Great, well, good morning. Thanks for joining us for day three of Baird's Global Consumer Technology and Services Conference. I'm Rob Oliver. I follow the software sector here at Baird. It's my pleasure to have the CFO, Aziz Maggi, from Asana. Aziz, great to see you, and congratulations on getting the CFO job.
It's great to be here. Thanks for having us, and yeah, excited to share more about the story this morning.
Yeah, and just so people know by background, I want to level set on Asana, but first on you. You got the job, but you were in-house. You knew the story, so you bring a unique set of capabilities. Maybe talk about your background.
Yeah, absolutely. I've been at Asana for about a year and a half, so I joined to lead FP&A and strategic planning and also drive some of the corporate strategy elements and helped Sonali on IR, and that was kind of a passion of mine. And so it was a pretty natural transition. I had driven the financial strategy, really being kind of the key partner for Sonali and Dan and Dustin before that, and so a natural transition into the role. My background is strategy, financial operations, financial planning, 20 years in tech, NVIDIA, HPE, Green Central. Got it.
Got it. Great. Great. For those who maybe haven't looked at Asana in a while, there's been a lot of changes happening at the organization. So I wanted to start by making sure everyone's aware of the changes that have been going on. You guys have innovated a lot on the product side, on the AI side, internally. So maybe just highlight some of the changes and we can use that as a point of departure to dive in on the story.
Yeah, absolutely. I think if you haven't followed us recently, the story has been has really evolved over the past 12 months as we've transitioned from collaborative work management, human-to-human collaboration, to human-to-agent collaboration, and really repotting the company around this theme that we're not this application for productivity and collaboration, we're this operating system for human-agent coordination. And so we've transitioned from a single product company that was licensed and seat based to a multi-product company with multiple vectors of monetization that aren't all tied to seats and that capitalize on that theme that you know work is going to be increasingly human and agent the more agents and workflows that are built increases the need for coordination and that layer is where we serve and so you know The company's very much transitioned. We brought in Dan Rogers about almost a year ago to be our new CEO. He's got a really strong background in go-to-market across Salesforce.com, ServiceNow, and many other large companies. And he's brought this operating velocity ethos and really ramped up the product innovation. And we've accomplished a lot over the past 12 months and happy to share more on that.
Yeah, let's talk about Dan, because I think a lot of people will probably know this as sort of Dustin's company. Dan's now been around, I think, three quarters or four?
Yeah, July will be his one-year anniversary.
Okay, so what coming in, what were the sort of biggest points that he pointed to that, hey, we need to change that operating velocity? Is it around go-to-market product? And maybe talk about where you are relative to that roadmap.
Yeah, absolutely. You know, when we were a single product company that went from 100% product-led growth, really deeply embedded in the tech vertical because that's where Dustin had come from, and then transitioned to build this enterprise go-to-market and kind of had hyper growth. And in doing so, you know, there were some inefficiencies around that. You know, we're a very horizontal company in terms of who we targeted. You know, our ICP focus was pretty sprawled. And so Dan really came in and drove that focus and the operating velocity around how do we define and better target our ICPs? How do we transition into a multi-product company? How do we drive leverage and efficiency within our go-to-market to increase productivity, which has been a key driver of our operating efficiency and margin expansion so you know Dustin was an incredible operator product visionary he's still very active and helping us divine the product roadmap and the AI strategy but what really needed is that rigor and experience around the go-to-market end of it and Dan has really brought that and what's really surprised me is is how passionate he is about product and his ability to connect customer outcomes with building go-to-market leverage and doing that in a really efficient and effective way.
Let's talk about the AI initiatives that you guys have had. You have Studio and Teammates. Studio's outing Teammates is still very early, if I'm right. But you guys are talking about some unlock and growth in these coming later in the year. Let me talk about what Studio does, what Teammates does, how these interact with the kind of core of Asana. What's the right way to think about it?
