Q4 2022 Alteryx Inc Earnings Call
Greetings and welcome to the ounce of its fourth quarter 2022 earnings conference call. At this time, all participants are in a listen only mode.
And answer session 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.
Now I'll turn the conference over to your host Ryan Goodman head of Investor Relations you may begin.
Thank you operator, good afternoon, and thank you for joining us today for old tricks is fourth quarter and full year 2022 earnings conference call I'm, Ryan Goodman <unk> head of Investor Relations with me on the call today are Mark Anderson, Chief Executive Officer, and Kevin Rubin, Chief Financial Officer. Additionally.
Paula Hanson, our president and Chief revenue Officer, and Suresh Patel, our chief product officer will be joining us for the question and answer session. After prepared remarks. This afternoon, we issued a press release announcing our results for the fourth quarter and full year ended December 31, 2022, as well as a new shareholder letter with keen.
Metrics and commentary on the results if you would like a copy of the release and shareholder letter you can access both online and 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 first quarter and full year 2023. These statements are not guarantees of future performance. They are 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 additional forward looking statements made during this call and 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 Chief Executive Officer, Mark Anderson.
Thanks, Ryan and thank you all for joining us on our culture today.
We delivered a strong Q4 with all of our key financial metrics exceeding our outlook.
Q4 revenue came in at $301 million up 73% year over year annual recurring revenue or a R. R came in at $834 million up 31% year over year in Q4, non-GAAP operating profitability meaningfully exceeded our outlook at 68 million.
Yeah.
We finished 2022 with strong growth momentum and an increasing focus on profitability.
Capping off a historic year for <unk> with multiple key strategic initiatives.
We significantly accelerated our cloud platform innovation roadmap.
We've realigned our go to market motion to focus on the largest global organizations with the greatest opportunity for expansion.
And we invested in our customer success program to ensure that our customers are engaged and successful on their data democratization journeys with old tricks.
We are pleased with our financial results, particularly given the economic backdrop as our value focused sales motion is resonating with customers.
Even so we are seeing similar dynamics that are facing many of our software peers. In Q4, we saw this in the form of elevated deal scrutiny and elongation of sales cycles.
I've certainly experienced similar macroeconomic headwinds throughout my executive career, and I'm confident in our ability to continue to execute at a high level with the transformational decisions. We've made over the last two years.
First our <unk> analytics cloud platform has catalyzed enterprise buy into the long term ultra ex vision second our focus on enterprise has driven a mix shift to higher lifetime value customers with increased net retention.
Third our executive facing go to market approach is aligned our sales engagement with the decision makers and budget owners of our customers.
And last but not least our level of engagement with customers is stronger than ever supported.
Supported by both our partner ecosystem and customer success initiatives.
Underlying this is robust demand for data analytics as we are seeing cio's prioritize core operational platforms like old tricks over front end applications more exposed to head count variations.
Let me share a few highlights from the quarter.
Our global 2000 penetration increased to 47% up four points from this time last year as top brands across the globe are aligning with old tricks.
We saw durable strengthen our global 2000 that expansion rate of 129% and our overall net expansion rate of 121% and achieved record high renewal rates.
We sold more Elaine bundles in Q4 than the rest of the year combined.
The increased flexibility and simplified pricing are resonating with our larger customer cohorts.
Also starting to see E L as from 'twenty, 'twenty, one, creating tangible and more predictable upsell opportunities.
Our ultra <unk> online community has now surpassed 400000 members a great milestone for these ultra zealots, who continue to champion our mission across the globe.
And our partner ecosystem, which continues to influence a growing percentage of our business is providing an.
And increased tailwind to the business again, influencing well over half of new business in Q4.
Q4 was truly a great quarter capping off a strong year and another clear validation of the strategic direction of this company.
Customers need our innovation now more than ever the pace and scale of our innovation has never been greater and our commitment to governance across the platform.
It is enabling our customers to scale with confidence across the organizations.
Our cloud platform initiative is increasingly becoming a contributing driver of success with large enterprise companies looking to expand their ultra X deployment.
In fact, we're finding that the introduction.
Ultra <unk> analytics cloud is amplifying customer's commitment to the extended ultra X platform.
Our cloud innovation roadmap provides customers with a clear path to layer on cloud and expand data analytics to new personas and new use cases.
And we saw examples of this in Q4.
We had a great win with Royal Caribbean Group, a leading international cruise company.
Building on its existing ultra usage within finance Royal Caribbean is expanding with new use cases, and new personas and human resources.
Leverage designer server and machine learning in an effort to further unlock and optimize their crew experience and to drive financial efficiencies.
They're also adopting auto insights as a means to more effectively disseminate information and insights throughout the organization.
Commerce company, a global specialty chemicals company that signed on with an L. A earlier in 2022 is now expanding with auto insights to provide enhanced data driven clarity on cost and budgeting trends.
And the mobile network, operator that expanded with the designer Elas in early 2022 signed on for cloudy L. A in Q4 to utilize Ottawa insights for cloud cost optimization analysis by the office of the CIO.
With access now to machine learning and designer cloud. They can also explore new use cases, such as network data analysis and financial forecasting.
Empowering new personas within other parts of the organization.
Our technology partnerships with cloud based data warehouses like snowflake data bricks and Google Big query are also helping us win with companies driving cloud based digital transformation initiatives.
