Q1 2023 Alteryx Inc Earnings Call
Greetings and welcome to the <unk> first quarter 2023 earnings conference call. At this time, all participants are in a listen only mode.
<unk> 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.
I'll now 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 <unk> first quarter 2023 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.
Italy, Paula Hansen, our President and Chief revenue Officer, and Suresh Patel, 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 first quarter ended March 31 2023.
As well as our shareholder letter with key 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 second 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 statements 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.
<unk> web site 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.
Thank you Ryan and thank you all for joining us today.
We delivered all key Q1 financial metrics within or above our guided range.
Q1 revenue came in at $199 million up 26% year over year.
Annualized recurring revenue or a R. R came in at $857 million up 25% year over year.
Q1, non-GAAP operating loss was $18 million, beating our outlook as we continued to focus on spending discipline across the company.
We are pleased to have delivered on growth and exceeded our non-GAAP operating profitability outlook for the first quarter.
Our financial results demonstrate the value that our innovation delivers to customers everywhere.
Even when facing some continued tightening of the broader it spend environment.
More specifically, we saw changes in customer buying behavior late in the quarter.
Customers are applying more scrutiny on deals, which has continued to lengthen our overall sales cycles.
This in turn led to some deals that we would've expected to close in a more stable economic backdrop slipping out of the quarter.
Despite continued macroeconomic uncertainty we have not seen any material shifts in the competitive dynamics something we track closely.
Now the guidance, we provided last quarter accounted for some of this macro risk that prudence, along with our strong execution and a loyal customer base.
Hold us to navigate through this backdrop and deliver on our commitments.
<unk> need our innovation today more than ever.
We're seeing robust trends with that expansion and renewal rates.
Given our standout 2022 performance and Brazilians, thus far in 2020 three I believe we have the right initiatives in place and can continue to stay agile and successful in this dynamic environment.
Seasonally Q1 is our smallest quarter of the year in terms of bookings activity.
Said, it's an important time to calibrate the business model to drive continued success for the rest of the year.
And in times of dynamic macroeconomic conditions. It is especially key that we stay closely engaged with customer temperament.
And agile in terms of strategic planning and execution.
There are a few elements here I would like to highlight.
First we are executing on our top town enterprise class sales motion.
Understanding spending priorities is critical in the current environment.
We have aligned our resources as well as our partner ecosystem.
Round proving the value that <unk> delivers.
Second we are benefiting from the tight controls we've instilled in the go to market motion.
This discipline in deal structure and pricing has enabled us to deliver consistent financial results over the past year and is key to driving durable and profitable growth going forward.
And third we recently took a close look throughout the organization for opportunities to optimize our cost structure.
The variable nature of our cost structure provides us the ability to stay nimble in this environment and we announced today that we are executing a plan to reduce full time employee head count by approximately 11%.
This is certainly not a decision we take lightly and we deeply appreciate each and every individual who has dedicated their time to all tricks.
Yeah.
With that let me share a few highlights from the quarter.
In mid February we announced all access general availability of designer cloud.
Along with enhancements in governance certifications for the ultra <unk> analytics cloud platform.
Altra analytics cloud is now embedded in every aspect of our go to market strategy.
Our global 2000 penetration increased to 47% up two points from this time last year as we continue to gain traction with top organizations around the globe.
This growing presence provides us with significant greenfield opportunities to expand within our base.
Case in point, our global 2000, net expansion rate increased to 131% up two points versus the prior quarter.
We're continuing to see strong year over year growth momentum in Elas sold with many customers already using burst capacity.
For customers with Ely sold prior to Q1 that are still in the burst pays approximately one third of engage with that additional capacity.
And on the financial front, we completed a $450 million offering of senior unsecured notes. This reflects a 100 million dollar upsizing from the initial proposed amount given the strong market reception and demand.
We accomplished a lot as a company in Q1 and while the economic backdrop was and continues to be challenging.
The company executed at a high level and delivered on multiple key initiatives.
We believe we're on the right path and we have the right people to drive continued leadership and execution in this mark.
Our product innovation is a great example of this in the span of just one year, we acquired and integrated a multi tenant multi cloud architecture. We introduced the all tricks analytics cloud platform and we have just recently announced all access availability of designer cloud.
We are seeing strong early interest in our cloud offerings from both our customers and partner community.
The number of customers leveraging our cloud solutions increased over 30% year over year in Q1.
Our proven ability to quickly create value and high priority use cases with our flagship solutions has earned us the permission from many of our customers to explore incremental use cases and personas within the ultra <unk> analytics cloud platform.
Yeah.
For example, we have a multibillion dollar national commercial landscape customer that has leveraged designer and server for several years to unlock significant savings.
Eliminating single points of failure.
In Q1, this customer expanded with additional designer seats.
Plus added our cloud native auto insights to provide AI, driven operational insights and visualization for leaders across hundreds of branch offices.
We're also finding that our cloud innovation is creating opportunities for new logo customers.
We had a great win with a leading provider of entertainment and telecommunications services in Belgium.
