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

Q2 2019 Alteryx Inc Earnings Call

IRVINE Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Alteryx Inc earnings conference call or presentation Wednesday, July 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

* Clarke Jeffries

KeyBanc Capital Markets Inc., Research Division - Associate

* David A. Griffin

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

* George Michael Iwanyc

Oppenheimer & Co. Inc., Research Division - Associate

* Imtiaz Ahmed Koujalgi

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

* James Derrick Wood

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

* Joey Marincek

JMP Securities LLC, Research Division - Research Analyst

* Jon Philip Andrews

Needham & Company, LLC, Research Division - Senior Analyst

* Matthew James Coss

JP Morgan Chase & Co, Research Division - Analyst

* 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

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Presentation

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Operator [1]

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

I would now like to turn the conference over to 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 second quarter 2019 financial results. With 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 statement 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.

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 direct comparable GAAP financial measure.

With that, I'd like to turn the 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 excellent Q2 results, driven by continued industry tailwinds and strong execution. Here are a few highlights for the quarter. Revenue was $82 million, up 59% year-over-year. We achieved net expansion of 133%, illustrating our customers continue to invest more in the Alteryx platform over time.

We saw a doubling of 7-figure deals and an over 50% increase year-over-year in deals larger than $250,000, both consistent with our expectations as we focus on the Global 2000. And finally, our land and expand business model continues to perform. Our 2014 customer cohort increased their investment in Alteryx 270% over 4 years. Our data shows that our 2015 and 2016 cohorts performed better.

In Q2, we added 305 net new customers, and now have approximately 5,300 customers, including 656 or 33% of the Global 2000. Notable customers that transacted with Alteryx during the quarter included General Dynamics, IKEA Ltd., Informatica, KKR Capstone, L'Oreal, Raytheon, Salesforce.com, Sequoia Capital, SolarWinds, TopSpot, Tiger Capital and Viking Cruises.

We sit at the crossroads of a number of key market trends that we believe will enable us to deliver strong growth for many years to come. In our view, the recent business consolidation in the space is simply validation of what we've communicated for a long time: that data and analytics are core to every business worldwide. And while Alteryx has grown significantly in a relatively short period of time, or as I like to say, we are a great 20-year old overnight success, we believe that we are still in the early stages of our maturity to fully capitalize on this massive opportunity.

For example, based on our analysis, we believe there are approximately 8 million to 9 million potential Alteryx Designer users within the Global 2000, and we currently have less than 1% penetration within that population. We have long believed that analytics is a social experience. In fact, a big part of our success is the Alteryx Community. And during Q2, we hosted our 10th U.S. Inspire Conference, the largest gathering in our history, bringing together approximately 4,500 customers, partners and Alteryx associates in Nashville to celebrate analytics. These gatherings are an important way to deepen our engagement with our customers and partners. They are also important because customers that are engaged in Community have significantly higher expansion rates and are 3x more likely to use the advanced analytic capabilities within the Alteryx platform.

For those of you who were able to join us in Nashville, you heard a variety of Alteryx customers share their individual journeys. Some of the notable ones include, CBRE, the worldwide leader in real estate services, automated data pipeline and enable data workers with advanced analytics capabilities in Alteryx to build sentiment analysis and tenant churn models to predict business opportunities. Advent Help, a leader in whole person healthcare, reported they leveraged 1 billion data points from various clinical data sources to deliver more than $100 million in ROI. Tax and accounting software maker, Intuit, started their Alteryx journey with 1 analyst and eliminated 20 hours a week of burdensome operational work, and have scaled these results across the global analytics team, and demonstrated that Alteryx is a critical business necessity.

Global investment bank, JPMorgan, organically expanded their Alteryx usage from a couple of users to over 1,000 in just over 2 years. And American Airlines, which operates more than 6,700 daily flights at 30 -- 350 destinations in 50 countries around the world, reduced processing times by 99% in their line maintenance strategic planning department, and allowed analysis of data that was nearly impossible before Alteryx.

Last quarter, we told you about Western Australia-based, Horizon Power, have started their evaluation of Alteryx with Connect, but ultimately purchased the entire Alteryx platform. At Inspire, they described how Alteryx is helping them with their key imperatives of improving customer and employee experience while improving operational efficiency across the company. They invested in Alteryx to provide a knowledge base with Connect and a DevOps life cycle with Promote. They invested in Server to provide governance, security and production performance. And of course, with Designer, they built 130 apps supporting 6 different business units in just 4 months.

We continue to gain traction in our vertical go-to-market teams as well. This quarter, a North American healthcare provider was seeking a better way to manage nurse staffing ratios to increase profitability. The data science team sought a solution to help with model deployment and began an evaluation of Promote. During their evaluation process, they came to appreciate the value of the entire Alteryx platform and ended up purchasing Promote, Designer and Server to bring data science capabilities to data analysts, effectively creating citizen data scientists and scale analytics across the organization.