In Q4, Specsavers optical group, a multinational optical retail chain selected designer cloud to help drive their initiative to promote a data oriented culture with self service analytics.
Designer clouds low code no code interface and deep integrations with cloud environments like data breaks for key differentiators in enabling this new customer relationship.
We have a highly differentiated data analytics platform and our enhanced go to market motion.
Built on the pillars of enterprise partners and customer success is now enabling us to capitalize on this opportunity.
We continue to see strong traction with large enterprise organizations, we more than doubled the number of $1 million ACD wins in 2022 versus 2021.
And we closed the year with over 140 customers with a <unk> of a million or more up over 50% year over year as I mentioned earlier, we now have a presence at 47% of the global 2000.
Many are using ultra acts and only a small initial capacity, which creates meaningful upsell opportunities and these accounts for the years ahead.
R E L. A bundles are resonating with our larger customers as they provide flexibility to expand to additional licenses for a fixed period of time or what we refer to as first capacity.
Burst capacity gives customers the freedom to use up to 50% more than their allocated license count.
No cost during the first year without additional license or procurement administration complexity.
When our customers are digitally transforming this burst capacity helps them go faster.
And for the Elas sold in Q4, 2021 some of which were multi year contracts.
Over two thirds became upsells in Q4, 2022.
We are still in early days for the L. A strategy and momentum has been growing.
Orange France.
Our largest subsidiary of the Orange group and a leader in B to B and B to C. Telecommunication services in the country selected an ultra X L. A in Q4 to automate and optimize many processes within the financial team as well as to drive analytics on infrastructure and network usage.
The ease of use of the <unk> platform, coupled with the flexibility of the L. A convinced the finance teams and will enable orange to begin expanding data analytic usage with new persona throughout the organization.
As for the second pillar of our go to market motion partners, we are benefiting from ecosystem expansion and favorable engagement trends. We're pleased to welcome E Y as one of our newest partners in Q4.
Partners delivered over 50% year over year growth in new logo ACB contributions in 2022, and once again influenced well over 50% of the new ACD in the quarter.
We deeply value our partner relationships and it is particularly gratifying when we find our partners broadening their usage of ultra acts as a customer.
K P. M. G is a great example, where we're seeing both the regional expansion of the partnership and increased usage of designer to provide differentiated offerings to their clients, particularly those looking to transform and optimize their corporate tax departments in Q4, KPMG increase this designer license count by over 50%.
As it looks to elevate ultra usage across more client facing consultants plus further leverage ultra for internal analytics.
Partners provides additional scale to our go to market motion enhancing our ability to find incremental use cases and drive value for our customers.
We saw this.
With West Monroe, a digital service firm, who worked closely with a partner when they first explored ultra solutions over the summer in Q4, West Monroe significantly expanded their ultra implementation after identifying opportunities to both accelerate and enhance digital analytics services they provide their clients.
And the journey doesn't end with the implementation of our software we've invested in our customer success team over the past two years and our customers are seeing tangible incremental returns on their old tricks engagement.
There are so many positive examples here of value creation in partnership with all six customer success.
A leading FTSE 100 financial institution identified over one 5 million pounds in value via automation of manual efforts upskilling and efficiency gains.
Our national retail chain identified a way to save 5000 hours plus hundreds of thousands of dollars in costs within the supply chain optimization in just two months of working with the customer success manager.
I encourage you all to take a look at the use cases on our ultra ex community site for real life examples that speak to both the value of our solutions.
And the effectiveness of our enhanced customer success efforts.
As I look ahead to 2023, we have a massive opportunity in front of us.
And we expect to achieve a significant milestone of becoming a $1 billion a or our company. This year, let's be clear it won't be easy in this macro environment, but we have demonstrated the robust nature of data analytics demand as well as ultra <unk> ability to effectively execute in this market.
We enter 2023, an even stronger footing and are focused on three key initiatives to ensure our success.
First the ultra <unk> analytics cloud platform.
We are seeing strong interest in our portfolio of offerings across designer cloud machine learning and auto insights as customers look to consolidate vendors. We are uniquely positioned to provide a cloud based end to end Oh code No code data analytics platform for all and.
And we have some exciting updates to share on this front soon.
Second go to market, we made so much progress in upgrading our go to market motion in 2022 and I firmly believe we are just getting started.
We enter 2023 with an upgraded and expanded Salesforce partner program and customer success team and we're just starting to lap early E. L. A wins, which will create incremental upsell opportunities at our larger customers.
And third <unk>.
<unk> ability as we move beyond the investment phase of last year, we are committed to increasing operating profitability. We plan to achieve this through both scaling the business and demonstrating spending discipline, Kevin will provide additional color in his comments.
In closing 2022 was an outstanding year for old tricks and I'm, so proud of the entire team.
We're absolutely changing lives with what we do empowering people to upskill themselves and drive value for their companies.
Thank you to our customers our employees and our partners on an amazing 2022, and with that I'll turn the call over to Kevin for a closer look at the financials Kevin.
Thanks, Mark Q.
Q4 was a strong financial quarter and capped off a year of robust there are growth and an accelerated return to positive non-GAAP operating profitability.
A R R of $834 million grew 31% year over year.
This included a $7 9 million dollar FX tailwind relative to our guidance.
