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spk03: Ladies and gentlemen, thank you for standing by and welcome to the Asana Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 in your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Ms. Catherine Wong, Head of Investor Relations. Thank you. Please go ahead.
spk00: Catherine Wong Good afternoon, and thank you for joining us on today's conference call to discuss the financial results for Asana's third quarter fiscal year 2021. With me on today's call are Dustin Moskowitz, Asana's co-founder and CEO, Tim Wong, 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 same partner 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 Prospectus filed by the company in connection with its direct listing. 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 webpage at investors.asana.com. And with that, I'd like to turn the call over to Dustin.
spk05: Thanks, Catherine. Welcome, everybody, and good afternoon. We had an excellent first quarter as a publicly traded company, and as you can see from the results, our business was fundamentally strong. In Q3, we added approximately 7,000 met new customers and reported revenue of $58.9 million, up 55% year over year. In addition, the number of customers spending $5,000 or more on an annualized basis was up 58% year over year, and revenue growth from those customers was up 80% year over year. Last quarter, we mentioned that we saw short-term headwinds from COVID and long-term tailwinds. Now we feel like the short-term headwinds have diminished. Return rates have reverted to pre-COVID levels and markedly improved from their peak in April. Beyond COVID, we're seeing promising signs of continued durable growth in at least three trends. One, acceleration of new customer additions. Two, faster deployments and some of our existing customers. And three, some of our largest enterprise expansions to date. Success we've experienced in Q3 marks a moment in time. It has grown from years of investment in our culture, our product, our strategy. We're a mission-critical platform that enables the world's teams to work together effortlessly. In a world where there is a firehose of information, proliferation of collaboration tools, and an increasingly distributed work environment, it's critical to have clarity about what's most important and what each team member should focus their attention on. The pandemic and work from home has accelerated this need. And in fact, the collaboration market is expected to be a $32 billion market by 2023, according to IDC. We believe the world's 1.25 billion global information workers would benefit from a platform like Asana, and we've penetrated less than 3% of the employees at our own customer base. Since this is a relatively new software category, let me explain how we view the landscape and where Asana fits in. Effective team collaboration requires the three Cs, content, which includes cloud storage and file sharing, Communication, which includes chat and video conferencing, and coordination, which is where Asana is focused. Teams have invested heavily in technology for the first two, but in most cases, they haven't invested in the Asana layer, the coordination layer. That's that third C. Coordination is about clearly answering the question, who is doing what by when? Historically, teams have had to resort to sticky notes, email, spreadsheets, and status meetings to coordinate work. And with Asana, they have a better solution. Companies work best when everyone in the organization has clarity on the company's mission, its objectives, the projects and workflows needed to achieve those objectives, and who's responsible for each individual task. This enables every team member to achieve focus and flow and have clarity about how their work contributes to the organization's mission. When there's clarity, teams spend less time coordinating work, more time actually doing work, and quite simply are more productive. Sana solves the problem of team coordination and gives teams clarity. The Asana Work Graph is the data model that makes this team coordination possible. It enables a complete, fully connected, accurate, and up-to-date map to work in your organization. The Asana Work Graph represents all of the units of work, like tasks, ideas, goals, agenda items, information about that work, like relevant conversations, files, and status information, and how it all fits together, but importantly, who's responsible for each piece. It's a living system of clarity for work that emerges in real time and expresses a team's past state, present status, future plan. This is one of our biggest competitive differentiators, so I'm going to spend a few minutes on this call and on the next couple of earnings calls talking about different aspects of the Asana WorkGraph and the customer benefits it enables. Today, let's double-click on multi-homing, which is a feature of the Asana WorkGraph that enables teams to manage complex work in a simple and intuitive way. Multihelming gives people the ability to host a single task in multiple projects at the same time. This feature is unique to Asana and is what allows Asana to serve as a single source of truth for customers working across projects, processes, and functions. For example, we used multihelming to prepare for this earnings call. We created an Asana task to finalize approvals for the earnings call script, and that task had all the pertinent details for the call and served as our single source of truth. The task goes simultaneously in several different projects, including investor relations, communications, legal review, and in my personal, my tasks. This flexibility allows each of those constituents to manage the work within their normal context and workflows without needing to make their own individual copy of the task. And each time a team member multi-homes a task, a cycle of chaos is averted. Without multi-homing, one of two things happens. So either you miss a unit of work in one of its relevant contexts and work falls through the cracks, Or teams waste time in email threads and meetings just to communicate status and reconcile changes. Multihoming gives customers confidence that what they're seeing is the single source of truth across all teams. And you might think this is too subtle and abstract for customers to pick up on, but this is one of the aha moments that customers rave about. For example, Vox Media says, before Asana, it was like the Wild West in Vox Media. Information didn't flow smoothly between teams with key details and deadlines that lost in email and chat. Now with Asana, we can add a task, like a legal review for a client campaign, to multiple projects with just a click. This way, the legal team, for example, doesn't have to sift through all the other campaign work. They have a board that consolidates all of their review tasks in one place. And when they complete the review, the update is automatically synced across all of the projects. Multihoming is so powerful that it's used by 97% of our customers that spend $5,000 or more on an annualized basis. And the volume is remarkable. Customers have multi-homed hundreds of millions of Asana tasks. And this is just one of the unique capabilities enabled by the Asana WorkGraph. From an R&D perspective, we're investing aggressively in the Asana WorkGraph and features it enables. This year, we released more than 130 new features, including approvals, status, goals, dashboards, and platform integration with Zoom, Jira, Slack, Microsoft Teams, Tableau, Power BI, and more. We're also moving quickly towards our product vision of becoming the navigation system for organizations, which we described at our Future of Asana event last quarter. Some of those product investment areas include these areas. First, the Asana work graph, visualizations, and reporting. This will give teams real-time data and insights across their organization. Second, the workflow store and builder. This will democratize workflow creation and automation and enable best practice sharing across teams and organizations. And next, goals. We're extending our Goals product to allow organizations to manage all their org, team, and individual goals for every employee and company. This enables customers to map their work graph top to bottom, aligning work from the atomic level of detailed tasks all the way up to the highest level objectives of the organization. In addition, two weeks ago, we previewed some of the themes around our enterprise platform. We're building out even more enterprise platform capabilities, including enhanced admin controls, permissions, licensing, security, and integration to serve the world's largest companies. Stay tuned for new product announcements in these areas and more over the next several quarters. Now I'm going to turn it over to Chris to talk about Q3 from an operational perspective and share more details on how our customers are using Asana.