International performance was also strong in Q2, with international revenue up $24 million, up 58% year-over-year, and representing approximately 30% of total revenue. We did business with companies like AiNanoLab in the UAE, American Express India Private Limited, Cisco Systems Poland, DFS Ventures Singapore, Ingersoll Rand Latin America and Panama, Piraeus Bank in Greece, Scotia Peru Holdings, Shiseido Company in Japan and Vodacom Ltd. in South Africa. Our customer footprint spans over 80 countries.

Data and analytics strategies continue to garner more attention at the C-suite level, and we believe that data-driven strategies will continue to evolve from basic descriptive analytics, such as visualizations, to more advanced analytic use cases powered by Alteryx. Today, we are engaging the Chief Data Officers more frequently than a year ago. This is driven by both increasing C-level involvement in data and analytics discussions as well as our sales teams focusing more on Chief Data and Analytics Officer engagement.

An example of this is the conversation I recently had with the Chief Analytics Officer for one of the largest banks in North America, who has spent the last 2 years democratizing data and creating a data science and analytics culture at his firm. With the Alteryx platform, analysts across the bank in nearly every function have operationalized more than 500 workflows, saving tens of thousands of hours, freeing the teams up to tackle more challenging opportunities, and now clearly see the opportunity to modernize their staff by eliminating redundant systems deep in IT, and have ambitions to reduce the dependency on Excel, retire tools like Datamere and Cognos, all while leveraging our Python and Alteryx to migrate thousands of predictive models currently found in SaaS.

This conversation is illustrative of what I have said since our IPO. The winner of the $24 billion TAM in the line of business will be the natural beneficiary of the $28 billion share shift of legacy tools locked up in IT organizations around the world. We are starting to see the early days of the shift starting to emerge. As we continue to scale, we also see an opportunity to activate our ecosystem and create even more avenues for future growth.

With that, let me turn the call over to Kevin to discuss our Q2 financials and outlook for Q3 and the second half of 2019. Kevin?

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

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Thank you, Dean. As Dean noted, we had a very strong second quarter, highlighted by revenue of $82 million, an increase of 59% year-over-year. Similar to what we saw in Q1, revenue benefited from a more favorable product mix, which resulted in the upfront percentage of our revenue being once again at the high end of the 35% to 40% range. We did see some of our larger customers enter into longer commitments with us in Q2, which we believe is continued validation of the strategic importance of the Alteryx platform, although overall contract duration remained at about 2 years.

International revenue was $24.3 million, up 58% year-over-year, as we continue to benefit from the strong global demand for analytics.

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 Q2 gross margin was 91%, consistent with last quarter and Q2 of 2018. Our Q2 operating expenses were $73.4 million compared to $45.7 million in the same period last year. The year-over-year increase in operating expenses was due primarily to additional headcount and other investment in scaling our international operations. As a reminder, our Q2 expenses included the cost of hosting Inspire.

Our Q2 operating income was $813,000 or an operating margin of 1%. Net income was $896,000 or $0.01 per share based on 68.5 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 June 30, we had cash, cash equivalents, short-term and long-term investments of $426.8 million, compared with $461.3 million as of the end of Q1, 2019. The decrease in cash is largely related to the purchase of ClearStory, which was completed in early Q2 as well as seasonally higher operating expenses driven by hosting Inspire in June. Finally, we ended the quarter with 1,076 associates, up from 936 associates at the end of Q1 2019, and 674 associates at the end of Q2 2018. Our increase in headcount 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 Q3 and full year 2019. As a reminder, please note that our guidance assumes the following: average duration of our subscription terms remains constant at approximately 2 years; approximately 35% to 40% of our TCV booked in the quarter will be recognized upfront, with the remainder recognized ratably over time; quarterly revenue seasonality is expected to be consistent with what we experienced in 2018. For Q3 2019, we expect GAAP revenue in the range of $88 million to $91 million, representing year-over-year growth of approximately 41% to 45%. We expect our non-GAAP operating income to be in the range of $5 million to $8 million, and non-GAAP net income per share fully diluted of $0.06 to $0.09. This assumes 70 million non-GAAP weighted average shares outstanding fully diluted.

For the full year 2019, we are raising our revenue outlook and now expect GAAP revenue in the range of $370 million to $375 million, representing year-over-year growth of approximately 46% to 48%. We expect our non-GAAP operating income to be in the range of $35 million to $40 million and non-GAAP net income per share -- per diluted share of $0.44% to $0.50. This assumes 69.5 million non-GAAP weighted average shares outstanding on a fully diluted basis 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 comes from the line of Tyler Radke with Citi.

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

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So obviously, the large deals grew at a really strong pace here in Q2. And if I look back at the Analyst Day and kind of where your recent commentary has been headed, it seems like you're really doubling down on the Global 2000. And I guess, my question is, how are you thinking about investing in sales capacity from a Global 2000 perspective? It looks like margins for the rest of the year, you're not really passing along much margin expansion despite the top line raise. I'm just curious if you see the success here with the large deals as a sign to incrementally invest in the Global 2000 opportunity?

