Alteryx Inc - Ordinary Shares - Class A

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We are now at size we are proving this is a real market, says Alteryx (AYX) CFO Rubin

 

 

Written by Tiernan Ray

 

The recent market swings have left shares of data analytics maestros Alteryx (NYSE:AYX) roughly unchanged from when the company reported stronger-than-expected Q4 results on February 13th, after market close. As has been the case with every quarter since the company’s 2017 IPO, results soundly trounced expectations, with revenue coming in almost 20% ahead of consensus for the December-ending quarter, and EPS more than double what was expected.

 

As he has done several times, Alteryx chief financial officer Kevin Rubin sat down to talk with Capital Market Labs a week after the report. Capital Markets did bring up with Rubin the fact that sales growth is slowing this year, with revenue for 2020 projected to rise only 35% versus 2019’s 65% growth. Why is that, we asked. Rubin replied simply, “we think it’s strong,” meaning, the outlook, without going into any kind of major defense of the matter.

 

Perhaps the most surprising thing Rubin said in the entire course of the interview is that at half a billion in revenue, Alteryx is “now proving this is a real market,” meaning, data analytics for the non-technical.

 

At the time of the interview, there was no indication, he said, that the coronavirus sweeping the world was having an effect on business. Alteryx doesn’t sell into China, Rubin noted, but the company wasn’t seeing any knock-on effects outside that country. He conceded, it’s just too soon to know, and certainly in the days since the interview, global concern has risen.

 

Rubin talked at length about the company’s transformation into a platform and the mergers and acquisitions activity that goes along with it. Alteryx remains focused on two things in M&A, he said, “very, very strong engineering teams and intellectual property.”

 

He noted the company doesn’t tend to buy to acquire a customer base; more often, it seems, companies such as ClearStory have good technology but they simply haven’t had much traction in the marketplace.

 

To recap, revenue in the quarter rose 75%, year over year, to $156.5 million, yielding EPS of 64 cents, topping consensus for $130.65 million and 29 cents per share. For the current quarter, the company forecast revenue of $105 million to $108 million, and a net loss of 7 cents to 11 cents, versus consensus for $105 million and a 5-cent-per-share profit.

 

For the full year, the company sees revenue in a range of $555 million to $565 million, and a full-year profit of 80 cents to 91 cents a share, again, topping consensus for $521 million and 84 cents per share.

 

Capital Market Labs: Kevin, as we generally do, let’s start off with what things you think are most important for investors to take away from the results and outlook.

 

Kevin Rubin: Look, so, we obviously had a record year

We saw revenue growth accelerate both for the quarter and for the full year.

 

It’s really just reinforcing the point of how important analytics is to organizations in terms of what does digital transformation look like.

 

We are certainly seeing the success of that at scale.

 

We provided what we think is strong guidance in terms of both how we look at the momentum we are carrying into Q1, as well as the full year.

 

We are now at size we are proving this is a real market.

 

CML: Well, not like it wasn’t a real market before...

 

KR: Yes, well, it’s hard to declare you are the largest company serving a truly large market after an IPO of $130 million.

 

But now, with six hundred million in revenue, it’s really making the case this market is substantial.

 

CML: Kevin, you’re guiding to slowing revenue growth, with this year looking like down from 65% growth to under 40%. That seems like a shrinking opportunity.

 

What’s going on with that?

 

KR: We are coming off of a record year and as we think about what we have visibility into in 2020, we think it implies thirty five percent, which we think is strong guidance.

 

Our philosophy is no different than in prior years: as we move through the year, we update based on what we see. And so, we think it’s strong.

 

CML: Let’s talk about use cases. It seems like the ultimate goal for Alteryx could be to function as a platform, rather than a piece of software in the tech stack. Do you see that happening?

 

KR: I would say it already is a platform.

 

First of all, we put up a couple hundred use cases on the Web site, as an illustration of the broad nature of how the platform is used.

 

Companies are actually building their business on Alteryx so we are driving the underpinning of their offerings that speaks to Alteryx as a platform. 

 

Look at our larger customers that have large deployments. We are really the analytic orchestration within those organizations, automating large numbers of use cases and data pipelining throughout their organization, and we think all of that speaks to a platform.

 

CML: You’ve talked about, and Dean [Stoecker, CEO] has talked about in past, the importance of automation in that platform. Is there any update on how automation is progressing as a function within the platform?

 

KR: There is a sense that with Designer, people want to build out workflow and then replicate that, you just want to hit the run button for the workflow, and it will run.