Even excluding this FX impact are are still would have exceeded the high end of our guided range.
Revenue of $301 million grew 73% year over year, which was well above the high end of our guided range benefiting from a strong renewal cycle and record renewal rates now.
non-GAAP operating profit came in at $68 million $13 million above the high end of the guided range. This was driven by both top line strength as well as elevated spending discipline.
For 2022 revenue of $855 million increased 60% year over year and non-GAAP operating profit came in at $13 million both above the high end of our guided ranges and significantly better than the initial outlook entering the year.
Earlier in the year, we enhanced our go to market motion with investments in enterprise partners and customer success, and we accelerated our cloud innovation roadmap with strategic investments in the platform architecture.
As we move beyond this investment phase, we are already seeing points of leverage materialized in the financial model.
We improved Q4, non-GAAP sales and marketing expense as a percentage of revenue by seven points year over year.
We benefited from early productivity improvements in the sales force in 2022 versus 2021 in terms of new a C V per sales rep.
As we enter 2023 with a higher mix of ramped reps more comprehensive sales enablement capabilities and an expanded product portfolio. We expect these two wins to persist and help us navigate this dynamic macro environment.
And we improved Q4, non-GAAP G&A expense as a percentage of revenue by three points year over year, driven primarily by efficiencies of scale.
On top of the natural leverage embedded in our financial model, we've identified additional opportunities for cost optimization to further accelerate our return to higher profitability.
For example, given the distributed nature of our current workforce, we were able to rationalize our real estate usage by approximately 40% during Q4.
In addition, we optimized head count by approximately 5% primarily from rigorous performance management as well as role eliminations.
Looking ahead, we feel the business is on strong footing to deliver expanding profitability with scale and with the majority of our costs being variable in nature. We believe we have the ability to stay nimble in this economic environment.
Profitability is certainly top of mind and as we now move beyond this investment phase we are focused on delivering durable profitable growth going forward.
Underpinning. This success is our growing traction with large enterprise organizations.
We continue to see our strongest air our growth with our 1 million dollar plus are our customer cohort bolstered by many of the strategic initiatives, we put into motion over the past couple of years.
For example, we upgraded our enterprise sales force with well tenured experienced reps and as we land wins with larger companies, we are effectively seeding future upsell opportunities at a much higher scale.
With approximately one third of our global 2000 customers generating less than $50000 in air are today and approximately 200 global 2000 customers still within two years of their first all tricks license purchase we have a large runway for growth as we deepened penetration in coming years.
Expansion is a key growth driver for our business with the vast majority of our new a C V in any given quarter continuing to come from existing customers and now as the opportunities become bigger we are seeing consistent growth in the average expansion deal size.
To help us streamline this enterprise adoption, we introduced E L. A bundles in mid 2021.
L. A has come in tiered bundles that vary in size and burst capacity.
This allows for progressive Upselling and we are already seeing success with the 2021 L. A cohort the.
The Investor presentation, we posted on our website today helps illustrate how elas create expansion opportunities with all trips.
Mark noted that over two thirds of the Elas lapping one year up sold in the fourth quarter.
Those that expanded we saw average are our growth of over 50% year over year. While this is still a very early sample set it demonstrates the positive impacts elas can have when coupled with proper customer success and a growing product portfolio.
On that note to further accelerate the customer land and expand motion, we made meaningful investments in our customer success practice, we have found that accounts leveraging our customer success team are seeing net expansion rates more than 10 points higher than those that are not.
To summarize we are winning with larger companies, which is unlocking bigger opportunities and driving larger deal sizes.
All of this is fueling robust growth momentum and our average <unk> per customer, which reached $100000 in Q4.
As we looked at 'twenty two 'twenty three we are paying close attention to the state of the macro environment well.
While we are executing with a high level of success our outlook incorporates an elevated level of conservatism to account for potential shifts in macro dynamics.
We are keeping a close watch on all key forward looking business indicators, such as new pipeline generation sales rep productivity and sales cycles, and we believe we can quickly calibrate the models should the need arise.
That said, we have several incremental growth drivers to layer on in the coming here that we expect will contribute to our growth and profitability momentum.
First we have a meaningfully larger renewal base relative to 'twenty, 'twenty, two which supports revenue growth and creates upsell opportunities.
Second we have a growing book of Elas, where burst explorations create additional upsell opportunities with a high level of visibility.
Third we expect to sell significantly more elas in 'twenty, two 'twenty three driven by growing traction with large enterprise customers.
Fourth the Altra analytics cloud platform is unlocking new personas and new use cases, as well as catalyzing adoption across the Altra X offerings.
Fifth we view international expansion as a meaningful opportunity invigorated with new sales leadership and last but not least our growing partner program is contributing incremental opportunities within new and existing customers.
With this framework in mind lets turn to the Q1 2023 outlook.
We expect <unk> to be in the range of 856 million to $860 million representing year over year growth of 25% to 26% our guidance assumes FX rates remain at current levels.
We expect GAAP revenue to be in the range of 198 million to $202 million representing year over year growth of 25% to 28%.
We expect non-GAAP operating loss to be in the range of 23 million to $19 million.
We expect non-GAAP net loss per share to be in the range of 29% to 25 cents. This assumes $69 7 million weighted average shares outstanding and an effective tax rate of 20%.
