Alteryx Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2021

There are 16 speakers on the call.

Operator

Greetings. Welcome to the Alteryx Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, Chris Lull, Chief Legal. Thank you. You may begin.

Speaker 1

Thank you, operator. Good afternoon and thank you for joining us today to discuss Alteryx's Q3 2021. With me on the call today are Mark Anderson, Chief Executive Officer And Kevin Rubin, Chief Financial Officer. Additionally, Paula Hansen, our Chief Revenue Officer, will be joining us for the question and answer session after prepared remarks. This afternoon, we issued a press release announcing our results for the Q3 ended September 30, 2021.

Speaker 1

If you would like Copy of the release, you can access it online on our Investor Relations website. During this call, we will make forward looking statements related to our business, including statements about our financial guidance for the Q4 and full year 2021. These statements are not guarantees of future performance. They are subject to a variety of risks and uncertainties, some of which are beyond our control. Our actual results could differ materially from expectations reflected in any forward looking statement.

Speaker 1

For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC's website And our Investor Relations website as well as the risks and other important factors discussed in today's earnings release. Additionally, non GAAP financial measures will be discussed on today's call. A reconciliation of these measures to their most directly comparable GAAP financial measures With that, I'd like to turn the call over to our Chief Executive Officer, Mark Anderson. Mark?

Speaker 2

Thanks, Chris, and thank you all for joining us on the call today. I'm proud to report that in Q3, we delivered another solid quarter of ARR growth, Beating our guidance range as we continue to drive meaningful transformation across all areas of our business. Achieving $579,000,000 of ARR in Q3, Which grew 29% year over year sets us up well for Q4, seasonally our largest quarter of the year. I'm especially proud of our execution, while closing the strategic acquisitions of Hyperana and LoRa. Io.

Speaker 2

It's my pleasure to welcome these teams and their incredible talent to Alteryx. Each brings us high quality, cloud centric engineering And subject matter expertise that will continue to bolster our commitment to innovation. I've never been more confident We have the right leadership and the right operating framework in place. Today, I'll give you an update on our progress of our go to market efforts, An update on our product strategy and more color on our M and A activity, including recent announcements. We continue to focus on driving transformation And the necessary change it brings, and we're doing this fast.

Speaker 2

I believe a strong sense of urgency is necessary as we pursue This $49,000,000,000 TAM, which includes about 47,000,000 advanced spreadsheet users who would benefit from the automated advanced analytics That the Alteryx platforms deliver. Today, our user base is less than 1% penetrated into this TAM with close to 7,700 customers, Many of them are very early in their customer journeys with Alteryx and very early in their journeys to data centricity. For example, at one of our recent C suite advisory board meetings, every participant from across the globe scored themselves at best At midpoint in their journey to drive a data centric culture, I maintain that there is a massive opportunity ahead of us as companies around the world realize That their need for data analytics is more important than ever. In the future, governments and enterprises that embrace data To make consistently better decisions, we'll win, hands down. A major part of our transformation is devoted to our go to market efforts.

Speaker 2

Here, we've been focused on large enterprises' desires to democratize analytics, drive adoption and reduce friction in our customers' journey to adopt our platform and make it available in a highly scalable way. We continue to invest in developing and Our global sales team as well as our customer success resources to help in the consumption of our innovation. Our strategy is to supplement our land and expand sales motion with a complementary enterprise sales model, We're selling higher up in the organizations to CIOs, CDOs and other chief executive leaders. A typical customer journey may start with 2 to 3 seats In a specific department and over time, using our land and expand path initially, we grow our enterprise scale and ultimately deployment to more and more users company wide. For example, CVS launched with a handful of seats in their analytics and risk department In 2016 and within 12 months, strategically launched Alteryx across the revenue cycle and claims Processes.

Speaker 2

Through our engagement, we began to up level our conversations. Today, the executive team at CVS receives and depends on daily analytic reports delivered through Alteryx workflows. They now have 4 50 seats and have automated over 3,000,000 membership claims since 2018. Stanley Black and Decker started with 1 seat in 2018 And completed a large transformation deal with us in 2020, leading to over 4 50 seats across finance, operations, merchandising, E Commerce, Strategy, Compliance and Data Science. Our presence in these critical functions is helping STANLEY's major transformative program To drive technology enabled productivity, the initiative is expected to drive $300,000,000 to $500,000,000 in value over 3 years By way of supply chain and productivity improvements by leveraging advanced analytics.

Speaker 2

At the end of Q3, we had nearly 80 customers With greater than $1,000,000 in ARR, representing a 40% year over year increase. What we have learned is that when we have pockets of users These strategic conversations are targeted to go higher up in the organization. And what we're hearing from customers Is that this much more mature approach brings enterprise wide capabilities, governance and stabilization And how Alteryx can be deployed across the organization. Let's start with our efforts to create best in class go to market organization. Paula Hansen, Our Chief Revenue Officer continues to make significant progress driving operational discipline and rigor into our go to market engine.