spk02: Thanks, Dustin. We're very excited about our performance in Q3, with top line revenue growth of 55% year over year, led by revenue from customers with over $5,000 in annual spend, which was up 80% year over year. In Q3, we again saw notable improvements across many of our key metrics, including record top of funnel traffic and signups, accelerated incremental paying customers, and expanding deal sizes. Let me discuss each in a little more detail. As you might remember from Q2, our top of funnel volume in sign-ups was elevated due to work from home, and it not only remained elevated but even expanded in Q3. We also accelerated the number of new paying customers in the quarter, adding approximately 7,000 to reach over 89,000 total paying customers to date. The increase in new paying customers in Q3 was almost as large as the volume in both Q1 and Q2 combined. Third, we saw a move to bigger deals across the board. In particular, we saw traction in large enterprises, and our large deal trends reflected this. We saw the number of customers expending more than $50,000 with us annually increase 104% year over year, with the corresponding revenue contribution more than doubling. And we saw very strong growth in very large enterprises in Q3. We are continuing to invest in our enterprise offering. Last month, we unveiled new and expanded integrations with Microsoft Teams, Slack, Jira, and Zoom Video, reinforcing our unique role enabling enterprise work orchestration. In Q3, we saw customer wins broadly across industry verticals. Let me talk about a few notable wins. Asurion, a leading provider of electronic device insurance with 300 million customers worldwide, has been an Asana customer for over two years. In Q3, Asurion upgraded to our enterprise solution for our enterprise-grade security and strong integration capabilities and expanded to more departments across the organization, including HR, the B2B revenue division, retail, and their IT architecture team. VSP, a leading provider of access to iCare and iWear to their 94 million members around the world, chose Asana as their enterprise solution, bringing together marketing teams from five lines of business into a single platform. With Asana, what used to be a manual process combining email, SharePoint, spreadsheets, and JIRA will now be automated. VSP chose Asana because they needed an organization-wide solution that could replace email with an automated approval process, be customized for the business workflows, and provide strategic visibility across the organization for leadership. Zoom Video, a leading provider of video-first unified communications, began using Asana in the mid 2019 to help manage their work. In Q3, Zoom expanded their use of Asana to more teams across the business. Now they can see project progress in real time and ensure responsibilities are clear, which is critical when you're moving as fast as Zoom is to serve their growing customer base. Education everywhere has been hit hard by COVID-19 and the bigger the school, the harder it can be to stay aligned and responsive to change. At the University of California, Santa Cruz, Asana is becoming the backbone for a number of administrative units, supporting their teleworking experience and empowering employees to organize their work, delegate responsibility, and drive accountability. For example, the Office of Research is using Asana to run some of its COVID-19 testing operations, and the Procurement Department is actioning inbound requests and approvals in Asana to streamline the process with other departments. I also want to highlight that four of our biggest customer expansions in the quarter were with Fortune 50 companies. This including expanding one of our largest customers to tens of thousands of seats. So as you can see, while our enterprise motion is still in its early stages, we are clearly starting to see our strategy bear fruit. We are helping some of the most visionary companies in both traditional as well as disruptive industries and expanding rapidly around the world. Our growth levers remain intact, and we are progressing successfully, acquiring new customers, customer expansion, cross-company use cases, and product innovation. In September, I shared with you some of the opportunities in front of us to drive future growth. I'd like to revisit these growth drivers through the lens of what we saw in Q3. I'll start with new customer acquisition. We remain focused on acquiring new customers through word of mouth, marketing, and our self-serve product. This is a fast-growing emerging category, with the vast majority of 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. As you heard from Dustin, in Q3, we added approximately 7,000 net new customers. We continue to see a large expansion opportunity in our existing base of now over 89,000 paying customers. Our direct sales team is armed with department-specific solutions for our customers, and we continue to see strong traction in marketing and creative, sales and account management, and strategy and operations teams, as well as in product and design and HR and IT teams. We believe we have the right strategy, the best solutions, and now is the time to ramp up our sales capabilities and invest in marketing to take advantage of the $32 billion market opportunity. Third, we see a large incremental opportunity to support company-wide use cases. Starting with our recent launch of integrated goals and OKR management, As we power the Asana work graph within companies, Asana is uniquely suited to empower company-wide clarity and engagement use cases. Internationally, we are expanding both our footprint and our product reach. In Q3, we opened an office in Singapore to expand our footprint in Asia and ultimately to be closer to our fast-growing Asdeon customer base. We will also be announcing support for more languages and localizations in the coming months. And finally, We continue to innovate and expand our market-leading offering to bring the Asana solution to more teams and increasingly larger enterprises and organizations. Our product and go-to-market strategies work hand-in-hand to meet the increasing customer demand for work management solutions and drive our long-term growth. Now I'll turn it over to Tim to go through our financial results.
