Avalara, Inc.
Q3 2018 Earnings Call Transcript

Published: 11 Nov 2018

[Operator:]

Good afternoon. My name is Cheryl, and I will be your conference operator today. At this time I would like to welcome everyone to the Avalara Third Quarter 2018 Earnings Conference Call. [Operator Instructions] Kevin Faulkner, Investor Relations, you may begin your conference.

[Kevin Faulkner:]

Good afternoon, and welcome to Avalara’s Third Quarter 2018 Earnings Call. We will be discussing the results announced in our press release issued after market close today. With me are Avalara’s CEO, Scott McFarlane; and CFO, Bill Ingram. 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, our expected future business and financial performance and financial condition and our guidance for the fourth quarter and fiscal year, and 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 risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to the risks discussed in today’s press release, our quarterly report on Form 10-Q filed the Securities and Exchange Commission on August 10, 2018 and our other periodic filings with the SEC. During the call, we will also discuss non-GAAP financial measures. These non-GAAP financial measures 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.avalara.com. With that, let me turn the call over to Scott.

[Scott McFarlane:]

Thanks, Kevin, and good afternoon, everyone. We are steadily executing on a large long-term growth opportunity, and in Q3 we delivered another strong performance. Our total revenue was $69.5 million, and year-over-year revenue growth improved to 26%. And I’m pleased to report that we are seeing increasing business activity. As we have said, the constant march of normal business drives triggers for sales tax automation, and one of those triggers driving Avalara’s growth is changing legal and regulatory landscape. This year’s South Dakota versus Wayfair decision has led to new state laws across the U.S. and are driving interest and customer conversations. The same factors are at play internationally, with changes like the Making Tax Digital regulations in the U.K. which has led to similar increases for our sales teams in that region. We also continue to add to our broad and deep base of tax content, enabling us to serve more geographies and tax types. And we continue to improve the robustness of our tax engines and our partner relationships. As a result, we believe Avalara is well positioned to be the long-term winner in an $8 billion market opportunity. For anyone new to the Avalara story, let me summarize our opportunity and growth strategy. Transaction tax compliance remains a highly manual process. We believe automation will increase overtime, just as it did for payroll. In fact, we believe it is absurd to think sales tax won’t be automated in the digital world. Transaction taxes affect millions of transactions every day, and compliance requirements are extremely burdensome. Businesses of all sizes must navigate a maze of requirements and endlessly changing rates, taxability rules, exemptions and geographic boundaries to registrations and filing requirements across thousands of overlapping jurisdictions in the U.S. and around the world. Compared to payroll, transaction tax is much harder to automate. In the U.S., it must be calculated, collected and recorded in real time at the moment of sale. In contrast, payroll is periodic and scheduled, avoiding the demanding real-time requirements. Avalara addresses this challenge with a Cloud-based suite of automated compliance solutions to calculate, collect, record, file and remit transaction taxes. We have a wide variety of tax and return content for a multitude of global business types. Tax content includes worldwide rates, rules about taxability of specific products, cross-border customs and duties, the geographic boundaries of thousands of overlapping tax jurisdictions and more. The breadth and depth of our global content is a strong barrier to entry. We have a team that continually maintains and adds to our content base, and we are always on the lookout for opportunities to expand our content through acquisition. We also have fast scalable engines that process our tax content. We deliver the results directly into the ERP, ecommerce and point of sale systems customers use to make sales and create invoices, aided by more than 700 pre-built integrations with partner applications. Avalara’s steady growth arises from the numerous, constantly occurring events that trigger consideration and, ultimately, adoption of our automated solution. Trigger points for potential customers include adoption of new ERP systems, releasing new products or entering new jurisdictions, migrating to the Cloud or other changes in a company’s business operations as well as changing government regulations. We are in the midst of a particularly significant shift in transaction tax policy in the U.S., growing out of the Supreme Court’s Wayfair decision. Following that decision, 29 states now have economic nexus laws requiring remote sellers to collect and remit sales taxes. We are seeing significant increases in the interest and sales inquiries related to those new laws. However, I want to emphasize that Wayfair is just 1 example of a continuous process of change that triggers a need for compliance automation, and it’s just 1 of the many factors that drives our growth. That outlines our strategy and market opportunity. In executing, we are focused on 3 areas

[Bill Ingram:]

