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

All right. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. My name is Josh Baer, Software Analyst here at Morgan Stanley. We are thrilled to have part of the Asana leadership team with us today, Dan Rogers, CEO; and Aziz Megji, Head of FP&A and also incoming CFO. Thank you so much for being here. Really appreciate it.

Thanks for having us.

As an introduction, Dan, for those investors who might benefit from a refresher on Asana but also for those who might not know you yet in this role, can you rewind a little bit thinking about 2025? What attracted you to Asana? And you've had an extensive career and senior leadership roles at a bunch of different software companies, what puts you in a great position to lead Asana forward?

Yes. Great. Thank you. Let's turn first to Asana. So looking back before I joined, Asana has 170,000 customers around the world, which means we are a known global company. And I had used the Asana product in 2 of my prior companies. So it was a brand that was much beloved and much known to me. 85% of the Fortune 500 use Asana today. So in some sense, we're fairly ubiquitous. And when I talk to those customers, as I say, they were kind of hooked on Asana. We were delivering real value in the coordination of human-to-human interaction, that coordination of projects. Our humble beginning 17 years ago as the platform for collaborative work management and really the pioneer of the collaborative work management market. Dustin's vision, bringing in a social graph into the work environment through the work graph. So all those things attracted to me. But what really piqued my interest was our potential around human to AI interaction and human agent interaction. And we'll talk a little bit about that, I'm sure today. Vis-a-vis myself, my own background. Sometimes I say I come from England but sometimes I say I was born in the cloud. It was raining when I started and I ended up going to many of the titans of cloud computing, including AWS, ServiceNow and Salesforce. And lastly, spent time at a cybersecurity company, Rubrik, helping them on their journey to becoming a public company as the President there and then at LaunchDarkly, where I managed to serve a different audience, which was really developers, developers that were fast moving and interacting with many of these new AI code generation tooling. So very much around application speed and going from idea to kind of code. And that's really seeped into me as a fast-moving innovation kind of mindset that I bring to the party.

Great overview and background. I want to start with strategy, which is to be the pioneer of the Agentic enterprise. And wondering what does this wave of work transformation really entail? What exactly is the strategy to address this opportunity?

Yes. So we're now entering into a new era of work. Work is going to change fundamentally. And in this new era, humans and agents are going to be collaborating together. If you close your eyes and kind of wake up in 1 year's time, it is clear that work is going to be a tapestry of humans and agents working alongside each other and agents and agents working alongside each other. So what's our role in that? So let's kind of wind back. If you take any company, any organization, as soon as they have 10 people, 100 people, 1,000 people, they need to coordinate with each other. They need to have clarity on who's doing what, when and how. This was the genesis of Asana. Does the problem go away when you have agents, when you have thousands of agents that are running about in the organization? No, it actually grows exponentially. So humans and agents still need coordination. They need a more than ever, a structured system that is the system of record for work. They need a knowledge graph for work, what your priorities are, what your time lines are, how this pertains to the projects, what the task inventory is, the tasks to be done. And so that ledger is Asana. We are the foundational layer for the Agentic enterprise. We are the instruction set for these agents and these humans to work off of. Just as we were with human and human collaboration, we now are with human agent collaboration and agent-to-agent collaboration. If you break that down one step further, most of us have had the experience of interacting with a kind of chat agent. And you'll see now as you kind of type in your prompts that, that experience breaks down into tasks of how I'm going to solve this from an individual basis. Maybe there's 10 tasks that have been articulated in the response that it's going to go through sequentially. Well, you're going to need a ledger of all of those tasks for all of the agents that are interacting. And wouldn't it be great if that ledger is persistent and it happens across all of the agents that they can all operate against the same set of tasks. And again, that's really where Asana comes to the fore.

Excellent. So with that backdrop in mind, can we dig in a little bit on Asana's AI products, AI Studio, AI Teammates. I mean what are these products? And what -- how do they achieve this strategy goal? What value do they bring to customers?