spk14: Thanks, Chris, and thank you to everyone for joining our call today. I know that earnings season can be an endurance test, and we appreciate your time and support. It was a great quarter across the board. Revenue in Q3 was $58.9 million, up 55% year-over-year, and up 13% quarter-over-quarter, left by 80% year-over-year growth from our customers, 5,000 and over. We added approximately 7,000 net new paying customers in the quarter, and now have over 89,000 paying customers. We now have 8,938 customers spending $5,000 or more with us on an annualized basis, up 58% year over year. And we saw even stronger growth in our larger customers. We now have 318 customers spending $50,000 or more with us on an annualized basis, up 104% year over year. Subscriptions of $5,000 and over on an annualized basis represented 59% of our revenues in Q3 compared to 51% of our revenue in the year-ago quarter. Please note this represents all customers, 5,000 and over, including customers over 50,000. In Q3, our overall dollar-based net retention rate was again over 115%, consistent with Q2. As a reminder, a dollar-based net retention rate is a trailing four-quarter average calculation. For customers spending $5,000 or more with us on an annualized basis, the dollar-based net retention rate was over 125%, also consistent with Q2. And for customers spending $50,000 or more with us on an annualized basis, it was over 140%, again, consistent with Q2. 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 Q2 and 86% in the year-ago quarter. We're proud of our best-in-class software gross margins, driven primarily by our leading architecture. R&D was $28.2 million, or 48% of revenue. We have five broad areas of focus, and we're investing heavily to continue innovating at a high velocity. Sales and marketing was $45.6 million, or 77% of revenue. We have nearly doubled our sales team over the last year because we are confident as demand for work management continues to move mainstream. G&A was $15.1 million, or 26% of revenue, reflecting both increased public company costs as well as building out our infrastructure for scale. As a result, total non-GAAP operating loss was $37.3 million. Operating loss margin came in at 63%. Non-GAAP net loss was $38.3 million, and non-GAAP loss per share was $0.34. Total cash and marketable securities balances at the end of Q3 were approximately $424 million. Free cash flow is defined as net cash from operating activities, less cash used for property and equipment and capitalized software costs, excluding non-recurrent items such as the direct listing fees and expenses, and the build-out of our San Francisco office. In Q3, free cash flow was negative 19.5 million. Our total Q3 deferred revenue was 90.1 million, up 56% year-over-year and up 20% sequentially. As you will see on our balance sheet, 88.9 million of deferred revenue was in current liabilities, while 1.3 million, which represents long-term deferred, was included in other liabilities. The $15.1 million incremental deferred revenue that we added from Q2 to Q3 was driven by a variety of factors, including strong sales execution, larger deals, and net new customer ads. In addition, in Q3 of last year, we had a price change and allowed customers to lock in existing prices and renew earlier, which elevated renewals and deferred revenue in Q3. So, as you think about deferred revenue in Q4, it's important to note that we expect the usual seasonal trends associated with the holidays and fewer working days. Please note, we consider revenue growth to be the best leading indicator for the health of our business. And while we do recognize that investors look at other metrics such as RPO, deferred revenue, and calculated billings, we do not consider these metrics to be good leading indicators for our business trends. With our bottoms-up model, we engage new users with a low-friction entry point package, and a material portion of our revenue base is on monthly contracts. Looking ahead to Q4, we are raising guidance for the next quarter and for the year. For the fourth quarter of fiscal year 2021, we expect the following. Revenue of $62 million to $63 million, representing 43% to 45% year-over-year growth. we expect non-GAAP loss from operations of $42.5 million to $39.5 million, and non-GAAP net loss per share of $0.27 to $0.25, assuming basic and diluted weighted average shares outstanding of approximately $158 million. For the full fiscal year 2021, we now expect the following. Revenue of $220.6 million to $221.6 million, representing 55% year-over-year growth, we expect non-GAAP operating loss of $130.8 million to $127.8 million, and non-GAAP net loss per share of $1.24 to $1.21, assuming basic and diluted weighted average shares outstanding of approximately $106 million. Longer term, we believe that we can execute on our growth strategy and that our best-in-class growth margins will provide the leverage and flexibility to invest into the large market opportunity. We believe this investment will provide durable and sustainable long-term growth. And now I would like to turn the call back over to the operator for Q&A. Operator?
spk00: And, Operator, while you're queuing up the questions, I just wanted to jump in and, first of all, thank everybody for joining us today. I'm going to try to keep the Q&A at a good pace, so if everybody on the polling system could try to keep their questions to – Well, one question, if it's a couple questions layered in, that's okay too. But just anything you can do to help us keep a good pace for the question and answer session. Thanks.
spk03: And as a reminder, to ask a question, you will need to press star 1 in your telephone. And your first question comes from the line of Alex Dukin from RBC. Your line is open.
spk04: Hey, guys. Thanks for taking my question first. And also, congratulations on a great report. First report is public company. It's a great thing to see. So the first one, maybe just for you, Dustin, if you think about the kinds of conversations that you're having with C-level executives at the moment when the world is clearly thinking about restacking for a new normal workplace, give us the tenor of those conversations. And as you think about it from the context, you mentioned 3% penetration in your existing customer base. on a user basis. Where does that go over the next couple of years? And what's the main way, when you think about unlocking that kind of potential, how do you think about it?
