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Edited Transcript of AYX.N earnings conference call or presentation 31-Oct-19 9:00pm GMT

Q3 2019 Alteryx Inc Earnings Call

IRVINE Nov 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Alteryx Inc earnings conference call or presentation Thursday, October 31, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher M. Lal

Alteryx, Inc. - Chief Legal Officer

* Dean A. Stoecker

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

* Kevin Rubin

Alteryx, Inc. - CFO

* Robert Scott Jones

Alteryx, Inc. - President & Chief Revenue Officer

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Conference Call Participants

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* Bradley Hartwell Sills

BofA Merrill Lynch, Research Division - VP

* Christopher David Merwin

Goldman Sachs Group Inc., Research Division - Research Analyst

* David A. Griffin

William Blair & Company L.L.C., Research Division - Analyst

* Imtiaz Ahmed Koujalgi

Guggenheim Securities, LLC, Research Division - Director of Technology, Media & Telecom and 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

* Mark Ronald Murphy

JP Morgan Chase & Co, Research Division - MD

* Michael Turits

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

* Rishi Nitya Jaluria

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

* Steven Richard Koenig

Wedbush Securities Inc., Research Division - MD

* Tyler Maverick Radke

Citigroup Inc, Research Division - Senior Associate

* Yun Suk Kim

Rosenblatt Securities Inc., Research Division - Senior Software Research Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Alteryx Third Quarter 2019 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It's now my pleasure to introduce your host, Chris Lal. Please go ahead.

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Christopher M. Lal, Alteryx, Inc. - Chief Legal Officer [2]

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Thank you, operator. Good afternoon, and thank you for joining us today to review Alteryx's third quarter 2019 financial results. With me on the call today are Dean Stoecker, Chairman and Chief Executive Officer; and Kevin Rubin, Chief Financial Officer. Additionally, Scott Jones, President and Chief Revenue Officer, will be joining us for the question-and-answer session after prepared remarks.

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 risk 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. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release and the Investors 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 call over to 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. Alteryx delivered another solid quarter in Q3. On today's call, I will be providing some high-level market trends that we believe validate our longer-term strategy. These trends are automation, convergence and community. Kevin will then walk through our Q3 performance and our outlook for Q4 and full year 2019.

Before we get started, here are a few highlights. Revenue was $103 million, up 65% year-over-year; non-GAAP operating margins were 21%; and we generated positive cash flow from operations of $7 million. We added 335 net new customers, including 27 of the Global 2000.

We now have over 5,600 active customers, including 34% of the Global 2000. Net expansion was 132% as customers continue to invest in Alteryx as their data science and analytics platform of choice across their enterprises. In the quarter, we had 92% growth in the number of expands greater than $250,000.

We believe Alteryx is benefiting from a number of trends we expect will enable us to deliver growth for many years to come. The first is automation. While overall IT spending levels are expected to boast only modest growth in 2020, we believe there are emerging categories that will demonstrate outsized growth. One of these categories is automation. We are increasingly hearing from customers the desire to drive more operational efficiencies, and in uncertain times, companies look to do more with less.

IDC indicated there would be $2 trillion spent on digital transformation in 2019 alone. And last year, the World Economic Forum found that 29% of all work was performed by machines and is expected to grow to 42% by the end of 2022. Additionally, industry analysts have estimated that a significant portion of data science tasks would be automated by 2020.

Identifying and preparing data for analysis remains the most time-consuming task facing data and the analytics users. This leaves much of the data work to the line of business analysts, data scientists or, in many cases, data engineers and IT. This creates a business risk due to a lack of data governance as organizations give more users the ability to access data directly to create analytic content.

By automating both simple and complex analytic tasks with the Alteryx platform, we can significantly increase the productivity for all categories of data workers across the enterprise. As a leader in the analytics market that is agnostic to the shape, size and location of data as well as agnostic to how it is consumed, we have a unique position in the market. Alteryx Designer enables companies to build workflows to automate data, data science and analytic pipelines, and Alteryx Server orchestrates these pipelines autonomously yet in scheduled, scaled, secured and governed ways. This type of advanced analytic process automation is increasingly important, and our messaging is resonating with Chief Data Officers overseeing digital transformation efforts for enterprises around the world.

Customer conversations about the first mile of analytics leveraging the social catalogs of Connect and the onerous last mile of analytics via the model deployment and management of Promote are becoming more common. We believe the addition of our recently announced acquisition of Feature Labs and their expertise in automated feature engineering and auto modeling will also advance our automation capabilities and bring another level of sophistication to the Alteryx platform.

Automation is also increasingly coming into play with our open and expanding ecosystem of partners, another key element of our growth. Conversations around driving digital transformation and automation are at play in organizations of all sizes and in all theaters around the globe. Partners continue to play a critical role in these conversations, and we intend to expand the number and type of partners we engage with around the world. As a leading stand-alone end-to-end data science and analytics platform in the market today, we have proven we have a unique value proposition for independent software vendors, large systems integrators and global advisory and analytic consultants.

