I know I usually wait until the end of the month, but I just finished my initial AYX thoughts. I’ll represent the other side of the coin, although maybe I’ve just stood the coin on its edge since I’ve lightened up rather than sold.
As usual, I’m 100% open to being shown any flaws in my thinking.
AYX – Alteryx had a much-awaited earnings release on 5/6. As with most firms reporting in May there was considerable speculation about the effects of COVID-19 on AYX’s business. Most of the concern centered around Alteryx’s position as more of an on-prem product than true cloud offering. While no one doubts the importance and inevitability of data analytics, there was legitimate uncertainty with regard to how well AYX’s products would translate in the work from home world.
It turns out Alteryx isn’t immune to COVID-19. Revenues came in at $108.8M and 43.2% growth. Despite being at the top of the guided range, that is by far the smallest growth AYX has posted in the 15 quarters of data I have on the company. It was also their smallest beat by a significant margin in both dollar amount ($0.83M) and percentage terms (0.8%). For a company with a reputation as serial sandbaggers on guidance, it is hard to call this anything but a mild disappointment.
The secondary numbers weren’t terrible but also not what we’re used to. In fact, I’d call it a mixed bag. On one hand, AYX generated $20M in operating cash flow and posted its usual stellar 91% gross margins. On the other, the company saw “an abrupt and significant change in customer buying behavior in March”, particularly “opportunities with new customers and expansion opportunities that were not attached to a renewal”. US business actually appeared to hold up pretty well (+52% YoY). Unfortunately, international revenue took a hit with only 22% YoY growth for 26% of total revenues vs 54% growth and 30% of total revenue in 1Q19. Management noted this difference on the call and implied most of the drop was due to a slowdown in Europe.
The overall decline unfortunately found the bottom line as well. AYX posted its first operating and net losses in 11 quarters. Management mentioned delayed sales, and the 128% NER is the first below 130% in 14 quarters. Operating expenses saw some pressure even when considering one-time charges, though the CFO was quick to point out expenses should get back in line for Q2. Hiring has been paused, nonessential spending has been cut and user conferences have been pushed from 2020 to 2021. While there is nothing fatal in any of this, it’s apparent a company that had been roaring full throttle for several quarters is now judiciously tapping the brakes as it scans the road ahead.
When the press release numbers support my thesis, I usually prefer to wait for the transcript rather than listen to the call. In this case, I had no choice but to settle in to hear what CEO Dean Stoecker and friends had to say. Management continues to have great confidence in their business – which they should, frankly – but it is also apparent AYX is adopting a much more conservative approach to COVID-19 than most of my other holdings. Instead of demonstrating a clear value add in this environment like say ZM or CRWD, Alteryx seems unsure exactly how it fits in the new remote worker dynamic. Yes, the long-term trend toward analytics will undoubtedly roll onward. Alas, it appears AYX will face some temporary headwinds as long as COVID-19 restrictions remain in place. Or as the CFO put it, “The current macroeconomic environment is clearly in a state of turmoil, and we expect it will continue to negatively impact our business.” As a result, AYX guides for just 15% top end revenue growth next quarter and a top end operating loss of -$9M (-9.5% margin). Like most firms it has also withdrawn its FY number (no big deal considering). Yet no matter how many times Dean Stoecker says “conservative” when pressed on the guide, 15% is 15% even when you sandbag. Alteryx has plenty of cash flow and money on hand, so survivability is not a concern. However, this quarter makes it clear AYX is more susceptible to the present macro conditions than I had thought and hoped.
As outlined earlier, much of Alteryx’s slowdown this quarter seemed to originate with its European business. I can’t help but note COVID-19 hit Europe about a month before coming to America. Does the fact the US has lagged many countries in overcoming the virus account for some of management’s hesitancy? It sounds like April stabilized, but how should we weight risk for May or June if this drags on longer than anticipated? Those are legitimate questions – at least in my mind – considering the US accounts for 70%+ of AYX’s business. I’m not smart enough to answer these questions, and my crystal ball has never served as anything more than a murky paperweight. As a result, I have no choice but to adjust my immediate conviction on the stock.
Alteryx entered May as my #2 position after being at or near my top spot for over a year. It has been an excellent investment, and I remain a huge fan of the company’s future. Still, the surprising numbers and uncertain landscape have put me in a much different headspace regarding allocation size. Therefore, I ended up trimming ~60% of my shares. It’s not a belief-in-the-company issue. It’s strictly a matter of personal risk in an uncertain time. I have zero issue with a smart, proven management team deciding to hunker down for a spell. The tradeoff is there’s zero chance I am hunkerin’ down alongside them with 18%+ of my portfolio. I’m much more comfortable with 8%-10% as things work themselves out. If I end up missing out a bit in the short term, c’est la vie.