Speaker 2

We're making the investments where it matters, such as customer success and deploying commercial structures that encourage flexible expansion. Through these investments, we're creating a scalable organization poised to go after the significant opportunity in front of us. In Q3, we saw improvements in sales attrition and continue to see strong hiring. The team is coming together to embrace The new go to market operating framework, tools and leadership. Our numerous associates continue to ramp quickly, Adding value as sales productivity continues to improve.

Speaker 2

As a result, we are increasingly selling higher in And more strategically, 2 customers and prospects. We're also working hard to be the best and most flexible partner for our customers. For example, our new enterprise contracts now allow for additional capacity, which provides customers Flexibility to grow quickly and encourages more users to leverage Alteryx. These contracts enable sellers to address multiple departments with an enterprise wide Capability. Companies like Sharp Healthcare and separately a Fortune 100 Consumer Electronics Company As well as a leading electric SUV and truck manufacturer are accelerating analytics adoptions across their Organizations with new flexible enterprise license bundles.

Speaker 2

These flexible bundles are part of our broader strategy To leverage pricing and packaging to accelerate expansion. With this pathway, business and analytics leaders can now Organically and seamlessly grow transformational initiatives across departments. By up leveling our conversations with our customers and expanding our sales motion, We're getting our platform into more users' hands. At the end of the day, this is still a very fragmented analytic vendor landscape. And I believe the platforms are going to win.

Speaker 2

One aspect of Alteryx that I've always found compelling is how much our customers love and depend on us for the incredible business outcomes and ROI that our platforms deliver. Illustrating this, we received a handful of significant customer accolades from industry analysts in the Q3. Alteryx was named a customer choice for 2021 in Gartner's Peer Insights, voice of the customer for data science and machine learning platforms. Alteryx was also named as one of the 5 solutions to know in the self-service data science and machine learning by Constellation Research As part of their Q3 2021 annual shortlist. Equally exciting, Alteryx was named the leader in multiple G2 reports For fall of 2021, including predictive analytics.

Speaker 2

Finally, we were recognized as a leader in KLIS's Research, data and analytics platform report for 2021. We're immensely proud of these recent accolades and humbled As the voice of our customers are heavily weighted in these rankings, no doubt, these accolades validate what our customers have been saying for years, That our unified platform and self-service easy to use interface continues to be a market leader. Moving now to an update on our product strategy. Earlier this year, we unveiled Alteryx Designer Cloud and Alteryx Machine Learning, a major step in our cloud strategy. We continue to make strides on this important journey.

Speaker 2

I'm excited to share that over the last few weeks, both products have become commercially available As part of a limited availability launch for select North America customers, this is a major milestone for our cloud journey. These cloud innovations offer easy to use, unified data analytics and approachable ML interoperability across on prem and cloud And no friction adoption with minimal downtime and seamless software. The feedback on these cloud products has been highly positive with now over 600 participants Using the early release of Designer Cloud and Alteryx Machine Learning, Suresh Patel, our Chief Product Officer and his team Are advancing our product roadmap and are actively evaluating both organic and inorganic opportunities to develop and accelerate our innovation agenda. Our efforts are focused around 3 pillars of innovation: Cloud Centricity, Big Data Fluency and AI as a Strategic Advantage. Bug centricity supports our goal of making it easier for customers to democratize access to analytics across their enterprise.

Speaker 2

Our second innovation theme, big data fluency is aligned with our customers' need To analyze large datasets, a trend in both on prem as well as cloud data repositories. We expect this trend will grow as data across the enterprise remains highly fragmented. Finally, AI as a strategic advantage is aimed at democratizing insights across the business by using AI capabilities to help upscale analysts. As I mentioned at the beginning of the call, we recently closed 2 acquisitions providing capabilities as well as talent. HyperAna brings a cloud based platform for generating AI driven automated insights from data.

Speaker 2

This solution enables Anyone regardless of technical background to access AI driven insights. We also recently announced the acquisition of LoRa. Io. LoRa. Io brings talent and cloud based data modeling capabilities to Alteryx.

Speaker 2

Both acquisitions enable us to accelerate more functionality to the cloud And to add improved data discovery capabilities. Finally, this morning, we announced the appointment of 2 new members to our Board of Directors, Effective November 10. CeCe Morkin, President of Headspace Health and Dan Warmenhoven, former Executive Chair And CEO of NetApp join us as directors. Both bring innovative customer thinking and deep technology expertise. Their experience with scale will help in our transformation journey and position Alteryx for our next phase of growth.

Speaker 2

I'd like to thank both Kimberly Alexei and John Bellizzi for their invaluable contributions to the Alteryx Board of Directors over the past several years. I remain confident in our ability to successfully transform Alteryx to deliver long term value for our customers, partners, associates and shareholders. The opportunity ahead of us is significant and growing at a global scale. I believe Alteryx will be one of the winners in this highly fragmented data analytics and automation landscape. I'm so pleased at what we are doing here.

Speaker 2

We're building an innovation powerhouse supported by a world class go to market motion. With that, let me turn the call over to Kevin. Kevin?

