Alteryx Inc

F:3AI

Earnings Call Analysis

Strong Q3 Performance and Raised 2023 Outlook

The company reported a robust financial performance with ARR hitting $914 million, a 21% increase year-over-year, outperforming guidance despite currency headwinds. Revenue soared to $232 million, $20 million above expectations. Non-GAAP operating income reached $36 million, $30 million above the guided range, thanks to tight spend management. The enterprise go-to-market strategy bore fruit as Global 2000 penetration grew to 49%, and both 250K+ and 1M+ ARR customer counts surged by 20% and 30% respectively. Looking ahead, Q4's ARR is anticipated to grow by 13-14%. The 2023 forecasts have been raised: GAAP revenue is now projected to be $953-$959 million, up from $953 to $959 million, an 11-12% year-over-year growth, and non-GAAP net income per share is expected between $0.94 and $1.01, a significant increase from the previous $0.62 to $0.72 estimate.

Company Overview and Recent Developments

WestRock Company, identifiable as a Fortune 500 entity in the packaging solutions arena, recently showcased new additions to its Alteryx platform. This includes an enhanced designer implementation package, the introduction of a new cloud ELA targeting multiple use cases, and strides in generative AI with AiDIN, which has engaged over half of active Auto Insights accounts with their magic documents feature. These developments contribute to Alteryx's emphasis on innovation, as they launched AI Studio to integrate with Designer workflows and announced predictive features like AI-powered brushing in Designer Cloud.

Improved Execution and Financial Performance

The company's Q3 financials have surpassed expectations with ARR reaching $914 million, up by 21% year-over-year, and revenue at $232 million, providing a $20 million cushion above their guided range. Non-GAAP operating income greatly improved to $36 million, overtaking the high end of their previously predicted values by $30 million, due to diligent cost management and harnessing opportunities for expansion. These results reflect the company's evolving go-to-market strategy, focusing on larger organizations—leading to increased penetration among the Global 2000 by 10 points within two years. Remarkably, their customer count with ARR over $1 million grew over 30% year-over-year.

Anticipated Future Performance

Looking ahead to Q4 of 2023, the company's guidance suggests an ARR forecast between $942 million to $948 million, hinting at a year-over-year growth of 13% to 14%. Additionally, for the full year 2023, GAAP revenue is expected to ascend to the range of $953 million to $959 million, up from the prior outlook, displaying a growth rate of 11% to 12%. Non-GAAP operating profit forecasts have been elevated to $100 million to $106 million, an optimistic leap from the earlier $70 million to $80 million. Even the non-GAAP net income per share projections have improved, pegged to hit $0.94 to $1.01, rising from the previous estimate of $0.62 to $0.72. These forward-looking statements underscore the company's proficiency in capturing cost savings earlier than planned and their confidence in a productive and profitable year ahead.

Earnings Call Transcript 2023-Q3

[Operator]

Greetings, and welcome to the Alteryx Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ryan Goodman, Head of Investor Relations. Thank you, Ryan. You may begin.

[Ryan Goodman, executive]

Thank you, operator. Good afternoon, and thank you for joining us today for Alteryx's Third Quarter 2023 Earnings Conference Call.

I'm Ryan Goodman, Alteryx' Head of Investor Relations. With me on the call today are Mark Anderson, Chief Executive Officer; and Kevin Rubin, Chief Financial Officer. Additionally, Paula Hansen, our President and Chief Revenue Officer; and Suresh Vittal, our Chief Product 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, 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 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 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 statement. 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 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 and shareholder letter.

With that, I'd like to turn the call over to Chief Executive Officer, Mark Anderson.

[Mark Anderson, executive]

Thank you, Ryan, and thank you all for joining us today.

Q3 was a solid quarter for Alteryx across the board. Our product team made significant progress with our generative AI-infused offerings that we believe will bring high value to our customers. Our business execution improved from the prior quarter with key financial metrics above the high end of our guided ranges. Annualized recurring revenue or ARR came in at $914 million, up 21% year-over-year. This includes a currency headwind of approximately $6 million due to rate changes since we established the outlook.

Revenue came in at $232 million, up 8% year-over-year and non-GAAP operating income of $36 million exceeded the high end of our guided range by $30 million, driven by both revenue upside and disciplined cost management. These results reflect improved sales execution despite consistent demand trends relative to Q2.

Our customers continue to demonstrate a deep growing commitment to the Alteryx platform. We believe the quest to digitize government entities and businesses around the world is intensifying as we hear our customers look for ways to improve efficiencies and drive automation and analytics across their user communities. We also believe Alteryx is uniquely positioned as the data analytics orchestration layer of an increasingly fragmented data ecosystem. Customers are leveraging our solutions to automate analytic processes to do more with less, and our easy-to-use solutions enable this with improved governance and security features. These are substantial competitive moats that have enabled us to win for years.

Again, I am so proud of our R&D team as they work to incorporate generative AI throughout our cloud-connected platform, reinforcing this differentiated market position to customers and prospects alike. A/B, our brand of generative AI and machine learning technologies, is uniquely suited for this time and place. We recently announced several new A/B capabilities. More on that shortly. I'm also encouraged with the progress we're making with our sales strategy. On our Q2 earnings call, we committed to improving our sales execution and enhancing the visibility of our business, particularly in the context of the tougher macro environment. We quickly adapted with some personnel and process changes to do just that.