Who signed on for our cloud Elaine during Q1.
Our well established designer capabilities and interface aligned with the customer's vision of enhancing customer engagement analytics.
And our ability to deliver this in a cloud environment with designer cloud whats key to earning us to win.
All tricks analytics cloud platform allows us to sell new low friction use cases and to new personas.
We have several exciting updates on the generative AI and cloud innovation roadmap to share.
First we're further developing ways to incorporate AI and ml throughout the platform, including some highly differentiated use cases with generative AI that enhance ease of use for knowledge workers.
And broadened the scope of analytics for all specifically, we are embedding large language models to help with text summarization.
Enhanced optical character recognition and topic modeling.
Additionally by integrating these large language models with auto insights, we will help customers reduce the time from insight to action.
Yes.
As always we are building generative AI capabilities into our products with our signature ease of use aimed at amplifying an analyst's ability.
And second as customers incorporate ultra X into their cloud transformation initiatives.
We're enhancing our integrations with adjacent offerings throughout the data analytics platform.
Such as cloud data warehouses governance, and visualization solutions and.
In addition, we are focused on delivering unified analytics experiences across our flagship and cloud offerings to enable faster time to value for our customers.
We'll have a lot more to share across these themes such as governance security interoperability and generative AI at our inspire user conference next month.
We have the most comprehensive portfolio of offerings in the history of the company.
And we have a significantly enhanced go to market motion comprised of a well tenured sales team a partner ecosystem that expands our reach and unlocks incremental opportunities.
And the customer success team that helps customers operationalize with faster time to value.
We continue to see success with large enterprise organizations.
The cohort of our largest customers delivered our highest year over year AOR growth once again in Q1.
This reflects not just growth in the number of large companies, we engage with but also our ability to prove value and earn the right to expand within these customers over time.
Customers are asking for repeatable use cases that enable them to do more with less.
Our ability to quickly deliver on this with analytics automation and governance enables us to accelerate the expansions and adoption across the enterprise.
We strategically aligned our enterprise sales strategy to make the expansion path as easy as possible for customers.
One example of this is our increasing engagement with customers at the executive level.
It provides a level of visibility that enables a more deliberate strategic expansion motion across multiple functional areas within the organization.
We had a great Q1 win with a global leader in management consulting demonstrates this dynamic.
After a small initial design or implementation in 2022 we closely engaged at the executive level to align all tricks is a core component of their vision for analytics enablement.
With a meaningful expansion upon renewal the customer looks now to leverage designer across multiple vertical and product service teams.
Enhancing their client facing service offerings at scale.
The pace and scope of this expansion is simply not possible when limited to line of business level engagement.
Okay.
Another enterprise initiative, we introduced about two years ago is our first of all Eli bundles.
L. A is allow customers to sign on for a defined volume of licenses.
With flexibility to expand up to 50% beyond that for up to one year.
This encourages exploration of new use cases, and personas that we believe will contribute to broader altering engagement over time.
We saw great success in converting many of these bursts to Upsells last year and we're off to a solid start in 2023 with over one quarter of the Q4 Elas leveraging burst within the first three months.
We also continue to land, new elas, with both new and existing customers, which.
Which is a key component of our large enterprise sales strategy.
Our partners have also emerged as a core driver of our go to market motion.
Our partner program expands our global market reach and customer success capabilities. In addition, our larger partners.
Often unlock access to key decision makers and I T reducing friction in the sales cycle.
Partners once again influenced over half of the new a C V. In Q1, we're particularly excited to see ramping enthusiasm and support for cloud within the partner ecosystem.
One of our larger GSI partners added 500 designer cloud seats to their thousand plus designer licenses.
As well as auto insights as they look to incorporate cloud more deeply in their internal operations and client facing services.
We're also seeing great opportunities emerge, where we can bring together the ultra <unk> analytics cloud platform GSI partner services, and Hyperscale cloud offerings for a unique and compelling customer offering.
And finally, our high touch and digital customer success team underpins all of this positive momentum with customers.
Customer success efforts are a driving force behind net expansion rate trends and renewal rates, particularly with our larger customer cohorts.
These are the folks directly working with our customers with the training and enablement and support driving productive user engagement and identifying new opportunities for our customers to create value with all tracks.
In closing as customers increasingly leverage all tricks and mission critical use cases across their organizations.
We believe the business is well positioned to deliver durable profitable growth over the past few years, we've successfully transitioned our business model from selling customers dozens of licenses to hundreds and we have our eyes squarely set on the next order of magnitude.
We're working with larger customers than ever before.
We're delivering tangible value with our platform, earning us permission to explore new opportunities throughout organizations.
We're engaging with top executives and aligning all tricks as a strategic enabler of their analytic vision.
We have partners and customer success teams closely engaged to drive upsell and expansion with E. L. A is providing greater flexibility with exploration.
And now with cloud innovations, we have a broader analytics platform to better assist our customers.