The second trend is convergence of analytic personas. We are starting to see the citizen data scientists who are business professionals with limited or no coding abilities and professionally trained data scientists that have strong coding abilities converge around a single platform for their analytic work.

Next-generation technology providers will need to address the requirements of users with a variety of skills, coding abilities and comfort with advanced analytic capabilities, including spatial and predictive analytics, machine learning and auto modeling.

Citizen data scientists are no longer simply creating dashboards and static reports, but are working on higher-value outcomes, and data scientists are increasingly linked to automate and streamline data pipelining to enable them to spend more time building, operationalizing and managing models. Alteryx addresses both of these challenges by up-leveling skills for line-of-business analysts and automating data flows and streamlining model deployment and management for data scientists, all via a single unified platform experience.

This convergence has been accelerating with the emergence of Chief Data Officers and organizations focusing on digital transformation. While the competitive field is populated with vendors delivering some dimensions of the analytic and data science needs today, they fail to address the automation needs for the entire end-to-end analytic pipeline. We believe the Alteryx platform is uniquely suited to unlock tremendous business value across all analytic personas.

We also believe that we are well-positioned to win in this market because of our extreme focus on customer success, winning the hearts and minds of data workers across the globe while driving enormous value. For example, at Inspire EMEA held in London earlier this month, we had the opportunity to hear from a number of customers who graciously shared their Alteryx success stories.

Amro Amdoun, Senior Financial Controller at Siemens AG, who is responsible for the digital finance initiative with a focus on automation, was able to productionize his first workflow within 2 weeks without any formal training, enabling thousands of employees to consume analytic reports powered by Alteryx.

Rafal Olbert, a data scientist at U.K. retailer ASDA, is focused on e-commerce analytics. And when he found Alteryx, it was love at first sight. He said, "With Alteryx, we have revolutionized the way we connect, work and drive true insights with data." His organization has productionized nearly 200 daily workflows and tens of analytical applications, democratizing data and embracing the mindset of true self-service analytics.

Another example is a large systems integration effort with Alteryx that saved $1 million in internal costs by monitoring online media. In a third use case involving product availability, Alteryx helped reduce the unfulfilled rate, one of the biggest challenges in e-commerce, by 7%, which resulted in both enhanced customer experience and reduced costs.

The third trend is community. We have long seen analytics as a social experience, and that was on full display at Inspire EMEA. The mix of attendees at Inspire truly illustrates the range of our platform's capabilities. We had attendees from 19 industries, 11 functional areas from 48 countries, prosecuting dozens of use cases and sharing their successes with each other.

Carlene Jones, data scientist for global pharmaceutical company, Novo Nordisk, is one of 350 users who are creating huge amounts of innovation, including working on a wide range of challenges across supply chain, finance, R&D and more. Alteryx made a significant difference in many areas, including automated -- automating routine reporting where they were able to take processes requiring 4 man months to just a few minutes. Additionally, they have improved their notoriously difficult demand forecasting process, building segmentation models that improve the planning process and have plans to continue to innovate across the company with Alteryx. As part of their analytic culture, they founded an internal Alteryx user group, helping to facilitate continued analytic innovation.

And finally, Brian Millrine, Business Strategy Director for the U.K.-based Brookson Group, indicated that Alteryx is bigger than analytics and bigger than data science.

We see Alteryx as a digital transformation platform underpinning our own digital platform, which provides services to the flexible workforce, including procurement, payroll, accounting and financial services. Alteryx brings intelligence to our customer portals. It drives customer next best action. It automates bookkeeping. It even underpins the delivery of complex tax advice for our customers.

With Alteryx, we are not just building workflows that save tens of thousands of pounds, we are building workloads that deliver products that create millions of pounds of shareholder value.

Given the multiple avenues of growth available to us, we expect to continue to invest in our platform and our go-to-market model in order to capitalize on the significant opportunities we face. Here at Alteryx, we believe that humans are only limited by their imagination. I am continually amazed and humbled by the breadth of use cases that our customers leverage Alteryx for each and every day.

With that, let me turn the call over to Kevin to discuss our Q3 financial performance and outlook for Q4 and 2019. Kevin?

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

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Thank you, Dean.

Q3 represented another strong quarter with revenue of $103.4 million, an increase of 65% year-over-year and net expansion of 132%. Our revenue upside was due to the following 3 factors: first, we had another quarter of strong execution; second, product mix was favorable, resulting in the upfront percentage of our revenue being once again at the high end of the range; third, we did see a modest sequential increase in contract duration driven by some of our larger customers entering into longer-term contracts, although overall duration continues to average 2 years.

I'd like to briefly remind you of how our revenue is determined under ASC 606. Revenue is determined based on the total amount of bookings in the period, total contract value or TCV. As a reminder, we typically enter into 1- or 3-year agreements with our customers. TCV includes the full value of multiyear agreements.