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

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Thanks, Tyler, for the question. I don't actually think it changes our investment thesis on quota capacity. We clearly are going after where the analysts hang out. With 8 million or 9 million potential analysts in the Global 2000, I think we're just focused on making sure that we land there with our traditional land motion, that we make sure that our teams are executing the expansion playbook very quickly. We see a $4 billion to $5 billion TAM in that space by itself. But I don't think it actually changes any of our thesis for investing. We're investing across-the-board. I think it has probably more to do with our enablement for those that are tackling the strategic accounts in the Global 2000. And as a reminder, for those of you who have not met Scott Jones, he is on the call today, President and CRO, and he can opine on some of these questions as well.

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

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Great. Maybe a question then for Scott or you, Dean. I think Kevin actually mentioned some of the additional OpEx in the quarter reflected the international headcount, and it looked like international revenue grew 58%, which was in line with the total company revenue, so not a huge underperformance by any means, but that's down pretty significantly compared to a year ago. I guess is there anything that you're focused on internationally to maybe get those growth rates up because they're smaller numbers? Or are you pretty happy with that performance?

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

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Tyler, I just want to remind you that the growth rates under 605 for international were a little bit different under 606. So some of that is the nature of the changing revenue model. But I'll let these guys go ahead and answer the rest of the question.

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Kevin Rubin, Alteryx, Inc. - CFO [6]

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Well, I'll also point out that over 50% of our growth in G2K happened internationally this last quarter. So the investments that we're making internationally are paying off when it comes to the larger opportunities in G2K around the world.

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Robert Scott Jones, Alteryx, Inc. - President & Chief Revenue Officer [7]

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Tyler, this is Scott. Just to follow up on Kevin and Dean's comments. We're still very early in our entry into the Asia and Latin America markets. In EMEA, we're a little bit more mature and starting to focus our sales efforts a little bit more on the enterprise side. And as Dean just mentioned, over half of our new lands in the Fortune 2000 this past quarter were in international markets. So we feel really, really good about the investments we're making. We're constantly evaluating them. But we're bullish on our opportunities moving forward.

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Operator [8]

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Our next question comes from the line of Brent Bracelin with KeyBanc Capital Markets.

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Clarke Jeffries, KeyBanc Capital Markets Inc., Research Division - Associate [9]

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This is Clarke on for Brent. Dean, I want to maybe focus in on that commentary that you gave around half of the G2K adds were from international. And I guess just stepping back, I'm a little bit surprised by the rate of G2K adds. Looking at a year ago at 500 G2K customers and then 560 last quarter, and then now, it's 656. That comment that you made about half, was that the historical trend and this is kind of all G2K focus rises kind of all boats and you had domestic adds just very strong for the quarter? Just trying to parse out where these investments are happening, so -- there's such a stark in G2K customers this quarter?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [10]

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Well, there's 2 parts to this. One was the net new adds that we had in the quarter; and then the second part of it was the change in definitions from prior years. So we did incorporate that. There were a total of, I think reported, 99 new G2Ks. There were 40 -- 46, I believe, net new from sales, and the other remainder was from redefinition on G2K.

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Clarke Jeffries, KeyBanc Capital Markets Inc., Research Division - Associate [11]

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Okay. Okay. And then another thing that I noticed and I was just wondering if this is helpful for you is, you had some customer activity with some other analytic vendors, there's some software vendors in the ecosystem. Do you feel that you're reaching a scale where sort of new alliances or new bonds are being created and they're seeing kind of existing Alteryx user base as something they want to tap into with their solutions?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [12]

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We absolutely do. I think that people are beginning to understand the power of our platform. The fact that they can add new components to the platform, they can create new tools, new macros, new apps, new APIs, provide embedded analytics as part of their own systems. Last quarter, we talked about the new opportunity that emerged with Thomson Reuters to allow their ONESOURCE customers to live in ONESOURCE longer, and that requires Alteryx to be in the mix. And so we've seen pretty healthy pipeline build from TR, and there's a number of other partnerships that we'll be talking about in future quarters as we begin to establish those relationships in a very similar way as we've done with TR.

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Operator [13]

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

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James Derrick Wood, Cowen and Company, LLC, Research Division - MD & Senior Software Analyst [14]

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You recently had some feature upgrades to your server product. Is there anything incremental to call out in the upgrade? And would you expect it to potentially drive greater server adoption or be an incremental revenue driver as you look out over the next year or so?

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

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Well, we're always listening to customers, Derrick. We have a long list of incremental improvements on server. We have a whole bunch of new things we want to add that will move the needle, we believe, in server and future releases. I think that the real key to server adoption is making sure that we're hanging out with -- where the analysts are. I think we've said in the past that when you get to 15 or 20 designers that you typically move to Server. That's just easier to achieve when you're -- if you are selling to the G2K.

That said, I wouldn't limit it just to innovation on Server. I think it's we're clearly listening to what customers need us to do to appease the scalability, the governance, the security kinds of issues that IT has. But across the entire platform, from new features and capabilities in Designer for both Q3 and Q4 in our point releases, the improvements to UI in Promote, a bunch of new assets that are going to be harvested for Connect, unification of Connect more with Server so that we simplify the user experience in the platform.

