Alteryx, Inc. (AYX) Q1 2023 Earnings Call Transcript

Alteryx, Inc. (NYSE:AYX) Q1 2023 Earnings Conference Call April 27, 2023 5:00 PM ET

Company Participants

Ryan Goodman - Head, Investor Relations

Mark Anderson - Chief Executive Officer

Kevin Rubin - Chief Financial Officer

Paula Hansen - President & Chief Revenue Officer

Suresh Vittal - Chief Product Officer

Conference Call Participants

Tyler Radke - Citi

Brent Bracelin - Piper Sandler

Derrick Wood - TD Cowen

Sanjit Singh - Morgan Stanley

Mike Cikos - Needham and Company

Michael Turits - KeyBanc Capital Markets Inc

Ittai Kidron - Oppenheimer

Yun Kim - Loop Capital Markets

Koji Ikeda - Bank of America

Operator

Greetings. Welcome to the Alteryx First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this event is being recorded.

I will now turn the conference over to your host, Ryan Goodman, Head of Investor Relations. You may begin.

Ryan Goodman

Thank you operator. Good afternoon and thank you for joining us today for Alteryx's first quarter 2023 earnings conference call. I'm Ryan Goodman, Alteryx's 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 first quarter ended March 31, 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 second 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.

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

Mark Anderson

Thank you Ryan, and thank you all for joining us today. We delivered all key Q1 financial metrics within or above our guided range. Q1 revenue came in at $199 million, up 26% year-over-year. Annualized recurring revenue, or ARR came in at $857 million, up 25% year-over-year and Q1 non-GAAP operating loss was $18 million, feeding our outlook as we continue to focus on spending discipline across the company.

We are pleased to have delivered on growth and exceeded our non-GAAP operating profitability outlook for the first quarter. Our financial results demonstrate the value that our innovation delivers to customers everywhere, even when facing some continued tightening of the broader IT spend environment.

More specifically, we saw changes in customer buying behavior late in the quarter. Customers are applying more scrutiny on deals, which has continued to lengthen our overall sales cycles. This in turn led to some deals that we would have expected to close in a more stable economic backdrop slipping out of the quarter. Despite continued macroeconomic uncertainty we have not seen any material shift in the competitive dynamics something we track closely.

Now the guidance that we provided last quarter accounted for some of this macro risk. That prudence along with our strong execution and a loyal customer base enabled us to navigate through this backdrop and deliver on our commitments.

Customers need our innovation today more than ever. We're seeing robust trends with net expansion and renewal rates. Given our standout 2022 performance and resilience thus far in 2023, I believe we have the right initiatives in place and can continue to stay agile and successful in this dynamic environment.

Seasonally, Q1 is our smallest quarter of the year in terms of bookings activity. That said, it's an important time to calibrate the business model to drive continued success for the rest of the year. And in times of dynamic macroeconomic conditions it is especially key that we stay closely engaged with customer temperament and agile in terms of strategic planning and execution.

There are a few elements here I would like to highlight. First, we are executing on our top-down enterprise class sales motion. Understanding spending priorities is critical in the current environment. We have aligned our resources as well as our partner ecosystem around proving the value that Alteryx delivers.

Second, we are benefiting from the tight controls we have instilled in the go-to-market motion. This discipline in deal structure and pricing has enabled us to deliver consistent financial results over the past year and is key to driving durable and profitable growth going forward.

And third, we recently took a close look throughout the organization for opportunities to optimize our cost structure. The variable nature of our cost structure provides us the ability to stay nimble in this environment. And we announced today that we are executing a plan to reduce full-time employee headcount by approximately 11%. This is certainly not a decision we take lightly and we deeply appreciate each and every individual who has dedicated their time to Alteryx.

With that, let me share a few highlights from the quarter. In mid-February, we announced all access general availability of Designer Cloud, along with enhancements in governance certifications for the Alteryx Analytics Cloud platform. Alteryx Analytics Cloud is now embedded in every aspect of our go-to-market strategy.

Our Global 2000 penetration increased to 47%, up 2 points from this time last year, as we continue to gain traction with top organizations around the globe. This growing presence provides us with significant greenfield opportunities to expand within our base. Case in point, our Global 2000 net expansion rate increased to 131%, up 2 points versus the prior quarter.

We're continuing to see strong year-over-year growth momentum in ELAs sold, with many customers already using burst capacity. For customers with ELA sold prior to Q1 that are still in the burst phase, approximately one-third have engaged with that additional capacity.

And on the financial front, we completed a $450 million offering of senior unsecured notes. This reflects a $100 million upsizing from the initial proposed amount, given the strong market reception and demand.

We accomplished a lot as a company in Q1. And while the economic backdrop was and continues to be challenging, the company executed at a high level and delivered on multiple key initiatives. We believe we're on the right path and we have the right people to drive continued leadership and execution in this market.

Our product innovation is a great example of this. In the span of just one year we acquired and integrated a multi-tenant multi-cloud architecture. We introduced the Alteryx Analytics Cloud platform and we have just recently announced All Access availability of Designer Cloud.

