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Avalara, Inc. (AVLR) Q1 2019 Earnings Call Transcript

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Avalara, Inc. (NYSE: AVLR)
Q1 2019 Earnings Call
May. 7, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Avalara First Quarter 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the prepared remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. I would now like to turn the call over to Greg McDowell, Investor Relations. Please go ahead.

Greg McDowell -- Investor Relations

Good afternoon, and welcome to Avalara's First Quarter 2019 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 second 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 annual report on Form 10-K filed with the Securities and Exchange Commission on February 28th, 2019 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.avalara.com.

With that let me turn the call over to Scott.

Scott M. McFarlane -- co-founder and Chief Executive Officer

Thanks, Greg. And welcome to everyone joining our Q1 2019 earnings call. Q1 was a strong start for Avalara. For the first quarter, we reported total revenue of $85 million, representing an increase of 38% over the prior year. Our financial results are a testament to the strength of our team, continued solid execution and the differentiated value proposition, that we are delivering to our customers.

I'd like to take a moment to congratulate our employees on their hard work and thank our customers and partners for their trust in Avalara. We look forward to celebrating their success later this week at Avalara CRUSH, our annual conference for customers and partners. Our vision is to be part of every transaction in the world and my aspiration for Avalara is to build a great enduring company. To accomplish this, perhaps my most important role as CEO is to continue to evolve, expand and build a successful senior leadership team. We need leaders with skills that can scale Avalara to much higher levels as we execute against our ambitious goals.

In February, we announced the appointment of three new leaders to the Avalara team; first, Amit Mathradas, joined Avalara as President and Chief Operating Officer, we welcome Amit from PayPal, where he is GM and Head of SMB Business Segment for North America. Amit is now overseeing the end-to-end customer experience; including business development, sales, marketing, customer success, global compliance and professional services.

Second, Sanjay Parthasarathy, joined Avalara from our recently announced acquisition of Index. Before Index Sanjay spent almost 20 years at Microsoft. Sanjay is now our Chief Product Officer and he is charged with unifying global product management, enhancing the end product customer experience and driving the long-term global product roadmap.

Finally, Ross Tennenbaum, joined Avalara as Executive Vice President of Strategic Initiatives, which encompasses products from various investments and acquisitions. Ross joined us from Goldman Sachs, where he is focused on advising enterprise software clients and he led the Avalara IPO. We had a great start to 2019, continuing to lead a large market, we began disrupting years ago with our SaaS platform, although we knew back then that bringing tax-compliance to the cloud will disrupt the market we have long known we must continue to nurture new initiatives to capitalize on future evolutions in the market. Some of these initiatives began to bear fruit this quarter.

As a reminder, Avalara's steady growth arises from the numerous constantly occurring events that trigger adoption of automated solutions. Trigger points for potential customers; include the adoption of new ERP systems, releasing new products, entering new jurisdictions, migrating the cloud and changing government regulations. These trigger events constantly happen, compelling businesses to finally deal with something that they have known, they have been doing wrong, sales tax.

The adoption of automated tax systems naturally occurs in response to these trigger events. The Wayfair decision is just one of many trigger events. As you may know, the sales tax landscape has changed a lot since June 2018, when the Supreme Court of the United States ruled that businesses do not need to be physically present in a state to be required to collect sales tax. States can now base a sales tax collection obligations solely on economic activity or what is called economic nexus. Today, more than 38 states have adopted economic nexus and almost every other state with a general sales tax is considering it. We have seen a significant increase in new and existing customers, using our service to register in a host of new states where they now must collect and remit sales taxes.

Many customers register through the streamline sales and use tax program, which is commonly known as SST. SST is a result of a cooperative effort between states and local governments and the business community. Currently 24 states are part of the SST program, we were among the first and remain one of only six SST certified providers, while SST has been around a long-time, Wayfair has made the SST program more attractive for new and existing customers. We believe Avalara is well positioned to benefit from Wayfair, based on our breadth of integrations, depth of tax content, SST certification and our expertise in a complicated tax environment. While Wayfair has been a tailwind for our business and is one of the many adoption triggers, we would like to call out another event as we approach our one-year anniversary as a public company. We believe being a public company has increased awareness of Avalara and has helped our sales cycles by giving us greater recognition and credibility.

