquire new customers Have not maximized penetration
Returns product
104
2007
TrustFile
2008
ISPI New Horizons
2010
Taxcient
2011
Tax Solutions Group
2012
Matrix Masters TTR Content
2013
CertCapture Avex
2014
Zy Tax Applianz VATlive Industry Sales Tax
2018
Tradestream Technologies
2019
Compli Indix Portway
2015
EZtax VAT Applications Suite Plus HotSpot
2016
Brazil Co.
2020++
Potential M&A Categories
Content Compliance docs Licensing & Registrations Government-in-the-middle Real-time returns Cross border International
105
Core Customer %
FY18 FY19 1Q20
86% 83% 82%
Billable Accounts
End Customers
Core Customers
Note: Billable Accounts includes ~11K MyLodgeTaxcustomers that are not included in Core Customers, and excludes International; End Customers is the sum of Billable Accounts plus end customers of our eCommerce partners where we are providing calculation services paid for by the partner and end customer made at least one API call to Avalara in the last 90 days.
106
% of ARR by Connector
API Custom integrations to our solution Limited visibility; potentially high mix of eCommerce transactions
18% 18% 5% 8% 49%
eComm + Marketplace No Connector Certificate Management and Returns-only customers ERP Most of our Returns business connects to ERP; end customer may be 100% eCommerce Includes many B2B direct sales models (like how Avalara sells)
1%
Point of Sale Very low exposure to brick- and-mortar point of sale Other Pure eComm connected to eComm platforms and marketplaces
Note: Data based on the end system to which Avalara connects (e.g., ERP like NetSuite or eCommerce like Shopify).
107
eCommerce + marketplace
~50% CAGR in eCommerce + marketplace ARR
March 2017 July 2017 November 2017 March 2018 July 2018 November 2018 March 2019 July 2019 November 2019 March 2020
Note: eCommerce + Marketplace ARR based on ARR from Marketplace and eCommerce partners for transactions for end customers on their platforms.
18%
108
We define gross revenue churn as the annual revenue contribution associated with billing accounts that cancel all of their agreements with us divided by the total annual revenue recognized during a measurement period. As a reminder our gross revenue churn does not include downgrades.
1Q 18 2Q 18 3Q 18 4Q 18 1Q 19 2Q 19 3Q 19 4Q 19 1Q 20
We calculate our net revenue retention rate by dividing (a) total revenue in the current quarter from any billing accounts that generated revenue during the corresponding quarter of the prior year by (b) total revenue in such corresponding quarter from those same billing accounts.
Gross revenue churn below 4%
100% 102% 104% 106% 108% 110% 112% 114% 1Q 18 2Q 18 3Q 18 4Q 18 1Q 19 2Q 19 3Q 19 4Q 19 1Q 20
Net Revenue Retention Rate Trailing 4 Quarters
Net Revenue Retention Rate
109
$(17) $(19) $12 2017 2018 2019
Free Cash Flow ($ mm)
60% 59% 46% 2017 2018 2019 75% 73% 72% 2017 2018 2019
Non GAAP Gross Margin % (ASC 605) Non GAAP Sales & Marketing % (ASC 605)
Note: See appendix for reconciliation of non-GAAP to GAAP financials.
110
Total Avalara Employees
2,700+
Total in Cost of Revenue
1,000+
Leverage Factors Effect on Gross Margin Improvement Compliance High Technology automation High Content Med Technology automation Medium Support Med Maturation Low Go Live Low Technology automation Low-Medium Hosting / SaaSOps Low Platform evolution; improved pricing Medium Other (PS, IT, Customs, Client Pay) High Automation, scale Low-Medium
111
60% 59% 46% 41% 43% 41%
0% 10% 20% 30% 40% 50% 60% 70%
2017 2018 2019 2019 Q1 19Q1 20 18% 18% 20% 17% 21%
0% 10% 20% 30% 40% 50% 60% 70%
2017 2018 2019 Q1 19 Q1 20 14% 12% 15% 15% 16%
0% 10% 20% 30% 40% 50% 60% 70%
2017 2018 2019 Q1 19 Q1 20
Non GAAP Sales & Marketing % Non GAAP Research & Development % Non GAAP General & Administrative %
ASC 605 ASC 606
Note: See appendix for reconciliation of non-GAAP to GAAP financials.