We are seeing strong early interest in our cloud offerings from both our customers and partner community. The number of customers leveraging our cloud solutions increased over 30% year-over-year in Q1. Our proven ability to quickly create value in high priority use cases with our flagship solutions has earned us the permission from many of our customers to explore incremental use cases and personas within the Alteryx Analytics Cloud platform. For example, we have a multibillion-dollar national commercial landscape customer that has leveraged Designer and Server for several years to unlock significant savings and eliminate single points of failure.

In Q1, this customer expanded with additional Designer seats, plus added our cloud-native Auto Insights to provide AI-driven operational insights and visualization for leaders across hundreds of branch offices. We're also finding that our cloud innovation is creating opportunities for new logo customers. We had a great win with a leading provider of entertainment and telecommunication services in Belgium, who signed on for a cloud ELA during Q1.

Our well-established designer capabilities and interface aligned with the customers' vision of enhancing customer engagement analytics and our ability to deliver this in a cloud environment with Designer Cloud, was key to earning us the win. Alteryx Analytics Cloud platform allows us to sell new low-friction use cases into new personas. And we have several exciting updates on the generative AI and cloud innovation road map to share.

First, we're further developing ways to incorporate AI and ML throughout the platform, including some highly differentiated use cases with generative AI that enhance ease of use for knowledge workers and broaden the scope of analytics for all. Specifically, we are embedding large language models to help with text summarization, enhanced optical character recognition and topic modeling.

Additionally, by integrating these large language models with Auto Insights, we will help customers to reduce the time from insight to action. As always, we are building generative AI capabilities into our products with our signature ease of use, aimed at amplifying an analyst's stability.

And second, as customers incorporate Alteryx into their cloud transformation initiatives, we're enhancing our integrations with adjacent offerings throughout the data analytics platform, such as cloud data warehouses, governance and visualization solutions. In addition, we are focused on delivering unified analytic experiences across our flagship and cloud offerings to enable faster time to value for our customers. We'll have a lot more to share across these themes such as governance, security, interoperability and generative AI at our Inspire User Conference next month.

We have the most comprehensive portfolio of offerings in the history of the company and we have a significantly enhanced go-to-market motion comprised of a well tenured sales team a partner ecosystem that expands our reach and unlocks incremental opportunities and the customer success team that helps customers operationalize with faster time to value.

We continue to see success with large enterprise organizations. The cohort of our largest customers delivered our highest year-over-year ARR growth once again in Q1. This reflects not just growth in the number of large companies we engage with, but also our ability to prove value and earn the right to expand within these customers over time.

Customers are asking for repeatable use cases that enable them to do more with less. Our ability to quickly deliver on this with analytics, automation and governance enables us to accelerate the expansions and adoption across the enterprise.

We've strategically aligned our enterprise sales strategy to make the expansion path as easy as possible for customers. One example of this is our increasing engagement with customers at the executive level. This provides a level of visibility that enables a more deliberate strategic expansion motion across multiple functional areas within the organization.

We had a great Q1 win with a global leader in management consulting that demonstrates this dynamic. After a small initial designer implementation in 2022, we closely engaged at the executive level to align Alteryx as a core component of their vision for analytic enablement.

With a meaningful expansion upon renewal, the customer looks now to leverage designer across multiple vertical and product service teams, enhancing their client-facing service offerings at scale. The pace and scope of this expansion is simply not possible when limited to line of business level engagement.

Another enterprise initiative we introduced about two years ago is our burstable ELA bundles. ELAs allow customers to sign on for a defined volume of licenses with flexibility to expand up to 50% beyond that for up to one year. This encourages exploration of new use cases and personas that we believe will contribute to broader Alteryx engagement over time.

We saw great success in converting many of these bursts to upsells last year and we're off to a solid start in 2023 with over one-quarter of the Q4 ELAs leveraging burst within the first three months. We also continue to land new ELAs with both new and existing customers, which is a key component of our large enterprise sales strategy. Our partners have also emerged as a core driver of our go-to-market motion.

Our partner program expands our global market reach and customer success capabilities. In addition our larger partners often unlock access to key decision-makers and IT, reducing friction in the sales cycle. Partners once again influenced over half of the new ACV in Q1. We're particularly excited to see ramping enthusiasm and support for cloud within the partner ecosystem.

One of our larger GSI partners added 500 Designer Cloud seats to their 1000-plus designer licenses as well as Auto Insights as they look to incorporate cloud more deeply in their internal operations and client facing services. We're also seeing great opportunities emerge where we can bring together the Alteryx Analytics Cloud platform, GSI partner services and hyperscale cloud offerings for a unique and compelling customer offering.

And finally our high-touch and digital customer success team underpins all of this positive momentum with customers. Customer success efforts are a driving force behind net expansion rate trends and renewal rates, particularly with our larger customer cohorts. These are the folks directly working with our customers with training enablement and support driving productive user engagement and identifying new opportunities for our customers to create value with Alteryx.