spk05: Yeah, I'll start this off, and then I think Chris can probably add some more color. But I'll just point out our customers are in a number of different positions. It depends a bit which industry they're in in terms of whether they're being aggressive about expansion and hiring or more conservative. But generally we're seeing the same sort of positive reaction we've seen to existing deployments in prior years too. Asana was built to be a great customer experience and something where the initial teams could be successful and really enjoy using the product and then get the good word out to their peers and other teams and departments. And so that's still generally the sentiment we get when we talk to C-level executives is they're hearing from their teams, they're getting a lot of value and they'd like to expand that value proposition to other parts of the company. And then in terms of the 3% penetration, it's really just a reflection of the massive opportunity that's left in a lot of our customers. In terms of where it goes in the long run, obviously, we hope to get wall-to-wall in all of our customers. We hope it goes to 100%. I don't know what pace that'll be. Again, it's different in different customers and depends on the size. So in some of the smaller enterprises, that figure may be a much higher ratio of employees and may represent entire departments or divisions and in very, very large organizations like the, you know, Fortune 5, it may be a smaller figure. It may take us more years to get to the whole organization. Anything you'd like to add, Chris?
spk02: Yeah, sure. So maybe I can, you know, add to the value of your question just in terms of where we're seeing that value and that traction in those conversations. And generally, the conversations we're having are consistent with conversations we've had in the past in terms of the business imperative for basically real-time clarity and alignment and accountability in companies. And, you know, that's just sort of been amplified in this more globally diverse world over the last couple quarters. Where we're seeing the traction the most, it's broad and horizontal, but where we're seeing the traction the most is in marketing and creative teams, sales and account management and strategy and operation teams, where we already have departmental solutions. We're also seeing... strong traction in other areas that are adjacent, like product design, HR, and IT. So that's sort of a use case, you know, where the traction is. And then maybe more broadly, and I mentioned this in my remarks a little bit earlier, we're seeing the traction broadly across industry verticals, particularly in Q3. So I mentioned some new examples of wins and expansions in Q3. A Syrian insurance company, VSP in healthcare, Zoom in tech, and UC Santa Cruz in education, just to give you a feel for the sort of the diversity of demand.
spk04: That's perfect. And maybe just as a follow-up, Tim, as I think about, obviously, we're all going to want to talk about the enterprise numbers and the enterprise strength in the quarter that you saw was quite robust. Walk us through the headwind, or maybe not the headwinds, but what you're seeing from the SMB customer base. The dollar-based net expansion was pretty strong as we've gotten through maybe the height of the pandemic, hopefully. Talk to us about retention, and particularly as we come out of it next year, hopefully, How should we think about those comparables, particularly on the SMB side of the business?
spk14: Yeah, I think there's a couple of ways you can look at it. You know, I think Dustin kind of alluded to this in the prepared remarks where we certainly are seeing churn diminish versus their peak back in kind of towards the tail end of Q1 and part of Q2. You know, I think we're also being prudent in terms of, hey, we are living in a world where there's a second surge. And we do think that the net expansion rate is a four-quarter rolling average. So you can kind of expect some of the cohorts to work their way through over the next couple of quarters. But certainly the customers that are staying and thriving and expanding with us, even in a pandemic, likely are going to only continue to get stronger. So in some ways, we do think, hey, we're going to come out of this with a much stronger customer base over time. But there's probably still a couple of quarters to kind of work through the cohorts. And I'll let Chris and Dustin kind of talk about some of the macro secular tailwinds that we're seeing in terms of the customers.
spk02: Yeah, I can add some color. I think you asked specifically about SMBs. So just building on what Tim said, although we don't break out our business by SMBs, what I can tell you is that the revenue growth rate for customers spending less than $5,000 with us on an annualized basis accelerated in Q3 versus the growth rate in Q2. But more broadly, I'd emphasize what Tim said in terms of I'd emphasize the strength in the quarter, you know, was primarily driven by secular trends and the growing business imperative for work management that's been ongoing. And, you know, that's where we think the primary focus for demand and what's driving the businesses. And, you know, I think some of the recovery over time can help sort of with a little bit of an additive layer, but it's the secular trends that are really driving the business.
spk00: Great. Next question, Operator.
spk03: Your next question comes from the line of Brent Graceland from Piper Sandler. Your line is open.
spk07: Good afternoon, and thanks for the questions here. One for Dustin and a follow-up for Tim. Dustin, love to get your view on this whole Salesforce Slack deal. I appreciate that Sana is agnostic to all the video messaging channels. You've announced several new integrations. But that said, what is your view on Salesforce Slack, and how may that or may that not impact your business going forward?
spk05: Yeah, great. Thanks for the question. First of all, I just want to say congratulations to both of those companies. There's a huge moment for Stuart and for Mark and for their entire teams. And just to reiterate a couple, how we see the overall collaboration landscape, I mentioned in the prepared remarks, we really think about three big categories, the three Cs. So the first is content, which includes cloud storage and file sharing. Second is communication, which includes chat and video conferencing. And then the third C is coordination. That's where Asana is focused. And coordination is all about clearly answering the question, who's doing what and when. And so from our point of view in coordination, it's really important that we integrate well with the products in the other two categories. So Slack, of course, is part of communications and it's no surprise, it's one of our best and most important integrations. In fact, it's something I use every day myself. In addition, we have a great integration with Salesforce's CRM product. And on top of that, we're mutual customers. So we use Salesforce CRM, they use Asana, and same with Slack. And so we're really looking forward to just deepening our long-existing relationship with the combined entity to build the future of work. And I think this is just building an even stronger partner for us for the future.
