Earnings Call Transcript - ASAN Q1 2023

Operator, Operator

Good afternoon, and thank you for attending the Asana First Quarter and Fiscal Year 2023 Earnings Call. My name is Amber, and I will be your moderator for today's call. I now have the pleasure of handing the call to our host, Catherine Buan, Head of Investor Relations at Asana. Catherine, please proceed.

Catherine Buan, Head of Investor Relations

Good afternoon, and thank you for joining us on today's conference call to discuss the financial results of Asana's First Quarter Fiscal 2023. With me on today's call are Dustin Moskovitz, Asana's Co-Founder and CEO; Ann Raimondi, our Chief Operating Officer and Head of Business; and Tim Wan, our Chief Financial Officer. Today's call will include forward-looking statements, including statements regarding our financial outlook, market position and growth opportunities. Forward-looking statements involve risks, uncertainties and assumptions that may cause our actual results to be materially different from those expressed or implied by the forward-looking statements. Please refer to our filings with the SEC, including our most recent annual report on Form 10-K for additional information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. 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. Reconciliations between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalents are 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.

Dustin Moskovitz, CEO

Thank you, Catherine, and thank you to everyone on the call today. We're pleased to report another record first quarter, led by strong growth across our major markets and significant traction in enterprise. Revenue grew 57% year-over-year, beating the top end of our guidance range. Importantly, we had record-breaking events on several fronts. Our largest customer scaled to a new high with now over 100,000 seats. We also set a new record with our largest land deal in company history. This leading payment service company is a net new customer with 3,000 enterprise seats and an annual contract value, or ACV, of well over $0.5 million. I also want to note an important Asana milestone in Q1. For the first time, our ARR surpassed $0.5 billion. We're seeing bigger and faster expansions in our largest customers. Comparing the total ARR from our top 100 customers a year ago, the total ARR from our current top 100 customers grew 75% year-over-year. All of our top 100 customers have over 1,000 seats or more on Asana. Geographically, revenue in the U.S. grew faster than overall growth at 61% year-over-year, which we believe can be a leading indicator for demand worldwide. And our revenue mix of the business and enterprise tiers continues to climb, now representing over 64% of total revenue. While we acknowledge the overall macroeconomic environment today, and Tim will touch on our plans more in a moment, these metrics and customer wins are strong proof points for a durable Asana growth profile. The near constant change in the last two years underscores the need for more clarity and alignment and a platform that keeps teams focused and connected with each other and their goals. Asana's unique product strategy is the navigation system for cross-team coordination and clarity is meeting this demand. And as you can see from our Q1 results, companies are continuing to recognize Asana as an essential platform and partner for these modern work challenges. Further demonstrating Asana's value is the June 7 employee impact suite product launch. This launch addresses one of the most important concerns of leaders everywhere. How do I bring my teams together and keep them focused and productive? Leaders across the enterprise love these capabilities because their distributed teams can connect to and focus on the most important work. For example, with my goals, managers are empowered to macro-manage their teams by aligning them around key objectives and the work needed to achieve them in one interface, no matter where they are in the world. And the new automatic progress roll-ups give executives and teams a real-time look into the status of that work. They can identify roadblocks and make decisions more quickly with no manual work about work needed from their teams. One remarkable trend that continued this quarter is the success of our Goals product. Asana Goals continues to drive an increasing amount of wall-to-wall deals in medium-sized enterprises. Customers such as Benevity and Lucid are great examples. Companies that care deeply about driving sustainable employee engagement which translates to higher productivity that have made Asana their work platform of choice. Another thing to note is that Asana Partners is expanding our ecosystem in support of consolidated technology stacks. Users do less contact switching and have more time for the work that matters. This expansion includes reimagined Google Drive integration, linking Google Box, Sheets, and Slides to tasks with final common notifications directly in Asana, minimizing tool switching. Asana for Google Chat and Spaces converts unstructured conversations or messages into actionable Asana tasks without leaving Google chat. And a brand-new Sigma integration powers creative work by converting stickies into Asana tasks without leaving brainstorming sessions in big jam boards. This launch continues the momentum of our strong fiscal year 2023 product cycle. Our Asana Flow launch in February democratizes the power to build workflows. Workflow Builder is simple to use without requiring technical expertise, yet powerful enough to support end-to-end cross-team workflows for organizations of all sizes. Our customer base continues to be enthusiastic about this launch. In just 90 days, 145,000 rules have been created with particularly high adoption across our top 100 domains. More than 40% of our $50,000 customers tried Workflow Builder within two weeks of the launch, leading to a large runway for expanding across the base. I also want to mention another launch in June. We're looking forward to the first Asana ESG report later this month. Our company was purpose-built for sustainability from day one, and we're excited to share our metrics broadly and how ESG will be further integrated into our operations going forward. Looking ahead, digital transformation will continue to be a priority for organizations. Asana helps drive meaningful and vast productivity gains, which we know leaders are seeking intently. With high inflation and rising capital costs, leaders say they have even more appreciation for the efficiency Asana achieves within their businesses. Asana is perfectly suited during times like these as we help customers better adapt and improve along the way. We remain committed to building a comprehensive work management platform, capable of serving organizations of all sizes around the world. We believe in our long-term strategy and are confident in the fundamentals of our business. Our investment is paying off with strong momentum in the enterprise, and we'll continue to invest strategically in this growth while balancing our commitment to making significant progress towards free cash flow in the coming year. And now I'll turn it over to Ann.