 

We now have an updated version where, alternatively, there is a scheduler product to add onto Designer.

 

The server product is the more enterprise-level engine to more broadly scale that automation. And we did see a favorable enterprise mix, in that respect, also leading toward upside in the quarter.

 

CML: You’ve tried in past to disabuse the Street of mistaken notions they have about what metrics of the business matter.

 

It’s a complex thing. Is the Street still trying to figure it out?

 

KR: I think it’s still the case with our fourth quarter. Under ACS 606, the buy-side and sell-side are still trying to refine their models.

 

But, that said, we did benefit from a large number of large deals, we saw growth of 150% in, year over year, in deals over a million dollars in value. And we saw a more-than eighty percent increase in deals over $500,000.

 

CML: Have you done anything different in your go-to-market efforts that helped with that?

 

KR: Roughly eighty percent is direct sales, and the rest through the channel.

 

There is a component of direct that is influenced by the channel, and we are fortunate that some of the largest analytics services in the world are customers, and they do leave breadcrumbs around the world. But it’s more attributable to the direct sales team.

 

There’s nothing different in our go-to-market, for sure it’s just that as we get larger and more deeply penetrated in customers, it’s resulting in those kinds of deals.

 

CML: Let’s talk about China. As we observe the unfolding of the coronavirus, and the slowing of activity there, is that having an effect on your business?

 

KR: Yeah, I mean, it’s obviously a little too early to tell. We have no direct business in China, so no we have no exposure in that regard.

 

To the extent that there continues to be an impact to some of the surrounding countries, there could be some impact to us.

 

As it relates to where the issues have been for us, thus far, it doesn’t affect our anticipation of the business. Let’s put it this way: our guidance would cover our view of the world.

 

Of course, it is obviously unclear, and still early to totally understand the impact, but as it relates to us and to the near term, we think it would be a small impact, if any. I think it’s really more important that people be safe.

 

CML: This matter of “RPO,” help me to understand that, because it’s one that you’ve talked about a bunch in the results and that I find somewhat confusing.

 

KR: RPO is “remaining performance obligation,” and it’s something that was added under ASC 606.

 

It’s, kind of, the backlog disclosure that intends to capture what amount of business booked but not yet delivered. 

 

There’s nothing interesting about it in the quarter, other than it grew quite a bit, and expanded significantly beyond some of the sell-side models, so there was more of a surprise about the year over year growth, RPO grew similar to the business.

 

Q4 is such a large seasonal quarter for us just because of the volume of business conducted, the by-product of that is the significant increase in RPO, so from my, perspective, it is in line. But some of the sell-side models had been significantly lower in that regard. 

 

CML: We’ve asked you in past about M&A. Where do you stand now with respect to valuations you see in the market?

 

KR: No change in our focus. Just as a reminder, the two areas that we are most focused on are very, very strong engineering teams and intellectual property. And from an IP perspective, we are focused on IP that we would otherwise have on our roadmap that it would allow us to accelerate.

 

So, it’s build versus buy. We’re pretty focused on what we want to deliver the next few years.

 

CML: Are you opportunistic, in the sense that if you can pick up a company that already has a customer base, you will buy to acquire that customer base.

 

KR: We are not really opportunistic; we are not looking to pick things up in that respect.

 

One deal we did recently, Feature Labs, we completed it in October, and integration is ongoing, and with Feature Labs, they have a product in the market, so there are parallel avenues on delivering their roadmap and ours.

 

I think what we’ve found in this particular market for analytics is that there are not a lot of big things to acquire. We are the largest standalone at this point.

 

There is a lot of very interesting technology that has struggled commercially out there, either a great engineering team that has just struggled with go-to-market, or it’s just very early for the technology.

 

So, we tend to see a lot of that. There continues to be consolidation in the space. There are some assets that aren’t as interesting, and some are very interesting. We just want to make sure we have access to opportunities that come up.

 

Semanta [acquired in January of 2017] was in market, for example, but immature. And the “Promote” product came from Yhat Inc. [acquired in June of 2017]. That was a case where there was not much commercial momentum for it at the time.

 

ClearStory [acquired in April of 2019] is a little different. It had been in market for quite some time, and struggled in the niche they had carved out.

 

It was a chance for us to bring on an incredibly talented team, and find ways to leverage the technology they have. That will get into the platform over time.

 

In the case of Feature Labs, they are still very small. The amazing thing is, the traction they have in the open source community, around some of their capabilities. 

 

CML: Great. Thanks, as always, for taking the time, Kevin.

 

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The author has no position in Alteryx at the time of this writing. 

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