Q2 2021 Alteryx Inc Earnings Call
Greetings and welcome to the Altra is second quarter of 2021 earnings Conference call. At this time, all participants are in a listen only mode.
You didn't answer session that will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Chris Lau Chief Legal Officer, you may begin.
Thank you operator, good afternoon, and thank you for joining us today to discuss <unk> second quarter 2021.
With me on the call today are Mark Anderson, Chief Executive Officer, and Kevin Rubin, Chief Financial Officer.
Additionally, all the Hansen, our Chief revenue Officer, and Suresh Mittal, our chief product officer will be joining us for the question and answer session. After our prepared remarks.
This afternoon, we issued a press release announcing our results for the second quarter ended June 32021.
If you'd like a copy of the release you can access it online on our Investor Relations website.
During this call we will make forward looking statements related to our business, including statements about our financial guidance for the third quarter and full year 2021.
These statements are not guarantees of future performance.
Subject to a variety of risks and uncertainties some of which are beyond our control.
Our actual results could differ materially from expectations reflected in any forward looking statement.
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 website, and our Investor Relations 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 today's call. A reconciliation of these measures to their most directly comparable GAAP financial measures can be found in today's earnings release.
With that I'd like to turn the call over to our Chief Executive Officer, Mark Anderson Mark.
Thanks, Chris and thank you all for joining us on the call today I'm incredibly proud of our accomplishments in Q2.
We continued to execute our operating plan and finished the quarter with solid results.
Annual recurring revenue or <unk> was $548 million up 27% year over year.
Revenue came in ahead of expectations at $120 million up 25% year over year.
That's what I've outlined before 2021 is a transformation year for ultra low.
We have the right leadership on the right operating framework to put ultra it's on a path to Reaccelerate our business.
I couldn't be happier with how the team is embracing these changes while demonstrating unparalleled value to our customers as we scale.
Optimizing data analytics leveraging automation across the enterprise are increasingly among the highest business priorities.
From our community every week at the end of the day you can't transform your department and your business without first transforming your people.
<unk> comes in we.
We upskill knowledge workers.
For today's call I will give an update on our overall progress against our key imperatives Ken.
Kevin will then provide specifics on our Q2 performance as well as our outlook for both Q3 and full fiscal year 2021.
Before moving on I wanted to describe what we are seeing in the business that resulted in us maintaining our AOR guidance, while lowering revenue guidance for the remainder of the year the day.
Susan was driven by 2 factors.
First we continue to see the average duration of our contracts pool and as our sales teams primarily focus on ACB.
And second we saw elevated sales attrition persist longer than we anticipated.
With that context laid out will go into more detail regarding these dynamics, but I want to reemphasize debt, while we did take down revenue guidance, we did not take down our IRR expectations.
This is important to highlight as we believe that <unk> shows the underlying health and performance of our business.
Please remember airline is unaffected by contract duration in fact, 1 year contracts typically have higher HEV and 3 year contracts.
As a second point, while attrition will have some impact on <unk> as well we were encouraged by the growing productivity improvements.
And given recruiting and training efforts, we expect to see improvements in the second half of the year.
And finally, we were experiencing an improvement in customer retention rates.
It is also important to highlight that 1 of the reasons. We are maintaining our <unk> guidance is that we are seeing better ACB on shorter contracts and this dynamic is partially offsetting the impact from continued elevated sales attrition.
Now moving on to our business updates.
During the quarter, we welcomed Paul Hanson as our Chief revenue Officer, and why did she ever hit the ground running.
Under her leadership, we are refining the go to market strategy to place our best in class Global sales organization in front of large customers and prospects who need our innovation the most.
We are also re imagining the go to market development journey that is required to enable all customer facing resources to meet the growing demand in this fast changing market.
While we still have work to do as transformations of this scale don't happen overnight I'm delighted with the progress that we've made.
All is laser focused on sales productivity and as I've said this will be a key indicator of our progress.
At the quarter, we saw notable improvements in this important metric.
Longer tenured rep, and new hires delivered solid results.
I'm, particularly impressed at how many new hires to become productive quickly.
Gives me confidence that our reward and enablement improvements will yield the right results.
Another key to our operating plan is hiring on time and hiring at scale.
We have ambitious hiring plans for the year as we continued to scale ultra it's globally.
In Q2, our expanding recruiting team helped us achieve our largest hiring quarter ever.
I continue to be humbled by the quality and experience of the people joining the altra team.
Despite the strong hiring in Q2, we did see attrition continued throughout the quarter.
This will have an impact on our sales capacity for the second half of 2021.
On reflection, we believe that this higher than expected attrition was due to a combination of 2 main factors.
Our transformation is driving a higher level of operational discipline.
As well as our focus on large enterprise customers and this approach isn't for everyone.
