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Edited Transcript of AYX.N earnings conference call or presentation 27-Feb-19 10:00pm GMT

Q4 2018 Alteryx Inc Earnings Call

IRVINE Mar 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Alteryx Inc earnings conference call or presentation Wednesday, February 27, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher M. Lal

Alteryx, Inc. - Senior VP, General Counsel & Secretary

* Dean A. Stoecker

Alteryx, Inc. - Co-Founder, Chairman & CEO

* Kevin Rubin

Alteryx, Inc. - CFO

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Conference Call Participants

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* Bhavanmit Singh Suri

William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media and Communications

* Bradley Hartwell Sills

BofA Merrill Lynch, Research Division - VP

* Hannah Rudoff

D.A. Davidson & Co., Research Division - Research Analyst

* Ittai Kidron

Oppenheimer & Co. Inc., Research Division - MD

* James Derrick Wood

Cowen and Company, LLC, Research Division - MD & Senior Software Analyst

* Jon Philip Andrews

Needham & Company, LLC, Research Division - Senior Analyst

* Michael Turits

Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst

* Patrick D. Walravens

JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst

* Pinjalim Bora

JP Morgan Chase & Co, Research Division - Analyst

* Steven Richard Koenig

Wedbush Securities Inc., Research Division - SVP of Equity Research

* Tyler Maverick Radke

Citigroup Inc, Research Division - Senior Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, greetings and welcome to the Alteryx Fourth Quarter and Full Year 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this program is being recorded.

It is now my pleasure to introduce your host, Chris Lal. Thank you. You may begin.

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Christopher M. Lal, Alteryx, Inc. - Senior VP, General Counsel & Secretary [2]

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Thank you, operator. Good afternoon, and thank you for joining us today to review Alteryx' fourth quarter and full year 2018 financial results. With me on the call today are Dean Stoecker, Chairman and Chief Executive Officer; and Kevin Rubin, Chief Financial Officer.

After prepared remarks, we will open up the call to a question-and-answer session. 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, but rather are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. 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 EDGAR system and our website, as well as the risks and other important factors discussed in today's earnings release.

As noted later in the call, we are adopting ASC 606 effective when we file our annual report on Form 10-K later this week. We have posted a presentation on the Investor section of our website that provides additional details on the impact of ASC 606 on our financial information and disclosures. The financial impact of adoption is also presented in our earnings release.

Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release and the Investor section of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure.

With that, I'd like to turn the call over our Chief Executive Officer, Dean Stoecker. Dean?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [3]

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Thanks, Chris, and thank you to everyone joining us today to discuss our Q4 and full year 2018 results. As you know, based on our pre-announcement in January, Q4 represented a strong finish to an amazing year. Before I go through our results in more detail, please note that my comments are on an ASC 605 basis. Kevin will provide more details on our ASC 606 results later on the call. Alteryx is clearly benefiting from positive industry trends such as continued investments in digital transformation initiatives, increasing global demand for advanced analytics and improved awareness of the Alteryx brand, all on the heels of stellar execution by more than 800 Alteryx associates around the world. We set many new company records in Q4 and for the full year 2018. Q4 revenue grew 57% year-over-year to $60.5 million. Q4 billings were up 65% year-over-year to $116 million. And our Q4 international revenue was up 92% year-over-year to $18 million. For the full year, we saw revenue grow 55% year-over-year to $204 million, with international growth up 96% year-over-year. Gross margins improved to 90%, and we generated $26 million in positive cash flow from operations.

Our land and expand model continues to perform quite well. In Q4, we added 381 net new customers, and we now count approximately 4,700 customers in our growing worldwide community, including 534 of the Global 2000. Some of the Global 2000 we welcomed to the Alteryx Community in Q4 included CenturyLink, Crédit Agricole Assurance, Colgate-Palmolive, Hewlett Packard Enterprise and Pfizer. We also saw our customers expanding their footprint of Alteryx throughout their organizations, evidenced by a more than doubling of customers with greater than a $1 million in annual recurring revenue and a tripling of transactions greater than $500,000 in annual contract value. Additionally, our dollar-based net revenue retention rate remained very strong at 129%.

The technology sector was particularly strong for us in the fourth quarter, with transactions from Atlassian, Dropbox, Microsoft, Oracle and SAP. Another technology builder, Adobe, expanded their Alteryx footprint in Q4. Alteryx was chosen as part of Adobe's CFO's enterprise technology modernization initiative and serves as a key component of their RPA robotics and analytics transformation in finance. In what would otherwise be spent manually iterating through monotonous and data-intensive tasks, end users proved that they could get significant amounts of time back by automating these processes with Alteryx.

Verticalizing our go-to-market efforts has been another factor in this continued strength. In Q2 of 2018, we established our health care team because we saw an opportunity to better address health care's unique regulatory and business process requirement and deepen our engagement with these customers around the globe. As a result of these efforts, a health benefits company expanded with a 6-figure deal in the fourth quarter. This customer, like many, had its first experience with Alteryx via a free trial, and in the words of one of its users, "fell in love with the simplicity of Alteryx." This organization was using another legacy -- another company's legacy platform for advanced analytics, but found it to be, "very hard, tedious and expensive to implement." After a formal evaluation, they ultimately chose Alteryx for advanced analytics due to its simplicity, ease of use and its support of open source tools.