Over the last 15 years, we've put in a lot of hard work to create integrations, aggregate content, simplify registrations and to improve our customer go live process. We believe our organization is doing a great job of capitalizing on the opportunity in front of us. Tomorrow, we'll kick off our Annual User Conference, Avalara CRUSH. Given our orange history, we had to name it CRUSH for obvious reasons. And we believe it is a preeminent conference in our industry. This is our fourth year hosting CRUSH and this year our theme is the path forward for tax-compliance, recognizing that long predicted change is starting to become reality for businesses.

At CRUSH we bring together our customers, partners and experts from around the world to discuss tax changes, trends and technology advancements. Our new Chief Product Officer, Sanjay will introduce demonstrations of several new and updated product offerings, that reduce complexity and accelerate opportunities for our customers. Among those will be our new consumer use tax tool, new solution for marketplace sellers and a preview of our AI driven cross border tax classification capability. I'm really excited about what we've achieved and what lies ahead. I look forward to seeing many of you later this week at CRUSH.

So now let me turn this call over to our CFO, Bill Ingram.

William D. Ingram -- Chief Financial Officer and Treasurer

Thanks, Scott. Avalara adopted the new revenue recognition accounting standard ASC 606 effective January 1st, 2019 on a modified retrospective basis. As a result, financial results during 2019 are presented in compliance with ASC 606. Our historical financial results prior to 2019 are presented in conformity with ASC 605. Our earnings press release, includes additional information to reconcile the impacts of the adoption of the ASC 606 standard.

From a big picture perspective, there was not a material impact on revenue as a result of moving from 605 to 606, both in the quarter and in our expectations for the future. We do receive a benefit on the bottom line that I will discuss in a moment, but there is no difference in our cash or cash flow between the two accounting standards.

Let me now discuss our first quarter results. For the first quarter, total revenue under the new revenue standard ASC 606 was $85 million, up 38% on a year-over-year basis. Strong growth in the quarter was a result of increased demand from both new and existing customers and a range of new initiatives; including customer state licensing, streamlined sales tax filings, interest income earned on customer funds and approximately $2 million of non-recurring revenue from third-party merchant registrations in Europe.

Adjusting for this non-recurring revenue, our Q1 growth rate would have been in the mid-30% range. Subscription and returns revenue under ASC 606 was $78.2 million, this represented 92% of our total revenue, and it grew 35% year-over-year. Professional services and other revenue was $6.7 million, driven in part by an increase in state licensing demand.

Our core customer count increased by 630 to approximately 9,700 at the end of Q1 2019. We define our 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 to the measurement date. Our net revenue retention rate was 107% in Q1, consistent with the average of 107% over the last four quarters. 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 under ASC 606 was $61.6 million for Q1 2019, representing a 72% gross margin. This compares with ASC 605 gross profit of $45.1 million and a 73% gross margin in the same period last year. Similar to prior quarters, the 1 percentage point decline in gross margin was the result of higher network costs due to increased transaction volumes, additional headcount to serve growing customer demand for compliance and filing, and investments in content to expand into adjacent market segments.

Turning to expenses, sales and marketing expense between ASC 606 and 605 is different, due to the fact that we are capitalizing and amortizing a portion of the sales of partner commission expenses over the expected period of benefit, rather than recognizing the full expense in the current period. Under ASC 606, sales and marketing expense was $35.5 million in Q1 or 42% of revenue. On a 605 basis, sales and marketing expense would have been $41.9 million or 49% of revenue. We are pleased with the improvement in sales efficiency in Q1 2019.

For Q1, research and development expense under ASC 606 was $14.7 million or 17% of revenue. The absolute dollar increase in research and development expense was in line with our expectations, as we continue to invest in new products and features. For Q1, general and administrative expense under ASC 606 was $12.9 million or 15% of revenue. The increase in G&A was due in part to cost related to payroll taxes associated with the exercise of employee stock options, as well as cost of being a public company.

