Alteryx (AYX) Q3 2021 Earnings Call Transcript

Alteryx (AYX)
Q3 2021 Earnings Call
Nov 02, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to the Alteryx third quarter 2021 earnings conference call. [Operator instructions] I will now turn the conference over to your host, Chris Lal, chief legal. Thank you.

You may begin.

Chris Lal -- Chief Legal Officer

Thank you, operator. Good afternoon and thank you for joining us today to discuss Alteryx's third quarter 2021. With me on the call today are Mark Anderson, chief executive officer and Kevin Rubin, chief financial officer. Additionally, Paula Hansen, our chief revenue 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 third quarter ended September 30, 2021. If you would like a copy of the release, you can access it online 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 fourth quarter and full year 2021. These statements are not guarantees of future performance.

They are subject to a variety of risks and uncertainty, 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 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 our chief executive officer, Mark Anderson. Mark?

Mark Anderson -- Chief Executive Officer

Thanks, Chris and thank you all for joining us on the call today. I'm proud to report that in Q3, we delivered another solid quarter of ARR growth, beating our guidance range as we continue to drive meaningful transformation across all areas of our business. Achieving $579 million of ARR in Q3, which grew 29% year over year, sets us up well for Q4, seasonally our largest quarter of the year. I'm especially proud of our execution while closing the strategic acquisitions of Hyper Anna and Lore IO.

It's my pleasure to welcome these teams and their incredible talent to Alteryx. Each brings us high-quality, cloud-centric engineering and subject matter expertise that will continue to bolster our commitment to innovation. I've never been more confident that we have the right leadership and the right operating framework in place. Today, I'll give you an update on our progress of our go-to-market efforts and update on our product strategy and more color on our M&A activity, including recent announcements.

We continue to focus on driving transformation and the necessary change it brings and we're doing this fast. I believe a strong sense of urgency is necessary as we pursue this $49 billion TAM, which includes about 47 million advanced spreadsheet users who would benefit from the automated advanced analytics that the Alteryx platform delivers. Today, our user base is less than 1% penetrated into this TAM, with focused 7,700 customers, many of them are very early in their customer journeys with Alteryx and very early in their journeys to data centricity. For example, at one of our recent C-suite advisory board meetings, every participant from across the globe score themselves at best at midpoint in their journey to drive a data-centric culture.

I maintain that there is a massive opportunity ahead of us as companies around the world realize that their need for data analytics is more important than ever. In the future, governments and enterprises that embrace data to make consistently better decisions will win hands down. A major part of our transformation is devoted to our go-to-market efforts. Here, we've been focused on large enterprises' desires to democratize analytics, drive adoption and reduce friction in our customers' journey to adopt our platform and make it available in a highly scalable way.

We continue to invest in developing and expanding our global sales team as well as our customer success resources to help in the consumption of our innovation. Our strategy is to supplement our land and expand sales motion with the complementary enterprise sales model where we're selling higher up in the organizations, to CIOs, CTOs and other chief executive leaders. A typical customer journey may start with two to three seats in a specific department and over time, using our land and expand path initially, we grow our enterprise scale and ultimately expand deployment to more and more users companywide. For example, CVS launched with a handful of seats in their Analytics and Risk Department in 2016.

And within 12 months, strategically launched Alteryx across the revenue cycle and claims processes. Through our engagement, we began to up-level our conversations. Today, the executive leadership team at CVS receives and depends on daily analytic reports delivered through Alteryx workflows. They now have 450 seats and have automated over 3 million membership claims since 2018.

Stanley Black & Decker started with one seat in 2018 and completed a large transformation deal with us in 2020, leading to over 450 seats across finance, operations, merchandising, e-commerce, strategy, compliance and data science. Our presence in these critical functions is helping Stanley's major transformative program to drive technology-enabled productivity. The initiative is expected to drive $300 million to $500 million of value over three years by way of supply chain and productivity improvements by leveraging advanced analytics. At the end of Q3, we had nearly 80 customers with greater than $1 million in ARR, representing a 40% year-over-year increase.

What we have learned is that when we have pockets of users across the organization, we have the opportunity to engage in more holistic conversations at an enterprisewide scale. These strategic conversations are targeted to go higher up in the organization. And what we're hearing from customers is that this much more mature approach brings enterprisewide capabilities, governance and stabilization in how Alteryx can be deployed across the organization. Let's start with our efforts to create a best-in-class go-to-market organization.

Paula Hansen, our chief revenue officer, continues to make significant progress driving operational discipline and rigor into our go-to-market engine. We're making the investments where it matters, such as customer success in deploying commercial structures that encourage flexible expansion. Through these investments, we're creating a scalable organization poised to go after the significant opportunity in front of us. In Q3, we saw improvements in sales attrition and continued to see strong hiring.

The team is coming together to embrace the new go-to-market operating framework, tools and leadership. Our numerous associates continue to ramp quickly, adding value as sales productivity continues to improve. As a result, we are increasingly selling higher in and more strategically to customers and prospects. We're also working hard to be the best and most flexible partner for our customers.

For example, our new enterprise contracts now allow for additional capacity, which provides customers the flexibility to grow quickly and encourages more users to leverage Alteryx. These contracts enable sellers to address multiple departments with an enterprisewide capability. Companies like Sharp HealthCare and separately, a Fortune 100 consumer electronics company as well as a leading electric SUV and truck manufacturer are accelerating analytics adoptions across their organizations with new, flexible enterprise license bundles. These flexible bundles are part of our broader strategy to leverage pricing and packaging to accelerate expansion.