112
% of Revenue 2017 2018 2019 2019 Q120 LT Target Model Gross Margin 75% 73% 72% 72% 71% 80-82% Sales and Marketing 60% 59% 46% 41% 41% 33-35% Research and Development 18% 18% 20% 20% 21% 14-16% General and Administrative 14% 12% 15% 15% 16% 8-10% Operating Margin
20-25%
ASC 605 ASC 606
Leader in large, global market – center of four major tailwinds
Accelerating multi-product platform opportunity
Monetizing broad reach leveraged to eCommerce and Cloud
Stable, diversified customer base with low churn and high retention
Significant operating leverage as we grow to a billion and beyond
Scott, Amit, Sanjay, Ross, Greg C.
2017 2018 2019 (ASC 605) 2019 1Q19 1Q20 Reconciliation of Non-GAAP Gross Margin: Gross margin 73% 71% 70% 70% 70% 69% Stock-based compensation expense as a percentage of revenue 0% 1% 1% 1% 1% 1% Amortization of acquired intangibles as a percentage of revenue 2% 1% 1% 1% 1% 1% Non-GAAP Gross Margin 75% 73% 72% 72% 72% 71% Reconciliation of Non-GAAP Research and Development Expense: Research and development 41,264 $ 51,909 $ 82,442 $ 82,442 $ 15,956 $ 25,847 $ Stock-based compensation expense (2,391) (3,179) (6,666) (6,666) (1,292) (2,394) Amortization of acquired intangibles — — — — — — Non-GAAP Research and Development Expense 38,873 $ 48,730 $ 75,776 $ 75,776 $ 14,664 $ 23,453 $ Non-GAAP Research and Development Expense (% of Revenue) 18% 18% 20% 20% 17% 21% Reconciliation of Non-GAAP Sales and Marketing Expense: Sales and marketing 133,794 $ 168,817 $ 187,783 168,634 39,319 $ 49,634 $ Stock-based compensation expense (3,789) (5,492) (8,736) $ (8,736) $ (2,169) (2,815) Amortization of acquired intangibles (1,913) (1,951) (2,271) (2,271) (505) (607) Non-GAAP Sales and Marketing Expense 128,092 $ 161,374 $ 176,786 $ 157,627 $ 36,645 $ 46,212 $ Non-GAAP Sales and Marketing Expense (% of Revenue) 60% 59% 46% 41% 43% 41%
2017 2018 2019 (ASC 605) 2019 1Q19 1Q20 Reconciliation of Non-GAAP General and Administrative Expense: General and administrative 34,286 $ 39,603 $ 71,918 71,918 15,234 $ 21,388 $ Stock-based compensation expense (4,601) (5,585) (15,825) (15,825) (2,358) (3,326) Amortization of acquired intangibles (102) (17) (15) $ (15) $ (3) (4) Non-GAAP General and Administrative Expense 29,583 $ 34,001 $ 56,078 $ 56,078 $ 12,873 $ 18,058 $ Non-GAAP General and Administrative Expense (% of Revenue) 14% 12% 15% 15% 15% 16% Reconciliation of Non-GAAP Operating Loss: Operating loss (63,332) $ (76,054) $ (74,435) $ (55,872) $ (10,846) $ (19,680) $ Stock-based compensation expense 11,757 15,921 34,349 34,349 6,560 9,731 Amortization of acquired intangibles 5,732 5,988 7,140 7,140 1,678 1,841 Goodwill impairment 8,418 9,174 — — — — Non-GAAP Operating Loss (37,425) $ (44,971) $ (32,946) $ (14,383) $ (2,608) $ (8,108) $ Non-GAAP Operating Margin (% of Revenue)
Free Cash Flow: Net cash used in operating activities (3,541) $ (3,062) $ 22,386 $ 22,386 $ (10,421) $ (24,269) $ Purchases of property and equipment (13,955) (15,483) (10,180) (10,180) (2,114) (1,600) Free Cash Flow (17,496) $ (18,545) $ 12,206 $ 12,206 $ (12,535) $ (25,869) $