Non-GAAP operating loss under ASC 606 was $1.5 million for Q1, on a 605 basis non-GAAP operating loss was $7.8 million, compared to a $10.3 million non-GAAP operating loss in Q1 2018. Non-GAAP loss per share under ASC 606 was $0.01 in the first quarter based on 68.4 million shares outstanding. On a 605 basis, non-GAAP loss per share was $0.11, compared to a loss of $0.16 per share in the first quarter of 2018, based on 65.7 million shares outstanding.

Turning to our balance sheet and cash flow statement. Our cash and cash equivalents were $146.9 million at the end of Q1 2019, an increase of $4.6 million from $142.3 million at the end of 2018.

Total deferred revenue as of Q1 2019 under ASC 606 was $132.7 million. However, under 605, total deferred revenue at the end of Q1 2019 would have been $146.2 million, up 9% from $134.7 million at the end of Q4 2018. The step down in deferred revenue includes a one-time impact of adopting ASC 606 accounting standard and relates primarily to revenue from activation fees, which under ASC 605 was deferred and recorded to revenue over six years, while under ASC 606 activation fees are deferred and recorded to revenue over the initial subscription term, generally 12 to 18 months.

As we think about changes in deferred revenue moving forward, there is another factor to consider. To the extent, we received cash for contract that has extended cancellation provisions, we can only recognize deferred revenue for a portion of the contract amount. For the remaining amount, we recognize a contract liability. At the end of Q1 2019, this contract liability balance was $4.2 million. As part of our anticipated disclosures moving forward, we will be discussing calculated billings, 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 were $96.4 million in Q1 2019, up 32% from $73 million in the same period last year. Operating cash flow was negative $10.4 million in Q1 2019, compared to negative $13.4 million in Q1 2018. Free cash flow was negative $12.5 million, compared to negative $17 million in free cash flow in the same quarter last year.

Note that our free cash flow will 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. There is no change to our view that we expect to be breakeven on a free cash flow basis in the second half of 2019.

I will conclude by providing guidance on revenue and non-GAAP operating loss for Q2 and for the full year of 2019. Under the ASC 606 standard, for Q2 2019, we currently expect total revenue to be between $84 million and $85 million. We expect our Q2 non-GAAP operating loss to be in the range of $7.5 million to $8.5 million, this assumes a $4.5 million benefit to sales and marketing expense under ASC 606.

For the full year 2019, we currently expect total revenue to be between $346 million to $349 million. We expect our full year non-GAAP operating loss to be in the range of $10 million to $15 million, this assumes a $20 million benefit to sales and marketing expense under ASC 606.

In summary, our first quarter was another strong performance for Avalara and showed continued progress against our objective to become a long-term winner in a large market opportunity.

Before closing, I wanted to remind everyone on this call that our Investor and Analyst Day will be held this Thursday, May 9th, in Huntington Beach, California in conjunction with our CRUSH Annual Users Conference. For those of you who cannot join us in person, a webcast of the event will be accessible on the Investor Relations section of our website.

At this point, we would like to open up the call for your questions.

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from the line of Chris Merwin from Goldman Sachs. Please go ahead, your line is open.

Chris Merwin -- Goldman Sachs -- Analyst

Alright, thanks very much for taking my questions and congrats on a great quarter. So I guess, I think, you've got about 40 states now that have legislation in place or pending as it relates to taxes for other (ph) state sellers. And I think last quarter, that was probably closer to 30. And I know some of the biggest states really move the needle, whether it be New York going live in January, or I think California went live in April. So can you just talk about the impact, the states had on net adds in the quarter and the really strong revenue growth that we saw and also the sustainability of that tailwind, as we move through the year and into fiscal 2020 as well? Thanks.