Yeah, absolutely. So AI Studio was really our second product, and it came out about a year ago. And if you think about Studio and Teammates, they're solving different jobs to be done. So AI Studio is a workflow automation, simple drag-and-drop builder within the four walls of Asana. So if you're driving high-volume workflows like routing, ticket processing, anything with a data intake component, quality control and quality check, use cases, tapping into the work graph, that knowledge store of who's doing what by when in an organization the ai studio is that tool for you and so we've had a lot of success with ai studio uh we've scaled it fairly rapidly over the past 12 months we shared in q4 uh that it had eclipsed 6 million in arr you know again this quarter we had really strong growth now our ai products together with studio and teammates comprised about 17% of our net ARR in the quarter, which we had shared, not guidance, but a target of 15% for the full year or so. The strength of AI Studio is helping us be ahead of that target after Q1. Teammates went into GA about two months ago. And so you can think of teammates as shared agents for a team or an organization. So these are agents that execute work alongside humans or execute work within the flow of a workflow so a lot of synergy with AI studio where you've built these workflows and they're driving human to agent handoffs in a multi-step workflow the teammate can come in and drive and execute those actions within the workflow or execute coordinate work outside of the workflow and so we have over 20 out-of-the-box teammates today some examples are you know a vendor onboarding teammate or a campaign launch teammate or a research teammate and so these really help you drive the flow of the work and it's early but we're seeing across customers who have adopted teammates they're executing actions and tasks nine times faster than they were without the teammates so we're seeing real demonstrable ROI and there's some good momentum there. And then we added a third leg of the stool just a week ago with Stack AI, which is an evolution of AI Studio and brings AI Studio from high volume, kind of more simple use cases to complex cross-system workflows across ERPs, CRMs, databases, custom infrastructure, reporting tools, CLMs. And so that really completes that three leg of the stool.
It sounds like you guys, from talking to you post-quarter, that it was a quick thought on build versus buy, but then Stack AI was showing up, and you guys knew them, and I think Dustin knew them, and it just seemed to make sense. So you mentioned some of the specific work areas. What was it about Stack AI that was so compelling to you guys showing an opportunity to really accelerate AI studio?
Yeah, absolutely. So, you know, we've been organic for the past 17 years. It's our first acquisition. You know, as we were pursuing opportunities with AI Studio, we actually were a couple of customers saying, hey, I like AI Studio and the idea of it, but we're using Stack AI and we're driving a lot of value. So, you know, Dan's kind of the light bulb went off and said, look, what is this? And so we started looking into it and testing the product and we're like, the interface and the experience is amazing. You know, it's very simple to use. The drag and drop interface is extremely intuitive. The ability to hook up integrations is fairly seamless. And so as we got to know the company a little bit more and the customer use cases, we got more and more excited. And then we did a pilot with our marketing department where we identified our search engine optimization process. So we hooked up Stack AI to five different core systems and marketing. and the reporting and the synthesis and the ability to take teammates and then create actions against it really were like, oh my God, this is really eye-opening and if we can take this to our customers, there's going to be a lot of demand and acceleration. And so we got to know them even more on the customer side and go to market. This is a company, it's not just a startup with a great product, it's had traction. You know, they have customers with, one customer has 1,400 workflows running on the platform. They're in really highly regulated industries. So hardened, proven, a really talented team. And these were things that were on the AI Studio roadmap. But to get to where Stack was, we estimate it'll take us about a year. And the opportunities now, the demand is in our base.
And to accelerate that a year, use our strong balance sheet to do that, be disciplined about the capital that we paid and aligning incentives, it just made a lot of sense. yeah makes sense please shoot questions if you have them to the email address there and I'll try to get to them so I mean one of the one of the four or five bear cases on software has been around me well these guys aren't gonna be able to do any AI revenue and I think we're seeing you know that bear case is being shipped away at a little bit the market now with the success that Salesforce has had early on and service now and others and you guys obviously in a smaller scale are there too you know it you know 17 percent of uh that ar uh and uh six million in workflow so maybe help us understand them the other part which which is another concern which is that like how does that trade-off look within your core when it comes up to a to a contract you guys have a lot of large deployments within organizations um are are they thinking uh is this is this additive right now to the platform what do you see internally to help us understand Yeah, so it's early with both studio and teammates and then obviously with Stack AI, but we are seeing it contribute to our growth.