Speaker 3

Thank you, Mark. Overall, we delivered a solid performance in Q3 ending with $579,000,000 in ARR, beating guidance and representing 29% year over year growth. In Q3, we generated net new ARR of $31,000,000 increasing 79% year over year. Revenue for Q3 was $124,000,000 We continue to experience improvements in sales execution as a result of the We will now begin the question and answer session. We will now begin the question and answer session.

Speaker 3

Thank you, sir. Thank you. Our first question comes from the line of We ended Q3 with approximately 7,700 customers, including 775 or 39 percent of the Global 2,000. This quarter, we added customers including Dow Jones and Company, Snap on, Hormel Foods, AutoNation And BlackRock Financial Management, all of which has significant potential to expand with the Alteryx platform across their organization. Overall, net expansion was 119% and a stronger 127% within the Global 2,000.

Speaker 3

As I signaled last quarter, we expected to see a small downtick in net expansion as we continue to transform our go to market, focusing On the largest customers and prospects with the greatest propensity to adopt and expand with Alteryx. We anticipate some volatility going forward in net As we supplement our land and expand sales strategy with a strategic enterprise focus. On last quarter's call, we discussed how we experienced elevated levels of attrition in the first half of twenty twenty one as a result of the transformation journey we are on as well as the great resignation that many companies have experienced this year. I'm pleased to report that attrition rates improved in Q3 and are trending down As the changes in our go to market take hold under Paula's leadership, we continue to attract great talent and had another record hiring quarter. Additionally, we completed 2 acquisitions in October.

Speaker 3

As Mark mentioned, we closed the acquisitions of Hyperana based in Australia And LoRa IO based in San Francisco. We expect these acquisitions will accelerate our cloud strategy by not only adding more functionality and cloud know how, but also adding strong talent to our teams. From a financial point of view, revenue, ARR and operating expenses Associated with these acquisitions are immaterial. While expenses overall are immaterial, there is a slight increase in our operating expense run rate as a result. Additionally, there are some one time charges associated with the acquisitions.

Speaker 3

All of this has been factored into our Q4 guidance. We are hard at work on integration and we are excited to bring the new teams on board. Before moving on, I want to remind everyone that unless otherwise I will be discussing non GAAP results. Please refer to our press release for a full reconciliation of GAAP to non GAAP results. Q3 revenue was $124,000,000 representing a decrease of 5% year over year.

Speaker 3

This was primarily the result of average contract duration, which as expected came in just under 1.5 years this quarter, down from 2 years in 2020 2019. As I mentioned on the call last quarter, we expect to continue to see contract duration As we focus our sales efforts on account level ACV and ROI based outcomes, while significantly reducing discounts for multiyear contracts. While we intend to continue to offer multiyear contracts and some customers will continue to elect longer contract terms, the average is coming down. This change is intended to further streamline our go to market and further focus on ACV at the deal level. Importantly, we believe this is increasingly the preferred buying And in reducing the financial discount for 3 year contracts are the main factors driving shorter average contract duration.

Speaker 3

Alteryx continues to be an integral part of the modern data ecosystem, which is reinforced by our continued success with partners like Snowflake And UiPath as well as our consistently strong win rate. In Q3, we saw strong year over year growth in net new ARR, Our Q3 gross margin was 90% as compared to 93% in Q3 2020 due to an increased investment In customer success to drive higher product adoption and lower churn. As we've discussed this year, investment in customer success is a strategic initiative and we believe will be a catalyst to drive net expansion over time. Our Q3 operating expenses were $121,000,000 compared to $90,000,000 The increase in our operating expenses is primarily attributable to increases related to headcount and payroll related expenses. Our Q3 operating loss was $10,000,000 Net loss was $12,000,000 or a loss of $0.18 per share based on 67 point 3,000,000 fully diluted weighted average shares outstanding.

Speaker 3

Turning now to the GAAP balance sheet and statement Cash flows. In the Q3, we generated $9,000,000 in cash flow from operations. Our liquidity position remains very strong with just over $1,000,000,000 in Now turning to the outlook for Q4 and full year. Our guidance assumes the following. First, we expect continued improvement in the macro environment for the remainder of 2021.

Speaker 3

2nd, the average duration of our subscription agreements will continue to shorten and trend below 1.5 years. And third, approximately 40% of TCV booked in the quarter will be recognized upfront with the remainder recognized ratably over the time of the contract. I'd like to remind you that our guidance is subject to various important risks and cautionary factors referenced in our call today and in today's earnings release. For Q4, 2021, we expect to end December 31 With ARR of approximately $635,000,000 which represents year over year growth of 29%. As we have discussed previously, ARR measures the overall health of the business and is not impacted by some of the revenue mechanics such as contract duration or upfront recognition that impact revenue.

Speaker 3

We expect GAAP revenue to be in the range of $163,000,000 to 100 $68,000,000 which represents a year over year increase of 2% to 5%. We expect our non GAAP operating income to be in the range of 2,000,000 $7,000,000 and non GAAP net income per share of $0.02 to $0.07 This assumes 69,700,000 weighted average shares outstanding.