I'm so proud of the altra team for the resilience and execution that we've delivered and what has not been an easy macroeconomic environment.
Thank you to our customers our employees and our partners and finally I look forward to seeing many of you at our upcoming inspire user conference in May.
It's a great opportunity to engage with our community.
And see firsthand how old tricks is truly democratizing analytics for all.
With that I'll turn the call over to Kevin for a closer look at the financials Kevin.
Thanks, Mark we believe our Q1 financial results reflect the resilience and durability of our model in a challenging macro backdrop as well as our commitment to delivering improved non-GAAP operating profitability.
A R R of $857 million up 25% year over year and revenue of $199 million up 26% year over year were both within our guided ranges.
Robust renewal and retention rates contributed to the growth in Q1 with our overall dollar based net expansion rate unchanged at 121% and global 2000 net expansion rate up two points from the prior quarter to 131%.
non-GAAP operating profitability exceeded our outlook. This is the result of continued cost discipline across the organization efficiencies of scale and the early benefits from cost saving initiatives executed in Q4.
Additionally, we delivered cash flow from operations of $40 million, which reflects our strongest cash collection quarter ever for Q1.
Finally, we executed a successful $450 million offering of senior notes during the quarter meaningfully strengthening our long term capital position.
We strongly believe that the transformation we instrument it over the past couple of years and innovating the platform and the resulting products. We put in the hands of our sales team are enabling us to deliver durable financial metrics, even in a challenging macro conditions.
Our increased focus on large global organizations and our investments in our enterprise go to market motion are all yielding tangible results we.
We see it in a or a per customer which increased over 20% year over year for the third consecutive quarter.
We see it and increasing average deal size, particularly with upsell wins for existing customers and.
And we see it in our robust gross retention and net expansion rates, which are showing strong durability at a higher scale than ever before.
Cloud innovation also allows us to accelerate customers from ideation to deployment with a broader set of use cases and new personas.
Tumor response to our ultra <unk> analytics cloud platform has been strong and new cloud bookings increase meaningfully quarter over quarter, a notable achievement given Q1 seasonality.
We're seeing positive deal size momentum for cloud from both a year over year and quarter over quarter perspective.
And more often than not we are seeing cloud wins is an important element of larger upsell wins with customers across our platform of offerings.
Consistent execution in both our go to market motion and product innovation enables us to deliver the results. We did despite the more challenging macroeconomic environment.
When we guided on our last call we had factored in some macroeconomic headwinds, but we did not anticipate the financial system events that occurred in the final weeks of the quarter, which did affect our customer behavior.
While we have no material direct exposure to the impacted banks to date in terms of cash balances and no material vertical market concentration, we did see elevated deal scrutiny longer sales cycles and shorter contract duration and.
And as we've demonstrated in recent years, while contract duration influences the timing of revenue recognition due to ASC 606 accounting. This has no impact on a R. R and given our robust retention rates, we do not expect a material effect on our long term revenue and profitability.
As we look ahead to the rest of the year, we are constantly evaluating and calibrating our business. For example in Q4, we saw an opportunity to further reduce our spending through real estate rationalization and some rollout and eliminations.
This accelerated our path to improve profitability for 2020, three which remains a key priority for the company going forward.
With that in mind as Mark mentioned earlier today, we announced a head count reduction of approximately 11% or 320 full time employees.
This action will result in a charge of approximately $11 million to $13 million, primarily in Q2, and we expect will result in incremental cost savings of over $40 million in 2023.
We have focused the cost saving initiatives, primarily in sales and marketing and G&A to improve our efficiency as we scale and as we look to more closely align our financials with her long term operating model.
We will provide additional updates on these efforts next month at our Investor day at inspire.
We believe we will deliver strong growth in 2020, three and beyond and we plan to do so with increased profitability.
We have an incredible opportunity ahead of us.
2023 provides us with our largest renewal base ever.
We have significantly higher renewal opportunities in Q4, 2023 relative to Q4 2022.
We believe that our gross retention levels plus the fact that nearly three quarters of our air our rest with loyal customers that had been with us for five years or more demonstrates the critical nature of our platform for our largest customers.
We have a growing book of Elas that are actively leveraging burst capacity and elas represented a growing percentage of new large enterprise deals in the quarter.
We have an enhanced sales motion and engaged partner ecosystem and an expanded customer success team.
Our subscription services business continues to grow as customers ask for our leadership to execute their analytics strategy demonstrating their confidence in old tricks is the right long term business partner and of course, our ultra <unk> analytics cloud platform now offers full access availability to designer cloud along with Altra is machine learning.
And ultra ex auto insights and we are seeing growing traction with existing and new customers.
And while the decision to recalibrate head count is never easy we expect to enter the second half of the year driving meaningful increases in productivity profitability and cash flow.
With this framework in mind lets turn to the Q2 'twenty three outlook.
We expect <unk> to be in the range of 902 million to $906 million representing year over year growth of 24% to 25%.
We expect GAAP revenue to be in the range of 180 million to $184 million representing year over year growth of flat to up 2%. This assumes a slight decline in contract duration year over year.