We are increasingly hearing similar stories as more companies leverage Alteryx for advanced analytics across the enterprise. We continue to see strength across the globe, as evidenced by our 96% increase in international revenue for the full year, now representing 29% of total revenue. In 2018, we opened or expanded 12 offices, including Tokyo, Paris and Dubai. We added over 120 associates outside of North America, and now have approximately 25% of our workforce based outside of North America. As we head into 2019, we plan to continue to build our global footprint.

Geographically, the Middle East and Africa stood out with a doubling of revenue in Q4. In the quarter, we did business with: Abu Dhabi Islamic Bank; Al-Futtaim, a private company; and Dubai Electricity and Water Authority in the UAE; Saudi Commission for Health Specialties in Saudi Arabia; Standard Bank Group Limited in South Africa; Trade and Development Bank in Kenya; and now count 10 separate government agencies in Saudi Arabia as customers.

Internally, I have outlined a number of strategic imperatives for 2019, which are focused on scaling a world-class global organization that operates with agility and speed, while still preserving the culture that makes Alteryx unique. I am extremely pleased with what we're able to accomplish in 2018 and believe we can accomplish even more this year.

However, what I'm most proud of is the positive impact that Alteryx is making in our communities. We encourage our associates to give back to programs they are passionate about, volunteering their time and energy and using the Alteryx platform to help enable social good and educational initiatives. At our global kickoff event in January, we brought the entire company together to align teams on our 2019 strategic imperatives, including our Alteryx for Good efforts. At this event, approximately 900 associates, customers and partners worked together to pack over 100,000 meals that are being sent to Southeast Asia in support of a charitable organization called Rise Against Hunger. We accomplished this task in about an hour, demonstrating the real power of our Alteryx for Good community.

With that, let me turn the call over to Kevin to discuss our Q4 financials, our adoption of ASC 606 and the outlook for 2019. Kevin?

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Kevin Rubin, Alteryx, Inc. - CFO [4]

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Thank you, Dean. As Dean mentioned, we had a strong Q4 and full year 2018. Before I go through our results in more detail, I'd like to provide you with an update on our adoption of ASC 606. As mentioned last quarter, we no longer qualify for emerging growth company status and are adopting ASC 606 effective when we file our 10-K later this week.

Under ASC 605, we recognized revenue ratably over the subscription term, which typically ranges from 1 to 3 years. With the adoption of ASC 606, we will now recognize a portion of our revenue upfront, and the remainder will be recognized over the subscription term. We will derive the amount of revenue to be recognized upfront and over time from the total value of the contracts with our customers, or TCV.

As we previously mentioned, our average subscription term across our customer base is approximately 2 years. Since we typically bill our customers annually in advance for multiyear subscriptions, our ASC 606 revenue includes revenue recognized but not yet billed. The unbilled portion is recorded as a contract asset, similar to an unbilled receivable. The amount of revenue recognized will vary based on product configuration of each deal, but we estimate it to be between 35% and 40% of our in-quarter TCV bookings.

This means we will recognize the remaining 60% to 65% of our TCV bookings over the subscription term. This also means that our revenue recognized in the quarter the deal is booked under ASC 606 is higher than our previously reported revenue under ASC 605.

I want to emphasize, however, that we are not making changes to how we do business, nor how we contract with customers as a result of our adoption of ASC 606. Therefore, we will continue to bill our customers annually in advance, regardless of subscription term.

Under ASC 605, we capitalized and amortized sales commissions over the contract term. Under ASC 606, we will continue to capitalize sales commissions and other direct costs incurred to obtain a contract with a customer. However, the expense model will track closely to our revenue recognition model, with a portion expensed upfront, and the remainder amortized over time.

Additionally, in our view, given the mechanics of revenue recognition under ASC 606, our previously reported dollar-based net revenue retention rate is no longer a meaningful metric to measure our performance. Instead, we intend to report dollar-based net expansion rate, which is a metric based on annual contract value, or ACV. We believe this metric more appropriately measures the performance of our land-and-expand strategy.

In Q4, our dollar-based net expansion rate was 132%. We intend to continue to report the number of total customers and net new customers as we view these as additional metrics to measure our performance. The definition of these metrics and historical amounts are not impacted by ASC 606.

We have posted a presentation on the Investor section on our website that provides additional details on the impact of ASC 606 on our financial information and disclosures, and the financial impact of adoption is also presented in our earnings release.

Our Q4 ASC 606 revenue was $89.2 million. Our Q4 ASC 605 revenue was $60.5 million, an increase of 57% year-over-year. As Dean noted, we saw strength across all areas of our business. Our Q4 ASC 605 international revenue increased 92% year-over-year to $18 million. The strong growth across both our U.S. and international markets reflects the investments we have made and expect to continue to make in growing our business globally.

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 Q4 ASC 606 gross margin was 93%. Our Q4 ASC 605 gross margin was 90%, an improvement of 470 basis points from Q4 2017. While our reported gross margins were higher for Q4 under ASC 606 due to higher reported revenue, we expect to continue to invest in building out our global support organization so we only expect modest improvement in gross margins over time.

Our Q4 ASC 606 operating expenses were $56.7 million, increasing slightly over our ASC 605 operating expenses due to the impact of sales commission treatment I mentioned earlier. Our Q4 ASC 605 operating expenses were $55.4 million compared to $31.9 million in Q4 2017.

Our Q4 ASC 606 operating profit was $26.4 million or an operating margin of 30%. Under ASC 605, we reported a Q4 operating loss of $1 million compared to an operating profit of $1 million in Q4 2017.