spk07: helpful color there. And then, Tim, on the follow up here, I know you mentioned we're not supposed to pay attention to calculate billings and other metrics, but it was very strong up over 25% sequentially. Just trying to understand if you think about the momentum there was there a couple outside deals that drove Billings up so much this quarter? Any additional color you can provide on why you saw such a sharp jump in Billings this quarter? Thanks.
spk14: Great question. I would say we would, you know, there's not any one thing I can point to that really drove that particular sequential jump. I think We have a bottoms-up business, but I did talk a little bit about in my prepared remarks about the seasonality in Q3 related to billings and deferred revenue. And one of the things that we did last year was we did have a price change in Q3 and allowed customers to lock in their prices and renew early. So there's kind of this natural elevated deferred revenue or renewal cycle in Q3. So the way to think about it is probably take a little bit more of a muted approach to Q4 deferred. But really, it's really the secular tailwinds and the strength of the business that really drove kind of both the billings and deferred revenue growth.
spk07: Helpful, Carl. Thank you.
spk14: Thank you.
spk03: Your next question comes from the line of Atay Kidron from Oppenheimer. Your line is open.
spk09: Thanks, and again, guys, congrats on the first public quarter and great results. I have a couple of questions. First, on the customer additions clearly very strong number here but can you tell us how much of this was potentially uh some catch up from the previous two quarters uh i would assume that some customers have kind of delayed decisions given covid and perhaps have now felt a little bit more comfortable so i'm trying to kind of split up the true business activity versus some catch-up activity in there and then perhaps a question to chris chris you've talked about um bigger deals in the quarter and you've talked about some of the corporate functions in which uh you're seeing a lot of traction a lot of marketing and creative um help me understand though how much of this uh larger deal activities really uh reflects uh more than one corporate uh function constituency adopting you right off the bat versus a single one that you focus on yeah but just making a bigger step uh as a first step sure let me try to take that first question any time um
spk14: So what I would say in terms of our net customer ad, you know, we definitely saw strength in our top of funnel in both Q2 and Q3 during the whole COVID period. And I think what's really changed is kind of the diminishing churn rate that we're seeing. So many of the customers that were impacted by COVID were either churned or paused their subscription at that period.
spk09: Got it.
spk14: So I think that was the main impact in terms of our net ads. And then I'll turn the call back to Chris for the other question.
spk02: Sure. Thanks, Itai. So to try and answer your question, I'll just sort of remind everyone, at the highest level, we have an intentionally hybrid self-serve and direct sales business model. And that maps to the way customers adopt our product over time, where direct sales is built on top of that self-serve business. And, you know, self-serve, of course, maps to acquiring small, free, and paid teams and companies of all sizes. And that sales-assisted motion corresponds to land and expand. So Land typically is about establishing a champion, deploying a critical workflow and initial team or two, and then expansion is typically about engaging with IT and decision makers to expand more broadly. So we don't really break out the revenue versus land versus expand, but what I can tell you is, you know, expansion is almost always about more than one function to your question and cross-functional. And land typically, you know, a good portion of land typically gets into that. And, you know, maybe a good proxy for cross-functional usage of Asana is that what Dustin talked about earlier with multi-homing tasks where we start to see work that is shared virally across teams. That's really what drives the usage of Asana. Asana from one department to another. So certainly our sales-assisted business corresponds to cross-functional and multi-department, not all of it, but a good chunk of it. And mostly our expansion business is almost all focused on broader usage across companies.
spk09: Got it. Excellent. Good stuff. Good luck, guys. Thank you.
spk03: And your next question comes from a line of Brent Phil from Jefferies. Your line is open.
spk05: Tim, no one's going to have an endurance problem on our side if you keep them up 55% growth. So I guess just as it relates to the – The digital component, it's 60% of your revenue. Many are asking, given you're such a digital mix, you know, why the big need for these massive investments you're putting in? You can just put in context of how you're building the direct sales force out and the other components and how you anticipate bringing this back to more of a natural balance of good growth with caring about the bottom line of profitability. Thank you.
spk14: Yeah, sure. Why don't I start, and then, Chris, if you want to add on. I'll talk a little bit about kind of how we think about leverage and how we think about growing the business long-term. I think the most important thing for us is acquiring customers, landing with those customers, helping them be successful, and having them expand over time. So we have 88% gross margins, which provides a lot of flexibility for us to build a great business. And what we've seen with customers that are spending over $5,000 or $50,000 with us that they naturally not only just expand with seats, but they also expand moving up the tiers from premium to business and then business to enterprise. So there's also a lot of ACV growth down the road for us in addition to seats. So we think building a business is really about landing with customers and the category is relatively new with 1.2 billion knowledge workers and we're barely penetrated into that opportunity. For us, it's really about investing into the opportunity and driving growth and then building and creating leverage over the longer term.
spk02: Yeah, I don't have much to add. I'll just bring it back maybe to the business model. And, again, it's an intentionally hybrid self-serve direct sales business model. And given the market opportunity and the rising business imperative, the reality is we're investing in growth for both and one feeds the other. And self-serve, you know, acquiring new customers, as Tim said, the market is wide open. It's in land grab mode. Most of the world doesn't yet have solutions. And so for future growth, you know, we're very focused on landing new and free paid teams and companies of all sizes. We're investing in marketing and top of funnel in our self-serve business there. And, again, on the sales-assisted side, that's all about the large expansion opportunity in our paying base. We shared some metrics on that. For example, in customers spending more than $50,000 with us annually, we more than doubled the revenue and the number of customers, you know, year on year in that segment. That's a good metric there. And we're investing, again, to sort of roughly double the sales team to ensure global coverage for growth, particularly with quota-carrying reps, to take advantage of that opportunity.