We expect non-GAAP operating loss to be in the range of 52 million to $48 million.
We expect non-GAAP net loss per share to be in the range of 69% to 65 cents. This incorporates interest expense of approximately $10 million from the recent debt offering assumes $70 5 million weighted average shares outstanding and an effective tax rate of 20%.
But the full year 2023, we are maintaining our air our range of one point or one 5 billion to $1.025 billion representing growth of 22% to 23%.
We are maintaining our GAAP revenue to be in the range of 980 million to $990 million representing year over year growth of 15% to 16%.
We are increasing our non-GAAP operating profit range to 80 million to $90 million, reflecting planned spending discipline plus savings from the workforce adjustments announced today.
Given our historical trends and revenue linearity, we expect the non-GAAP operating profit linearity in the second half to look similar to 2022.
We expect non-GAAP profit per share to be in the range of 65 to 75 cents.
Again this incorporates the interest expense from our recent financing and assumes 77 1 million weighted average shares outstanding and effective tax rate of 20%.
In summary, while the macroeconomic environment has created some incremental headwinds early in the year, we believe the financial results demonstrate the resilience and durability of our business.
There's no doubt that our customers are facing an elevated level of uncertainty.
And while this can create friction in the sales motion our robust retention rates continued growth with our largest customers and increasing <unk> per customer all speak to the level of commitment we are seeing with our customers.
We are confident in the strategic initiatives, we've been executing on for the past couple of years continue to believe we will achieve 1 billion plus in air are for 2023 and are committed to delivering on our increased non-GAAP operating profitability targets for the year.
Before handing the call over to the operator I'd like to note that we have an investor day coming up on May 23rd as part of our 20th twenty-three inspire user conference in Las Vegas.
We will further discuss altering his market opportunity go to market strategies and platform innovation with a live customer panel for those joining in person.
I encourage those interested in learning more on the Altra story to come to inspire to hear firsthand from our customers and partners.
With that thank you all for joining us today, and I'll turn the call back to the operator.
Thank you and at this time, we'll be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
It depends using speaker equipment, it may be necessary to pick up your handset before pressing just darkies.
We also ask that each participant.
And the acute just please limit themselves to one question and one follow up question.
Our first question comes from the line of Tyler Radke would see D C.
Please proceed with your question.
Yeah.
Yeah. Thanks for taking the question.
Kevin.
Are you on on the guidance.
Obviously, you called out.
Macro conditions in the end of the quarter.
You didn't really take down many of the ranges for the whole year.
Yeah.
I guess I'm wondering what you know what what gives you the confidence that you can still achieve those ranges.
You know what.
What are you assuming here for the second quarter.
As it is.
Is it a different set of macro assumptions relative to what you assumed and in Q1. Thank you.
We go into Q2, we have.
You know we have a high degree of confidence on how we've set up from an IRR perspective, we did see some shortening of contract duration in Q1, and while we do expect to see it improve in Q2.
We are still taking a cautious approach what youre seeing reflected in the revenue guide for Q2 as we get into the full year I guess I would also just remind on the various different levers are that we have as we think about delivering this year. So as I mentioned on the call. We have the largest renewal opportunity in the coming in the comp.
He has a history a lot of that sits in H two with a large percentage of it in Q4 as I commented on the call. We do expect to see a slight shift in overall seasonality relative.
To Q4 in the business as a result of the large renewal base, we have a large population and growing population of elas that are into burst that are driving our opportunity and activity that will renew at the back half of the year and we're continuing to see success with the enterprise sales motion.
131% net expansion in the global 2000 in the quarter, which is a two point improvement and so while we saw some challenges in March and we've reflected that in the guidance going forward I think there's still a lot of optimism on the year as you can see in the in holding that guide.
Okay.
Great and a follow up if I may just on that but the broader generative AI topic. I think you know investors are or are wondering just the the long term implications are on the competitive market, particularly as you have Microsoft very involved in building out copilot functionality into its office suite.
I guess two questions.
How are you thinking about the evolution of the competitive landscape longer term and and just given that organizations are really making our investments and into things like chat G. P. T to what extent have you seen this benefit your business and what are the investments you're making to make sure you can be a beneficiary. Thank you.
Yeah.
Great. Great question. This is suresh mittal them I'm going to answer that.
So we continue to see them.
Lost language models and generative AI as a significant opportunity.
Really democratize analytics is kind of share some of the same characteristics that we espouse and making analytics available for every knowledge worker in the company.
And with that said, while almost everybody is making investments in la as language models.
The challenges that our customers face day in day out continue to exist.
Customers have to ingest data from hundreds of different data sources.
As we see with all the tricks users nearly 70% of them used four or more data sources beyond excel to manage analytics are we look at the different kinds of data types that they have to work with and so we could need to make aggressive investment as well into large language models.
Something you may not know, we have lost language model and our products today already.
Talk to them in the prepared notes a little bit.