First, we made significant progress enhancing our pipeline management. Paula Hansen has driven more rigor and discipline into deal qualification, stage assessment and forecast management. With visibility improving, we are better able to optimize our go-to-market resources.

Second, we improved our importer linearity. The nature of our renewal cycle leads to a back-end weighted quarter but we did much better capitalizing on opportunities to secure wins earlier in the quarter.

And third, we incorporated these changes into our sales enablement capabilities. We are providing new training programs and tools to sales leaders throughout the organization to help them better monitor opportunities and deliver coaching actions needed to drive success with their teams. We have more work ahead of us but we're pleased to see an early impact from our efforts. We saw our best pipe conversion in recent quarters, plus delivered meaningful improvement in sales and marketing efficiency.

As discussed on last quarter's call, we're excited to welcome two new senior leaders to the sales organization, both reporting directly to Paula Hansen. First, our new SVP of Sales for the Americas, Mark Dorsey, joins us from Oracle where he served as SVP of Enterprise Cloud sales growing Oracle's cloud business and transforming the sales team into a skilled cloud sales organization. Mark has held several leadership positions at Oracle, and most recently was the SVP of the retail vertical for North America.

And second, our new SVP of Global Alliances and Channel Scott Van Valkenburg brings over 25 years of partner leadership experience working with global channel organizations. Scott joins us from Genpact, where he ran their global channel and alliance business, prior to which he held a high-performing Global Alliance team at SaaS Institute, where he managed over 1,400 partners. I'm excited to welcome both Mark and Scott to the mission and look forward to building on recent progress in our go-to-market strategy.

On that note, we continue to see strong validation that our executive facing enterprise-focused sales motion is working. Global 2000 penetration came in at 49%. That's up 3 points from Q3 last year. Global 2000 net expansion rate held strong at 130% and remains well above our overall net expansion rate of 119%. And we continue to attract marquee additions to our growing partner ecosystem. We announced a great new partnership with SADA on leading business and technology consultancy and Google Class top global partner.

Our ELA strategy has provided a streamlined land-and-expand motion that is resonating with larger organizations. ELA simplified pricing, bundle features and often include a component of trial seats, what we refer to as burst licenses. This flexibility encourages exploration and removes the friction that software vendors often impose on customers. Of course, we support these projects with our customer success team and partners which we believe accelerates upsell opportunities.

We had a great Q3 win with a Fortune 500 biopharmaceutical company that demonstrates the value of the ELA. This customer adopted its first burstable ELA with Alteryx in 2022. Early users quickly generated significant cost savings by automating time-consuming tasks across finance and operations teams. This resulted in a strategic push to broaden user engagement with the burst licenses, we saw dramatic use case expansion. In Q3 2023, the customer signed on for a new larger ELA with burst to drive momentum into next year. And we are selling more and more ELAs every quarter.

In Q3, we more than doubled the number of ELAs sold versus the same quarter last year. NVIDIA, a leader in accelerated computing and AI is leveraging Alteryx to automate tasks and orchestrate data within finance and beyond. One of the largest private companies in America signed on for a 1,000-seat ELA with 500 burst seats. This customer is establishing a flexible framework for increased engagement and automation across finance, tax, accounting and HR, plus is exploring use cases in manufacturing and supply chain management. Our Snowflake partnership and integration were key differentiators here.

Avalara, as the unique provider of tax compliance automation software meaningfully expanded within the ELA, and they are finding incremental opportunities to save costs by automating more within finance and a Fortune 500 global marketing and communications company adopted a new multiyear ELA as they expand their usage of Designer. After using Designer for years to enhance marketing analytic processes for their clients, the customer is now exploring opportunities to automate financial processes and unlock savings within their very own organization.

We now have a foothold in nearly half of the Global 2000, many of which remain early in bringing scale and accessibility to their data stack. With our top-down executive-level engagement, we believe these companies are establishing Alteryx as a key pillar of their data analytics journey. Pacific Dental, a leading national dental and medical support organization is a great example of this. After beginning with a relatively small implementation of Alteryx Designer a few years ago, we established multiple workflows that generated significant time savings throughout the finance organization, with the ROI potential well established and strong executive engagement and support, Pacific Dental expanded to a much more comprehensive, versable ELA package this quarter as they look to empower new users and introduce Alteryx to adjacent teams.

We're also seeing traction with the technical executive leadership teams of our customers, chief information officers, chief technology officers, and chief data analytics officers. This dynamic is most prominent with our larger customers and we believe is validation of the governance and enterprise readiness of the Alteryx platform.

Additionally, CIO endorsement is often an important milestone on the path to broader cloud adoption. On that note, our platform focused strategy of creating cloud-connected data analytics experience is resonating. We provide customers with the ability to design analytic workflows anywhere and then implement and automate workflows in the Alteryx Analytics Cloud platform. Some users will create workflows in Designer on a desktop. Some will leverage our analytics cloud offering for model creation and some will tap into adjacent offerings with machine learning, auto insights and location intelligence. This multifaceted democratization of data analytics all built on a single unified platform is what we mean when we say cloud is an and, not an or.