Second the impact of Covid seems to have delayed some people's decisions to change jobs. We believe it has caused some employees to reevaluate their careers.
And their locations.
Throughout the first half of this year, we've been busy working on mitigation plans to offset our near term lower sales capacity. These.
These include 3 key pieces.
Fast start training.
An increased focus on hiring execution, and creating data driven campaigns to expand with killer use cases in every large prospect and customer.
Remember a large percentage of these <unk> did not have the experience selling to senior executives along with global systems integrators.
In my conversations with other tech leaders. It is clear that attrition levels are high everywhere.
In addition to our concerted go to market focus in Q2, we held our first virtual inspire conference in May it.
It was our most successful customer conference to date with over 20000 registrants globally.
We had over 60 customer voices presenting.
Including participation from strategic partners, like AWS, and Snowflake and UI path.
It was energizing to bring our incredible community together to share their successes in driving business outcomes and automation.
For example.
711 percentage, how they're leveraging ultra X for their critical supply chain management processes with over 9000 stores and thousands of products.
Without <unk>, they were able to standardized optimized and automate this complex process leverages multiple AI model.
It was previously a 2 day process was reduced to less than 1 hour with improved accuracy and confidence.
UBS presented how they're using old tricks in a heavily regulated environment since becoming a customer over 5 years ago, they've grown to over 3000 users and are running up to 6000 analytics workflows every day to drive business results across the company.
In important areas like revenue forecasting financial fraud detection capital planning and much more.
Phillips 66 is using ultra X to improve their supply chain efficiency and margin.
Transportation and logistics profitably and reduce risk through tax automation.
They were achieving an incredible ROI with our innovation they have generated over $10 million on value saving almost 40000 hours of manual work and retiring 500 spreadsheets.
Their inspiring presentation. They commented that with 1500 analytics use cases data is the new oil for Phillips 66.
Inspire also provided us the opportunity to have higher level conversations with our customers and prospects.
On day, 1 I met with the CEO of a large financial institution in Asia for the very first time.
They're just starting to use ultra automated analytics across various teams, including tax institutional banking private banking and risk to.
Together, we kicked off their citizen data science certification program on a 2 hour zoom meeting with over 600 of their employees.
This rollout is a best in class example of how to deploy ultra X within a large institution at scale.
Currently there are hundreds of employees now on the waiting list for the next phase of the program.
The Trifecta I worked here includes executive support a jointly developed project plan and strong alignment on execution, all of which will help this customer supercharge their upskilling efforts.
In addition to large customers that presented their amazing use cases at inspire other GTK customers expanded their ultra <unk> footprint in Q2, as we focus on the right business outcomes and on customers with the greatest lifetime value potential.
This quarter, our leading financial software company in the GTK created an automation center of excellence that Leverages technologies, such as robotic process automation from our strategic partner you iPad.
Analytics process automation from old tricks.
This organization literally wrote the software for finance automation and now they're tackling key use cases internally by a complimentary RPI bonds and API workflows.
We're also seeing customers embrace ultra for speed and precision in sports analytics.
We're well over 20 sports organizations using ultra critical real time insights.
Moving teams in the NFL Major League baseball on.
Racing and global soccer.
They're leveraging the ultra rich platform to create a competitive advantage.
And Formula 1 Mclaren racing uses ultra for real time analytics automation as.
As well as modeling and digital manufacturing race day logistics fan engagement and throughout their back office.
As you May have seen we recently announced a marketing partnership with Mclaren.
With the ultra rich brand prominently displayed on Mclaren race cars and team of tire. We are excited to further our brand awareness by partnering with this amazing organization.
We continue to focus on our partner ecosystem this quarter.
As we expand our leadership position within the analytics market, we recognize the leverage available to us through these strategic relationships and believe that a vibrant ecosystem of partners will function as a force multiplier.
An example is our recently announced strategic alliance with KPMG.
This alliance is positioned to help organizations accelerate data driven business transformation around tax operations by delivering greater efficiencies in cost and risk management strategies.
Day, KPMG professionals and the ultra sales team our strategy on deals and collaborating in the field with customers to drive business outcomes across supply chain retail life Sciences insurance and more.
Also this quarter Snowflake named Ultra is in the lead partner.
The fact that we have progressed to the top tier of their tech partner program and just the last few quarters is impressive.
And as a result of more comprehensive new collaboration combined with the elegance of the integration of our solution.
We now have well over 500 customers in common and growing.
Our innovation engine is firing on all cylinders.
Earlier this quarter, we announced enhancements with machine learning intelligence suite and designer.
We also unveiled designer cloud our first major step forward in our cloud strategy to make access to designer ubiquitous.
It is currently in beta and we have hundreds of customers participating the feedback so far has been consistently positive with customers praising the design flexibility interoperability and new features.