Thanks, Scott. Before discussing our results in detail, I want to briefly review our financial model for those who are new to Avalara. We sell our Cloud-based offerings on a subscription basis. Our calculation service is priced on blocks of transactions, and our returns service is priced on returns filed Our initial customer contracts are typically 12 to 18 months and, thereafter, renewals are generally 1 year. Subscription revenue is recognized on a straight-line basis over the contract term, with revenue recognition starting at the time customers have access to our service. We also generate a small portion of our total revenue from professional services. This revenue is recognized as the services are performed, milestones are met and customers are invoiced. The combination of our subscription model and strong retention rate provides us with a high level of visibility into future revenue. With that background, let me now turn to our third quarter results. Third quarter total revenue of $69.5 million was up 26% on a year-over-year basis, driven by increased demand from both new and existing customers, steady go-live activity and solid sales execution. Subscription returns revenue contributed $64.2 million. This represented 92% of our total revenue, and it grew 24% year-over-year. Professional services and other revenue contributed $5.3 million. Our core customer count increased by 410, to approximately 8,490 at the end of Q3 2018. We define a core customer as a unique billing account that was active as of the measurement date and for which we recognized greater than $3,000 in total revenue in the 12 months prior. We believe this is an appropriate metric for evaluating our performance because core customers collectively represent more than 85% of our total revenue. Our net revenue retention rate was 105% in Q3 and has averaged 107% over the last 4 quarters. While our net revenue retention rate has varied between 105% and 109% in any 1 quarter, the trailing 4-quarter average remains very consistent. Our steady revenue retention rate supported by low gross churn contributes to strong customer lifetime value. In discussing the remainder of the income statement, please note that unless otherwise stated all references to our expenses, operating results and share count are on a non-GAAP basis and are reconciled to our GAAP results in the earnings press release that was issued just before this call. Gross profit was $50.9 million for Q3 ‘18, representing a 73% gross margin. This compares with gross profit of $41.8 million and a 76% gross margin in the same period last year. The 3% decline in gross margin was a result of higher network costs due to increased transaction volumes, additional headcount to serve growing customer demand for compliance of filing, investments in content to expand into adjacent market segments. New customer wins often open up specific industry verticals that require added tax rates, rules, exemptions and jurisdictions, all of which we call content. There’s no central source for content. It requires research, collection, curation and delivery through our automated tax engines. As we expand our footprint into additional market segments and geographies, we incur one-time expenses to acquire and create content. That content can then be sold repeatedly in the future at low marginal cost. In addition, our international growth is driving the need for more registration and filing capacity. As we launch our automated filing technology overseas, we have staffed up headcount to manage the increase in demand. During the third quarter, we continued to invest in our sales and marketing organization to fuel long-term growth and new customer acquisition. Sales and marketing expense was $39.2 million in Q3, or 56% of revenue, down slightly from 57% for the year-ago quarter. Sales and marketing expense includes commissions paid to our sales personnel as well as our partners. Partner commissions were 9% of revenue in Q3 and have averaged 8% year-to-date in 2018. We believe our go-to-market model provides us with a significant competitive moat and are committed to our investment in this area. We expect to gain sales and marketing leverage over time as we scale the business. For Q3, research and development expense was $12.4 million, or 18% of revenue, up slightly from 17% for the year-ago quarter and in line with our expectations as we continue to invest in new products and features. For Q3, general and administrative expense was $8.9 million, or 13% of revenue. On a GAAP basis, in Q3 we recorded an impairment charge of $9.2 million for the write-off of goodwill associated with our Brazilian operations. We annually test the carrying value of goodwill across the company. After a review of our cash flow forecasts and investment plans, we determined that a write-off of the remaining $9.2 million of goodwill was appropriate. We view Brazil as a strategically important market opportunity for the company and will continue to invest in our operations there. Non-GAAP operating loss was $9.6 million for Q3, compared to a $7.2 million loss in Q3 of ‘17. Loss per share was $0.14 in the third quarter, based on 66.6 million shares outstanding, compared to a loss of $0.10 per share in the third quarter of 2017, based on 56.6 million shares outstanding. Turning to our balance sheet and cash flow statement, our cash and cash equivalents were $138.1 million at the end of Q3 ‘18, compared to $173.1 million at the end of Q2 ‘18. In Q3, we paid down our term loan of $30 million, leaving us with no outstanding debt. Total deferred revenue was $118.2 million at the end of Q3 ‘18, up 8% from $109.3 million at the end of Q2 ‘18. We believe the growth in our deferred revenue is another indicator of strong momentum in our business. Operating cash flow was $1.2 million in Q3, compared to $5.3 million in Q3 2017. We consumed $3.6 million of free cash flow during the third quarter. This compares to $1.1 million in free cash flow generated in the same quarter last year. Note that our free cash flow can fluctuate from quarter to quarter, caused by many factors, including the timing of working capital as well as the seasonality of our billing and expense cycles. I will conclude by providing guidance on revenue and non-GAAP operating loss for Q4 and the full year 2018. For clarification and as a reminder, the numbers that we discuss today are based on Accounting Standard 605. We will begin reporting under Accounting Standard 606 in Q1 2019. We do not expect a meaningful impact to revenue when we make the transition, but there will be an impact to how certain of our sales expenses are recognized. For Q4 ‘18, we currently expect total revenue to be between $71 million and $71.5 million. We expect our Q4 non-GAAP operating loss to be in the range of $13 million to $12 million. For the full year 2018, we are increasing our total revenue target to a range of $265.6 million to $266.1 million. We expect our full year non-GAAP operating loss to be in the range of $45.3 million to $44.3 million. Our non-GAAP operating loss guidance reflects the decision to reinvest in the business based on our momentum and opportunity. In summary, the third quarter was a strong performance for Avalara and showed continued progress against our objective to become the long-term winner in a large market opportunity. At this point, we would like to open up the call for your questions.