We're seeing many of our early Alteryx analytics cloud platform adopters also expanding their flagship Designer implementations in parallel. WestRock Company, a Fortune 500 packaging solutions company is a great example of this. In collaboration with our customer success team and the partner, WestRock identified opportunities to create value through automation across a broad range of use cases. We found we were able to best meet the needs of new users by meaningfully expanding the design implementation with a new Designer and server ELA bundle, plus add a new cloud ELA to enable use cases across Designer cloud, machine learning and data insights.

Cloud is also opening up access to new customer opportunities. For example, KeyBank National Association, one of the nation's largest bank-based financial services companies, selected Designer cloud as a foundational component to accelerate their analytics program. Designer cloud's ease of use, scalability and native integration with Google Cloud Platform were key differentiating factors in KeyBank's decision to expand with Alteryx.

Advancing the cloud connected analytics experience is certainly an important R&D priority for Alteryx. Another top innovation focus is generative AI. We envision a world where generative AI influences all aspects of software and see opportunities to incorporate AI throughout our entire platform and breadth of offerings. Earlier this year, we introduced A/B, and we're already seeing great traction with A/B features by existing Auto Insights customers. Over the last 3 months, more than half of active Auto Insights accounts have leveraged Magic Documents. That's strong engagement for a solution we introduced less than 6 months ago.

At our Inspire Conference in Europe, we had several exciting AI announcements. First, AI Studio previously code-named AI Workbench is designed to enable Alteryx platform users to securely manage, tune and consume customized large language models based on their proprietary data. A seamless integration with Alteryx Designer will enable customers to use those LLMs in existing Designer workflows and construct applications with a conversational interface.

Second, playbooks is a new AI feature planned for Auto Insights that automatically recommends high-value use cases tailored to a customer's industry vertical, job function or company. This will enable users to quickly generate synthetic data sets and build proof-of-concept deliverables.

And third, AI-powered brushing is a new Designer cloud feature that is designed to provide predictive transformation suggestions for workflows as users explore workflow results in real time. This allows users to automate the creation of data pipelines and get from data to insights faster.

One more platform launch I want to highlight is the Alteryx Marketplace. Launched in early October, the Alteryx Marketplace has already gained significant traction with over 2,000 add-on downloads and a rapidly expanding collection of verified expert built and supported add-ons, including connectors and macros. The Alteryx Marketplace is designed to provide our users with a platform for extending their analytic capabilities with companies. Again, it's about helping our users increase efficiency with their analytics and get to insights faster.

In conclusion, we're encouraged with the Q3 operational performance and results relative to our expectations entering the quarter. Our differentiated easy-to-use platform enables our customers to rapidly scale a data-driven culture throughout the organization. And with new cloud connected experiences and our generative AI A/B innovations, we're finding ways to further enhance and accelerate the analytic journey. We certainly faced some challenges in Q2, and I am so proud of how quickly the team adapted and improved execution this quarter, and we did it while maintaining our focus, vision and disciplined cost management. I believe the business and this team is on a strong foundation, and we are hard at work to carry forward the momentum as we close out the year.

With that, I'll turn the call over to Kevin.

[Kevin Rubin, executive]

Thank you, Mark.

We are pleased with the improved execution in the quarter, which enabled us to deliver key Q3 financial metrics above our prior outlook ranges. ARR came in at $914 million, up 21% year-over-year and $9 million above the high end of our guided range. While we don't provide constant currency, I would note that currency rate changes since we established our guidance in early August resulted in a headwind of approximately $6 million. Removing the impact of this currency headwind, our Q3 ARR outperformed the high end of our guided range by $15 million.

Better-than-expected conversion rates on expansion opportunities plus durable, robust gross retention contributed to our total Q3 bookings, tracking above our assumptions for the quarter. Revenue came in at $232 million or $20 million above the high end of our guided range. This reflects the bookings upside and slightly higher contract duration.

Finally, our non-GAAP operating income was $36 million, $30 million above the high end of our guided range. We have been closely managing incremental spend and optimizing internal processes, which enabled the revenue upside to fall through to the bottom line.

In recent years, we decided to up-level our go-to-market strategy to target the largest organizations in the world. In doing this, we hired experienced enterprise sales reps and leaders, enhance our partner programs and build out an enterprise quality customer success team. Over the past year, we've seen progress on this strategy in our financial results, and that continued in Q3.

We're winning with larger organizations as evidenced by our growing Global 2000 penetration now at 49%. That's an increase of 10 points from 2 years ago. We're winning larger deals. Our average deal size for Q3 expansion wins increased meaningfully year-over-year, and we're seeing our average customer size expand as customers are increasing Designer and server implementation as well as exploring new use cases with our cloud connected offerings. We grew our 250,000-plus ARR customers by 20% year-over-year to 706 and our $1 million plus ARR customer count increased over 30% year-over-year.

We are constantly working to optimize and refine our go-to-market strategy. And now as we are moving beyond the heavier investment phase from earlier last year, we are starting to see improved leverage and profitability in the model.

