This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk07: Thank you for standing by. This is the conference operator. Welcome to the Alteryx third quarter 2020 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the questions here, you may press star then one on your telephone keypad. Should you need assistance during the conference, you may signal an operator by pressing star and then zero. I'd now like to turn the conference over to Chris Lyle, Chief Legal Officer. Please go ahead.
spk08: Thank you, Operator. Good afternoon, and thank you for joining us today to review Alteryx's third quarter 2020 financial results. With me on the call today are Mark Anderson, Chief Executive Officer, and Kevin Rubin, Chief Financial Officer. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance. They are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statement. 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 the Investor Relations section of our 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 conference call. A reconciliation of these measures to their most directly comparable GAAP financial measures can be found in today's earnings release. With that, I'd like to turn the call over to our Chief Executive Officer, Mark Anderson. Mark?
spk06: Thanks, Chris, and thank you so much for joining us on the call today. I sincerely hope that everyone continues to be healthy and safe during these challenging times. This is my first earnings call as the CEO of Alteryx. I'll start with a quick overview of our Q3 results and then share some of my observations for my first 30 days. I'll then outline what we believe is a massive market opportunity for us, highlight key customer trends, and then I'll share with you how I'm thinking about the next 90 days. Finally, I'll turn over the second half of the call to Kevin, and he'll walk you through the details of our quarter and our outlook for the rest of 2020. Overall, the team delivered solid results in our fiscal third quarter of 2020. We exited the quarter with approximately $450 million of ARR, up 38% year-over-year. We now have close to 7,000 customers across 90 countries, including 38% of the global 2,000. Our net extension rate was 124%, and an even stronger 135% in the global 2,000. Our balance sheet remains extremely strong, just under $1 billion of cash and equivalents. I'm proud of what the team has delivered in Q3 as they adjusted to evolving customer buying habits. I'm also impressed with how the team engages with customers by proactively sharing best practices and helping impacted people, departments, companies, and governments harness the power of the data that's exploding all around them and deliver improved business outcomes. I believe the need for our innovation has never been greater than it is today. In my first 30 days, I was fortunate to spend time with many of our key communities, including customers, partners, and all Trix associates. The enthusiasm and customer delight is just incredible. Digital transformation is our customers' number one priority, and according to IDC, over a trillion dollars is expected to be invested in data-related transformation initiatives. Alteryx has the innovation presented in an easy-to-use platform that is instrumenting these digital transformation journeys. We have a significant opportunity in front of us, as defined by the $49 billion total addressable market, and we believe we are still in the early stages of this explosion. I'm convinced that we will be one of the long-term winners in this space because we deliver tremendous business outcomes to our customers each and every day. We expect to share more thoughts on our addressable market and overall strategy next spring at our analyst day. Please stay tuned for more details. Now, as I dig in, it's clear that the Alteryx APA platform is a critical pillar of our customers' business transformation. Boy, I heard this loud and clear at our very first C-suite executive advisory forum, an event we hosted virtually a few weeks ago. This included approximately 30 C-level executives from global 2,000 customers around the world. During the forum, each customer shared their vision for transformation and detailed how integral our platform is to these efforts. The highlight for me was hearing Jonas Preising, the CEO of Manpower Group, speak to how important we are to his company and how progressively they are managing their data to put 600,000 people or more to work every single day. It was humbling. These businesses are not only upskilling knowledge workers to become citizen data scientists, but they're also increasingly leveraging analytics and automation to run smarter. They specifically called out these three trends. First, business transformation initiatives are being accelerated due to the COVID pandemic. Second, companies are struggling to leverage the massive influx of data cascading in and around their businesses every day. And third, legacy systems and manual processes are slowing down these transformations, often separating the winner's from the losers in this new age. These trends are real and align with the value that the Alteryx APA platform delivers. Now, turning to some highlights from Q3 customer activity, we continue to see many compelling COVID-specific use cases from customers as they seek to adjust and realign operations in response to the continued challenging market conditions. For example, in Q3, the FAA expanded its footprint with the Alterix platform in order to automate and speed up the critical transfer of data between existing systems. Alterix allowed them to eliminate manual processes and automate their workflows during the pandemic. A U.S.-based global airline, despite having reduced their workforce dramatically as a result of COVID, expanded their use of Alterix across 14 departments to optimize compensation, optimize staffing, understand the implications of new regulations, and identify cost savings across its operations. As transformation initiatives within the largest companies in the world accelerate, so does Alteryx's relevance. In Q3, a number of Global 2000 companies expanded their use of our platform across multiple lines of business. For example, a large drug wholesaler expanded their use of the Alteryx platform across over 10 business lines, including pricing, sales operation, tax, and financing. They're using the Alteryx platform to eliminate manual processes and drive critical business decisions around product profitability, lifecycle, and sales territory optimization. Ingersoll Rand is improving their bottom line performance by leveraging our platform for root cause analysis and inventory optimization. Not only did they see an 80% improvement in efficiency through automation, but they also rapidly upskilled their teams to use their words, They see the Alteryx automation as a game changer. I hear this time and time again. At Siemens Gas and Power, we earned the right to expand across multiple departments to significantly improve critical business processes and outcomes with pump surveillance and supplier analysis and cash flow optimization. These companies are instrumenting their business transformation with the Alteryx platform. Finally, we saw strength in the technology verticals. In Q3, we did business with world-class companies such as Amazon, Juniper, Intuit, Salesforce, Splunk, and Workday, just to name a few. We're humbled that some of the world's most innovative companies turned to Alteryx for advanced analytics. And speaking of innovation, our strategy is simple and consistent. We're focused on abstracting the complexity of analytics and data science to make it accessible to the tens of millions of citizen users who With our signature ease-of-use, no-code, low-code approach, going forward, our focus will be on improving our self-service and public cloud capabilities to reduce the friction of adoption. And, of course, we'll continue to work seamlessly with all types of data residing anywhere. What Dean, Libby, and Ned built here at Alteryx is incredible. Their legacy as innovators in this space is unrivaled. I'm incredibly honored to step in as CEO of to guide the company through the next few phases of our growth. Building and scaling world-class teams and evolving organizations to align with market trends and increasing customer demands is something that I'm not only passionate about, but it squarely leverages my experience. In my short time here, I've already identified a number of opportunities to simplify and streamline the current organization by building an execution framework to optimize resource allocation and expand global operations. This will allow us to deliver more innovation faster. It's a familiar playbook for me. Near term, of course, I'm focused on leading the team to a strong Q4 and a finish for 2020. At the same time, we're working on a solid plan for FY21 and beyond. I can assure you the next several months will be action-packed. In closing, I'm tremendously excited about leading Alteryx through the next few stages of growth. I'd like to thank all of our customers, partners, and associates for their commitment to Alteryx, and conviction in our ability to lead the category that we created and transform analytics, data science, and data-driven process automation. Now, let me turn the call over to Kevin to discuss our Q3 financial performance and our outlook for the remainder of the year. Kevin?