For the full year 2023, we expect <unk> to be in the range of one point or one 5 billion to one point O two $5 billion representing year over year growth of 22% to 23% we.
We expect GAAP revenue to be in the range of 980 million to $990 million representing year over year growth of 15% to 16%.
In terms of linearity our business historically has seen an approximate 40 60 split between the first half and second half of the year for net new <unk> and revenue as.
As we derive an increasing portion of growth from large enterprise customers. We expect similar top line linearity dynamics in 2023.
We expect non-GAAP operating profit to be in the range of 40 million to $50 million, we expect our spending to track similar to historical patterns in which Q2 reflects an uptick in spending for items, including our inspire user conference followed by a sequential spending decline in Q3 give.
Given the topline linearity and timing of expenses, we expect nearly $100 million in non-GAAP operating profitability to come in the second half of the year.
We expect non-GAAP net profit per share to be in the range of 36 to 46 cents. This assumes 78 million weighted average shares outstanding and an effective tax rate of 20%.
In summary, 2022 was an excellent year for all trucks, we strengthened our go to market motion, we accelerated our cloud innovation Road map and we delivered air or growth of 31% with non-GAAP operating profitability.
As for 2023, while the macro dynamics are certainly a factor. We believe we are on track to surpass $1 billion in a R. R and we expect to achieve this scale with disciplined spending expanding profitability and positive operating cash flow.
Before we wrap up I'd like to also let you know we are planning to hold an investor day in conjunction with inspire being held for May 22nd to May 25th will provide additional details on this soon with that thank you all for joining us today and I'll turn the call back to the operator for Q&A.
Thank you and at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a.
A confirmation tone will indicate your line is in the question queue.
May press star two 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. We also ask that each questioner please limit themselves to only one question.
With time.
One moment, please while we poll for questions.
Yeah.
Our first question comes from the line of Brent bracelet with Piper Sandler.
Please proceed with your question.
Good afternoon, great to see the pivot back to profitability here Mark for you the $75 million a build of net new a our or in Q4 is by far the most we've ever seen despite increasing deal skirt scrutiny here.
Do we have new Elas and upsells seem to be the big contributor what what's driving the interest in this recessionary environment and why now.
Yeah, Hey, Brian Thanks for the question.
Listen I think the interest in the <unk> is continues to grow and we launched this about a year and a half ago and as you heard from the prepared comments, we've just seen incredible traction from our customers primarily because.
<unk> gives them flexibility and it doesn't restrict them.
Like the old World Software company, you used to wrap you on the Knuckles. When you went over your license count I think based on what our customers. He was also explore to help transform their tax department or to help them make better decisions in supply chain, we want our customers to go faster, we want them to do more so so we actually allow for it.
<unk> to 50%.
And our customers have just been eating that up S. S. As as you heard so.
I think it's it's bad and I think also people really are aligned with where we're going as a company and how we're getting there and rooting for us So I I am expecting even you know even better results down the road.
Helpful Color and then Kevin just a quick follow up here on on the guide net new ear are it looks like it's going to be about $9 million less this year than last year, you talked about elevated levels of conservatism in that guide what's factored in that is that something that you're seeing in the pipeline.
And today or more around trying to factor in some of the recessionary headwinds that could impact the business. Thanks.
Yeah. Thanks, Brent I think look at the end of the day, we are very cognizant of the economic backdrop in the environment that we're in today and we're just base lining our guidance on a weakening overall environment as we go through the year.
Thank you.
Thanks, Brian .
Our next question comes from the line of Tyler Radke with Citi. Please proceed with your question.
Yes, thanks for taking the question I wanted to ask you just a product question. So if.
If you could just level set how youre thinking about the rollout of some of the the cloud skews for 2023, you know to the extent you've baked in any contribution from from some of those new product releases and then you know just given all the excitement around open AI chat G. P. T. How are you thinking about that opportunity.
Yeah, Hey, great questions tie. Thanks, Thanks for that takes a lot for the question I think maybe I'll take.
The beginning of this question and then I'll hand, it over to our subject matter expert Suresh Patel, who runs product for all tricks here.
So so on chat GPT listen I'm Super excited about it I think you know any any kind of technology that aligns with our notion of democratizing analytics being able to put your capabilities in the hands of knowledge workers in the functional areas because you can't train data scientists to be a great supply chain person.
Hum.
I'm all for it and it's Super excited about it and of course, we've been very very.
Aligned with you know a generative AI in the first place and large language model I think I kind of see this as kind of three sort of buckets really first of all.
It's going to work with our products to help you accelerate time to insights streamlining the development of analytics throughout the enterprise to go faster and to get better insights secondly, as I said it'll help democratize access to you know to better decisions with with the data that's roles around the enterprising and third it really all.
Already starting to see this you know if you've looked at linked in and seen what some of our partners have posted already between Chet <unk>, three and and and.
And I'll tricks.
It's going to give us some really cool vertical applications that will dovetailed very nicely I think is as these technologies work very complementary to each other so I'm super excited about it and I think you know just just a quick note I will hand, it over to Suresh on innovation I'm really proud of our team we have.
Come through 2022, and we've missed this trifecta acquisition into our applications and as you know this year, we're gonna be cooking with gas I'm I'm, telling you because.
No. We've got so much innovation rolling out if you come to our inspire conference in May you'll be able to hear.
