Asana, Inc. Q4 FY2021 Earnings Call

Good afternoon, and thank you for joining us on today's conference call to discuss the financial results of Asana's fourth quarter and fiscal year 2021. With me on today's call are Dustin Moskovitz, Asana's Co-Founder and CEO; Tim Wan, the company's Chief Financial Officer; and Chris Farinacci, the company's Chief Operating Officer and Head of Business. Today's call will include forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding our financial outlook, market position and growth opportunities. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Forward-looking statements represent our management's beliefs and assumptions only as of the date made. Information on factors that could affect the company's financial results is included in its filings with the SEC from time to time, including the section titled Risk Factors in the quarterly report on Form 10-Q filed by the company for the quarter ended October 31, 2020. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. Reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalents is available in our earnings release, which is posted on our Investor Relations web page at investors.asana.com. And with that, I'd like to turn the call over to Dustin.

Thanks, Catherine, and thank you to everyone for joining us today for our Q4 and fiscal year 2021 earnings call. We're very excited about our results for the year. There were several highlights. We closed out the fiscal year with a growth rate of 59%, and our business is as strong as ever. Also, we now have over 93,000 paying customers and over 1.5 million paid users as of fiscal year-end. And customers spending $50,000 or more grew 92% year-over-year. We had strong momentum in large customers and had a record quarter for expansion within our very largest. In fact, revenue from our current top 10 customers more than tripled in Q4 versus the previous year. We completed our direct listing on September 30, and we are the first to accomplish this remotely. We also held our Vision for the Future of Asana event a few months ago, showing the world what work will look like when we achieve the full potential of Asana and the Asana work graph data model, and over 24,000 people have watched it. The successes from the year are thanks to the hard work and resiliency of our team and their commitment to our customers' success. These results reflect the increasing demand for work management and the global need for team clarity. Most of the world's 1.25 billion knowledge workers struggle to coordinate work across their teams. They still rely on status meetings, spreadsheets, and sticky notes to answer basic questions such as who's doing what by when? The pandemic and shift to distributed work further exposed the pain of work coordination. We recently published our annual Anatomy of Work Index, an independent study of 13,000 knowledge workers. The study quantified what many of us know intuitively. Teams are working hard on things that aren't having impact. The study revealed that 60% of time is spent on work about work rather than the work itself. 26% of deadlines are missed. And 7 in 10 people experienced burnout in the last year. Teams that lack clarity experienced a cycle of chaos. Work falls through the cracks, and teams scramble to figure out what to do. This results in wasted effort and missed opportunities. Effective teams have the 3 Cs of collaboration: content, communications, and coordination. Most teams have invested in content and communication technologies such as file sharing, messaging, and video conferencing, but still rely on status meetings and spreadsheets for coordination. Asana is the platform for team coordination, giving teams time back by bringing structure and clarity to their work. Team coordination is a universal need, and Asana is well positioned to capitalize on this secular trend. With 1.5 million paid users, Asana is a market leader, and yet we're less than 3% penetrated in our existing customer base. Simply put, our market opportunity is massive. To provide the best platform for team coordination, we've built a proprietary data model, the Asana work graph. The work graph is a complete, fully connected, accurate, and up-to-date map of the work in an organization. It's what sets us apart from other companies in the market and is what enables Asana to provide clarity at every level of an organization, regardless of its size, structure, and complexity. The work graph data model enables our 3 key differentiators. First, individuals cite Asana's ease of use and how it maximizes personal productivity and focus. The consumer ratings show up on G2, an independent review site, where Asana was named the most highly rated company in the recent project management grid. Second, teams cite the ease of staying organized while coordinating complex cross-team work, thanks to things such as multi-homing, a feature uniquely enabled by the work graph and used by over 97% of our customers spending $5,000 or over. And third, executives praise the real-time visibility that Asana provides into the status of their goals and strategic initiatives. This is possible because goals, portfolios, projects, and tasks