Of our TCV booked in the quarter, we recognize between 35% to 40% of TCV upfront based on product mix. Sales of our Designer product skewed towards the lower end of the range while sales of Server, Connect and Promote skewed to the higher end. Thus, as we experience more enterprise-wide deployments, that includes Servers, Connects and/or Promote, our upfront percentage skews towards the higher end of the range.

We recognize revenue upon the later of contract signing or contract start date. As we discussed earlier this year during our Q1 earnings call, this factor is important to keep in mind as we enter Q4 because we have a number of renewal contracts that expire December 31 and which renew on January 1. This dynamic results in Q4 TCV bookings that will not translate into revenue until Q1 2020. Finally, revenue includes the recognition of the ratable portion of our bookings.

International revenue was $28.7 million, up 48% year-over-year, as we continue to benefit from the strong global demand for analytics. This validates our continued investment in our global go-to-market and support organizations.

In Q3, we added 335 net new customers and now have 5,613 customers, including 683 or 34% of the Global 2000. Notable customers that transacted with Alteryx during the third quarter include Amazon U.K. Services, Canada Post, Commonwealth Bank of Australia, Ingram Micro, Microsoft, Rakuten Marketing, Workday and Uber Technologies.

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 92%, consistent with Q3 2018. Our Q3 operating expenses were $73.4 million compared to $43.2 million in the same period last year. The year-over-year increase in operating expenses was due primarily to additional head count and other investments in scaling our global operations.

Our Q3 operating income was $22 million or an operating margin of 21%. Net income was $16.4 million or $0.24 per share based on 69.5 million non-GAAP fully diluted weighted average shares outstanding. Our net income assumes a non-GAAP effective tax rate of 20%.

Turning now to the GAAP balance sheet. As of September 30, we had cash, cash equivalents, short-term and long-term investments of $986.5 million compared with $426.8 million as of the end of Q2 2019. The increase in cash is related to the convertible note offering we successfully completed in August.

Finally, we ended the quarter with 1,176 associates, up from 1,076 associates at the end of Q2 2019 and 756 associates at the end of Q3 2018. Our increase in head count is reflective of the pace of investments we are making and we expect to continue to make to capture the meaningful opportunity we see globally.

Now turning to our outlook for Q4 and full year 2019. Also, as a reminder, please note that our guidance assumes the following: the average duration of our subscription agreements will be 2 years, consistent with current levels; approximately 35% to 40% of our TCV booked in the quarter, with subscription start dates in the quarter, will be recognized upfront with the remainder recognized ratably over the life of the contract; quarterly revenue seasonality will be consistent with what we experienced in 2018; and no material changes to the overall macroeconomic conditions.

For Q4 2019, we expect GAAP revenue in the range of $128 million to $131 million, representing year-over-year growth of approximately 44% to 47%. We expect our non-GAAP operating income to be in the range of $26 million to $29 million and non-GAAP net income per diluted share of $0.27 to $0.30. This assumes 71 million non-GAAP weighted average fully diluted shares outstanding and an effective tax rate of 20%.

For the full year 2019, we are raising our outlook and now expect GAAP revenue in the range of $389 million to $392 million, representing year-over-year growth of 53% to 55%. We expect our non-GAAP operating income to be in the range of $50 million to $53 million and non-GAAP net income per diluted share of $0.57 to $0.60. This assumes 69.1 million non-GAAP fully diluted weighted average shares outstanding and an effective tax rate of 20%.

And with that, we'll open up the call to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today is coming from Tyler Radke from Citi.

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

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Maybe to start off, a question for Dean. It seemed like you talked more at this call about automation and just around the evolving strategy of Alteryx. I know, in the past, as you've thought about M&A, the most recent acquisitions have seemed to been kind of centered around acquiring assets and building out your citizen data science capabilities.

Just how are you thinking about balancing the investments from the product side and kind of the analytics versus automation capabilities?

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

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Well, I actually think, Tyler, that the 2 go hand-in-hand. When we talk about these trends of automation and convergence and community, all 3 are tied to digital transformation success. And so as the convergence of the trained statistician who loves to write code converges with the citizen data scientists who doesn't know how to write code is capable of building models but needs assistance in building those models, we're seeing the need for more automation within the data science world.

The reason we bought Feature Labs is that they've figured out what no one else has really figured out within the auto modeling space, and that is their focus on automated feature engineering, which is the precursor to actually having any models work and perform for you. So a very tight analogy to our data prep world for the citizen data scientists to the automated feature engineering for the trained statistician.

So automation is going to be important going forward. It's going to affect routine analytics for day-to-day reporting and KPIs and diagnostic use of analytics in dashboards, but the more advanced abilities around data science outcomes, along with automation of those tasks, is exceedingly important to us. And it's coming up more and more in fields around the world.

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

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Great. And then maybe a less interesting question from a strategy perspective for you, Kevin, but obviously there's a lot of metrics to look at this quarter, whether it's the very high, strong revenue growth of 65% or an adjusted billings calculation that's actually lower than that, and also with this RPO number. How would you just encourage investors to evaluate the underlying growth of the business? And how should we think about the sustainability of that growth rate going forward?