Ann Raimondi, COO

Thanks, Dustin. As you've already heard from Dustin, it was a great first quarter. Our investments in the enterprise segment are paying off as we set new records with bigger lands and faster expansion. We now have 390 customers spending over $100,000, and these larger deals represent our fastest-growing customer cohort, up 127%. We're also consistently closing strong wins in the mid-market, where I would note in particular, we are seeing an uptick in wall-to-wall deals. Across medium-sized companies and divisions of enterprise organizations, our differentiated Goals product, which seamlessly ladders individual tasks, team projects and cross-functional portfolios up to company goals with automated status reports is helping us close more strategic opportunities. Looking at our performance by geography, revenue from the U.S. grew 61% year-over-year, accounting for 59% of our total revenue, while international grew 52%, accounting for 41% of revenue. If it weren't for our exposure in Ukraine and Russia and foreign exchange impact, the growth rate of our international business would be 1 to 2 percentage points higher. We saw strength in our core markets and our channel strategy, which is still in its early stages of growth, is seeing some notable large wins as we build our presence in new countries. Lastly, we have a healthy pipeline and strong engagement with our large customers. As I look across our customer base, I see 3 major trends: bigger expansions often driven by strategic cross-functional use cases, larger lands, and broad cross-industry adoption. The first and most pronounced trend is our larger, faster expansion within our largest customers. A number of big global brands are seeing steep user adoption curves of up to 2% week-over-week growth in some cases. As you know, we have some of the largest deployments in the category, and we are just getting started. Our largest deployment has grown again and is now over 100,000 seats. Asana is used heavily across several operational units, including managing their most strategic global accounts and designing and scaling some of their fast-growing cloud businesses. Another example from Q1 is a company called Octopus Energy, which is using transformative technology to make renewable energy the norm and end global reliance on fossil fuels. They are wall-to-wall with Asana and use our platform to streamline all of their strategic workflows across teams. Our success across various impact organizations is very important to our mission, which brings me to yet another important organization called Jobs for the Future. They went wall-to-wall with Asana in a multiyear contract. Jobs for the Future helps to provide a stronger supply of qualified prospects to fill jobs and develop more equitable advancement for people. It's an important effort as employers across the nation struggle to find people with the right skills, and Asana will help them scale quickly and effectively. Lastly, this quarter, one of the world's largest telecommunications companies continue to expand rapidly and virally as the demand across users surpassed their previous contract. One of the major drivers of these expansions is another trend we are seeing. More and more customers have scaled complex, strategic, and cross-functional workloads. They need high impact and high return on investment fast, and Asana can help them with this. As these organizations shift and accommodate the ever-changing market environment, they need even more agility. Zoom and Okta are great examples, where Asana is the company-approved platform for work management. It's how they work every day. As a corporate-approved vendor, Asana is growing across their operations and business teams and is the way most employees manage their most important work. The second trend we're seeing is larger net new land deals where companies are realizing the strategic benefit of the capabilities enabled by the work graph. As Dustin mentioned, a large high-profile financial payments company represented the largest land in Asana Company's history. Importantly, Asana's Workflow Builder was a key contributor in closing the strategic net new deal. The CEO of this firm called Asana exceptionally well implemented and broadly useful. It's always great to see customers give us a shout-out in a public forum. Everbridge, a global leader in critical event management and national public safety software solutions was another exciting net new land deal. They saw the value of Asana and initiated a multiyear contract to help them automate operational workflows and increase visibility into projects. The third trend we're seeing is broad cross-industry demand in the enterprise. We continue to see significant expansions across financial services, telecommunications, automotive, manufacturing, consumer retail, technology, and professional services, amongst others. On the topic of strategic partners, it's clear that our progress with HIPAA compliance opens exciting new opportunities. I'm proud to announce our partnership with Align Technology, a global medical device company and distributor to tens of thousands of doctor's offices. Real-time patient information and high-touch practice communication is an enormous opportunity for maximizing volume and revenue. This solution, Asana’s mile to Align marks an important development in Asana's history as we look to bring a broader HIPAA-compliant offering to other customers later this year. Asana not only helps teams work together effortlessly, but it also helps companies work together with their partners and customers effortlessly. It's still early to see how the current environment will ultimately impact our customers. Within the current dynamics, leaders are reconsidering how they're allocating resources. And more than ever, they need increased productivity across the organization no matter what people are working on. These times shine a brighter light on the value Asana has always delivered and the pain points we solve. The work management platform that shows who is doing what, by when and visibility into how this work is connected to larger goals. Organizations will lean into our category because they need more clarity, agility, and efficiency. We are well positioned in a market like this as companies look to do more with less. Looking ahead, my top areas of focus include value-based selling. As the IDC study revealed, customers realized a 225% return on investment in the first year they used Asana through increased productivity and faster workflows. Account-based marketing, repeating our successful playbook in North America, and doing it at scale around the globe. Our account-based selling enablement is starting to pick up and our value-based selling is getting stronger. And raising industry awareness, we saw a tremendous pickup of our Anatomy of Work reports, reaching a global audience of over 1 billion people with stories in the major business and consumer media. We believe we can win this category as the awareness grows and our unique capabilities meet customer needs, providing time to value in weeks, not years, and high ongoing return on investment. With that, I'll hand it over to Tim.