spk11: Thank you, Mark. Overall, as Mark just outlined, we delivered a solid performance in the third quarter. Specifically, $450 million in ARR, up 38% year over year. $130 million in revenue, up 25% year-over-year, $31 million in operating income, and $10 million in cash flow from operations. Before I go into details on the numbers, let me provide some more color on what we experienced in the third quarter. Customer spending trends improved modestly relative to what we experienced in Q2. We are cautiously optimistic that these improvements will continue in Q4, and as a result, we are raising guidance for the year. That said, among the trends we continue to see include a higher level of scrutiny on spend, which has led to longer sales cycles, smaller deal sizes, and less favorable linearity relative to historical levels. And based on what we see today, much uncertainty remains in the market for 2021. Now turning back to the numbers. As mentioned, we ended the quarter with approximately $450 million in ARR, up 38% year over year. Based on feedback from investors, this quarter we have provided historical ARR by quarter from Q1 2019 to present. These amounts are included in today's earnings release. Our intent in providing this metric is to give investors greater transparency into our underlying business performance as revenue can be impacted by non-operating metrics such as contract duration. During the quarter, we added 241 net new customers and now have 6,955 customers, including 756, or 38%, of the Global 2000. Net expansion for Q3 was 124%, and net expansion for the Global 2000 was 135%. Q3 revenue was $129.7 million, an increase of 25% year-over-year. As we discussed before, our revenue is impacted by overall contract duration of our subscription agreements. While overall duration remained at approximately two years in the quarter, we did see a slight tick down on a year-over-year basis. We expect this trend to continue in Q4. Product mix in the quarter was favorable at the higher end of the upfront range. U.S. revenue was $81.1 million, an increase of 9% year-over-year, while international revenue was $48.7 million, an increase of 70% year-over-year. We saw relative strength in EMEA and APAC, while North America conditions remain mixed. In terms of vertical performance, Mark already highlighted our performance in technology, but financial services, manufacturing, and professional services also demonstrated strength. While renewals, particularly in our enterprise segment, remain strong, we continue to see elevated churn levels among smaller customers and those with small Alteryx deployments. That said, churn rates improved slightly from what we saw in the first half of 2020. Before moving on, I want to remind everyone that unless otherwise stated, I will be discussing non-GAAP results. Please refer to our press release for a full reconciliation of GAAP to non-GAAP results. Our Q3 gross margin was 93 percent, consistent with Q3 2019. Our Q3 operating expenses were $89.6 million compared to $73.4 million in the same period last year. The increase in expenses is primarily attributable to increases in our overall headcount levels. Our Q3 operating income was $31.2 million. Net income was $27.1 million, or 39 cents per share, based on 69.8 million fully diluted weighted average shares outstanding. Turning now to the GAAP balance sheet and statement of cash flows, in the third quarter, we generated $9.7 million in cash flow from operations, And as of September 30th, we have $983 million in cash, cash equivalents, short-term, and long-term investments. We ended the quarter with 1,519 associates, up from 1,515 associates at the end of Q2, and 1,176 associates at the end of Q3 2019. Now turning to our outlook for Q4 and full year 2020. Our guidance assumes the following. While we are cautiously optimistic that the overall macro environment will continue to improve, it is too early to say definitively how quickly things may return to historical levels. With this in mind, we assume the macro environment will be as challenging as we experienced thus far in 2020. The average duration of our subscription agreements will continue to be approximately two years, but will be a headwind relative to contract duration in Q4 2019. And approximately 35% to 40% of TCV booked in the quarter will be recognized up front, with the remainder recognized ratably over the time of the contract. Finally, 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, approximately 50% of revenue will be recognized from deferred revenue and scheduled multi-year billings. Approximately 20% is expected from contract renewals. and the remainder expected to come from net new business closed in the quarter. For Q4 2020, we expect GAAP revenue in the range of $146 million to $150 million, representing a year-over-year decline of approximately 4 to 7 percent. We expect our non-GAAP operating income to be in the range of $24 million to $28 million, and non-GAAP net income per fully diluted share of 27 to 31 cents. This assumes 72 million fully diluted weighted average shares outstanding. For the full year 2020, we now expect gap revenue to be in the range of $481 to $485 million, or a year-over-year increase of approximately 16%. We still expect to exit 2020 with approximately $500 million of ARR, which translates to over 30% year-over-year growth. We expect our non-GAAP operating income to be in the range of $52 to $56 million and non-GAAP net income per diluted share of 60 to 65 cents. This assumes 69 million fully diluted weighted average shares outstanding and an effective tax rate of 20%. While we are not providing official guidance for fiscal 2021 until our Q4 earnings call, We expect that ARR will continue to demonstrate solid growth and should increase by at least 25% in 2021. We expect revenue growth rates to slow in 2021 as a result of shortened contract duration and other accounting inputs. We