Asana, Inc. (ASAN) Earnings Call Transcript & Summary

Thanks. We can get started. Well, thanks everybody, for joining today for day 2 of the Citi Global TMT Conference. Steve Enders, part of the software research team here at Citi and with us for the session. We have the team from Asana. So Sonalee and Aziz, going to thank you so much for joining and making the flight cross country to be here.

Thank you for having us. We're delighted. And yes, apologies, we did take the red eye post earnings and came straight to this conference. So if we nod off, just like poke us.

We'll make sure to do that. I do want to talk about earnings. But before we do that, I think you both -- I think it was about a year ago exactly that you were announced as CFO, Sona. I guess maybe what surprised you from your first year here about Asana versus your perception coming in, and we're going to see the most, I guess, opportunity to, I guess, operationalize the business a little bit more.

So you're right, it's exactly a year or in 5 days, it will be exactly a year. So happy anniversary to me. And it's a really good question. And like I've been here a year, but it actually feels like I've been here a lot longer because I feel very embedded and like part of the Asana DNA at this point, which is a really good thing. So what surprised me most? I think I was always very fascinated by the category and all the potential it had. And that was one of the reasons I wanted to come to Asana was I felt like it was this really exciting like collaborative work management category that still had a ton of runway in terms of its growth potential and that was even before you added AI. So enter a couple of quarters ago when we launched AI Studio and actually all the work that went into the launch of AI Studio. I think just how big the AI opportunity is for this category. I think it truly brings CWM into its own. I think it goes from a really nice to have, driving higher ROI to a must-have in this new world where you have humans that are going to be collaborating with AI and agents, and you need a platform that can coordinate all that work between those different constituents. And I think that most companies and certainly large enterprises haven't really put their finger on what the right tool or application is to truly get value from this new world we're operating in. And I think Asana fits right in there. So I think it's just the scale of that opportunity. So when I joined, like I already thought it was a massive opportunity truly greenfield. And now I just see how much that's been augmented by AI. And then the other thing is again, when you're first having conversations, I met Dustin a couple of times in his office, he was so excited about AI, and I remember he was whiteboarding. And what I realized when I arrived at Asana is AI Studio has been many, many years in the making. So that's the other thing that dawned on me is it's so fabulous as we have this head start, and Dustin always talked about how it would be such a shame if we squandered this head start. And I think the great thing is that we are truly capitalizing on it and exploiting it. So I think that's the other thing. And then finally, you asked me about like how do we operationalize it. I think it's really important that we take this like really large installed base we have and ensure that we go from seat-based CWM model to multiproduct platform, selling tranches of credits and ultimately, consumption in this hybrid model in this new world. And I want to make sure that we free up dollars to be able to invest in those areas where we see the most outsized opportunity. And I think it really is turbocharging what we're doing on AI Studio. And for those of you who tuned into our earnings, we more than doubled our ARR from AI Studio last quarter. And we're really excited about what AI Studio can mean for the rest of this year as it continues to ramp. But most importantly, like as we look to '27 and '28 and beyond.

Okay. That's great to hear. I mean I'm sure we're going to dig in a lot to the AI opportunity later in the session. I do want to touch on earnings last night, just -- can you give us the high-level takeaway around, I guess, what happened? Or how we should be thinking about earnings?

Yes, sure. So it was a really good quarter, a really solid quarter. We beat on revenues. We beat significantly on operating margin again. And we had a really strong free cash flow number as well. NRR, which is a metric that we pay a lot of attention to ticked up both in quarter and rolling fourth quarter. I think we're really excited about that. We saw some great trends in our international business. Again, the AI Studio outperformance. I think it was overall just a really, really solid showing we raised our guide. What we did was incorporate all of the beat and then some in the low end of the guide. And for the midpoint and the high end of the guide, we decided not to touch it because I wanted to maintain some conservatism and prudence just for some of the trends that we saw in Q2, which were really good, but too early to really call a trend. So holding a little bit back as well.