In closing, as customers increasingly leverage Alteryx in mission-critical use cases across their organizations, we believe the business is well-positioned to deliver durable profitable growth. Over the past few years, we've successfully transitioned our business model from selling customers dozens of licenses to hundreds and we have our eyes squarely said on the next order of magnitude.

We're working with larger customers than ever before. We're delivering tangible value with our platform earning us permission to explore new opportunities throughout organizations. We're engaging with top executives and aligning Alteryx as a strategic enabler of their analytic vision.

We have partners and customer success teams closely engaged to drive upsell and expansion with ELAs providing greater flexibility with exploration. And now with cloud innovations, we have a broader analytics platform to better assist our customers.

I'm so proud of the Alteryx team for the resilience and execution that we've delivered in what has not been an easy macroeconomic environment. Thank you to our customers, our employees and our partners.

And finally, I look forward to seeing many of you at our upcoming Inspire User Conference in May. It's a great opportunity to engage with our community and see firsthand how Alteryx is truly democratizing analytics for all.

With that I'll turn the call over to Kevin for a closer look at the financials. Kevin?

Kevin Rubin

Thanks, Mark. We believe our Q1 financial results reflect the resilience and durability of our model in a challenging macro backdrop as well as our commitment to delivering improved non-GAAP operating profitability.

ARR of $857 million up 25% year-over-year and revenue of $199 million up 26% year-over-year were both within our guided ranges. Robust renewal and retention rates contributed to the growth in Q1 with our overall dollar-based net expansion rate unchanged at 121% and Global 2000 net expansion rate up two points from the prior quarter to 131%.

Non-GAAP operating profitability exceeded our outlook. This is the result of continued cost discipline across the organization, efficiencies of scale and the early benefits from cost-saving initiatives executed in Q4. Additionally, we delivered cash flow from operations of $40 million which reflects our strongest cash collection quarter ever for Q1.

Finally, we executed a successful $450 million offering of senior notes during the quarter meaningfully strengthening our long-term capital position. We strongly believe that the transformation we instrumented over the past couple of years in innovating the platform and the resulting products we put in the hands of our sales team are enabling us to deliver durable financial metrics even in a challenging macro conditions.

Our increased focus on large global organizations and our investments in our enterprise go-to-market motion are all yielding tangible results. We see it in ARR per customer, which increased over 20% year-over-year for the third consecutive quarter. We see it in increasing average deal size particularly with upsell wins for existing customers. And we see it in our robust gross retention and net expansion rates which are showing strong durability at a higher scale than ever before.

Cloud innovation also allows us to accelerate customers from ideation to deployment with a broader set of use cases and new personas. Customer response to our Alteryx Analytics Cloud platform has been strong and new cloud bookings increased meaningfully quarter-over-quarter a notable achievement given Q1 seasonality.

We're seeing positive deal size momentum for cloud from both a year-over-year and quarter-over-quarter perspective. And more often than not we are seeing cloud wins as an important element of larger upsell wins with customers across our platform of offerings.

Consistent execution in both our go-to-market motion and product innovation enables us to deliver the results we did despite the more challenging macroeconomic environment.

When we guided on our last call, we had factored in some macroeconomic headwinds but we did not anticipate the financial system events that occurred in the final weeks of the quarter, which did affect our customer behavior.

While we have no material direct exposure to the impacted banks to-date in terms of cash balances and no material vertical market concentration, we did see elevated deal scrutiny, longer sales cycles, and shorter contract duration.

And as we've demonstrated in recent years while contract duration influences the timing of revenue recognition due to ASC 606 accounting. This has no impact on ARR and given robust retention rates we do not expect a material effect on our long-term revenue and profitability.

As we look ahead to the rest of the year we are constantly evaluating and calibrating our business. For example in Q4 we saw an opportunity to further reduce our spending through real estate rationalization and some role and eliminations. This accelerated our path to improved profitability for 2023 which remains a key priority for the company going forward.

With that in mind, as Mark mentioned earlier today, we announced a headcount reduction of approximately 11% or 320 full-time employees. This action will result in a charge of approximately $11 million to $13 million, primarily in Q2 and we expect will result in incremental cost savings of over $40 million in 2023.

We have focused the cost-saving initiatives primarily in sales and marketing and G&A to improve our efficiency as we scale and as we look to more closely align our financials with our long-term operating model. We will provide additional updates on these efforts next month at our Investor Day at Inspire.

We believe we will deliver strong growth in 2023 and beyond and we plan to do so with increased profitability. We have an incredible opportunity ahead of us. 2023 provides us with our largest renewal base ever. We have significantly higher renewal opportunities in Q4 2023 relative to Q4 2022.

We believe that our gross retention levels plus the fact that nearly three quarters of our ARR rest with loyal customers that have been with us for five years or more, demonstrates the critical nature of our platform for our largest customers.

We have a growing book of ELAs that are actively leveraging first capacity and ELAs represented a growing percentage of new large enterprise deals in the quarter. We have an enhanced sales motion and engaged partner ecosystem and an expanded customer success team.

