Alteryx Inc., Orange County’s most valuable software company, is trying to convince investors to consider a non-GAAP metric called annual recurring revenue, or ARR, when looking at its earnings performance.
For instance, Alteryx on Nov. 2 reported third-quarter revenue fell 5% to $123.5 million. Still, the company touted a 29% year-over-year growth in ARR to $578.6 million.
“Wall Street is increasingly focused on ARR,” Chief Financial Officer Kevin Rubin told the Business Journal a few days after reporting the results. “29% ARR growth, at our size and scale, I would argue, is an impressive growth rate.”
Still, Rubin acknowledged that some investors “struggle to understand” why ARR growth rates are different than revenue.
ARR is often used by software-as-a- service companies to calculate recurring revenue; it typically doesn’t include other revenue such as one-time sales. Alteryx defines ARR as the total annual contract value for active customer subscription contracts as of the measurement date. Â
The company forecasts 2021 revenue of $525 million to $530 million, a midpoint growth rate around 6.5%, while ARR is expected to jump 29% to $635 million.
Shareholders seemed to buy the ARR story as the stock (NYSE: AYX) climbed about 9.2% in the two trading sessions following the third-quarter report. However, the shares slipped again in the following sessions, dropping about 10% to $72.32 apiece as of Nov. 11, for a market cap of $4.9 billion. The market cap had exceeded $10 billion at several points last year. Â
Shorter Contracts Preferred
One reason for the lackluster revenue growth, by non-ARR standards, may be that the company’s been moving from longer three-year contracts to shorter ones.
“Pricing for the company on one-year contracts is better than multiyear,” Rubin said. “We had been over indexed on financial incentives for customers to elect longer-term contracts.”
“One-year contracts are generally priced higher, as much as 30% higher, than three-year contracts, so focusing on more one-year contracts provides less discount and better pricing to Alteryx,” Rubin said.
Alteryx won’t be “draconian” on prices for existing customers with longer-term contracts, he said.
Having contracts on an annual basis “keeps us in front of the customer” and ensures a “tight relationship,” according to the CFO.
Buys, No Bake-Offs
As for competition, Alteryx doesn’t wind up in “competitive bake-offs” against other companies very often. “There isn’t one vendor that can offer the breadth and totality of what we do,” Rubin said.
Rubin foresees further expansion and is “comfortable” with the company’s forecasts for future revenue increases.
“I’m super encouraged by what we’re seeing from a go-to-market perspective relative to the volume of change that we and Chief Revenue Officer Paula Hansen have pushed through.”
In the past six weeks, Alteryx has purchased Australian startup Hyper Anna for $25 million in cash, plus other considerations, and Silicon Valley-based Lore IO for $10 million in cash and other considerations to improve its AI analytics.
“M&A; and inorganic activity is incredibly important and strategic to us. I don’t expect us to slow down per se, but I can’t speak to anything specific.”