All right. That makes sense. Maybe you can talk about the transition of Dustin, moving away from the CEO, Dan coming in. What's kind of been the -- I think he's been on board maybe a month now at this point.

Yes. A month.

I guess what's the first month like been with Dan and maybe what changes in the medium or longer term for Asana with him coming on board?

Yes. Okay. Well, it's early to answer that question because he literally as a month in. What can I say about Dan? He has spent a lot of time meeting with customers, which I think is exactly what he should be doing, understanding their pain points, understanding the customers who love us who have adopted Asana really well, how can we take what they're doing and extrapolate that among the base. He has also spent a lot of time with our product teams. And I think you heard me talk about NRR being one of the most important metrics that we run the business on. I think he's looking for things we can do in the product, which will allow our customers to stick with us, be stickier. And some of the initiatives we've already launched on that, like becoming multiproduct and the foundational service plans that we talked about in earnings, I think he's going to be doubling down there. The other thing I would say is that Dan moves at the speed of light. He is like a high-velocity guy when he asks for something to get done and it's not done like the next day or by the end of the week. He's asking you why. And that is a bit of a change for how we do things at Asana. But I like it. And I think it's a really good force to push us forward. And the other thing is he's very focused on innovation and dialing up growth and accelerating growth. So I hear him talk about that in just about every meeting is like how are we going to accelerate rate growth? Like where can you free up investments, Sonalee? Where can we get dollars to go and chase down this growth? So I think that's also a really important mindset that he's bringing to Asana.

Yes, that's great. That's interesting. I do want to keep this interactive. So if there are questions in the room, we want to make sure that we get to those. But I do want to address the SEO side because I think there was some --

We can talk about that.

Yes. I'm sure you haven't heard about that at all today. But just I guess maybe what did you see in the quarter from the SEO, SCM dynamics? And I guess, as we think about the guidance, what are you assuming in there versus kind of what you actually saw?

Yes. So we've seen the pressure from the change in the AI search and LLM landscape for several quarters. We've seen it kind of in the quarter Q2 kind of escalate and then kind of come down towards the end of it. We've been fairly proactive at recognizing that we had to adapt kind of the way that we focus on SEO and where we focus on SEO and our paid search. So ensuring that the content that we're creating is ready for AI. So that is discoverable by AI search, by the LLMS at the channels that we are employing are consistent with the channels that those methods are pulling from. So that's led to diversification of our channels, focusing on the content and the metadata to be more discoverable. It's really put a higher emphasis on conversion. So as the top of funnel has been impacted, we've really focused on conversion and improve the conversion. So we're seeing more high-intent traffic that's converting at higher rates, that's offsetting that impact on top of funnel. And that's been actually a great learning for us because as we think about combating this, it's not about just where we're employing dollars and the channels and kind of adapting to an AI search world, it's also like how do we improve the buying experience for those self-serve customers and get them through that process in a -- with less friction so that they drive higher conversion. And then once they're there, how do we improve adoption and utilization so that they stay with us longer because we have a disproportionate amount of our churn is actually coming from that monthly base and a disproportionate amount of that is actually leaving within kind of the first 6 months. So how do we keep them there longer. So we feel that we have a plan in place to offset the top of funnel impacts with higher conversion by Q4. But as that's taking place, there's a little bit of potential pressure on our small business and self-serve motion in those customers. And so that's why when we guided, we factored that in. It's probably the reason we didn't raise the high end of the guide alongside the low end to keep kind of the midpoint rolling into full beat, just to reserve some caution there for this trend that's kind of unfolding, which we've been proactive about, and we feel like we have a pretty good path forward to fully offset that by Q4.

Okay. I guess a couple of follow-up questions there. I think you said that it actually got a little bit better through the quarter, at least the headwinds maybe pulled back a little bit. I guess, maybe what have you seen so far in 3Q coming off of that as well? Actually start there and then I guess I'll have another follow-up.