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Kevin Rubin, Alteryx, Inc. - CFO [5]

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Thanks, Tyler. As we've said for several quarters now, under 606, given that a meaningful portion of our revenue gets recognized now upfront, I think revenue is a clear indicator of the strength both in terms of the business as well as in-quarter performance. We're obviously very pleased with the over-performance of revenue this quarter. And coupled with, ultimately, our guidance for the future quarter, I think those 2 in combination are pretty indicative of how we see the underlying momentum in our business.

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Operator [6]

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Our next question is coming from Derrick Wood from Cowen and Company.

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James Derrick Wood, Cowen and Company, LLC, Research Division - MD & Senior Software Analyst [7]

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Great. I guess, yes, first for Dean. We're hearing more analytic software companies partnering and integrating with cloud data lakes and cloud data warehouse vendors like Snowflake, who's seen a lot of growth. How are you guys positioned around companies like Snowflake? And do you see your users trying to leverage those cloud platforms in their Alteryx workflow?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [8]

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Yes, as a matter of fact, Derrick, we do. As you know, our design time experience is on-premise and our run time experience is wherever you choose to put it. We have a fair number of server-based customers who deploy both in AWS and Azure. Many of them have leveraged Snowflake as their persistence layer of choice. Not all of them, some have -- it's rare that anyone has a complete set of analytic pipelines that leverage a single data source. Most of them have many persistence layers, some which reside in cloud vendor of choice. Other parts of their persistence layers reside on-premise. So it's going to be a hybrid cloud, on-prem and, ultimately, cloud-to-cloud world for quite some time.

We actually have a strong relationship with Snowflake. And many of our customers have moved off of other platforms to go to Snowflake, and we're quite supportive of our customers who choose to do so.

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James Derrick Wood, Cowen and Company, LLC, Research Division - MD & Senior Software Analyst [9]

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All right. And Kevin, going back to the numbers, obviously you talked about 2 factors that pull more revenue upfront. That would be product mix and then duration. And I think those were both tailwinds for you this quarter. Is there any way to quantify the benefit to your reported revenue growth, whether in dollar terms or growth terms, because of these mix shift changes?

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Kevin Rubin, Alteryx, Inc. - CFO [10]

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Yes, Derrick. Great question. If you think about the product mix, we've talked to a reasonable range of 35% to 40%. So as you move across that range, I mean, you can kind of figure out that there's some contribution to product mix and it's certainly favorable, but it's not enough in terms of order of magnitude to drive a significant uplift, but it does have an impact. And then duration, as I mentioned, there was a modest increase sequentially, but we're still averaging about 2 years. Both of those 2 factors certainly contributed to the strong revenue performance. But having said that, it was actually execution that really drove the lion's share of the revenue that we put up this quarter.

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Operator [11]

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Our next question is coming from David Griffin from William Blair.

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David A. Griffin, William Blair & Company L.L.C., Research Division - Analyst [12]

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My first question is a quick follow-up for Kevin on billings. First off, I just want to say thanks for the incremental disclosure this quarter of the contract asset. It gives us a good compare.

So as we kind of look at the year-on-year growth number here, 38% looks -- certainly looks pretty healthy. But given that it feels like this metric is going to be top of mind for investors on a go-forward basis, I did want to ask if there was anything worth calling out from either a timing or seasonality perspective that may have influenced the growth number this quarter.

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Kevin Rubin, Alteryx, Inc. - CFO [13]

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Yes, David. So billings are, I mean, essentially an invoicing activity. At the end of the day, they're subject to the timing and the amounts that get billed in the contracts. So to your point, there is seasonality, there is timing, and that can fluctuate quarter-to-quarter. As I mentioned to Tyler's question, we do think that revenue is the most appropriate indicator of the strength and momentum in the business. Billings can move up and down based on contractual arrangements.

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David A. Griffin, William Blair & Company L.L.C., Research Division - Analyst [14]

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Got it. And then just a quick follow-up for Dean. So I wanted to dig in a little bit more into your experience at Inspire Europe earlier this month. I think this is your fourth annual European customer conference, and it certainly sounded like that was well-attended. So I was wondering if you could share kind of your key takeaways, maybe the top 1 or 2, from your conversations with customers at the event as well as maybe just talk a little bit about whether you're seeing any key differences between your international and domestic customers in terms of something like adoption of the platform, usage characteristics or just the general level of analytics maturity.

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [15]

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So let me address the first issue on Inspire Europe. Yes, we've had our fourth conference. We had roughly 2,500 customers, partners and employees in attendance.

The biggest takeaway for me was the change in the conversations that we're having with customers. When we had our first Inspire EMEA conference 4 years ago, the conversations were more about who are you guys, what do you do, features and functions and trying to resolve very specific use cases.