Now, it's a bit masked because we have tailwinds and we have headwinds, and we've called out a big headwind is on PLG, and it's about a two-point headwind to ARR. And if you think about how that compounds into revenue, it becomes a bigger headwind on revenue as the year unfolds. But, you know, it is becoming a bigger driver of our growth and our incremental growth. And as we think about the biggest headwind and challenge we've had is really on NRR. And so as our growth has decelerated, it's really that expansion component of NRR that has contracted. We were a single product company that could only expand with seats and packages. You kind of top out a bit on packages. and, you know, our core vertical a year ago, tech is not expanding headcount. It's actually contracting in some cases. And so not having an expansion driver with multiple products was a real inhibitor of growth. And so now having that with studio and teammates, it's, one, creating our ACV at land. It's creating additional vectors to expand. And it's a bit of a flywheel, especially with teammates, where you land with a small set of teammates, customer sees a lot of value, they expand with additional requests, packs on top of those existing teammates, and then they add more teammates, and then they come back for more seats because they want more people to experience this. So that's just very early in its forming, but we think that will be very powerful on expansion. And then in our renewal conversations, for those that are, our downgrades are coming because of seats. they're not logo churn and they're not pricing downgrades and so in those situations where someone says hey I've let go of X percent of my workforce and I don't need these seats we now have multiple levers to mitigate that and create either neutrality or incrementality in the process and then over time have that expansion path within those customers so we are seeing it contribute to our growth in a positive way it's not just kind of swapping these products are separate monetizable skews and we expect that to grow over the course of this year and certainly into next so those cut those
companies particularly in the tech vertical and we'll get to that as well that are like hey we love you but you know we over hired during COVID or whatever and we wish we could do more with you but this is just naturally what's happening to our business you guys see face now it's we love you and what else could you potentially do for us is the conversation obviously the the salesperson's trying to have with them.
Yeah, I mean, these customers, they're for the most part very well utilized and they're fans of Asana and their employees are fans of Asana and driving a lot of value. And so they're shifting to how can we kind of turbocharge them with additional tools to increase productivity. And as these tools start to look and feel like applications in new buying centers and new personas, it just increases the value proposition for Asana within the enterprise.
You guys have also moved heavy tech vertical, but you've also had some considerable success starting to diversify your customer base, and I know that's still an initiative for Dan. So maybe talk a little bit about where you've had that success and where you feel like you're going to be able to commit resources from a go-to-market perspective to really perhaps replicate that.
Yeah, so tech is about now a quarter of our ARR. It's come down from, you know, high threes last year. And it had been a drag on our growth for two years. Actually, this was the first time in eight quarters where we saw positive growth in the tech vertical coming off of stabilization last quarter. So encouraged by the trends, we're not kind of there to underwrite that in our future growth. Need to see more, we're encouraged by the trends in tech and part of the trends in tech are they are early adopters of studio and teammates and so that is helping drive the improvement in that vertical and we're also seeing that those that are well adopted with ai studio are expanding not only with more ai studio credits but with seats and that's been benefiting tech as well on the non-tech side you know now it's three-fourths of our business a big driver of that is how we've driven vertical go to market so when we speak the language of the customer and can present workflows that are aligned to verticals we our win rates are dramatically higher and so we've built vertical teams that have are specialized in health care financial services non-profit education state and local where we are the strongest and we're seeing really good productivity growth in those areas and so tech is non-tech is growing faster than our overall growth rate and in in the international markets where we have a greater concentration of non-tech we're also growing faster than our overall growth so we've made a lot of investments in places like Germany and Japan and that has resulted in strong growth in consumer and manufacturing and logistics companies which is really great to see we highlighted FedEx and cost this past quarter as great success stories of land with seats expand with AI studio and then add on teammates and value that we're driving and it's really exciting yeah it's great um i have a question that's come
in already i'll get to in a second so please send a few more we'll squeeze them in a lightning round at the end um i just wanted to step back um aziz and ask about the collaborative work management space generally i mean this was a space that you're first onto the scene kind of excitement you know vc backed you guys you know obviously dustin very high profile you know um sponsor and an innovator in the space and you know companies like monday and you guys and smartsheet and stuff like that how how do you think that you know you're a first of all how does the competitive landscape look today has it changed i believe it has but like also how does ai for you guys you've been very aggressive on it potentially further change that competitive landscape in
other words hey it's not just us going up in an engagement against money but how does that change that yeah and so the llms and this intelligence layer have really driven the value proposition for work management and now agentic work management a lot higher and i think it's emerging into a uh you know it's a nice was a nice to have category to a mission critical category. Because as you drive more workflows, as you proliferate more agents, the need for coordination of that increases exponentially. The need for context that our work graph has been built around, the need for multiplayer. Our teammates aren't just my teammate or Eva's teammate. They're actually teammates that work in the context of a team. Each member of the team can train them, can derive value from them, can engage with them, they can execute work on behalf of any member of the team. That's super difficult to build and replicate, and it becomes so much more powerful on top of that intelligence layer. And then you layer the governance on top of that, which enterprises, it's a must-have for enterprises. That also increases the competitive differentiation. So we believe the CWM category is coming into its own with agents and AI, and it's transitioning into agentic work management. And we've built the architecture to be successful there. That's the architecture that has driven human-to-human collaboration is the architecture for human-to-agent collaboration. And on the competitive landscape, it's evolving. We still see Monday at the low end of the market, some specialized players in the mid and the high end. If you're looking at a persona-based pursuit with with something like dev we'll see jira um there's some newer entrants like notion and linear that are in specific use cases but you know the market is still very much greenfield and now with the ability to get more targeted with ai and ai personas it really unlocks that opportunity and we think over time uh leads to accelerated growth and what about what about um slack um you know Salesforce has kind of pivoted to make Slack kind of central to its strategy, and they've got an install base there.