Tim Wan, CFO

Thank you, Anne. Q1 revenue growth showed continued strength in the business. Revenues came in at $120.6 million, up 57% year-over-year. This puts us at an annualized quarterly revenue run rate of $483 million. As Dustin mentioned earlier, we reached a key milestone surpassing $500 million ARR, with a year-to-year growth rate similar to our GAAP revenue. This is not a metric we regularly disclose, but it's such an important milestone. Revenue from customers spending $5,000 or more annualized grew 73% year-over-year. This cohort represented 70% of our revenues in Q1, up from 64% in the year-ago quarter. We now have over 126,000 paying customers at the end of Q1, up 7,000 in the quarter. This represents a 26% year-over-year increase. We have 16,689 customers spending $5,000 or more on an annualized basis, up 48% year-over-year, and growth in the larger customers is even stronger. We now have 979 customers spending $50,000 or more on an annualized basis, up 102% year-over-year. And as Anne mentioned, we have 390 customers spending $100,000 or more on an annualized basis, growing at 127% year-over-year. Our largest customers are our fastest-growing cohort. As a reminder, we define these customer cohorts based on our annualized GAAP revenues in a given quarter. Our dollar-based net retention rates remain strong across every cohort. Our overall dollar-based net retention rate was over $5,000 or more, our dollar-based net retention rate was over 130%. And among customers spending $50,000 or more, our dollar-based net retention rate was over 145%. As a reminder, our dollar-based net retention rate is a trailing 4-quarter average calculation. 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 90%, the same as the year-ago quarter. Research and development expenditures were $43.1 million or 36% of revenue. We continue to invest in innovation on our proprietary technology and deliver on our vision. Sales and marketing expenses were $83.3 million or 69% of revenue. We're investing in our enterprise go-to-market motion as well as building our sales infrastructure. We front-loaded many of our customer-facing roles this year to build sales capacity for the second half and beyond. The unit economics for those investments remain unchanged. The payback period for the last 12 months is less than 15 months, consistent with last quarter and slightly better than the year-ago quarter. G&A was $36.9 million or 31% of revenue. G&A expense this quarter included a one-time $3.6 million tax accrual. Without the one-time expense, G&A would be 28% of revenue, consistent with last quarter. We are actively working to find more leverage in our cost structure and expect to see improvement in our operating margins in the back half of this year and the coming year. The operating loss was $54.7 million and the operating loss margin was 45%. The net loss was $57.4 million and our net loss per share was $0.30. Moving on to the balance sheet and cash flow. Cash and marketable securities, including long-term investments, at the end of Q1 were approximately $283 million. Our remaining performance obligations or RPO was $250.4 million, up 72% from the year-ago quarter. 87% of our RPO will be recognized over the next 12 months. That current portion of RPO grew 68% from the year-ago quarter. Our free cash flow is defined as net cash used for operating activities, less cash used in property and equipment and capitalized software costs, excluding nonrecurring items such as the build-out of our San Francisco office. In Q1, free cash flow was negative $42.2 million, reflecting our investments in growth and rapid onboarding of new headcount during the quarter. Looking forward, we are actively managing our cash burn, and we're pacing our investments in a more measured way given the macroeconomic backdrop. We are proud of the business momentum, especially as assessed with very large deployments at great iconic brands and the velocity innovation this year. Now moving to our fiscal 2023 outlook. For Q2 fiscal 2023, we expect revenues of $127 million to $128 million, representing growth rates of 42% to 43% year-over-year. We expect a non-GAAP loss from operations of $74 million to $72 million. We front-loaded our hiring for the customer-facing teams in the first half of this year. We expect a net loss per share of $0.39 to $0.38, assuming basic and diluted weighted average shares outstanding of approximately 191 million. For the full fiscal year 2023, we expect revenues to be $536 million to $540 million, representing a growth rate of 42% to 43% for the full year. In terms of the shape of the quarterly progression, we expect to see more traditional enterprise sales seasonality with our sales capacity ramping towards the second half of the year as our mix continues to evolve towards sales-led motion. We continue to expect our operating loss margin to be in the mid-40s for the full fiscal year. We also recognize that there are significant dynamics in the macroeconomic environment. At the same time, you see from our record-setting events in the first quarter and strong growth in enterprise, we are very excited about our growth opportunities. Our core strategy is unchanged, and we have a plan in place to manage our investments and prioritize our highest ROI initiatives. We are front-loading our investments in the first half of the year, and you should expect our operating margins in the second half to improve versus the first half of this year, and we expect improvement in free cash flow margin in the coming year, but any upside to our revenue growth will be upside to this plan. And with that, I'll turn it back to the operator for questions.