Our subscription services business continues to grow as customers ask for our leadership to execute their analytics strategy demonstrating their confidence in Alteryx as the right long-term business partner.

And of course our Alteryx Analytics Cloud platform now offers full access availability to Designer Cloud along with Alteryx Machine Learning and Alteryx Auto Insights and we are seeing growing traction with existing and new customers.

And while the decision to recalibrate headcount is never easy, we expect to enter the second half of the year driving meaningful increases in productivity profitability and cash flow.

With this framework in mind let's turn to the Q2 2023 outlook. We expect ARR to be in the range of $902 million to $906 million representing year-over-year growth of 24% to 25%.

We expect GAAP revenue to be in the range of $180 million to $184 million, representing year-over-year growth of flat to up 2%. This assumes a slight decline in contract duration year-over-year.

We expect non-GAAP operating loss to be in the range of $52 million to $48 million. We expect non-GAAP net loss per share to be in the range of $0.69 to $0.65. This incorporates interest expense of approximately $10 million from the recent debt offering assumes 70.5 million weighted average shares outstanding and an effective tax rate of 20%.

For the full year 2023, we are maintaining our ARR range of $1.015 billion to $1.025 billion representing growth of 22% to 23%. We are maintaining our GAAP revenue to be in the range of $980 million to $990 million, representing year-over-year growth of 15% to 16%.

We are increasing our non-GAAP operating profit range to $80 million to $90 million reflecting planned spending discipline, plus savings from the workforce adjustments announced today. Given our historical trends in revenue linearity, we expect the non-GAAP operating profit linearity in the second half to look similar to 2022.

We expect non-GAAP profit per share to be in the range of $0.65 to $0.75. Again, this incorporates the interest expense from our recent financing and assumes 77.1 million weighted average shares outstanding and effective tax rate of 20%.

In summary, while the macroeconomic environment has created some incremental headwinds early in the year, we believe the financial results demonstrate the resilience and durability of our business. There's no doubt that our customers are facing an elevated level of uncertainty.

And while this can create friction in the sales motion, our robust retention rates continued growth with our largest customers and increasing ARR per customer all speak to the level of commitment we are seeing with our customers.

We are confident in the strategic initiatives we have been executing on for the past couple of years continue to believe we will achieve $1 billion plus in ARR for 2023 and are committed to delivering on our increased non-GAAP operating profitability targets for the year.

Before handing the call over to the operator, I'd like to note that we have an Investor Day coming up on May 23rd, as part of our 2023 INSPIRE User Conference in Las Vegas. We will further discuss Alteryx' market opportunity, go-to-market strategies and platform innovation with a live customer panel for those joining in-person.

I encourage those interested in learning more on the Alteryx story, to come to Inspire to hear it firsthand from our customers and partners.

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

Question-and-Answer Session

Operator

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Tyler Radke with Citi. Please proceed with your question.

Tyler Radke

Yeah. Thanks for taking my question. Kevin, just a couple for you on the guidance. So obviously, you called out some changing macro conditions in the end of the quarter, you didn't really take down many of the ranges for the full year. So I guess I'm wondering what gives you the confidence that can still achieve those ranges? And what are you assuming here for the second quarter? Is it a different set of macro assumptions relative to what you assumed in Q1? Thank you.

Kevin Rubin

If we go into Q2 we have a high degree of confidence on how we've set up from an ARR perspective. We did see some shortening of contract duration in Q1. And while we do expect to see it improve in Q2, we are still taking a cautious approach which you're seeing reflected in the revenue guide for Q2.

As we get into the full year, I guess I would also just remind on the various different levers that we have as we think about delivering this year. So as I mentioned on the call, we have the largest renewal opportunity in the company's history. A lot of that sits in H2 with a large percentage of it in Q4. As I commented on the call, we do expect to see a slight shift in overall seasonality relative to Q4 in the business as a result of the large renewal base.

We have a large population and growing population of ELAs that are into burst that are driving opportunity and activity that will renew at the back half of the year. And we're continuing to see success with the enterprise sales motion. We had 131% net expansion in the Global 2000 in the quarter which is a two-point improvement. And so while we saw some challenges in March and we've reflected that in the guidance going forward, I think there's still a lot of optimism on the year as you can see in holding the guide.

Tyler Radke

Great. And a follow-up if I may just on the broader generative AI topic. I think investors are wondering just the long-term implications on the competitive market, particularly as you have Microsoft very involved in building out Copilot functionality into its Office Suite. I guess two questions how are you thinking about the evolution of the competitive landscape longer term? And just given that organizations are really making investments into things like ChatGPT. To what extent have you seen this benefit your business? And what are the investments you're making to make sure you can be a beneficiary? Thank you,

Suresh Vittal

Great question. This is Suresh Vittal. I'm going to answer that. So we continue to see large language models in generative AI has a significant opportunity to really to democratize analytics. It's kind of share some of the same characteristics that we as pals in making analytics available for every knowledge worker in the company. And with that said, while almost everybody is making investments in large language models, the challenges that our customers face day in and day out continue to exist.