Speaker 2

For the

Speaker 3

full year 2021, we now expect GAAP revenue to be in the range of $525,000,000 to $530,000,000 which translates In the year over year growth of 6% to 7%. We expect our non GAAP operating loss to be in the range of $18,000,000 to $13,000,000 Our non GAAP net loss per share is expected to range from $0.32 to 0 point 67,200,000 basic shares outstanding. Finally, we expect an effective tax rate of 20%. In summary, with one more quarter to go for the year, I am pleased with the progress we have made on our transformation journey to position Alteryx for the next phase of growth. We have seen positive results from the transformation to our go to market strategy and advanced our product roadmap through the year both organically and through our 2 recently announced acquisitions.

Speaker 3

We believe this puts us on a path to accelerating growth in the future. And with that, we'll open up the call to questions. Operator?

Operator

Thank you. At this time, we will be conducting a question and answer session. Our first question comes from the line of Brent Bracelin with Piper Sandler. Please proceed with your question.

Speaker 4

Thank you and good afternoon. A couple of questions From me here, if I could. Mark, given you're approaching the 1 year anniversary, love to hear maybe how you're Thinking about the top 1, 2 priorities going into year 2, are they shifting a little bit now that you've kind of spent the last year focused on the go to market overhaul. Just would be curious to hear that and one quick follow-up for Paula.

Speaker 2

Yes, you bet, Brent. How's it going? Good to talk to you. Thank you for the question. Yes, listen, I think after a year on the job here, I look back and I can See just a volume of work done.

Speaker 2

We call 2021 the year of transformation. We're 3 quarters into that year. And I think the demand environment For what we do and the way that we're organized, both to be able to deliver to put innovation at the fingertips of our customers, As well as to monetize that and earn permission to do more, I think we've never been in better shape and I feel like we're in a really good position right now. I think FY 'twenty two is clearly going to be about leveraging the efficiencies of the operating model, both for go to market and Cranking out as much innovation as we possibly can. I think as you saw in the last week and a half, We're going to do this organically and we're going to do this inorganically.

Speaker 2

And I think there's permission for us to roll up A broad platform in this space and customers want fewer vendors, less complexity, more automation. So we're heads down building that.

Speaker 4

Totally makes sense. And it felt like there was a little bit of a pivot here with the couple of acquisitions tuck ins that you did and great to hear the plans here for 'twenty two. Paula, I wanted to Kind of circle back, you joined obviously in May, implemented a number of go to market enhancements. How should we think about those go to market pivots? Is that beginning to help expand the pipeline in the second half?

Speaker 4

Should we Think about some of these shifts helping the pipeline build for next year, really any color you could provide on just the changes and when will that

Speaker 5

So what we're definitely seeing in Our engagements with our customers is that there is an interest in companies continuing to advance their analytic maturity. They understand the value that analytics can bring to their different transformation efforts. And so we are continuing to work With our customers in 2 capacities, of course, to build demand through our land and expand sales motion that's very effective, particularly across the lines of business. And then we're supplementing that with a conversation at the executive level around democratizing analytics and bringing the capability out Across the enterprise and early indications are that there's an appetite for this scale and enterprise capability. We also feel that we continue to earn, the hearts and minds of the users of our solution With a lot of high quality product feedback and then when we talk to the executive level about The enterprise capability and the announcement of our enterprise agreement are making it much easier for them to consume this at scale And then we back it up with the customer success to drive adoption.

Speaker 5

So we are heading in the right direction. Our Customers are validating the strategy and we expect this to continue as we go into next year.

Speaker 4

Great to hear. Thank you so much for the color.

Speaker 6

Thanks, Brent. Thanks, Brent.

Operator

Our next question comes from the line of Tyler Radke with Citi. Please proceed with your question.

Speaker 7

Hey, thanks. Good afternoon. Mark, you've talked about reducing friction on the sales side is one of your Key initiatives since taking over. And this past quarter, you referenced some of the more flexible arrangements that you're doing with Some of your enterprise customers just to allow for faster consumption. As we start to think about Alteryx being used in more cloud based use cases where the predominant Measure of or the predominant way of paying for things is kind of on a consumption basis.

Speaker 7

How are you thinking about the evolution Of Alteryx, maybe towards a consumption pricing model, and just help us understand how that would potentially play into ARR? Thanks.

Speaker 2

Yes, you bet, Tyler. Thanks for the question. That's probably the sneakiest way I've ever heard anybody ask me for cloud pricing yet. But Well, listen, I think just as a reminder, the Designer Cloud is Additive to our current plan, it's not a replacement or a forced migration. It's a different product that addresses potentially A cohort of different personas and different use cases that we plan on using Aggressively, in 2022, 2023 and beyond, we think it will be a bigger and bigger part of our business as Time goes on.

Speaker 2

But right now, we're still in the learning phase of this and hoping to get Some sense for what pricing will look like, we'll announce that once GA comes on board, Tyler, and that's going to be early January, February timeframe of next year. But we think it's an important net new product for us to sell. It's Piggybacked with Alteryx ML, which is really making the early stages of the machine learning, Building ML Models Journey make that easy like we have for many Alteryx users. So we're going to continue to crank up this innovation.

Speaker 7

Great. And if I could sneak in a follow-up, maybe for Kevin. Just As you think about Q4, it looks like you reiterated the existing guidance out there for ARR. Maybe just help us understand the puts and takes. Q3 came in above where folks expected.