And if you're gonna be it inspire you'll see us announce agenda to be Iot capabilities inside of our products.
Things like bringing.
Automated analytics faster to an auto insights you. There is a typical use case that we see more and more everyday are bringing topics amortizations are topic modeling capabilities that our customers ask for and then you'll start to see the product and also we think that this whole area of <unk>.
Governance that can be really leverage through that large language models that you'll see in our products here over the next couple of quarters.
Thank you.
Thanks Todd.
Yeah.
Our next question comes from the line of Brent <unk> with Piper Sandler. Please proceed with your question.
Good afternoon.
Just quick first question here is really around demand Lindy linearity here that you saw in the quarter and it really into April you, obviously missed the midpoint of the guide by a million here in Q1, but.
But still looking for a healthy rebound in April I get it sounds like renewals give you confidence for the full year guide, but specifically to Q2, what did you see in Q1 from Advamed layered in linearity standpoint in any of those deals that slipped out of Q1 did they have they closed so far in April .
And your confidence for that that Q2 kind of meaningful net new <unk> guide.
Yeah, Hey, Brent Mark here, Thanks for the question.
I think for Q2, we took a an appropriately cautious approach to guidance we did see.
Sales cycles elongated towards the end of the quarter and really when the.
Regional banking crisis hit you know it was a few weeks before the end of the quarter, we really saw customers sit on their hands and chalk AR about you know how this was going to play out so that did impact our linearity in Q1.
So far Q2 looks looks looks fine I think we're gonna be for we're gonna be.
Appropriately measure around what we forecasted and Paul can give some color.
Yeah, Let's say, hey, and grant so that the behavior that we saw in the majority of Q1 was actually similar to what we saw in Q3, and even Q4, which we talked about on the call just in terms of Marty outskirt need more reviews and approvals and then as Mark mentioned at kind of that.
Extra had an extra layer of scrutiny in the tail end of March after the financial and city.
And so as we're in Q T. Now April is the first month of any quarter is usually one of the smaller month of the three months of the quarter, but we're having constructive conversations with customers. We have closed a number of deals that slipped from Q1 and you know we remain confident in.
Our ability to deliver value on the projects that we're discussing with our customers.
I'll just give you a little more color, Brian you know I've been traveling a lot already in the month of April and Gosh every single customer I talked to us asking for our health and their sense of urgency around doing something to become more digitized or to transform their business and make better decisions and insights with with.
Data <unk>.
It is higher than I've ever seen it so that's factored into our views as well.
Helpful color consistent with our conversations April definitely sounds a little healthier than March just a quick follow up on the cost side, you're essentially pulling forward.
Margins that we thought you would do in 2024 into 2023 with the 11% kind of rescue announced.
Why now why the decision to say Hey, now is the time to do a the balance forward and and drive to a higher margin is there a desire to get to that rule of 40 goal sooner than later just just a little explanation on why we are pulling forward the margin expansion targets into this year that we thought you would.
Get to next year. Thanks.
Yeah. Thanks, Brent I'll go ahead and take that look as we continue to to you know review and and and scrutinize our business. It is clear that driving greater levels of profitability is critically important in this year and we had an opportunity to rationalize our expenses.
As we described in the prepared remarks, which is going to create an opportunity this year to significantly increase our the operating profitability at our projections for the year and we felt that was an appropriate thing to do given what we're seeing in the business.
Got it helpful. Thank you.
Thanks, Thanks, Brian .
Our next question comes from the line of Derrick Wood with G. D. Cowen. Please proceed with your question.
Thanks for taking my question first for Kevin and I guess, it's kind of a two parter based off the last two questions. So with regard to the full year reiterated guide.
What how did you give us comfort that the 11% head count cut.
It doesn't kind of have any disruption with go to market or sales capacity and then with the Q2 guide.
That was in line with kind of what we were thinking but the revenue significantly below.
Is that just contract duration dynamics or kind of why is that delta had changed a bit on Q2.
Yeah. Thanks, Terry Let me let me hit your second question first and then I'll have Paul I give her perspective on your question with respect to the cuts and the impact of sales and marketing.
So as we thought about revenue and as I mentioned, we did see contract duration in the first quarter come down a bit and so we are projecting for Q2 that we have a softer contract duration, which is affecting the revenue guide is as we've talked about since we implemented ASC 606.
Contract duration is highly sensitive to to revenues. So that's what you're seeing are in effect on the guide to your point, we held a R R which.
Should that should fundamentally demonstrate that we are holding our booking assumption for the quarter.
Hi, Derek its Paula so in response to your question about the workforce reductions that we announced today you know obviously there are two areas as growing the top line, whether it's sales capacity or our sales productivity and we are very focused on driving up sales productivity.
I have been for a number of partners and Lynne will continue to be throughout 'twenty. Three so as we made these decisions either intentional to be mindful.
Ensuring that we continue to deliver on increased productivity.
Okay.
Got it.
A large set of cohorts four renewals that come up in the second half Derrick.
And we just feel are are our solutions are so durable and renewable.