With this pathway, business and analytics leaders can now organically and seamlessly grow transformational initiatives across departments. By up-leveling our conversations with our customers and expanding our sales motion, we're getting our platform into more users' hands. At the end of the day, this is still a very fragmented analytic vendor landscape. And I believe that platforms are going to win.

One aspect of Alteryx that I've always found compelling is how much our customers love and depend on us for the incredible business outcomes and ROI that our platforms deliver. Illustrating this, we received a handful of significant customer accolades from industry analysts in the third quarter. Alteryx was named a customer choice for 2021 in Gartner's peer insights voice of the customer for data science and machine learning platforms. Alteryx was also named as one of the five solutions to know in the Self-Service Data Science & Machine Learning by Constellation Research as part of their Q3 2021 Annual Shortlist.

Equally exciting, Alteryx was named a leader in multiple G2 reports for the fall of 2021, including predictive analytics. Finally, we were recognized as a leader in KLAS' research Data and Analytics Platform report for 2021. We're immensely proud of these recent accolades and humbled as the voice of our customers are heavily weighted in these rankings. No doubt these accolades validate what our customers have been saying for years, that our unified platform and self-service easy-to-use interface continues to be a market leader.

Moving now to an update on our product strategy. Earlier this year, we unveiled Alteryx Designer Cloud and Alteryx Machine Learning, a major step in our cloud strategy. We continue to make strides on this important journey. I'm excited to share that over the last few weeks, both products have become commercially available as part of a limited availability launch for select North America customers.

This is a major milestone for our cloud journey. These cloud innovations offer easy-to-use unified data analytics and approachable ML, interoperability across on-prem and cloud and no friction adoption with minimal downtime and seamless software. The feedback on these cloud products has been highly positive, with now over 600 participants using the early release of Designer Cloud and Alteryx Machine Learning. Suresh Vittal, our chief product officer and his team are advancing our product road map and are actively evaluating both organic and inorganic opportunities to develop and accelerate our innovation agenda.

Our efforts are focused around three pillars of innovation cloud centricity, big data fluency and AI as a strategic advantage. Cloud centricity supports our goal of making it easier for customers to democratize access to analytics across their enterprise. Our second innovation theme, big data fluency, is aligned with our customers' needs to analyze large data sets, a trend in both on-prem as well as cloud data repositories. We expect this trend will grow as data across the enterprise remains highly fragmented.

Finally, AI as a strategic advantage is aimed at democratizing insights across the business by using AI capabilities to help upscale analysts. As I mentioned at the beginning of the call, we recently closed two acquisitions, providing capabilities as well as talent. Hyper Anna brings a cloud-based platform for generating AI-driven automated insights from data. This solution enables anyone regardless of technical background to access AI-driven insights.

We also recently announced the acquisition of Lore IO. Lore IO brings talent and cloud-based data modeling capabilities to Alteryx. Both acquisitions enable us to accelerate more functionality to the cloud and to add improved data discovery capabilities. Finally, this morning, we announced the appointment of two new members to our board of directors, effective November 10.

CeCe Morken, president of Headspace Health; and Dan Warmenhoven, former Executive Chair and CEO of NetApp, join us as directors. Both bring innovative customer thinking and deep technology expertise. Their experience with scale will help in our transformation journey and position Alteryx for our next phase of growth. I'd like to thank both Kimberly Alexy and John Bellizzi for their invaluable contributions to the Alteryx board of directors over the past several years.

I remain confident in our ability to successfully transform Alteryx to deliver long-term value for our customers, partners, associates and shareholders. The opportunity ahead of us is significant and growing at a global scale. I believe Alteryx will be one of the winners in this highly fragmented data analytics and automation landscape. I'm so pleased at what we are doing here.

We're building an innovation powerhouse, supported by a world-class go-to-market motion. With that, let me turn the call over to Kevin. Kevin?

Kevin Rubin -- Chief Financial Officer

Thank you, Mark. Overall, we delivered a solid performance in Q3, ending with $579 million in ARR, beating guidance and representing 29% year-over-year growth. In Q3, we generated net new ARR of $31 million, increasing 79% year over year. Revenue for Q3 was $124 million.

We continue to experience improvements in sales execution as a result of the transformation efforts we walked you through last quarter, setting us up well for Q4, which I will go into more detail in a moment. We ended Q3 with approximately 7,700 customers, including 775 or 39% of the Global 2000. This quarter, we added customers, including Dow Jones & Company, Snap-on, Hormel Foods, AutoNation and BlackRock Financial Management, all of which have significant potential to expand with the Alteryx platform across their organization. Overall, net expansion was 119% and a stronger 127% within the Global 2000.

As I signaled last quarter, we expected to see a small downtick in net expansion as we continue to transform our go-to-market focusing on the largest customers and prospects with the greatest propensity to adopt and expand with Alteryx. We anticipate some volatility going forward in net expansion as we supplement our land and expand sales strategy with a strategic enterprise focus. On last quarter's call, we discussed how we experienced elevated levels of attrition in the first half of '21, as a result of the transformation journey we are on as well as the great resignation that many companies have experienced this year. I'm pleased to report that attrition rates improved in Q3 and are trending down as the changes in our go-to-market take hold under Paula's leadership.