As we move closer to Jay we will provide more details around deployment features and pricing.
But being thoughtful and focusing resources on this beta program, we expect to get important feedback from participants that will help us successfully rollout at this important stage of our cloud strategy.
In closing, we're making great progress against our 2021 strategic imperatives and I'm convinced that we have the right plan guiding our business transformation work.
We are attracting high quality talent augmenting our capabilities to support a more enterprise focused go to market motion.
After inspire our community membership soared to over 290000 user strong.
This community is unrivaled in our industry and their engagement levels are only going to get stronger.
Our leadership team has the experience to lead the coordination of these resources, while delivering more innovation faster to customers.
Dramatic reduction of friction in all of our processes.
Increased sales productivity and high quality technical and distribution partnerships.
I remain confident in our ability to successfully transform <unk> to deliver long term value for our people customers partners and shareholders.
The opportunity ahead of us is massive.
And growing at global scale I believe all trips will be 1 of the winners in this highly fragmented data analytics and automation landscape.
Incredibly energized by the opportunity we have in front of us and I'm confident that as we emerge from the pandemic customers will see a stronger faster and more equipped partner to make their transformations successful.
With that let me turn the call over to Kevin.
Kevin.
Thank you Mark overall, we delivered a solid performance in the second quarter. We ended Q2 with $548 million and they are representing year over year growth of 27 per cent and reported Q2 revenue of $120 million up 25 per cent year over year.
Both were ahead of expectations as we continue to see improvements in sales execution as a result of the transformation efforts, we walked you through last quarter.
Additional highlights for the quarter include we ended Q2 with over 7400 customers, including 770 or 39% of the global 2000.
Overall net expansion remained at 120 per cent and a stronger 129% within the global 2000.
Additionally, in Q2, we saw improved customer retention rates, we continue to see gross customer retention in the nineties reinforcing the strategic value, we bring to our customers.
As a reminder, the customer churn that we do see typically occurs within smaller companies, especially those with a single seat of designer and up for their first renewal.
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 revenue was $120 million, representing 25 per cent year over year growth. We continue to see contract durations shortened throughout this quarter I'll provide more color on this dynamic when I discuss our outlook for the remainder of the year.
Our Q2 gross margin was 91%, which was generally in line with Q2.2020.
Our Q2 operating expenses were $116 million compared to $88 million in the same period last year.
The increase in our operating expenses is primarily attributable to increases related to head count and payroll related expenses.
Our Q2 operating loss was $6 million net.
Net loss was $5 million or a loss of <unk> <unk> per share based on $67.2 million fully diluted weighted average shares outstanding.
Turning now to the GAAP balance sheet and statement of cash flows in the quarter, we spent $10 million in cash flow from operations or.
Our liquidity position remains very strong with just over $1 billion in cash cash equivalents short term and long term investments.
Before turning to the outlook for Q3 and full year as Marc just discussed we are lowering revenue guidance, while maintaining our <unk> guidance for the year.
Let me provide some additional color on why we are lowering revenue guidance, but reiterating our <unk> guidance.
As we have discussed for several quarters revenue and are are are each affected by different dynamics that don't always trend the same.
For revenue, we have discussed how sensitive our revenue is to the contract duration.
While I indicated earlier this year that we expect to see our average contract duration shorten this is occurring at a faster pace than anticipated.
In a year at this scale every 110th annual duration could impact revenue by $10 million.
This accelerated change in contract duration is in line with 1 of the early changes Paula and team have made to significantly reduce the discount incentives for customers choosing 3 year subscriptions.
While we continue to offer these contracts and many customers continue to contract for multi years. The average is coming down.
This is increasingly the preferred buying cadence from our customers similar to what other software companies experience, where 1 year contracts are becoming more typical.
As you may recall, our contract duration for 2019, and 2020 was $2 zero years.
This year as a result of the strategic decision to focus on <unk> and reduce the financial incentives for customers choosing 3 year contracts, we are seeing contract duration trend below 1.5 years.
Let me provide an example to illustrate how contract duration has has a significant impact on revenue, but not a R. R.
We have included this in our quarterly investor deck posted on our website today.
In My example, let's assume a customer purchased $1 million of software from us and elected a 3 year term.
As a reminder, we have historically offered meaningful discounts for customers electing 3 year contract terms.
That would result in $3 million of TCP or bookings for this deal and we would recognize approximately 40% or $1.2 million of this deal upfront and the remaining $1.8 million over 3 years.
In contrast, if this same customer were to elect a 1 year contract. The HCV would improve from $1 million in my previous example to approximately $1.3 million as a result of less discount or a single year contract.
Revenue recognized on this 1 year deal would be approximately $500000 upfront and $800000 over the year.
There are 2 key points I want to emphasize.
First the 3 year contract results and $700000 of additional revenue upfront due to the longer term and more dollars booked.