Sales rep productivity as defined by new bookings per rep improved year-over-year, a function of both performance management and go-to-market enhancing efforts. Both GAAP and non-GAAP sales and marketing expense came down as a percentage of revenue by over 5 points versus Q3 of last year. And we've effectively decreased GAAP and non-GAAP general and administrative spend while increasing ARR by more than 20% year-over-year. This underlying financial leverage is enabling us to improve profitability while still investing in a healthy level of research and development to fuel product innovation around generative AI, cloud connected offerings, and Alteryx platform integrations with adjacent enterprise systems.

As we think longer term, many of the profit drivers for this business are still ahead of us. First, while landing large enterprise new logos is costly, expanding with an existing enterprise customer can carry a much lower go-to-market cost. Second, our recent cost optimization initiatives have resulted in an organizational structure that we believe is more aligned with the current macro environment. This means we expect to enter 2024 with a leaner cost structure than we've had for several quarters.

Third, we've established a strong partner ecosystem and now under the leadership of Scott Van Valkenburg, we look to expand our partner source contributions to drive additional scale and efficiency. Fourth, our portfolio of cloud connected offerings creates new opportunities to cross-sell and engage with new types of users. And finally, as we've demonstrated throughout 2023, we are approaching our cost structure with greater discipline and expect to unlock additional efficiencies with scale going forward.

Now before I turn to the outlook, I'd like to share how we are thinking about the near-term opportunity and our guidance philosophy. We have a lot to be excited about in Q4. We have significant upsell opportunities given our large renewal base. We're lapping Q4 2022 ELAs, which creates opportunities for additional expansion as burst licenses expire. And of course, we have our ramping portfolio of cloud connected solutions that are increasingly gaining customer interest. And while our Q3 performance demonstrated solid progress in improving our execution, we're still cognizant of the macro dynamics that we encountered in Q2 as well as the time required to continue improving sales execution. As such, we're largely maintaining the prudent assumptions we incorporated in our prior guidance as it relates to customer buying behavior, conversion rates and renewal rates.

With this in mind, let's turn to the Q4 2023 outlook. We expect ARR to be in the range of $942 million to $948 million, representing year-over-year growth of 13% to 14%. This is based on current FX rates and incorporates the incremental $6 million currency headwind relative to the guidance we issued in August 2023. We expect GAAP revenue to be in the range of $334 million to $340 million, representing year-over-year growth of 11% to 13%. We expect our non-GAAP operating income to be in the range of $112 million to $118 million. We expect non-GAAP net income per share to be in the range of $1.10 to $1.17 per share. This assumes 77.2 million weighted average shares outstanding and an effective tax rate of 20%.

For the full year 2023, we are increasing our GAAP revenue range to $953 million to $959 million, representing year-over-year growth of 11% to 12%. This is up from the prior growth range of 9% to 10%. We expect non-GAAP operating profit to be $100 million to $106 million, an improvement from our prior outlook for $70 million to $80 million. We believe we are executing well on recent cost optimization initiatives and are seeing savings earlier than originally planned.

Finally, we expect non-GAAP net income per share to be in the range of $0.94 and to $1.01, an improvement from our prior outlook for $0.62 to $0.72. This assumes a 76.5 million weighted average shares outstanding and an effective tax rate of 20%.

In closing, improved execution despite consistent macro conditions enabled us to outperform our assumptions entering Q3. We converted on expansion opportunities at a higher-than-expected level plus we're capturing cost savings faster than anticipated. While we are pleased with the results in the context of the challenging first half of the year, we are mindful that we continue to face challenging macroeconomic circumstances, and there is more work to be done. The team is focused on building on recent improvements and closing the year with strength, which we believe will put us in a position for a productive and profitable 2024.

With that, thank you all for joining us today, and I'll turn the call back to the operator.

[Operator]

[Operator Instructions] Our first question is from Koji Ikeda with Bank of America.

[Koji Ikeda, analyst]

So I wanted to ask a couple of questions here. With the first one on the new SVP of Sales for Americas and then the SVP of Global Alliance and Channels. And just really thinking about any near-term or long-term changes to the overall growth strategy with them joining the team?

[Paula Hansen, executive]

Koji, it's Paula. I'll take that question. We're very excited about both Mark and Scott joining us. And in both cases, it's really about building on the progress that we've had in this business over the last couple of years. In the Americas, Mark will be helping us to continue our focus on operational discipline and rigor while obviously helping us with cloud becoming an increasing percentage of the business and the conversations that we'll be having with customers around that. And then with Scott and the Alliance and Channels business, it's building on the foundation that we have there, as we've talked about, more than 50% of our new ACV each quarter comes from partners. And we look to continue to build on that, accelerate that and help us continue to drive efficiency and scale. So I couldn't be more pleased with them joining Alteryx.

[Koji Ikeda, analyst]

And just one follow-up here for Mark, Paula or Kevin. It's going to be somewhat of a tough question, but I have to ask, and it's around your framework for creating shareholder value. Clearly, the third quarter results here are better than last quarter, and the stock reflects that being up after hours. But in the back of our minds, we keep thinking about the rumors of takeover interest and -- the question here is, I really realize you can't probably comment on that directly, but any sort of commentary on your framework for driving shareholder value would be really helpful.

