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

Hi, everyone. Welcome to the 2025 Barclays TMT Conference. I'm Eamon Coughlin, Software Research Analyst here at Barclays. Very happy to have Sonalee Parekh with us today, CFO at Asana. Sonalee is a former Barclays employee, so I have to mention welcome back.

I just saw some former colleagues in the row there.

Welcome back. Welcome back. It's great to have you here.

I guess, for anyone in the room that maybe missed your 3Q earnings, can you help us understand some of the key takeaways from the call?

Yes, absolutely. So firstly, thank you. I'm delighted to be here and nice to reconnect with you again. So key takeaways from our Q3 earnings: It was a really solid quarter. We were really proud of what we accomplished. So we delivered revenue growth above the top end of consensus and our guide. We grew 9% year-over-year. Also, very importantly, we delivered record operating margins, so 8% operating margin and also raised our guide on revenues, which I forgot to add to that. Not only did we beat, we beat and we actually raised, rolled and raised. And then thirdly, net retention stabilized and that's very, very significant for us. And in my prepared remarks, I talked about net retention being at or near the bottom, which is something a new comment I had made this quarter. And then finally, free cash flow, we delivered another strong quarter of $13 million of free cash flow. So really across the board, it was a very, very solid set of numbers. And then just on new products, our AI Studio product again showed sequential growth in bookings, which we're really excited about. And hopefully, you'll ask me a little bit more about AI Studio and our AI products.

I'd be remiss not to. I guess just staying on some of that, we can unpack a lot of that there. But like what gives you the confidence that NRR is near or at the bottom? And maybe what's some of the key drivers to improve that? And then maybe what is some of the risks that could actually degradation? Just any sort of comments on how you think of the trajectory there?

Sure. No, it's a great question and one that I think about a lot. And what I said in a couple of the one-on-ones I had earlier is when we make comments in the earnings script, like they're very scripted, and we think a lot about the language we use. So to say we are at or near the bottom was a change versus what I said going into Q3. So as we now look ahead to Q4, I am more confident today than I was when we were going into Q3, despite the fact that Q4 is typically a larger renewals quarter in terms of volume, dollar volume, but the actual number of large renewals is less for Q4. So the real drivers was a couple of areas. So one, GRR improved across the board in all cohorts. Secondly, net retention improved across all cohorts, and it was the second quarter in a row. The last quarter, we saw net retention tick up in the quarter. And whilst we were encouraged, we said too soon to call a trend. Now we've seen 2 quarters of in-quarter net retention improve. So that was the reason that I gave the change in language. Thirdly, we saw better expansion and new products played a role there. So as we enter these renewal conversations, we now have a new quiver in our arrow in terms of offering customers foundational service plans, AI Studio. And then as we look ahead -- this wasn't the case in Q3, but as we look ahead, AI Teammates as well. So I think those new products are helping with the renewal conversations. And then finally, in our self-serve business, which is still a very large portion of our overall base, and does tend to be the churniest part of our business, we actually saw the best retention that we've seen in a year in 12 months. So I think taking all of that together, it just made me feel more confident as we looked ahead, and excited to keep delivering and executing.

Yes, absolutely. I think just like when we think about some of that renewal base in the fourth quarter, maybe what drives some of the confidence in that NRR being stable? And then maybe as we think about the last 2 years, like that trajectory, like what is driving that stability? Are we seeing the end of that rightsizing from that customer base? And then maybe how to think about next year?

Yes, it's a really very intuitive question or insightful question because one of the things that we've talked about in this earnings but also in the last several quarters is just our exposure to tech, which actually has been declining. So today, tech represents about 25% of our ARR base. But if you look 1 or 2 years ago, it was closer to 1/3 of our base. So we have that working its way through the base. And some of the large renewals that I called out, as we look into Q3, were in the technology vertical. And I called those out actually for the entire second half, but many of those were in Q3, which we've now gone through. And then we have several in Q4, although they're lower in dollar amount. But what I would say and what we're finding with the tech exposure is, one, it's smaller today than it was; but two, the customers, the tech customers that we have who are renewing as they renew for the second time, they're not coming back for a second downgrade or a second bite at that downgrade apple. So basically, we're lapping these larger renewals and we're lapping the downgrades from those renewals. So as they work their way through the base, they become a lesser and lesser proportion of the overall. So that's helping. And then the other thing is, in Q3, we saw better expansion. And I think part of becoming a multiproduct story is really as we enter those renewal conversations, making sure that our sellers don't just have incremental seats or higher SKUs to sell, but actually have new products. And one of the things that's most exciting about our foundational service plans is that customers that buy those what we find is within 6 months, their utilization goes up by about 20%. So actually, you end up with healthier customers. And hopefully, as those customers renew down the road, they'll be less likely to churn, so healthier and stickier customers. And the other thing I would say is that you end up with customers or customers who buy more than 1 product from us are much less likely to churn. And that's sort of the thesis. And again, that's what gives us confidence that we are either at or near the bottom of net retention.