Operator, Operator

Our first question comes from Andrew DeGasperi with Berenberg.

Andrew DeGasperi, Analyst

I guess just on the guide, I know you previously mentioned that FX could have an impact and also that the macro environment you previously saw during COVID that it did interrupt some expansion deals. I was just wondering if you're first of all seeing anything from that perspective? And then maybe could you elaborate a little more on the impact from FX or if you're also baking in some conservatism based on what's going on.

Tim Wan, CFO

Yes, Andrew, this is Tim. I'll start by discussing our guidance and how we considered foreign exchange rates, and then I'll let Anne provide her insights on the current demand situation. Regarding foreign exchange, we are assuming that it will remain stable from this point onward. If there is further deterioration in foreign exchange rates, it could present additional risks. However, at this moment, our guidance is based on the current foreign exchange rates and the available data.

Anne Raimondi, COO

Yes. I'll follow up on that. In terms of demand, we continue to see healthy growth, particularly as our customers aim to achieve more with less through increased productivity and engagement in the current environment. Our ability to deliver quick, measurable value, especially for senior leaders' most strategic initiatives—such as digital transformation, agile strategic planning, and operationalizing complex repeated workflows—positions us favorably as a priority investment. This is clearly reflected in our customers spending $100,000 or more, which grew by 127% year-over-year.

Andrew DeGasperi, Analyst

As a follow-up regarding the sales investments you're making, you mentioned that the second half should show better margins. I'm curious if you have adjusted your hiring plans from earlier this year, possibly due to tighter labor markets, or if everything is proceeding according to the plans you discussed a few months ago.

Dustin Moskovitz, CEO

So this is Dustin responding. So Tim mentioned we are being really thoughtful about how we make investments this year, and we have moderated the pace of our hiring, but that's coming off of really fast hiring so far this year. And so we had front-loaded quite a bit of the hiring, especially for those customer-facing roles with the plan that they would be ramping across the year. And so that part of the plan is still pretty much the case. And it's deep in the case that we have quite a few pending starts from people that we've already hired. And so that's part of why you don't necessarily see the improvement in free cash flow and operating margins in the next quarter, but we're expecting it later in the year. So we have moderated the hiring pace relative to the beginning of the year, but it still represents a really fast growth for headcount overall.

Operator, Operator

Our next question comes from Rob Oliver with Baird.

Rob Oliver, Analyst

This is for Anne or Dustin, the first question. Late last year at the scale event, you guys laid out a bunch of the enterprise focus initiatives Goals. Dustin, you mentioned a few of them, Goals, Workflow Builder. And I know you mentioned that Workflow Builder, I think, was key towards the largest land with the payments company. Could you walk through the impact those have had on some of the enterprises? It certainly seems like you guys have tremendous momentum with large enterprises and wanted to talk about some of the early reads on adoption and what they mean in terms of expansion with those customers. And then I just had a quick follow-up as well.

Anne Raimondi, COO

Sure. Thanks, Rob. The investments we've made at scale and the ongoing developments in Workflow Builder are significantly enhancing our ability to target larger markets. In our discussions with CIOs and Chief Digital Transformation Officers, we've consistently heard their priorities, which include ease of use and strong adoption—areas we've always prioritized. They've also expressed a keen interest in the capacity to rapidly scale to thousands of employees across various teams and handle complex, cross-functional use cases, an area where we excel. Additionally, they are looking for precise visibility and reporting, and our investments are enabling us to achieve that level of engagement. Regarding Workflow Builder, we are observing successful conversion in large accounts and healthy expansion within our existing customer base, attributed to Workflow Builder and tier upgrades. I know you had a follow-up question, so let’s hear that.