We continue to attract great talent and had another record hiring quarter. Additionally, we completed two acquisitions in October. As Mark mentioned, we closed the acquisitions of Hyper Anna, based in Australia and Lore IO, based in San Francisco. We expect these acquisitions will accelerate our cloud strategy by not only adding more functionality and cloud know-how but also adding strong talent to our teams.

From a financial point of view, revenue, ARR and operating expenses associated with these acquisitions are immaterial. While expenses overall are immaterial, there is a slight increase in our operating expense run rate as a result. Additionally, there are some onetime charges associated with the acquisitions. All of this has been factored into our Q4 guidance.

We are hard at work on integration and we are excited to bring the new teams on board. Before moving on, I want to remind everyone that unless otherwise stated, I will be discussing non-GAAP results. Please refer to our press release for a full reconciliation of GAAP to non-GAAP results. Q3 revenue was $124 million, representing a decrease of 5% year over year.

This was primarily the result of average contract duration, which, as expected, came in just under 1.5 years this quarter, down from two years in 2020 and 2019. As I mentioned on the call last quarter, we expect to continue to see contract duration shorten as we focus our sales efforts on account-level ACV and ROI-based outcomes while significantly reducing discounts for multiyear contracts. While we intend to continue to offer multiyear contracts and some customers will continue to elect longer contract terms, the average is coming down. This change is intended to further streamline our go-to-market and further focus on ACV at the deal level.

Importantly, we believe this is increasingly the preferred buying cadence from our customers, similar to what other software companies have experienced. We believe that the changes we made in how we sell and in reducing the financial discount for three year contracts are the main factors driving shorter average contract duration. Alteryx continues to be an integral part of the modern data ecosystem, which is reinforced by our continued success with partners like Snowflake and UiPath as well as our consistently strong win rate. In Q3, we saw strong year-over-year growth in net new ARR, specifically in the Americas.

Also, as validation of our customers' commitment to Alteryx, we had the highest renewal rates dating back to early 2019. Our Q3 gross margin was 90% as compared to 93% in Q3 2020 due to an increased investment in customer success to drive higher product adoption and lower churn. As we've discussed this year, investment in customer success is a strategic initiative and we believe will be a catalyst to drive net expansion over time. Our Q3 operating expenses were $121 million compared to $90 million in the same period last year.

The increase in our operating expenses is primarily attributable to increases related to headcount and payroll-related expenses. Our Q3 operating loss was $10 million. Net loss was $12 million or a loss of $0.18 per share based on 67.3 million fully diluted weighted average shares outstanding. Turning now to the GAAP balance sheet and statement of cash flows.

In the third quarter, we generated $9 million in cash flow from operations. Our liquidity position remains very strong with just over $1 billion in cash, cash equivalents, short-term and long-term investments. Now turning to the outlook for Q4 and full year. Our guidance assumes the following.

First, we expect continued improvement in the macro environment for the remainder of 2021. Second, the average duration of our subscription agreements will continue to shorten and trend below 1.5 years. And third, approximately 40% of TCV booked in the quarter will be recognized upfront with the remainder recognized ratably over the time of the contract. I'd like to remind you that our guidance is subject to various important risks and cautionary factors referenced in our call today and in today's earnings release.

For Q4 2021, we expect to end December 31 with ARR of approximately $635 million, which represents year-over-year growth of 29%. As we have discussed previously, ARR measures the overall health of the business and is not impacted by some of the revenue mechanics such as contract duration or upfront recognition that impact revenue. We expect GAAP revenue to be in the range of $163 million to $168 million, which represents a year-over-year increase of 2% to 5%. We expect our non-GAAP operating income to be in the range of $2 million to $7 million and non-GAAP net income per share of $0.02 to $0.07.

This assumes 69.7 million weighted average shares outstanding. For the full year '21, we now expect GAAP revenue to be in the range of $525 million to $530 million, which translates into year-over-year growth of 6% to 7%. We expect our non-GAAP operating loss to be in the range of $18 million to $13 million. Our non-GAAP net loss per share is expected to range from $0.32 to $0.27.

Our non-GAAP net loss per share assumes 67.2 million basic shares outstanding. Finally, we expect an effective tax rate of 20%. In summary, with one more quarter to go for the year, I am pleased with the progress we have made on our transformation journey to position Alteryx for the next phase of growth. We have seen positive results from the transformation to our go-to-market strategy and advanced our product road map through the year, both organically and through our two recently announced acquisitions.

We believe this puts us on a path to accelerating growth in the future. And with that, we'll open up the call to questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Brent Bracelin with Piper Sandler. Please proceed with your question.

Brent Bracelin -- PIper Sandler -- Analyst

Thank you and good afternoon. A couple of questions from me here, if I could. Mark, given you're approaching the 1-year anniversary. I'd love to hear maybe how you're thinking about the top one, two priorities going into year 2? Are they shifting a little bit now that you've kind of spent the last year really focused on the go-to-market overhaul? Just would be curious to hear that and one quick follow-up for Paula.

Mark Anderson -- Chief Executive Officer

Yeah, you bet, Brent. How's it going? Good to talk to you. Thank you for the question. Yeah, listen, I think after a year on the job here, I look back and I can see just a volume of work done.

We call 2021 the year of transformation. We're three quarters into that year. And I think the demand environment for what we do and the way that we're organized, both to be able to deliver, to put innovation at the fingertips of our customers as well as to monetize that and earn permission to do more. I think we've never been in better shape and I feel like we're in a really good position right now.