So it's not just a Server issue. It's across the platform we continue to innovate. And we have pretty good visibility into what customers want. Our community is a great playground for people to provide us with the checklist of what they want in the platform, we have the opportunity to debate those issues within our product management team and engineering teams, and we're never going to stop listening to what customers need as we build out this platform further.

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James Derrick Wood, Cowen and Company, LLC, Research Division - MD & Senior Software Analyst [16]

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Great. And then you guys brought in a new Chief Marketing Officer a number of months ago. I'd just be curious to hear what initiatives he has on his plate? And anything to date in terms of new marketing and positioning and what the marketing reception has been?

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Robert Scott Jones, Alteryx, Inc. - President & Chief Revenue Officer [17]

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Derrick, this is Scott. First of all, he is a she. It's Amy Heidersbach, and she joined us about a month ago, and we're really, really thrilled to welcome her to the company. A lot of really great experience in her background. Specifically, she will be very focused on bringing specific use case solutions to market, opening up new buying centers within our customers. And we're really excited about what she's going to bring to the entire team and to our customers.

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Operator [18]

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Our next question comes from the line of David Griffin with William Blair.

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David A. Griffin, William Blair & Company L.L.C., Research Division - Analyst [19]

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Two, if I could. The first one for Dean. I just quickly wanted to touch on the Tableau and Looker acquisitions. I know this is something we talked pretty extensively about at the customer conference in terms of getting your take on the competitive implications there. But it is something that is still kind of front and center for investors, so I wanted to circle back and just get an update on whether you saw any of those transactions maybe influence customer conversations or sales cycles really in any way during the quarter?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [20]

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Not at all. In fact, I think in both cases, it's clear affirmation that the space that we have built and seem to be winning in today is headed down the right path. I think -- it hasn't changed any of the sales cycles, it hasn't slowed anything down, it hasn't sped anything up. We're particularly excited about the Salesforce-Tableau deal, both are valuable customers of ours. Not really sure what Google intends to do with Looker. That probably fires up some other competitive conversations outside of our world. But again, I think it's affirmation that the market's beginning to consolidate even faster than we imagined a year, 1.5 years ago, and it's affirmation that we're doing the right thing.

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David A. Griffin, William Blair & Company L.L.C., Research Division - Analyst [21]

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Got it. That's helpful. And then just one more, if I could. Circling back and expanding on your thoughts on hiring activity, given that we're halfway through the year now and you tend to kind of front-load hiring. Can you just give us a progress update on where overall hiring activity came in relative to plan? And whether or not you feel like you're attracting the level of talent that you had hoped? And then specifically on the sales organization, as we think about potential growth in headcount this year, would it be fair to assume that the growth rate could be something approximately in line with revenue growth? Or would you expect it to be materially different?

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Christopher M. Lal, Alteryx, Inc. - Chief Legal Officer [22]

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Thanks, David. I mean I would say we're pretty pleased with hiring. I think we've commented previously that as we've gotten larger and more recognized, it has facilitated hiring and quality of attracting better talent. In terms of sales, obviously, that's been an area -- sales and marketing combined, that's been area that we've heavily focused our investment efforts on. If we just look year-over-year, those teams have grown a little over 60%. So it's pretty consistent with what we've seen on a revenue-growth basis.

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Operator [23]

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Our next question comes from the line of Jack Andrews with Needham & Company.

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Jon Philip Andrews, Needham & Company, LLC, Research Division - Senior Analyst [24]

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I feel like one of the common themes from your Inspire Conference was that many customers seem to be on this journey of large and increasingly rapid seat expansions over a sustained period of time. So I'm just wondering, can you shed some light on whether this is still mainly happening organically just through the success of your product? Or is there something else that you refined in your sales or customer service process that's really encouraging these types of expansions?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [25]

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Well, I think it's a little bit of both. Just anecdotally at Inspire, I personally had probably 12 or 13 one-on-one meetings with customers, and every single one of my meetings was either a customer trying to go from 50 seats to 500 and wanted to know how to influence that or from 500 seats to 5,000. So some of this is just the awareness of executives on the importance of data science and analytics and the importance of driving the data science and analytics culture in their path to digital transformation success.

I do believe that quarter after quarter, we continue to improve our playbooks. We take out as much friction in the processes as possible. We have a time-tested land and expand model that just simply works. So we just need to make sure that we continue to iterate wherever possible. But a lot of it are the tailwinds just coming from CDOs and proxies for CDOs that are recognizing the importance of data science and analytic cultures for their success.

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Jon Philip Andrews, Needham & Company, LLC, Research Division - Senior Analyst [26]

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Great. Appreciate that. And just as a follow-up, I want to ask about your Assisted Modeling product. Our understanding is that this is on track to be, I believe, is the most downloaded beta in your company history. So I was wondering if you can just talk about the significance of this. When do you think it might be released? And how do we think about the ramifications around this?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [27]

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Well, I'm not sure where you heard it was the most successfully downloaded beta. We are in beta 1. There are several betas before we GA this. There's no date on the -- specific date on the GA. There are quite a few downloads. What we believe is important is the -- the trained statisticians have easier-to-use tools like Alteryx with Python and Jupyter Notebook support to build models and deploy models on Promote. The citizen data scientist needs to have a clear path to success in understanding what models might influence a question they're tending to ask and how to decision off of whatever the result of whatever model is optimized for that question.