Super interesting because a company somewhere in the SaaS space, Braze last night printed and they had the first -- second quarter in a row of in-quarter net retention improving from -- they're getting the value of the beast from like [indiscernible] renewals beginning to improve. So it's interesting to...

So it's very similar...

Very similar dynamic.

Yes. Okay. I'll have to read that.

Yes, definitely. I guess just understanding some of the different challenges that are going to the market. I think SEO has been a difficult change for not just Asana, for a variety of different SMB SaaS companies. I guess just understanding some of the remedies that you're pushing through the market, is there any sort of context you could provide on what your net new business is being driven by SEO? If there's any sort of context you can provide and then some of the remedies that maybe were -- that Asana is working through to improve that motion?

Yes, absolutely. So this is not a new phenomenon for us. It's something we've called out now for a couple of quarters, and we did call it out again in Q3, and we expect it to continue to be a tailwind for Q4; however, fully reflected in the way I guided for Q4 and the full year. So we -- I guess it was several quarters ago, we started to see an impact in terms of like top of funnel, which for us, translation is kind of visits to our website and trial starts of Asana. And what we found was that although the number of visitors to our website was declining, the traffic that was coming to the website was higher intent traffic, so more likely to convert. So whilst we saw a decline in the visits and the trial starts, we saw better conversion rates. But when you take the lower numbers visiting the site multiplied by the higher conversion rate, it's still a downdraft. It's still a negative. And what we've seen in the last several months and what I called out at earnings and what we're continuing to see is a month-over-month improvement in those visits to our website because of some of the initiatives we put in place. And at a certain point -- and I haven't been specific in terms of like when this will occur, but at a certain point, we will hit the crossover point where the decline in visits is more than offset by the better conversion. And ultimately, like our belief is that we emerge stronger from this because you actually end up with healthier customers that actually always should have been Asana customers as opposed to, I think, in the past, perhaps with SEO and with some of our SEO investments and marketing spend, of which SEO was a large portion of our overall marketing spend. Like programmatic as a percentage of overall marketing was about 75% and SEO was the largest portion of that programmatic spend. But when we hit that crossover point, ultimately, that will end up being, we believe, a tailwind because you end up with stickier customers and customers that are likely to stay with us and have a higher propensity to expand with us and have a higher propensity to buy more products from us. So that is kind of the Holy Grail. And what we're doing is we've used the opportunity to, one, reallocate some of our marketing spend to channels where we believe LLM search is more prolific and prominent. Some of the channels that are net beneficiaries are things like Reddit, YouTube, Quora. And the other thing we're doing is in product we're trying to make -- Dan, our CEO, calls it like the time to that aha moment within the product, we're trying to make that time to get there much quicker. So we have this new prompt to project that's on our website today, and we think that, that is already driving the kind of behavior that we're hoping to see from customers. And then finally, the content within our website and the content in our marketing has changed. So the things that resonate with LLM search are more things like short-form video and demos and webinars and FAQs and ROI calculators and those, again, have proven to be really efficient in terms of getting the right type of customer in those trial starts that then ultimately convert. And I think in the past, we were perhaps -- and I remember when I joined Asana, and I think you are going to ask me about margins a little bit later. But I remember one of the things that really hit me when I joined Asana when I was doing extensive benchmarking of our OpEx, our marketing spend looked fairly off benchmark, like too high. And I do believe like this is an opportunity for us to rightsize some of that marketing spend. And again, like it doesn't mean that it's going to go straight to the bottom line. We could reinvest in other marketing channels, which is one of the things we're doing today, but there should be some benefit to the margins as well from like this reallocation of marketing spend into more efficient channels.

Definitely. So I mean, I think it's an evolving story for, again, not just Asana like this is a clear market dynamic that I think a lot of people are trying to work through. It doesn't seem like there's a perfect answer, but as you just mentioned, there's a variety of different channels, I think, you can work through.

Yes. And I think like the point about us emerging stronger, I do firmly believe that because the customers and particularly in that base, those tend to be our churniest customers. So it's actually great that we're really inspecting that today and finding remedies.