Scott M. McFarlane -- co-founder and Chief Executive Officer

Thanks, Chris. Appreciate it. So it means we've always said that the Wayfair decision has really created a great tailwind for us. The large states and I think I've said this in previous earnings calls, are really the ones that matter, and they are starting to weigh in, as you said, California and New York and Texas is coming on in October, Pennsylvania in July. And there's still four out there that's fumbling around trying to figure out what they're going to do. And I think that those will all be, I mean very, very big states, and that's where most of the economy is spending there -- spending their money. So obviously, it will drive businesses to really take a look at their sales tax decisions and the like.

And so I can't say for sure that those things happening, California coming on a month ago and New York in January had a big impact on what we were doing in the quarter, it will build over time as people get around to deciding to do that, getting registered, getting set up. And so this is a long-term program that will just continue to drive businesses. I guess what I'll just say, in general and I've said this all along the line, that the concept of a people doing sales tax manually in a digital world, over 10, 15, 20 years is absurd, it's going to be automated. And so whether it's Wayfair or whether it's any number of the other triggers along the way, that's the tailwind that's actually driving Avalara, because we know that's what's going to happen.

Chris Merwin -- Goldman Sachs -- Analyst

Okay, great, thanks. And if I could just ask a quick follow-up on sales and marketing. Looks like you saw some really nice leverage there year-on-year, I think it is almost 10 points of leverage on a like-for-like basis on 605. Was that all just the change in quarters for the sales force, I'm sure there was natural operating leverage there as well, but just curious if you wouldn't mind -- kind of, breaking out some of those drivers. Thanks.

Scott M. McFarlane -- co-founder and Chief Executive Officer

Sure, I'll give you an overview and then Bill can step in and give you the real good details behind it. But here -- here is the -- I mean, here is our reality, I mean the sales team has done an excellent job in execution. And yes, you know the improved quotas and dealing with all that has been a factor for sure. But you know, look, we've been doing this long enough and we've always said that having the partners, in particular the ERPs was -- is really important, and it's important as you build out the ecosystem and creating that ecosystem and getting all of that competitive mode has been expensive. But what it earns you the right to do is to get some of the larger partnerships that we've been able to win, whether it's Wix, Shopify, BigCommerce, Amazon, those that actually bring large leverage to the sales and marketing business.

So you earn the right to own that core mote, but then as a result of that, you get the ability to go after some of these large what we call AI deals, which don't have a lot of sales and marketing associated with them. So it's -- we're really reaping the benefits of a strategy that started back in 2004. Billy, I mean, you will probably have some deeper details.

William D. Ingram -- Chief Financial Officer and Treasurer

Yes. Thanks, Chris. Yes, we're obviously pleased with the leverage, but it's not just one thing, sales force has just done a great job. I mean, I can't speak any higher than I can about what a great job. So I just see it, if you visit our site, Scott and I sit right on the sales force and we hear the action all day long and the team is just working so well, the close rates and reducing the friction and so on. So that's why I said in the earlier call, really sales execution has really stepped up, and we're so proud of that team.

But in addition, we're now generating revenue from some additional sources, and again I mentioned it briefly, and in the Analyst Day, I'll go into more detail, but what you'll see is that with alliance sources of revenue, that are not that big, but are growing nicely, that's starting to give us leverage in the sales efficiency. I mean, Scott, and I've been telling you that it's coming for a couple of years now, and I think you just starting to see -- start to see here this quarter. So we're very pleased with how the team is executed and really the strategy of building parallel revenue streams around our core partner model.

Chris Merwin -- Goldman Sachs -- Analyst

Okay, thanks so much.

Operator

Your next question comes from the line of Sterling Auty from JPMorgan. Please go ahead, your line is open.

Sterling Auty -- JPMorgan -- Analyst

Yes, thanks. Hi guys. I wanted to kind of extent on a -- lot of question on sales marketing and the states going live. I'm curious, are you seeing the incremental customers still coming through. So in other words, with the initial outreach coming from the ERP partners? Or are you starting to actually see some brand awareness and some of those customers are reaching out to you directly, and is that changed the sales motion or process or even the sales cycle at all?