are all connected, thanks to the work graph. And we're the only solution that can provide clarity for the individual, teams, and executives based on a shared source of truth. Customers rave about this, and the work graph is what makes it work. Last quarter, I described task multi-homing as one of the most pervasively used features that illustrate one of the benefits of the work graph. Multi-homing gives people the ability to host a single task in multiple projects simultaneously. An individual task is often relevant in multiple project or process workflows. With multi-homing, you can share a single source of truth for one task in all of those contexts, even across multiple teams and departments. So the work graph mirrors the natural flow of work. As a reminder, the alternative to this is a container model, which forces you to keep information about one task siloed in a single context. The next layer of the Asana work graph is portfolios. Portfolios are collections of projects, giving you the ability to see all the work related to a strategic initiative, along with a snapshot view of their current status. Multi-homing shows up again here, because a single project can be included in many portfolios. So customers have the flexibility to accurately map how work is happening and organize the most helpful views for their workflows. Portfolios build on all 3 of our key differentiators. First, they make Asana easier to adopt by providing new users to a workspace, as well as new employees to an organization, a guide to help them learn about and navigate each initiative. And they help maximize personal productivity because anyone can create their own portfolio of projects to represent and personally manage work they care about. For example, your personal portfolio might be called 'my projects.' Second, like task multi-homing, project portfolio multi-homing helps facilitate cross-functional work. Projects can be included in multiple parent portfolios, which allows different teams to organize and track projects using their own taxonomy. For example, R&D teams might create portfolios that represent the way work is grouped within program teams, whereas product marketing might want to bundle projects into related releases. And perhaps they would additionally organize them according to customer value themes. There's no need to choose. This flexibility is enabled by the work graph. In a container model for portfolio management, all the cross-functional teams are forced to compromise on a single way to organize the work. Finally, as I mentioned above, they are a key way that work at the task and project level connects to higher-level strategic initiatives. This gives leaders throughout the company, including executives, an easy, real-time way to see how work is progressing at a high level. And now we've introduced nested portfolios, meaning a portfolio can be included inside another portfolio or multiple other portfolios. These layers and nesting are key to how we make Asana easy to adopt while also being able to scale organically to support larger customers. Asana lets you start small with the simple structure of a single project. You can then progressively add powerful layers that bring structured organization and reporting over time. It's a simple, elegant on-ramp to as much sophistication that a customer might need to do their work. In contrast, container models leave employees in large organizations lost, swimming in a sea of siloed projects. As an example, I know many of you also follow important companies like Twitter and are familiar with their strategic objectives. More and more of our customers are turning to our capabilities within portfolios to drive cross-functional alignment as they grow rapidly and scale. Twitter chose Asana Enterprise in Q4 as their work management platform for their experience team, which includes design, research, product, and engineering. They standardized on Asana to bring those cross-functional teams and leadership together in one place to manage product road mapping, content creation, and inbound requests. Another benefit they're excited about is being able to connect technical and non-technical teams who previously struggled to collaborate using the Asana-Jira integration. Listening to our customers has been the cornerstone of our product strategy. We're constantly expanding and deepening the strength of our platform. We've been launching new features and capabilities for customers at a rapid pace. Before I hand it off to Chris, I just want to make sure I highlight that this year, we are ranked the top best place to work by Inc., Glassdoor, Built In New York, and Fortune, including landing at #1 best workplace in the Bay Area for the fourth consecutive year. Our culture is integral to our business success. And part of how we create a great culture is using Asana to ensure that everyone has real-time clarity about what's expected of them and how their work fits into our higher-level goals. So this year, as our revenue grew rapidly at 59%, we succeeded in scaling our culture as well and building an environment where our team can thrive as they create value for our customers. With that, I'll hand it off to Chris.