Our Q4 ASC 606 net income was $24.3 million or $0.37 per share, based on 66.1 million non-GAAP diluted weighted average shares outstanding. Under ASC 605, we reported a Q4 net loss of $0.5 million or a net loss per share of $0.01, based on 61.5 million non-GAAP basic and diluted weighted average shares outstanding.

Turning now to the GAAP balance sheet. As of December 31, we had cash, cash equivalents, short-term and long-term investments of $426 million compared to $194 million as of December 31, 2017. In Q4, we generated positive cash flow from operations to $14.4 million, and $26.1 million for the full year.

Finally, we ended the quarter with 817 associates, up from 756 at the end of Q3 2018 and 555 associates at the end of 2017. Our increase in headcount is reflective of the pace of investments we are making and will continue to make to capture the meaningful opportunities we see globally.

Now I will quickly recap our full year 2018 results. Our 2018 ASC 606 revenue was $253.6 million and our 2018 ASC 606 gross margin was 92%. Our 2018 ASC 606 operating income was $49.1 million and our net income was $53.4 million. Net income per share was $0.82, based on 64.7 million non-GAAP weighted average diluted shares outstanding.

Our 2018 ASC 605 revenue was $204.3 million, up 55% year-over-year. Our 2018 ASC 605 gross margin was 90%, an improvement compared to 85% for the full year 2017. Our 2018 ASC 605 operating loss was $1.9 million, an improvement compared to $7.2 million operating loss in 2017. Our 2018 ASC 605 net loss was $1.4 million compared to a net loss of $6.4 million in 2017. Net loss per share was $0.02 in 2018 compared to a net loss per share of $0.11 in the prior year. This was based on 60.8 million and 56.3 million non-GAAP basic and diluted shares outstanding, respectively.

Now turning to guidance. We believe the need for our solutions globally is increasing. In 2019 and beyond, we expect to increase investments to drive our strong growth as we build a company for scale. After today, we will no longer report results on an ASC 605 basis, so our guidance is therefore being provided on an ASC 606 basis.

Also please note that our guidance considers the following: Average duration of our subscription terms remains constant at approximately 2 years. Approximately 35% to 40% of our TCV booked in quarter will be recognized upfront, with the remainder recognized ratably over time. And quarterly revenue seasonality is expected to be consistent with what we experienced in 2018.

Under ASC 606, we recognize revenue at the latter of the date we close a deal or the subscription start date. We have a large percentage of contracts that expire on December 31, with renewal start dates of January 1. This results in the upfront portion of these Q4 deals being recognized in revenue in Q1. This seasonality is evident in our 2018 ASC 606 quarterly results. For reference, we have provided more details on our historical 2018 results under ASC 606 in supplemental materials posted in the Investor section of our website.

For Q1 2019, we expect revenue in the range of $69 million to $72 million, representing year-over-year growth of approximately 37% to 43%. We expect our non-GAAP operating loss to be in the range of $5 million to $8 million, and non-GAAP net loss per share, basic and diluted, of $0.08 to $0.13. This assumes 62 million non-GAAP weighted average shares outstanding, basic and diluted.

For the full year 2019, we expect revenue in the range of $345 million to $350 million, representing year-over-year growth of approximately 36% to 38%. We expect our non-GAAP operating income to be in the range of $30 million to $35 million and non-GAAP net income per share of $0.36 to $0.42. This assumes 67 million non-GAAP weighted average shares outstanding on a fully diluted basis and an effective tax rate of 20%.

To close, we had a strong finish to a great year, and expect our positive momentum to continue in 2019. And with that, we'll open up the call for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Tyler Radke from Citi.

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Tyler Maverick Radke, Citigroup Inc, Research Division - Senior Associate [2]

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I think we might all need some Alteryx to do this 606 to 605. There you go. My first question, I was just curious if you could talk a little bit about the emerging products Connect and Promote. Where are you seeing traction there? What's on the road map? And then maybe if you could, Dean, expand on some of the partnerships you've announced in the data science community with H2O.ai, and I believe you have one with the DataRobot as well.

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [3]

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Sure. Thanks, Tyler. So innovation is an important part of our go-to-market actions. We are never going to sit still in this data science and analytics world, and it's moving very fast, it's rather fluid. We made the acquisitions about 1.5 years ago. We rolled out both products last year. We indicated early on that both Connect, and that data cataloging service would be an instrumental part of our end-to-end platform. At first mile of analytics it would allow people to find the relevant data assets, the reporting assets, visualization assets, models and algorithms, to help them accelerate their analytic journey. We're seeing good traction with Connect. I think that we're learning a lot about the demands that organizations have. We're finding out that data is more strewn across the organization than anyone ever imagined. So we're doing a lot of work there to add to the number of connectors that we have or for metadata loading. We're working with customers to stand up servers in many of our large customers. So we're excited about the prospects of that first mile with Connect.

For Promote, we're -- I think I may have indicated on a couple of calls ago that it was probably early on for Promote. I think people are now beginning to realize that the biggest risk to data science eking out the $10 trillion to $15 trillion in value in enterprises around the world is if they weren't able to actually execute models in a governed, scalable way. And so Promote is actually doing very well. We have a number of customers who are using it to do next best action models for gym clubs, for example, doing IoT work on drilling rigs, to predict when to shut rigs down. We see organizations using it for all kinds of machine learning algorithms. And so that last mile of analytics is particularly important to us as well, and we're beginning to get more customers that have the entire end-to-end platform, and I would expect that in quarters ahead, we'll be able to bring some of those use cases across the board from that first difficult mile to that prep and blending and analytic pipelining that's been done in Designer, all the way through promoting algorithms.