Do you want to take that?

Yes. So I mean, Aziz mentioned, that we've seen this for several quarters.

Yes.

And I would say it is dynamic.

Sure.

It's evolving. It's new. But it peaked before August. And since then, certainly, at top of funnel, we've seen less negative impact to website visits. I think we've also become a lot shooter about how we're addressing it in terms of our content, and we've started working with slightly different partners. We've started working with different channels. We're using more of YouTube and Reddit and things like that. So I think it's a combination of both of those factors. So 1 is the impact is lower and 2 is we're getting better at mitigating it. And that's in the last, yes -- last, say, 6 weeks or 6 or 8 weeks.

Got it. Okay. That makes sense. And it sounds like you're thinking about 4Q, what you have in place and starts to improve kind of going through 3Q and 4Q is back to normal?

From a top of funnel and conversion and that kind of equilibrium, but the impact on revenue wouldn't be felt until more Q1 just given the cycle of that to convert.

Okay. Got you. That makes -- that makes sense. I think I'm ready to move on from SEO in that conversation, if there are questions in the room. Otherwise, we'll move on to the AI product and AI Studio. So maybe just to start there and dig in a little bit more. I think you said it doubled this quarter.

More than doubled.

More than doubled. Maybe how -- how are the use cases that customers are using AI Studio for? How is it different than maybe what they had done historically with Asana? And what is -- like how are the -- like most sophisticated customers like the most interesting use cases, what does that look like for you all?

Yes. So we've really been excited about what we've seen from AA Studio and the adoption both our base and new customers. The use case -- it's been only a couple of quarters. It's early. So the initial focus was really on the base of those customers that have built rules and workflows in Asana and how do we turbocharge that with AI. So the initial kind of use cases have been those dominant use cases for Asana. So anything that has a data intake component, campaign management, content creation management and the marketing world project management. And so we've seen kind of -- the majority kind of the early use cases focused where Asana really differentiates itself. What's really exciting is now with smart workflows and bringing AI Studio to more and more customers. We're seeing the proliferation of very new use cases and new ICPs that aren't really the majority or large kind of areas of focus for Asana or how we're used, now adopting AI Studio and automating processes in these new areas. So things like HR onboarding, vendor onboarding, we're seeing a lot in the compliance and regulatory world a security question is product development cycles. So a different buyer type. And that's really the beauty of smart workflows. It's allowing us to really proliferate these out-of-the-box templates that allow our customers to get to value faster with AI Studio and adopt very new use cases, and it's bringing new buyer sets, new ICPs, new departments into Asana, which is amazing. So really encouraged by the traction that we're seeing.

That's -- that's great to hear. With the customers that have adopted it so far, just how is I guess, like the underlying like metrics, how was it different? Like what -- does NRR look materially different for that customer set or like the user trends different for that user seat expansion trends? Is it different for those customers? Just -- how do you kind of think about what that means?

Yes. I think it's a little just --

Because they're mostly annual customers and you've only had it -- like it's only been GA for a quarter. Like Believe me, we will be watching it and we have a theory. We have a thesis that they are going to be stickier because that's kind of the beauty of it, too. Like when all those use cases that Aziz was talking about, you are ensuring that Asana is truly embedded in your daily workflows, so it makes it a lot harder to switch it off. So our thesis is that it helps NRR. And like that's partly when we talk about going multiproduct and even like dense priorities like be multiproduct, again, that should have a positive impact on retention.

And expansion because it driving that stickier engagement should lead to better seat reach and extensional seats. And the other exciting thing is self-serve just got rolled out a few weeks ago. So those are predominantly monthly customers now having access to AI Studio. So that's about 40% of our customer base procures Asana through self-serve methods. And so now that whole base has access to Asana and they're typically renewing on a monthly cycle. So we will get to see over the coming quarters the impact of AI Studio on that customer base as they adopt and utilize a studio and derive the benefits, the retention -- associated retention benefits on that customer cohort, which tends to be our most churning, sure, segment, smaller customers. So that's a huge opportunity as those customers become more sticky.