And second despite the higher revenue recognized from the 3 year deal in the first year, we actually realized less ACB.
With the 1 year contract, we achieved $1.3 million in ACB or 300000, more ACB, which directly benefits a R. R.
So as we continue to strategically focus on ACB, we expect to see benefits in air are going forward.
Throughout Q2, we continued to see elevated sales attrition as a result of the overall market as well as the changes we are making in the organization to align the business with a go to market strategy that is aimed to increasingly towards enterprise customers.
We are seeing this increased employee attrition during a time when we are investing heavily in capacity and growing making it more visible to our team and impactful to our business model.
We are hiring great talent with the experience that aligns with our current strategy, but some will take time to ramp.
We are investing for the future and sales capacity will improve as these newer employees ramp and attrition slows.
While we continue to have good visibility and confidence in our outlook. These factors are putting pressure on our revenue forecast as reflected in our revenue guidance.
Our guidance assumes the following.
First we continue to expect a modest and gradual improvement in the macro environment for the remainder of the year.
Second we assume the average duration of our subscription agreements will continue to shorten.
And third we assume that approximately 40% of TCE be booked in the quarter will be recognized upfront with the remainder recognized ratably over the time on the contract.
I'd like to remind you that our guidance is subject to various important risks and cautionary factors referenced in our call today and in today's earnings release.
For Q3, 2021, we expect to end the quarter with a or are in the range of $572 million to $575 million, which represents year over year growth of 27% to 28%.
We expect GAAP revenue in the range of $121 million to $124 million, which represents a year over year decrease of 4% to 7%.
We expect non-GAAP operating loss to be in the range of 17 million to $14 million and non-GAAP loss per share of 21% to 18.
This assumes 67.5 million weighted average shares outstanding.
For the full year 2021, we now expect GAAP revenue in the range of 520 million to $530 million, which translates into year over year growth of 5% to 7%.
We are maintaining our full year guidance and expect to exit 2021, with approximately $635 million, a day or or approximately 29% year over year growth.
We expect our non-GAAP operating loss to be in the range of 15 million to $5 million.
Our non-GAAP net loss per share is expected to range from 26 to 12.
Our non-GAAP net loss per share assumes 68 million basic shares outstanding.
Finally, we expect an effective tax rate of 20%.
In summary, the transformation journey, we began at the beginning of the year is showing positive results and we believe that the operational plan. We are executing 2 will allow us to achieve to achieve $635 million in IRR or 29% growth for the year.
We have a great team strong product market fit significant market opportunity.
<unk> business model and a strong financial position with over $1 billion of cash on the balance sheet.
And with that we'll open up the call to questions operator.
Okay.
At this time, we will be conducting a question and answer session.
I'd like to ask a question. Please press star 1 on your telephone Keypad, Inc.
Confirmation tone will indicate your line is in the question queue. You May press star 2 if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
1 moment, please while we poll for questions.
Our first question is from Michael <unk> with Keybanc. Please proceed with your question.
Hey, guys. This is Eric Heath on for Michael Congrats on the strong quarter. There are just wanted to ask on duration shortening given the change in sales comp, but just wanted to ask if it was purely due to the sales comp change or if you're potentially seeing any impact on customer churn levels.
Stay away at the rollout of designer cloud.
Hey, Michael it's Mark here, Thanks for the question.
Really on the customer front, what we're hearing is.
First of all real.
Joy that we're innovating.
A manner, that's consistent with the kind of feedback we've been getting from them in the last year or 2.
And really nothing else different other than that I think we're continuing to work strongly with our partners. Both on the tech side on the distribution side.
And.
Yes, I feel really good about where we're going.
Yeah, maybe just let me add I think what we're seeing is.
As we got through the year I think customers are increasingly adopting an annual cadence to how they are buying subscription software.
And I think Thats, certainly what we've experienced I wouldn't attribute any of this.
And any other factor.
Got it that's helpful. And then I just wanted to touch on the GTO side, it's on.
Increased focus for you guys a share but it looks like it might have dipped a little bit from last quarter. So can you just walk us through maybe why that was and if it was purely related to sales attrition.
Yeah, we so we maintained 39% of the global 2000 for the quarter. The list of global 2000 does get updated.
On about an annual pay system. So we did go through a refresh of that which resulted in a handful of lesser accounts, but I want to emphasize I mean, we have 39% of the global 2000, and they represent net expansion rates of 100 and 129%. So there's a there's a massive opportunity of <unk>.
Pension within that customer segment.
Got it thank you.
Thanks, Mike.
Okay.
Our next question is from Brent price win with Piper Sandler. Please proceed with your question.
Thank you and good afternoon, that's on encouraging to see that $35 million sequential build in ear are and stabilization in AOR growth of 27% I guess my first question is actually for Paul If I, if I could I know, it's only been 4 months for you here, but I would just love to hear 1 what attracted you to join.