Today, the conference was about digital transformation. It was about building cultures where organizations are hoping to get their teams to think about data as an asset to drive the business. They're thinking about automation. They understand this convergence of the citizen data scientists and the trained statistician. And most of the meetings that I had were identical to the ones we had in Nashville back in June; how do we go from 100 seats to 500 seats or how do we go from 500 seats to 5,000 seats. There was zero conversation about features and functions. It was about driving a culture of data science and analytics because everyone realizes the power of automation in the hands of more people to solve more complex business challenges. So that was the first takeaway.

The second takeaway was there -- if you just noticed the lines at the advanced analytics sessions, it's clear we're striking a chord with both the citizen scientists and the trained PhDs. Two of the people I had on stage were actually data scientists who are leveraging Alteryx in really, really interesting ways to drive enormous resolutions to complex problems that they face in the business. So I think that, for me, the conversation was consistent with our trends: Automation, convergence and community. Community is -- it is the conference. It's pretty clear that people show up and they love to chat with each other. We know that the people who are involved in our community expand considerably more than people who are not involved in the community. We see, through telemetry, they're advancing their skill sets by leveraging advanced analytic tool sets inside the platform.

The second part of your question was any big differences around the world. Actually, there's almost no difference. There's some cultural differences in certain parts of certain theaters around the world. But this quarter, for example, we landed 27 additional G2Ks, 17 of those were international. And it's the same problem. Whether you're a major retailer in Dubai doing hyper-local merchandising or you're an airport in -- or an airline in Hong Kong trying to hedge fuel, everyone has these same issues. So that part, again, we're really confident that we've touched a nerve with global organizations, which is why we've been reporting on and going after the G2Ks where 9 million of these citizen data scientists hang out and the lion's share of the PhDs.

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Operator [16]

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Our next question is coming from Ittai Kidron from Oppenheimer & Co.

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Ittai Kidron, Oppenheimer & Co. Inc., Research Division - MD [17]

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Congrats. Great quarter. Kevin, starting with you on -- given that we're trying to focus on the right metrics, net expansion rate in terms of ACV basis, perhaps not the cleanest of -- or best of indicator as well. Is there a way for you to give us perhaps Designer seat expansion or paid Designer seat expansion per customer? I mean, that will probably be a very good proxy to the true underlying expansion rate from a user standpoint within your customers.

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Kevin Rubin, Alteryx, Inc. - CFO [18]

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That's an interesting point. I mean, I think if you look at the nature of our expansion, and we've talked about this in the past, we land with a few seats. We expand several times with more kind of blocks of seats. We introduce Servers, more seats, Servers and maybe other products and then more seats. But at some point, I mean, it really is a platform solution that we are deploying across an organization. And so I'm not sure that, that would -- it certainly wouldn't send you any different trend than you're seeing in our net expansion of 132%. And in the end, our largest deployments are really about how do we enable as many individuals within the organization as possible. And net expansion, ultimately, is providing you the dollar capture, which is something I think we all want you to focus on.

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Ittai Kidron, Oppenheimer & Co. Inc., Research Division - MD [19]

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Got it. And then, Dean...

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Kevin Rubin, Alteryx, Inc. - CFO [20]

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Well, also -- go ahead.

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

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Remember, Ittai, in terms of Designer seats, we're still in the 1% penetration rate of even the G2K seats that exist out there. So I think there's a long time before you would see any degradation in feed activity for -- that would support our net expansion numbers.

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Ittai Kidron, Oppenheimer & Co. Inc., Research Division - MD [22]

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Well, it's great that you mentioned that. Maybe you can double-click on that a little bit, Dean, because not that I want to nitpick but -- you had a great quarter, but the number of customer net additions is down quite nicely actually on a year-over-year basis, and your sales force is getting bigger and bigger. So I'm just kind of wondering, is the focus shifting more towards expansion activity with your existing base? Should we not assume that customer additions grow on a year-over-year, grow going forward -- rather perhaps flatten? And where the main focus is going to be more on expansion.

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [23]

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No. I think we've actually reported in prior quarters that when we started this land-and-expand model all the way back to Q1 of 2014, it would take us quite some time to understand the S-curves, the expansion capabilities of customers. And we're actually very happy with our net new customer adds because they're actually the right customers. And you can see that as evidenced by the fact that we hit 132 net expansion numbers once again.

So we're comfortable with it. I think we have a very healthy dose of both folks focused on landing new accounts in the accounts that have that expansion opportunity and a healthy dose of new bag carriers -- quota carriers who are prosecuting those expands around the world.

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Ittai Kidron, Oppenheimer & Co. Inc., Research Division - MD [24]

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Got it. Yes, and maybe last...

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Kevin Rubin, Alteryx, Inc. - CFO [25]

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I'm sorry.

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Ittai Kidron, Oppenheimer & Co. Inc., Research Division - MD [26]

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Go ahead.

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Kevin Rubin, Alteryx, Inc. - CFO [27]

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Just to nail that point, we've been talking for the last 4 or 5 quarters about the notion that we continue to focus on a better, higher quality land. And if you look at over that period of time that we've had that conversation, we've seen consistent net expansion through that period, which, I think, is validation to the point that we're doing a better job at landing higher quality, better logos today than what we may have 2 years ago.