Speaker 7

It sounds like you Clearly saw a nice growth in net new ARR and sales attrition is trending down and hiring is off to a good start. So Given that you have raised the full year guide in prior quarters, what kind of is leading you to just keep things as is Instead of take that a bit higher

Speaker 1

after the beat? Thank you.

Speaker 3

Yes. Thanks, Tyler. Look, I mean, maybe let me describe how we think about The guidance for Q4, I mean, obviously, we intend to put guidance out there that we have a high degree of confidence that we can achieve. I would say this as we look at Q4 in particular, We do feel like there is a strong demand for Alteryx technology in the marketplace. We've talked a lot about Paula's Leadership and the momentum we're seeing in the go to market, which is certainly encouraging.

Speaker 3

I think if you look at pipeline renewal rates, Close rates that all gives us pretty good visibility into Q4 and what to expect. I would remind you that Q4 does have A disproportionate number of renewals, which is one of the strong opportunities we have to ultimately expand customer relationships and We'd expect nothing different for this Q4. And then finally, if you look at just net new ARR growth implied in the guide So anyway, hopefully that answers your question, but we are going into what we expect to be the largest quarter in Alteryx's history.

Operator

Our next question comes from the line of Derrick Wood with Cowen and Company.

Speaker 8

The change in discounting structure and I know you guys have kind of outlined how you thought you'd get the ARR upside with less discounts as you go from 3 years to 1 year, how is that upside capture trended? And kind of what's been the reaction by customers that maybe are don't get the kind of discounts they used to as they go to 1 year?

Speaker 3

Yes. Thanks, Derek. Appreciate that. Look, as we've said in the past, there are customers that Tend to favor longer term contracts. Those tend to be customers with large deployments and we're strategically Embedded in those environments and the longer term contract gives them price protection for a longer period of time and we will continue of course To offer those to those customers, pricing is a little bit different than it may have been a couple of years ago as we're really trying to Align the ACV of those implied contracts with the value that we're delivering.

Speaker 3

But when you think about what it is that Customers are doing as it relates to engaging with customers. I mean, we've aligned the organization very clearly around ARR and that means that Sellers are focused on ACV and we're really focused in that regard. So ultimately, I think a lot of this is intentional and it's being driven by how we engage with customers and how we talk to them about The pricing dynamics and their contracts and less about any other dynamic, if you will.

Speaker 8

Okay. Yes, that's clear. Nice to see the execution through those changes. Second question, either Mark or Paula, I mean, just sounds like you've had 2 quarters in a row of record hiring. Can you share what growth in net sales capacity looks like year to date and Where are you attracting talent from and how we should think about your hiring attentions going into the end of the year?

Speaker 2

Yes, you bet, Derek. Thanks for the recognition on that. Yes, I think we've built early in the year, we our Chief People Sir, LDK and I kind of made the decision to double up on the recruiting team and that's really yielded some important benefits here as we've been able to Definitely keep up with the very aggressive hiring targets that our operating plan is driving. In terms of giving specific guidance on Sales capacity, we don't do that, Derek. But I can tell you that Paula is a and I'll let her give you a more specific context.

Speaker 2

But She's a recruiting machine and she's got the entire organization talking about hiring and talking about sourcing and recruiting In the same kind of language that they talk about business and opportunities. And so it's a real mind shift change for the sales team here and the leaders, and they've responded very well to it.

Speaker 5

Yes, much like the rigor and discipline that we've put into the business around things like forecasting, we have a similar Rigor around hiring and an operating model that we run globally with our regular cadence to look at Where we want to make investments, what does the talent pool look like in that market, what types of people do we want to hire And rapidly moving them through our hiring cadence. And to your question of where we're hiring from, it's software enterprise, Reputable companies with talent that is familiar with the go to market principles and approach that we have. And the great news is once you get a number of those people in the door like we have and they see the opportunity that we have, They often want to bring many of their colleagues with them and we've certainly seen quite an uptick in that as well over the recent months.

Operator

Our next question comes from the line of Michael Turits with KeyBanc. Please proceed with your question.

Speaker 9

Hey, this is Arkeith on for Michael. Mark, my question for you, I just want to ask on the LoRa. Io acquisition. So could you just further talk about what that brings to the Alteryx platform, Especially with the push down analytics and taking advantage of the cloud native compute, could this be a step in the direction of building out a multi tenant SaaS offering?

Speaker 2

Well, yes, listen, I think longer term, certainly that's an objective down the path of the roadmap, Michael or sorry, Eric. But I think these acquisitions and LoRa in particular is of the size, it's more of an acquihire than a technology tuck in. Let me tell you, they've got really, really smart engineers that I think woke up one day and realized they're building a feature That better belongs in a platform like ours, and that's why I think they make such a good fit for us. So they're Already gone through new hire orientation and already plugging into the different organizations in engineering and product management. But absolutely, their specialty is in the push down area where customers don't want to leave a user interface and Want to be able to push workflows down into an environment like Snowflake or Databricks.