Thanks, Dustin. We had a great fourth quarter. We finished the year really strong and even accelerated revenue to 57% growth in Q4 as we exited the fiscal year. Highlights from the quarter's business performance include a few things. First, growth in new paying customers to over 93,000 and record level top of funnel volumes. Second, strong expansion within our customer base. We now have more than 1.5 million paid users, and the net retention rate for customers spending $5,000 or more with us annually was 125%. For customers spending $50,000 or more with us, it was more than 140%. And third, some big wins and strong momentum in enterprise. The number of customers spending $50,000 or more with us annually grew 92% year-over-year. Our largest customer deployment in terms of paid users grew 5x the size of our largest customer at the end of the prior year. We saw broad customer traction in Q4 across industries and departments, from high-growth leaders to enterprise digital transformation, and across global regions. Here are just 5 of the many examples. Danone, the leading dairy and plant beverage and specialized nutrition company headquartered in Paris, selected Asana's enterprise solution in Q4 as their standard for project and work management. With Asana, teams at Danone, from supply chain to finance to quality and food safety, now have the visibility they need to collaborate effectively, drive project ownership, and further strengthen their commitment to bring health through food to as many people as possible. Spotify, a leading provider of digital music and podcasts, first began using Asana in 2015. Usage has steadily spread across the company over the years. In Q4, they significantly expanded their use of Asana's enterprise solution as teams look to improve how they collaborate, manage projects and run business processes. Now teams across the world are managing everything from the latest podcast ad campaign to engineering roadmaps, to regional marketing and sales activities in Japan in Asana. Gojek, a super app that provides millions of users across Southeast Asia with on-demand access to more than 20 services, such as rides, upgraded to Asana's enterprise solution for the entire company in Q4. They chose our enterprise offering to further enhance security and user management controls while also providing Gojek's executive team with the support and visibility needed to accomplish their key business objectives. Hotmart, a leading platform for digital producers and one of Brazil's leading startups, chose to go wall-to-wall with Asana's business solution for its 1,000-plus employees in Q4. Now teams across the company are managing their projects and work in one place, from finance to marketing, to business strategy and operations, to talent acquisition. HubSpot, a leading CRM platform that provides software and support for scaling companies, has been using Asana across some of its marketing and sales operation teams for some time. In Q4, they upgraded to our enterprise solution and expanded their use to more teams within these functions as well as to other teams like finance and HR. I credit our exceptional business performance in Q4 and in our fiscal year 2021 to, first and foremost, the immense business value we provide to our customers, our differentiated product offering, our resilient hybrid business model, and talented go-to-market team and to the overall accelerating business imperative of the market. Looking forward to our fiscal year 2022 and beyond, there are 3 major areas where we are focused: acquiring new customers, customer expansion in our base, and enterprise momentum. To give some color, first, I'll start with new customer acquisition. This is a fast-growing emerging category with the vast majority of 1.25 billion global information workers without work management tools and suffering from lack of clarity. For new teams, Asana is fundamentally a broad, horizontal product. We see customer use cases within and across virtually all functions and departments and often including collaboration externally with suppliers, partners, and customers. We remain focused on acquiring new customers, building upon our record top of funnel demand from Q4 with a blended paid, organic, and product-led growth approach. Over the course of this year, we are executing one of the largest new market expansion initiatives today. We're planning to expand language availability for Asana from 6 to 13 languages over the course of the year to make Asana accessible to a significantly larger portion of the world's teams. Second, we are focused on customer expansion. We continue to see a large expansion opportunity in our existing base of now over 93,000 paying customers. This year, we are expanding our direct sales teams in Asia, Europe, and North America. We're building on the strong departmental traction we see in marketing and creative, sales, and strategy and operation teams as well as other teams like product, design, HR, and IT teams. This year, we are particularly focused on providing best-in-class solutions for key cross-team workflows. For example, global campaigns, product launches, and creative development. These are workflows we uniquely address and which bring more teams into Asana. Third, our last area of focus is enterprise, building on the tremendous enterprise adoption and momentum of last year. This year, we are investing significantly in our enterprise platform. Major investment areas include: work graph visualizations and reporting, advanced administrative controls and broader compliance support, building out our technology and services partner ecosystem, and integrated goals management and cross-company use cases. This year, we are also continuing to grow and scale our enterprise sales organization. We have now brought in general managers in each region with enterprise leadership backgrounds from companies such as Salesforce, Qualtrics, LinkedIn, and NetSuite. We are investing heavily in our enterprise capabilities. And while we are still very much in the early days of this market, our enterprise motion and momentum is beginning to build. Asana is uniquely suited to scale as a trusted partner and provider of real-time clarity and alignment in and across large enterprises. Now I'll turn it over to Tim to go through our financial results.