Definitely. I guess, I mean, one of the more exciting parts of the Asana story is some of the AI adoption, some of the great growth that you're seeing there. I guess just some of the -- can you just describe some of the early feedback you've seen from some of the particularly the enterprise customers regarding Teammates? And then maybe just trying to understand some of the -- maybe the ARPU uplift that we could see from that adoption?

Yes. I love the analysts always ask about like how much are the numbers going up? So we haven't broken it out yet. But you asked about AI Studio and its adoption and then Teammates. And to be clear, it is still early days, but a couple of the numbers that we've put out around AI Studio was: In our first quarter of going GA and it went GA mid-quarter, we did $1 million of ARR. The following quarter, we said we more than doubled that. And then this last quarter, Q3, we've said that we saw strong or healthy sequential growth or strong and healthy sequential growth quarter-over-quarter. So AI Studio is really doing very well and resonating with customers. What we found with AI Studio in its initial launch was that it was really being adopted by customers that were fairly sophisticated Asana users. Customers that were using Asana already, we call them our builders, but like they were building workflows and already used Asana using like rule-based actions. And what we've now done is rolled out AI Studio to a much larger proportion of the base. And I think this is what's really exciting because now AI Studio is available to our self-serve base. So I think it really proliferates among the base. And some of the use cases -- like some of the most powerful use cases, think like very repeatable tasks, things like anything involving customer intake, anything involving like marketing campaigns, anything involving like multistep processes with lots of handoffs, lots of procurement use cases. One of our best examples is like a CEO that is actually using it for RFPs to go through RFPs and his procurement process. But with Teammates, I think what's so exciting is to me, Teammates, it democratizes an AI Studio because the AI Studio, I think, is for people -- and the initial launch again for those more sophisticated users who are building workflows. Teammates -- actually, you can use the Teammate to build a workflow for you. So I think it has even broader and wider adoption, even broader like TAM in terms of use cases and the kind of customers and departments that are likely to use Teammates. So we actually think that this is an even bigger opportunity than AI Studio. In terms of where we are on Teammates, we haven't gone GA yet. We will next quarter. But we are in beta, and we have 30 reference customers, and the feedback has been overwhelmingly positive. So we're really excited about that. And we, internally, like, of course, we have to dog food, we're using Teammates a lot within the organization. In some of the use cases there are SDRs and BDRs using Teammates. We have Teammates doing enterprise technology, code reviews, like you name it, ticketing. We're actually using it for all ticketing within Asana today. And we moved off of another point solution in order to offer our internal teams ticketing just using AI Teammates.

It sounds like there's clear ROI from these products already and early traction with Teammates. I guess just trying to understand like some of the go-to-market with AI Studio and then Teammates, is that a token-based or credit base for the customers? How has that early reception been? Is that the right monetization opportunity? Are you thinking about it differently? Anything to describe there?

Yes. So we are still thinking about it. Like we've gone to market today as -- so AI Studio and actually Teammates, it's a platform fee, quarterly platform fee, and it's use it or lose it. We've been very deliberately generous with the credits. I know tokens or credits, sometimes people use those interchangeably because what we really wanted to do was drive as much adoption as possible. Because we actually do think there will be high willingness to pay and there is a high willingness to pay, so long as you're driving ROI and the outcomes that customers are hoping to gain. What we found is that customers really, at this stage, prefer knowing what their bill is going to be. So they want that visibility and spend. Whereas if you move to full consumption or straight consumption right away, they don't necessarily know the value they're going to get and they also don't know what their bill is going to be. So we felt like this was definitely the right way to hit the market. I think as we look ahead, and I think part of Dustin's original vision was that the world was likely to evolve from seat-based to more consumption-based models. And AI Studio and Teammates is really a way of future-proofing Asana and our role in the CWM market so that in the future, we can grow with our customers as their engagement with us grows. We no longer have to grow based on seats. We can grow based on the amount, like even a small group of power users are using Asana to drive outcomes. And I think like we feel very, very good that as we look ahead, if the seat-based model does, and again, our thesis is that there will be some movement in the seat-based model, that we have this solution, where we can grow and grow incrementally over and above what our ARR base is today.

Definitely. I think the conversation with AI and the ROI that is driving is super interesting when it ties back to like a power user. If you and I are both leveraging Asana and I use it 24 hours a day and you 2 hours a day, for a seat-based model, we're the same price. But then for -- with AI and the introduction of seat-based model, it's a whole new lever...