spk13: Thanks. Thanks.
spk03: Your next question comes from a line of Stan Zlotsky from Morgan Stanley. Your line is open. Your next question comes from a line of Stan Zlotsky. Your line is open.
spk08: Sorry about that. I was on mute. Thank you so much for taking my questions, and congratulations on a very strong quarter. Maybe a high-level question for me. As you guys look at the world and as the world really starts to settle into this new normal in 2021, how do you think Asana fits into the new patterns of collaboration that emerge as a result? And then I have a quick follow-up.
spk05: Yeah, so I think you're partially referring to the trends towards more distributed work. I think that the thing I'd point out is just well before COVID came onto the scene, I think there was a rapidly increasing business imperative for increased clarity and alignment. Clarity is really difficult for teams to achieve even when they're working in an office environment, but it's particularly difficult uh with remote work so i think you know going forward uh we're gonna see some companies continue um we're gonna see some companies referring to the office we're gonna see some companies uh decide to uh continue with remote distributed work and we're gonna see everything in between uh and across that entire spectrum i think uh asana has a really important role to play in terms of driving uh clarity for teams and so i think We're just really well-suited to all of those different environments, and we're happy to help customers.
spk08: Perfect. That makes a lot of sense, Dustin. Maybe just a follow-up for Tim. When we look at new customer acquisition that you guys saw in the quarter, obviously very impressive numbers on a net basis. Some people are trying to ask that question. As I think about it, there's essentially three levers to net new customer acquisition in your model. You have conversion of free usage to paid. You actually have, you know, just brand new, you know, top of funnel acquisition, and then you have just, you know, sheer improvement in gross churn. As you think about, you know, those kind of three vectors, you know, maybe stack rank them for us to help us understand, you know, what were the drivers of such an improvement in the quarter?
spk14: Yeah, I would say, you know, the improvement we definitely saw was on the logo churn basis, right? Because primarily most of the churn that were related to COVID for us and impacted industry like hospitality or retail and small businesses mostly happened in Q2. So we definitely saw improvement in logo churn. And I would say, like, if we go back and look at both our free, you know, pay to free ratio, those have maintained relatively strong and hasn't changed dramatically. and our acquisition channel continues to be really strong, just the top of the funnel. So, you know, I would say the main difference change between this quarter and probably last quarter and even part of Q1 is just the logo trend has improved.
spk08: Perfect. Thank you so much.
spk14: Sure. Thank you.
spk03: Our next question comes from a line of Mark Murphy from J.P. Morgan. Your line is open.
spk01: Thank you. I'll add my congrats on a very solid start. Tim, can you help us to try to understand how much of the $15 million deferred revenue increase would you say was unusual or seasonal relating to that price increase? And I understand you don't guide to it, but how does deferred revenue normally behave in a Q4? Because I don't think we have the historicals to go back too far and try to ascertain that.
spk14: Yeah, I think if we look at deferred prior to this Q3, deferred has probably grown anywhere between 5 and 10 on a quarter-over-quarter basis. But I think in Q4, it's a little bit more muted primarily because we have the holidays of Thanksgiving and, you know, December. So, you know, I think you can kind of take a more muted approach in terms of the growth rate from quarter to quarter sequentially, and you should probably be fine.
spk01: I'm sorry, you're referring to 5% to 10% sequential and then muting it more than that?
spk14: Yeah, $5 to $10 million.
spk01: $5 to $10 million. Okay. Okay. And then, Dustin, I'm curious, you know, roughly what you saw in terms of paid user growth in Q3, if you're able to say, and just in your mind, what do you think is the optimal balance of paid user growth versus ARPU expansion going forward the next couple of years?
spk05: I don't think that we typically break those out from a metrics number, but I definitely think that the revenue growth was a combination of those. Yeah, in terms of the balance, I don't know how to answer that very precisely, but we're definitely very interested both in driving seed expansion within our existing customers and capturing the opportunity we mentioned. So we're only 3% bid into the employees for our existing customer base. So that's 97% seed expansion opportunity. And then we also think there's still a lot of opportunity to drive ARPU as well. So I think that'll be part of the future, but can't really give a prediction on the exact mix of them.
spk08: Thank you.
spk14: Hey, Mark, let me just comment on that deferred revenue. I know many of you are really focused on our deferred revenue and calculated billings, but it's still a material portion of our revenue is still on monthly contracts. So you won't see those in our deferred, but they certainly help and they help drive the business and help drive our gap revenue. So just want to just make sure that you guys are aware of that as well.
spk03: Your next question comes from the line of Brad Selnick from Credit Suisse. Your line is open.
spk13: Great. Thanks so much and congrats on a great quarter. You know, Dustin, it's good to see that the business remains well diversified with strength across several industries and, you know, functionally in particular, the strength that you have in marketing departments. And I don't know if this analogy resonates with you, but is it fair to think that Asana could become sort of the Atlassian of marketing? And that said, along those lines, you know, how do you think about the recent deal that Adobe made to acquire Workfront?