Thank you, everyone, for joining us today. We are very excited to report another great quarter with strong results across the board. Q4 revenue accelerated from last quarter to $68.4 million, up 57% year-over-year, driven by continuing strength from our customers spending $5,000 or more on an annualized basis. I'm also encouraged by the fact that we have maintained 55-plus revenue growth rates during each of the quarters throughout this difficult year, demonstrating the category tailwind and the resiliency of our business model. We added over 4,000 net new customers and now have over 93,000 paying customers, representing a 24% year-over-year increase. We have 10,174 customers spending $5,000 or more on an annualized basis, up 55% year-over-year. Growth in larger customers is even stronger. We have 397 customers spending $50,000 or more on an annualized basis, up 92% year-over-year. Revenue from customers spending $5,000 or more represented 62% of our revenues in Q4 compared to 54% in the year-ago quarter. This segment of our business grew 81%. This further demonstrates our success with our land-and-expand strategy. Our overall dollar-based net retention rate was over 115%. As a reminder, our dollar-based net retention rate is a trailing 4-quarter average calculation. Among customers spending $5,000 or more, our dollar-based net retention rate was 125%. Among customers spending $50,000 or more, our dollar-based net retention rate was again over 140%. Before turning to expense items and profitability, I would like to point out that I will be discussing non-GAAP results in the balance of my remarks. Gross margins came in at 88%, up from 87% in the year-ago quarter. R&D was $30.6 million or 45% of revenue. We continue to invest heavily to fuel innovation at a high velocity. Sales and marketing was $49.2 million or 72% of revenue. We are continuing to invest in both our self-serve and direct sales motion. G&A was $15.4 million or 23% of revenue. Operating loss was $34.8 million, and operating loss margin was 51%. Net loss was $35 million, and our loss per share was $0.22. Now on to our fiscal year highlights. Fiscal year revenue was $227 million, up 59% year-over-year. We added over 18,000 net new paying customers for the full year. We also added 3,600 customers spending $5,000 or more on an annualized basis. This is an increase of 55% year-over-year. Finally, we added 190 customers spending $50,000 or more on an annualized basis. This represents an increase of 92% year-over-year. Moving on to the balance sheet and cash flow. Cash and marketable securities and long-term investments at the end of Q4 were approximately $405 million. Our free cash flow is defined as net cash from operating activities less cash used in property and equipment and capitalized software costs, excluding nonrecurring items such as direct listing fees and the build-out of our San Francisco office. In Q4, free cash flow was negative $17.5 million. We also ended the fiscal year with 1,080 employees. We're very proud of the achievements and the business momentum during this unprecedented year. Now moving on to fiscal year '22. For Q1 fiscal year '22, we expect revenues of $69.5 million to $70.5 million, representing growth rates of 46% to 48%. Non-GAAP loss from operations of $44 million to $42 million. Loss per share of $0.27 to $0.26, assuming basic and diluted weighted average shares outstanding of approximately 161 million. Now looking out to full fiscal year '22, we expect revenue to be $309 million to $314 million, representing a growth rate of 36% to 38% year-over-year. Given the large market opportunity, we will continue to invest for growth to maintain our leadership position. We expect full year non-GAAP operating margins to be flat to slightly up from fiscal year '21. Longer term, we believe that we can execute on our growth strategy and that our best-in-class gross margins will provide the leverage and flexibility to invest in this enormous market opportunity. We believe this investment will provide durable and sustainable growth as we pursue this large market opportunity with the best-in-class product.