Scott M. McFarlane -- co-founder and Chief Executive Officer

Thanks, Sterling. So, look we -- our partners drive really high quality leads to us, but we get lots and lots of web leads and whether it'd be trade show leads all sorts of other type of leads and the awareness of Wayfair and the changing environment around sales tax is clearly a driver. So it's really driving both partner leads and a non-partner leads to -- I mean to the team.. It's just helping all the way along the line, the awareness of. And I mentioned it in my notes, I mean, being public and bringing a -- shining a light on a -- in industry that everybody thought had been solved long before this, right? So it's a host of things that are driving the awareness, but there are all really good strong tailwinds for us.

Sterling Auty -- JPMorgan -- Analyst

Alright, great. And then one follow-up for you Bill. Can you just remind us, so last quarter when you gave the initial guidance for 2019 around the operating loss. Was that still under 605 versus obviously the results now in 606 and the new guidance, which obviously, I think is 606?

William D. Ingram -- Chief Financial Officer and Treasurer

Yes. That's great. So back in February, Sterling, the guidance we gave -- I gave was all 605 guidance, because we had not yet reported under 606. And so I didn't want to confuse things. So we are reporting on the fourth quarter and the fiscal year ending 2018, and so since that was 605, we gave guidance for 605. But I did in this call and in the notes you'll see, since we are now reporting under 606 and we gave guidance over 606, but we also commented the anticipated benefit from the capitalization of the sales and marketing costs. And so I believe, let me check my notes, if I say it correctly, but Q2 benefit from sales and marketing capitalization is $4.5 million and full-year benefit is $20 million. So what you can do is, you can take the guidance I gave under 606 and you can reconcile it back to the 605 from last quarter. But the point is revenue doesn't change under 605 or 606, it's just the operating loss.

Sterling Auty -- JPMorgan -- Analyst

Exactly. Great, thank you.

William D. Ingram -- Chief Financial Officer and Treasurer

Yes.

Operator

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

Pat Walravens -- JMP Securities -- Analyst

Great, thank you and congratulations you guys. It's great to see the business cranking like this. So Bill, I think, my first question is for you, which is you have encouraged us to think of this as a 20% to 25% grower, which makes sense sort of when you're at 25%, 26%, but now your last three quarters have gone 26%, 33%, 38%. So how should we think about sort of long-term growth here?

William D. Ingram -- Chief Financial Officer and Treasurer

Well, again I'd point you back to the guidance, I gave a few minutes ago for the quarter -- second quarter and for the full year. Also the billings number we are reporting now, which we haven't reported before, is below that. And then, I also called out that $2 million non-recurring bit in the first quarter. So I don't give -- we don't give guidance for growth rates, but if you notice, I mean we're feeling pretty good about the raise we gave in February and the raise we gave you today for full year numbers. So we're going to do our best to earn your trust and hit those numbers.

Pat Walravens -- JMP Securities -- Analyst

Okay. And then let me add -- and I'm not sure which of you should address this. But Scott, we talked about being part of every transaction in the world. In order to do that, part of what you need is content for every transaction in the world, right? So where do you still not have the content that you need. And if you look at that total addressable opportunity, sort of what percentage of it are you missing?

Scott M. McFarlane -- co-founder and Chief Executive Officer

I'll jump in on that one. Thanks, Pat, I do appreciate it. But so, you know, there's two things that you have to be part of every transaction in the world. You have to have a -- all of the ecosystem that creates invoices and you have to have the partnerships, where you're doing returns for everybody. I mean, that's a -- that's just a given on that. And then obviously you have to have all of the content in order to make the proper calculation. And so today, we have a considerable amount of the tangible personal property content in the United States, but not all of it, and I would say it's greater than 50%, but less than a 100%. And we have fuel and we have lodging and telco, and we'll probably add things like tobacco and the like. So we're going to continue to build out the US content. There is a lot of it, that we have. But there's still a lot more to get, and it can be around things like, battery content, it can be around ammunition, it can be around rare coins. It can be, I mean around leases, automotive. Those are things that we still are in the process of building out and we'll continue to do that and we think our Index acquisition will help us do that even faster in the future.