For customers and you saw there.
Our net expansion rate ticked up 2% this quarter AR, that's happening for a reason because it's really it's really sticky solution.
So that that was going to be my last question just like the the.
You guys have seen really good growth in average deal sizes I mean.
Given the macro what's the level of confidence in kind of keeping that momentum going in and deal sizes and kind of keeping the burst conversion motions going I know you may have a little bit longer sales cycle, but how confident do you feel in.
And in those S P growth trends continuing.
Yeah, we feel confident enough to provide the backdrop for the guidance that we've given and yes, certainly confident in the team's ability to go prosecute those opportunities.
Yeah, I'll just add that we're in the L. A motion, which is certainly a contributor to the increased average deal size is something we're still getting started out and we saw great success with that in 2022, we talked about how we did more elas in Q4 of 'twenty two than we did in the entirety of the first three quarters.
And already in Q1 of 'twenty, three we see 25% of those customers that did it and Yale a with US in Q4 are leveraging the burst capacity, which gives us.
Permission to go back and continue to expand with them and and rinse and repeat that notion with many other customers in the global 2000 segment.
Thank you.
Thank you Sir.
Yeah.
Our next question comes from the line of <unk> Singh with Morgan Stanley . Please proceed with your question.
Well. Thank you for taking the questions I want to understand the the E. L E expansion motion, just a little bit better.
For customers that were bursting last year and got that benefit.
You did from that 50% burst capacity.
Coming into 2023, and you know if you sort of comment on the data points from Q1 is.
Is the dynamic you're seeing is that they are not taking on we're not paying for those incremental bursting users or is it lower than you expected any sort of commentary on how the E. L. A renewals and conversion of that burst capacity isn't manifesting at least so far in Q1.
Yeah, great questions Angie I would say that we're really pleased with the success of burst capacity and the ability that that gives us to go back and news our customer up to another five E. L. A R at multiple tier sizes.
The one that they've purchased so all of this has been with the mindset that if we reduce friction for our customers and put our Sapphire you now in the hands of more knowledge workers and analysts across the enterprise that the quick time to value that our sophomore demonstrates well set us up.
Nicely. It you come to the table with the customer and asked for them to now turn that burst capacity into paid licenses and frankly, it's I think exceeded our expectations in terms of how that has played out in 2022 and here in early 'twenty three.
Got it and then a question for Suresh sister follow on Tom's question on large language models. If I can cover kind of the three main capabilities sort of areas, where alter explain sort of in data wrangling data preparation democratizing.
Machine learning and data science insights and then in some sense you know helping out or help me on what sort of the B I process. When you look at just sort of the capability. The large language model across those three buckets of opportunities where do you see large language models being most effective and where do you see it being.
Less relevant.
I see them I mean, it's early days and I see them being most effective in the visualization and that last mile of insights a space I think the data wrangling. The prepping the pipelines the labeling all of that work you still need humans and you need to.
Kind of interface with this with many many different systems and the complexities and avoided still and that's kind of why a lot of our customers.
Migraine or come to all trade is because we really give them the ability to handle all of these complex task.
I appreciate the thoughts there.
Thanks Angie.
Our next question comes from the line of Mike sequels, with Needham and company. Please proceed with your question.
Hey, guys. Thanks for taking the questions here a couple of follow ups from from the earlier Q&A conversations we've been having with first that I wanted to come back to Kevin I know you had decided the shorter contract duration that impacted Q1 with the expectation for a slight improvement in <unk>, but still the overhang on revenue based on.
The ASC 606.
Hmm.
It would just be beneficial, but can you help us think through what the revenue impact in <unk>, where the expected revenue impact of QQ ease from that shorter contract duration versus what you guys had previously penciled them.
Yeah. Thanks, Mike I. Appreciate the question, we didn't quantify it but you know as I've said in the past I mean small movements in duration have you know pretty significant impacts on revenue and how much gets it gets recognized so you know it it it had an impact in Q1 and we've factored in.
On a relative basis into Q2 am I would again, just maybe point to it and signal you know are are for Q2 and the full year as a view on how we think about you know bookings, which is really kind of a normalized growth rate of the business.
Okay, and a little bit.
I'm contract duration, just in terms of what we what we saw in Q1 and how we think about it as we go forward. So a lot of our enterprise sales motion with our largest customers is what we've been focused on for the last couple of years as you know many of these customers have multiple contracts in place with altra.
Because of the land and expand motion that we were running for a long period of time and as we come through a new that is there is a big interest on our customers' part to consolidate a lot of those contracts into a common contract like any L. A get them the benefit of the predictable pricing the access to the full portfolio.
Oh, and the burst capacity and so that is definitely something that we saw in Q1 and and for me that's really a positive validation on their interest in continuing to grow with all tracks are further evidenced by the 131% net expansion so.
That certainly is a little bit of context for yet in terms of duration.
Thanks for the color there, Paul and I guess my follow up a two parter here. The first would be a follow up on on Derek's question around the head count reduction versus the productivity gains the company is talking to.