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Tyler Maverick Radke, Citigroup Inc, Research Division - Senior Associate [4]

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Great. And a quick follow-up, if I may. You talked about one of the deals that -- it sounded like you unseated a competitor there. I'm just curious if you've started to see a pickup in competitive displacements? Are you displacing SAS? Or is it another data prep tool that you saw there?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [5]

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Well, I think we've indicated before that the primary competition we have is either people living in VLOOKUPS and Excel for the Citizen Data Scientists, or it is the last-generation analytic platforms, typically SAS. And I am a sales guy myself, so I go on lots of customer calls, and I've had the last quarter, a number of very, very large SAS customers ask us to help them forklift the last generation out and to accelerate the use of Alteryx across their enterprise. So, rarely do we compete on a prep and blend standpoint. I mean, ultimately, the data preparation and blending is the necessary evil to actually get to meaningful outcomes around the entire spectrum of analytics. And as a result of those things, we either compete with Excel, bringing all the time back to the analysts who use our product, or accelerating the use of data science and analytics across a wide array of capabilities against SAS, including the production-ization of algorithms.

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Operator [6]

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Our next question comes from the line of Mike Turits from Raymond James.

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Michael Turits, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst [7]

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By the way, very -- appreciate the thorough and clear job on the 605/606 presentation. If we were -- I know, obviously, you're not guiding for next year on a 605 basis, but is there nothing that would have changed the growth rate over to the 605 -- or the 605 growth into the next year, had been any different than the 37% you guided to? And also as part of that question, could you maybe bridge for us the relationship between that revenue growth in the high 30s versus the extremely strong billings growth that you had this quarter of 65%?

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Kevin Rubin, Alteryx, Inc. - CFO [8]

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Yes, thanks, Michael. So for the first question, and it's really hard to compare. I mean, both the 605 and 606 are just different mechanics. So -- and we're not guiding forward under 605, so it would be hard for me to draw that correlation, other than to say, if you just look at our 606 guidance, that should reflect the strength that we're seeing in the business. When you think about -- calculated billings is probably no longer a good measure for purposes of momentum, because revenue and billings are now going to be a little bit disconnected in the sense that we're going to be booking revenue on TCV, so the total value of the subscription contract with our customers. And in some cases, if the contract is more than a year, it will reflect more revenues than has actually been billed. So when you see the disclosure in the Form 10-K that we expect to file later this week, I think, you'll be able to get some of those mechanics answered around what yet has been unrecognized and use some of those dynamics to look at forward momentum.

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [9]

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And I'll just add that it's important for everyone to recognize the fact that even with the transition to 606, nothing in the business changes. Our playbooks don't change. Our sales motions don't change. Our contracting vehicles don't change. So you can expect the same kinds of performance out of us in the future.

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Michael Turits, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst [10]

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Great. And if I can just get one clarification. I think you mentioned that -- Kevin, that you would see gross margins increasing moderately. I believe you did say that they might see some pressure as you increase support for Connect and Promote. So is that a change, or is it just a 605/606 issue, we're looking apples to...

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Kevin Rubin, Alteryx, Inc. - CFO [11]

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Yes. I would characterize it as more a 605/606 phenomenon. I mean, we are still -- as evidenced by guidance, we are still investing aggressively after the opportunity in front of us. So as we think about taking more revenue upfront, there still is the dynamic of us continuing to invest aggressively in the business.

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Operator [12]

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

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James Derrick Wood, Cowen and Company, LLC, Research Division - MD & Senior Software Analyst [13]

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Dean, you mentioned in your prepared remarks increasing global demand of advanced analytics. You've historically talked about customers moving along the continuum of the analytical process, starting on the descriptive side and moving into spatial and predictive and cognitive. Is that still the typical land and expand cycle? Or are you seeing customers starting to move more -- starting on the analytics side? And if this evolves, do you see the need to kind of evolve your go-to-market strategy?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [14]

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Well, we've been iterating our playbooks for the last 15 quarters since we rolled out the land and expand model in Q1 of 2014. What we are seeing is more data science coming to the forefront, even on the land. So it's probably important to have everyone recognize that analytics is a global phenomenon. It knows no boundaries. And as a result, we're selling this horizontal platform in every vertical, in almost every functional use case everywhere around the world. And what we're seeing, ultimately, that helps us refine our motions -- sales motions, in particular, around the world, is that we're seeing accelerated investments from a digital transformation front. We now have, and this is particularly happening with the large Global 2000s. So today, we have 27% of the Global 2000 as customers. We're seeing those land cycles happen a little bit bigger. We're seeing more data science orientation, even on the land, and much more so on the expansions. I think I indicated that 57% of our customers were involved in some form of advanced analytic functions. Our suspicion is we'll report some new numbers in June of this year at our conference. It most likely will be considerably higher because since June of last year, we've rolled out the Python tools with Jupyter Notebook support and it's now the more popular tools inside the platform. We also see this just growing appetite for advanced analytics around the world. And when we say advanced analytics, it's across a whole bunch of things. It's complex algorithms, it's predictive models, it's machine learning, it's our heritage of spatial analytics. And so we continue to see a wide variety of use cases there. There's also this acknowledgment, I think, that a platform is a requirement to nail digital transformation. It can no longer be a whole bunch of best-of-breed point solutions. We haven't changed the analytic experience, we've unified it and put the thrill back into problem solving. And we're starting to see this now emerge everywhere around the globe, as evidenced by our 96% growth last year. And of course, brand awareness. We think we've done a great job at the arts of marketing. Our brand is becoming more and more recognized around the world, in part, because we've got many of the large global analytic consulting firms dropping breadcrumbs when they complete their service engagements, and that's particularly helpful in growing the brand globally.

