This is my take and summary of the Alteryx release and conference call. The results are a bit confusing as they adopted the new accounting standard, which apparently puts more of the subscription revenue into current revenue (which increases revenue and earnings but reduces deferred revenue). The results look great though, when you work through them.
Full year ASC 606 revenue of $254 million
Full year ASC 605 revenue of $204 million, up 55% yoy
Q4 was a strong finish to an amazing year. We saw strength across the globe as enterprises invested in digital transformation initiatives. As we look ahead, we remain focused on scaling globally and building a foundation for many years of growth.
ASC 606 Quarterly (new standard)
Revenue for the quarter was $89 million.
Adj Gross profit was $83 million, for an adj gross margin of 93%. (GAAP was 92%)
Adj operating income was $26 million or 30% of revenue
Adj net income $24 million, or 37 cents per share. (GAAP was 25 cents)
Cash was $426 million, up from $194 million yoy. [The increase in cash is primarily related to the issuance of $230.0 million in aggregate principal amount of our 0.50% Convertible Senior Notes due 2023].
Op cash flow was $14.4 million up from $12.7 million a year ago
ASC 605 Quarterly (old standard)
Revenue was $60.5 million, up 57%
Adj gross profit was $54.5 million, for a gross margin of 90%, up from 85% a year ago.
ASC 606 Full Year
Revenue: was $254 million.
Adj Gross Profit Margin was 92% (Gaap was 91%)
Adj operating income was $49 million or 19% of revenue
Adj net income $53 million, or 82 cents per share. (GAAP was 43 cents)
ASC 605 Full Year
Revenue was $204 million, up 55%.
Adj Gross Profit was $184 million, for a gross margin of 90%, up from 85% the year before.
Adj Operating Loss was 0.9% of revenue, improved from a loss of 5.5% of revenue a year ago.
(in ASC 605) We set many new company records in Q4 and for the full-year 2018. Revenue grew 57% to $60.5 million. Billings were up 65% to 116 million and our International revenue was up 92% to 18 million.
For the full-year, we saw Revenue up 55% to $204 million with international up 96%, and now 29% of revenue.
Gross margins improved to 90% and we had $26 million in positive operating cash flow. Our land-and-expand model continues to perform quite well. In Q4, we added 381 net new customers and we now count approximately 4,700 customers in our growing worldwide community. Some new companies included Colgate-Palmolive, Hewlett Packard, and Pfizer.
Land and Expand was evidenced by a more than DOUBLING of customers with greater than a $1 million in annual recurring revenue and a TRIPLING of transactions greater than 500,000 in annual contract value.
Additionally, our dollar based net revenue retention rate remain very strong at 129%.
The technology sector was particularly strong for us in the fourth quarter with transactions from Atlassian, Dropbox, Microsoft, Oracle, and Snap. Another technology bellwether, Adobe expanded their footprint in Q4.
Verticalizing our go-to-market efforts has been another factor in our continued strength. In Q2 we established our healthcare team because we saw an opportunity to better address healthcares unique regulatory and business process requirement and deepen our engagement with these companies around the globe.
As a result of these efforts, a health benefits company expanded with a six-figure deal in the fourth quarter. This customer, like many, had its first experience with Alteryx via a free trial and in the words of one of its users “fell in love with the simplicity of Alteryx”. It had been using another company’s legacy platform for advanced analytics, but found it, to be “very hard, tedious, and expensive to implement”.
International Revenue was up 96%, and is now 29% of revenue. In 2018, we opened or expanded 12 offices, including Tokyo, Paris, and Dubai. We added over 120 associates outside of North America. The Middle East and Africa stood out with a doubling of revenue in Q4. In the quarter, we did business with Abu Dhabi Islamic Bank, and Dubai Electricity and Water Authority in the UAE, Saudi Commission for Health Specialties in Saudi-Arabia, Standard Bank Group Limited in South Africa, Trade and Development Bank in Kenya, and now count 10 separate government agencies in Saudi-Arabia as customers.
Explanation of ASC 606 change
Under ASC 605, we recognized revenue ratably over the subscription term which typically ranges from one to three years.
With the adoption of ASC 606, we will now recognize a portion of our revenue upfront. Our average subscription term is approximately two years.
Since we typically bill our customers annually in advance, for multi-year subscriptions, our ASC 606 revenue includes revenue recognized, but not yet billed. The unbilled portion is recorded as a contract asset similar to an unbilled receivable.
The amount of revenue recognized will vary based on configuration of each deal, but we estimate it to be between 35% and 40% of our quarterly total contract value (TCV) booking. This means we will recognize the remaining 60% to 65% of our TCV bookings over the subscription term. This also means that our revenue recognized in the quarter the deal is booked under ASC 606 is higher than our previously reported revenue under ASC 605.
I want to emphasize, however, that we are not making changes to how we do business nor how we contract with customers as a result of our adoption of ASC 606. Therefore, we will continue to bill our customers annually, in advance, regardless of subscription term.
Under ASC 605, we capitalized and amortized sales commissions over the contract term. Under ASC 606, we will continue to capitalize sales commissions and other costs incurred to obtain a contract with a customer. However, the expense model will track closely to our revenue recognition model with a portion expensed upfront and the remainder amortized over time.
Additionally, in our view, given the mechanics of revenue recognition under ASC 606, our previously reported dollar base net revenue retention rate is no longer a meaningful metric to measure our performance. Instead, we intend to report dollar-based net expansion rate, which is a metric based on annual contract value or ACV. We believe this metric more appropriately measures the performance of our land-and-expand strategy.
Q - Verticals. Obviously, Alteryx is in the sweet spot of the horizontal solution. It applies to many different used cases and verticals, but obviously, you’ve seen some success here with healthcare and financials. Is there a plan to go after more vertically oriented go-to-market going forward? Are there other potentially low-hanging fruit there?
A - There is. I think we put our toe into the water last year with both public sector and healthcare for different reasons, the selling cycles and budgeting cycles from the government, as well as the difficult data challenges and regulatory issues in healthcare. We also wanted to get more and more of our customers to the $1 million mark, and we doubled our number of million-dollar accounts last year.
In order to do that more consistently, it’s going to require domain expertise. And so, particularly in healthcare, we brought on a set of folks to help us prosecute analytics within the healthcare sector. We’re contemplating even now the creation of vertical solutions. Nothing has been done yet. The market’s still really ripe for the opportunities.
It’s a different selling motion just because of the vernacular within the space and the regulatory compliance requirements within the space. But you will most likely see us venture into things like tax and audit this year and perhaps some other verticals. But largely, we’ll still focus on this horizontal platform because we’re still uncovering use cases that we never imagined.
We see this $30 billion opportunity in front of us. We seem to be the only player with an end-to-end platform that’s taking advantage of that greenfield opportunity. And we’re going to keep doubling down and improving in every part of the business as much as we can.
The competitive environment is pretty much the same globally. Generally, Excel is the global standard for the citizen data scientists. And SAS tends to be the standard for the trained statistician. So, I would say that there’s really very little to no difference in the competitive environment worldwide.
On increasing operating expenses: our priority in terms of how we think about investment is go-to-market first. And so, that is the combination of both domestic and international investment in terms of quota carrying reps and infrastructure to support them. Next, in terms of how we think about investment, is R&D. And so, for 2019, implied in the guidance, is continued investment in that regard. I would also just comment that a lot of the new employees we brought in in 2018 were backend loaded. And so, in 2019 you’re seeing the full effects of those expenses, along with the 2019 hires as well.
Saul – My Take – It all looks great to me! I hope all my companies do this well.