Kind of what we're talking about but a lot of innovation coming this year at all possibilities right.
Thanks, Marc Tyler great questions. So on the on the cloud skews in the in the cloud rollout. We're super excited we've been systematically as Mark said integrating the.
The objects analytics platform and all the new innovation, whether it's designer cloud architects machine learning auto insides location intelligence metrics store.
Really getting innovation into the hands of our customers. We see this as a great opportunity to expand access regardless of where the customer wants to consume all takes innovation on a desktop and a browser mobile device they.
Do they get access to that and so 2023, he's going to be a continued set of our rollout of the capabilities and adoption by customers as I said, new persona is new use cases lots of opportunity for our customers to try out the cloud technologies on the on the chat GPT question, Mark kind of alluded to it.
We think it's a massive acceleration accelerating opportunity for us what do you imagine a world where I've got somebody could based on Chad on generative AI trained.
Against their libraries of previous workflows in all drugs, there are synthesizing, new workflows, and giving creators a lot more time and flexibility in how they embrace our technology, we see great opportunity for regenerative AI to help augment our capabilities as well, we'd already building tools that leverage degenerative AI technology.
To translate.
Between languages like sequel in Python.
Create a huge time savings for the different technology and develop a persona is so they can start to incorporate massive amounts of sequel code in Python code into their optics platforms, Mark talked about the re imagination. So many of our partners already signed to re imagine and create vertical apps that bring a combination of generally.
And all drugs are we think that the the end goal of democratizing analytics and indeed democratizing AI is very nicely matched between what Chad technologies like chat G. P. T generative AI technologies and large language models allow our consumers.
Consumers to do and what Altice helps cause you must do so.
We think this is a real a one plus one equals three opportunity for us.
Great and just to clarify maybe it's for Kevin are you are you embedding some contribution in the guide just from some of the new cloud products that are expected to roll out or is that is that all upside.
No. We certainly are anticipating that the the cloud suite of products become a more significant to the business and in 'twenty three and we've certainly contemplated that in and how we think about the contributions of our business. This year.
Okay. Thank you thanks.
Thanks Tyler.
Tyler.
Yeah.
Our next question comes from the line of Derrick Wood with Cowen and company. Please proceed with your question.
Great. Thanks, Congrats guys on a solid quarter and some nice nuggets in that shareholder letter.
Maybe I'll start with.
And maybe Kevin this is directed to you but the.
One third of your of your I think global 2000 base generating less than 50 K.
Do you see the majority of those customers has targets to bring into the seven figure range over time, and then on the flip side given.
Given that your strongest growth is coming from 1 million are our customers. Today can you just give us a sense as to where large engagements are tracking over the next several years. I mean are these customers moving into the $3 million to $5 million range with if you continue this success just trying to get a sense as to what the scope of larger customers.
Our trending towards.
Yeah.
Yeah. Thanks, Derik, let me, let me take the first part of that and I'll have Paul a jump in on the second yeah. So the the reason that I provided that level of color relative to the GTK is is just for that reason right. We're very early with a large portion of the global 2000, they have small dips.
Climates, and we think the success that we've had with our with a longer tenure D. Two cases will be replicated across this this greater population not to mention our new G. Two G. Two case that will end up landing over time, so to your point, we absolutely see these as an opportunity to significantly expand their footprint.
And be able to expand much more broadly across the organization I'll, let Paula take the second part of the question around our longer term growth.
Yeah. So we are yeah.
And are excited by what we're seeing in the largest cohort of our customer base with over 140 customers now and growing that are at a million plus error rate and still with a lot of room to grow within that cohort and then definitely with intention Kim is many of the lower I E.
T V cohorts into that into that same range and data we have and it's an eight figure customers today and that we're excited to continue to add to that to that cohort as well and what we're proving out what the strategy today with our largest customers is what we will continue to prove out.
Across the entirety of the customer base, the same things that help customers to accelerate their democratization with customer success works across all bands of customers at the portfolio that we have brings value to all sizes of customers our partner ecosystem helps us cover.
All sets of customers. So that really is a continuing this strategy in motion that's working for us.
All of those customers up the gorilla check with us.
Right well done thank you.
Thanks, Derrick Thank you Sir.
Yeah.
Our next question comes from the line of <unk> Singh with Morgan Stanley . Please proceed with your question.
Thank you for taking the question I had really impressive results to close out 2022. So congrats to the team I wanted to come back to the topic of E. L. A's and I think you addressed this a little bit in your in your script, Kevin but in terms of.
The percentage of bursting geezers that you're converting to paid users given the cohort that you saw in 2022 any way to sort of quantify or frame that so if you have a customer that's on 100 user E. L. A dam burst capacity to 200 sort of on average what are you seeing that conversion look like.
Over the last couple of quarters.
Yes. Thanks for the question Sanjay So maybe maybe I'll I'll call back to the statistic that we had provided last quarter.
The the L. A burst customers that had been meaningfully in their burst period, a 40% of those were in burst and then we mentioned in the prepared remarks that we saw you know over two thirds of expiring 21 Elas upsell in Q4 of this year.
And the significance of that up so it was you know greater than 50% IRR. So the BLA with the burst is working as we go forward you know we sold a significant number of Elas in Q4 and expect to continue to sell more. So you know we've converted a lot of those that are outstanding. So went back you know we're now.