I think FY '22 is clearly going to be about leveraging the efficiencies of the operating model, both for go-to-market and then cranking out as much innovation as we possibly can. I think as you saw in the last week and a half, we're going to do this organically and we're going to do this inorganically. And I think there's permission for us to roll up a broad platform in this space. And customers want fewer vendors, less complexity, more automation.

So we're heads down building that.

Brent Bracelin -- PIper Sandler -- Analyst

Totally makes sense. And I felt like there was a little bit of a pivot here with the couple of acquisitions, tuck-ins that you did and great to hear the plans here for '22. Paula, I wanted to kind of circle back. You joined obviously in May, implemented a number of go-to-market enhancements.

How should we think about those go-to-market pivots? Is that beginning to help expand the pipeline in the second half? Should we think about some of these shifts helping the pipeline build for next year? Really, any color you could provide on just the changes? And when will that kind of drive a change in the pipeline would be super helpful. Thanks.

Paula Hansen -- Chief Revenue Officer

Sure, you bet. So what we're definitely seeing in our engagements with our customers is that there is an interest in companies continuing to advance their analytic maturity. They understand the value that analytics can bring to their different transformation efforts. And so we are continuing to work with our customers in two capacities, of course, to build demand through our land and expand sales motion that's very effective, particularly across the lines of business.

And then we're supplementing that with a conversation at the executive level around democratizing analytics and bringing the capability out across the enterprise. And early indications are that there's an appetite for this scale and enterprise capability. We also feel that we continue to earn the hearts and minds of the users of our solution with a lot of high-quality product feedback. And then when we talk to the executive level about the enterprise capability and the announcement of our enterprise agreements, we're making it much easier for them to consume this at scale.

And then we back it up with the customer success to drive adoption. So we are heading in the right direction. Our customers are validating the strategy and we expect this to continue as we go into next year.

Brent Bracelin -- PIper Sandler -- Analyst

Great to hear. Thank you so much for the color.

Mark Anderson -- Chief Executive Officer

Thanks, Brent.

Kevin Rubin -- Chief Financial Officer

Thanks, Brent.

Operator

Our next question comes from the line of Tyler Radke with Citi. Please proceed with your question.

Tyler Radke -- Citi -- Analyst

Hey, thanks. Good afternoon. Mark, you've talked about reducing friction on the sales side as one of your key initiatives since taking over. And this past quarter, you referenced some of the more flexible arrangements that you're doing with some of your enterprise customers just to allow for faster consumption.

As we start to think about Alteryx being used in more cloud-based use cases where the predominant measure of -- or the predominant way of paying for things is kind of on a consumption basis, how are you thinking about the evolution of Alteryx maybe toward the consumption pricing model? And just help us understand how that would potentially play into ARR. Thanks.

Mark Anderson -- Chief Executive Officer

Yeah. You bet, Tyler. Thanks for the question. That's probably the sneakiest way I've ever heard anybody ask me for cloud pricing yet.

But well, listen, I think just as a reminder, the designer cloud is additive to our current plan. It's not a replacement or a forced migration. It's a different product that addresses potentially a cohort of different personas and different use cases that we plan on using aggressively in 2022, 2023 and beyond. We think it will be a bigger and bigger part of our business as time goes on.

But right now, we're still in the learning phase of this. And hoping to get some sense for what pricing will look like, we'll announce that once GA comes on board, Tyler and that's going to be early in January, February time frame of next year. But we think it's an important net new product for us to sell. It's piggybacked with Alteryx ML, which is really making the early stages of the machine learning, building ML models journey, make that easy like we have for many Alteryx users.

So we're going to continue to crank out this innovation.

Tyler Radke -- Citi -- Analyst

Great. And if I could sneak in a follow-up maybe for Kevin. Just as you think about Q4, it looks like you reiterated the existing guidance out there for ARR. Maybe just help us understand the puts and takes.

Q3 came in above where folks expected. It sounds like you clearly saw a nice growth in net new ARR and sales attrition is trending down and hiring is off to a good start. So given that you have raised the full year guide in prior quarters, what kind of is leading you to just keep things as is instead of take that a bit higher after the beat? Thank you.

Kevin Rubin -- Chief Financial Officer

Yeah. Thanks, Tyler. Look, I mean, maybe let me describe how we think about the guidance for Q4. I mean, obviously, we intend to put guidance out there that we have a high degree of confidence that we can achieve.

I would say this, as we look at Q4, in particular, we do feel like there is a strong demand for Alteryx technology in the marketplace. We've talked a lot about Paula's leadership and the momentum we're seeing in the go-to-market, which is certainly encouraging. I think if you look at pipeline, renewal rates, close rates, that all gives us pretty good visibility into Q4 and what to expect. I would remind you that Q4 does have a disproportionate number of renewals, which is one of the strong opportunities we have to ultimately expand the customer relationships and would expect nothing different for this Q4.

And then finally, if you look at just net new ARR growth implied in the guide for Q4, it is very consistent with previous Q4 trend lines. So I think it all comes in line. So anyway, hopefully, that answers your question, but we are going into what we expect to be the largest quarter in Alteryx's history.

Tyler Radke -- Citi -- Analyst

Thank you.

Mark Anderson -- Chief Executive Officer

Thanks, Ty.

Operator

Our next question comes from the line of Derrick Wood with Cowen and Company. Please proceed with your question.

Derrick Wood -- Cowen and Company -- Analyst

Great. Thanks. I just wanted to touch on just kind of how the reaction has been with the change in discounting structure. And I know you guys have kind of outlined how you thought you'd get the ARR upside with less discounts as you go from three years to one year.