Speaker 2

And so that certainly is a feature we plan And taking advantage of it very quickly. But I think more importantly, all of these acquisitions, in addition to bringing us really smart people That will fit into our construct really well. They allow us to do more faster. And I do think time matters in this, as I said on the Fair comments and I'm really quite pleased with kind of the way that we've been able to make these 2 acquisitions in the last 6 months.

Speaker 9

Great. Very clear. Thank

Speaker 2

you. Thanks, Eric. Thanks, Eric.

Operator

Our next question comes from the line of Ittai Kidron with Oppenheimer. Please proceed with your question.

Speaker 8

Thanks. Mark, I want to follow-up on the sales force transformation. Clearly, you're making very good progress over there, so Great. But maybe perhaps you can give us a baseball analogy. In what inning are you from your perspective in getting to exactly where you want to get With respect to the change in the talent and the alignment towards the new way you're doing things.

Speaker 2

Yes. Thanks a lot, Ittai. Really always appreciate your thoughtful questions over the years. Listen, we're certainly in the back half of this. We're in the Q3 excuse me, in the Q4 right now.

Speaker 2

We've got 2 fiscal months to go in the full fiscal year. It feels like we've done an awful lot and we're just working hard right now to prepare for the new fiscal year and build a plan that can allow us to be successful with customers Our people and investors. So, but I think a lot of the big chunks are in the rearview mirror now. I think it's now just Stabilizing both the innovation teams as well as the go to market teams to really operate like a High performing team and we're getting pretty close. I mean, we've got some amazing people that I've stayed on here at Alteryx and we've added, as we've said, a lot of really good people into the mix and it makes for a great combination.

Speaker 2

Very good. Good luck. Thanks, Ittai. Thank you. Talk to you later on.

Operator

Our next question comes from the line of Kamil Mehtaik With William Blair, please proceed with your question.

Speaker 10

Hi, all. Thank you for taking my question. Congrats on the Great quarter and the strong customer growth. I think net new customer adds reached the highest level in something like 7 quarters, which is great to see. Can you maybe break out, provide some more detail on the drivers of this acceleration?

Speaker 10

How much is improved productivity from change to go to market strategy? How much is Sales headcount and how much is an improving macro environment? And then if looking out over the next few years, how would you rank We expect the contribution from these drivers of new logo growth. Thank you.

Speaker 5

That was

Speaker 2

a great question.

Speaker 5

Yes, I think that you hit on all of the different factors that were in play in terms of the results. So we are seeing improved Sales productivity, we are investing to increase our sales capacity. And we definitely see within the market a strong demand for our solution and customers recognizing the value that it drives to their outcomes and to their transformation efforts. So Probably too difficult to specifically cite each category as a percentage, but without question, all three of those contributed to the success of the quarter.

Speaker 2

Yes. And Camille, I'll just say that, I think it's also important to acknowledge that The partnerships out there are going to be become an increasingly important contributors to top line for us. We're just starting to build the muscle now to take advantage of these go to market and technology partnerships that customers are really demanding. And The demand creation opportunity with that we've seen certainly with Snowflake and UiPath and others is terrific. So it's creating demand For demand creation events that we're doing and it's creating a lot of activity that gets us in front of a lot of customers.

Speaker 2

It gets us a chance We talked about more than just the integration with those partners. So listen, to get this all to orchestrate together, we all have to do A thousand things every quarter and I think we've never been better suited to orchestrate those thousand things than we are today.

Speaker 10

That's great color. Thanks again.

Speaker 11

Thanks, goodbye.

Operator

Our next question comes from the line of Koji Ikeda with Bank of America.

Speaker 12

I think this question might be either for Mark or Kevin. I was looking at the investor deck and I noticed the long term targets in the back and they look about the same Or they are the same that were given back in May, the updated ones back in May at the Investor Day. Just thinking about that, a lot of things have changed. I mean, Paula has joined the team. Contract duration preferences have changed.

Speaker 12

You released the Designer Cloud, couple of acquisitions in there too. So I guess, could you remind us about How to think about the long term targets, maybe in terms of overall revenue scale or timeline of guardrails of when these long term targets might be achieved? Thank you.

Speaker 3

Yes. Thanks, Koji. I'll go ahead and take that one, if you don't mind. So when we presented the long term targets back at the Analyst Day, I think we were Pretty clear that this is a long term view. I would frame that in 4 to 6 years On the basis that we are running the business for scale and leverage to achieve the profitability targets, I think as we've said over the last many quarters pretty consistently, we believe that investors are best served to focus on really growing this business At a high rate, which hopefully we have continued to demonstrate.

Speaker 3

And so as long as we are focused on Growth versus profitability, we're somewhat deferring period to period the achievement of that long term target. What I think is important to understand is, as we do ultimately introduce more of a cloud set of products to the portfolio And move over time, you are going to see impacts to gross margin, but we think that this business is highly profitable in the long term as a result.

Speaker 12

Hey, Kevin. Just one quick follow-up there. Just want to be absolutely clear on that. So you say 4 to 6 years from the point in time where you want to start focusing On scale on leverage versus growth, did I hear that correctly?