[Mark Anderson, executive]

Yes. Thanks for the question, Koji. Listen, we think this business is a really important business for a very long time. And given the distributed kind of nature of the competitors in this space, we think there's going to be a couple of independent companies that over -- in the mid and long term that will build a platform that will take sizable share. And we're running this business because we think it's going to be Alteryx. And so obviously, I can't comment on any rumors, but we feel really good about the improvements that we've made to execution and the focus that we've applied to bringing profitability and free cash flow to the business.

[Operator]

Our next question is from Sanjit Singh with Morgan Stanley.

[Sanjit Singh, analyst]

Really encouraging trends on the sales force productivity. To that end, as we go into Q4, which is obviously a big renewal quarter, is there any sort of whether it's macro or any other sort of KPIs that suggest that Q3 wouldn't play out in Q4? I'm just trying to get a sense, Kevin, in terms of when you look at the Q4 guidance, what assumptions you have sort of embedded in just sort of the continuation of the assumptions that we entered this quarter. And if the sort of productivity trends play out, we're in for a similar quarter in Q4 as we did in this good quarter in Q3. I just want to get some context around how you can start to the Q4 guidance. I appreciate it.

[Mark Anderson, executive]

Yes. Great question, Sanjit. It's Mark here. Thanks for that.

Yes, listen, I think we're happy with what we did in Q3. We feel it's prudent and responsible to be conservative, if you will, around Q4 guidance. But we also know that Q4 is by far, for us, the biggest cohort of renewals in the fiscal year. And we've had the full year -- sales teams around the world have had the full year to build campaigns, to build expansion on top of those renewals. And so with that said, I think we took -- got taken out to the woodshed in Q2 for resetting Q3 and Q4, and we want to make sure that we can predict our topline so that we can measure how much we're going to spend on the bottom line and do that responsibly for all shareholders, but also for our customers and our people.

[Sanjit Singh, analyst]

Makes tons of sense, Mark. I guess my follow-up question is just sort of on the burstable ELAs. We've had that sort of contract vehicle out for a while now. And just in terms of what you guys are seeing in terms of yield, you mentioned a couple of customers expanding quite nicely, leveraging the trial users in the burstable ELA -- burstable ELA features of the contract. In terms of going to Q4 or just more broadly, what type of yield are you seeing in converting trial users into paid users with the burstable ELAs?

[Paula Hansen, executive]

I'll take that one, Sanjit. Thanks for the question. So in Q3, we saw continued interest from our customers in our ELA bundles. In fact, we more than doubled the number of ELAs in Q3 versus Q3 of 2022. And we also saw a number of customers that did uplift and expand with us as an outcome of their utilization of the burst from 2022. So we continue to be encouraged by the trends that we're seeing there. And Q4 is going to be an even bigger opportunity for us as it relates to ELA upsells because we'll be lapping our biggest quarter of ELAs historically in Q4 of last year.

[Operator]

Our next question is from Derrick Wood with TD Cowen.

[James Wood, analyst]

First one, for Mark. Nice to see the execution against targets. And you mentioned better linearity and the strongest pipeline conversion in several quarters. I guess just what were the -- what were you able to solve for to improve these motions? And I know last quarter, one of the main challenges was to sell outside of a renewal event. Did you see improvement in selling that way? Or did you drive earlier renewals? Just trying to understand how some of the sales engagements changed in the quarter?

[Mark Anderson, executive]

Derek, thanks for the comments and question. I think for Q3 and for sure, for Q4, what we wanted to get back to was what we've been doing for 11 of the past 12 quarters, that's meeting our commitments or beating our commitments that we make to the Street and that we make internally. So I think it was a bit of getting back to basics on the operating framework side of things. Paula really built a lot more rigor and discipline into the forecasting process, where in the stage is the opportunity, and pretty heavily discounting deals that weren't attached to renewals because we did see in Q2, I think Kevin mentioned that there was greater than 10 deals that weren't attached to a renewal that didn't happen in Q3 -- or excuse me, in Q2. So it's really sort of getting back to those basics, and that really went up and down the organization. So the weekly forecast call is really drilled into how people were doing for the week, for the month and for the quarter. And I think this really worked across the board.

The other thing I'd say is we really took a number of different looks with the finance team under Kevin's leadership on getting back to making sure that we can hit our pipeline metrics and hit our pipeline conversion metrics. And I think we did a nice job there as well.

[Paula Hansen, executive]

And I'll just add that we've also put increased focus on our enablement across the organization and leveraging of tools to help managers with coaching and to provide clear visibility up and down the organization to what's happening with the pipeline and where opportunities exist. So I think that that gives me confidence that this is something we'll carry forward in our execution in Q4 and beyond.

[James Wood, analyst]

Great. Maybe one for Kevin. On the -- coming out of last quarter, I think you talked about 500 bps of margin expansion in fiscal '24. But that was off of a lower number. You've raised your operating margin target this year. You've talked about some savings happening earlier than planned. So how should we think about that target for next year? Is that based off kind of the original point of margins last quarter? Or would you expect to be seeing 500 bps of expansion off of whatever you close in fiscal '23?

[Kevin Rubin, executive]

Yes. Thanks, Derek. I appreciate the question. And yes, you recall correctly. My commentary on the last call was that we would expect to see about 5 points plus from the guide at the time, which was an 8% op margin. So I haven't updated that particular metric. We'll do so on the next earnings call. So for now, I would continue to signal that 13% implied leverage point going into '24.