[Operator:]

[Operator Instructions] The first question comes from Sterling Auty of J.P. Morgan. Your line is now open.

[Sterling Auty:]

I wanted to dive deeper into that, to the last point, in terms of the incremental investment. How should we think about the length or how long the higher-than-expected investment should take? So in other words, is this a 1-quarter staff-up on the international and the points that you mentioned and then we should start to see the operating leverage kick in? Or is this a multi-quarter investment phase?

[Bill Ingram:]

Sterling, it’s Bill Ingram. Thanks. In terms of expansion in the income statement, there’s a couple of areas I tried to point out in my comments. One obviously is in the gross profit area. We made, as I said, conscious decisions because we’re seeing very strong demand in a couple of different areas. I pointed out the international demand is starting to kick in, and we need to get the international operations to the level of automation that the U.S. operations are for filing. So it’s not the calculation or determination part; it’s the actual filing part because of all the unique characteristics across all the different countries we’re starting to see demand in. So basically, we want to serve our customers. They want the service now. We’re, in parallel, investing to bring our U.S. automation into those markets. So that’s causing some headwinds on our gross margin level, which affects our income statement. In terms of the other area, and I’ll probably say this a couple of times on this call, we’re very pleased with, as Scott said, the revenue bookings and billings performance. And so as a result, we get current-period expenses primarily for commissions and residuals, while the revenue is ratable over the year-long subscription. And so were making daily conscious decisions, but we’re confident we’re going to see that steady expansion in the income statement over time. But I really want to talk people off, is it 1 quarter or is it 1 time? We think we’ve got a good trajectory for real solid growth, and we’ll invest both through the sales and marketing line and the cost of revenue line appropriately.

[Sterling Auty:]

All right. Sounds good. And then 1 follow-up. Scott, you mentioned the improvement to the onboarding process. Is there a sense that you can give us in terms of where you think the target can get to in terms of the time for onboarding and what kind of benefits that actually would drive from a cost perspective?

[Scott McFarlane:]

Thanks, Sterling. That’s a good question. Because it’s one that we focus on all the time here. One of the greatest aspects of customer service is how quickly you can get somebody onboarded. And so from really early on in the process we tried to automate that as much as possible, and we continue to do that. So we want to see constant improvement month-over-month, quarter-over-quarter, year-over-year, and it’s really all around automation. How do we take the friction out of the integrations, the 700 integrations we have? And that’s a constant battle that we deal with. How do we make the admin console easier to use? How do we allow people to pick their tax codes in a more simplified fashion? And so there’s really not one single answer to that, Sterling, but it’s a combination of a wide variety of them. And I expect to see improvement monthly, quarterly, annually by the teams that are building out those solutions.

[Operator:]

Your next question comes from the line of Brad Sills of Bank of America Merrill Lynch. Please go ahead. Your line is open.

[Unidentified Analyst:]

This is actually Sherry Glowe, [ph] on for Brad Sills. Could you provide any updates on the Shopify partnership and its potential impacts on SOHO customer volume?