Internationally, we support 210 countries at the federal level. And the key to that is, as you enter these markets and go deeper than that, like we did in Brazil. When our acquisition in Brazil, gave us much, much deeper content in all of the states and all of the products. Their regime is much more similar to what we have in the United States, where every jurisdiction has different rate. So you attack those and then we will continue to build those out deeper and deeper and deeper in the countries that we enter, like we've done in India, where we've moved with the tax regime change, but they did around GST. And we'll continue to build out that content in other countries like that.

So there is a -- we have a lot, but there's still a lot to do, it would be, yes, it would be like asking how far Google is along in their mapping process, I mean it's a constant program that you're doing to refine the areas that you don't have. And we're just going to continue to do that and hopefully, we can do that in a more automated fashion that we've been able to do in the past.

Pat Walravens -- JMP Securities -- Analyst

That's awesome. Thank you for that perspective.

Operator

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

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Hey guys, thanks for taking my question. Wanted to ask about the pending changes on state taxation of e-commerce, and any impact you're seeing that have both on the core customer business as some of these mid-market firms gear up for compliance. And then also just any direct impact in the e-commerce business itself?

Scott M. McFarlane -- co-founder and Chief Executive Officer

So with Wayfair, it really, I mean it affects all businesses, both know just not -- I mean normal standard businesses, with sales forces that have economic nexus, as well as e-commerce. Obviously, it's probably going to affect the e-commerce businesses more than the others, because they're already doing nexus in many -- in those locations with their sales force. But I guess my answer really isn't any different than what I said in the beginning, which is the tailwinds of all of these states and in particular, the large states will continue to drive this and we'll continue to drive this not only this year, but into the future years, as more and more companies expand their e-commerce business, expand their footprint with products, expand all of those things that we talk about from a trigger point, as they expand with those. So does their reason that they have economic nexus.

I guess what I will change on this discussion and redirect actually to SST. So streamline sales tax was founded in around -- in 2,000 and this was a group of states -- 23 states then they got together and said, hey, we want to simplify sales tax. It was a volunteer program at that time, people could get amnesty if they signed up voluntarily and I'm really proud, because in 2005 Avalara was one of the first three certified sales tax providers for SST. And I think what's a real reason and the catalyst for sort of what got us going in the beginning, but because it was voluntary, it did not really materialize that much, but with the advent of Wayfair, SST and now it's 24 states, has a really automated solution. And it's a solution that allows businesses to get sales tax free. We provide free sales tax to businesses that are in the SST states, that sign up for SST, and then the states pay us a percentage of the sales tax collected.

And so I -- so we've seen since Wayfair, a dramatic increase in the people signing up for SST, and we expect that to continue to happen going forward and we will be receiving a percentage of that collected, and the customers will be getting those services free, that was one of really the conditions of the Wayfair decision. The Wayfair decision, the Supreme Court rule that since these states were providing free in many instances, that it was OK. And it made sense to go-ahead and make the ruling that they did. So I think that again is another tailwind that's driving the business and one of those extra sort of added services that Bill was talking about that has come to bear, that's different than our normal core business, and I think we'll continue to see that grow as the year goes on.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

That's great. Thanks, Scott. And one more if I may please. Just, any update on where you are in addressing the global retailers, particularly as it relates to your build-out of content globally to satisfy the needs of some of these retailers and international geographies, like LatAm and Europe?

Scott M. McFarlane -- co-founder and Chief Executive Officer

Well, it's a good question. The marketplaces, the things like working with Amazon and Alibaba and all of those, they are under enormous pressure by the various governments to, you know, get people registered and collecting taxes or get them off of their solution. So obviously, there's a lot of discussion that's going forth around how we deal with that marketplace. And when you deal with the marketplaces, and that's again some of the things that Bill was talking about, things that we've put in place, that are affecting just our core business. What I mean by that is, we're able to get those marketplaces, and reduce the dependence on just the normal core business and increases our sales efficiency and the like. And the pressure of that is for us to grow with them, get more content, which puts us a pressure on us to hire people to get that done and gives us a little pressure on our gross margin. So all of those things we're addressing and it's a race for us and we're really excited about it, because we've really put ourselves in the center of all of this with what we've done with the strategy to-date.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Thanks, Scott.