[Operator]

Our next question is from Tyler Radke with Citi.

[Tyler Radke, analyst]

So the gross retention and net retention rate, both overall and at the G2K held in pretty nicely this quarter. I guess as you think about Q4, where you're processing a bunch of these single year and multiyear renewals, what's your confidence level that those can sustain the level that you saw this quarter? And any early indications in terms of the linearity of the quarter compared to what you saw in Q4 a year ago?

[Paula Hansen, executive]

Thanks, Tyler, for the question. So we're really pleased with the retention rates and expansion rates that we saw in Q3. We obviously took a conservative approach to the guidance, and I'm happy to see that we exceeded on those. And I believe that we'll continue to see that here as we go into Q4. Mark mentioned, these are full year campaigns that our account teams build an enterprise strategy around in preparation for this large renewal base in Q4. And we expect to continue to see very similar reactions from our customers and positive endorsements around the portfolio, the contract duration and the future that they see with Alteryx.

[Mark Anderson, executive]

Yes. I'll add to that, if you don't mind, Tyler, Paula, Suresh, myself, we spend a lot of time with customers. And we continue to hear that they really need our tech to modernize and automate their business as they digitize and really try to prepare for the world around us that we live in. And so I think it's just -- these retention rates just show kind of continued need for what we do for our customers. And that's really what gives us confidence as well into Q4 and beyond.

[Tyler Radke, analyst]

Great. And a follow-up question, Kevin, I think you mentioned that you saw better rep productivity this quarter, which I think is defined as the number of reps against the new bookings. New bookings were still down, I think, year-over-year. I guess does that imply that the number of reps are down year-over-year? And I guess how far through that kind of performance management are you? And kind of what's your outlook in terms of quota carrying capacity growth from here?

[Kevin Rubin, executive]

Yes. Thanks, Tyler. So as we talked last quarter, a part of the cost initiatives that we've executed on this year, it includes go-to-market resources. And so there are less quota carrier reps today than there were in the prior year period. We also, as Paula articulated, made a number of execution-related changes that we think contributed to the productivity improvements. So really pleased with how that came out in Q3, and you saw that.

[Operator]

Our next question is from Mike Cikos with Needham & Company.

[Michael Cikos, analyst]

Just a couple on my side. And the first if I could just ask on the guided ARR we have. And really, I've received a couple of inbound. So it would be great to just get this out there for everyone. Looking at the Q3 guide versus what we have today, you guys outperformed that midpoint by $11 million, and you're taking up the full year by $11 million. So essentially that net new ARR build in Q4 is unchanged. Would be great to hear, I know that you guys are assuming relatively consistent, which is prudent with the macro, but why not assume some portion of that improved sales execution is the first point. And then the second point, which I'd really like you guys to hone in on is, was there any deal capture for those deals that were pushed out in Q2 because, again, just trying to get a sense of this outperformance that we saw in Q3. I know we're attributing it to the enablement of pipe conversion, but how much of that was deals that may have gotten pushed from Q2 into Q3?

[Mark Anderson, executive]

Yes. Mike, Mark here. I'll take a crack at that. Listen, they're not giving out any badges for being aggressive on guidance these days. And I think to your point, we're trying to be prudent and responsible and put a number out there that we feel confident that we can deliver on. And all things considered, we expect gross retention, net retention rates to be -- continue to be world class because I think this team is doing a really good job especially in this market.

In terms of the Q2 deals, we identified more than 10 deals -- in and around 10 deals that were not attached to a renewal. I'd say about half of those came in in Q3, not necessarily massive deals. Some came in a little higher, some came in a little lower. And the remaining deals are deals that we're still working on. I'll tell you, none of these deals were impacted by any competition, anything like that, just mostly by customers' appetite for spending priorities in quarter.

[Michael Cikos, analyst]

Got it. And if I could just -- I know you guys are highlighting the more than doubling of the ELA sold this quarter, at least year-on-year. Just wanted to make sure I'm thinking about that properly, but the composition of that more than doubling, is all that -- or what's the breakdown between selling of those ELAs between existing customers versus new customers who are coming to Alteryx and just immediately going for the ELA?

[Paula Hansen, executive]

Sure, Mike. I'll take that. The ELA is very attractive for existing customers in particular because you can imagine the journey that those customers are on with us as they add on more departments, more team and they show interest in the full functionality of the platform. So a lot of it is with existing customers. It's not impossible to land a new customer with an enterprise license agreement, but probably not the first thing that we would try to do with a net new logo.

[Operator]

Our next question is from Joel Fishbein with Truist Securities.

[Joel Fishbein, analyst]

Congrats on the great execution. I guess one for Paula and one for whoever else wants to answer this one. Paula, in terms of the go-to-market, is there going to be changes to sales incentives? And I heard that there were some changes to your partner incentives and just seeing how you're getting traction there? And then the second question is basically, a lot of people are talking about AI initiatives. You guys obviously have a lot of products around AI. I'm curious about if you can just give us some specifics around are you able to monetize the AI?