Rob Oliver, Analyst

Yes, that's very helpful. I appreciate the insights. For my follow-up, you've mentioned the idea of doing more with less a couple of times during the call. In past software cycles, vendor consolidation has both hurt some companies and benefited others. You are in the early stages of a rapidly growing market, and investors often worry about competition. However, being aggressive could create opportunities. I'd like to understand if you are noticing competitors within your customer base and if some of the expansion opportunities are emerging as businesses start to consolidate around one vendor.

Anne Raimondi, COO

Yes. I would say overall, we still feel like it's early in work management. But some things that we're particularly excited about with our customers are these early indicators that we are their platform of choice, whether that's Okta and Zoom, right? They essentially have pockets of other technology in their organizations, they're moving off of those and onto Asana. And probably more importantly, they're choosing Asana for all their employees and their most important cross-functional use cases. So I think we overall feel that, that's early, but it's really positive signs for us that when those decisions are being made, they are moving onto us on to Asana.

Dustin Moskovitz, CEO

And I'll just add, like Anne said, we don't see this a whole lot, but the product strategy is designed to help us when it does happen because we do think that's somewhere in the future and maybe will be hastened by the economic conditions. But Asana was designed to be from the bottoms up, to serve individuals, teams, and executives across the entire organization and especially to work well for cross-functional workflows. So often when you're in the consolidation conversation, they're evaluating tools that were more specialized for particular departments or particular use cases or workflows. And so the teams that are from that department might prefer that tool. But Asana is the only one that can kind of be the crowd favorite across multiple teams and then especially when they're working together. So we feel really well set up for that future.

Operator, Operator

Our next question comes from Alex Zukin with Wolfe Research.

Alex Zukin, Analyst

Could you provide some insight into your exposure to software-based industries or technology, considering the recent news about layoffs and hiring freezes? How should we view the potential growth challenges this might pose for your business throughout the year? I also want to acknowledge the context of improving efficiency, but the free cash flow burn has been significant at $40 million over the past two quarters. While I understand you're not offering specific guidance, I'd like to get a general sense of how cash flow might progress this year, especially in light of your balance sheet. It seems you have sufficient funds for the foreseeable future, but if operations continue at this level, it appears you may need to consider raising capital down the line. Please clarify these two points for us.

Dustin Moskovitz, CEO

Yes. So I'll start with the question about software exposure, and then I can talk about cash flows. So we do have a lot of great customers in the software industry, but we also have really broad-based customers both regionally and across industries. And I think as with use cases, there's maybe a plurality in software, but it doesn't represent like an enormous part of the revenue pie. And then when you look at who those accounts are individually, they're among the very strongest of the software companies. So a lot of them literally have billions on their cash balance sheets. And so they may, like us, decide to moderate their spend in various ways. But the expansion opportunity within those accounts is so enormous that it outweighs anything that might happen in terms of slowing headcount on the margin. So we just still have so much room to grow within the existing employee bases that we still feel pretty good about it. That doesn't apply to everybody. So as you get down into more of the SMB part of the market, there may be a little more exposure there. But as we've been talking about, the more and more of our business is coming from the larger accounts coming from the business and enterprise tiers over time. And so that becomes less of a problem for us in terms of how it affects the overall accounting as we go further.

Tim Wan, CFO

Yes. And Alex, just on the cash flow and operating margins. I think what you'll see from us is that, one, we care deeply about profitability, and we have a plan to manage both the burn and improve the operating margins. And I would kind of the comment earlier I made around looking at the business as first half and second half, the measure that we'll put in place the efficiency metrics that we're going to be looking at that you should expect to see improvement in the second half of this year and then probably more measurable improvement next year. I think we're trying to do everything. We do have a strong balance sheet with almost $300 million on the balance sheet, but we want to extend our runway and create as much optionality as possible.

Operator, Operator

Our next question comes from George Iwanyc with Oppenheimer.

George Iwanyc, Analyst

Dustin, following up on your software exposure answer. Can you give us a sense if there's been any change in churn rates with either SMB customers, mid-market, or the larger customers?

Dustin Moskovitz, CEO

I don't think we're seeing anything particularly material just yet. We're certainly cautious about the future given the macroeconomic situation. But just as a comparison, in March 2020, I mean, things dropped off a cliff. I think there were a few weeks where the revenue actually moved backward. So that was pretty bad. But I do want to call attention to, again, to the sort of currency headwinds and the war that does affect retention revenue just in a mathematical way. So even if the seats are there and the customers are there, they're going to renew with fewer dollars just because of the currency exchange rate. So we do see a little bit of that, and we quantified it a little bit in the prepared remarks. But so far, we haven't really seen customers shutting down yet or just like choosing to cut costs by cutting us out of their software stack, and don't really have the early indicators that would make us think that would happen. But again, we're paying attention to the macro situation.