At a very large population of customers that are early in their first cycle and so we're going to continue to run the same execution strategy of surrounding them with customer success, our resources and additional products to continue to see success as we convert these throughout 2023.
Yeah, It looks like it's working pretty well Mark I wanted to come.
Come back to you on just sort of where we are on the broader altering sort of transformation journey.
Came in at.
You did a lot of work on the <unk>.
Sales go to market.
Ramping up the executive leadership team.
The only thing.
Tremendous dividends over the last couple of quarters.
When I look at Kevin's comments on the ramping profitability and your comments on cloud the piece that we were sort of waiting for back then was you know progress on sort of the cloud portfolio I'm trying to sort of read between the lines between Kevin's comments on profitability and all the progress that you've clearly shown over the last year on go to market.
Is this a signal that the investments in sort of products have been largely made and now we're in a phase of the story, where you're looking to basically push those products like the cloud portfolio from a go to market perspective or said another way, it's like the cloud portfolio ready for Prime time, you know.
You know the two years after you've you've joined us during the join the organization.
Oh, Yeah, Hey, thanks for the question.
Thanks for the well wishes as well.
Yeah, that's right.
We have done lot of work to kind of get ready for this.
You know this incredible opportunity that we have ahead of us, but I still think we're in early days of building out. This platform. The <unk> acquisition was pretty darn important right. It was on the re platforming option that that accelerated our journey, probably about 50% or more and in terms of saved time to be able to stand up.
Our our stack and in all three public cloud environments globally, and and getting this done was super important but now it's really just continuing to innovate and add more capabilities onto this platform. So the customers can can have fewer vendors and more consolidation of the <unk>.
So this journey that are important and so that that's absolutely what we're focused on profitability very important. It's it's a it's a you know kind of tier one a focus for us absolutely committed to.
Driving leverage in this exceptional business and it'll be leveraged for a very long period of time.
It makes total sense I appreciate the comments Mike.
Thanks, a lot.
[laughter].
And again as a reminder, if anyone has any questions. You May press star one and also please limit yourself to only one question due to the question. The one that's in the queue. Our next question comes from the line of Mike equals with Needham <unk> Company. Please proceed with your.
Hey, guys I did want to come back to the guidance here and maybe this is more in relation to the first caller on the Q&A.
I know, we were citing the menu AOR contribution and maybe maybe it's for the newer audience, but just wanted to call out are the level of conservatism, you're just because the calendar 'twenty two did benefit.
From the inorganic growth rate I believe at the time of the Detroit fact acquisition you guys had cited roughly $20 million contribution that you all are from Tri factor. So the first question on the in any way or is it.
That $20 million assumption.
Does that still hold is that true and then the follow up I know that you guys spoke about.
Looking through your guidance against multiple different lenses, you spoke about the pipeline Jen I guess your ongoing engagement with customers, but can you give us a little bit more color as far as how you you sweated those numbers are to arrive at the guidance that where we're getting today.
Yeah. Thanks, Mike I appreciate it so yeah. That's a good call out I appreciate with respect to Tri factor. So last year, we indicated we expected in tray pack at the Tri factor to contribute about $20 million in IRR for 2022 we actually closed out the year with Tri factor.
<unk> $22 million. So it was a little bit above the estimate that we had so that is certainly embedded in the 2022 results and should be considered as you look at.
2023 in terms of guidance and and the different dynamic.
Dynamics in terms of how we think about the process. We certainly have a tops down approach, we have a bottoms up where we look at all the different components of how we're going to expect to deliver the year things like the size of the renewal base. The number of Elas, we have outstanding how the burst effect.
And provides visibility and then you know we look at the macro and provide a perspective on how we think that that's going to trend over time and as I said in in both my prepared remarks and in response to a Brent we really did want to ensure that we were base lining our guidance this year.
On a weakening overall environment as we go through the year.
That's great. Thank you and then just a real quick but I know that you guys had decided the macro as well with respect to maybe an elongated sales cycles. It seems or fields, just given the way that you guys were talking in describing the successes here like that.
Relatively minor in scope, but can you kind of delve into that a little bit more and I'd be curious.
Those sales cycles is that is that elongation process impacting both new and existing customers and is it impacting them differently again anything there would be helpful and thank you again for the answers I appreciate it.
Yeah, Mike I'll take that question and this is similar to what we talked about on last quarter's call. We do see more scrutiny. When we're working through deals with customers and sometimes a little bit more of an approval process or review process and that can elongate the cycle a little bit more.
But I think perhaps you know what what we feel really positive about is that.
We've been instruments that go to market for two years now to be focused on value and to be thinking about the outcomes that we can drive and quantifying it with value engineering engagement and making sure that our customer success teams and share that you know previous investments get adopted and turned on quickly.
And that we're able to come prescriptive Lee when we're expanding within E L a or renewal to be able to justify that investment. So I think that we are fortunate that that's been our strategy prior to the macroeconomic environment and that well continue to be our focus and and I think will help us too.
They're a little bit better during these extra scrutiny that our customers are deploying yeah and.
And Michael a couple a couple of things to that.
First of all Paula has really built an incredibly good team that that's based on the on sort of the foundation of high quality salespeople.
With a very sophisticated.
And a large enterprise go to market motion that that is very different than it was a couple of years ago with ultra. So we now are sitting down with the CFO as we get visibility to their priorities and working with large partners like a pwc or of KPMG.