view ARR as an additional metric to evaluate the underlying health and momentum of our business. In summary, we are closely monitoring market conditions. We believe the future for Alteryx is bright as we enter the next phase of our growth, given our strong product market fit, significant market opportunity, powerful business model, and our strong financial position with nearly $1 billion of cash on the balance sheet. As Mark mentioned, we are focused on simplifying and streamlining our organization, including how we serve our customers and deliver innovation. We will continue to focus our investments on growth while being mindful of profitability. We have a proven track record of financial discipline and intend to manage our cost structure based on top-line dynamics. Finally, I would also like to extend my special thanks to all of the Alteryx associates across the globe who continue to delight our customers each and every day, even while working remotely in these uncertain times. And with that, we'll open up the call for questions.
spk07: Operator? Operator? Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question at any time, please press star and then 2. Your first question comes from Brad Braceland from Piper Sandler. Please go ahead.
spk12: Good afternoon. I guess first thing, Mark, congratulations on the new role here and the opportunity to lead Alteryx in the next stage of growth here. I know it's early days, you know, and this may or may not be a fair question, but I'm going to ask it anyway. As you think about what you know so far and as you look to 2021, where do you need to spend your time? As I think about, you know, product, go-to-market, where are you going to be spending your time as you think about what needs to be done to kind of elevate this business? And how do you see that split between investing your time in product versus kind of go-to-market?
spk06: Hey, Brent, thanks very much for the well wishes. I really appreciate it, and great talking to you again. You know, listen, I've been on the board here for a couple of years, Veltrix, and certainly had a level of intimacy with the business. But, you know, being here for the last 30 days, I can tell you that it's just much more exciting than I imagined that it would be. It's an incredible business. The tool is unbelievable. And the joy that people have when they're in the tool is world class. And I think, you know, as I look around the business, just reflecting back on my experiences of, you know, long-term sustained hypergrowth, I see a lot of the same qualities here that I saw at F5 and at Palo Alto Networks, because we really do have that incredible product experience. And we're going to build and continue to evolve a really smart business around this amazing innovation. So for me, that means constantly tweaking. As you know, over the years and long-term sustained growth, you're always evolving and changing, because customers demand more the more relevant you get to them. I'll definitely be spending time on the product side, looking at how are we being as easy as possible to do business with, how are we gonna reduce friction of interacting with Alteryx, whether it's with a human being or with a website or a robot. And I think we're gonna really get aggressive with this innovation and really get the team to focus with customers and partners on delivering really important business outcomes to customers. Because that's, at the end of the day, what we do. We help them sort through the massive amount of data that's, you know, swirling in and around their business every day and make some sense out of that. And we do it like nobody else does. And I'm looking forward to, you know, being aggressive as we manage this business and look to get, you know, improved productivity over time out of every head that we have in a business.
spk12: Appreciate the color there. And then I guess just a quick follow-up for Kevin. If I look at RPO backlog, it's kind of been in this 400 million to 410 million range now for four quarters. You know, I appreciate the shorter contract duration headwinds that, given the global pandemic, is understandable. But does that start to impact your visibility into AR growth next year and And at what point, you know, would you expect to see kind of the larger deal start to show up in RPO?
spk11: Yeah, thanks, Brent. That's a good question. I mean, look, obviously, to your point, RPO is, you know, impacted by duration and the nature and texture of contracts over time. I think it's premature for me to speculate. you know, what it would mean for 2021, though.
spk12: And is there any correlation between RPO and ARR kind of growth trends, or is that tough because of how, you know, contracts are structured in ASE 606 accounting?
spk11: Yeah, I mean, unfortunately, there's really no connection between the two exactly for For your point, I mean, RPO and contract asset are all just a function of bookings, duration, and rev rec mechanics. And as you know, ARR is more just a function of the, you know, accumulation of ACV over time.
spk12: Got it. Super. Well, that's all I had. Thank you. Thanks, Mark Brown.
spk07: Thank you. Your next question comes from Tyler Radke at CISI. Please go ahead.
spk10: Hey, thank you. I had one question for Mark and one for Kevin. Mark, I'm curious, as you look at the pipeline heading into Q4, maybe give us a sense for what you're seeing. I think in the second quarter, there was a lot of activity with trial-based licenses and some customers that weren't quite ready to fully commit to the full purchase price, but curious if, you know, you're more confident in the ability to potentially convert those into kind of full-paying customers and just give us the puts and takes for what you're expecting in Q4. Obviously, the guide would imply you kind of have to add $50 million of incremental ARR, but just help us understand what you're seeing in the pipeline.
