AYX earnings

Investment Analysis Clubs Saul’s Investing Discussions
#13

Could this revenue recognition principle blow up in their faces in later years since they are recognizing the majority of the revenue up front due to the way they do their contracts?

It would only have an impact if customers dropped Alteryx after their contracts expired and if Alteryx stopped gaining new customers. Neither of those are the case today as evidenced by the DBNRR and new customer growth.

It is possible this will cause some seasonality in the business. For instance, let’s use an extreme example where 100% of their customers renew in the 4th quarter. Yes, this would make for weaker quarters for Q1 through Q3, but it would all balance out on a TTM basis.

No, I don’t see any reason for concern whatsoever.

A.J.

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#14

I suppose if it “craters” to merely 50% growth this year that’s still pretty good if they maintain 92% margins. That’s about the same as a 70% grower with 65% margins.

Terrible maths! From UP 42% to DOWN 60% relative gross profit in ten years.


           70%       65%         50%      92%                           
Year   Revenue        GP     Revenue       GP    Delta
   0     1,000       650       1,000      920      42%
   1     1,700     1,105       1,500    1,380      25%
   2     2,890     1,879       2,250    2,070      10%
   3     4,913     3,193       3,375    3,105      -3%
   4     8,352     5,429       5,063    4,658     -14%
   5    14,199     9,229       7,594    6,986     -24%
   6    24,138    15,689      11,391   10,479     -33%
   7    41,034    26,672      17,086   15,719     -41%
   8    69,758    45,342      25,629   23,579     -48%
   9   118,588    77,082      38,443   35,368     -54%
  10   201,599   131,040      57,665   53,052     -60%
*Believe Einstein, never underrate the power of compound interest.*

Not to belabor the point, but it all depends on the other assumptions

If I assume that the 70% grower is going to naturally decelerate faster than the 50% one, with them both reaching long-term 20-25% growth rates five years from now, then their gross profit dollars will be pretty similar throughout


Year	65%GP	Growth		92%GP	Growth
0	 650 			 920 	
1	 1,105 	70%		 1,380 	50%
2	 1,746 	58%		 1,960 	42%
3	 2,532 	45%		 2,685 	37%
4	 3,342 	32%		 3,517 	31%
5	 4,177 	25%		 4,396 	25%
6	 5,221 	25%		 5,495 	25%
7	 6,527 	25%		 6,869 	25%
8	 7,832 	20%		 8,243 	20%
9	 9,398 	20%		 9,891 	20%
10	 11,278 20%		 11,870 20%

-mekong

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#15

Just remember when they went from ASC605 to ASC606, they had a huge jump in revenue. If you never adjusted for ASC606 both the current year and the previous year as AYX did, THAT huge jump of like doubling revenues (or whatever it was) would have been the misleading thing that couldn’t continue.

There is no tricky unsustainable results hiding in how AYX reports its numbers, so long as they continue to execute as they have.

2 Likes
#16

The quarter was fantastic. No sane person could ask for anything more of this business.

Recent quarterly growth:

Q1 55%
Q2 59%
Q3 65%
Q4 75%

I can’t say enough about this company’s execution. To grow this much, with not having a “bad quarter” is just astounding.

I couldn’t agree more. When it was down in the aftermarket I couldn’t resist and added a half a percent to my position size at $143.35, even though it was my largest position.
Saul

37 Likes
#17

Not to belabor the point, but it all depends on the other assumptions

Of course, but I’m not making any assumptions. I’m saying that high gross margin does not make up for low revenue grow rate. Besides, high gross margin can be offset by high GS&M, i.e. by low operating margin. Put another way, beware of anchoring, beware of confirmation bias, beware of treating a complex model as if it were simple. Comparing revenue growth rate to gross margin is an apples to aardvarks comparison. :wink:

Denny Schlesinger

9 Likes
#18

it appears Alteryx greatly benefited from being able to recognize revenue up front for longer duration contracts and in this case, they were able to recognized 35-40% of the amount upfront.

Could this revenue recognition principle blow up in their faces in later years since they are recognizing the majority of the revenue up front due to the way they do their contracts?

The quarter to worry about that was the quarter they reported yesterday. They first reported using ASC 606 in Q4 2018. I shared your concern, thinking that now that we’re lapping this year, they might not be able to grow at 60% or 65%. Well, they grew at 75%! This quarter astounded me…no exaggeration. I was literally talking to myself out loud as I marveled at their results yesterday.