And.
And so I think we've gone through this this this transformation took you know it took to be able to plan out campaigns around renewals right and so that's why I think we have.
No real strengthen and in our in our.
In our execution, because we're dealing with customers that love our software and we're providing them with the kind of resources that that that helps them.
Do a lot more with us and without without a lot with a lot less friction and it really is making a big difference.
All around the table here, we work on we work on deals with customers every quarter and and Oh.
I've been doing this for a long time I can't I can't say that I've never been more confident about a team that I am now.
Awesome. Thank you again for the thoughtful answers guys.
Thanks, Mike.
Okay.
Our next question comes from the line of Michael <unk> with Keybanc. Please proceed with your question.
Hey, everybody good evening Mark Congrats on.
Thanks, Michael.
Good to talk to you guys at all as long as.
Well this was it turned to profitability I wanted to try to.
Ask you a little bit more relative to the leverage you'll get on the sales and marketing side. So so Kevin and Paul maybe you could talk a little bit about could quantify as much as possible how sales head count.
Grew over time when it was like in 'twenty, one, but it's been like in 'twenty, two and what you think that that would be like in in 'twenty, three and where we are going into 'twenty three in terms of ramped reps.
That's the context too.
Yeah. Thanks, Michael Let me go ahead and start off at least.
So as we've talked over the last two years, we have hired and invested heavily in the go to market organization that has been hiring a different type in skill of rapid has been adding a customer support and customer success resources, it's upgrading the.
Resources that are in and around the sales organization to be able to help so and we did so a pretty significantly through 'twenty, one and most of 'twenty. Two we saw some of the hiring in sales and marketing.
Hard to slow down as we got into the back half of 'twenty, two and I would expect that we are now kind of out of that investment phase and going into 'twenty three it would be a much much slower clip than it would be much more deliberate and surgical around areas of the business that we see opportunity so to go back to Mark's commentary.
We are very committed to driving higher levels of profitability as we've kind of exited this investment phase and are now into a really driving scale.
And I'm, sorry, Oh, you're going to jump in there.
Sure Michael I was just just a slight add which is around the fact that it really is about deploying the same deep planning at this point of the air that we deploy you know laskey line, where we're really taking all of those ramped resources and the teams that support them to plan the business for the year.
And he does that deploy the same strategy that we deployed last year or so and.
Definitely much more about it.
Driving scale this year than it is about adding capacity.
So just just.
That's just about the ramped reps can you contextualize, maybe where you are now in terms of ramped reps to where you've been in the past and where you might end up at the end of next year.
We're one year better than we were last year.
Michael.
Having said that I feel like I say that slightly institutionally, we've got a really large cohort of hires that we hired over a year ago that are really coming into their own right now and and you know these are people that on average have more than 15 years of experience or mostly coming from 1 billion dollar companies or greater like Vmware, Palo Alto networks and <unk>.
And.
I know you know this but but but.
But you know from my experience when you have a product that is very differentiated and E and F and a need for it that's never been greater like like I think we have today.
You can you can grow.
Connectivity per quota carrying head for a very long time, and I've been saying that for the last two the last nine quarters.
And we've seen that for the last three quarters and I expect to see that for a very long time as you have seen from many more mature companies over a five to 10 year period.
Great. Thanks, very much thanks.
Thanks, Michael.
Our next question the line Oh.
William Blair. Please proceed with your question.
Thank you and congrats on the strong results.
In your slides you call up a company often use up to five outlets towards breach activity and all tricks addresses a wide range of use cases from discovery and perhaps a prediction and prescription can you talk about the role that vendor consolidation has played in your successful expansion in the GTK and to what extent are these enterprise win greenfields, where the cuts.
Adopting ultra either any new use cases, and sunsetting and an existing vendor.
Yeah, Thanks, Camille and no doubt that today's economic time can can drive companies to be thinking more about vendor consolidation and they're looking for platforms, rather than single point offerings or or stitching together a collection of discrete tools. So.
We definitely do you find that to be a strength for us when we're out with our customers and positioning our platform and an end to end analytics platform that not only services the business analysts, but the data engineers the business users and so forth and so it puts us in a great position.
And to talk to customers with a platform value proposition and it resonates equally with existing customers where of course, we are spending a lot of our time, because there's so much growth opportunity within the existing customer base, but also serves us very well with new customers as well, who I'm thinking about okay. If I'm.
Just getting started on this journey I want to have some investment protection for the future as I growl and know that this platform is going to go with my business.
Thanks, Paul and if I could just squeeze in a quick one for Kevin acquisitions and investments made cash flow a bit volatile in 'twenty. Two could you provide some detail on how we should think about free cash flow margin conversion in 2023.
Okay.
Yes, I mean, we don't guide to cash flow I did put some commentary in my in my script around a positive operating cash flow. This year and we do expect cash flow to generally track operating income.
With respect to M&A or other investments.
That's that you know we continue to look at it interesting things in the market and should something presented itself that is actionable and strategic we would certainly take advantage.
Okay.
Got it thank you and congrats again thanks.
Thanks Camille.
Our next question comes from the line of pendulum and.
John <unk> with Jpmorgan. Please proceed with your question.
Oh, Great, Hey, Hey, everyone. Thanks for taking the questions and congrats on the quarter just two parter here.