Customers have to ingest data from hundreds of different data sources. As we see with Alteryx users, nearly 70% of them use four or more data sources beyond Excel to manage analytics. We look at the different kinds of data types that they have to work with. And so we continue to make aggressive investments, as well into large language models.

Something you may not know, we have large language models in our products today already. Mark talked to them in the prepared notes, a little bit. And if you're going to be at Inspire you'll see us announce generative AI capabilities inside of our products things like bringing automated analytics faster to an Auto Insights user, is a typical use case that we see more and more every day, bringing topic summarizations or topic modeling are capabilities that our customers ask for and that you'll start to see in the product. And also, we think there's this whole area of governance that can be really leveraged through large language models that you'll see in our products here over the next couple of quarters.

Tyler Radke

Thank you.

Mark Anderson

Thanks, Tyler.

Operator

Our next question comes from the line of Brent Bracelin with Piper Sandler. Please proceed with your question.

Brent Bracelin

Good afternoon. Just a quick first question here, is really around demand linearity here that you saw in the quarter and really into April. You obviously, missed the ARR midpoint of the guide by $1 million here in Q1, but still looking for a healthy rebound in April. I get it sounds like renewals give you confidence, for the full year guide but specifically to Q2, what do you see in Q1 from a linearity standpoint? And any of those deals have slipped out of Q1, have they closed so far in April giving you any confidence for that Q2 kind of meaningful net new ARR guide up?

Mark Anderson

Yes. Hi, Brent, Mark here. Thanks for the question. I think for Q2, we took an appropriately cautious approach to guidance. We did see sales cycles elongate towards the end of the quarter. And really when the regional banking crisis hit, a few weeks before the end of the quarter, we really saw customers sit on their hands in shock about, how this was going to play out. So that did impact our linearity in Q1. So far, Q2 looks fine. I think we're going to be appropriately measure around what we forecasted and Paula, can give some color.

Paula Hansen

Yes, that’s okay, Brent. So the behavior that we saw in the majority of Q1 was actually similar to what we saw in Q3 and even Q4, which we talked about on the call just in terms of more deal scrutiny, more reviews and approvals. And then as Mark mentioned, kind of an extra layer of scrutiny in the tail end of March after the financial situation.

So, as we're in Q2 now, April is -- the first month of any quarter, is usually one of the smaller months of the three months of the quarter. But having constructive conversations with customers. We have closed a number of deals that slipped from Q1 and we remain confident in our ability to deliver value on the projects that we're discussing with our customers.

Mark Anderson

I'll just give you a little more color, Brent. I've been traveling a lot already in the month of April. And gosh, every single customer I talk to, is asking for our help. And their sense of urgency around doing something to become more digitized or to transform their business and make better decisions and insights with data, is higher than I've ever seen it. So that's factored into our views as well.

Brent Bracelin

Helpful color consistent with our conversations April definitely sounds a little healthier than March. Just a quick follow-up on the cost side. You're essentially pulling forward margins that we thought you would do in 2024 into 2023, with the 11% kind of ref you announced why now? Why the decision to say hey now is the time to do the balance forward and drive to a higher margin? Is there a desire to get to that Rule of 40 goal sooner than later? Just a little explanation on why we're pulling forward the margin expansion targets into this year that we thought you would get to next year? Thanks.

Kevin Rubin

Yeah. Thanks Brent. I'll go ahead and take that. Look as we continue to review and scrutinize our business it is clear that driving greater levels of profitability is critically important in this year and we had an opportunity to rationalize our expenses as we described in the prepared remarks which is going to create an opportunity this year to significantly increase the operating profitability projections for the year. And we felt that was an appropriate thing to do given what we're seeing in the business.

Brent Bracelin

Got it. It helpful. Thank you.

Kevin Rubin

Thanks.

Mark Anderson

Thanks, Brent.

Operator

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

Derrick Wood

Thanks for taking my question. First for Kevin and I guess it's kind of a two parter based off the last two questions. So with regard to the full year reiterated guide, what -- how do you give us comfort that the 11% headcount cut doesn't kind of have any disruption with go-to-market or sales capacity? And then with the Q2 ARR guide that was in line with kind of what we were thinking but the revenue significantly below. Is that just contract duration dynamics or kind of why has that delta changed a bit on Q2?

Kevin Rubin

Yeah. Thanks, Derrick. Let me hit your second question first and then I'll have Paula give her perspective on your question with respect to the cuts and the impact of sales and marketing. So as we thought about revenue and as I mentioned we did see contract duration in the first quarter come down a bit. And so we are projecting for Q2 that we have a softer contract duration which is affecting the revenue guide as we've talked since we implemented ASC 606 contract duration is highly sensitive to revenues. So that's what you're seeing in effect on the guide. To your point we held ARR which should fundamentally demonstrate that we are holding our booking assumption for the quarter.