I'm curious if you could just characterize the overall demand environment and how your customers are behaving as we go through the lifting of this pandemic. And I think, Dustin, many are asking, how does this change the company's approach as we return to the office? Does anything change? Or is this just too powerful of a tailwind that we're going to continue to see that type of momentum that you're putting up?

Thanks for the question. I'll start off by saying, even before COVID started, I think that our growth was being driven by a long-term secular tailwind and momentum in the category. Clarity is really difficult for teams even when they're in a regular office environment. And there's just been a rising tide of the business imperative for clarity and alignment. I would also just point out, even in the pre-COVID times, when you have large companies, they're typically working in distributed ways a lot of the time. So they're working across offices that they might have all over the world, they might have people in the field that are checking in remotely. So you had some elements of distributed there. But even when a team is working together, literally face-to-face, Asana is a very useful solution for achieving clarity. So post-COVID, I think we're going to see some companies return to those dynamics and be mostly back in the office. We're clearly going to see a lot more companies choose to be fully remote or remote-first, and we'll have everything in between. I think in all of those contexts, Asana is going to play an important role in driving clarity and alignment. So we're really well suited to the moment, but also, the growth is really being driven by those longer-term trends.

Yes. I don't think there's anything to read into that number other than the fact that I think there are fluctuations quarter-over-quarter and Q4. We do have a hybrid model where there's a very strong self-serve part of the business. So during the holidays, you may see a little bit softer in terms of new customer adds. But I think what we've talked about is taking a look at the total customer base from a growth from an overall basis. And we grew our total customer about 24%, 25% year-on-year.

Great numbers. Chris, I wanted to explore your enterprise focus for next year. Can you discuss the quota for salespeople? How much are you investing in it? How should we view the expansion of that base next year? Additionally, can you remind us about the process of transitioning from self-serve to a more involved sales approach to encourage deeper and broader adoption?

Yes. Sure. Thanks for the question, Ittai. So sort of enterprise last year into this year. Last year, we built a really strong foundation, investing in regional go-to-market leadership and enterprise infrastructure to support our success in the enterprise. As we mentioned, we saw really strong enterprise adoption momentum last year, particularly in the second half of the year. We brought in those GMs in each of the regions and each of the key regions that we focus in, with enterprise leadership backgrounds from companies like Salesforce, Qualtrics, LinkedIn, and so forth. This year, the plan is to continue to grow and scale our enterprise sales organization as well as invest in the enterprise platform. Just to give you a little bit more color on that. On the platform side, we're making major investments in some product areas like work graph visualization, reporting, advanced administrative controls and broader compliance, building out our sort of technology and services partner ecosystem and continuing to invest in integrated goals management and some of those cross-company use cases. And then on the business side, we're growing and scaling our direct enterprise sales teams in Asia-Europe and North America, and we've got the GMs in place. We believe we're uniquely suited to scale as a trusted partner and provider of clarity to the whole organization. So yes, we'll continue to scale in the enterprise, and we're really encouraged by the momentum coming out of this last year.

I just had a follow-up on the ACV per customer. It appears it grew quite significantly in Q4. I was just wondering, in terms of the trajectory going forward, should we expect that to continue to accelerate? Or should it plateau at these levels?

Yes, that's a good question, Andrew. We believe that for the business to succeed, it should grow in a balanced manner. This includes a combination of overall customer growth, which has been in the high teens to low 20s. We anticipate that the annual contract value will also increase within a similar range next year. Our aim is not to focus excessively on one aspect, such as just the annual contract value, without a corresponding increase in our customer base. Instead, we strive for a balanced approach.

Okay. Well, thank you, everybody, for joining us today. We really appreciate your time during a busy earnings season, and we look forward to seeing you soon. Thanks.