Operator

Your next question comes from the line of Brent Bracelin from KeyBanc. Please go ahead, your line is open.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Good afternoon, and thanks for taking the question here. I'm going to start with Bill, obviously revenue growth accelerated again this quarter 38% (ph), very strong. I guess my question here, as we think about organic growth. What was the contribution from (inaudible) in the quarter? Was it material or immaterial?

William D. Ingram -- Chief Financial Officer and Treasurer

Well, we don't -- we didn't break that out, but I can tell you it was not material, is less than $1 million. And it was really our core business, that delivered again, as I said a moment ago, the sales team just executing fantastic deals are coming in nicely. But we have now started to see some early, but positive contributions from a handful of new revenue streams. And so what you're seeing there is, you're seeing a little bit of boost in the growth rate, but you're also above the organic kind of core customer growth rate, but then you're also seeing a little bit improvement again on the margin on sales efficiency, as I think Sterling and Chris asked earlier. So, it's not any one thing, but I can tell you we've kind -- we're kind of hidden across a range of initiatives that are -- all contributing nicely.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Certainly good to see. Thank you for that. And then Scott, just wanted to better understand where you plan to invest and focus your time now that you've expanded the breadth of the leadership team, a new President, Chief Product Officer. Where are you wanting to shift your resources to focus on? Is it partners? Is it these SST relationships? Is it international? Just love to understand as you free up cycles by expanding the breadth of the team. What would you do with those extra cycles?

Scott M. McFarlane -- co-founder and Chief Executive Officer

You know, I'm really, I just could not be more excited for the senior leaders that we've added to the team. Because I think ultimately, as I teach them the business, which is really the first business at hand with them is that we work together to -- so they understand the vision and the strategy and the mission. And once we're there, I think that they're really going to start driving the scale of the business, putting some of the great things in place that we've done and that's going to free up my time to work on things that I think are really important, customer satisfaction, the culture of our business, international expansion, strategic initiatives and acquisitions, which I think are really critical things for us to go beyond, just where we are today. I mean, this is Bill and I just firmly believe that this is just a long, strong growing business for many, many years.

So what I want to do is make sure that it's the enduring business that we all know that it can be. And I will turn a lot of our attention to international and how we expand internationally. How we get content and the people and culture of the business.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Very helpful color. That's all I had. Thank you.

William D. Ingram -- Chief Financial Officer and Treasurer

Thanks, Brent.

Operator

(Operator Instructions) Your next question comes from the line of Scott Berg from Needham & Company. Please go ahead, your line is open.

Scott Berg -- Needham & Company -- Analyst

Hi, Scott and Bill. Thanks for taking my questions. Congrats on a good quarter. And I apologize for the noise at the airport. I guess two questions. Scott, I wanted to follow-up, I mean, different angle on the Wayfair question, because you mentioned improved partner impact, with the change in that regulatory environment. Is it changing the types of deals that partners bring you? Obviously volume can be in there, but I don't know if there's any composition around deal size, what type of target that might be impacted?

Scott M. McFarlane -- co-founder and Chief Executive Officer

You know, as I said SST in the beginning and Wayfair now are important aspects of why people choose us with their partnerships, right? I mean these are things that customers are asking. We are very -- I mean, we're a certified service provider for SST, and so that's what drives -- that's what drives them to us, but I don't see a significant change in the way or even the reason that we are doing -- that we're doing deals with our partners. They want to do what's really right for their customers and a SaaS platform with content and the ability to integrate with them and give their customers a really great onboarding experience, a really good customer experience. I think is what they're really looking for and that sort of what we've built up for the last 15 years, I guess what -- I'll take this opportunity to point out Wayfair is a fantastic thing, SST is a fantastic thing, but what's interesting is that it only matters, if you have the connectors and the integration is built. It only matters, if you have the content that they need. It only matters, if you can actually take those customers and go live. And so anybody, just because the Wayfair, it doesn't really make a difference to people that don't have those things. Avalara spent 15 years getting ready for this moment and to be able to take advantage of it. And I think that that's what partners and everybody sees. We are the good safe, obvious choice to choose and the minute we've added, now we are going with cross border and being able to do duties and customs.