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [28]

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And we still have 66% of the G2K to go.

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Kevin Rubin, Alteryx, Inc. - CFO [29]

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Yes.

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Ittai Kidron, Oppenheimer & Co. Inc., Research Division - MD [30]

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Great. And maybe lastly, on the international front, not that 48% is a bad number, but that revenue base over there is clearly much smaller than the U.S. and not growing as fast as the U.S. Is there anything that's handicapping growth? Is there something unique to the international properties that wouldn't make them grow as fast, if not faster then, just given their size relative to the U.S.?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [31]

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No. I actually think that it's just the maturity and when we entered these markets more than anything else. So we don't go into much detail other than international in general, but all the markets did well. Again, the customer focus on automation, convergence, community aren't really any different around the world. The teams are newer in some of the markets and that might have an impact on things, but I'd also say that we actually did quite well in North America.

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Operator [32]

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Our next question today is coming from Mike Turits from Raymond James.

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Michael Turits, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst [33]

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I wonder if you could talk about the data science AI/ML space a little bit. Obviously, you made the Feature Labs acquisition. How is Promote doing? And how do you see that space strategically? What are the functional areas that you feel like you want to be in and need to be in and which ones do you not need to be in?

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

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Well, we believe that every functional area is going to have a need for machine learning outcomes. I think it actually plays to our strength of having an end-to-end horizontal platform that can prosecute most any challenge that a business has. I think we reported 19 different industries showing up at Inspire Europe, 11 functional areas. And the same platform is used, everything from hedged fuel to doing -- predicting patient reentry into emergency rooms to helping the fastest U.K. e-commerce company see success. And so we believe that everyone has a need for automating complex analytic tasks.

A lot of it's predicated though on their success and whether or not we're dealing with citizen scientists who need to be assisted in their machine learning work or their model building work. And we have plans, of course, to do that. At the conference, we talked about our assisted modeling effort to help amp up the skills of the scientists -- of the citizen scientists who can now build models and just needs to know what features to include, what model to choose and have a decision off of it. And the scientists are really trying to work on edge cases. So our acquisition of Feature Labs allows them to leverage open-source technologies. But ideally, at some point in time in the future via a platform like ours because the Chief Data Officers don't want a bunch of platforms, they want one platform to cover off on both personas as they -- I think they're all beginning to realize the convergence that we have been talking about for quite some time is, in fact, real.

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Michael Turits, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst [35]

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Great, Dean. And then, Kevin, we know where you're going long term in terms of your targets for margins, and it's really too much to talk about '20 at this point, but this has been an acceleration year in OpEx growth. Should we begin to think about next year as more of leverage year? And if not, if it's more based around investment, but what are those investment priorities?

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Kevin Rubin, Alteryx, Inc. - CFO [36]

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Yes, Michael. I think it's a little bit too early to talk about 2020. We haven't introduced any guidance there yet. As you said, I mean, we do have a long-term model out there that we presented to investors back in June. And so that is what it is, but I think it's a bit too early to talk about 2020.

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Michael Turits, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst [37]

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And anything in terms of priority? Without talking about numbers, just is it more on go-to-market? Is it more on R&D at this point?

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Kevin Rubin, Alteryx, Inc. - CFO [38]

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No, I wouldn't signal there is any fundamental change in priorities. I mean we continue -- certainly with the continued strength we've seen this year from a go-to-market perspective, we continue to have focus on go-to-market. And I think second to that would be product.

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Operator [39]

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Our next question today is coming from Rishi Jaluria from D.A. Davidson.

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Rishi Nitya Jaluria, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [40]

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Nice to see some continued strong execution. Dean, I wanted to start by asking about the momentum you're seeing on the G2K side. Maybe help us understand, as you've been growing your G2K presence over time, are you -- any color you can provide us in terms of like where you're landing in terms of department or what type of users? And then maybe how the size of those lands has trended over time? And then I've got a follow-up.

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [41]

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Well, our playbook for landing new accounts really isn't any different, whether it's a commercial account, a mid-market account, an enterprise account or a G2K. We -- our playbook has worked. We know it works. We continue to refine it every quarter and we leverage Alteryx to understand the metrics of our business. So I guess the first point is we don't see big changes in our land efforts. We approach the market pretty much the same way.

The expansions are happening for sure, as evidenced again by our net expansion number of 132. I think what's happening is that we've become a known platform. People have gotten tremendous value. They -- the lands that we're seeing tend to be in, I think, the sweet spot of large global enterprises. A lot of our partnerships tend to work with the C-suite, particularly the office of finance. And if you're going to land in any enterprise, the place to probably land is where people understand the ROI of software technologies that they acquire. And so the CFO's office is a place where we're landing quite often, and I think they're freeing up budgets for organizations under their umbrella to spend money on analytics because they get the benefit.