[Scott McFarlane:]

Thanks, Sherry. I will say Shopify, BigCommerce, Wix, many of those large, what we call our Avalara Included deals, are a significant way that we see to tackle the SOHO market. I know that you can go out there and win one deal here and one deal there, but at Avalara we just don’t fundamentally believe that that is a viable strategy. Winning these partnerships that we’ve won is really the only way to go after the low end of the market. And Shopify for us was one of the first that we’ve had. BigCommerce is seeing significant improvement along the way, and we expect huge things out of Wix, going forward. And so when you do that it really makes the customer experience. And when a partner chooses you to be embedded in their solution, as Shopify has done for us, with Shopify Plus, it really benefits both Shopify, Avalara and the customer because their experience is really well integrated. And we expect that to continue to grow with not only these partnerships, and when I say grow, I see significant amounts of their customer base being on and using this platform that we’ve jointly set up with them. So it’s continually growing, and I expect it to be where we see almost full adoption with their kind of customer base.

[Operator:]

Your next question comes from the line of Patrick Walravens of JMP Securities. Please go ahead. Your line is open.

[Patrick Walravens:]

Can I start out just with -- I love hearing the commentary around the solid bookings, and I just wonder if you feel like you’ve got the sales organization in a place now where you think that’s going to be a recurring event. Do you feel like it’s predictable?

[Scott McFarlane:]

Thanks, Pat. Really appreciate it. I’m actually glad you asked that question because I want to put a pin in this one. And we were actually talking about how we would speak about this, because moving away from GO to the partners, to a partner-based system, was really the right thing to do. We made that change over 1.5 years ago, and I can say with strong conviction that this has really worked out well. And it’s one of the reasons that we’re not only doing as well as we’re doing, but why we think that this is going to be such a long and strong growing business. Because these teams have really organized themselves and are executing around the kind of sales momentum that I think that they should be doing. And with the triggers that are happening and, in particular, Wayfair and all of that interest, we had that in place. And so we’ve been able to take that execution and changes that we’ve made and really bring it home. And I expect that to continue, going forward.

[Patrick Walravens:]

Okay. Great. That’s super helpful. And Scott, is there -- when I talk to -- at these user conferences, there’s usually an Avalara booth with bright orange shirts and then that other guy’s booth, too. And everyone sort of agrees that it’s driving a lot more interest to you, but there’s also some concerns about, gosh, it may drive a lot of the SMBs out of business. How big an issue is that?

[Scott McFarlane:]

That’s an interesting question, I suppose, Pat, to explore, but this is what I fundamentally believe. Sales tax is going to be automated. It’s crazy to think in a digital world it isn’t going to be that way. And automation will never drive these -- I don’t think that they will drive them out of business. In fact, I think the opposite. This will allow them to expand their market and to be able to do it in a cheaper, better, faster. Status quo is obviously our biggest competitor in the marketplace. And as these people and as these triggers happen, it is a way for them to move off of an error-prone system, a system that takes lots of time and gives a business no economic value, none at all, only liability. So we’re taking the -- helping them take the liability off and make it easier and more accurate for them to file, as well as making it more efficient for them to do what they do. It allows them to get back to growing their business. And so I think, actually, the opposite of that. I actually think that this is something that is going to help businesses and make them more efficient, going forward.

[Patrick Walravens:]

And then sort of a housekeeping for you, Bill, which was you guys filed an 8-K about this patent lawsuit at the same time as your earnings. I’m sure you can’t comment on current litigation, but is there any history between this company, PTP OneClick, and you guys or the inventors and you guys?

[Bill Ingram:]

Well, you kind of answered the question, Pat. But we did file the 8-K today, and I can confirm that the PTP OneClick filed a lawsuit against Avalara. They did it in a district court in Wisconsin. We’ve reviewed the complaint and the patent at issue with our counsel, and we believe we have meritorious defenses to their claims. In fact, today we actually moved to dismiss the lawsuit on a number of grounds and have the patent held invalid. And we’ve also moved to transfer the case to the U.S. District Court in Seattle. And of course we intend to continue to vigorously defend against these allegations.

[Operator:]

Your next question comes from the line of Brent Bracelin of KeyBanc Capital Markets.

[Brent Bracelin:]

I guess, 1 for Scott and 1 for Bill. Scott, I wanted to drill down into one of your comments you made earlier in the script around enterprise customers now coming to you. Walk us through why is that happening now. I know your market has historically been focused on the mid-market. You’re expanding into SOHO through some new partners. Why are the enterprise customers coming to you? What are they not kind of getting served through today and what the driving need, why they’re coming to Avalara today?