Speaker 3

Yes, that's right.

Speaker 12

Okay, got it. Thank you so much.

Operator

Our next question comes from the line of Sanjit Singh with Morgan Stanley. Please proceed with your question.

Speaker 11

Thank you for taking the question. And it was really nice to see the Cloud Designer come out in limited release. And I guess my question is, In terms of thinking about the sequencing of the product roadmap, as we think about going into 2022, is that really about Scaling the go to market and the sales motion for Cloud Designer, which might, as you sort of said, Mark, target different Persotas, maybe Even a different target customer, correct me if I'm wrong there. And then looking beyond Cloud Designer, how do you think about the other pieces of the APA Vision that was sort of hinted at last year on that coming together. If you could just sort of speak to the sequencing of the product, that would be great.

Speaker 2

Yes, you bet, Sanjeet. Thanks so much for the question. Listen, I think for the last few quarters, we've been pretty clear about Wanting to build a real platform with a back end in the cloud and a front end that can be exposed to customers in any environment, Mac, Windows, VPC, multi tenant SaaS, whatever, that's where we're going. And customers want that because more and more Then the power users want to use Alteryx in these environments and we've got to respond to that. So we're going to continue to build more capabilities, more data sources, more tools that people can use on both our premise based As well as our cloud based solution, we're going to build more products like AlteryxML.

Speaker 2

And we'll productize HyperAna on Designer Desktop, so that we can help customers get automated insights in their machine learning journey With that amazing technology and the amazing team from Micarana. So I think what you'll see going forward, Sanjeet, is just Ongoing every 3 to 6 months new products, new features, new capabilities that will continue to make Our solution is stickier and stickier, not only to the analysts and the users, but to the CIOs and the CFOs And the Chief Data Officers that are driving the budgets on these larger transformational projects. And that's why partnerships Become really important to us. And so, I think in terms of getting to a point where you might have Data or excuse me, feature parity between Designer and Designer Cloud, it's not even in the near term future. So it needs to be

Speaker 9

thought of as a separate Got it.

Speaker 11

Understood. Thanks very much.

Speaker 2

Thanks, Sanjeet. Thanks, Sanjeet.

Operator

Our next question comes from the line of Steve Koenig with SMBC Nikko, please proceed with your question.

Speaker 13

Hi, Alteryx. Thanks for taking my question And congrats on a solid quarter.

Speaker 2

Thanks, Steve. Yes. So Mark,

Speaker 13

when Pre pandemic, so we had seen situations where for the sales motions For Alteryx that were focused on higher level executives, which clearly were probably more limited than the focus you're giving it now. But we have seen situations where the sale had resulted in a fair amount of Shelfware at particular accounts and maybe not widespread, but we did run into that. And I'm wondering With your flexible bundles, etcetera, how do you avoid the situation where you end up creating An overhang of software that is, let's say, sponsored by a Chief Data Officer, but They haven't really found the people to use that software yet. How do you avoid kind of falling into that trap and getting stuff used at a pace that's commensurate With the pace that you're able to sell it to the executive level?

Speaker 2

Yes, great question there, Steve. I was wondering where you're going on it, but I think it's a very thoughtful question Around for us, our success is going to be tied to building a strong operating plan, making our sales more productive for the foreseeable future, probably through the long run and ensuring that our customers Consume our innovation. That's right up there, tied for number 1, most important thing. And so It's one thing to say, it's another thing to put sort of some organizational muscle behind it, which is why we've almost tripled the size of the customer success team and are building out enterprise class customer support, so that we've got resources in our Call it our stack of resources that we put in front of customers that are not just there to sell them something and move on to the next customer, but To help them consume it. And that's why we're building a library of use cases that will be really like easy buttons for customers to be able to use To get to value faster.

Speaker 2

And so these are a lot of the things that Paul is sort of introducing into the mix here. But, Paul, you might have some more context on this.

Speaker 5

I think it's a really thoughtful question and it's a multi pronged approach to making sure that our customers Realize the value behind the investments that they're making, and I think there's 3 areas where I feel that we're going And help deliver on that. First is just the focus that we're applying in from a resource perspective to the set of customers that we support To really ensure that it's much more than a technology transaction and it really is about that adoption on the other side. The second piece is these flexible consumption models that we're now supporting with our enterprise agreements that Sort of help our customers grow as needed in a predictable way, so that it's not asking them to make too large of investments upfront, but giving them the ability to grow as they consume. And then thirdly, as Mark mentioned on the customer success side, we have so many tools now Available to help our customers with enablement and adoption and best practices and change management and all the operational things that come with Helping them to actually turn their investments into value. So it's really exciting where we are and I think we're only getting started on this.

Speaker 5

There's going to be some More exciting capabilities in this next year as we think about things like assessments and benchmarking and other Capabilities, but we're in it for the long term with our customers and that means they have to realize the value of the investment.

Speaker 2

And just maybe one closing comment on this, Steve. I think shelfware is pretty common notion in the old days, pre pandemic. I think With the attention and scrutiny that's being applied to all things digital transformation, I think over time It will be excised out by better vendors, by better partners. And that's why we're working so hard to evolve and get better Because that's what our customers deserve.

