Avalara Enhancing its Products with AI and ML

According to a Markets and Markets report, the global tax management market is expected to grow at 12% CAGR to reach $27 billion by 2024 from $15.5 billion in 2019. Seattle, Washington-based Avalara (NYSE: AVLR) is a leading player in tax management market.

Avalara’s Financials

For the recently reported fourth quarter, Avalara’s revenues grew 40% to $107.6 million, ahead of the market’s forecast of $100.17 million. Net loss was $12.3 million compared with a net loss of $2 million a year ago. On an adjusted basis, net loss was $0.03 per share compared with the Street’s forecast of a loss of $0.09 per share.

By segment, revenues from subscription services grew 39% over the year to $100 million. Professional services revenues grew 48% over the year to $7.6 million.

Avalara ended the year with revenues of $382.4 million and an adjusted net loss of $0.12 per share. Calculated billings for the year grew to $423.4 million compared with billings of $314.5 million a year ago.

Among key metrics, it ended the fourth quarter with nearly 11,960 core customers compared with 11,240 core customers a quarter ago and 9,070 at the end of the previous fiscal year. Net revenue retention rate was 111% for the quarter and the year.

Avalara expects to end the first quarter with revenues of $107.5-$108.5 million. It forecast revenues of $470-$474 million for the year. The market was looking for revenues of $106.2 million for the quarter and $467.8 million for the year.

Avalara’s Growth Focus

Avalara has been driving market growth through the use of advanced technologies to replace manual parts of the compliance process. It has been investing in the application of AI and ML tools. Last year, it acquired AI capabilities from Seattle-based Indix for an undisclosed sum. Indix’s AI technology and expertise had helped collate vast amounts of data on product information. Avalara is using the acquired technology to strengthen its tax content database that includes international product codes and classifications to taxability rules.

Avalara has been successfully integrating its deep product knowledge, product content, and Indix’s AI technology to provide its customers with the information needed to factor compliance into their business decision-making. It is also using the technology to help with the mapping of a massive database of global product post the tax coding. Since the acquisition, Avalara has been able to build a product that can now source sales and use tax rates for most states at the click of a button. Indix had raised $30.9 million prior to the acquisition. It was privately held and did not disclose any financials.

Last year, Avalara also made significant updates to its tax calculation engine. These changes include rate updates, the taxability rule changes, foundry amendments, tax holidays, and other regulatory changes needed to ensure that taxes for small and medium businesses are calculated accurately. Besides improving efficiencies within their internal processes, these enhancements are also driving usability improvements for its customers.

The company is currently working on testing an automatic code classification and automated taxability analysis to accelerate onboarding of new customer. The process of mapping a customer’s product portfolio and the SKUs to tax codes is normally labor intensive, but Avalara is counting on building a system that will automate it significantly.

Its stock is trading at $66.66 with a market capitalization of $5.8 billion. It hit a 52-week high of $96.66 last month and a 52-week low of $53.51 in April last year. Avalara had listed in June 2018 by pricing its stock at $21 apiece to raise $157.5 million at a valuation of $1.4 billion. Prior to the listing, Avalara had raised $341 million from investors including Battery Ventures, Sageview Capital, TCV, Arthur Ventures, and Warburg Pincus.