spk06: You bet, Tyler. Thanks a lot for the question. I'm looking forward to working with you. As I look at the pipeline, you know, listen, I've been here for 30 days, and I've talked to a lot of customers, and the pipeline looks good. I think just what we're seeing in general is, you know, businesses sort of getting over just the change in how everything has to work in Q2, which for us was a miss. and we saw people starting to get used to doing their jobs remotely in a way that allowed us to get a little bit better visibility to the pipeline. Q4 is traditionally our strongest quarter, but at the same time, we have to be mindful that businesses are really prioritizing their spend, and that's what gets me really excited about what we do is we really instrument our customers' digital transformation journey, and They need us to do what they need to do because before COVID it might have been, you know, to prevent from getting Amazon, but now it's existential. Companies have to transform, and they really need us. And the guidance that we give you reflects what I see today, and, you know, we'll be working it as we always try to do, and, you know, I think you'll see, hopefully see a good quarter out of us.
spk10: Thanks, and follow up for Kevin, and first I appreciate the historical disclosure on ARR. I think that's super helpful. I guess my question, Kevin, is just trying to reconcile what appears to be pretty strong revenue growth at 25% year over year relative to calculated bookings, actually decline 10% on RPO. Understanding there's a duration headwind there, but I guess the duration headwind, one would think that would also show up in revenue because revenue is recognized as a percentage of the total contract value, so duration shorter, that would impact revenue. But just help us understand the relative strength and in the revenue versus the bookings. And even on ARR, it looked like the sequential add of ARR was less in Q3 than it was in Q2. So help us understand that, and maybe if there's any other variables, whether it's product mix, that kind of came outside the range that you were expecting that would drive that. Thank you.
spk11: Yeah, thanks, Tyler, and hope you're well. Look, so, you know, each of the different dynamics that you kind of ran through revenue bookings, you know, ARR, they're all driven in some respects by, you know, each of their own components. And so, you know, revenue certainly would have a similar impact to RPO and contract asset relative duration. But, you know, timing of subscription contracts and things of that nature also plays a factor, and that was a bit favorable for us in Q3. ARR, you know, look, I think we've always said that You know, Q3 is seasonally one of our, you know, kind of typically flat Q2 to Q3 given some of the geographical seasonality we see specifically in Europe. And so that ultimately, you know, plays a factor as we think sequentially. So anyway, hopefully that answers your question.
spk10: Got it. And just if I could clarify one finer point on that. So ARR represents the kind of active contract. So, you know, for instance, if you booked a deal in Q3 that had a start date in Q4, that wouldn't show up in ARR until Q4?
spk11: If we are under contract in a subscription agreement at the end of the quarter, that is in ARR. Okay. Thank you.
spk06: Thanks a lot, Tyler.
spk07: Thank you. Your next question comes from Derek Wood at Cowan & Company. Please go ahead.
spk10: Great. Thanks for taking my questions in, Mark. Nice to meet you over the phone, and congrats on the new position. The idea of of simplifying and streamlining operations. I appreciate that. And I wanted to dig in a little deeper to kind of a discussion last quarter, which was the focus on refining kind of sales development programs to help drive, you know, sales productivity. Just curious how those efforts have been going so far and maybe, you know, Give us a sense. It sounds like there hasn't been a lot of hiring this year. At what point do you feel comfortable to start to kind of accelerate the sales hiring and grow the capacity?
spk06: You bet. Well, thanks for the question, Derek. And, you know, first of all, part of what I've been doing in the first 30 days is really trying to understand the team that we have, the construct of the all of the organizational structures and really starting to reflect on my experience and time and really understand and learn what the customers are expecting from resources at Alteryx. And then just over time, like every high-tech company does that's growing a lot, we're constantly refining sales processes, making tweaks to comp plans. I mean, when you work in a you know, in a long-term sustained, you know, marathon around hyper growth, you realize you're always tinkering and making changes just to make sure you're delivering, you know, the right top line and the right bottom line targets. You know, so for me, you know, simplifying is, I think about it from the customer's perspective. How do we be simple to work with? And what does that construct look like now versus even eight months ago? And I think so We're just thinking about making it easier to do business with us, having people that have specialties in certain areas, like with major accounts, living in the same towns as their customers, calling and trying to drive business outcomes that are prioritized for them. There was a financial question that you asked as well, Derek, towards the end. I'll pass that over to Kevin.
spk11: Thanks, Derek. So with respect to hiring, look, You know, as I mentioned in the call, I mean, we are cautiously optimistic with, you know, the momentum we're seeing. And I think as we've demonstrated in the past, as we, you know, build confidence in being able to continue to invest in, you know, the appropriate areas of the business, you'll see a hiring ramp.
spk10: Okay. And maybe to follow up, Kevin, you know, last quarter we talked about the shift towards adoption licenses, right? Can you just touch on what the impact of the customer engagement has been? Maybe it's probably early, but, you know, how these deals have kind of converted and expanded post-trial relative to expectations. And then I guess, is this a dynamic since Q4 is a kind of big renewal, big quarter for you? I mean, if there's a higher mix of these adoption licenses, is that something you've contemplated that may impact seasonality versus past Q4s? That's it for me. Thanks.