Could you help us think through what that productivity trend has been like in recent quarters and really the question becomes like if you have this 11% workforce reduction we're talking to is the assumption that productivity can actually accelerate over the remainder of calendar 'twenty three.
And the follow up what was it.
The second part is can you just help us think through the customer count actually declining quarter to quarter. I think this is the first time, we've seen that and recent recent memory.
Sure Mike No problem.
First on sales productivity at we're hyper focused on it and have been for many quarters now in 'twenty, two we saw productivity a quarter on quarter improvements and that and that is the plan for 2023 as well so again with the 11% reduction which keep in mind as a cross.
I'll have go to market not just quota carriers. There is a small percentage of quota carriers in there, but there's also supporting functions and you know pre sales and marketing and operations and so forth. So it's not all direct to quota carriers and but we we we are very confident that we'll see south pass.
Two the improvements continue through the balance of 'twenty three.
In relation to customer count Yeah, we have been very focused on the global 2000 on large enterprise clients.
And and really improving deal size and as we mentioned a IRR is growing fastest in our largest customer segment and so if I look at the air are of a churn customer the average churn customers around 15, K versus the average error or per customer is 100 K.
So you know we are much much more focused on the upper end of that marketing segmentation, where there's the most opportunity for air ground.
Thank you very much for the color some great data points Paul Thank you.
Thanks, Mike.
Do you.
It hasn't been a quick reminder.
Please limit your questions to one question and one follow up to allow us to.
Chance for others to ask a question as well.
Our next question comes from the line of Michael Lewis.
Louis with Keybanc Capital Markets, Inc. Please proceed with your question.
Hey, guys in a tough.
Tough environment, congrats on it but it's still solid numbers in the quarter.
In terms of behavior at the end of the quarter cause maybe.
Paul.
We can you can you narrow down at all.
Sub segments of where you saw the weakness.
But you attributed to banking issues.
I saw that causality.
Malls things in certain regions certain vertical.
It seems like the general.
Reaction to the banking crisis as mix some people thought.
Just wanted to know where we're at.
Specifically with your boss.
Yeah, Hey, Michael if you don't mind I'll I'll take that one yeah. That's fine if you could talk to you for a quick yeah. Thanks for the question.
You know I think.
We we look we saw a typical verticals that have been impacted a bit more by either supply chain or the you know the turn in the economy. Yeah. We just saw a little more aggressive tactics on the part of you know negotiators a new level of scrutiny was being applied.
And in a few tactics that frankly, I had not seen before customers not wanting to waste a good crisis to try to extract a better deal, but I'll tell you the discipline that we've instilled in the go to market around pricing and and definition of value improving out value really makes a big.
Difference for us and so so you know while we we we saw things slow down a little bit, especially after.
The Silicon Valley Bank, a shut down we still feel pretty good about the quarter.
Yeah, So I agree with Mike's comments, nothing specific to a vertical or a geography I think it just wasn't Ah Ah moment that a lot of people took stock of the situation mainly wanted to wait and see how things played out for a few days or a week and tomorrow explained in some cases.
Tried to use it as leverage and I'm happy that we are committed to long term profitability in and make the right decisions on it on a quarterly basis for the business.
Yes.
And then Oh question.
Regarding the back half obviously, you know what your renewal base is have you have you changed your assumptions around the conservatism of renewal percentages.
Conversions, given the fact that things got tougher.
Yeah. Thanks, Michael I'll go ahead and take that so first of all I guess you know so again some points of strength in the quarter. In addition to seeing net expansion overall remain at 121 and and the the G. T. K improve we continued to see incredibly strong renewal rates are in.
The business and so you know we we have over the last I think three quarters continued to see near record high renewal rates are in terms of of that including this last quarter. So as we look out for the full year I mean, certainly part of our calculus is a renewal.
And renewal trends as Paula mentioned, the customers that we tend to see churn out had less than a 15000 or are in the business. You know compared to you know we grew our the <unk> per customer by 23% again after the third consecutive quarter in terms of growth. So.
As we think about the renewal base that exists in the back half of the year, we're actually seeing very strong continued renewal rates, we're seeing very strong.
Engagement with customers and so one of the points I did want to just reiterate for from a seasonality perspective, our in my prepared remarks, I mentioned that Q4, 'twenty three has a significantly higher renewal rate excuse me a renewal base in Q4 of 'twenty two not to mention all of the Elas.
And they come due that we sold last year. So I do expect that Q4 seasonally is gonna be slightly stronger on a relative basis than we've seen in the past.
Thanks, Thanks, Ken.
Thanks, Martin Thanks, Paul.
Thank you Michael Thanks, Michael.
Our next question comes from the line of.
You take heed run with Oppenheimer. Please proceed with your question.
Oh, Thanks, sorry, Yeah, I wanted to dig into the productivity Mark you have been trying to reorient the salesforce for pretty much two years I guess at this point.
And it seems like Youre still not there from a productivity.