Speaker 13

Great. Thank you very much, Mark and Paula.

Speaker 2

Yes. Thank you. Thanks, Steve.

Operator

Our next question comes from the line of Pinjalim Bora with JPMorgan. Please proceed with your question.

Speaker 14

I mean is there a way to understand that opportunity? How big is it? I mean I look at the retention rate on G2K that has kind of come down a little bit, But it seems like about 10% of your customers are $1,000,000 10% of G2K customers are about $1,000,000 So there's Yes. Still a lot of these G2K customers that can expand hopefully in that 7 figure range. So trying to understand what is that gating factor, Is that mainly related to these contracting changes making it easy to adopt that you're already doing?

Speaker 14

Is cloud the answer or something else?

Speaker 2

So, gating factor to what, Pendulum?

Speaker 14

Gating factor for the 90% of the G2K customers to reach Like a 7 figure ACV.

Speaker 2

Yes. Do we think that number is right? Okay. Yes, it's roughly. You said AT and T

Speaker 14

of your customers are 1,000,000,

Speaker 8

I believe, right? And you have

Speaker 14

775 G2 ks. So I'm just

Speaker 2

Right.

Speaker 3

Yes, Pendulum, just to clarify, that's across all of our customer segments. It's not specific to the G2K. But Nonetheless, I think we understand the spirit of your questions. Yes. And listen, I think in the prepared statements, I replayed some comments that

Speaker 2

were made at a recent global C suite advisory session that we had where the customers did a self analysis of where they thought they were in their journey to become a data centric culture And most of them thought they were at the beginning. At the very best, the most mature companies thought they were mid term. And We think focusing where the vast majority of the total addressable market is, in most markets, it's in the G2000 or We'll be the G5000. And that's where we think we're going to get the best return on our resources for the next 3 to 5 years. Because with 1% penetration Into a market that is companies are just waking up and realizing that they've got to get their act together to make better decisions with data.

Speaker 4

Yes.

Speaker 14

Yes, understood. Okay. One follow-up, Kevin. The investment seems like the operating income guidance is a little bit lower and it seems like you're saying it's mostly related to acquisitions. Is it entirely related to acquisition?

Speaker 14

Or is there any incremental investments that you're doing?

Speaker 3

No. Relative The guide, my commentary was that we obviously now are consuming these both of these two Acquisitions and they did increase our run rate. So I was just trying to provide some color around why operating expenses were a bit Higher in

Speaker 14

Q4. Okay, got it. Thank you.

Speaker 11

Thanks, Benjamin.

Operator

Our next question comes from the line of Chase Donovan with Raymond James.

Speaker 6

I just wanted to kind of piggyback on Sajid's question around the M and A. You guys announced the HyperIntm or IO acquisitions. Can you guys just talk about your appetite for future M and A and maybe where you see the most pressing need I think it's opportunity to add functionality to your platform and kind of achieve it or towards achieving the broader kind of analytics platform vision.

Speaker 2

Yes, you bet, Jay. Thanks for the question. Yes, listen, I think we've talked about this market before. There's well over 400 vendors in this space, and a lot of them sound like they I think there's confusion from customers of who does what. And the fact that most companies are early in their journey means that it's going to stay fragmented for some time.

Speaker 2

We think that's the obvious go signal for Alteryx to go build the platform.

Speaker 14

Okay. Thanks.

Operator

Our next question comes from the line of Blair Abernethy with Rosenblatt Securities. Please proceed with your question.

Speaker 15

Thank you and nice quarter guys. Just wanted to ask you a little bit about Your thoughts for 2022 in terms of your go to market partnerships, you've had obviously a long standing strong Relationship with PwC, how are you looking at some of the other major SIs and how you're positioned Today, where you'd like to be, say, another year or 2 years?

Speaker 5

Yes. Great question. Thank you. So we're very committed to partnerships. We've talked a lot about how we see that as a major lever for our growth as we go forward.

Speaker 5

As we think about PwC as an example, we're a couple of years now into that relationship and we see Increase and acceleration in terms of unlocking new conversations with customers with the Transformation projects that they lead in the areas of finance and in supply chain, there's just so much that we're still getting started on We know that our customers are expecting us to be a leader In the data landscape and partnering with the other ecosystem players, and we're seeing great traction there In our Snowflake relationship, over 600 joint customers, where we're really partnering together to help, with many transformation efforts. So I would say as we look into 2022, you're going to see us double down in many of those areas in terms of, the number of Customers and the number of success stories that we'll be able to share, and then you'll also see us expanding out into other partnerships Where we know that there will be benefits for our customers, who want to be able to get access to our solutions and have us

Operator

Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Mark Anderson for closing remarks.

Speaker 2

Great. Thank you, operator, and thank you so much, everyone, for your time today. I'm really excited about the progress that we've made in FY 'twenty one and Really excited about the opportunity to make history in Q4 and 2022 and beyond. So Thank you all for your time and attention. Looking forward to seeing you out there in the field.

Operator

Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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Earnings Conference Call
Applied Industrial Technologies Q3 2021
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