spk05: Um, sure. So, uh, you know, I think I would just start off by saying, I think we have a really broad base of customers, uh, both across industries and geographies, but also across, uh, departments. And so marketing is often the place where we land in the customer. So it's probably the, um, it's where we most often land, but it's the sort of plurality of landings, not the majority. Uh, and one of the reasons for that is actually that marketing tends to work so much cross-functionally. And so I mentioned in the prepared remarks that we see 97% of our customers paying $5,000 or more on an annualized basis are using multi-homing, and we've seen hundreds of millions of multi-home tasks. We actually see that as a huge signal of the fact that our customers are using Asana cross-functionally. um and so i think we can be really strong in marketing but we uh but i think part of the reason for that is that marketing will work with the all the other departments in the company as well and so we're really uh looking to be a a horizontal solution for for our customers um do you want to add anything there chris yeah and can you also ask about warfront so i can mention something on that but i'd also add as a former cmo for 10 years um
spk02: Exactly what Dustin said about the cross-functional nature of marketing, it gets us into other teams and helps us spread virally. But I'd also say that, you know, unlike some other functions, marketing teams do not have systems of record for these business processes, right? So for events and campaigns and product launches and those kinds of things, until sort of, you know, what we're doing with work management, there were no standard tools for that. So it's just super green field, and it is a super exciting category. And it is our strongest, even though we are very diverse. It tends to be, if you have to pick a starting point, probably where we see the most traction up front at land. And then I think you asked a question about the Workfront acquisition by Adobe. And, yeah, we see that as validation in two ways, validation of the category, that large-cap tech companies are taking note of the business imperative, the problem we solve, and hearing it from their customers, and validation of the marketing segment. You know, we just talked about it, but what a huge greenfield opportunity it is and You know, I would just add in that our partnership with Adobe and the integrations we provide there is strong and driving a lot of traction with our customers right now.
spk13: Thank you so much for that. Maybe, Chris, just one quick follow-up, or perhaps for you, Dustin. You talked about a lot of the new features, and I also took note of the press release, Asana, for the Enterprise that you had out last month. But in particular, when I think about goals that you've launched, I think it's now been several months. Can you maybe just double-click on that a little bit further in terms of some of the early customer reception to the feature and and how you view its potential to help drive greater seed expansion within an organization.
spk02: Do you want me to take that up, or would you like to?
spk05: Yeah, I'll just start off by saying, so we, you know, we launched Goals earlier this year. It's the first version of the product. And we've seen some great response from the initial customers. But this is really a multi-year product strategy for us. So we're going to be investing quite a bit more into Goals this year. So I mentioned in the prepared remarks, we're going to be, you know, allowing organizations to manage all of the org team and individual goals for every employee in the company. And this is really about sort of manifesting the full vision for the Asana work graph and allowing customers to map their work graph top to bottom and aligning work from the atomic level of detail tasks all the way up to the highest level objectives of the organization. And I think we've got a great sort of V1 out there, but there's a lot more that we can do to fully manifest that vision and make sure that it's flexible enough to be adopted by the broad base of customers.
spk13: going to add on chris thank you i think i think you've covered it well thanks your next question comes from a line of pat wall ravens from jmp securities your line is open oh great thank you and um let me add my congratulations and also kudos to whomever coined the phrase in your script
spk05: on multi-homing when you said the cycle of chaos is inverted. Those are six great words.
spk13: Okay, so Dustin, when you think about the TAM, I think one question investors have, and it seems like in this market, in the coordination space, you often have competitors that coexist in the same customer. And I mean, this is a funny example.
spk05: A question before me, I think we mentioned Adobe And, you know, Adobe bought Marketo before Marketo was a reference customer for Smartsheets. Now they bought Workfront. So obviously we're going to have to figure that out.
spk04: But my sense is this sort of thing occurs a lot.
spk13: And so I'd just love to hear your big picture, you know, themes in terms of does that mean that the ham is actually maybe smaller and the 3% is actually a bigger number?
spk11: And how does it play out?
spk02: This is Chris. Why don't I take a stab at that and dust them at anything you want. So if I understand you correctly, your question is really about the TAM. So it all starts with, like, you know, the number of – the amount of information workers in the world that don't have a solution yet. And, again, like, the vast, vast, vast north of 90%, you know, of information workers in the world don't yet have solutions. They're doing this manually. So the way they're trying to get clarity for their teams and align their teams is with spreadsheets meetings, you know, and sticky notes and email threads. And so that's, I think, why, you know, the business imperative for the need for clarity and alignment real time of who's doing what when is just growing at a time when no one's ever really had it before other than manually. And so I think that's overall what's driving the opportunity and what has us so excited. And it's true, you know, at the individual level in companies, it's true for kind of all business processes across companies, And it's true where, you know, all that work execution connects to the strategies and issues and goals of the management layer. And ultimately, that's a lot of white space, right? And so, you know, on the customer acquisition side, it's just a huge opportunity for us. And, you know, sure, there's certain segments in that where we see more traction than not, but it's still so horizontal, the demand and the interest and the, you know, the teams that we're acquiring today and on the Customer expansion side, in our paid base, we are less than 3% penetrated, so 97% of the addressable employees are still there. And that's without really getting into this, you know, wall-to-wall type thing, which is, you know, the third leg of our growth strategy and relatively new for us. And we've begun to see, you know, some broader wall-to-wall deployments in small mid-sized companies, but it's early days. Like, you know, examples of names you might recognize are like Quora, Mirror, which was recently acquired by Lululemon and Tap-to-Tap Records and AppsFlyer and so on. And so it is a huge opportunity, and I think that's why, you know, the rise of the business imperative combined with this huge opportunity that's largely untapped and never been solved right before is why I think you see so much interest in the category.