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James Derrick Wood, Cowen and Company, LLC, Research Division - MD & Senior Software Analyst [15]

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And that was actually going to be my next question for either you, Dean, or Kevin. But your sales and marketing spend was up about 65% in 2018. That was a big acceleration. I know you guys don't give specific sales rep headcount, but can you give us a sense as to how much of the growth was around expanding sales capacity and how much is investing in other investments like marketing or channel or SEs or something like that?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [16]

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As we've talked in prior quarters, I mean, when we think about priority around investment, specifically in sales and marketing, it first starts with quota-carrying reps. And so we look at where in the world do we have demand that would drive the need to put reps on the ground. And then, obviously, as you put those professionals in foreign markets, you have to put infrastructure around them. So there's certainly is investment that is occurring outside of just the quota-carrying reps. But our priority in terms of where we're investing is first in terms of directly driving revenue.

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Operator [17]

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Our next question comes from the line of Brad Sills from Bank of America Merrill Lynch.

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Bradley Hartwell Sills, BofA Merrill Lynch, Research Division - VP [18]

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I wanted to ask about verticals, it's -- obviously, Alteryx is -- the suite a very horizontal solution as it applies to many different use cases and verticals, but obviously, you've seen some success here with health care and financials. Is there a plan to go after kind of more vertically oriented go-to-market going forward? And are there other potentially low-hanging fruit there?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [19]

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There is. I think we put our toe in the water last year with both the public sector and health care for very, perhaps, different reasons. The sell-in cycles and budgeting cycles in the government as well as the difficult data challenges and regulatory issues in health care. We also recognize that if we're going to get more and more of our customers north of $100,000 to the $500,000 mark to the $1 million mark -- we doubled our number of $1 million accounts last year, in order to do that more consistently it's going to require domain expertise and so particularly in healthcare we brought on a set of folks to help us prosecute analytics within the health care sector. We're contemplating even now the creation of vertical solutions. Nothing has been done yet but the market's still really ripe for the opportunity. We have lots of great health care use cases, BioBridge Global, for example, is a nonprofit in South Texas, and they're doing amazing things around everything from identifying ways to optimize collection for blood banks to cadaver parts and body tissues that save lives and so it's really kind of an important sector that we're working in. A Seattle-based genetics company is using Alteryx to provide information that delivers RX side effects reports back to FDA. And so we're doing a lot of work in this space. It's a different selling motion just because of the vernacular within the space and the regulatory compliance requirements within the space. You will most likely see us venture into things like tax and audits this year and perhaps some other verticals. Largely, we'll still focus on this horizontal platform, because we're still uncovering use cases that we never imagined.

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Bradley Hartwell Sills, BofA Merrill Lynch, Research Division - VP [20]

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That makes sense. And one more if I may. On international, obviously, you're seeing some real momentum there. Could you remind us of kind of the go-to-market approach there? Did you partner first? Are you now hiring reps? Do you already have kind of a presence in some of these countries? Maybe just a little bit more color on that.

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [21]

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Sure. We have a lots of leading indicator data that kind of help us to understand what markets are active, which ones that are ready for both partners or direct sales folks. So as you know, we start with a 14-day free trial. We know where those trials come in. We know who activates the trial, we know what happens in the trial. And that leads us to partner opportunities. We lead with partners, some markets are more inclined to leverage partners. Parts of Europe are more that way. Brazil is that way just based on the way business is conducted. So we typically start with partners. It's an easy way for us to understand the market, to start to get some brand awareness. And there's a moment in time, we won't describe it here, but we leverage Alteryx behind the scenes on our own data to actually tell us when we need to start hiring, putting feet on the ground to build out the ecosystem further as well as to help in the direct selling efforts. So yes, it's a fairly programmed approach, and this last year, it led us to adding or expanding in 12 offices around the world, including Dubai, Tokyo and Paris. And there'll probably be more opportunities for us this year leveraging that approach.

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Operator [22]

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Our next question comes in the line of Ittai Kidron from Oppenheimer & Co.

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Ittai Kidron, Oppenheimer & Co. Inc., Research Division - MD [23]

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A couple for me. Dean, maybe you can talk about the -- how do you think about -- the business performance is clearly very good, but why don't you shed some light on something that you are not maybe so happy about this quarter? Kind of the things that you maybe you need to still double down on that are not quite where you want them to be?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [24]

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Well, I'm generally pleased across the board with our teams. I think that as we are scaling up very, very quickly, I think we've recognized the need to have more infrastructure to support the rapid growth of our headcount. Some of these things are difficult to see around corners. I think we're doing a lot more preplanning work for our budgetary cycles. But generally, I'm very pleased with things. I spend personally a lot of my time on building the corporate culture. It's likely to be the only thing that can stop us in this data science and analytics space. And I'm not unhappy with really anything, but we're never going to be satisfied with our current state, and we see this $30 billion opportunity in front of us, we seem to be the only player with an end-to-end platform that's taking advantage of that greenfield opportunity, and we're going to keep doubling down and improving in every part of the business as much as we can.