As some have pointed out, they benefited from recognizing this revenue up front, so that was kind of artificial growth a year ago. But now they grew 75% on top of that! Alteryx sales are gaining momentum.

AYX is a force of nature. It’s hard to even remember that it was available below $90 a couple months ago. If I didn’t remember it, I’m not sure I would believe it.

Bear

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#19

When they adjusted the previous years revenues to asc606 to get the comparison, they also “front loaded” last year’s revenues as well.

This is completely apples/apples comparison.

They did not gain any benefit byvfront loading the sales. The only way you could say that is if you looked at ASC606 last year to ASC605 revenues the prior year.

4 Likes
#20

AYX is a force of nature. It’s hard to even remember that it was available below $90 a couple months ago. If I didn’t remember it, I’m not sure I would believe it.

Bear

It is amazing. I increased my position about 10% last year with buys just below 90 and then in the mid 90’s. It was already my #1 position so I was cautious in adding. Now, I just wish I had bought more! As an aside, it’s been jockeying with SHOP for my #1 position and I had trimmed SHOP 10% to add to AYX, mainly due to valuation concerns - now I wish I hadn’t trimmed that either.

I think the lesson is to stick with your winners and to not fret over valuation if the company is hitting on all cylinders. And to have confidence in your convictions.

Dave

18 Likes
#21

I suppose if it “craters” to merely 50% growth this year that’s still pretty good if they maintain 92% margins.

They lowered their pro forma 2020 Op Margin 4% below consensus, just fyi.

Long AYX,

#22

And to have confidence in your convictions.

Monkey is riding fast and high in his banana mobile along with the re$t of you this AM, thanks to our cumulative good sleuthing on AYX, the little banana daiquiri that could and did.

But let’s be very careful about the humanoid propensity for hindsight bias: had things not worked out so hot, for whatever unforeseen reason, the adage would have been “had we only been more cautious and skeptical, we would have sold before earnings after the big rise.”

Confidence in our convictions cuts both ways, in other words: we ought to have confidence in our work, but we also need to maintain proper humility––ALWAYS––that confidence is not enough to overcome that which is not in our power to see or understand. The fundamental nature of the universe is probability, not predictability, remember.

So, yeah. AYX seems like a shower and a grower and for now, we celebrate. But we do so with heads bowed and full of gratitude to Saul and Co, the lovers and haters who make us better investors and, hopefully, more giving and generous creatures to one another.

Smooches,

Monkey (long AYX) and wondering whether to add to DDOG…

94 Likes
#23

It was already my #1 position so I was cautious in adding. Now, I just wish I had bought more!

AYX (and OKTA) always seemed to me to have strong appeal with sticky and somewhat viral business models. If was for this reason that I purchased FULL positions of both in January 2018 after becoming aware of them. I did the same with Tesla in 2012. Those three positions are now up 400%, 325% and 2,250%, respectively.

I mention this not to brag, or to call into question anyone’s investment decisions or timing, but rather to suggest that buying in thirds (or on some other graduated basis) may not always be necessary if you have enough conviction in your LTBH investment rationale.

Food for thought.

Fool on…!

-Rockleppard

1 Like
#24

Just reposting to correct my poor use of italics. Apologies.

It was already my #1 position so I was cautious in adding. Now, I just wish I had bought more!

AYX (and OKTA) always seemed to me to have strong appeal with sticky and somewhat viral business models. If was for this reason that I purchased FULL positions of both in January 2018 after becoming aware of them. I did the same with Tesla in 2012. Those three positions are now up 400%, 325% and 2,250%, respectively.

I mention this not to brag, or to call into question anyone’s investment decisions or timing, but rather to suggest that buying in thirds (or on some other graduated basis) may not always be necessary if you have enough conviction in your LTBH investment rationale.

Food for thought.

Fool on…!

-Rockleppard

4 Likes
#25

As some have pointed out, they benefited from recognizing this revenue up front, so that was kind of artificial growth a year ago. But now they grew 75% on top of that! Alteryx sales are gaining momentum.