How has that upside capture trended? And kind of what's been the reaction by customers that maybe are -- don't get the kind of discounts they used to as they go to one year?

Kevin Rubin -- Chief Financial Officer

Yeah. Thanks, Derrick. Appreciate that. Look, as we've said in the past, there are customers that tend to favor longer-term contracts.

Those tend to be customers with large deployments and we're strategically embedded in those environments. And the longer-term contract gives them price protection for a longer period of time. And we will continue of course to offer those to those customers. Pricing is a little bit different than it may have been a couple of years ago as we're really trying to align the ACV of those implied contracts with the value that we're delivering.

But when you think about what it is that customers are doing as it relates to engaging with customers, I mean we've aligned the organization very clearly around ARR and that means that sellers are focused on ACV and we're really focused in that regard. So ultimately, I think a lot of this is intentional and it's being driven by how we engage with customers and how we talk to them about the pricing dynamics and their contracts and less about any other dynamic if you will.

Derrick Wood -- Cowen and Company -- Analyst

OK. Yeah, that's clear. And nice to see the execution through those changes. Second question, either Mark or Paula.

I mean, just it sounds like you've had two quarters in a row of record hiring. Can you share what growth in net sales capacity looks like year-to-date? And where you're attracting talent from? And how we should think about your hiring intentions going into the end of the year?

Mark Anderson -- Chief Executive Officer

Yeah, you bet, Derrick. Thanks for the recognition on that. Yeah, I think we've built early in the year, we -- our chief people officer, LDK and I kind of made the decision to double up on the recruiting team and that's really yielded some important benefits here as we've been able to definitely keep up with the very aggressive hiring targets that our operating plan is driving. In terms of giving specific guidance on sales capacity, we don't do that, Derrick.

But I can tell you that Paula is a -- and I'll let her give you a more specific context, but she's a recruiting machine and she's got the entire organization talking about hiring and talking about sourcing and recruiting in the same kind of language that they talk about business and opportunities. And so it's a real mind shift change for the sales team here and the leaders and they've responded very well to it.

Paula Hansen -- Chief Revenue Officer

Yeah, much like the rigor and discipline that we've put into the business around things like forecasting, we have a similar rigor around hiring and an operating model that we run globally with a regular cadence to look at where we want to make investments, what does the talent pool look like in that market, what types of people do we want to hire? And rapidly moving them through our hiring cadence. And to your question of where we're hiring from? It's software enterprise, reputable companies with talent that is familiar with the go-to-market principles and approach that we have. And the great news is once we get a number of those people in the door like we have and they see the opportunity that we have, they often want to bring many of their colleagues with them and we've certainly seen quite an uptick in that as well over the recent months.

Derrick Wood -- Cowen and Company -- Analyst

Great. Well done. Congrats.

Mark Anderson -- Chief Executive Officer

Thanks a lot Derrick.

Operator

[Operator instructions] Our next question comes from the line of Michael Turits with KeyBanc. Please proceed with your question.

Eric Heath -- KeyBanc Capital Markets -- Analyst

Hey. This is Eric Heath on for Michael. Mark, my question for you. I just wanted to ask on the Lore IO acquisition.

So could you just further talk about what that brings to the Alteryx platform especially with the pushdown analytics and taking advantage of the cloud native compute. Could this be a step in the direction of building out a multi-tenant SaaS offering?

Mark Anderson -- Chief Executive Officer

Well, yeah. Listen, I think longer term, certainly, that's an objective down the path of the road map, Michael or sorry, Eric. But I think these acquisitions and Lore in particular is of the size, it's more of an acqui-hire than a technology tuck-in. Let me tell you, they've got really, really smart engineers that I think woke up one day and realized they were building a feature that better belongs in a platform like ours.

And that's why I think they make such a good fit for us. So they're already gone through new hire orientation and already plugging into the different organizations in engineering and product management. But absolutely, their specialty is in the pushdown area where customers don't want to leave a user interface and want to be able to push workflows down into an environment like Snowflake or Databricks. And so that certainly is a feature we plan on taking advantage of very quickly.

But I think more importantly, all of these acquisitions, in addition to bringing us really smart people that will fit into our construct really well, they allow us to do more faster. And I do think time matters in this, as I said on the prepared comments and I'm really quite pleased with kind of the way that we've been able to make these two acquisitions in the last six months.

Eric Heath -- KeyBanc Capital Markets -- Analyst

Great. Very clear. Thank you.

Kevin Rubin -- Chief Financial Officer

Thanks, Eric.

Mark Anderson -- Chief Executive Officer

Thanks, Eric.

Operator

Our next question comes from the line of Ittai Kidron with Oppenheimer. Please proceed with your question.

Ittai Kidron -- Oppenheimer & Co. Inc. -- Analyst

Thanks. Mark, I want to follow up on the sales force transformation. And clearly, you're making very good progress over there. So that's great.

But maybe perhaps you can give us a baseball analogy. And what inning are you from your perspective in getting to exactly where you want to get with respect to the change in the talent and the alignment toward the new way you're doing things?

Mark Anderson -- Chief Executive Officer

Yeah. Thanks a lot, Ittai. I always appreciate your thoughtful questions over the years. Listen, we're certainly in the back half of this.

We're in the third quarter -- excuse me, in the fourth quarter right now. We have two fiscal months to go in the full fiscal year. It feels like we've done an awful lot and we're just working hard right now to prepare for the new fiscal year and build a plan that can allow us to be successful with customers, our people and investors. But I think a lot of the big chunks are in the rearview mirror now.