[Paula Hansen, executive]

Thanks, Joel. I'll take the first two, and then Suresh can talk about our innovation. So relative to sales comps as we go into '24, we will take a look at all the levers like we do in any annual planning process to see what might make sense. I don't think any of it is going to be massively different from what we've got in place today. Relative to our partner program, we're always benchmarking ourselves against industry standards and looking to ensure that we are as aligned with our partners in terms of where we want them focused and where the opportunity exists, which is what you've seen us make some moves on in recent quarters, and we'll always see that to just make sure that we have really close alignment with our partner community.

[Suresh Vittal, executive]

On the AI front, our focus is on finding innovative ways to create value and widen our competitive moats for the use of our products. So as we kind of embarked on the generative AI journey, you saw us release capabilities like Magic Documents, Workflow Summary and more recently, Playbooks, which just allows our customers and our users to get jump-started on these analytics use cases based on the industry and based on the roles. We are also working on new offerings that are in private previews with dozens of customers, like AI Studio and Multimodal, and we see opportunities to monetize these initiatives independently.

[Mark Anderson, executive]

And what our customers are telling us, Joel, is in terms of broad-based adoption for generative AI, I think the preference is to do it in curated like bite-sized chunks like we're offering in their existing stack where it can really help them be more productive -- in our case, to build better workflows and do it faster. And so far, the reception has been great. So I really take my hat off to the R&D team around the world. They've been working really hard on this, and I think the results speak for themselves.

[Operator]

Our next question is from Brent Bracelin with Piper Sandler.

[Brent Bracelin, analyst]

Maybe one for Mark or Paula here. I wanted to go back to the external demand environment. Clearly, doing a lot better here on internal execution, great to see. But if I look at net new ARR, we're kind of 3 quarters in where net new ARR is below the 4-year quarterly average, the guide implies another environment where it's below the quarterly average. Is the optimism here for Q4 tied to just improving execution? Or are you seeing any sort of signs that maybe the external environment is getting better?

[Mark Anderson, executive]

Brent, thanks for the question. Yes. I think we've assumed that the environment kind of stays the same, if you will. Our confidence is in the fact that it's Q4, the fact that I think we've got a really good team prosecuting opportunities that they've been working on for the better part of the year. And just seeing the execution improvements that we saw in Q3, we certainly feel those are going to be spilling over into Q4. That said, it's not necessarily an easy space out there these days with customers being very disciplined about where they're spending. And I'm really thankful that Paula's kind of executive-led motion is really deeply rooted now in our sales motion.

[Brent Bracelin, analyst]

Great to see. And Kevin, obviously, seeing really good cost controls, driving up margins higher here. I guess the next question is, when do those higher margins turn to higher free cash flow? Historically, free cash flow margins were well below op margins. But that was when this was a much faster-growing business. Do you think those could converge next year as you think about more modest growth and op margins and free cash flow margins could start to narrow?

[Kevin Rubin, executive]

Yes. Thanks, Brent. Appreciate it. As you may recall, the long-term model has free cash flow margin about 5 points below our op margin from a long-term perspective. As we get a lot of the onetime cost initiatives behind us, I would expect those to converge and we'll provide more color on the next call relative to 2024 expectations, but keep in mind, some of the cost initiatives that we've taken this year do have a trailing cost -- a cash impact. Thanks, Brent.

[Operator]

Our next question is from Michael Turits with KeyBanc Capital Markets.

[Michael Turits, analyst]

Congrats on stabilization and solid execution, all great to see. So two demand questions. One on cloud, one on AI. I guess, on cloud, cloud Designer seems quite strong and mature as a product now. And this is a time when we've seen stabilization in the growth rates of some of the hyperscalers. Are those two things coming together in a sort of positive way in the sense that you've got the right product right at the time that there seems to be a stabilization of demand on the cloud side?

[Suresh Vittal, executive]

Yes. I mean we're about 3 quarter of selling our cloud products and cloud solutions. The interest from our customers remains strong. There's a lot of appetite for expansion-based use cases around the cloud solutions. But having done this journey a couple of times before, it takes multiple years for our customers to kind of embrace the cloud products and the cloud solutions. They have a significant test stage with the on-premise products. They've got a lot of intellectual property built into these analytical workflows and apps. And so we feel very comfortable that we've chosen an and strategy. They get access to our innovation wherever they want it.

We don't kind of hold them back on any access to any innovation. There's no limits to that access. If they want to consume this innovation in Google or in AWS or in Amazon, in Azure, we want to give them the ability to do that. If they want to work in Snowflake or Databricks or BigQuery, we want to give them the ability to do that. And that was kind of really the intent of the investments we made over the past 18 months in cloud has been really strengthening our platform. We believe at the heart of this thing, Mark said it before, there will be a couple of independent platforms that win and capture market share, and we know this is a multiyear journey. So we're super happy with the interest our customers are showing and how we're delivering against that.

[Mark Anderson, executive]

Yes. And Michael, I think in terms of revenue contribution, it feels to me like it's a bit more like a rolling thunder kind of a mentality. I think people in the past, I've read a few comments where people said, hey, we haven't really printed a lot of revenue with cloud. It's like that's because the milestones for success that we've had internally have all been to knit together the back end of the Trifacta acquisition with basically a rewrite of the front ends of all of our applications in all three public cloud environments. And so that's a lot of work. And I think I take offense to the fact that when I know you haven't, but others have said, "Hey, we haven't been successful." We really have. And our all hands meeting is tomorrow, and I'm going to be sure to recognize the work that the R&D team has done to -- it's not -- hasn't been the sort of the sexy headlines that have dollar signs ahead of them, but those will come.