spk05: And one thing I'll just add, so we really emphasize that the WorkGraph data model uniquely enables Asana to be very successful cross-functionally. And a corollary to that is customers actually get increasing returns to scale as they expand their Asana usage throughout your organization and have a more complete WorkGraph. So we think that gives us a special kind of advantage as we expand within these customers, even if we may be running into some other alternatives and other teams
spk13: Okay, good. That was recorded there. Thank you.
spk03: Your next question comes from a line of Alex Kurtz from KeyBank. Your line is open.
spk11: Yeah, thanks for taking the question. You know, Dustin, I just want to go back to your philosophy, if you could remind us on how the team thinks about price increases, when to do it, how to do it, and kind of the flow year to year around that. Then, Tim, you know, Back to earlier question about deferred revenue and kind of how price increases drives behavior in the prior period before that goes into effect. Is that something we should be looking at more closely in our calculated billings projections?
spk05: I'll start off just on a philosophical basis. We think it makes sense to raise prices when we've made a stepwise change in the amount of value that we're providing to the customer experience. It typically comes after we've done quite a lot of investment into the product and released some new major features in whichever tier we're increasing, as well as just generally improve the customer experience across the board. And so I think that just points to relatively infrequently, but it's something that is likely to occur again in the future, but we don't have any specific timing to speak to right now.
spk14: Yeah, and in terms of the impact on deferred revenue, I think the seasonality did happen in Q3, and you should model and think about that as a Q3 just because we do have a cohort of customers where the renewals got pulled into Q3. But we will definitely, prior to announcing any type of price increase, we generally give our customers time to adjust and reflect on whether they want to maintain. So you will have the same update when we notify our customers.
spk11: All right. Thank you.
spk03: Your next question comes from the line of Zane Crane from Bernstein Research. Your line is open.
spk12: Hi, thanks for fitting me in. Really nice quarter. I'm curious, what portion of your bookings this quarter came from direct sales versus self-service? And then how do you expect that to trend going forward? And then secondly, the incremental revenue added in quarter, if I look at the year-over-year growth in that metric, it's been pretty volatile. I think it was up double digits in Q1, down double digits in Q2, up you know, 38% really impressively this quarter. And then your guidance implies it's down 25% roughly at the high end of your guidance in Q4. What's driving the volatility in that metric? And how should we think about that going forward? Thank you.
spk14: Okay. So I think the first question was, let me just make sure I have it here. It was a self-search. So I think we I would say it hasn't changed dramatically. I think Chris on his kind of on the investor day as well as kind of on a Q2 earnings call talked a little bit about both the breakdown between our self-serve and sales-assisted business. And those have generally been in the 60-40 range, 60% being self-serve and 40 being sales-assisted and sales-assisted nudging up and becoming a higher percentage over time. That's exactly right. Yeah. Dan, you will probably have to walk me through your math in terms of how you're coming up with the implied growth rate, because I don't understand exactly the calculation. But we can take that offline, so I'll follow up with you directly.
spk12: Okay, sounds good. If I could have one quick follow-up. How do we think about the maturity in terms of your enterprise sales order build-out? I know that's been a big priority for you guys, and it seems to be yielding some results. What inning are we in in terms of that enterprise sales order build-out?
spk02: Yeah, so the enterprise business, think of it as moving into the large expansion business and eventually wall-to-wall business. It's in early days, and we're really encouraged by what we're seeing in early days, and we shared a lot of that, so I won't revisit it too much, maybe to just add a little bit to it. You know, we are building out the offering. We talked about that. And, you know, generalized, the enterprise offering is focused on providing deeper security and administrative controls and support that IT needs. And we talked about some of the expansions of integrations as well as business rules and admin controls in this quarter. In terms of large deals, it's early innings without a doubt, but we're starting to see it pay fruit. Two-thirds of the Fortune 500 are already free or paid customers. You know, some of the world's most valuable customers are some of our largest customers. And in Q3, four of our biggest customer expansions were in the Fortune 50. But as we mentioned earlier, you know, we're still only 3% penetrated in the addressable, you know, employee base. So I would think of it like in those large accounts, we're seeing really strong traction, but it's very early innings still.
spk12: Got it. That sounds good. Thanks, James, and happy holidays.
spk03: And your final question comes from the line of Andrew Gasperi from Barenburg. Your line is open.
spk10: Andrew Gasperi Thanks for taking my question. Just one to close it off, I guess, would be the integrations you've made with the communication layer like Slack, Zoom, and others. I'm just curious, I know they're still in the early stages, but can you maybe share with us how many users have started using Asana with those tools?
spk05: I don't think that we have a metric that we're able to share offhand on that. But maybe that's something we can try and set up for the next call. I do think, like I said, Slack is our most used integration. I know that for sure. And the communications integrations as a category are extremely popular. So it's very common to using work management side by side with those. And again, it's something I use every day myself. But yeah, in terms of actual quantitative stats. I don't have a lot to give you.
spk02: Well, maybe something I could add is it's anecdotal, but it's helpful. It's Slack's the most popular and Google, Microsoft, and Zoom are the next most popular of all our integrations. So I think that gives you a feel for how important the communication with that, you know, connection to that communication layer is. Great. Thank you.
spk03: And there are no further questions at this time. Catherine Vaughn, I turn the call back over to you for some closing remarks.
spk00: Great. Thank you very much. And thank you, everyone, for joining us again today. As always, please feel free to reach out if you have any follow-up questions. And we are looking forward to talking to you again soon. Thank you.
spk03: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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