I think it's now just stabilizing both the innovation teams as well as the go-to-market teams to really operate like a high-performing team and we're getting pretty close. I mean, we've got some amazing people that we -- that have stayed on here at Alteryx. And we've added, as we said, a lot of really good people into the mix and it makes for a great combination.

Ittai Kidron -- Oppenheimer & Co. Inc. -- Analyst

Very good. Good luck.

Mark Anderson -- Chief Executive Officer

Thanks, Ittai. Talk to you later on.

Kevin Rubin -- Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Kamil Mielczarek with William Blair. Please proceed with your question.

Kamil Mielczarek -- William Blair -- Analyst

Hi, all. Thank you for taking my question. Congrats on the quarter and the strong customer growth. But I think net new customer adds reached the highest level in something like seven quarters.

It's great to see. Can you maybe break out, provide some more detail on the drivers of this acceleration? How much is improved productivity from changes to the go-to-market strategy? How much is growth in sales headcount and how much is an improving macro environment? And then looking out over the next few years, how would you rank the expected contribution from these drivers of new logo growth?

Mark Anderson -- Chief Executive Officer

Yeah, that was a great question.

Paula Hansen -- Chief Revenue Officer

Yeah. I think that you hit on all of the different factors that were in play in terms of the results. So we are seeing improved sales productivity. We are investing to increase our sales capacity.

And we definitely see within the market a strong demand for our solution and customers recognizing the value that it drives to their outcomes and to their transformation efforts. So probably too difficult to specifically cite each category as a percentage. But without question, all three of those contributed to the success of the quarter.

Mark Anderson -- Chief Executive Officer

Yeah. And Kamil, I'll just say that I think it's also important to acknowledge that the partnerships out there are going to be -- become an increasingly important contributor to top line for us. We're just starting to build the muscle now to take advantage of these go-to-market and technology partnerships that customers are really demanding and the demand creation opportunity that we've seen certainly with Snowflake and UiPath and others is terrific. So it's creating demand for demand creation events that we're doing and it's creating a lot of activity.

It gets us in front of a lot of customers. It gets us a chance to talk about more than just the integration with those partners. So listen, to get this all to orchestrate together, we all have to do thousand things every quarter. And I think we've never been better suited to orchestrate those thousand things than we are today.

Kamil Mielczarek -- William Blair -- Analyst

That's great color. Thanks again.

Operator

Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed with your question.

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

Hey, Mark, Kevin and Paula, nice quarter. Congrats and thanks for taking my question. I think this question might be either for Mark or Kevin. I was looking at the investor deck and I noticed the long-term targets in the back and they look about the same or they are the same that were given back in May -- the updated ones back in May at the investor day.

Just thinking about that, a lot of things have changed. I mean, Paula has joined the team. Contract duration preferences have changed, you released the Designer Cloud. A couple of acquisitions in there, too.

So I guess, could you remind us about how to think about the long-term targets, maybe in terms of overall revenue scale or time line of guardrails on when these long-term targets might be achieved? Thank you.

Kevin Rubin -- Chief Financial Officer

Yeah. Thanks, Koji. I'll go ahead and take that one, if you don't mind. So when we presented the long-term targets back at the analyst day, I think we were pretty clear that this is a long-term view.

I would frame that in four to six years, on the basis that we are running the business for scale and leverage to achieve the profitability targets. I think as we've said over the last many quarters pretty consistently, we believe that investors are best served to focus on really growing this business at a high rate, which hopefully we have continued to demonstrate. And so as long as we are focused on growth versus profitability, we're somewhat deferring period-to-period the achievement of that long-term target. What I think is important to understand is as we do ultimately introduce more of a cloud set of products to the portfolio and move over time, you are going to see impacts to gross margin, but we think that this business is highly profitable in the long term as a result.

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

Hey, Kevin. Just one quick follow-up there. I just want to be absolutely clear on that. So you say four to six years from the point in time where you want to start focusing on scale and leverage versus growth.

Did I hear that correctly?

Kevin Rubin -- Chief Financial Officer

Yeah, that's right.

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

OK, got it. Thank you so much.

Mark Anderson -- Chief Executive Officer

Thanks, Koji.

Operator

Our next question comes from the line of Sanjit Singh with Morgan Stanley. Please proceed with your question.

Sanjit Singh -- Morgan Stanley -- Analyst

Thank you for taking the question. And it was really nice to see the cloud designer come out in limited release. And I guess my question is, in terms of thinking about the sequencing of the product road map, as we think about going into 2022, is that really about scaling the go-to-market and the sales motion for Cloud Designer, which might, as you sort of said Mark, target different personas, maybe even a different target customer. Correct me if I'm wrong there.

And then looking beyond Cloud Designer, how do you think about the other pieces of the AP vision that was sort of hinted at last year on that coming together? If you could just sort of speak to the sequencing of the product that would be great.

Mark Anderson -- Chief Executive Officer

Yeah. You bet, Sanjit. Thanks so much for the question. Listen, I think for the last few quarters, we've been pretty clear about wanting to build a real platform with a back end in the cloud and a front end that can be exposed to customers in any environment, Mac, Windows, VPC, multi-tenant SaaS, whatever.

That's where we're going. And customers want that because more and more of -- then the power users want to use Alteryx in these environments and we've got to respond to that. So we're going to continue to build more capabilities, more data sources, more tools that people can use on both our premise-based solution as well as our cloud-based solution. We're going to build more products like Alteryx ML.