George Iwanyc, Analyst

And following up on your comments about the value-based selling and the success you're having in the mid-market with large customers. Can you give us a sense of the pricing leverage that you have right now and kind of whether there's a lot of discounting going on when you're having these larger deals and your ability to maybe get the stronger pricing?

Anne Raimondi, COO

We have developed structures for mid-market and larger accounts that ensure predictable billing and total cost of ownership. Our main focus is on increasing the number of paid seats in these accounts, as we believe that higher adoption and more employees using Asana lead to quicker realization of value for companies. For multiyear deals, we ensure that customers have predictability in their budgeting, while concentrating on adoption, expansion, and growth.

Operator, Operator

Our next question comes from Pinjalim Bora with JPMorgan.

Pinjalim Bora, Analyst

Dustin, I have a question regarding your comment about adoption curves. You mentioned that you're growing at about 2% week over week. From a product standpoint, do you feel you have reached a turning point in meeting the major enterprise IT requirements around security, governance, and other criteria that enable customers to expand to as many as 100,000 seats?

Anne Raimondi, COO

Yes, we're certainly seeing that all the investments we've made over the last 1.5 years on partnering with CIOs and heads of IT on what is required from a security and scalability standpoint is paying off, and that is allowing for that faster expansion. We continue to work really closely with our customers to make sure we're meeting their needs. And in particular, now with these larger accounts, what we're partnering with customers on is actually managing the complex workflows at scale, being able to do things faster, making sure provisioning and security continue to be there across these complex global companies. But I do think the investments from the last 1.5 years have unlocked opportunities to partner much more closely at the VP IT CIO level.

Pinjalim Bora, Analyst

Understood. I have a quick follow-up. It seems like you're experiencing strong demand, but I want to raise a concern. Considering the possibility of a macroeconomic slowdown, are you observing any weaknesses in the sales cycles, such as deal delays, increased customer scrutiny, or any changes in the sales pipeline across different regions globally?

Anne Raimondi, COO

Currently, we have not seen changes there. As Dustin and Tim both mentioned, we pay close attention to that. I think the good news for us is in our existing customer base and the vast majority of our mid-market and enterprise accounts, there continues to be a lot of room for growth. And what we find is as adoption increases and customers are seeing value that, that is not preventing them from growing with us, right? They're actually seeing that it helps them with productivity and doing more with less in this environment. So I think that's where we see a lot of potential and continued growth is also in our expansion opportunity.

Dustin Moskovitz, CEO

And just to tie those questions together a little bit, what Anne had said was that we see 2% week-over-week growth in some of our like very best customers. And that's effectively a situation where, yes, we've satisfied the needs of IT at that customer, not necessarily for all possible customers and they're sort of letting the organic growth of the product go sort of unfettered. We're also, of course, helping and helping them use workflows and adopt new use cases. But when employees are actually kind of provisioning the product for themselves and finding use cases for it, it's a pretty different thing for IT to come in and sort of take that out of their hands. And even when they're sort of thinking about budgets, I think it's a pretty strong signal to them that the employees are getting something very useful out of this. And then we have our own research and the case studies from those organizations and others that can prove it for them mathematically. So in an environment like this, we switched to a little more value selling of Asana as a way to get more productivity, get more engagement from your employees, and be able to leverage your capital for greater impact. And so that's still a message that resonates with customers.

Operator, Operator

Our next question comes from Pat Walravens with JMP Group.

Pat Walravens, Analyst

Great. Tim, I think this one is for you, which is, if I remember right, last quarter you guided to fiscal '23 operating margins in the mid-40s, negative. And then if you look at '24, the consensus, I think, is negative 32%, so let's just say the low 30s. I mean, is that still the right way for investors to think about the operating model? And if not, how would you like us to think about it?

Tim Wan, CFO

Yes, you should definitely expect us to improve our operating margin and free cash flow margin in fiscal year '24. It will take some time for us, as we assess the investments made this year and as the added headcount from the first half of this year becomes productive towards the end of the year. All these factors will play a role. We are putting a plan in place to manage our cash burn and pace our investments. I want to emphasize that we are focused on areas where we have experienced success and are confident about the return on investment, while we are pulling back on areas where we are less certain or where it has been more speculative. That’s a good way to frame it. Our goal is to be in a position to exceed consensus, and we hope to deliver results that will please everyone.