Okay. I guess as your -- I guess, with Studio, just for that customer base, how easy is it to actually begin to use, begin to implement it? Like is there any handholding from like a salesperson or from an account manager that needs to happen to make them able to use?

Yes. So no, it's a great question. And it's something that we gave a lot of thought to when we first started rolling it out. And obviously, like even before we went to GA, we had a beta program running with several of our largest customers. So we've got really good feedback from them. And what I would say is like the early adopters tend to be those builders, those people who are already using Asana rules like if this then do that. And so for that population, I think AI Studio is super intuitive. I think for somebody like me, I needed a little bit of help. And I think in that -- again, for somebody like me, these sort of out-of-the-box workflows that Aziz talked to, this like workflow gallery that we put out, which we're going to augment and it's a big focus of our marketing team right now. I think that will be super helpful to ensure that they're properly adopted and getting the use. And like -- the whole point is like we do want. We want our customers to get as much value out of this as possible because right now, we're charging a quarterly platform fee, and they're getting like tranches of credits, but like we want them to keep coming back to the well and getting more credit. So I think like this next evolution of like, I guess, it's AI Studio 2.0, which is -- I called it AI Studio for dummies. I don't think Dustin will like that. But it's AI Studio for Sonalee where you have these custom prebuilt workflows and those work really well for me. And then like it sounds like you have something to add, but I was going to say, and then you add teammates, which is something that's going to come out in the fall, and I'll let you talk to that. But I think that ends up being even -- like making it even more accessible to, I think what you mean is like the general base.

Yes. I think teammates absolutely it really -- AI Studio and no code builder. So it's designed to be easy to use. Teammates, the interaction with Teammates is like interacting with the colleagues. So the prompts are like how you would interact with a colleague. And where AI Studios really derives like the most benefit in these multistep workflows with those handoffs with humans, teammates can reason and execute tasks and projects independently of humans. So just being prompt and engaged with like you do a colleague. And so -- and it's all -- the underpinnings are all the work graph and the things that make Asana differentiated in the market place that context of where, who's doing what and when and why that's governed by boundaries. So those Teammates operating that operational boundaries with contacts being easily prompted is super exciting. So they could build the workflows, they could operate within multistep workflows, they can execute on more narrow workflows or just targeted projects. And there's also a good way to ensure customers are set up at Asana in a way that allows them to maximize the benefit of their investments. Those Teammates can really help drive that as well. So we're excited about that and adding kind of teammates with AI Studio and smart workflows into this kind of agentic enterprise, as Dan described it on the call last night. So these are kind of all growth drivers as they get layered on through the back half of this year.

Okay. That's good to hear. Maybe that's a good part to start defining into the model a little bit. Just -- maybe to start, just how do you think about the contribution from the AI portfolio for this year? And as we think about the ramp-up and not kind of being deployed a little bit more fully, what does that mean for the kind of the go-forward view of Asana?

Yes, I like the way that you described it because it's a ramp-up. But this is small today in the context of a company that's close to $800 million ARR, and we start talking about $1 million of ARR that we're still super excited that more than doubled in the current quarter. It's still small in the context of overall Asana.

Sure.

But it will be a more meaningful driver of growth next year and even the second half versus the first half because, of course, we only went GA last quarter. So again, it's this layering, and there's 2 things that I think about when I think about the growth of AI Studio. So one is the customers that buy the platform and pay the platform fee. And then it's the customers that become power users and they're not just paying the platform fee. They're using up their credits and coming back for more credits. And then with Teammates even more credits hopefully. So you get that kind of consumption piece on top of it. And then you have the Teammates, and I think like again, Dan is all about velocity. I think there will be lots of interesting products, hopefully, product announcements to come. But -- and hopefully, we'll be moving with a lot of velocity there. But I think the other thing about -- and this is a driver of growth is like when you have customers buying more than 1 product from you, you have stickier customers. So we expect to see a positive impact on NRR, which is something that has been a headwind -- a significant headwind to our growth. So I'm really excited about the impact for '27. And I think we said it's not a meaningful contributor in the current fiscal year '26, but it will be a much more meaningful contributor and an important contributor to our growth, like it will add more than a point of growth next year, like I'm not guiding on next year yet, but it is an important growth driver. I don't know if there's anything you'd add.