And we'll productize Hyper Anna on designer desktop so that we can help customers get automated insights in their machine learning journey with that amazing technology and the amazing team from Hyper Anna. So I think what you'll see going forward, Sanjit, is just ongoing every three to six months, new products, new features, new capabilities that will continue to make our solutions stickier and stickier not only to the analysts and the users but to the CIOs and the CFOs and the chief data officers that are driving the budgets on these larger transformational projects. And that's why partnerships become really important to us. And so I think in terms of getting to a point where you might have data -- or excuse me, feature parity between Designer and Designer Cloud.

It's not even in the near-term future. So it needs to be thought of as a separate product.

Sanjit Singh -- Morgan Stanley -- Analyst

Understood. Thanks very much.

Chris Lal -- Chief Legal Officer

Thanks, Sanjit.

Mark Anderson -- Chief Executive Officer

Thanks, Sanjit.

Operator

Our next question comes from the line of Steve Koenig with SMBC Nikko. Please proceed with your question.

Steve Koenig -- SMBC Nikko Securities -- Analyst

Hi, Alteryx. Thanks for taking my question and congrats on a solid quarter. 

Mark Anderson -- Chief Executive Officer

Thanks, Steve.

Steve Koenig -- SMBC Nikko Securities -- Analyst

Yeah. So Mark, when prepandemic, so we had seen situations where for the sales motions for Alteryx that were focused on higher level executives, which clearly were probably more limited than the focus you're giving it now. But we have seen situations where the sale has resulted in a fair amount of shelfware at particular accounts and maybe not widespread, but we did run into that. And I'm wondering with your flexible bundles, etc., how do you avoid the situation where you end up creating an overhang of software that is let's say sponsored by a chief data officer, but they haven't really found the people to use that software yet.

How do you avoid kind of falling into that trap and getting stuff used at a pace that's commensurate with the pace that you're able to sell it to the executive level?

Mark Anderson -- Chief Executive Officer

Yeah. Great question there, Steve. I was wondering where you're going with it, but I think it's a very thoughtful question. For us, our success is going to be tied to building a strong operating plan, making our salespeople more productive for the foreseeable future, probably through the long run and ensuring that our customers consume our innovation.

That's right up there. Tied for No. 1, most important thing. And so it's one thing to say and it's another thing to put sort of some organizational muscle behind it, which is why we've almost tripled the size of the customer success team and are building out enterprise class customer support so that we've got resources in our, call it, our stack of resources that we put in front of customers that are not just there to sell them something and move on to the next customer but to help them consume it.

And that's why we're building a library of use cases that will be really like easy buttons for customers to be able to use to get to value faster. And so these are a lot of the things that Paula is sort of introducing into the mix here. But Paula, you might have some more context on this.

Paula Hansen -- Chief Revenue Officer

Yeah. I think it's a really thoughtful question and it's a multipronged approach to making sure that our customers realize the value behind the investments that they're making. And I think there's three areas where I feel that we're going to help deliver on that. First is just the focus that we're applying from a resource perspective to the set of customers that we support to really ensure that it's much more than a technology transaction and it really is about that adoption on the other side.

The second piece is these flexible consumption models that we're now supporting with our enterprise agreements that sort of help our customers grow as needed in a predictable way. So that it's not asking them to make too large of investments upfront, but giving them the flexibility to grow as they consume. And then thirdly, as Mark mentioned on the customer success side, we have so many tools now available to help our customers with enablement and adoption and best practices and change management and all the operational things that come with helping them to actually turn their investments into value. So it's really exciting where we are and I think we're only getting started on this.

There's going to be some more exciting capabilities in this next year as we think about things like assessments and benchmarking and other capabilities, but we're in it for the long term with our customers and that means they have to realize the value of the investment.

Mark Anderson -- Chief Executive Officer

Yes. And just maybe one closing comment on this, Steve. I think shelfware is pretty common notion in the old days, pre-pandemic. I think with the attention and scrutiny that's being applied to all things digital transformation, I think over time, it will be excised out by better vendors, by better partners.

And that's why we're working so hard to evolve and get better because that's what our customers deserve.

Great. Thank you very much, Mark and Paula.

Yeah. Thank you. Thanks, Steve.

Operator

Our next question comes from the line of Pinjalim Bora with J.P. Morgan. Please proceed with your question.

Pinjalim Bora -- J.P. Morgan -- Analyst

Hey, great. Thank you for taking my question. Mark, one question about the G2K opportunity. I mean, is there a way to understand that opportunity? How big is it? I mean I look at the retention rate on G2K, that has kind of come down a little bit.

But it seems like about 10% of your customers are $1 million, 10% of G2K customers are about $1 million. So there's still a lot of these G2K customers that can expand hopefully, in that seven figure range. So trying to understand what is that gating factor, right? Is that mainly related to these contracting changes, making it easy to adopt that you're already doing? Is cloud the answer or something else?

Mark Anderson -- Chief Executive Officer

Sorry, sort of getting factor to what, Pinjalim?

Pinjalim Bora -- J.P. Morgan -- Analyst

Gating factor for the 90% of the G2K customers to reach like a seven figure ACV?

Mark Anderson -- Chief Executive Officer

Yeah. Do we think that number is right? OK. Yeah, it's roughly. It's roughly but.

Pinjalim Bora -- J.P. Morgan -- Analyst

You said 80 of your customers are $1 million, I believe, right? And you have 775 G2K, so I'm just...