spk11: Thanks, Derek. You know, look, as I said last quarter, you know, adoption licenses, you know, they're essentially a paid trial, and they are just one tool in a salesperson's toolbox. And it is a flexible licensing arrangement that allows, you know, customers that are interested in trialing, you know, large, you know, populations of licenses, you know, with specific outcomes in mind. It is a tool we've used for a number of years. Certainly, you know, we attempt to put those very prescriptively into areas where, you know, we understand that the customer will have a great outcome in that regard. As it relates to Q4, I mean, certainly any impact that adoption licenses would have would be, you know, would be baked into guidance.
spk07: Okay. All right. Thanks.
spk08: Thanks, Derek.
spk07: Thank you. Your next question comes from Itai Kidron from Oppenheimer. Please go ahead.
spk05: Thanks, and my congrats as well for you, Mark. Good luck in your new role. Looking forward to working with you. Kevin, I did want to dig again into the fourth quarter. I mean, every quarter this year, as difficult as this year has been, you've delivered quite solid year-over-year revenue growth no matter what. and the guidance for the next quarter actually suggests a year-over-year decline. I know you're a conservative guy, and that's fine, but help me understand what part of your business are you more worried about right here, right now, with half of your revenue coming off deferred. And then I guess it's somewhere between the renewals and the new business activity. Where are you more bearish? Where are you more worried? bullish with respect to those parts. And, again, sorry to push on the adoption licenses. If I remember correctly, they had a six-month time limit to them, which means here in the fourth quarter people are going to have to make decisions. Are you not seeing very good conversion? Are you not expecting good conversion from those adoption licenses into more permanent arrangements?
spk11: Yeah, thanks for tying it. Let me kind of tick through those. So, look, I mean, as I provided in our prepared remarks, when, you know, when we look at Q4, you know, there's still a bit of uncertainty in the market, and that certainly is playing a factor as, you know, as we establish guidance. You know, the other thing just to keep in mind, I mean, we had a very strong Q4 last year. So, as we look at the year-over-year comp, it's a little bit more more challenging, and when you put on top of that the fact that we do think contract duration is going to be a headwind relative to what we saw last Q4, you know, it just makes it a little bit more difficult when you look at it on a revenue basis. Now, if you look on an ARR basis, I mean, we're guiding, you know, for the full year over 30% year-over-year growth in ARR, which I think is more indicative of what you're seeing underlying the business in terms of kind of a normalized growth rate. Finally, with respect to the adoption license, Again, I just want to, you know, emphasize, I mean, that is, you know, one feature that, you know, that we offer customers in very select cases that, you know, could be helpful as they consider evaluating Alteryx. And certainly they are short-term in nature. They expire on their own terms. And, you know, I think as we mentioned on the call last year or last quarter, we tend to see very good conversion of adoptions, and I don't expect that rate of adoption conversion to change.
spk06: And if I could just tack on, if I could just add on, you know, certainly I think you'll see adoption licenses continue to be, you know, a part of our go-to-market, but I think a much stronger part is working with partners like PWC and the big consulting firms, big accounting firms, because they're working large transformation projects. And in PWC's example, they're actually using the Alteryx platform as the lead behind within their engagements. And so, You know, they've got well over 100,000 people that are users of Alteryx within the company, and we're looking forward to that partnership and many more.
spk05: Very good. Maybe a follow-up for you, Mark, as you think about next year and with you running through, I guess, the virtual hallways of the company right now before you move into the real ones. But help me understand how you think about compensation, incentives. Do you anticipate much in the way of change? Now that APA, you know, the APA platform kind of vision has been rolled out and Intelligence Suite is available, how do you think about tweaking potentially comp in order to drive the appropriate adoption? And maybe also you can tell us some of the initial feedback from customers on APA and Intelligence Suite. Have you seen any adoption of this? That would be great to hear.
spk06: Okay, thanks, Yatai. So in terms of, On the comp side, you know, as you know, I've always been a big believer in paying for performance and overpaying the overperformers and underpaying the underperformers. And so in addition to, I would say, a pretty disciplined talent management framework that we'll be rolling out here, you know, we're going to continue to want to pay people for driving the right outcomes for customers. And I mean that across the entire associate suite at Alteryx. I think You know, we're thinking about, you know, what we want to be when we grow up as a company as we enter this new phase with me as the leader. And, you know, certainly we have designs on becoming, you know, mission critical to the notion of transformation for enterprise. As far as, you know, the customer response from APA, you know, I can tell you I haven't had more than a dozen conversations with customers that have involved the APA framework. And I think people are starting to understand it. I think that maybe the bigger picture is you're going to hear us do a much better job in the future of really outlining why customers need Alteryx and why they need us now and be very prescriptive about the outcomes. Because I think that's what customers are demanding these days. And so I think, you know, the Customers, if you zoom back out again and say that, you know, 30 or 40 customers that I've spoken to in the past, you know, 30 days, I would say people are leaning in on using advanced analytics and the APA platform that we have to really deliver benefit for their company, whether it's a company that's doing really well and we have many customers that are getting tailwinds because of COVID or whether it's a Conversely, whether it's somebody that's having a tough time, like the airline I gave in my pre-read, it was a, you know, we're seeing that quite a bit. So we believe this is important. We want to evangelize and inform and educate the market on how and why. And so you're going to hear a lot more of that down the future. And we'll give you a lot more detail on the analyst data we're going to have in the spring.
spk05: Fantastic. Good luck.
spk06: Thanks very much, Ben. You're welcome.
spk07: Thank you. Your next question comes from Brad Phil at Bank of America.
spk00: Hi, this is Sherry Glow on for Brad. Thanks for taking a question. I just have a quick one for you. Are you seeing any changes in the competitive environment at all? Thanks again.