That said, we're confident in the results that will probably play out next year on Assisted Modeling. I think it's amping up the skills of the citizen scientists are equally important to providing a code-friendly approach for the scientists. I couldn't tell you off the top of my head how many downloads there have been, but I do know that I see beta reports and see the kind of feedback that we're getting both internally as well as externally with customers. And we're pretty excited about the Assisted Modeling effort.

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Operator [28]

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Our next question comes from the line of George Iwanyc with Oppenheimer.

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George Michael Iwanyc, Oppenheimer & Co. Inc., Research Division - Associate [29]

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So Dean, following up on those comments on Assisted Modeling. Can you maybe give us a sense of longer term, whether there are monetization opportunities with AI, ML and automation?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [30]

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Well, clearly, there's opportunities for monetization. I think that while today we have a fairly limited number of SKUs that our teams sell, there might be opportunities in the future to add additional SKUs that target specific use cases or specific horizontal functional areas or specific vertical markets. There's clearly going to be an opportunity to leverage our platform to build vertical solutions that leverage data science and machine learning in the full breadth of predictive capabilities within our -- Python and Alteryx in general. How that emerges, we're still seeing the market unfold around this.

There's a lot of point solutions that do one industry very well. It might do price optimization but you can't weave that into a vertical solution very easily. So with our platform, we see lots of avenues, both in Designer, outside of Designer, as pure cloud services, and new SaaS services that could disrupt thousands of point solutions that exist today in various verticals. And even down to building new companies where data science and machine learning will move the needle on the value of these businesses.

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George Michael Iwanyc, Oppenheimer & Co. Inc., Research Division - Associate [31]

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And -- well, one other question. With the strong larger enterprise specs that you're seeing, can you give us a sense of the attach rates, through Connect and Promote, with the deals overall and especially with the larger customers?

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

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Well, we haven't divulged any attach rates yet. We're actually very excited about the progress we're making with both Connect and Promote. We included 2 of those stories in the prepared remarks, and we heard many of these stories at Inspire. And I think what's happening is, as the line of business gets more alignment with the Chief Data Officer, and in many cases, the self-service data science and analytics got ahead of CDOs or proxy CDOs. And now that the CDOs are in the mix, they're beginning to recognize the real challenges in the future, and that is harvesting all the assets that are now being traded by all of these analysts. So therefore, Connect becomes critical to the first mile of their analytic journey.

And we're hearing those organizations that have been struggling deploying algorithms for years, even though it's pretty easy for them to build a model, and it's getting perhaps easier to build models with auto modeling capabilities. The real challenge isn't building the model, it's deploying the model. And so Promote becomes infinitely more important to our customers in the long haul.

And so we're excited that we don't have just one entry point for our platform. We typically entered with Designers, that's gate to Servers, that then lead to Connect and then Promote. But as you saw in our healthcare example, customer start with Promote, they realize that all of the other parts of the platform accelerate this journey to success. And so at some point down the road, we will perhaps share some attach rates, but we won't do that today.

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Operator [33]

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Our next question comes from the line of Taz Koujalgi with Guggenheim Partners.

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Imtiaz Ahmed Koujalgi, Guggenheim Securities, LLC, Research Division - Director of Technology, Media & Telecom and Analyst [34]

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A question on the net expansion rate, that's been consistent for the last few quarters. Can you guys comment on how much of that was driven this quarter by seats versus upsell of new products into the installed base?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [35]

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We don't break it down, but the reality is most of the expansions occur with additional designers in the same department, additional designers in adjacent departments. And again, 15 or 20 designers lead to a server that sparks the interest in Connect and Promote. So it's a combination of both seat expansion of Designer and then the necessity to get to scaling and security and governance and automation.

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

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Yes. That's no different than historical. We haven't seen any fundamental shift in how expansion has been generated.

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Imtiaz Ahmed Koujalgi, Guggenheim Securities, LLC, Research Division - Director of Technology, Media & Telecom and Analyst [37]

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Got it. And then one for Kevin. If I'm doing my math right, I get your -- based on the ARPU that you've disclosed tonight, I get your bookings growing sequentially about 60% from Q1 to Q2. Is that -- I hope I'm doing my math right, but was there any difference in seasonality of your bookings growth this year versus last year? We don't have last year's numbers, I'm trying to get a sense of if the seasonal growth from Q1 to Q2 in this area was in line with the typical seasonality, was -- or something different, given that strong number that I'm getting?