Paula Hansen

Hi, Derrick, it's Paula. So in response to your question about the workforce reductions that we announced today Obviously, there are two areas of growing the top line whether it's sales capacity or sales productivity and we are very focused on driving up sales productivity have been for a number of quarters and will continue to be throughout 2023. So as we made these decisions we were intentional to be mindful of ensuring that we continue to deliver on increased productivity.

Mark Anderson

With such a large set of cohorts for renewals that come up in the second half, Derrick. And we just feel our solutions are so durable and renewable for customers. And you saw that, our net expansion rate ticked up 2% this quarter. That's happening for a reason because it's a really sticky solution.

Derrick Wood

That was going to be my last question. Just like you guys have seen really good growth in average deal sizes. I mean given the macro, what's the level of confidence in kind of keeping that momentum going in deal sizes and kind of keeping the first conversion motions going? I know you may have a little bit longer sales cycle, but how confident do you feel in those ASP growth trends continuing?

Mark Anderson

Yes, we feel confident enough to provide the backdrop of the guidance that we've given, and certainly confident in the team's ability to go prosecute those opportunities.

Paula Hansen

Yes. I'll just add that we're -- in the ELA motion, which is certainly a contributor to the increased average deal sizes, something we're still getting started on. We saw great success with that in 2022. We talked about how we did more ELAs in Q4 of 2022 than we did in the entirety of the first three quarters. And already in Q1 of 2023 we see 25% those customers that did an ELA with us in Q4 leveraging the burst capacity, which gives us permission to go back and continue to expand with them and rent and repeat that motion with many other customers in the Global 2000 segment.

Derrick Wood

Thank you.

Mark Anderson

Thanks, Derrick.

Operator

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

Sanjit Singh

Thank you for taking the questions. I want to understand the ELA expansion motion just a little bit better. For customers that were bursting last year and got that benefited from that 50% burst capacity. As they're coming into 2023 and if you sort of comment on the data points from Q1, is the dynamic you're seeing is that they are not taking on they're not paying for those incremental bursting users, or is it lower than you expected? Any sort of commentary on how the ELA renewals and conversion of that burst capacity is manifested at least so far in Q1?

Paula Hansen

Yes. Great question, Sanjit. I would say that we're really pleased with the success of burst capacity and the ability that that gives us to go back and move a customer up to another sized ELA or multiple tier sizes above the one that they've purchased. So, all of this has been with the mindset that, if we reduce friction for our customers and put our software in the hands of more knowledge workers and analysts across the enterprise that the quick time to value that our software demonstrates will set us up nicely to come to the table with the customer and ask for them to now turn that burst capacity into paid licenses. And frankly it's, I think exceeded our expectations in terms of how that has played out in 2022 and here in early 2023.

Sanjit Singh

Got it. And then a question for Suresh just to follow on Tyler's question on large language models. If I think of kind of the three main capabilities or sort of areas where Alteryx plays sort of in data wrangling, data preparation, democratizing, machine learning and data science, insights, and then in some sense helping out with sort of the BI process. When you look at just sort of the capabilities of large language models across those three buckets of opportunities, where do you see large language models being most effective, and where do you see it being like less relevant?

Suresh Vittal

Okay. I see them -- I mean, it's early days and I see them being most effective in the visualization and the last mile of insights space. I think the data wrangling, the prepping, the pipelines, the labeling, all of that work you still need humans and you need to interface with many, many different systems. And the complexity isn't avoided still. And that's why a lot of our customers migrate or come to Alteryx is because we really give them the ability to handle a lot of these complex tasks.

Sanjit Singh

Appreciate it. Thanks a lot guys.

Mark Anderson

Thanks, Sanjit.

Operator

Our next question comes from the line of Mike Cikos with Needham and Company. You can proceed with your question.

Mike Cikos

Hey guys. Thanks for taking the questions here. A couple of follow-ups from the earlier Q&A conversations we've been having. But first I wanted to come back to Kevin. I know you had cited the shorter contract duration that impacted Q1 with the expectation for a slight improvement in 2Q, but still the overhang on revenue based on the ASC 606. It'll is just be beneficial but can you help us think through what the revenue impact in 1Q were the expected revenue impact to 2Q is from that shorter contract duration versus what you guys have previously penciled in?

Kevin Rubin

Yeah. Thanks Mike. I appreciate the question. We didn't quantify it. But as I've said in the past, I mean small movements in duration have pretty significant impacts on revenue and how much gets recognized. So it had an impact in Q1 and we've factored in on a relative basis into Q2. I would again just maybe point to and signal ARR for Q2 and the full year is a view on how we think about bookings, which is really the normalized growth rate of the business.

Paula Hansen

I might add a little bit of color on contract duration just in terms of what we saw in Q1 and how we think about it as we go forward. So our enterprise sales motion with our largest customers is what we've been focused on for the last couple of years as you know, many of these customers have multiple contracts in place with Alteryx because of the land and expand motion that we were running for a long period of time. And as we come to renew those there is a big interest on our customers' part to consolidate a lot of those contracts into a common contract like an ELA, get them the benefit of the predictable pricing, access to the full portfolio and the burst capacity.