[Scott McFarlane:]

So I’m glad you asked the question. It was a really subtle way of saying that I think that we’re getting more business opportunistically out of the enterprise area. And I know there’s been lots of discussions and talking about when will we move into that space and how does that happen. But I think what I’m really trying to tell everybody is that the trends that are driving us in the mid-market are the same trends that are driving the enterprise market. They want to move to the Cloud. They want more automation. They want better real-time information. And as they are -- and as enterprise customers are coming to grips with those trends, global trends, all of the different things that we, you talk about ecommerce, they are turning to new solutions, and Avalara is there opportunistically. We are doing it with our existing sales force, doing it with the way that we do things in our market because we’re just really good at working with customers to get them into this new mode of doing business in an automated fashion. And we’re seeing those opportunities to increase as we’re going forward, and we wanted to let everybody know that. And Bill, you might have some comments on this one, as well.

[Bill Ingram:]

And so Brent, one of the things we do, obviously, a review of every enterprise deal that comes through. And one of the striking things, to me at least, is the importance of the partner integrations that they all call out. And so you’ve heard us talk about it before, it may be a somewhat unique business model for other SaaS companies, but I can tell you almost universally every single one of the call sheets that we review on a successful enterprise win lists as one of the very top 1 or 2 reasons the ease of integrations, the multiple partnership integrations, the comprehensive nature of our integrations. And so that’s what really struck me with this segment of the market coming to us, was the importance of those partner integrations.

[Scott McFarlane:]

That’s a really great point. They may be using SAP and Oracle, but they also have sales force and they may have some other solutions. And so they’re turning to the people that have that aggregated omnichannel solution like Avalara.

[Brent Bracelin:]

And then Bill, just shifting gears, 1 specifically for you. We saw a slight acceleration in [indiscernible] revenue growth here, 25% in the first half, 26% this quarter. It looks like billings, [indiscernible] billings, also accelerated. What drove that? Was that primarily international momentum? Was it broad-based? What’s driving the acceleration and growth and billings this quarter?

[Bill Ingram:]

Scott kind of touched on it, all 3 areas. But our mid-market momentum is really performing well. Scott called out the successful sales execution and sales momentum and called out the 270,000 target market mid-market companies that we see. We really have had a really nice execution. The leadership we put in place, the teams are reacting well to the direction. The message is resonating. Certainly we think greater funnel activity, both from Wayfair and other things, are driving. But the mid-market target really just hit on all cylinders. But in addition to that, Brent, we’ve had a surprising number of incremental enterprise wins, again as I mentioned, driven by this multi-partner integration capability. And then in the SOHO area, the number of large ecommerce integrations that we’ve talked about in the past are now starting to kick in and deliver small, but meaningful, additions to revenue. So it was really kind of like we hit on all three cylinders

[Scott McFarlane:]

And I’d like to just add 1 little point. I know everybody wants to index on what happens at NetSuite and what happens at Sage or Microsoft and the like. But one of the big growth areas for us has been what we call that launch and emerging of those new partners. Everybody wants to focus on the ones that they just recognize. But with 700 pre-built integrations, we are focused on growing all of those. And we have really seen nice execution around launch and emerging. And I think that that’s just 1 of the really big competitive advantages that we have, having so many pre-built integrations, because you’re not dependent on just 1 integration. You have lots to grow for, now and in the future.

[Operator:]

[Operator Instructions] Our next question comes from the line of Brad Reback of Stifel. Please go ahead. Your line is now open.

[Brad Reback:]

A couple of quick ones. Scott, net new customer adds were up about 50% year-over-year and about 25% sequentially, obviously in line with the much stronger execution you were talking about. Should we think about this as the new level, going forward?

[Scott McFarlane:]

Well I think I’m going to turn that one over to Billy, and then I’ll maybe give some color after that. Bill, why don’t you go ahead?

[Bill Ingram:]

Thanks, Brad. As a reminder, everybody, what we report as a core customer is not necessarily a net new add. It’s a 12-month trailing measurement. It’s a $3,000 threshold. And so as a result, many of them are net new adds, but many others may also be existing customers that exceeded the threshold during the period. And so again that’s a metric that we provide to you guys really to help you work on forecasts and models and things like that. But the 410 we reported are not necessarily net new adds. But they are a result of investments that we’ve made in the past, over the past 3, 4, 5 quarters. So as we make those investments and bring new customers on board, we are able then to report as they exceed the $3,000 threshold for the trailing 12 months. But I want to be careful here

[Scott McFarlane:]

And so on top of that what I’d like to say is that what I think you should take away from this is what we’ve been saying all the way along the line, that this is long strong growing opportunity. That is what this is really about. There are numerous triggers that are happening that are driving businesses away from status quo to an automated solution. And I think what we’re signaling is that’s exactly what’s happening and that’s exactly what we think will continue to happen. Just long strong steady growth.