Let's start with the AI Teammates. AI Teammates is in beta right now. We have over 200 customers in our beta program and will become generally available later in March. That really is the first manifestation, I would say, of fully using the Work Graph for an agent. These are first-party agents. We'll have agents for marketing teams, agents for operations teams and agents for IT teams that have pre-described some of the jobs to be done by those departments. Those agents will work off of a Work Graph. So they are instantly productive. They don't have to infer the tasks and the steps that need to be taken because those things have happened in the past in our Work Graph. They know exactly which people they need to interact with. They know exactly what goals that they pertain to. They know exactly how long those jobs take, who needs to be involved, who needs to approve things, who are the managers. And so that governance model already exists. So our Teammates literally on day 1, you can put them in the environment, day 1, hour 1, and they're instantly productive. Part of the reason why many companies haven't yet found the productivity gains from AI is they have all of these loose tools that are not operating against the common instruction set. They don't have a system of record to work from. Our AI Teammates are an antidote to that. Our AI Teammates are instantly productive. If you look at AI Studio, which is a product that we launched just last year, a fast-growing AI product from Asana, we reached over $6 million in ARR, which we announced in our Q4 earnings in well under a year. How did we do so? We embedded work -- intelligence into workflows. Many of our customers use us today in simple or complex workflows. And with AI Studio, you could put AI nodes into those workflows, AI nodes that do quality checks, AI nodes that make sure things are on spec, AI nodes that complete in complete forms, AI nodes that translate, AI nodes that route the work for the correct people. So if you take, for example, one of the large fashion retailers in Europe, who's a customer of AI Studio, they use AI Studio every day, and it goes from SKU to factory. And so all of the production steps are being coordinated with AI intelligence along the way. And again, AI Studio follows those same guardrails that preexist within the Work Graph. So you don't need to set up some new permissions. You don't need to set up some new data privacy rules. They're automatically going to follow those things that have already been established for your enterprise.

Very helpful. Aziz, I want to bring you into the conversation. Maybe we could talk about the business model, the pricing model for these products. How is your AI monetized? Do these agents and AI Teammates need a seat? Or are we talking about a hybrid and consumption model?

Yes. So thanks, Josh. So we're currently a hybrid model. So both Studio and Teammates, the monetization model is kind of prepackaged credits. So we size that credit package based on the size of the organization, the number of Teammates are deploying, the number of use cases and workflows that they're looking to automate and turbocharge to come up with that right credit allotment. And as they work through those credits, if they go over, we have overages and top-up credit package. So it's -- we found through the betas and the early customer feedback. Customers aren't ready for the full consumption model yet. So we introduced this hybrid model, and it seems to be working well. We've got 8 customers this past quarter now spending $100,000 or more with AI Studio, and seeing the full benefit and really enjoying how it's priced. And it will evolve and it's dynamic. But today, that hybrid model is working well.

You've laid out the strategy and some products and the vision. A lot of the investor focus in the market this year has been around the potential risks around AI and the potential disruption. And I guess I want to ask you directly, how do you respond to those investors who worry that AI could just fundamentally disrupt the collaborative work management category?

I'd probably put a reflecting mirror back up and kind of say, au contraire, think of this as even more important now than ever to have this coordination layer. So the fact that you have lots of agents that are going to be running about, the fact that you're going to have an increased volume of tasks that are being generated by AI actually increases the need for coordination. It actually increases the need for a Work Graph. The Work Graph is the ledger of the company's strategy. It is the ledger of who's doing what, when and how. That ledger needs to be accessed to be useful. Individual sessions with interaction with a foundational model are not going to be sufficient. The productivity unlock, the promise of the Agentic enterprise is when agents and humans are working together against a common system of record for work. And in doing so, then we become the system of action, we can move that record on towards collaborative execution. So I'd say we enjoy the advances of the foundational models because it's going to consume our platform more fully. And as I say, we were purpose-built for exactly this moment.

And this is kind of what you mean when you say AI is an amplifier for Asana?

Yes. I mean, right now, it's clear that, that gap between the promise of productivity of AI and actual enterprises enjoying that productivity from AI is large. And we think that gap is a large coordination gap. But actually, those tools need to start to work with each other and they need to start bringing humans in, in a multiplayer mode.

One thing that I learned from earnings on Monday was that both of the leading AI labs are customers of Asana and that they've been expanding their contracts with you. And maybe that shouldn't have been a surprise just given Dustin's early relationship with these companies. But this fact alone, I think, helps to refute that AI bear case narrative out there. Is there anything else that you can share around how those customers are using Asana as far as the use case or their deployments?

Yes. Look at one of those foundation model providers. They have thousands of employees across engineering and product and marketing and operations and IT as well as actually the compliance and risk teams. It turns out that the coordination challenge of work is large. And so they look to us for, I would say, 4 things. The first is the context of work. That is tied to our work graph, that ability to have a common understanding of the tasks and the projects that need to happen. They look to us for a persistent memory that's not just session dependent from a single interaction with a chat but actually persists across the life of a project, the life of a strategy, the life of a goal. They look to us for this multiplayer mode, which is helping the rest of the team stay coordinated and have that visibility into how things are going, moving tasks along seamlessly between teams. And they look to us for our built-in enterprise credibility and governance and controls, which really mean that they know that their data is protected when they work within the Asana platform. And it already has pre-established who gets access to what, who gets to approve what? So that's all just readily enjoyable.