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Rishi Nitya Jaluria, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [42]

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Okay. Great, that's helpful. And then just in terms of verticals, any color in terms of how wholesale and public sector did in the quarter, and if there were any other particular verticals that you would call on as being particularly strong? And I know you pointed out financing was, in fact -- last quarter was really particularly strong.

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Robert Scott Jones, Alteryx, Inc. - President & Chief Revenue Officer [43]

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This is Scott. So last year, we started a health care vertical and we're very pleased with the results so far. And we've continued to expand our public sector vertical both in the U.K. and in the U.S. And we're quite pleased with the direction of the business in that segment as well.

When you talk about buying centers, as Dean just mentioned, offices of the CFO has been really strong, but quite frankly, we're seeing use cases applied throughout all buying centers within organizations.

I think the other follow-up to Dean's comment around landing in Global 2000s is we're engaged more often with CDOs in Global 2000s. And the conversation, even if the land is more strategic, which sets both us and our customers up for more strategic expands, which is obviously a key to the way our model works.

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Operator [44]

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Our next question is coming from Jack Andrews from Needham & Company.

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Jon Philip Andrews, Needham & Company, LLC, Research Division - Senior Analyst [45]

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I want to ask, I guess, a 2-part question on the partnership side. Could you give an update in terms of any partnerships, for example, like Thomson Reuters, that might be impacting your results in the near term? And then the follow-up would be just how do we think about more broadly the present -- the potential demand generation from these partnerships. Should we think of it as a similar cadence of land and expand? Or do you think that these -- development of these partnerships may have a different impact on your business?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [46]

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Well, remember, we have 3 kinds of partners in general terms. We have resellers that -- I think we've reported before, roughly 20% of our revenue is coming from resellers around the world. In total, we have about 300 partners of various definitions. We have strategic tech alliances, folks like the Snowflakes and the Tableaus and the Microsofts of the world. And while they're great partnerships, it's more in-market co-selling with customers that are jointly looking for products.

The area where there is the most influence, it tends to be the global analytic consultants and the big 6 accounting firms. They're actually helping carry a lot of the messaging to the C-suite, both CDOs, CFOs, CEOs, who are acutely aware of the necessity to have a digital transformation effort. And so their global expanse has been very helpful in helping us land many of the G2Ks. So we're going to continue to leverage these strong partnerships where there is no margin shift going forward.

Just to talk about the Thomson Reuters partnership, relatively new still. We do see pipeline building. They're very excited. There's a number of joint events that either have been held or will be held going forward. And so we're pretty excited about all of our partners who also have gone through digital transformation of their own. Most of these folks are customers first and then take us to market because they provide services that we don't.

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Operator [47]

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(Operator Instructions) Our next question is coming from Taz Koujalgi from Guggenheim Partners.

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Imtiaz Ahmed Koujalgi, Guggenheim Securities, LLC, Research Division - Director of Technology, Media & Telecom and Analyst [48]

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Kevin, you said that the contract duration went up slightly, I guess, for bookings. But can you comment on what the trend was for invoicing duration, if you saw any change in the invoicing duration in Q3 versus Q3 of last year?

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

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Thanks, Taz, we always book 1 year in advance -- invoice 1 year in advance, excuse me.

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Operator [50]

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Our next question is coming from Steve Koenig from Wedbush Securities.

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Steven Richard Koenig, Wedbush Securities Inc., Research Division - MD [51]

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So I'm wondering about machine learning here and the market for machine learning. And as we look at it and talk to industry participants in the space, we hear that -- we hear about people moving from SAS or SPSS to the Python in our world. We also hear about several vendors competing based on auto ML or system ML, including Alteryx, breaking new ground here. And lastly, we're hearing more and more from some of the innovators here in the space, including you guys, about the challenge of getting models into production and how this -- helping customers deploy those models will increasingly become the high ground in the platform competition. So I'm wondering, can you compare and contrast maybe the importance of those functionalities in kind of the new Python in our world versus the old SAS world? And what's changing as data volumes grow?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [52]

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Well, I think that the data volumes aside and where the data volumes reside, I think, is perhaps a different kind of a question. But in terms of the players in the space, it's a very crowded space because everyone, I think, sees that machine learning is going to eat the world. We just believe that it won't until you amplify the human in the mix. And that's why this convergence between the citizen scientist who doesn't know how to write R and Python, at least not much, needs to be working on the same platform as the trained statisticians who love to write R and Python. And so we see a collaborative effort between these 2 personas. And until you have a platform like ours, there's going to be a disparate mix of tools and technology that enterprises will have to use if they're going to actually eke out the $10 trillion to $15 trillion of value that's locked up in data, wherever that data might be locked up in.

So our belief is that R and Python clearly have a play, but not just for the scientists. We want to be able to share automated feature engineering sets with the citizen scientists so they can actually get outcomes sooner.

We also believe that not all models have to be deployed, but we want to make sure that the model that the scientists do create, that do need to get deployed have an easy path to deploy them.