Okay. No, that makes sense. I don't want to disappoint you. I did want to ask about margin.

Okay. Thank you because I was disappointed on the earnings call, no one asked about it. The last 2, and I'm like, wait, we worked so hard.

Yes. Well, let's give you the opportunity to talk about it. I mean it's been a big point of focus for you to come in and do that. I guess what have you kind of already done from -- or what have you kind of changed to be able to support that to drive that margin opportunity? And how do you think about how much more room there is to drive?

Yes. So just to put it into context, since a year ago, over the last year, we've improved margins by 16 percentage points year-over-year. And in Q2, we delivered margins in excess of 7%. And I said, by Q4, and we raised our guidance to 6% operating margin. What I have said also that our Q4 exit rate will be above the Q2 margin number we printed, so above 7%. So there is more to come. It will be the same magnitude as what you saw in the last 2 quarters, partly because it's also really important for us to be able to invest ahead of the growth. And again, in conversations with Dan, like there are things on the product side, on the sales and marketing side that we want to have capacity to invest in, and particularly around AI and Teammates. The other thing on margin is like we are definitely not done. We start with this amazing enviable position of 90% gross margin. There is a ton of inherent operating leverage in this business model. It is one of the things that truly attracted me to come into Asana and Dustin built a great company with those industry-leading gross margins. With some small tweaks on the -- not even headcount, number of people, but just even like where our headcount is based. Some small tweaks in terms of like the low-cost, high-cost geo mix, some small tweaks around performance marketing and the efficacy of those channels, which is an area that Dan brings a lot of knowledge and experience, like we can drive significant margin improvement over the next several years. I see significant upside from where we exit in Q4.

Okay. All right. That's good to hear. I guess, to your point around there are areas that you want to invest in areas that I think Dan wants to kind of maybe accelerate or put us on the accelerator a little bit. Just how do you think about then the balance of what do you let flow through to the bottom line versus letting -- versus utilizing and putting back to work to try to grow the company?

Yes. I mean, I think like a couple of -- it's puts and takes, right? And I think that there is an expectation from investors who own our company and -- and quite frankly, the management team and our Board that given our scale, we should be operating at a higher margin than what we do today. So I certainly wouldn't sit here in front of all of you and say, "I'm happy if we can exit at 8% margin, we're done." So we need to drive some improvement but it needs to be taken into context against the opportunity that's in front of us to really take share and drive meaningful share in this like new world of CWM where AI is this huge -- or augments the opportunity. So like I'm balancing those 2 things. So what I would say is there are very specific areas that we've identified that we believe will drive outsized ROI. And those opportunities I will ensure that we have capacity to invest in. There are still areas where, quite frankly, we're a bit fat and they will -- they need to be addressed. And I think we have the team in place who will continue to be very, very disciplined in those areas. So I think we can do both. We can make the investments to reinflect the growth in fiscal '27 while still improving margins.

And with a 90% gross margin, the best way to improve margins is to grow --

Revenue, yes. I'd say that all the time.

I'd say that's investments reward on both sides.

Exactly.

Okay. That makes sense. I think we have about 5 minutes here. I just want to see any questions in the room real quick before moving forward. We gota mic coming, just one second.

How has the stock price affected hiring for your AI Studio development team?