Yes. And that same AI lab is not only using CWM but they're using AI Studio to actually coordinate their risk and compliance workflows, which are so core to their mission, and that customer expanded again in Q4. So we really enjoy them as a customer, and they see a lot of value from Asana.

Really interesting. Maybe zooming out, thinking about the broader competitive landscape, you're not the only collaborative work management platform. You also have vendors like Microsoft in there that are competing for being the provider of the rails for enterprise agents. And so how do you think about this new competitive landscape and ultimately, why you have the right to win?

I'd probably use a very engineering answer, which is it's all about the architecture. And for us, the architecture is the Work Graph that you could think of as a neural network of the relationships between tasks, which is the fundamental unit of work, people, projects, goals, projects that overlap all of that. And so that Work Graph is very powerful. And the way that we architect it, it is not a simple relationship but it does mean that the agents that operate within our system are instantly productive because they can instantly access that work graph. So the differentiation is context in the flow of work, the persistent memory across multiple projects, multiple teams, how this thing has been solved in the past. Often that persistent memory might be years rather than the [indiscernible] nature of a session, which is seconds. Then the multiplayer mode, which is that we have already solved the fundamental challenge of making sure that as people update things, everybody is brought along, that humans are collaborating together on our platform and that, that operates together seamlessly. So as agents also update their progress against their work, that seamlessly fits into that same architecture. And then finally, we were very early on in Asana as a company, we were -- we have some of the largest companies on the planet as our customers, and we still have many of the largest companies on the planet as our customers who have hundreds of thousands of users, which means we have encountered all of the needs and requirements around where the data is, who gets to access it, what permissions happen, who gets to approve things, who gets to reject things, who gets to see things. Those have already been solved problems for us. So yes, those are kind of readily available for all of our customers. All 4 of those are major sources of differentiation, both against the, I'd say, some of the point solutions from some of the foundational providers themselves as well as the CDM traditional competitors.

Very clear. Maybe shifting gears, Aziz mentioned that on Monday, you reported earnings. Could you walk through some of the key takeaways from Q4 results and FY '27 guidance?

Yes. We had a solid quarter, and it's a meaningful progress in FY '26, we became a multiproduct company. A key highlight was AI studio is now $6 million of ARR, and that's just over 3/4 of full GA, and we're scaling with those customers. We now have 8 customers that are 100,000 plus. That's across geos, across verticals. The results itself, we grew 9.2%, which is above the midpoint of our guide. Our margins we generated were 9%. So it's about 150 basis points above guide. So 5 straight quarters of sequential margin improvement. So we're super proud about that. If you look at that on a year-over-year basis, 7% for the full year represents like 1,300 basis points of improvement year-over-year, and that's translating into free cash flow. So we had a 13% free cash flow margin for the quarter, which is 700 basis points improvement year-over-year. So strong metrics and the KPIs that we monitor were also improving, not only stabilizing but inflecting. So third straight quarter of NRR improvement. That's on the back of really strong renewals for our largest customers. Our top 10 renewals in Q4 renewed at NRR greater than 100%. Most of those were tech. That's really encouraging. And that strong renewal activity is translating into our tech cohorts. So we've talked about our tech cohort being a headwind. They're not expanding as fast with in terms of their own headcount pace of hiring. For the first time in 7 quarters, our tech cohort did not decline. It was basically flat growth. And that's on the back of not only strength in renewals but the expansion that AI Studio is driving and strong new business activity. And then lastly, the balance sheet metrics that we look so closely as leading indicators, mainly for our upmarket business, cRPO and deferred revenue all both accelerated by 200 basis points. Our cRPO grew 17% in the quarter. So those are good leading indicators for the upmarket business. So we feel really good about the historical results. And on the guide, we guided to an 8% midpoint on revenue growth and at least 9.5% on margins, and we can unpack the assumptions in that guide. I'm sure you got that.

Yes, that would be great. You're pointing to some really impressive areas of stabilization, inflection, even acceleration in some of those leading indicators, thinking about cRPO. And the guide -- the revenue growth guidance is for a slight deceleration. So could you unpack some of that? Are there other headwinds that's driving that? Maybe it's -- a lot of it is conservatism. We'll see where we end up, but any thoughts there?