It is a very noisy, crowded space. And I think you're going to see -- we see great technologies out there today, but they only cover off on a sliver of the activities that enterprises actually need. And unless you're part of an end-to-end platform like ours, you'll probably go to the wayside.

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Operator [53]

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Our next question is from Chris Merwin from Goldman Sachs.

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Christopher David Merwin, Goldman Sachs Group Inc., Research Division - Research Analyst [54]

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Okay. I guess maybe keeping on the theme, have you seen any shifts in budgets from customers who have traditionally been spending on analytics, more through the IT department, shifting that budget towards self-service? Or is this more a function of actually growing the TAM by expanding the number of citizen data scientists? Just curious what you're hearing from customers and CIOs in particular.

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [55]

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Well, that's a good question. We've long said that the audience where self-service data science and analytics was going to be won by us in the line of business, it's a $15 billion space. The winner of that space will be the natural beneficiary of the $28 billion share shift of all that technology that has historically sat in IT.

We are beginning to see that shift. It's important though, that we're focused on the G2K and having CDOs or proxies for CDOs in the mix because they are the ones who are going to drive that shift from systems of record deep in the IT to systems of engagement out in the line of business. But we are beginning to see the early stages of that.

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Operator [56]

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Our next question is coming from Brad Sills from Bank of America Merrill Lynch.

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Bradley Hartwell Sills, BofA Merrill Lynch, Research Division - VP [57]

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I wanted to ask about Connect and Promote. How did those 2 trend during the quarter? Any traction there?

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

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Well, the conversations we're having around the end caps has definitely accelerated and -- a direct result of the continued net expansion numbers that we see. What happens in these large global enterprises, they -- I think Kevin mentioned earlier, we land with a couple of seats. They buy a bunch more. If a CDO is in the mix, they buy hundreds more or thousands more. And they're beginning to recognize the need to harvest the assets that are being produced by these analysts now. So we do have a number of implementations on very, very large, complex data sets around the world.

The conversations are happening more and more. People who have Promote are acknowledging that we've reduced the time it takes to actually deploy machine learning algorithms for operational systems. So we're actually pretty excited about where the conversations have led. And I think over the long haul, you'll see them being -- become a critical part of our platform.

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Operator [59]

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Our next question is coming from Mark Murphy from JPMorgan.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [60]

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Kevin, I noticed the contract assets grew by about $12 million sequentially. Presumably, that flows into revenue. I guess I'm curious how much of that was anticipated or anticipatable?

And then as well, a kind of one question in 2 parts. The RPO growth, 13% sequentially. I'm just -- I guess I'm wondering if you look at that as a decent proxy for the backlog trend? Or was that somehow impacted by the duration changes? Because I think you said the duration increased but it's still 2 years, and I'm just wondering if you can put a finer point on that.

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Kevin Rubin, Alteryx, Inc. - CFO [61]

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Yes, Mark. The contract asset is -- and in the same token, the deferred revenue. I mean, those 2 are purely a function of timing of contract bookings, revenue recognition and invoicing. So those can fluctuate period-to-period as a result.

With respect to the RPO, we do disclose the full remaining obligation. So that is, in effect, the backlog that we have going forward.

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Operator [62]

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Our next question is coming from Yun Kim from Rosenblatt Securities.

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Yun Suk Kim, Rosenblatt Securities Inc., Research Division - Senior Software Research Analyst [63]

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Can you talk about trends around large deals, especially those above $250,000 and any 7-figure deals? For instance, how much of your $250,000-plus deals and $1 million-plus deals represent your total revenue mix? And how that has been trending? Any color around that will be helpful. And then also maybe how your go-to-market and sales process is changing as your large deal activity is increasing and beginning to focus more on the G2Ks.

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [64]

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Well, let me just comment that we did have 92% growth in those large expands north of $250,000. We don't talk about their contribution to overall revenue, but we call this out for a reason. The large organizations that we're dealing with particularly, but not exclusively in the G2K, are recognizing that we have become an enterprise standard in their enterprises. And many of these customers are going from tens of seats to thousands of seats in their build-out of our platform.

I'll let Scott talk about the sales motions around it. Again, I don't think we have much difference in what we've been doing. I think we've just been doing it better in every theater around the world.

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Robert Scott Jones, Alteryx, Inc. - President & Chief Revenue Officer [65]

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Yes, Dean. Yes, so no real change to our playbooks. We continue to run the land and expand motion with our customers. And as Dean noted, I think we're executing really well across the board, across all of our regions and across the size of companies that we're working with. So we haven't had to retool the sales team or really adjust our playbooks in any way.

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Operator [66]

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We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [67]

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Thank you.

Before closing the call, let me take the opportunity to thank our customers for their continued business. Here at Alteryx, customer trust defines the integrity of our business, and we thank you for trusting us with helping you drive value in your business. I also want to thank the more than 300 partners and more than 1,100 associates around the world helping to ensure our customers see success with our platform.

Thanks again to everyone for joining us today. We look forward to updating you on our progress next quarter. Take care.

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Operator [68]

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That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.