[Brad Reback:]

And a quick follow-up, Bill. Should we think about the gross margin here at about 73% as bottoming and should start to work higher over time? Or is there the potential with some ongoing content investments, international, et cetera, that it could go a bit lower?

[Bill Ingram:]

Sure, Brad. Well I don’t want to give guidance for a specific point percentage. What I can tell you and kind of in concert with my remarks earlier is we watch it very carefully. We’re making very, very conscious decisions about investment versus spend. The real thing to understand here is we could affect that gross margin by not spending in areas where there’s demand. And so what we’re trying to do is deliver, obviously, an improving income statement over time. We believe that it’s got very strong gross margins. I’m not going to break it out, but I can tell you our automated operations are very strong gross margin contributors with expansion. Our manual operations, as I mentioned, internationally right now, we believe we can get to that point. But because of the demand that we’re seeing, we obviously want to serve and capture those customers, and we’re doing that in a more manual fashion as we deliver more automated solutions. Content is a big challenge all the time, which affects gross margin. But if I can give you some confidence, when we make a content investment, again it allows us then in the future to resell that content at very, very high gross margins or low marginal cost. So Scott and I and the team look at that every day about making versus buying content versus investing. And as a result, I don’t think you’re going to see really any great swings in gross margin dramatically outside of the ranges we’re guiding to, and it will be built into our income statement as we get ourselves to scale with expansion across that. So again not a specific answer to your 73% question, but we have a lot of confidence we know what we’re doing and can deliver appropriate gross margins over time.

[Operator:]

Your next question comes from the line of Brad Sills of Bank of America Merrill Lynch. Please go ahead. Your line is open.

[Brad Sills:]

I know that core customer count is kind of a nuanced definition, it doesn’t necessarily reflect net customer adds. But to the extent you can comment on new customer adds during the quarter, any color there on how that trend relative to your expectations and verticals or even ISC partners where you might have seen some outperformance.

[Bill Ingram:]

Sure, Brad. Thanks for jumping on. And I’ll start and Scott, I’m sure, can pick up with broader more color. But we were very pleased with new customer adds in the quarter. We really were. So if I can signal that to you, we were very, very pleased with net new customer adds. We don’t call them out, as you know, because we don’t want to be bracketed just in the kind of upper limit of the enterprise space the way a lot of other SaaS companies report. Fine companies, they just report differently. That’s why we give you that core customer measure, because right now it still represents, as I said, over 85% of our revenue. But in terms of net customer adds, again in this quarter we were quite pleased. We also were very pleased with the acceleration of some of our very nascent partnership ecommerce deals. And as a result, we’re not going to call out the number of customers, I think Sherry, your colleague, asked us about Shopify, but that’s going to be a nice growth driver, as Scott said, in our emerging and growth area. Then the other thing which I always like to describe is, and Scott brought it up, about our launch in emerging partnerships, well maybe they don’t deliver a vast amount of revenue or customers in any 1 period. I liken them to, like, our farm club, whereas these are the rookies and we know some of them are really going to make it to the Big Leagues. And we want to be there with them. And so we want to nurture them and guide them and coach them in order to get them up to the place that some of our veteran partnerships operate at. So kind of a long-winded answer, Brad, and I’ll turn it over to Scott, but we are pleased with the number of the net new customer wins that we got during the quarter.

[Scott McFarlane:]

I don’t think I’ll add very much more to that, because there’s really not much more to say, but I would like to emphasize how significant I think these Avalara Included deals are and that the number of customers that are coming as a result of those partnerships. And we’re adding significant customers in that area. Now albeit they’re not huge customers and a huge revenue opportunity, but they are really -- they really do protect the downside of the market and really give us a competitive advantage from top to bottom. And we really saw an expansion of that happening in the quarter, and we expect that to continue.

[Operator:]

There are no further questions at this time. I will turn the call over to Scott McFarlane, co-founder and CEO, for closing remarks.

[Scott McFarlane:]

I’d like to thank everyone for your interest in Avalara. I also want to take this opportunity to thank our employees, customers and partners for their hard work and support and for supporting us in another solid quarter. We’re very excited about the market opportunity and the momentum that we’re building. We look forward to speaking to you all again next quarter. Thank you.

[Operator:]

This concludes today’s conference call. You may now disconnect.