spk06: Yeah, sure, Sherry. Well, I've only got a 30-day window in on this in terms of digging really deep on the competitive side of things. And, sure, there is competition because it's a $49 billion market. And we think there's over a trillion dollars a year that's going to be spent on infrastructure applications around digital transformation. So there's a lot to go for here. But I look at the complementary players to us that are in the cloud or, you know, the big – the big cloud players, you know, we expect the really strong partnerships with them to drive, you know, not only drive demand in the marketplace, but to prosecute that demand as well.
spk00: Got it. Thanks, guys.
spk06: Thanks a lot, Terry.
spk07: Thank you. Your next question comes from Taz Trujalti from Guggenheim Partners. Please go ahead.
spk03: Hey, guys. Thanks, Tim. Congrats on the new role. I have a couple of questions. Kevin, you mentioned that the churn was still high on the commercial side of the business. Can you give us some more color on what the mix of the commercial customers is?
spk11: Yeah, thanks, Tez. I'm not entirely sure, you know, what you're getting at. I mean, you know, our commercial business is pretty consistent to most in terms of, you know, small and medium-sized businesses. We've talked in the past that, you know, we obviously have seen that segment specific to churn be most impacted in kind of the higher risk verticals, those verticals that were more obviously impacted by the COVID pandemic. And, you know, I would say it's pretty geographically consistent.
spk03: Got it. And then one follow-up. If I got the numbers right, it looks like there's a huge gap in the growth you saw domestically versus international. Can you maybe drill down a bit on what the difference between domestic business and international was looks like? It was pretty okay outside the U.S., but the U.S. growth was in the single digits. So why such a big difference in growth? Was customer demand, behavior? Why was it so much better outside of the U.S. versus U.S.?
spk11: Yeah, I mean, I think it's really two main factors. First of all, you know, we still see you know, still continue to see, you know, kind of mixed results in the North American market. And I think that, you know, is a function of, you know, kind of what's been going on with COVID and the pandemic. On the other side, in terms of international, we have seen relative strength in EMEA and APEC, as I mentioned. Those geographies, at least for the third quarter, I think were less impacted by the pandemic. And that certainly helped us. And, you know, the growth rates are obviously off of smaller bases for that region as well.
spk03: I had one last one, and I'll let you guys go. Back to the adoption licenses, I know we're all expecting a lot of renewal to converge and happening in Q4 from adoption licenses. Can you clarify, are revenues today and ARR today reflecting those adoption licenses, or they're not being counted in those metrics for Q3? Okay.
spk11: Yeah, so just again, just as a refresher, adoption licenses, they are for a fee, and they are short-term in nature. We do charge, and that is considered a revenue and ARR in that respect, to the extent that it's still outstanding at the end of the period. And then those will come up for renewal, if you will, or for conversion at the end of the adoption period. And as I mentioned, they tend to convert quite well. But they are just one tool in the toolbox, and so I just caution the emphasis.
spk03: But the question that I had was, if somebody is on an adoption license today, they're already being counted in the ARR. When they convert to a full-fledged agreement, it's not incremental to ARR, right? Because they're already a paying customer. The conversion doesn't really trigger any upside to revenues or ARR.
spk11: Well, no, that is not the case. I mean, if somebody buys a $25,000 adoption in April and that adoption comes due in October and they convert that adoption to a much larger contract, when we measure ARR at the end of the year, it will be representative of the nature of the contract that's in place at the end of the year. Got it. Thank you.
spk07: Thank you. Thanks a lot, Codd. Thank you. Your next question comes from Patrick Warraven from JMP. Please go ahead.
spk09: Oh, great. Thank you. One for each of you. So, Mark, first of all, you mentioned the cloud a couple times now. So I guess what's the opportunity there? You said we expect really strong partnerships with the big cloud players. So who and how might those partnerships work?
spk06: Yeah, well, Pat, first of all, nice to meet you. Looking forward to working with you, and thanks for the question. Yeah, thank you. First of all, I want to reiterate that one of the things that I've been proud of being on the board at Alteryx the last few years is just how focused on customers we are. And I think we listen to our customers, and, of course, we care where our customers are putting their data. And more and more over time, certainly over the next decade, we're going to put more and more of their data on someone else's premises, whether that's in a Amazon's cloud data centers or Microsoft's cloud data centers, they're going to evolve to put it there over time. We think data is going to be everywhere for a very long time, and that's part of the complexity of getting insights out of all of that data. Partnerships like AWS, partnerships like Microsoft, partnerships with – we've got hundreds of customers with Snowflake on the Snowflake side of things, and we really – You'll feel that this is an important market to represent. We'll share our deeper technical strategy in the spring at the analyst day. But, you know, I would expect that, you know, over the next couple of years, Alteryx customers will be able to manipulate data that's anywhere and be able to do all the amazing things that they can do with it with our signature ease of use, you know, dragging and dropping and cubing that – You know, that's where we're going. And we haven't really released too many details about the specifics, but we will certainly in the spring.
spk09: Okay, that's super helpful. And then, Kevin, you know, stepping back for a moment, I mean, not too many people are comfortable guiding for 2021 in this environment, and you told us that you expect 25% ARR growth. I'm not sure where the street is, but that's higher than what I had. So what gives you that confidence?