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

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Yes. I mean I think directionally, you're seeing the appropriate trend. I think if you look at our 605 reported quarters last year, you'll see a similar acceleration from Q1 to Q2. We have talked about our seasonality quarter-to-quarter. Q2 tends to be a strong quarter for us like many software companies. Given that duration of contracts have not really moved from 2 years, I think that's a reasonable proxy for comparison. So -- but to your point, we did see a notable increase this quarter.

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Operator [39]

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Our next question comes in the line of Chris Merwin with Goldman Sachs.

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Christopher David Merwin, Goldman Sachs Group Inc., Research Division - Research Analyst [40]

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I just had a couple actually. I think, Dean, you talked about increased traction with vertical go-to-market teams. Curious if you plan to invest further in that vertical go-to-market opportunity either from a sales or a product perspective? And then I have a quick follow-up.

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

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Great question. We are seeing success in our healthcare public sector team as well, even in education, and we're beginning to see additional avenues. In some cases, they're not necessarily vertical buildouts but they're horizontal buildouts that could have an enormous impact on opportunities in the future. For example, with all the work that we're doing with the accounting firms, we're seeing a huge opportunity and a big void in the Office of Finance. And so we've been doing a lot of work around how we might be able to move the needle there. So it's not necessarily a vertical but a horizontal play.

And we're beginning to see everything from tax and accounting and audit and FP&A and a whole swath of opportunities. For example, just in the tax world, there's, I don't know, 16, 17, 18 different high-value use cases that we've begun to learn about across the finance teams that we sell to. Everything from sales and use tax compliance to tax apportionment, transfer pricing, VAT tax declarations, property taxes, and it's something that every business has to go through some of that thankless tasks that's required by the regulatory bodies.

And so we don't look at it just as a vertical. We are looking at some verticals, but we see the horizontal plays potentially leading us to something in the Office of Finance. Possibly even supply chain, we're starting to see some really great use cases around supply chain optimization.

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Christopher David Merwin, Goldman Sachs Group Inc., Research Division - Research Analyst [42]

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Okay, great. And then just a follow-up on net expansion, that's been north of 130% now for 4 quarters in a row. I think the long-term guidance there is 120%. And obviously heard the anecdote from the customer conference, and we heard that really strong feedback as well from customers about near-term plans to significantly increase deployment. So just curious, I mean how we might think about the trajectory of that expansion going forward either in the context of this year's guidance or even beyond that?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [43]

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We don't forecast on this, but if we're successful at tackling greater penetration of the G2K, we're now 33% of the total with less than 1% penetration of the potential users of just Designer. There's an enormous opportunity there. I think at the investor conference at Inspire, we identified the net expansion of the Global 2000 customers at 143%, I believe. And so the net expansion of the G2K is demonstrably higher than net expansion of all customers in general. So we think this could continue for quite some time.

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Operator [44]

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

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Joey Marincek, JMP Securities LLC, Research Division - Research Analyst [45]

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This is Joey on for Pat. Congrats on the quarter. Internationally, did you notice any areas of weakness?

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

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In general, no. Obviously, we look at every quarter, perhaps, a bit differently than others. We have a 60-second gloat policy here about how good our quarter is, and then we turn our focus to the glass half-full, try to figure out what we could have done better, what marbles we left on the table, what processes to improve. Scott probably can add some additional color, too. We are early on in some of the markets that we've built out internationally, but I think in general, we're happy with what we're doing internationally.

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Robert Scott Jones, Alteryx, Inc. - President & Chief Revenue Officer [47]

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Yes, I agree, Dean. We're pleased with the quarter, pleased with the results. We have been able to add some really great new customers in all of our international markets, but continue to have room for improvement and room for continued investments to take advantage of the significant opportunity that lays in front of us.

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Operator [48]

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

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Michael Turits, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst [49]

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First on the 3Q guide. Obviously, you raised the EBITDA for the year, but you came in below the streak. Granted you don't guide the 3Q but came in below the streak on EBIT for the third quarter. Anything around timing of expenses that would help us explain them?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [50]

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Well, Michael, I think as we think about Q3 and the full year, we are continuing to invest as we've kind of described previously around building out the global operations and taking advantage of opportunities we see outside North America. And I think that's going to continue as reflected in the guidance.

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Michael Turits, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst [51]

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Okay. And then there was another question earlier about attach and success traction and such with Connect. One of the things you had mentioned a couple of quarters ago was that you were starting to see lands with Connect. Are you still seeing that? Or is it primarily attached or expands?

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

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It's predominantly expands. Although as we deal more with the Global 2000, the conversation with Connect and Promote happens a lot earlier, and it's not a forced conversation. It's the CDOs or proxies need different things than what the analyst cares about, and the analyst just wants to love their job again and munch a bunch of data to get some outcomes.

And I think that the CDOs care about things that protect the enterprise. They want governance and security and collaborations. They -- and you heard this at the conference from the customers who spoke about their Connect efforts. And we're seeing the -- that machine learning is going to eat the world, most of these CDOs who recognize that clearly see the risk of not having something like Promote to allow them to deploy and manage models. So these end caps as we've talked about many quarters ago after the acquisitions we said, in the long haul, these could be the most valuable parts of our platform. And I think that might come true in the not-too-distant future.