Pat Walravens, Analyst

Great. And as a follow-up, is sort of the tightening financing environment for private companies helping you in any way? I mean, are you seeing more interesting private companies running low on cash and calling you to sell to you? Are you seeing less crazy behavior maybe from private competitors? I'm just wondering if there's a positive side to any of this.

Dustin Moskovitz, CEO

This is Dustin. I believe that things can change quickly in the market, and those changes might not be immediate. I received an email this morning from a company that is interested in being acquired, so I anticipate seeing more of that in the future. However, it is still early to determine how the cycle will progress. In this type of environment, having a strong cash position on the balance sheet is beneficial. While we often discuss our public competitors, there is a significant number of smaller private competitors. It's possible that in the future, these smaller players could become less competitive, creating a larger market opportunity for the bigger companies.

Operator, Operator

Our next question comes from Josh Baer with Morgan Stanley.

Josh Baer, Analyst

Just wanted to ask the kind of growth investment macro question in a different way. I think previously some of the commentary around the investment philosophy was that it might take diminishing returns on investments to pull back and see more leverage. So my question is just is the moderation in hiring and commentary on back half improvement in margins. Is that reflecting any diminishing returns on investments? Or is it just a prudent and maybe welcome reaction to the market's focus on path to profitability given the macro environment?

Tim Wan, CFO

Yes. Josh, this is Tim. I would say it's certainly the uncertainty in the macroeconomic environment that's causing us to pause and just kind of reassess the hurdle rates that we want to have around the kinds of investments that's going to have a longer payback. And we have such amazing runways across a lot of different opportunities. And I think we just really want to be thoughtful around ensuring that the payback is there and the payback is there on a timely basis.

Dustin Moskovitz, CEO

I want to emphasize that a lot of this is driven by uncertainty. This leads to a broader range of potential outcomes regarding the payback we might see in the second half. While we cannot predict exactly what will happen, it is not necessarily negative. Additionally, I want to highlight the impact of currency headwinds. These do not diminish returns in a traditional sense, but they do reduce returns mathematically. This is an important consideration. Even if we are not in a different position, we still need to evaluate lifetime value and paybacks and make new decisions based on that. Moreover, there is an increased focus on cash flows and operating margins, all of which point in the same direction.

Operator, Operator

Our next question comes from Rishi Dilawari with RBC.

Rishi Jaluria, Analyst

Wonderful. This is Rishi Jaluria. Two questions I wanted to ask. I think both macro in nature. But number one, I just want to understand, look, I know you're not seeing any real slowdown or changes in customer behavior. But I think it's uncertain environment and seems to be consensus at this point that we'll hit some sort of a recession in the near term. Just how do you think about maybe what will happen, right, with sales cycles and everything, because this is a very low-touch sales process, easy to implement. You saw a lot of those customers put it on pause earlier in COVID; there was a lot of uncertainty out there. Is there any reason to think, in other words, history won't repeat itself here and what we saw in the early stages of COVID won't happen if there is an impact of slowdown? And I've got a follow-up.

Dustin Moskovitz, CEO

Well, again, I think we do want to acknowledge there's some uncertainty in general, and so we don't really know what will happen. I think there's a possible world where the uncertainty itself is sort of looming large at the beginning of the cycle, but even if things trend negatively if there's sort of definitiveness around it and people can sort of make their models that they believe in, then I still think that they can move forward with confidence on software purchases, especially again, if they're going to help improve productivity and help improve efficiency, that's something they may even be more interested in. So that was part of what happened with COVID, is there is a sort of shock element in March, April. And then we saw a very strong demand at the top of the funnel. Part of that was the move to distributed work as well. But I think that we're still part of that long-term trend.

Anne Raimondi, COO

Yes. The other thing I would add is our investments over the last couple of years in moving up market are also helping tremendously because the investment in our account team has some more success partnering with more senior-level executives within these customers ensures that we continue to be a priority. So more and more in the conversations, it is driven by the top-level strategic initiative that C-level execs have for their organization, which in this current environment really does focus on productivity and employee engagement.

Dustin Moskovitz, CEO

And I just want to add one more thing. Just lessons from COVID, again, the positive growth for us was still very strong, but we got hurt on retention because our customers were going out of business. And so even though tech is very volatile right now, I think that's more a reflection of the uncertainty, including among investors. But in a recession, I think I would still expect tech to be pretty strong. And the real problem is how the recession impacts all the other industries. And so the thing that I think about more with macro is what happens if customers literally shut down across industries if we have a recession or especially a lengthy economic downturn and the demand part, the positive growth is the part that I still feel pretty confident about.

Operator, Operator

Our next question comes from Brent Bracelin with Piper Sandler.