Hi Bear,

I don’t think that I’m following you here. When they switched to ASC606 they went back to compare their past quarters using the same accounting method. Here are the numbers:


**Qtr    ASC605   ASC606   Growth**
Q317   34.155	         52.1%
Q417   38.588	         54.6%
Q118   42.821	50.329   50.0%
Q218   46.800	51.506   54.4%
Q318   54.200	62.589   58.7%
Q418   60.508	89.150   56.8%
Q119            76.020   51.0%
Q219            82.040   59.3%
Q319           103.397   65.2%
Q419           156.450   75.5%

The $156.5m that was just reported is compared to the $89.2m from Q4 2018 and both are ASC606 numbers. Maybe I’m missing what you were trying to say, but I don’t see any problem here.

Chris

4 Likes
#26

So remmdawg trimmed SHOP to by AYX and has some regrets. I sold SHOP outright because of what looked to me like overvaluation.SHOP and Mongo among others seem to continue increasing in price despite overvaluation,the negative earnings and other negative metrics. So many seem to believe that current growth rates are predictive of future profitability. Some of this has got to be wishful thinking, or market euphoria. Of course Saul was quite clearly negative on both companies in his recent monthly summaries. But we see that prices continue to rise… I wonder how others on this board view the matter.

2 Likes
#27

Trimmed a little AYX on the rise and added to DDOG on weakness.

Probably wrong, but did it anyway.

Cheers
Qazulight

2 Likes
#28

I mention this not to brag, or to call into question anyone’s investment decisions or timing, but rather to suggest that buying in thirds (or on some other graduated basis) may not always be necessary if you have enough conviction in your LTBH investment rationale.

I guess timing is everything, right?

In January 2018, or December 2019, taking a full position at once worked out great.

But if someone had first discovered AYX in August 2019, they would have been MUCH better off buying in thirds, vs taking a full position right then.

-mekong

28 Likes
#29

Amazing Q. Looks like AYX OCF margin was 8.2%. Is there an easy way to calculate FCF margin?

https://s22.q4cdn.com/730379107/files/doc_financials/2019/q4…

#30

Ok found it. It is OCF minus Purchase of property and Equipment. FCF margin for TTM comes to 5.4% (34.19-11.45)/417.9

2 Likes
#31

I don’t think that I’m following you here. When they switched to ASC606 they went back to compare their past quarters using the same accounting method.

Exactly, Chris. I didn’t mean that they had done anything wrong, or even that they had shown out-sized growth percentages. I was just talking about the bump from 605 (where they had $204m in 2018 revenue) to 606 (where they had $254 in 2018 revenue). That accounting change changed their PS ratio. It made me and surely others realize that there was hidden value.

Bear

1 Like
#32

Over the last year (and this happens every year) we are told to be cautious, that companies will never reach their old highs, that its not smart too own too much of this or that, “wait until Microsoft decides to get into the market,” and I have to find new stuff to invest in.

We discuss all the other ones all the time, so I am discussing the bolded part real quick. I am often asked to point out new and upcoming companies to invest in. And yeah, I keep a cursory watch on them from the periphery, but I don’t really get into them until it is time to sell what we got. Why dilute our minds and create unnecessary anguish and stress constantly needing to find something new?

This is investing, not collecting. I don’t need to own everything at all times. Just need to own what I need to own and I have found simplify and focus to be the best means to make sure that what I own is systematically what is best for my investments, and I have no interest in collecting stocks as if it were a game.

Fro those who fall into that trap, see if collecting stocks has hurt your returns or helped them? Who knows, maybe it helps. Doubt it, but maybe. You don’t see Saul collecting stocks, but rather holding the best of the best and suffering from anxiety that he always has to find something new.

At the beginning of 2018 I actively looked for new things to own as ANET and NVDA had reached their nadir and I said it in real time, “I need to find investments to accelerate my portfolio.” Or near verbatim. And you know what, I found them at that time. But I mostly ignored these alternatives prior to needing to move on from what I had because it was compelling to sell and move on.

Perhaps others have not suffered from this sort of thing (I’ve been known to try to perfect everything and constantly search the world), but I feel it is a real detriment to your returns. Alteryx is a current example of that. It is difficult to imagine being a better investor by collecting all this new blood while distracting from the old blood that is at the peak of its game, at the peak of its growth curve.

Focus and simplify. Btw/ no one copy the way I invest (except me) but Saul manages extremely well with an in-between portfolio management style. But if even that does not allow you to sleep easily, then do it your way, but with a real bias for appreciating what you have without adding undue stress in your life by constantly having to find something new.

Tinker

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