All trucks after 20 years in sales roles at Cisco S. H P. M..2 what are your early observations on the go to market strategy and and some of the refinements that you're making.
Thank you Brad for the question.
I have been listening quite a bit since my time joining here listened.
Inc customers partners.
Moving to our <unk>.
Community at a global level and before I joined I was really attracted to the fact that customers like the ease of use of our platform and the business impact that it delivers.
Since joining I've been incredibly inspired to find out just how much they really do love it.
And in those conversations I've seen a couple of emerging themes.
That I think are really indicative of the opportunity that we have ahead of us. The first is relative to the automation appetite in departments like finance and supply chain. So a number on the other departments like sales and marketing and engineering have enjoyed modern tools and AI and upscaling for.
A number of years, but I think the automation opportunity in finance and supply chain in particular is at the forefront right now and which is really part.
And then secondly, receipt close to half of our customers right now are pointing chief data officers, who re net if you marry that business strategy with the underpinning data and analytics strategy. So I think both of these are really great validation of the <unk> opportunity.
So on.
I am to be here I know with the go to market strategy that we launched at the beginning of the year.
We have a great opportunity ahead, and I'm very confident in our ability to that Christy is that large opportunity yeah, Brent if I can just add to that.
On boarded a lot of exacts in my career over the last 20 years and I can tell you I've never received the kind of internal response from our associates around the world just on the interactions <unk> had with polo.
Amazing.
Great to hear and look forward to hearing more from you in the future Paul I guess, just 1 quick follow up for Kevin.
Relative to.
These discounts so when did you change kind of the discounts being offered on 3 year contracts was that in kind of January or more recently in the in the in April at the beginning of this quarter and then was there also a change to sales commissions are paid on on 1 year versus 3 year contracts.
Yeah. Thanks, Brent I appreciate the question the changes specific to discounting and 1 versus 3.
Was made more recently.
So we're certainly expecting that to play a factor as we look forward into into <unk> to the <unk>.
Question around comp alignment just in general I mean, we have oriented the company, including the sales organization on a R. R and in particular, ACB, so I'm not surprised to see that.
Manifests itself in contract duration as well I think the point that we were just emphasizing is we are seeing it come down a bit faster than than we had anticipated, but it's coming with with the positive.
Result that we're seeing better ACB as a result.
Got it that's all I had thank you.
Thanks, Brian.
Okay.
Hello, Operator can you hear us.
Yes.
Hello.
Yes.
Yeah, Hi, operator can you hear us.
Okay.
Alright, guys just go on to some technical difficulties on my end.
Okay.
Our next question will be from Jack Andrews with Needham You May proceed with your question and also as a reminder, we do ask everyone to please limit themselves to only 1 question.
Yeah.
Yeah.
Good afternoon, and thanks, Hey, good afternoon, Thanks for taking my question.
So I was wondering if you could speak to.
Given the early beta feedback in terms of your cloud product could you speak to any changes in your sales Playbooks that you think you might need to implement with the looming launch of this product.
Hey, Jack I'll kick it off and I'll hand, it over to Paula and perhaps <unk>, but listen I think we've approached this beta process really with the intent of listening too deeply to customers in terms of how they want to consume what we think is incremental innovation and what persona is we want to sell to and how we're going on.
Charge for it.
Really excited about how the betas going and.
I don't see a big difference in our sales playbook per se because listen I think over time, you're going to see more and more innovation being cranked out from <unk> R&D organization, that's going to that's going to allow us to deliver much more customer value.
To our customers with partners and with our customers and so it's really not that big of a change in the playbook that Paul you might have some context, yes, our conversations with customers around our cloud solutions that they see it as an opportunity to expand the accessibility to the innovation that we offer and really.
Calendar time, the success that we're having with them and the investments that they've already made in the on Prem installations. So.
We're really encouraged by the.
On the opportunity ahead with cloud and envision net many of our customers will operate on a hybrid environment for years to come.
I appreciate that if I could just ask a quick follow up question to Kevin you mentioned your.
On your guidance assumes that duration will continue to shorten.
Did you mean to debt should shorten below the 1.5 the day currently is.
Yes, my comment thanks, Jack during my prepared remarks is that we are seeing contract duration dip below the 1.5 so it's reasonable to assume that that could happen.
As we go in the back half of the year.
Thanks very much.
Thanks Jack.
And our next question is from Tyler Radke with Citi. Please proceed with your question.
Hey, Mark question for you.
I think 1 of the things you talked about when you joined the company as CEO was just around removing friction and making it easier to do business with with all tricks I know theres been a lot of changes on the.
Go to market side, but where do you think you are in that process.
Do you feel like you've been able to kind of unlock some deals that were.