[Operator]

Our next question is from Ittai Kidron with Oppenheimer.

[Ittai Kidron, analyst]

Maybe first question to Mark or maybe Paula, you had some execution issues through the year, and it's nice to see things are getting better. I guess my question is, every time you go through a process like this, there's some low-hanging fruit and then there's things that take longer and harder to execute on. So maybe you can talk about some of the longer and harder things that you still are working on here and now to continue to improve sales execution.

[Mark Anderson, executive]

Yes. I'll start off, Ittai, if you don't mind. I appreciate the question, then I'll pass it off to Paula. I would submit -- listen, this business has almost doubled in the last 3 years, and we're a very different company today. That's because that's what our customers are demanding. And I think you have to careful what you wish for. If you want to be bigger, all the things that come along with that really are in what customers expect from you and that often requires different resources, different competencies, different experience sets. And so I would submit that as you're assaulting this massive total addressable market that we have, regardless of whether it's good economic times or bad, you're always tinkering. You're always ensuring that we're tinkering with the enablement to make sure that the great people that we have here today are learning the kinds of things that are going to help them be really relevant to our customers in the future. And sometimes that involves headcount changes.

We certainly made a couple of senior leadership changes in the last few quarters. And these people were very good people that did some good things here for us, but we really needed people that brought a different set of competencies and experiences to the table. And I think that's always on the surface the hard thing to do. But I can assure you, Paula and her team are always tinkering.

[Paula Hansen, executive]

That's right, Mark. And I'll add, Ittai, a little bit more, which is that as we look to scale the business efficiently, the opportunity ahead is to take what we are doing ourselves, what we demonstrated with the execution in Q3 and federate that out across the rest of the G2K, the other 51% and with and through our partner ecosystem. So I look at it as an opportunity for us to take what we've done and are delivering and continue to drive scale and efficiency as we go forward.

[Ittai Kidron, analyst]

Appreciate it. And Kevin, maybe a follow-up for you. You're not providing '24 guide, that's fine. I guess you already alluded to improvement in margins that we should expect next year. But are there any other bogeys or things you'd like us to take into account as we think about the progression of the year in '24 that we should be considering? Appreciate any color there.

[Kevin Rubin, executive]

Yes. Thanks, Ittai. Appreciate the question. Look, we're obviously not providing 2024 guidance on this call, we'll do it on the Q4 call. However, look, we're mindful of the macro and it takes time to continue to improve from an execution perspective as we've talked about. So as you guys are thinking about 2024, you have our Q4 guidance and implied growth rates by way of example. And so I think that does give you a sense of how we're baselining growth in this environment. So anyway, I appreciate the question.

[Operator]

Our next question is from Pinjalim Bora with JPMorgan.

[Pinjalim Bora, analyst]

Just one question for me. Any feedback so far on the TD and Multimodal? And more importantly, I'm trying to understand as you think about Gen AI capabilities, how much of these are or will be folded namely in the Designer cloud/Auto Insights, trying to understand the bigger base of desktop customers, will they be able to take advantage of the AI capabilities or they have to move to cloud?

[Suresh Vittal, executive]

Yes. Thank you, Pinjalim, for that question. Directly answering your question, the -- all of our innovation is aimed at, particularly in the Gen AI space, is aimed at being available to our customers wherever they are. So we have a couple of dozen customers in the desktop world with Designer using generative AI, both the multimodal capabilities, which allows you to build workflows through chat, have a data engineer work on the same workflow through SQL and have a data scientist look at it through the lens of Python or a Jupyter Notebook. That capability set will be available to our customers in our desktop products and in our cloud products. But given the amount of data and the telemetry and the workflow patterns that we see in the desktop, clearly, the desktop customer community will benefit from this cloud service of being able to do multimodal analytics and really collaborate.

Similarly, when we look at AI Studio, the ability for our customers to -- it's a large pain point our customers have, where they're being pressed for insights and the core strength that Alteryx provides is this wealth of workflows that we create on behalf of our customers, with our partners and Alteryx itself. At this point in time, it's millions of analytical building blocks. And we feel this unique kind of collection of data is ideal to train generative models to produce personalized results for every customer. So AI Studio is aimed at helping the analysts create custom-tuned LLMs directly into their analytics landscape, whether it's a Designer cloud or Designer desktop.

[Operator]

Thank you. There are no further questions at this time. I would like to turn the floor back over to Mark Anderson for closing comments.

[Mark Anderson, executive]

Thank you, operator. And I'd like to say thank you again to our customers, partners, shareholders and especially our team here at Alteryx. We're pleased with the progress and execution we demonstrated in Q3 and are working hard to close out the year with solid momentum. Our unique platform of easy-to-use analytics and automation solutions continues to resonate with our customers, and we are reinforcing our differentiated market position with a breadth of new generative AI and machine learning capabilities. Thank you, and have a good night.

[Operator]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.