So the AI Studio development team has been in place for a really long time as has our CTO. I think -- I don't know his exact tenure, Eva probably knows, but many, many years. And I think like one of the questions that, Steve -- I mean, initially is like what was one of the things that surprised you. It was like, "Wow, this is something they've been working on for a long time." So that team has been in place and the leadership of that team it's the same very, very strong leader who's there today. In terms of hiring, like, of course, we do have -- we pay our people with both cash and equity. I think -- you've heard me talk about in the last several quarters, like with some of the attrition that we have seen in R&D, we're hiring in lower-cost geos. Those geos -- and we have a center of excellence in Warsaw, which we've been very, very pleased with what we've derived from that so far. And they're a highly engaged population of the overall Asana workforce. They don't have the same expectation with respect to stock-based compensation. So that helps a lot as well. So what I would say is that like we are all focused on creating value and that includes myself, the manage team, our Board of Directors and the leadership around our R&D function as well.

[indiscernible]?

We have attrited people in the Bay Area, and we also have people here in New York. So a lot of our AI is actually right here in New York in the World Trade Center and yes, we've had attrition, but it's not --

I don't think it's actually specific to the stock price.

And it's not the AI.

Yes. And we haven't had outsized attrition in the AI team I think a lot of them are very mission-driven. They came here because of our mission and what we're trying to do to help humanity drive and people be more productive and they're really enthused on that mission. We also like the work that's been done to create our AI foundation and differentiation has been going on for like a decade. It's all driven by what's been developed in the work graph in that context where -- that's what differentiates us. It's what takes it from individual productivity, which a lot of companies can try to address, the team productivity and organizational productivity. And it's the team productivity and organizational productivity that will unlock -- maximize those company like benefits and so that's been in place. There's been a ton of investment and the core team there has been extremely sticky and certainly some AI. We haven't seen outsized attrition. We have great talent. So there's always people wanting to pick them off. But we've -- that team, the attrition actually doesn't look any different from our other teams and normal levels of attrition for Bay Area company.

We have another question on the back.

On the AI studio product, is there any differentiation on the unit economics versus kind of like legacy products?

The COGS and gross margin profile, like how we built the pricing and the credit packages are consistent in terms of the unit economics on the core product. Now if companies are eclipsing the platform fee, going into consumption-based credits and additional credit packages that would weigh on the unit economics, but that would be -- for us, that's a high-class problem because that customer is now super sticky, and we've expanded really nicely with them. So no material differentiation on the unit economics on AI Studio versus core Asana unless they're really driving consumption. And at that rate, it's a good problem to have.

Okay. That's great. We've got about a minute left here. So I guess I'll ask a high-level question just to leave it. But you think about the investments you're making today, it seems like there's a big view of the future of AI. I guess, how does that kind of transform Asana as a company? And how does it kind of, I guess, transformed the opportunity as you look out over the next kind of few years?

Yes. So I think you're right, we are transforming. And this is Asana and I think like enterprise software in general is transforming. And I think we have, in many ways, future-proofed ourselves with the launch of AI Studio and teammates. And I think like I see a world, a future world where it's hybrid, you have a seat model combined with platform and/or consumption-based pricing. And I think there's absolutely a world and Dustin called this out a couple of quarters ago, where our platform fee and consumption-based pricing eclipses our current subscription base and actually customers grow with us not through adding more seeds, but through much deeper engagement with us. And I see a world where Asana is mission-critical where Asana is embedded into -- because we're a horizontal, embedded into everything that you do as a customer. I see an Asana where we scale like right today, we have a customer that has more than 200,000 seats. I think one of our key differentiators is that ability to scale and I think I see a world where we're -- we have many more lands like that and where we truly create value for our customers by being able to go like wall to wall. And I think today, we don't do that enough. And I think this new opportunity that AI and particularly agentic AI and collaborative human AI interaction just creates an even larger opportunity for Asana to go after. And like I think we are going to be one of the key players in that new world.

That's good. I think it's a good place to leave it. So Sonalee, Aziz thank you so much for being here and thank everybody in the room for joining us today. So thank you.

Thank you.

Thanks for having us.