Held up and how are you thinking about that for the back half of the year.
Yes, Tyler Thanks, a lot for the question, yes for sure I think friction is our enemy and technology. These days and I think more and more customers.
Our are doing much of the research and even beginning sales cycles without interacting with the human being and so I think that was 1 of my big drivers in bringing Suresh Patel on board to run.
Product management and engineering for us because of his experience at Adobe, having walked on Mylan new shoes.
It was unrivaled frankly.
So what we've seen as proof points, so far Tyler our.
Check out our website a significant improvement over where we were late last year also our time to download of our trial version has come down substantially and then I think also as I think about.
Close to 300000 zealots that are members of our community.
Take a look at the community side and you've seen how we've priskin debt just in the last few months.
So much more interactive much better quality I'd say.
And we're seeing the the attention span in the.
The growth of our community expand as a result of that.
Great and just a follow up on that.
Sales attrition here I mean, do you feel like we've kind of worked through.
The majority of it I know you've seen you said you've seen it kind of continue here into into Q3.
But how much more I guess downside is there in <unk>.
And just from an overall productive sales capacity level is this and what kind of at a level that was lower than than entering Q2.
Maybe is it comparable to corner that you saw 12.16 months ago, just any any color on kind of where the ramped productive.
Capacity is relative to prior quarters. Thanks, Yeah, Yeah, you bet.
Thanks for that question as well.
Listen I think our sales team prior to last year. Prior to this year was focus on a different set of imperatives and the transformation that we're doing and go to market is really aligning the right resources to focus on mostly larger customers G 2000 and above.
Type customers and then we have augmented those resources with significant doubling down of our customer success organization. So that we can really earn the right for permission to do more earn the permission to do more and expand.
I think we're.
I think we were surprised frankly with the sustaining of attrition through June and July.
But that said it's been a 6 month process in terms of the levers that we're pulling to work on mitigation here and I think we mentioned those in.
In the script, but most importantly, we've brought on a tremendous resource to focus on enablement to make sure. We're teaching the right lessons to the right people in the REIT rules.
And really focus on refining our overall marketing messaging and branding so that we're not the best kept secret in analytics any longer we're really proud about the innovation that we've built the pioneering that we've done in this space.
And most importantly, what we're going to do for customers in the future.
Yeah.
Okay.
Okay.
And our next question.
It is from.
Koji Ikeda with Bank of America. Please proceed with your question.
Hey, Mark Hey, Kevin This is Kevin Thanks for thanks for taking my questions here.
Just another question here on contract durations and the total guidance.
Revision here for the full year. Thank you Kevin for all of that explanation I think I understand the puts and takes there with the contract durations and how it's affecting revenue.
I guess, maybe you could help a little bit more if you could talk about taking the midpoint of the guide here it looks about a about a $45 million total revenue guidance cut.
Maybe if you could just kind of bifurcate that and talk about how much of that is being affected by contract durations and then from the elevated sales attrition.
Yes. Thanks for the question I appreciate it so in my prepared remarks, I tried to provide some quantification of how contract duration.
And its movement impacts revenue, so you should kind of rule of thumb.
At this scale.
Our movement of $1.10.
Contract duration has about a 10 million dollar effect on revenue. So if you look at that relative to the commentary going from 2 zero.
To potentially sub 1 and a half.
We're seeing a meaningful impact on the forward guidance relative to duration.
A secondary factor certainly is attrition that that we've talked about however, we are certainly encouraged by this the second quarter of productivity improvements that we've seen so I would point you to the contract duration as being the primary driver.
Got it got it Super helpful. There and just just 1 follow up if I may.
Just thinking about contract duration and how it's affecting revenue.
How does that affect the way, we should be thinking about 2022 or maybe the better question is how long should we expect contract durations to affect revenue growth and with designer cloud coming into the story.
Pretty quickly here, how do we think about contract durations with that.
Designer cloud products. Thank you for taking my questions.
Yes I.
I would say this.
No.
Is it kind of said on 1 of the earlier responses I think it is becoming more typical of larger enterprises to get into this buying cadence of once a year and so I would suggest that we're going to start to see a new normal with slightly shorter contract duration as I said in my prepared.
Our remarks, we're certainly going to see customers continue to elect multi year and we will continue to offer those for those customers, but on the whole I think the sales motion is going to focus on capturing and maximizing the value that we're offering to customers and the ROI that they are achieving so I would think that we're going to start to see a new.
Normal as we get into the end of this year relative to duration, but we'll continue to update you over time as we see changes.
Got it. Thank you for taking my questions I appreciate it.
Yes that makes a lot of coaching.
Okay.
Our next question is from Derrick Wood with Cowen <unk> Company. Please proceed with your question.
Oh, great. Thanks, I guess on that maybe the cabin on debt on the sales expression on at Sao.