Is that sort of burgeoning as a competitor to you guys, or is it still not viewed as one?
Yeah, so we don't see that as a competitor. We see it as an ecosystem. Work is going to originate in many different places, and we want to be able to capture that work and integrate with it. So, you know, we have integrations with, you know, Anthropic through MCP where, you know, you can originate work in Anthropic and then bring it into a multiplayer, multifunction environment into Asana seamlessly and then get the power of the work graph and all that is Asana. the same thing with slack so same thing with zoom and meetings so if your your work is originating whatever the point of origination we want to integrate and be able to leverage the power of Asana to bring that to a organization and use the work graph to drive the benefits of productivity and shared context great question which sort of mirrors one one I have which is on the PLG end of the
business, you know, any, any changes in that market, any changes to your thought as to how committed you need to be to that low end of the market?
Yeah, so we are 100% committed to PLG. It is how many of our customers and customers in this market want to procure, they want to start with exploring products, demo and trialing products in that digital environment and experience them before they engage with sales it's just how a lot of these customers originate we have a really strong funnel of PLG moving to sales led and our largest customer started as a product led customer so very committed to that market and you know we saw green shoots this quarter in terms of you know sequential improvement and top of funnel better conversion, like strong product-led to sales-led lead flow and conversion. It's too early to kind of extrapolate that and say that trends are reversing. Still a headwind, but we very much are committed to that. And one of the unlocks we're excited about is teammates coming to the PLG base in the second half. So currently teammates is just with our sales-led base. In the second half, it will come to the PLG base. And the ability to position teammates vertically because they are persona, we feel will help us capture a larger share of that top of the funnel in terms of conversion and higher ACV and expansion paths there as well. So we're excited about broadening the product portfolio for PLG alongside all we're doing on marketing mix and channel mix to improve the top of the funnel and create the right mix of customers on top of the funnel. it's not just about volume it's about the size because those larger customers have stronger expansion paths and lifetime value and become really successful sales like customers over time on that marketing and channel side I mean you guys are not the only company in my list that had built some tremendous expertise around SEO and was really really very good at that and then kind of how people were discovering content has shifted a little bit in this world and that's you know uh betta headwind for you guys um maybe help us understand where where you are in in in that and sort of shifting to these new ways of building um thought leadership so that you get found within these the new agentic search yeah so we're you know it's been a huge focus of ours over the last six plus months and we're starting to see some of the improvement but it takes some time for it to compound and it to build and so you know i think we feel really good about our channel and where we are our channels and where we are right now with those investments we feel good about the paid media uh efficiencies and leverage improvements that we're seeing um but it's it's early and the the landscape has evolved fairly dramatically um we feel like we're we have
taking the right steps to you know unlock the top of the funnel but it's very early and it takes time to compound got it I wanted to pivot and to kind of some of the financials just to we have you here and get touch on a couple of those things so last year was really strong for for margin expansion for you guys with some continued expansion this year you know what what are the key underlying drivers behind that I know I assume you guys are finding ways to use AI internally, but other others as well?