spk11: Yeah, thanks, Pat, and hope you're doing well. Look, there's a few things. I mean, we obviously have very longstanding customer relationships, and, you know, understanding the nature of those, you know, are obviously informing us. We've had very strong net expansion rates for quite some time, you know, 124% over the customer base this quarter and 135% in the global 2000s. And then if you just, I mean, stepping back, I mean, this is a $49 billion TAM, and there's just a massive opportunity here. So a combination of all of those things certainly gives me confidence. Great. Thank you.
spk06: Thanks very much, Pat.
spk07: Thank you. Your next question comes from Yoon Kim at Loop Capital Market.
spk01: Please go ahead. Thank you. Hey, Mark, first, congrats on the appointment. I know you've only been there for about a month, but can you just talk about some of the go-to-market thinking that you might have? For instance, in regards to verticalization, I think you talked about automation in your prepared remarks quite a bit. Do you feel that you need to verticalize your solutions more to better penetrate the global 2000s? and then also, obviously, if you do that, then you do need to also tailor your sales and go-to-market efforts around more verticalization. Thanks.
spk06: Yeah, great question, Ewan. Thank you, and I'm looking forward to working with you as well. First of all, on the go-to-market side, again, it is only 30 days, but I mentioned streamlining and simplifying. What happens with a company that's growing as fast as we have over the last 23 years is – You know, especially when you have, you know, the kind of quality leader in Dean Stoker. You know, the company tends to grow up and you add resources as quickly as you grow. And sometimes looking back, those resources were placed in the right areas. And really that's all I'm talking about. And, again, I do this every year. I've done this every year in every job is making sure we have the right seats on the bus and then we have the right butts in the right seats. on the bus. And it's pretty simple for me. So more specifically what that means is we're going to have people calling on major strategic accounts that have experience calling on big strategically complex accounts. And key verticals like finance and healthcare, ones that have real data challenges in particular, I think We haven't sort of invested in specific verticalizing those teams because I don't like all the overhead that comes along with verticalizing. But what we've done is what we're going to continue to do is put subject matter expertise around these key verticals. You have co-located out in the field. So if there's a big deal at Citigroup, we'll have somebody that's a BFSI specialist working on it. Or if it's a big tax transformation deal in technology or in health care, we'll we'll pull one of those levers in terms of subject matter expert resources. And we will be building out those over the next year. And regardless of the sales structure, you know, without question, we're going to be focused on, you know, high-impact specific customer, you know, business outcomes that we earn the right to hear about and we earn the right to go and help them solve. In terms of tailoring, you know, the team, that's a very strong theme, certainly in my early discussions with the team is, really focusing on the cohort of verticals and customers that have the highest predisposition to need our innovation. And so I really think about it that way. There's one company that's got the highest predisposed need for our innovation, and then there's maybe a 15,000 customer out there or target out there. And we're going to make sure that we've got proper coverage with the right expertise to prosecute all of that opportunity. And as Kevin and I have tried to maintain, there's a ton of opportunity out there for us.
spk01: Okay, great. And then, you know, Mark, on that big deal front, obviously you remain focused on that. But at least in the near term, are you thinking more tactically and maybe shifting more of your attention and focus and resources around, you know, the smaller deals, even potentially, you know, breaking up some of the larger deals into the smaller deals that could close today? Okay.
spk06: You know, what I found, Ewan, is we tend not to focus – I don't think it's a smart thing these days to focus on a deal. I think you want to focus on the customer, their business, and what we can do with our innovation to help them. And so, you know, oftentimes when we identify a target that we think has a predisposition to need our innovation, we'll make sure we put the right resources in front of that target, whether it's a phone call from me or a meeting with Kevin, and often that first deal is a small one. But once we've got that permission, we go in and wow them with the implementation, make sure they've consumed our innovation, and then we earn permission to go back and expand. And I think you'll find, as we start thinking a little more about customer lifetime value in their journey with Alteryx, we think, you know, there's a, You know, I reflect back on the pre-IPI roadshow that I did at Palo Alto Networks, and I think the favorite slide of all the analysts was the one that showed all the tiles and the ratio of landing to expansion revenue over time. And I think our biggest customers, we're going to build long-term relationships with them, with the right people across the account.
spk01: Great. I'm looking forward to that slide in the coming years. Hey, Kevin, real quick, on the growth out of the international region, you know, was that driven by new customer ads or just, you know, strengths in the expansion deals with existing customers?
spk11: Yeah, thank you. Look, as is the case with all of our regions, you know, we tend to land small and, you know, 85% plus or minus of, you know, what we record in the period is from existing customers. So, By definition and by the nature, you know, when we look at revenue growth, it's because of our existing customers.
spk06: And, Ewan, it's Mark here. Just one other thing. You know, Scott Jones, our president and CRO in the last year, hired a couple of really good senior leaders to run EMEA and AsiaPAC, and I couldn't think of two better people to run those businesses, and I'm certainly looking forward to supporting them as travel starts to get a little easier.
spk01: Okay, great. Thank you so much.
spk06: Thank you very much.
spk07: Thank you. Your next question comes from Fabian Suri from William Blair. Please go ahead.