So in e-commerce partner, not only gets us for the Wayfair and all the things I just discussed. But all their international customers can benefit from what we're doing as well. So it's not one thing, Scott, it's a whole host of things that I think the discussions are happening with the partners around the strategy, that we've set up for a long time.

Scott Berg -- Needham & Company -- Analyst

Great. Super helpful. And then I guess from a follow-up perspective, I might be jumping the gun from Thursday, but any color on some of the new products that you talked about. I guess mainly more along the lines and how they're priced, I didn't know if there is a transactional element or if it's going to be more of a flat subscription fee and some of the things you're talking about later this week?

Scott M. McFarlane -- co-founder and Chief Executive Officer

I think we'll probably, it will go the way more depth on Thursday, and we'll do some demonstrations and we'll be able to show you exactly what we're thinking about. But some of the new products that Bill was mentioning to us, we're talking about some of the things, I mean our registration product, I mean is driving revenue and some business for us and cross-border, which we will show and demonstrate, we've got consumer use tax, what we call our cut product will be demonstrating as well. So lots of things like that, and those are all additive kind of businesses that we can do moving forward.

Scott Berg -- Needham & Company -- Analyst

Thanks for taking the questions. Congrats on a great quarter.

Scott M. McFarlane -- co-founder and Chief Executive Officer

Thank you very, very much.

Operator

Your next question comes from the line of Sterling Auty from JPMorgan. Please go ahead, your line is open.

Sterling Auty -- JPMorgan -- Analyst

Hey, Scott, I'm back. Just wanted to follow-up on SST. I think you mentioned that you are one of six providers at this point. What determines whether you're providing the sales tax calculation versus one of the other providers? And what's the performance like at the other end at the retailer level, doing an SST program versus having a direct relationship through one of your partners?

Scott M. McFarlane -- co-founder and Chief Executive Officer

It's a great question. So there are six, I'm not even sure that all of them still exist today, to be honest with you, but there were six certified. And it's really that doesn't change any experience whatsoever. I mean, because in the end, it only really makes a difference for SST, if you have the connector built. And that's what really determines how a customer interact. So a customer for any one of our partners can sign up under SST and get those transactions free from us. And we then collect from the government, right? And then for outside the 23 states, it would be the exact same experience that they get today. So for them, it doesn't look anything, any different, it's only for us, it's how we get paid and how we interact with the states. So it's not significantly different for anybody today in their experience. Did that help, Sterling?

Sterling Auty -- JPMorgan -- Analyst

Great, it does. Thank you.

Scott M. McFarlane -- co-founder and Chief Executive Officer

Okay, good.

Operator

And there are no further questions at this time. I will now turn the call back over to Scott McFarlane, Co-Founder and CEO for closing remarks.

Scott M. McFarlane -- co-founder and Chief Executive Officer

Well, thank you all. I just want to take this opportunity to once again thank our employees, our customers and our partners for their hard work and support in our business. Thank you for your interest in Avalara, and we look forward to seeing many of you at our Analyst Day later this week. Thank you all very much.

Operator

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

Duration: 48 minutes

Call participants:

Greg McDowell -- Investor Relations

Scott M. McFarlane -- co-founder and Chief Executive Officer

William D. Ingram -- Chief Financial Officer and Treasurer

Chris Merwin -- Goldman Sachs -- Analyst

Sterling Auty -- JPMorgan -- Analyst

Pat Walravens -- JMP Securities -- Analyst

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Scott Berg -- Needham & Company -- Analyst

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