Alteryx (NYSE:AYX) Posts Better-Than-Expected Sales In Q3, Stock Jumps 16.9%

Data analytics and automation platform Alteryx reported results ahead of analysts' expectations in Q3 FY2023, with revenue up 7.6% year on year to $232 million. Revenue guidance for the full year also exceeded analysts' estimates but next quarter's guidance of $337 million was less impressive, coming in 0.1% below expectations. Turning to EPS, Alteryx made a non-GAAP profit of $0.29 per share, down from its profit of $1.04 per share in the same quarter last year.

Alteryx (AYX) Q3 FY2023 Highlights:

Revenue: $232 million vs analyst estimates of $210.2 million (10.4% beat)
EPS (non-GAAP): $0.29 vs analyst estimates of -$0.06 ($0.35 beat)
Revenue Guidance for Q4 2023 is $337 million at the midpoint, roughly in line with what analysts were expecting
Free Cash Flow was -$62 million compared to -$38.8 million in the previous quarter
Net Revenue Retention Rate: 119%, in line with the previous quarter
Gross Margin (GAAP): 100%, up from 85.2% in the same quarter last year

Initially created as a way to organise census data for the government, Alteryx (NYSE:AYX) provides software that helps companies automate and analyse their internal data processes.

Analyzing data across a multinational company with millions of data sources creates a lot of complex processes that are difficult for analytics teams to keep track of.

It is essential for large companies to keep track of their data and be able to properly analyze it. Today, with an exponentially growing amount of data points there are full business analytics teams focused on making sure company data is properly being captured and analyzed. Alteryx helps companies automate their complex data and analytics processes to get actionable insights from their data more quickly and efficiently. By saving companies time and streamlining data capturing and analytics processes, Alteryx customers are able to spend more time analyzing their data and using it to improve their business.

Alteryx works through standardizing the data capturing process which is called ETL in the industry or “Extract, Transform, Load”. It is extremely important for companies to get their data from various sources into a standardized platform so that data can be turned into business insights. After automating the data capturing process Alteryx helps companies automate the analysis of their data through machine learning models which are custom built to each customers unique business goals. Alteryx can then turn a customer's real-time data into an automated and actionable workflow without a human in the loop. For example, an ice cream stand using Alteryx could capture the data of how much inventory they have, use machine learning to determine when to order more, and create an automated workflow to ensure they never run out of ice cream with little human supervision.

Data Analytics

Organizations generate a lot of data that is stored in silos, often in incompatible formats, making it slow and costly to extract actionable insights, which in turn drives demand for modern cloud-based data analysis platforms that can efficiently analyze the silo-ed data.

Other providers of tools to help companies process and analyse their data include: Amplitude (NASDAQ:AMPL), Domo (NASDAQ:DOMO), Health Catalyst (NASDAQ:HCAT), Palantir (NYSE:PLTR)

Sales Growth

As you can see below, Alteryx's revenue growth has been very strong over the last two years, growing from $123.5 million in Q3 FY2021 to $232 million this quarter.

Alteryx's quarterly revenue was only up 7.6% year on year, which might disappoint some shareholders. However, its revenue increased $44 million quarter on quarter, a strong improvement from the $11.1 million decrease in Q2 2023. This is a sign of re-acceleration of growth and very nice to see indeed.

Next quarter's guidance suggests that Alteryx is expecting revenue to grow 11.9% year on year to $337 million, slowing down from the 73.2% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 9.3% over the next 12 months before the earnings results announcement.

Customer Growth

Alteryx reported NaN customers at the end of the quarter, That's slower customer growth than what we've observed in past quarters, suggesting that the company's customer acquisition momentum is slowing.

Product Success

One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.

Alteryx's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 119% in Q3. This means that even if Alteryx didn't win any new customers over the last 12 months, it would've grown its revenue by 19%.

Alteryx has a good net retention rate, proving that customers are satisfied with its software and getting more value from it over time, which is always great to see.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Alteryx's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 100% in Q3.

That means that for every $1 in revenue the company had $1.00 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, Alteryx's excellent gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Alteryx burned through $62 million of cash in Q3 , reducing its cash burn by 7.8% year on year.

Alteryx has burned through $68.8 million of cash over the last 12 months, resulting in a negative 7.8% free cash flow margin. This below-average FCF margin stems from Alteryx's poor unit economics or a continuous need to reinvest in its business to penetrate the market.

Key Takeaways from Alteryx's Q3 Results

With a market capitalization of $2.3 billion, Alteryx is among smaller companies, but its more than $463 million in cash on hand and near break-even free cash flow margins puts it in a stable financial position.

This was a classic "beat and raise" quarter for Alteryx. The company beat on key line items such as ARR (annual recurring revenue), revenue, and adjusted operating profit. The company largely raised its outlook for the full year as well. Overall, we think this was a strong quarter that should please most shareholders. The stock is up 16.9% after reporting and currently trades at $35.49 per share.

Is Now The Time?

When considering an investment in Alteryx, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

We cheer for everyone who's making the lives of others easier through technology, but in case of Alteryx, we'll be cheering from the sidelines. Its revenue growth has been strong over the last two years, though we don't expect it to maintain that historical pace. And while its impressive gross margins indicate excellent business economics, the downside is that its customer acquisition is less efficient than many comparable companies. On top of that, its cash burn raises the question if it can sustainably maintain its growth.

Alteryx's price to sales ratio based on the next 12 months is 2.2x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

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