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Operator [53]

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

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Matthew James Coss, JP Morgan Chase & Co, Research Division - Analyst [54]

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This is Matt Coss on behalf of Mark Murphy. Scott, you mentioned you're still in the very early stages of your entry into the Asian and Latin American markets. I'm curious, what do you replace in those markets versus in the U.S. and EMEA? And is it possible there's less adoption of legacy tools in those markets that would make for sales cycle with a little bit less friction?

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Robert Scott Jones, Alteryx, Inc. - President & Chief Revenue Officer [55]

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Yes. Well, I'd say the buying patterns are very similar across all of those markets to what we see in North America. I would say in certain sub-regions like Japan, for instance, IT may be a little bit more heavily involved. You work with and partner with channel partners more often in a market like that. But I think generally, we have the same sort of traction in the international markets that we do in North America. And the competitive products that we may either replace or more often complement or oftentimes just greenfield opportunity and greenfield-type of projects that we're working on are very similar.

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Matthew James Coss, JP Morgan Chase & Co, Research Division - Analyst [56]

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And have you seen any increase in Japan ahead of the implementation of the consumption tax there?

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Robert Scott Jones, Alteryx, Inc. - President & Chief Revenue Officer [57]

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No. No impact at all.

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Matthew James Coss, JP Morgan Chase & Co, Research Division - Analyst [58]

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All right. And then finally, with ClearStory, you acquired that a couple months ago. Has that improved or has there been a noticeable improvement in your ability to hire in Silicon Valley with the presence here now?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [59]

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Still too early for that. We are in the process of consolidating our offices there. We have made all of our engineering reps available to both Broomfield as well as Silicon Valley. When we're at full employment, as an economy, it does become tougher as we're moving into a higher-cost territory. But at the same time, we continue to add engineering talent in our European development center, both in Kiev and Prague. I think that with the ClearStory team, it is a talented bunch of folks, I think that we will be able to attract a lot of talent in the Bay Area and time will tell.

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Operator [60]

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Our next question comes from the line of Brad Sills with [BAM].

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Bradley Hartwell Sills, BofA Merrill Lynch, Research Division - VP [61]

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I wanted to ask a similar question just around some of these larger expansion deals. As you get into these deals, are you noticing any change in kind of the environment from which these organizations are coming from? Is it more replacement as you get into these bigger expand deals in the Global 2000 versus a greenfield? And if so, where are they coming from? What kind of environment are you seeing?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [62]

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Well, I -- we don't necessarily go in with any predetermined replacement. We almost always go in net new. Remember, even with G2K, our land motion is the same. We typically land with 2 or 3 seats at Designer, it's $10,000 or $12,000, it's the same 45-day sales cycle. And then in G2Ks that's often a POC play. It's a single-use case that has high-value return to prove the value of having a platform like ours.

We do see once we get to scale with larger organizations, as I said in the prepared remarks, we do start to replace legacy technology that's deep in IT. And we hear this quite a bit where customers begin to wind down their legacy BI platforms, their reporting platforms, their data quality platforms. And so we attempt not to insert friction in the process. We don't elephant hunt. I think Scott's team has done a phenomenal job at making sure the land model works regardless of where the headcount is of these analysts that live in enterprises around the world.

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Robert Scott Jones, Alteryx, Inc. - President & Chief Revenue Officer [63]

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I think if I could just make one follow-up comment. I think organizations and CDOs are just now starting to understand and appreciate the opportunity to have a full end-to-end analytic platform to manage the entire analytic workflow. And so those conversations are really in the very early stages but there's certainly interest and appreciation for what that would mean to complex organizations solving problems.

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Bradley Hartwell Sills, BofA Merrill Lynch, Research Division - VP [64]

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That's great. And then one more, if I may, please. Just any changes you're noticing on kind of business drivers here with the whole move to cloud-based data warehouses? I think in the past that it -- it hasn't had a big impact. But -- and so just intermediation of data with alternative databases and cloud-based data warehouses, is that having any impact on the business?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [65]

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A positive impact. We see that, again, as a tailwind where you have more and more data sets in more and more locations. It plays right into our strength, and because we can deploy anywhere, it doesn't really matter where the run-time compute occurs, whether it's on-prem or in the cloud. It's pretty important to recognize that process complexity and data complexity continues in large enterprises, and both of those are tailwinds for us.

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Operator [66]

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Our next question comes from the line of Steve Koenig with Wedbush Securities.

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Steven Richard Koenig, Wedbush Securities Inc., Research Division - MD [67]

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I wanted to get into the weeds a little bit here on the financials. So the first question is simply, can you give us some little color on the product mix shift that favored upfront rev rec in the quarter?

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Kevin Rubin, Alteryx, Inc. - CFO [68]

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Yes, sure. So I think as we signaled last quarter, and maybe is evident of the conversations throughout a lot of this Q&A around an enterprise slant to the business, it does typically result in more Servers, Connect and Promote being sold into these organizations. And those are favorable mixes to the upfront portion of the revenue.