Standpoint, so maybe you can help us understand how far are we.
From getting to where you need to get and understand that nobody ever gets to where they want to get but we're to a point that you're happy with productivity and what why has it taken this long.
And still takes it still requires more time to get to where you need to get.
Yeah. Thanks for the question <unk>.
Listen I, you know I don't think I've ever happy with productivity I think as you said very rightly.
I expect that it should go up for a very long time, because we play in a market that is sizable and very fragmented and customers are looking for more from a platform vendors like old tricks and we want to build an end and or buy and integrate more and more products and capabilities.
So that our salespeople can have more to sell in and by simple math, if the productivity should go up.
We.
We certainly see and in times like this it's really important to do a really good job of sales planning planning your.
Around the renewals, it's our single biggest opportunity and the customer lifetime to earn more business by by doing a really good job of helping them consume what we sold and so.
I continue to expect that productivity will go up into the right and gosh I think you know my my past lives I've seen it go up for you know seven eight years at a time and I've got that expectation here as well.
Okay.
Maybe I guess as a follow up I mean, clearly as Paul explained you rather chase the big fish in the small fish right now and so that's that's where you're seeing the churn on the low end of the market.
But I guess, maybe you can help us understand in your.
Our penetration with the larger accounts.
And maybe Kevin can weigh on this as well how much of the expansion activity.
Is multi product driven.
Versus just continued designer seat expansion because.
If it's a design of seed you you would worry me that you're at some point going to come to the end of your expansion opportunity and.
And with the shrinking customer base I mean.
All of this might still deliver good results near term, but this is gonna be a long term disaster. So I'm trying to understand the profile of your expansion with a.
Our large customers.
Now what can you give us from a statistic standpoint of Kpis that helps us understand the depth of the expansion not just the linearity of its seats wise.
Yeah, I think that we've talked about yeah that the penetration rate that we had in the market is still very low right and so that is true within all of our customers, even our even our largest customers.
So and there is no shortage of growth opportunity, whether it be increased design or licenses or cross portfolio into our cloud assets.
You know today, we're early in our cloud journey. So that cross product expansion is you know still a small percentage of the total expansion.
But frankly, I I don't see a concern on continuing to expand both cross portfolio as well as with with more users for quite some time.
Yeah, I'll I'll say, just having gone through a few of these crises over the last 30 years you tie I think.
When when spending narrows and the enterprise I think cut.
Customers want fewer vendors they want less complexity they they they want platforms and so we're really seeing customers.
We focus on.
They are the platforms that are delivering value for them and we certainly spend.
Spent a lot of time with customers to prove that out.
Thank you.
Yeah.
And our next question comes from the line of Yun Kim with loop capital markets. Please proceed with your question Okay.
Okay, Great I have a quick question on the planned cuts.
Would that be a particularly focused on U S or international just wanted to ask that cause I think international has more resellers and.
Indirect channel partners.
Yeah, Hi, it's mark here.
The vast majority of the cuts were here in the U S. What we did we do have some cuts internationally and of course, our respecting.
The regional laws that exist around employment.
And termination of employment.
Okay.
Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed with your question.
Oh, Hey, guys. Thanks, Thanks for taking my question and squeezing me in here just just one for me I wanted to go back to the guidance and ask you a question maybe on the guardrails that you've embedded in the guidance from an upside to downside scenario kind of going forward here because when you gave the guidance on the fourth quarter call. It 90 days ago.
There was downside scenarios embedded in there and then as we kind of think through the quarter with the financial system events the deal push outs in the head count reduction.
It seems like that downside scenario you used up some of that downside cushion, but with the full year revenue in E. R. I kept the same it feels like maybe the conservative the guidance is a little bit conservative now. So maybe can you help me better understand the dynamics that are at play there. Thanks guys.
Yeah. Thanks for thanks for the question.
We certainly didn't anticipate in our Q1 guide.
Our regional banking crisis as as we saw I don't think anybody predicted that nor did we anticipate the behavior that we would see thereafter that being said, we still met the guidance that we've that we put out to your point 90 days ago and are proud as well as drove an increased level of profitability.
The guide, which we also felt was important in terms of the conservatism going forward I would just again reiterate that we have a lot of visibility into the renewal base. The elas and other things that we can control and we've talked about expansion rates and gross retention in and what we're seeing from that perspective.
And so as we go forward, we're continuing to be cautious and conservative around.
How those dynamics convert into the business, but we have a big set up here for the second half of the year that we have a lot of optimism around.
And we have reached the end of the question and answer session I'll now turn the call back over to CEO , Mark Anderson for closing remarks.
Thank you very much operator, and I'd like to say, thank you again to our customers partners shareholders and our team here at old tricks.
We believe our Q1 financial results demonstrate the resilience and durability of our business model and we plan to deliver on our increased non-GAAP operating profitability targets with strong execution and discipline.
Thank you all for joining us and I look forward to seeing many of you at the upcoming inspire user conference in May.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
[music].
Okay.
[music].
Okay.
[music].