Exactly. And that's exactly what Dustin had in mind when we first -- or when he conceived at this. And the other point I would make is that AI Studio and Teammates have been many, many years in the making. So our R&D spend isn't going to suddenly like skyrocket or there won't be any step change in our R&D spend because, again, these models and -- or these products have been on our road map for many years. And the beauty of AI Studio and Teammates is that it sits on top of our work graph, which is our core architecture, and therefore, Studio and Teammates are context aware. And I think that's another key source of differentiation. And again, when you talk about pricing power and willingness to pay, it's about the value you're delivering for customers. And we believe we can deliver outsized value because we are the system of work that these Teammates, agents and workflows pull the data from.

Yes. No, definitely. I guess shifting a little bit to some of the competitive dynamics like throughout the space. Smartsheet was recently taken out to go private and monday.com has this new multiproduct story that it's pushing to the market. I guess where does Asana stand out? What drives the differentiation and what drives those wins in the RFPs?

Yes. So I think a couple of things. Like one, I would say, is the flexibility and scalability of our platform. And again, like when I talk about our R&D spend and the work graph, like these are things that Dustin was thinking about many years ago that like actually were really benefiting from today. So you may have heard me talk about our very large -- we won a $100 million 3-year TCV deal with one of the major hyperscalers 2 quarters ago. It's a 3-year deal, and we are considered a foundation software with them. And we haven't been specific about the number of seats, but like it's 250,000-plus. We are the only CWM platform that could scale to that level. Not to mention, you can imagine the scrutiny over the controls and certifications and governance and security, everything that a sophisticated buyer like that would need. We were able to pass that test. I think like that scalability and flexibility and governance and security is -- puts us into a category of our own in terms of being able to serve large enterprise. And I don't think other CWM platforms are anywhere close to that. Secondly, when we talk about Teammates and agents, I believe our horizontal platform makes us truly differentiated versus some of these other solutions are very narrow in terms of the types of markets and work that they can serve either specific to CRM, specific to ITSM, specific to DevSecOps, whereas we can go across organizations and like within organizations. And I think we believe and I see it, and I think everyone in this room would see, that work is cross-functional. So it's very hard to be a CWM platform that's siloed. And I think some of the other competitors, you mentioned, are much more siloed than we are. And we think that, that horizontal platform that we designed and the work graph being so horizontal is a key differentiator for us.

Yes. No, that makes sense. I guess just understanding some of the guidance for 4Q, how to think about 2027? And then I think reflecting on your time at Asana, packaging a lot of questions into one, but I guess just like I would love to hear your perspective on your last 1.5 years since you came to Asana. What are some of the things that you think Asana has done well? What do you think some of the things that maybe you could have improved on? And then maybe how to think about 2027 growth and profitability? Obviously, not looking for a preannouncement, but anything...

No, I'm going to guide. So the fiscal year '27 guide is. So yes, no, great questions. And of course, like without being specific, like you've heard myself and the rest of the team say that like our ambition, absolutely, as we look ahead, without putting any time frame on it, is to reaccelerate growth and to continue driving margin improvement. These are 2 things I believe we can do. In terms of the drivers of that reacceleration, I think net retention, it was your second question, I think it was the right question. We need to get net retention on a path to 100 and above. I think stabilization to slight improvement is a really good start. Stabilization of that trend was key to being able to believe in improving it. I think our PLG business, so our product-led growth business, what we're learning in terms of the SEO and top-of-funnel dynamics will allow us to emerge stronger. And I think actually what is today a headwind ultimately becomes a tailwind. I think there is more we can do with channel. Like today channel is a tiny part of our overall ARR, single digit. If you look at some of those competitors you talked about, it's like 40%, 50%, 60%. So I think that's a huge untapped distribution channel. And I think with our new products, like they're tiny today, but -- and if you look at a couple of million of ARR as a percentage of an $800 million-plus ARR space, it doesn't sound like a lot. But if you think about how much those products will contribute to future bookings, it becomes meaningful. So that gets me excited. When I reflect -- I see we have 10 seconds left, but when I reflect what have we done really well, the new product introduction, keeping our edge and lead in AI and I think the other thing is like driving 12 percentage points of margin improvement, which has allowed us to also free up -- like become more efficient and free up dollars to be able to invest in our AI platform.

Yes. Two companies in a row, you're just driving incredible operational efficiencies. So thank you, Sonalee, for having us and great to be here. Thank you.

Thanks so much.