Like new hiring has been strong and I'm just curious if you've been able to kind of more than offset the expression on <unk>.
Maybe you can just give us a sense for how much sales capacity is up year to date.
Or kind of where you'd like to be by the end of the year.
Yes, Thanks, Derik I appreciate the question.
We.
As Mark mentioned in his prepared remarks, we had the strongest hiring quarter ever. This last Q2, and so that's super encouraging when we think about.
We are going through a transformation and we are hiring as we are investing heavily for growth and so attrition is.
It's slightly more pronounced when you're going through these growth and investment cycles and it would be if youre just trying to maintain head count. So I think that's an important context as we think about setting up for certainly for next year. We are hiring continuing to hire at a very rapid pace is mark <unk>.
<unk>.
<unk> doubled the size of the recruiting team, we're continuing to double down on how we enable and send our reps out into the field and instilling really a culture of transparency feedback and culture and coaching which we think is resonating across the organization. So there's a lot of aspects.
To nutrition and hiring that we're focused on and we hope that as we go through Q3, we're going to see continue.
Continued strong hiring and Derek if I could just add some context. There I think we're also hiring extremely high quality salespeople want to come here and build a career at <unk> and a really important space that has long term viability.
And this is my first rodeo in terms of building out.
Go to market teams that are focused on expanding Tam.
And prosecuting it.
The.
The productivity of of many of the new hires that we've hired jumped in and cotton very productive very quickly I'm thinking of 1 young fella in Detroit that is doing an amazing job for us from day, 1 so and.
There is many out there like him believe me so.
We're very much focused on sales capacity and what that means to the overall business.
We're working hard to get better at predicting things.
Yeah and on that Mark I mean, you mentioned in the press release that you had seen significant momentum in your go to market strategy.
I'm just curious if you could unpack that a little bit more between the direct on the indirect side.
On the direct side you hope it like that Youll start to see lower sales cycles, better close rates or are you starting to see that with the productive reps. If you could just unpack a little bit more that'd be great.
Yes, you bet.
Remember I think we weren't naturally a partner led organization last year I think the pressure that we've got from large tier 1 <unk> like Accenture, what we announced this quarter KPMG as well as the relationship with Hcl and TWC, we're teaching our people how to work with these partners and drive these.
Big transformation projects and so.
I think the productivity is going to be a function of.
Elevating the enablement across the board at the team and really getting the leverage from these partners in these bigger deals.
Great. Thank you.
Yes, Thanks, Eric.
Okay.
And our next question is from Camille Mills direct with William Blair. Please proceed with your question.
In your full year guidance Youre baking in strong year over year growth in net new <unk> in the fourth quarter can you talk about your level of visibility to the back half of the year relative to prior years and how much of this growth is currently in contract and how much is dependent on factors like improving macro or improving sales productivity.
Good day.
Yeah. Thank you for the question.
As I mentioned, we are expecting and continuing to see.
On continued improvement in the macro which is encouraging we have seen continued improvement in productivity.
That is a direct result of the changes we've made in the go to market and how Paul is now driving that team and all of that.
Bind with what we see from a pipeline perspective is certainly informing our view I would remind you that seasonally Q4 is our strongest quarter of the year. We have the largest concentration of renewals in Q4, which is a great opportunity and a strong opportunity for us to expand with account. So it is pretty.
Seasonally consistent with what we've seen in prior years, So I don't see anything thats out of trend.
Okay, that's good to hear and nice television improving retention rates and I. If I could just quickly follow up can you give us an update on the competitive environment have you seen any changes in win rates or changes in who youre seeing on deal.
Yes, it can be on <unk>. There is no no story, there really I think the competitive landscape. There is a lot of companies out there are 400 plus companies in this space I think more coming on and getting funded every month.
But we're pretty we're pretty pleased with where we sit in the competitive stack with session.
And avid.
Followership with our community as well as the volume of customers that we have and we're really focused on on making the very most of that value.
For their benefit by the way in.
I keep hearing from customers they want fewer vendors less complexity more automation and that's where we're focused on innovating and building.
And Mark if I can add.
Our customers are solving a broad array of problems on the analytics landscape.
Working again cloud data warehouses that bill.
Investing in AI and ml.
Doing lots of work on data management, and so we have a bird's eye view of all the use cases that customers want us on the very excited about the opportunity.
That's great to hear thanks, Ken.
Thank you, yes, thanks, Kevin.
Our next question is from Calvin per tower with Morgan Stanley. Please proceed with your question.
Hi, all this is calvin on for Sanjay. Thanks, again for taking my question I.
I just have 1 for you guys.
Duration is coming down I was wondering.
How confident are you in in the quest retention rates, maintaining such high levels next year, given that the renewal cycles will shorten a bit and are the new use cases that you're seeing similarly sticky to 2 prior years or are you expecting maybe some.