And so that is definitely something that we saw in Q1. And for me that's really a positive validation on their interest in continuing to grow with Alteryx further evidenced by the 131% net expansion. So that certainly is a little bit of context for you in terms of duration.

Mike Cikos

Thanks for the color there, Paula. And I guess my follow-up, a two parter here, the first would be a follow-up on Derrick's question around the headcount reduction versus the productivity gains that the company is talking to, can you help us think through what that productivity trend has been like in recent quarters? And really the question becomes like if you have this 11% workforce reduction you're talking to is the assumption that productivity can actually accelerate over the remainder of calendar 2023? And the follow-up -- or the second part is, can you just help us think through the customer count actually declining quarter-to-quarter? I think this is the first time we've seen that in recent memory.

Paula Hansen

Sure, Mike. No problem. So first on sales productivity, we're hyper focused on it and have been for many quarters now. In 2022, we saw productivity quarter-on-quarter improvements in that. And that is the plan for 2023 as well. So again, with the 11% reduction which keep in mind is across all of go-to-market, not just quota carriers, there is a small percentage of quota carriers in there, but there's also supporting functions and presales and marketing and operations and so forth. So it's not all direct to quota carriers. But we are very confident that we'll see sales productivity improvements continue through the balance of 2023.

In relation to customer count, we have been very focused on the Global 2000 on large enterprise clients and really improving deal size. And as we mentioned ARR is growing fastest in our largest customer segment. And so if I look at the ARR of a churn customer, the average churn customer is around $15,000 versus the average ARR per customer is $100,000. So we are much more focused on the upper end of the market and segmentation where there's the most opportunity for ARR growth.

Mike Cikos

Thank you very much for the additional color. Some great data points, Paula. Thank you.

Paula Hansen

Thanks, Mike.

Mark Anderson

Thank you.

Operator

[Operator Instructions]. Our next question comes from the line of Michael Turits with KeyBanc Capital Markets Inc. Please proceed with your question.

Michael Turits

Hey, guys. And tough environment. Congrats on what are still solid numbers in the quarter. In terms of behavior at the end of the quarter this maybe it's a question for Paula. Where -- can you narrow down at all any subsegments of where you saw the weakness that you attributed to banking issues? How you saw that causality? Is it small? Is it big? Is it certain regions, certain vertical? It seems like the general reaction to the banking crisis was mix. Some people saw it, some people didn't, so just want to know where specifically it hit you most?

Mark Anderson

Yeah. Michael, if you don't mind, I'll take that one.

Michael Turits

Yeah, its fine Michael.

Mark Anderson

Yeah, thanks for the question. I think we saw typical verticals that have been impacted a bit more by either supply chain or the turn in the economy. We just saw a little more aggressive tactics on the part of negotiators a new level of scrutiny was being applied and a few tactics that frankly I've not seen before, customers not wanting to waste a good crisis to try to extract a better deal. But I'll tell you the discipline that we've instilled in the go-to-market around pricing and definition of value and proving out value really makes a big difference for us. And so while we saw things slow down a little bit especially after the Silicon Valley Bank shutdown, we still feel pretty good about the quarter.

Paula Hansen

Yeah. So I agree with Mark's comments nothing specific to a vertical or a geography. I think it just was a moment that a lot of people took stock of the situation, maybe wanted to wait and see how things played out for a few days or weeks. And to Mark's point, in some cases tried to use it as leverage. And I'm happy that we are committed to long-term profitability and make the right decisions on a quarterly basis for the business.

Michael Turits

And then a follow-up question. Regarding the back half, obviously, you know what your renewal base is. Have you changed your assumptions around the conservatism of renewal percentages or conversions given the fact that things got tougher?

Kevin Rubin

Yes. Thanks Michael. I'll go ahead and take that. So first of all, I guess, again some points of strength in the quarter in addition to seeing net expansion overall remain at 121 and the G2K improved, we continued to see incredibly strong renewal rates in the business. And so we have over the last, I think three quarters continued to see near record high renewal rates in terms of that including this last quarter.

So as we look out for the full year, I mean, certainly part of our calculus is renewal rates and renewal trends. As Paula mentioned, the customers that we tend to see churn out had less than $15,000 ARR in the business compared to -- we grew the ARR per customer by 23% again for the third consecutive quarter in terms of growth.

So as we think about the renewal base that exists in the back half of the year, we're actually seeing very strong continued renewal rates. We're seeing very strong engagement with customers. And so one of the points I did want to just reiterate for from a seasonality perspective in my prepared remarks I mentioned that Q4 2023 has a significantly higher renewal rate -- excuse me, renewal base than Q4 of 2022 not to mention all of the ELAs and that come due that we sold last year. So I do expect that Q4 seasonally is going to be slightly stronger on a relative basis than we've seen in the past.

Michael Turits

Great. Thanks, Kevin. Thanks, Mark. Thanks, Paula.

Mark Anderson

Thank you, Michael.

Paula Hansen

Thanks, Michael.