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Ittai Kidron, Oppenheimer & Co. Inc., Research Division - MD [25]

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That's great. And just follow-up for you, Kevin. I just want to make sure I understand the net revenue retention rate comment because there were 2 numbers here. So just want to make sure, so it's 129% based on 605, and I guess, you're now calling it net dollar expansion rate on 132%, am I getting that right?

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Kevin Rubin, Alteryx, Inc. - CFO [26]

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Yes, you are. And the only difference is, under 605 it was being computed on a revenue basis, and under 606 it's being computed on an ACV basis.

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Ittai Kidron, Oppenheimer & Co. Inc., Research Division - MD [27]

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I want to ask then about that 129% on the -- based on the 605. I mean that figure has been very -- I mean, it's a very small downtick from the previous quarters, which were at 131% and it was very stable for quite some time. I guess, my question is, if I remember correctly the way it's calculated, that would actually suggest that in-quarter a much more significant decline in expansion rate. Like the in-quarter -- the expansion rate being -- retention rate being more in the low-, mid-120s, if I remember correctly. And I'm saying that only because it was very stable, flattish pretty much for the 4 previous quarters. So help me understand, did anything materially change in-quarter from a retention rate standpoint?

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Kevin Rubin, Alteryx, Inc. - CFO [28]

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Yes. So I don't know that I share the view with respect to the in-quarter expansion rate. We have actually seen very stable and linear expansion within the business. The only thing I would comment is on a revenue basis, that rate is influenced based on when the deals closed in the current period. And if those deals tend to close later in the quarter, you tend to get a little bit less recognition of revenue. So -- and that is evident by looking at the 132% on an ACV basis where you get the benefit of deals in quarter, so I think we're very, very happy with how expansion has been running, and I wouldn't draw the same corollary that you were trying to draw.

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [29]

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And I'll just to add, I think you'll also see in the deck that's on the investor page, you'll see the 2 relative numbers for the last several quarters and you'll recognize them to be very, very similar.

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Operator [30]

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Our next question comes from the line of Rishi Jaluria from D.A. Davidson.

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Hannah Rudoff, D.A. Davidson & Co., Research Division - Research Analyst [31]

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This is actually Hannah Rudoff on for Rishi. It's nice to see the strong in international, and I was wondering if you could talk about the competitive environment abroad? And if that's different from what you're experiencing in the United States?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [32]

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No. The competitive environment is pretty much the same globally. There might be a couple of exceptions where some of the smaller players in the analytics space exist and have their headquarters. But generally, Excel is a -- the global standard for the Citizen Data Scientists, and SAS tends to be the standard for the trained statistician. So I would say that there's really very little to no difference in the competitive environment worldwide.

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Hannah Rudoff, D.A. Davidson & Co., Research Division - Research Analyst [33]

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Okay. And then secondly, if we could return to the verticalized sales teams, I was wondering if there are any public sector deals you'd want to highlight in the quarter? And if you had any impacts from the government shutdown?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [34]

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We saw no impact from the government shutdown, other than when I went to Washington during the shutdown, I couldn't see a lot of people because their doors were closed. But we're actually doing quite well in both federal, state and local. We have a number of -- we intend to continue to provide you with more information on our government sector successes. At our users' conference in June, we intend to have a government track, so people will be able to hear firsthand what's happening in the federal government. So we're working with a number of agencies. In January, I actually kicked off the Department of Defense user group in Washington. We're beginning to get real good traction across various agencies. And we're excited that the government is beginning to modernize around this promise that data science and analytics help spend the taxpayers' dollars more efficiently.

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Operator [35]

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Our next question comes from the line of Bhavan Suri from William Blair.

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Bhavanmit Singh Suri, William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media and Communications [36]

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A couple of questions I wanted to drill into, maybe first on the international side. Dean, when you look at the business as it grew in the U.S. it was all sort of initially data prep with some sort of advanced analysis, and that's kind of how it started. When you look at the international business, is it trending the same way? Or are people actually adopting the advanced piece of it, the fiscal piece of it upfront? I guess, you're sort of seeing really nice sort of growth and stickiness in the U.S. I'm wondering what that trajectory might look like from an expansionary business perspective internationally, given it's still pretty early though.

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [37]

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Great question, Bhavan. I don't think it actually is geographically different. I think that it is vertically different. We tend to see, for example, larger predictive use cases in everything from online banking. So think Malta, of all places, for -- I'm sorry, online gaming for Malta or in banking in the Nordics. So there are some sectors that tend to lead more with data science. I think it's just a cultural thing. I think as people begin to put a drag-and-drop, click-and-run environment in front of more people, you'll start to see the entire continuum get prosecuted at almost every company and every country around the world.

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Bhavanmit Singh Suri, William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media and Communications [38]

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Got it. And then touching on the partners a little bit, a slightly different question here, but 2 parts to it. One, obviously pretty hefty sales and marketing spend, and you've obviously worked with partners. But have you seen the switch where your salespeople don't need to go in with a partner as much? Or is it still early, and so do they still -- the partners still need a hand-holding when they're dropping the bread crumbs or speaking to C-level executives on that?