Maybe dig a little bit on the five per cent optimization head count that you talked about in the letter what Russell said that impact broadly speaking and I.
I guess going into this year have you what kind of change in sales compensation have you put in place is there a particular focus are you putting in any kind of a closing.
Out there any color would help thanks.
Hey, pendulum its mark here I didn't hear the second part of your question. Let me answer the first part of this and then I'll allow you to repeat I think I think it was for Paul but.
With regards to head count, yes for sure it listen I think.
We're I'm.
I'm really happy with the way the way we finished this year and mathematically I feel really good about becoming a $1 billion company in 2023 from a from a revenue standpoint.
And it's my experience at this stage and and really every year beyond you got to run a tighter ship, regardless of the macroeconomic conditions, but especially given the macroeconomic conditions. We took a hard look at the plan for FY 'twenty, three and realized we could benefit from the foundational investments we made last year.
And not only go to market, but also in product and engineering and and really start to see.
To see some meaningful leverage out of this business, but to do that I think we have to do a clean sheet of paper exercise.
And take a look across the company.
At roles that were no longer sort of yeah.
Valued I guess for the next few legs of our journey and so that that involve about 150 people I believe.
150.
Rules were in effect eliminated and.
<unk> easy thing to do but I'm really proud of the way you.
Our chief people officer, Daniel sudden helped us manage this and yeah. We.
Do it and do it in a way that hopefully allows people to.
To get out there and do something different.
Yeah understood.
My second part was basically around.
Any any changes on the sales comp structure that you're putting in place any certain focus are you putting in a cloud based quota and Oh I'll just add a follow up there Kevin is there a way to understand kind of the savings from from.
From the 5% hit our optimization the head count.
I can be quick on the sales compensation question.
No material changes to the way that we've structured our comp plan this year.
Yeah.
Yeah, and the pendulum just you know with respect to your last question, we didn't quantify the impact of the head count adjustments on the business, but certainly it's it's embedded in the improving operating profitability that we've guided to them I would just point out the other.
Area of additional savings that we did drive in Q4 was the rationalization of our real estate portfolio, where we reduced our footprint by about 40% and that did contribute about $15 million to 2023 in terms of order of magnitude.
Got it thank you so much.
And our next question comes from the line of <unk> Kidron with Oppenheimer. Please proceed with your question. Thanks.
Thanks Congrats.
Congrats guys nice quarter.
Kevin a couple of questions for you on duration can you tell us how duration has changed and impacted your revenue recognition in the fourth quarter.
Yeah. Thanks, Italian I appreciate the comments with respect to duration I think as we've talked over the last.
Probably six quarters, we've seen duration.
Stabilize in and around a one and a half years, which is kind of what we had anticipated and signaled a overtime I think we really are at a point where customers are self selecting our the.
The duration that works appropriately for how they choose to buy and negotiate software I would remind you that we did have a slight change in the Rev. Rec in 2022 relative to product mix, which which is included in our 2022 results. We don't expect that to change or we don't expect any.
<unk> as we go into 2023.
Okay very good and then last one from me I'm trying to think again about E. L. A.
And specifically the 'twenty two yearly cohort that will renew.
In 23 can you give us two things one anything about the size of that cohort number one and number two.
What are from your experience.
You've talked about your expansion rates and what they are for your overall business and for large customers, but can you just tell us roughly what is common to see on first your ear lay expansion. What is what is the expansion rate on those type of deals.
Yeah. So it's still early days for us with E. L. A is which is what gives us so much excitement for the future opportunity with that so it's at you know had a lot of strength for us in 2022 and as we talked about we did more elas in Q4 than we did for the balance of the year.
So that gives you a good feel for how this is becoming a real pervasive south notion and customer motion for us and we saw really high cohort.
Customers as they came up on the expiration of their first even if they werent expiring on their E. L. A but expiring on their one year burst capacity that that created a great compelling of that kit can move them up.
Some cases, they are doubling their licenses or you know as much as forex the number of licenses at the end of that first exploration. So it's it's.
A powerful notion for us and we're just getting started.
Yes, just as a heads up that high.
Just a reminder, the 23 renewal base is significant significantly larger than the 22 renewable base.
Not just because it has a bunch of elas coming up for renewal, but because it's because of the really solid work of the team in 2022 and an end in.
In 2021, so so you know what.
It gives us it gives us the kind of comfort to build a plan for that for FY2023 that that will will allow us to continue on this journey in and continue to be able to build a company that that earn the right to you.
Ill expand and renew with customers.
Very good good luck. Thanks.
Thank you.
Yeah.
And we have reached the end of the question and answer session I'll turn the call back over to Mark Anderson for closing remarks.
Thank you operator, and I'd like to say, thank you again to our customers partners shareholders and our incredible team here at all tricks.
2022 was a terrific year for all trucks I'm very proud of this team as we look to 2023, we enter with an expanded platform of cloud offerings up level go to market motion.
<unk> commitment to profitability as we close out on a $1 billion milestone.
Thank you all and I look forward to seeing many of you at the upcoming inspire conference in May.
And this concludes today's conference and you may disconnect your lines at this time.
Thank you for your participation.
[music].
Okay.
Yes.
Okay.
[music].
Yeah.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
[music].
Okay.
Okay.
Hum.
Hum.