Operator

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

Ittai Kidron

Thanks. I wanted to dig into the productivity. Mark you have been trying to reorient the sales force for pretty much two years, I guess at this point. And it seems like you're still not there from a productivity standpoint. So maybe you can help us understand how far are we from getting to where you need to get and understand that nobody ever gets to where they want to get, but where to a point that you happy with productivity? And why has it taken this long and still takes -- it still requires more time to get to where you need to get.

Mark Anderson

Yes. Thanks for the question, Ittai. Listen I don't think I'm never happy with productivity. I think as you said very rightly I expect that it should go up for a very long time. Because we play in a market that's sizable and very fragmented and customers are looking for more from platform vendors like Alteryx and we want to build or buy and integrate more or products and capabilities, so that our salespeople can have more to sell. And by simple math the productivity should go up.

We certainly see in times like this it's really important to do a really good job of sales planning, planning your -- around the renewals. It's our single biggest opportunity in the customer lifetime to earn more business by doing a really good job of helping them consume what we sold. And so I continue to expect that productivity will go up into the right. And gosh, I think, my past lives I've seen go up for seven, eight years at a time. And I've got that expectation here as well.

Ittai Kidron

Okay. Maybe I guess as a follow-up. Clearly, as Paula explained you rather chase the big fish and the small fish right now. And so that's where you're seeing the churn on the low end of the market. But I guess, maybe you can help us understand in your penetration with the larger accounts and maybe Kevin can weigh on this as well, how much of the expansion activity is multi-product driven versus just continued designer seat expansion?

Because if it's just designer seat you would worry me that you're at some point going to come to the end of your expansion opportunity. And with a shrinking customer base, I mean all of this might still deliver good results near term but this is going to be a long-term disaster. So I'm trying to understand the profile of your expansion within large customers. How -- what can you give us from a statistic standpoint a KPI that helps us understand the depth of the expansion not just the linearity of it set-wise?

Paula Hansen

Yes. I think that we've talked about the penetration rate that we have in the market is still very low, right? And so that is true within all of our customers even our largest customers. So there is no shortage of growth opportunity whether it be increased Designer licenses or cross portfolio into our cloud assets. Today, we're early in our cloud journey. So the cross product expansion is still a small percentage of the total expansion. But frankly I don't see a concern on continuing to expand both cross portfolio as well as with more users for quite some time.

Mark Anderson

Yes. I'll say just having gone through a few of these crises over the last 30 years, Ittai, I think when spending narrows in the enterprise I think customers want fewer vendors. They want less complexity. They want platforms. And so we're really seeing customers really focus on the platforms that are delivering value for them. And we certainly spent a lot of time with customers to prove that out.

Ittai Kidron

Thank you.

Operator

And our next question comes from the line of Yun Kim with Loop Capital Markets. Please proceed with your question.

Yun Kim

Okay. Great. I have a quick question on the planned cuts. Would that be particularly focused on US or international? I just wanted to ask that because I think international has more resellers and indirect channel partners.

Mark Anderson

Yeah, Yun it's Mark here. The vast majority of the cuts were here in the US. What we did -- we do have some cuts internationally and of course are respecting regional laws that exist around employment and termination of employment.

Operator

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

Koji Ikeda

Hey guys. Thanks for taking the question and squeezing me in here. Just one for me. I wanted to go back to the guidance and ask you a question maybe on the guardrails that you've embedded in the guidance from an upside to downside scenario kind of going forward here because, when you gave the guidance, on the fourth quarter call 90 days ago, there was some downside scenarios embedded in there. And as we kind of think through the quarter with the financial system events, the deal pushed out from the headcount reduction. It seems like that downside scenario, you used up some of that downside cushion, but with the full year revenue and ARR kept the same, it feels like maybe the guidance is a little bit conservative now. So maybe, can you help me better understand the dynamics that are in play there? Thanks guys.

Kevin Rubin

Yes. Thanks for the question. Look, we certainly didn't anticipate in our Q1 guide, a regional banking crisis as we saw. I don't think anybody predicted that nor did we anticipate the behavior that we would see thereafter. That being said, we still met the guidance that we put out to your point 90 days ago and are proud as well as drove an increased level of profitability above the guide, which we also felt was important.

In terms of the conservatism going forward, I would just again reiterate that we have a lot of visibility into the renewal base, the ELAs and the things that we can control and we've talked about expansion rates and gross retention and what we're seeing from that perspective. And so as we go forward, we're continuing to be cautious and conservative around how those dynamics convert into the business. But we have a big setup here for the second half of the year that we have a lot of optimism around.

Operator

And we have reached the end of the question-and-answer session. I'll now turn the call back over to CEO, Mark Anderson for closing remarks.

Mark Anderson

Thank you, very much operator. And I'd like to say thank you again to our customers, partners, shareholders and our team here at Alteryx. We believe our Q1 financial results demonstrate the resilience and durability of our business model. And we plan to deliver on our increased non-GAAP operating profitability targets with strong execution and discipline. Thank you all for joining us and I look forward to seeing many of you at the upcoming Inspire User Conference in May.

Operator

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