And then the second part is, is for the technology partners. That's the consulting guys. For the technology side, are you seeing attach rates to guys like Snowflake and Redshift where they're saying, hey, to extract value out of what we're holding, this is a worthwhile tool. So think about the problem is, is that the data warehouse is great infrastructure, it holds data. And you can point stuff at it to pull it out, but the value you add is to actually extract that data and do something really powerful with it. Are you seeing any sort of attach rates? Are those conversations are happening? Or is it still pretty early for sort of the data warehouse, data lake guys to sort of be pushing Alteryx?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [39]

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Well, the first question about sales, our sales team engaging with partners, remember, we have very low single-digit services revenue. Most of our services that are attached to that revenue aren't even the traditional services that a partner would provide. We don't do any custom modeling, we don't do any custom integration. It's enablement that we charge for, for services, in some cases. So our team actually is very engaged with partners. I think we still have around 20% of our revenue coming from reseller partners, there's probably something like 40% of the revenue coming from resellers as well as influence from analytics consulting firms because we don't provide those modeling services or consulting engagements, it actually behooves us to bring those partners in, because our customers still have businesses to run and day jobs to manage during this digital transformation. So it actually is a win-win across the board. Regarding the tech relationships, yes, it's pretty interesting. There's a whole bunch of -- I think we've said this before, is we haven't changed that analytic experience. We've unified it. What we're seeing is all the people who have been involved in that sort of legacy point solution-based part of the analytic process, they're all beginning to recognize the need to be part of the ecosystem of a platform like ours. So yes, we're actually seeing great traction with the Snowflake folks. There's no formal relationship with them. I think it's more field engagement on a rep-by-rep basis or customers asking who we might recommend, and we typically bring in 2 or 3 partners and let customers make the choice, because we're agnostic to the persistence layer, to the visualization layer, to almost all the other touch points that customers have. So we're in a good spot as a, I'll call it, Switzerland within the space, and it makes for a frictionless channel program, to be honest with you.

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Operator [40]

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Our next question comes in the line of Jack Andrews from Needham and Co.

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Jon Philip Andrews, Needham & Company, LLC, Research Division - Senior Analyst [41]

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I was wondering if you could drill down a bit on the number of -- the dynamics regarding your large deal sizes. You mentioned very strong growth rates at the $500,000 and $1 million contract sizes. Are there any common characteristics that you're seeing it in those particular deal sizes that perhaps you're learning some lessons that could be applied more broadly to your customer base?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [42]

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Well I think that the critical dimension is, that organizations, particularly the Global 2000, typically have Chief Data Officers or proxies for CDOs in the mix. And when that happens, the deal sizes tend to -- well, they all tend to start to same. The land model for a mid-market company is the same as it is for a Global 2000. It's typically a $10,000 land, a couple of seats of Designer. It happens still to this day, 45-day sales cycle, give or take a handful of days on either side of that. That hasn't changed at all. And so we encourage our reps to run the same sales playbook regardless of industry, location, size. But with the CDOs in the larger organizations, where there is a big footprint of analysts who need to get more productive and PhDs who needed to play algorithmic processes and be part of the collaboration for digital transformation, we actually see them expanding a bit faster and to a lot higher degree in terms of dollars simply because they have a big tranche of potential users. And their mantra, if you're the CDO of a big company, is to harness the networking effects of all the people in your organization, the data that you've got access to behind your firewall and out in the wild. And the technology that can make all of it productive. And so the bigger the company, the existence of that CDO leads to, well, in our case, a doubling of the $1 million accounts and a tripling of the number of accounts that are north of $500,000. So -- we don't see that changing in the future either. I think that this data-driven world is just beginning to open up.

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Jon Philip Andrews, Needham & Company, LLC, Research Division - Senior Analyst [43]

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Sure. Just as a follow-up. Can I also ask if -- regarding your latest thoughts on the M&A. Are there specific features that you might be eyeing that could be missing from your platform that you think could be added inorganically?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [44]

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Sure. I think, that we've made 3 acquisitions just prior to the IPO to last year, and 2 of those were additions to the platform. While it is a very horizontal platform a couple of hundred tools and Python so that you can create an infinite number of new tools, we recognize that there's a, in some cases, a race to get to market quicker. We see opportunities, in fact Tyler had asked, and I didn't actually answer the question, so I'll answer it now, and that was around what we see in the marketplace with some of the partnerships that have been surfacing. We see 2 needs today: we see a need for advancing the skill set of the Citizen Data Scientists, because they actually need to understand what algorithm to choose and why to choose an algorithm as opposed to just a black box approach that they can throw a bunch of data at to get an algorithm. So they actually need to amplify their skills to be productive citizens for their companies. But we also see the PhDs who they know what algorithm to pick, they just don't want to have to go build it. And so automodeling becomes an interesting thing. One of the partnerships that we've been working on is the automodeling partnerships, and I was on stage with the folks at H2O recently at the H2O World, talking about Alteryx and how their driverless AI would be executed within Alteryx to help the scientists out. And we're also doing a lot of work with Azure ML, they've put some price pressure on the other competition in automodeling. They've rolled out Azure ML for free. And we intend to integrate so that our customers can experiment with machine learning in a cloud compute environment without having any cost associated with it. And this market's pretty fluid, we'll see who levels up and who doesn't. And we're prepared for it. We did our convertible to be ready for the availability of lots of these assets over the next couple of years.

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Operator [45]

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Our next question comes from the line of Pat Walravens from JMP Securities.

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Patrick D. Walravens, JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst [46]

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So an easy question and then maybe one that's a little harder. So Kevin, we're good for sure on filing the 10-K later, right?