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Steven Richard Koenig, Wedbush Securities Inc., Research Division - MD [69]

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Got it. Got it. Okay. And then my follow-up here is a little bit longer winded, but if you bear with me for a second here. So under 605, it was easy and transparent to understand how recurring revenue is growing. At 606, it's hard to get to underlying growth trends. It's partly a function of the accounting standard. But also the detail, at least to date in our RPO disclosures, don't really help bridge that gap. So I guess, if you factor in all the puts and takes, duration, upfront rev mix shift, anything else, like how does your underlying ARR growth, how is that comparing to your revenue growth, both kind of this quarter and maybe longer term? If you could give any color, that would be great.

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Kevin Rubin, Alteryx, Inc. - CFO [70]

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Yes. So I mean obviously, the change in the revenue and the mechanics of the revenue do make it a little bit harder to compare 605 to 606. And candidly, ARR and/or the similar metrics are no longer actual drivers to our revenue. So I mean, it's hard for me to comment other than to say I think the results in Q2 kind of speak for themselves. I mean we've continued to see very, very strong momentum in the business. Revenue did grow 59% with a relatively constant average duration and we saw the upfront portion similar to last quarter. So I know that doesn't exactly answer your question, but I think we want to focus on those drivers that actually impact revenue in the current model.

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Operator [71]

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

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Rishi Nitya Jaluria, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [72]

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First, I want to start off more with a market-type question. So I believe there's a recent Deloitte survey saying that something like 2/3 of companies are still relying on spreadsheets for their analytics. And that tells me there's clearly a big market opportunity for you to go after. Help me understand, what are you seeing out there and what needs to happen? Is it a cultural thing? Is it a skills gap thing, to be able to replace a lot of those manual processes and a lot of that kind of lack of analytical maturity, so to speak, at these businesses and really increase your penetration there? And then I've got a follow-up.

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [73]

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Sure. Rishi, thanks for the question. I think it's important to recognize that almost all the research is pointing to the same thing. We commissioned our IDC study earlier this year to try and understand this ourselves. The truth is that data workers spend 90% of their time each week in data. 44% of their time is completely wasted, 18 hours a week per analyst is wasted doing all the things that should be pretty easy to do. Searching for data, getting it ready for analysis, analyzing it. Then performing model building and app development and trying to deploy these analytic processes. And the system is just completely broken. And it's waste across the board.

And so I think it's a combination of the people skills, the technology that they're leveraging, most of which is just spreadsheets, sort of Excel largely, and internal awareness around where data lives, how it can be leveraged, the IT's willingness to open it up to more people. Again, which is why they're interested in parts of our platform like Connect.

So I think that we're overcoming it by providing a self-service environment that is an end-to-end process, code-free for the citizen scientists who doesn't know how to code or may do some light SQL coding or light Python coding. And it's the same platform that we've delivered to the scientist in a code-friendly approach so that they can write code all day long. And the comfort that the C-suite has now is that everyone's leveraging a single platform to amp up the skills so that they can get rid of this tens of billions of dollars of wasted effort that's sitting in spreadsheets today. We are in the perfect storm, and Alteryx is there to pick up the pieces in most organizations.

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Rishi Nitya Jaluria, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [74]

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Got it. Great. That's really helpful. And then just as a follow-up. At Inspire, I mean, talked to a number of customers who are new to Alteryx and already looking to expand, not just in terms of seats but more products. Maybe can you give us a sense, and I know this is kind of going on top of some of the earlier questions about this topic, but are you seeing new customers to Alteryx landing with more products than you used to see in the past? Or at the very least ramping more quickly in terms of how they go from 1 to 2 to 3 products?

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [75]

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I think in both cases, yes. Adding additional SKUs happens typically with the larger organizations because they have a focused effort around digital transformation. But we actually see the expansion occurring with more seats of Designer, for example, in almost every customer. And I heard the same thing at Inspire, where brand-new customers came up right after the keynote and said they've been using Alteryx for 3 weeks and already have 4 more use cases and 6 more potential seats of Designer. So again, I think it's perfect timing for us to activate this audience of 47 million disenfranchised analysts who hate their jobs because they're living in complex VLOOKUPs in Excel, and we're helping that the digital transformation efforts of the C-suite who truly understands the benefit of driving the data science and analytics culture to see success in that transformation.

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Operator [76]

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Ladies and gentlemen, we have reached the end of our question-and-answer session. And I would like to turn the call back to Dean Stoecker for closing remarks.

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Dean A. Stoecker, Alteryx, Inc. - Co-Founder, Chairman & CEO [77]

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Thank you, operator. In closing, let me just remind everyone that's on the call today that we at Alteryx truly believe that customer trust defines the integrity of our company. And I want to thank our 5,300 customers now around the world for trusting us with what we believe is their most valuable asset, analytics. I also want to thank our dedicated and engaged associates and partners for working tirelessly to help us earn that trust. Thank you for attending today, and I look forward to updating you on our progress next quarter. Bye-bye.

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Operator [78]

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