spk02: Hey, thanks for taking my question, Mark. Welcome, and I look forward to working with you. I want to start off at a slightly high level, and, again, I know it's been 30 days, and you've said that multiple times. But it's a little unfair, but strategically, when you think about analytics, in a downturn and a tough environment, they typically are under-prioritized. No one's hiring more analysts. No one's hiring more people to do price elasticity type work, even though they actually should be, right, because you can optimize profitability or whatever. But you have seen an uptick coming out of down since 2008, whether it's Tableau or Teradata or others, 2000, the T's and others, picking up great traction coming out when people said, okay, now we should invest in analytics and and optimize and drive promotions or segmentation, whatever. I asked this question to Dean a little while ago, and he said, you know, we just aren't seeing it yet. This quarter suggests you might be seeing some of it. But as you look out over the next few years, do you believe that acceleration should play out, given the things you commented on, Tam, and then the quality of the product? Just trying to understand how you think about that idea, because even when you were at Palo Alto, you guys chose to invest in analytics, non-analytics, during various times of that company's So just trying to think how you think about that and what you might see, what the company might see as we come out of this.
spk06: Yeah, I think it goes back, Bob, and thanks for the question, by the way. I think it goes back to, you know, what have we earned with the customer? Have we invested the time to understand their business and invested the time to thoughtfully come up with some areas where we can help them? And have we earned the right to do that? I think when we have, I've found that there has, frankly, been the opposite when it comes to customers that have been affected by this impact. Perhaps they're chopping people, but I would submit they're chopping the people that have lived a miserable life that one, like an Excel analyst lived. They're cutting those people out and they're patching up the drywalls. And they're leveraging citizen data scientists or advanced knowledge workers that can do so much more with the information. And by the way, I think the data challenges, they're increasing, not decreasing, right? So I think the explosion of data, and especially as companies digitize everything, because when you digitize everything, you don't just – you have to reimagine it. You have to deconstruct all the workflows and people and roles and then reconstruct them digitally. And you do that with a tool like Alteryx, right? So that's why we talk about it. instrumenting the transformation and digital transformation journeys our customers are going through. I think the long-term opportunity remains the same post-COVID without question. I think we've all woken up and realized, hey, wait a minute, everyone's an inside salesperson. And lots of other different things about our business that we have to really take advantage and use the data as more like a ninja skill for analytics as opposed to, you know, just playing, you know, surfacing some numbers.
spk02: Yeah. Yeah, fair enough. I appreciate that. And then a little more topic maybe for you, maybe for Kevin. Just the pricing environment. You know, you increased the list price to over 35% at the beginning of the year, and obviously it's just a reflection of all sort of the increased capabilities you've added. But you haven't changed server pricing prior to that since, you know, maybe the IPO. And so I suspect there hasn't been much pushback. It would be great if you just gives a quick update on customer response to that price increase. and just what you're seeing broadly in the pricing environment.
spk11: Yeah, thanks, Vivan. I appreciate it and hope you're well. You know, we talked a little bit last quarter about the fact that, you know, we hadn't seen much pushback from server pricing and, you know, continue to be pleased with the momentum of the product. That was the same in Q3. I think to your point, you know, we have significantly increased the capabilities of server over the years and, You know, it hadn't raised that price certainly since IPO, and I think it goes back earlier than that. So, you know, look, it's a key feature and a key driver of the APA platform, and, you know, hopefully customers understand and appreciate the value it offers.
spk02: Yeah, I know it's helpful. Great. Thanks, guys. Mark, look forward to it, and I appreciate you guys taking the time to answer my question. Thanks, Bobbin. Appreciate it, man.
spk07: Thank you. Your next question comes from Mark Murphy at J.P. Morgan. Please go ahead.
spk04: Hi, guys. Adam Berger. I'm from Mark Murphy. Thanks for taking my question. So last quarter, and I guess this quarter, you mentioned that you don't really expect conditions to improve too much for the remainder of 2020. But during Q4, you sort of mentioned inter-quarter that you know, revenues were going to be higher than expected than the guided range from Q2. Is there any color you can provide on what gave you that confidence in your quarter? You know, maybe was it like a big deal that kind of gave you that signal?
spk11: Yeah, thanks for the question. Appreciate it. Look, I think, you know, as we provide guidance, I mean, it's, you know, it's based on all the information we have available to us. You know, in my prepared remarks, we talked about the fact that, you know, we are cautiously optimistic. that we are seeing improvements in some of the customer activity, and that's certainly baked into guidance as we provided it for Q4. I wouldn't signal or indicate it was the function of one or more specific deals.
spk04: Got it. Thank you for that. And then just as a quick follow-up, the net expansion rate has been ticking down, presumably because of elevated churn. Are there any kind of guideposts you can provide on where that might chop out? Thank you.
spk11: Thanks. Look, I mean, even going back to, you know, IPO, I think we indicated with a degree of confidence that we believe this business over the long term, you know, will be able to sustain, you know, above 120% net expansion, and, you know, we're still notably above that, especially in the global 2000. So beyond that, you know, I don't know that there's any other guideposts. I mean, as we get bigger, you know, certainly that puts pressure on net expansion, but, you know, still incredibly pleased with, you know, what we've seen. And I would just remind you, I mean, we're still such an early, you know, time in this very large opportunity, and so plenty of room to run.
spk04: Yes, thank you for taking my questions.
spk06: Thank you very much. Have a great day.
spk07: Thank you. That concludes our question and answer session. I would now like to hand back to Mark Anderson for closing remarks.
spk06: Thank you very much, Operator, and thank you all for joining us on today's call. Just again, I'm super excited about the opportunity that's ahead of us. All of the associates here at Alteryx, all of our partners, as we instrument the digital transformation journey for the customers that matter to us. I look forward to discussing our progress with you on the Q4 earnings call. In the meanwhile, have a great quarter.
spk07: Ladies and gentlemen, thank you for participating. You may now disconnect your lines.
Disclaimer