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Kevin Rubin, Alteryx, Inc. - CFO [47]

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We do intend to file later this week.

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Patrick D. Walravens, JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst [48]

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All right, so no issues that you know of?

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Kevin Rubin, Alteryx, Inc. - CFO [49]

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No, we intend to file this week.

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Patrick D. Walravens, JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst [50]

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Okay, a long pause, okay.

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Kevin Rubin, Alteryx, Inc. - CFO [51]

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No, no, no, I didn't know that it required another -- the same response, that's all. My bad.

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Patrick D. Walravens, JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst [52]

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Okay. And then Dean, I've been listening to you talking about Alteryx for good, it just occurred to me, and I don't know if there's a good answer to this, but is there a way -- or how do you think about preventing these tools for being used for bad, right? I mean, you see some of the protests from sort of Microsoft and Google employees when their companies are involved in certain pilots and -- is that something you've given any thought to? And is there any way to do it?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [53]

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Well, we can't protect people from doing nefarious things with our software, it's a very powerful platform. And given the right kind of data, people could probably use it for the wrong kinds of things. Obviously, we have, even internally, lots of policies around how we deal with data internally, GDPR compliance, et cetera. We've implemented a bunch of features in our platform to make it harder for people to do nefarious things. But these things can be done with Excel. And so the cat's already out of the bag with software that allows you to address data in interesting ways. But we understand the challenges of things like privacy of data. And while we don't own any data and we don't host any data, we recognize that our platform is very powerful and that we do what we need to do to protect users.

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Operator [54]

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Our next question comes from the line of Mark Murphy from JPMorgan.

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Pinjalim Bora, JP Morgan Chase & Co, Research Division - Analyst [55]

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This is Pinjalim on behalf of Mark. Dean, as you look into 2019 and think about the product road map -- and 2019 and beyond, I guess. Is there any 1 or 2 places where your customers are pushing you to where they want the innovations, because they focus on a few things that you might not have today? I mean just broadly speaking?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [56]

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Well we have user groups. We have customer advisory boards. We have executive advisory board. And so we pay attention to what customers say to us. I will tell you that there is not really a common theme. It depends on what people are doing with the platform that bubbled their wants list higher up on the list itself. I would say the general themes from IT are more scalability in the platform, greater governance and security. And so we have big road map around doing those kinds of things on the server. But I don't think there's any particular focus from customers. We're -- our goal is to improve all of our development processes, so that we have more time to innovate across the entire platform because we address such a broad swath of customers and use cases.

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Pinjalim Bora, JP Morgan Chase & Co, Research Division - Analyst [57]

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Okay, got it. And Kevin, when I'm looking at -- I guess there are a lot of numbers to look at, but when I'm looking at 2019 pro forma operating margin under 606, which I think is apples-to-apples, it seems like it's a big downtick from 2018 being 19% to 9%, if my math is correct? And then I guess, I mean, is that essentially just incremental investments? And is there a way to -- how are you prioritizing those investments across, you know, sales and marketing, R&D and international?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [58]

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Sure. So yes, we have continued to talk on previous calls about continuing to accelerate hiring. As I mentioned, I think, to an earlier question, our priority in terms of how we think about investments is go-to-market first, and so that is the combination of both domestic and international investment in terms of quota-carrying reps then infrastructure to support them. Next, in terms of how we think about investment is R&D. And so for 2019, implied in the guidance is continued investment in that regard. I would also just comment that a lot of the heads that we bought in, in 2019 were back-end loaded. And so you're seeing the full effects of those expenses in 2019 along with the 2019 hires as well.

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Operator [59]

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(Operator Instructions) Our next question comes from the line of Steve Koenig from Wedbush Securities.

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Steven Richard Koenig, Wedbush Securities Inc., Research Division - SVP of Equity Research [60]

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My finance question just got answered, so I just have one question here, more about HR and culture. And so the question here really is, when it comes to attracting, acquiring and retaining talent, both kind of the high profile executives that you try to hold onto as well as talent down in the ranks. You're operating in a pretty competitive space, and especially as you're move into things like predictive. That talent really is pretty scarce and you want to build up your DNA there. How do you meet this challenge, is really my question?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [61]

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Yes, it's a great question. With low unemployment, particularly in this analytics world, it becomes more difficult. We've actually done a lot of work around building up our sourcing teams, knowing that we are going to hire so many people this year. We have them in market as well, because we've got this global phenomenon, which is the benefit, we also have the challenge of having sourcing in APAC to Lat-Am to EMEA, not just the North American side. We've actually improved our recruiting process, our hiring process, most importantly, our global enablement team has been modernizing how we bring people on and how we continue to skill them up over time. I don't know if you've heard some of my previous calls, but I have 3 KPIs, now under 606, it's not net revenue retention, it's a net expansion, but my other 2 are Net Promoter Scores coming from customers and Net Promoter Scores coming from employees. So we take this seriously. Culture is an important part of it and we're doing what we can to make sure that we find, hire and retain the best.

Okay, folks, thanks. Thanks, again, to everyone for joining our call today. We continue on our journey to make Alteryx synonymous with analytics across the enterprise. As we head into 2019, we remain focused on building a business that we believe will have continued strong revenue growth and long-term sustainable profitability. We look forward to updating you on our progress throughout the year. Thank you.

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Operator [62]

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Thank you, ladies and gentlemen. This does conclude or teleconference for today. You may now disconnect your line at this time. Thank you for your participation, and have a wonderful day.