Brent Bracelin, Analyst

Dustin, maybe I'll start with you. You've, over the last couple of years, invested in Asana both through a convertible note and then acquiring shares on the open market. I guess, what is your own appetite to invest in Asana, maybe long term, near term? Would love to better understand your kind of views on the business and relative to what you've done in the past couple of years?

Dustin Moskovitz, CEO

Yes. Thanks for the question, Brent. So I'm not able to really say in advance whether I'll make more purchases on the open market. But I do want to take the opportunity just to talk about the process that I use when that does happen. So I always make purchases through a 10b5-1 that would be put in place during an open trading window. And then I additionally go through a multi-month cooling off period. You may have noticed not every public company CEO does that, but generally, I think it's good practice and something that I would consistently do to buy stock on the open market. And so that means that the process is by nature, sort of a slower process, more deliberative, more deliberate. And so I make those decisions more about what I want to do over the long term and what I want my ownership stake to be. So whenever you see buy or not buy in the open market, there's sometimes some speculation that that's a reflection of maybe what I think about the business or the current stock price, but it's always a much slower decision than that. It's also, frankly, hard for me to anticipate the kind of volatility we've seen over the past 2 years. And so I just want to send the message that that's always really about me deciding to take a long-term position in the future long-term growth of the company rather than a reaction to what's happening in the market that day.

Brent Bracelin, Analyst

Helpful color. And then maybe, Tim, just could you help me a little bit around the optics of revenue? Because if I look at the U.S. reported revenue, you actually added more revenue sequentially in Q1 of last year than you did this year, which at first glance made me a little nervous. There might be some softness in the U.S. But then if I look at deferred revenue, really strong in Q1 CRPO backlog build here well above what we were looking for you. So is there a disconnect between the timing or linearity in the quarter? Or did you see some softness in the transactional side of the business in the U.S.? Just trying to understand the optics relative to U.S. reported revenue, which looked a little weak but really strong deferred CRPO.

Tim Wan, CFO

Yes. I think the one thing that I think you'll continue to see from us as we continue to make progress and momentum on the enterprise side that you'll see kind of the RPO. You see a little bit of lumpiness in the RPO number. We did close our largest transaction in the history of the company with this expansion to 100,000 seats. That was approximately $20 million on our deferred. So that certainly helped with the total RPO number. But I think what it really points to is the progress that we're making on the enterprise side and the movement that we're seeing with some of our larger customers and how they're expanding and continuing to do multiyear deals with us, especially in the RPO numbers.

Operator, Operator

Our next question comes from Robert Simmons with D.A. Davidson.

Robert Simmons, Analyst

It seems you managed to maintain good cost control in most areas. However, General and Administrative expenses nearly doubled year-over-year and now account for over 30% of revenue. Aside from the tax accrual, what is causing this increase? Additionally, how do you plan to address this issue over time?

Tim Wan, CFO

Yes. No, great question. Obviously, I think you want to net out the tax accrual, and I think if you net that out, then it's about 28% revenue. And I would say we staffed up a G&A infrastructure to support a very large business. We've been growing headcount fairly aggressively over the last couple of years. So we have a pretty large team to support that. And I think what you're seeing now is you should expect G&A to moderate, and that we'll see a lot more leverage as we continue to grow the top line, really focus our efforts around building sales capacity, sales enablement, customer-facing teams, and that the infrastructure we put in place now can support a very large business.

Robert Simmons, Analyst

Got it. And then I think you guys really haven't returned much of the office yet, but I think your customers are. Can you talk to kind of what you're seeing there in terms of how that's helping or hurting your sales and your extensions and then also what your internal plans are for current office?

Dustin Moskovitz, CEO

Yes, thank you. We're currently hosting this call from the office, and we have a good level of attendance as we enter a ramp-up phase leading to a full return to the office in September, at least for the Americas. Regarding the impact on our business, this has been discussed over several quarters. We believe that Asana is a vital tool for teams, whether they're working together in an office or are distributed and remote-first. Even though Asana intends to be office-centric, we operate across more than a dozen offices globally. So while some teams might be working in the same room, they often engage in cross-functional collaboration in a remote-first manner. Everyone is somewhat hybrid, reflecting a broad range of working styles. Importantly, Asana was designed for companies long before remote work became prevalent, well before the COVID pandemic. We truly believe it is a crucial tool for teams in various working environments, and we have not observed any changes in demand related to this.

Catherine Buan, Head of Investor Relations

Great. Thank you, Amber. Just want to say thank you to everyone for joining us today and making the time for the Asana earnings call. If you have any follow-up questions, as always, please feel free to reach out, and we look forward to seeing you on the road and at the conferences. Thanks a lot.

Operator, Operator

That concludes today's Asana First Quarter and Fiscal Year 2023 Earnings Call. Thank you for your participation. You may now disconnect your lines.