Kevin Rubin, the chief financial officer of data analytics software maker Alteryx Inc., says the Irvine company is going through a “transformation” that will lead to a “much stronger” growth company.
What about the nervous Wall Street investors who have stayed away from Alteryx and cut the company’s market cap by as much as 50% since last November, when it was hovering around $10 billion?
“Some investors have the stomach for it and others don’t,” Rubin told the Business Journal on Aug. 5, the day after a poorly received earnings forecast pushed the company’s shares down by more than 14%.
The company began its transformation last October when co-founder Dean Stoecker stepped down as chief executive and was succeeded by Mark Anderson.
Alteryx (NYSE: AYX) had been the darling among Orange County tech companies in recent years, especially since its 2017 IPO, racking up a revenue gain of 65% in 2019.
Despite the share price decline, the company’s shares are still up more than fivefold from the IPO price.
The company’s software allows data workers to turn huge amounts of information into actionable business decisions. Customers include Audi, HSBC and Netflix.
Last week, Alteryx reported second-quarter revenue rose to $120.1 million, yielding an adjusted net loss of 8 cents a share. Analysts had been forecasting revenue of $113 million and a 25-cent loss per share.
While it beat on the second-quarter results, it’s the current quarter forecast that spooked investors.
Alteryx sees third-quarter revenue of $121 million to $124 million and an adjusted net loss in a range of 18 cents to 21 cents per share, far below the consensus for $146.9 million in revenue and a 3-cent profit per share.
The third-quarter forecast implies an approximately 5.5% revenue decline from the same period last year, an indication that the transformation period is taking longer than expected.
The company also reduced its guidance for the full-year 2021 revenue to $520 million to $530 million, down from a May prediction of $565 million to $575 million. The forecast implies growth won’t pick up much in the fourth quarter either, climbing around 2% year-over-year to $164 million.
To extend its worldwide reach, Alteryx has formed partnerships with companies such as professional services firm PwC and global IT consulting company HCL Technologies.
Alteryx’s transformation means a focus on the world’s largest companies that provide “the highest value,” CEO Anderson told analysts.
The changes include increased “operational rigor and discipline,” Anderson said, citing the company’s sales efforts.
CFO Rubin also noted the transformation covers executive changes, including Anderson in the top role, as well as the hirings this year of Paula Hansen as chief revenue officer and Suresh Vittal as chief product officer.
“I would not characterize what we’re experiencing as a problem,” Rubin said of the latest results. Some investors are on standby “trying to see how we fare through this transformation journey this year.”
A significant change is that Alteryx is giving more customers shorter one-year contracts instead of the typical two-to-three-year deals.
“We’re seeing a larger percentage of customers opt for one year, (which) kind of forces our hand to engage with them closer,” Rubin said. “We’re certainly not eliminating multiyear contracts.”
Alteryx’s third-quarter revenue forecast was due to a faster than expected decline in contract duration, as the company’s average contract has declined from about two years in 2020 to about one-and-a-half years in the second quarter, Derrick Wood, a managing director at Cowen and Co., said in a note to investors.
“The shift from three-year to one-year contracts will result in fewer discounts,” the analyst said.
A smaller factor was attrition in its sales department, Wood said.
Management “attributed this to its transformation requiring a higher level of [operational] discipline and focus on larger customers and noted that most attrition was with low performing reps,” said Woods, who cut his price target from $120 to $100.
For Alteryx executives, the key to understanding the business results is ARR—annual recurring revenue—which Rubin called the probably “best underlying view of what the growth rate of the business is.”
Alteryx ended the second quarter with $547.6 million in annual recurring revenue, an increase of 27% year-over-year. ARR is expected to be approximately $635 million as of this Dec. 31.
Once investors fully grasp the significance of ARR, Rubin said, “We’d like to believe that market cap will follow suit.”
Some investors agreed as the stock rebounded 8.4% on Aug. 5 to $74.23 and a $5 billion market cap.
Analyst Wood said that ARR “should continue to grow 25%-30%.”
During a conference call with investors on Aug. 3, Anderson defended the changes.
“Our transformation is driving a higher level of operational discipline as well as a focus on large enterprise customers,” he said. “And this approach isn’t for everyone.”
Despite the jitters over the future, Alteryx ended the period with 7,405 customers, a 10% increase from the second quarter of 2020.
Anderson emphasized the company’s “ambitious hiring plans for the year.”
The company had 1,596 employees as of June, up from 1,469 workers at the end of last year.