Kevin Rubin -- Chief Financial Officer

Pinjalim, just to clarify, that's across all of our customer segments. It's not specific to the G2K. But nonetheless, I think we understand the spirit of your question, so...

Mark Anderson -- Chief Executive Officer

Yeah. And listen, I think in the prepared statements, I replayed some comments that were made at a recent global C-suite advisory session that we had where the customers did a self analysis of where they thought they were on their journey to become a data-centric culture. And most of them thought they were at the beginning. At the very best, the most mature companies thought they were midterm.

And so we think focusing where the vast majority of the total addressable market is in most markets, it's in the G2000 or maybe the G500. And that's where we think we're going to get the best return on our resources for the next three to five years because with 1% penetration into a market that is companies are just waking up and realizing it's -- they've got to get their act together to make better decisions with data.

Pinjalim Bora -- J.P. Morgan -- Analyst

Yup. Understood. OK. One follow-up, Kevin, the investment, it seems like the operating income guidance is a little bit lower and it seems like you're saying it's mostly related to acquisitions.

Is it entirely related to acquisition or is there any incremental investments that you're doing?

Kevin Rubin -- Chief Financial Officer

No, relative to the guide, my commentary was that we obviously now are consuming these -- both of these two acquisitions and they did increase our run rate. So I was just trying to provide some color around why operating expenses were a bit higher in Q4.

Pinjalim Bora -- J.P. Morgan -- Analyst

OK, got it. Thank you.

Kevin Rubin -- Chief Financial Officer

Thanks, Pinjalim.

Operator

Our next question comes from the line of Chase Donovan with Raymond James. Please proceed with your question.

Chase Donovan -- Raymond James -- Analyst

Hey, thanks for taking the question. I just wanted to kind of peel back on Sanjit's question that are on the M&A. You guys announced the Hyper Anna and Lore IO acquisitions. Can you guys just talk about your appetite for future M&A and maybe where you see the most pressing need or kind of biggest opportunity to add functionality to your platform and kind of achieve that or toward achieving the broader kind of analytics platform vision?

Mark Anderson -- Chief Executive Officer

Yeah. You bet, Chase. Thanks for the question. Listen, I think we talked about this market before.

There's well over 400 vendors in this space and a lot of them sound like they do the exact same thing. I think there's confusion from customers of who does what. And the fact that most companies are early in their journey means that it's going to stay fragmented for some time. We think that's the obvious go signal for Alteryx to go build the platform.

Chase Donovan -- Raymond James -- Analyst

OK, thanks.

Operator

Our next question comes from the line of Blair Abernethy with Rosenblatt Securities. Please proceed with your question.

Blair Abernethy -- Rosenblatt Securities -- Analyst

Well, thank you. Nice quarter, guys. I just wanted to ask you a little bit about your thoughts for 2022. In terms of your go-to-market partnerships, you've had obviously a long-standing strong relationship with PwC.

How are you looking at some of the other major SIs and how you're positioned today? And where you'd like to be say another year or two years?

Paula Hansen -- Chief Revenue Officer

Yeah. Great question. Thank you. So we're very committed to partnerships.

We've talked a lot about how we see that as a major lever for our growth as we go forward. As we think about PwC, as an example, we're a couple of years now into that relationship and we see increased acceleration in terms of unlocking new conversations with customers, with the transformation projects that they lead in the areas of finance and in supply chain. There's just so much that we're still getting started on with PwC and others. So I'm confident that we're going to continue to see great growth opportunity there.

We're also really excited about many of our technical relationships that we've had like Snowflake, UiPath. We know that our customers are expecting us to be a leader in the data landscape and partnering with the other ecosystem players and we're seeing great traction there in our Snowflake relationship, over 600 joint customers where we're really partnering together to help with many transformation efforts. So I would say as we look into 2022, you're going to see us double down in many of those areas in terms of the number of customers and the number of success stories that we'll be able to share. And then you'll also see us expanding out into other partnerships where we know that there will be benefit for our customers who want to be able to get access to our solutions and have us partner in the ecosystem in support of their needs.

Blair Abernethy -- Rosenblatt Securities -- Analyst

Great. Thank you.

Operator

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call over to Mark Anderson for closing remarks.

Mark Anderson -- Chief Executive Officer

Great. Thank you, operator and thank you so much, everyone for your time today. I'm really excited about the progress that we've made in FY '21 and really excited about the opportunity to make history in Q4 and 2022 and beyond. So thank you all for your time and attention.

Looking forward to seeing you out there in the field.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Chris Lal -- Chief Legal Officer

Mark Anderson -- Chief Executive Officer

Kevin Rubin -- Chief Financial Officer

Brent Bracelin -- PIper Sandler -- Analyst

Paula Hansen -- Chief Revenue Officer

Tyler Radke -- Citi -- Analyst

Derrick Wood -- Cowen and Company -- Analyst

Eric Heath -- KeyBanc Capital Markets -- Analyst

Ittai Kidron -- Oppenheimer & Co. Inc. -- Analyst

Kamil Mielczarek -- William Blair -- Analyst

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

Sanjit Singh -- Morgan Stanley -- Analyst

Steve Koenig -- SMBC Nikko Securities -- Analyst

Pinjalim Bora -- J.P. Morgan -- Analyst

Chase Donovan -- Raymond James -- Analyst

Blair Abernethy -- Rosenblatt Securities -- Analyst

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