Hum edge cases, where where our renewal rates on our churn could increase.
Yes, it's a great question I mean, I'll start and others can jump in we've enjoyed very strong.
Net retention in gross retention for quite some time and I think the question Youre asking around stickiness is important when you think about a customer environment.
<unk> hundreds of thousands of workflows automating through server, we become the analytic fabric of that organization and the ability for those customers to find competitive replacements is incredibly difficult. So.
I think if you look at how strategically important we are for these customers that have taken advantage specifically around automation.
And operationalized analytics.
I don't have a concern that we're going to see a dislocation as a result of duration pulling in.
And I would add to that debt.
Maybe in previous years, you were looking for the 1 or 2 use cases to validate our value proposition, it's really flip with customers' conversations where especially with putting chief data officers in place. It's about how do we see hundreds.
Cases across our organization, it's really about how we drive.
Access to analytics and bring in the full wherewith all of the employee base into that hold share of analytic so customers are seeing a multitude of use cases.
Awesome. Thank you very much.
Yes, Kevin.
Okay.
Our next question is from Mark Murphy with Jpmorgan. Please proceed with your question.
Oh, Hey, guys. This pendulum sitting in for Mark.
1 question for restoration of the cloud designer.
I was thinking back in I think I remember on Craig's synthesis banking secret sauce as I think about it is the engine that kind of rapidly ingested and analyze huge swaths of data within a very small on memory framework.
With that context, when you have the cloud with designer how what are you seeing with respect to performance is there any telemetric that youre getting with the cloud design up performance versus the desktop product and then the second question for Kevin.
If I understand the math correctly, I think youre seeing debt because of less discounting.
<unk> is about 30% higher.
Think about the Daniel IRR, what what kind of a benefit do you think that particular dynamic flow and the result in terms of the growth rate this year.
Maybe I'll take the product question first and then Kevin can take the growth question.
So on the on the performance of cloud designer versus desktop cloud.
We're actually getting really strong feedback on the ability of the engines to scale and naturally cloud gives us that additional flexibility of bringing standing up compute when we need it for the for those workflows. We're.
We're getting a lot of lots of strong feedback on the interactivity of the browser based interface on some of the innovation we've added into the core product that allows.
Our users to kind of map the workload reported happens.
So lots of great opportunity to innovate in cloud, which is primarily why we wanted to go there in and really take advantage of all the capabilities cloud gives us.
Really strong feedback on the product really strong feedback on the performance.
And really I'm bullish about cloud designer is being built for these cloud scale workloads, that's what we're going after and the product's going to fulfilling that need right now.
Yes, let me, let me answer I guess.
<unk> question.
I mean, it's hard to quantify specifically what the impact of the.
The 3 year, 1 year is other than to say, our <unk> guide for the year implies 29% year over year growth, which is an acceleration from what we've seen in the first half and so it certainly is a catalyst in helping our growth rate is getting into the back half of the year and also just I think a function of.
Better aligning.
The cost of all <unk> on the value that customers receive.
Understood. Thank you.
Thanks, Scott Thanks Benjamin.
Yeah.
And again as a quick reminder, if you have any questions you May press star 1 to join the queue.
And our next question is from Steve Cohen with SBC. Please proceed with your question.
Hi, there. Thank you it's F N B C on the high <unk> I appreciate the chance to ask a question.
If I could just proceed with a clarification, Kevin when you quantified that impact on the decline duration is that a $10 million on forward 12 month impact.
And then I'll just put my question out there as well, which is also about the math.
I know you don't guide to cash flow, but how should we think about the cash flow impact of the declining duration or most of the multi year contracts paid upfront. So the cash flow impacts should be proportional to the revenue impact.
All I have thanks very much.
Yeah, Thanks, Steve and let me let me go ahead and wrap up these these too.
With respect to the duration that the $10.110 $10 million.
As for the annual period of this year, obviously, depending on size and scale in.
And the uniqueness of a particular quarter that it can be a little bit different but I wanted to quantify for what we're seeing this year. So that's for 2021 and then finally with respect to cash flow as a reminder, our multi year contracts are generally paid 1 year on advanced similar to an annual subscription so the Poland of duration should not have any impact on cash flow.
Thank you great. Thanks, a lot Kevin.
Thanks for the call.
Yeah.
And we have reached the end of the question and answer session I will now turn the call over to Max Andrew I'm, sorry, Mark Anderson for closing remarks.
Thank you operator, and thank you all very much again for joining us on the call today.
I'm very confident in our team our partners and the massive opportunity that we have ahead of us and looking forward to seeing some of you on the upcoming conferences and which will participate.
I look forward to speaking to you all again next quarter take care.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
[music].
Okay.
Yeah.