Yeah, so this past quarter, we delivered 11.5% operating margin, which is an improvement of 720 basis points year over year, and that's translating into free cash flow. Our free cash flow margin was about 17% in Q1. A bit elevated, we had some strong early collections activities, so on a normalized basis, closer to 14s, but still very strong in terms of that improvement. And there's a few different reasons why we've seen that. I think the most basic is operating leverage. So if you see, look at our OPEX growth year over year, that declined about a couple percent. So we're growing top line. OPEX is declining. That's what's driving that operating leverage. And how are we able to do that? One is, if you look at our headcount growth, we have grown headcount. Well, OPEX has come down. So the average cost of our headcount is coming down. we were very over indexed to New York and San Francisco high-cost markets so made a concerted effort really around the time I joined to accelerate our hiring and as people attritted to build back those capabilities in places like Warsaw Poland in lower-cost North America locations like Vancouver and so we're reshaping the workforce to a lower cost so that's been a key driver and will continue to be a key driver. I think number two is we're early in this, but we are seeing productivity gains from AI. And so that's allowed us to think differently about our backfill strategy. So when people leave, how can we change the shape of the team, leverage our own AI tools, invest in class, third party, to drive the productivity and automation benefits to not have to hire those people back and get, you know, efficiencies and leverage there. So that's number two. And then I think number three is just being really focused on sales productivity. You know, our sales productivity and efficiency has gone up quarter after quarter. You know, Q1 productivity increased double digits.
So if you're able to do more with the same kind of seller base, that's tremendous operating leverage for one of the largest, our largest expense item on our P&L. um we came through that period of you which you touched on of kind of that c-turn and some of your customers um and uh you now have a product set which helps to address that uh you're you're you're growing again in the tech vertical um when we the the in-quarter nrr has been improving nicely over the last kind of four quarters so you know with those things kind of happening and the changes you guys have made you know how should we think about kind of that nrr shift and And what are kind of the two to three biggest factors that are going to really kind of improve the NRR over the next couple of years?
Yeah, so NRR has improved four straight quarters now, the in-quarter NRR. This actually past quarter Q1, the magnitude of improvement was actually the greatest of those four quarters. And it's both on the retention side, the GRR, and the expansion side. Expansion is the greater driver, but GRR has actually improved four straight quarters. And what's driving that is becoming a multi-product company and having additional expansion levers. So Studio, most of that ARR is sold to our base because the best customers are those that have complex deployments of Asana, have built rules and built automations, and now want to supercharge them with AI with AI Studio. Same thing with Teammates in the beginning as well. although teammates there's a strong land and new logo motion attached there as well and so that's really benefited that expansion and then we've seen those cohorts that are using ai studio and and driving strong adoption are not only expanding with more ai studios so the customers we called out that are 100k plus ai studio customers there were eight of them in q4 we said that almost doubled in Q1, most of those started as smaller packages and then graduated to 100K+. That has helped that expansion path as well. And then those customers are not only expanding with AI Studio, but we're seeing them expand with Seats, which is helping NR as well. And so as we think about going forward, there's a few different unlocks. One is the large customer downgrade that we had last year in Q2 rolls off. so there's kind of a natural tailwind there and then as we sell stack to our base, as this teammates flywheel of kind of land small, expand within the teammate add more teammates, add more seeds starts to build, that should benefit NRR as well and so we feel there's a lot more to do because 97 for straight quarters of improvement is nice but we need to get above 100 and so that expansion path coming back and AI driving better utilization in mission-critical workflows and improving GRR is also a nice lever over time.
Great. We are out of time. You guys did have a product announcement this morning coming out of your London event, so maybe 20 seconds on that would be helpful.
Yeah, so we have our marquee customer event called the Work Information Summit, if I just wrapped, in London time. We're going to do a recap for investors on Monday, sharing the highlights, But the event is really around repotting Asana as this operating system for human agent teams. And we've introduced some new products where, you know, we are getting a lot more persona focus around the developer persona and the IT persona, leveraging the work graph, leveraging teammates, and leveraging studio. And these are new products that are additional expansion drivers. So excited to unpack that more on Monday and show you the value of those. but it just compounds this theme that we're becoming multi-product and much more akin to this coordination layer than application.
Great. Aziz Maggi from Asana. Thank you very much. Really appreciate it.