Yes. So on the revenue growth guidance, we kind of count there's kind of 3 different phenomenons going on in the business. So the first is our sales-led business, which is mainly our mid-market and upmarket business, continues to perform well. So we've seen strong productivity increases. We talked about the NRR we're seeing in our large accounts. So there's a lot more we can do that to compound the productivity, but that's growing -- that those segments are growing above that overall rate. Now where we are seeing headwinds are in the PLG business. So we called out about 2% impact or headwind to our ARR growth is coming from PLG. So that top of funnel pressure that we had called out several quarters ago, while it's improving quarter-over-quarter, it's not improving at the rate that we previously expected in Q3. And so that is a headwind to the growth. And in absence of that headwind, we would be accelerating on the near term. And then the third thing I want to call out that's factored in the guide is we're seeing a lot of encouraging signs of stabilization and inflection in key leading indicators. NRR, I just talked about. We talked about the tech business, those 2 are not factored in the guide as continued improvement. We want to continue to watch and monitor the progress there before we kind of factor that in the guide. So we're taking a little bit of prudence and conservatism of how we factor in continued NRR improvement. It's been factored in modestly and how we factor in the tech stabilization. It's still factored in as a slight decline versus stabilization and inflection. And then lastly, on AI Teammates, we're super excited, as Dan walked through on the opportunity of bringing that to our self-serve and our PLG base. It will be fully GA by the end of Q2 across both motions. It's going to take some time to ramp. So you'll see a very different trend in terms of how we exit Q4 because of that ramp versus the first half in Q3. So those are some of the dynamics in play in the guide in terms of guidance philosophy. I share internally philosophy. We've been partners and setting the guide since we both arrived here, close to the pin, reflect what we're seeing, be prudent, the dynamic environment. And so that's how we approached it.

Excellent. Very helpful. Dan, I want to pull you into the conversation on product-led growth, just talking about the headwinds. But at the same time, you're looking to reimagine what product-led growth can be. So what does that mean? What investments are you making to turn this into a growth driver?

Maybe I'll start with philosophy. As a product category, collaborative work management and us as a foundational layer for the Agentic enterprise, that is a product category that will be served digitally that we do think many customers will want to buy digitally, discover digitally and fully engage and consume our platform digitally. So we are -- by all accounts not walking away from PLG, we like it. It really is fundamental for the discovery and consumption of the platform. That is true. And it is also true that we have new dynamics in how that discovery happens, that there is an increasing prevalence of AI search as an example, as a way to discover us, that perhaps many of the experiences will remain within the prompt window of some of those foundational providers is how they want to consume Asana. You see that with our new Claude app as an example, that Claude can fully consume the Work Graph for any Asana customers to actually help them stay within that kind of context. So lots of dynamics have changed in that business. In Celoxis, we are very exciting to kind of have that set of things that we need to kind of tweak and tune and optimize in a broad philosophy that we actually think is very good for us. But because of the tuning as kind of Aziz intimated there, it gives us uncertainty on PLG. And we see lots of early signs on how that tuning is working, mid-funnel and the experiential pieces. And it actually pushes us a lot on what our UX experience needs to look like. So I'd say fundamentally committed to digital buying and discovery. It keeps us on our toes, some of the changes that are happening in the environment on what the product experience needs to look like and the discovery experience needs to look like. And you'll see us being, I'd say, very lively in our -- both our ambition and how we approach it.

Excellent. I want to ask one on the net retention rates in those large, I think the top 10 enterprise renewals above 100%. I guess a couple of questions there. One, what does the renewal pipeline look like? And in the past, because of your visibility into the underlying engagement of the platform, sometimes you can have -- it doesn't have to be a total surprise if you see downsizing from headcount reduction if you're already seeing that show in engagement. So I guess question is also what signs are you seeing in some of your big customers around headcount growth and engagement?

Yes. So the beauty of growing cRPO and RPO is that we have more of our ARR base under a multiyear contract and therefore, less pressure in terms of the renewal activity that comes up each year. We also, in terms of the renewal base in FY '27, in FY '26 and FY '25, we had some very large customer renewals. So we don't have that same dynamic in FY '27. We have a more uniform size of renewals and no real outliers from a size perspective. So that also derisks. We've seen some pressure over the last couple of years in the tech vertical NRR. Tech vertical is now 25% of our ARR base. So the concentration of tech has come down a lot. And then we're now a multiproduct company. So having AI Studio and in a month or so time, having AI teammates to introduce in those renewal conversations to drive expansion, mitigate downgrade if the customer is inclined to reduce seats, is something a lever that we haven't had in this fulsome way ever as a company. And AI Studio and Teammates are not dependent on seats. You can derive the value in absence of seats and absence of headcount. So that's a real powerful lever, and we're seeing that play out in renewal conversations. And then you're right, we have greater visibility into our renewals. We've hired, about 2 years ago, an amazing Chief Customer Officer. He's built a team, increased our CSM coverage. So we're getting visibility 12 months in advance of these renewals into the health of the account. Do we think they're at risk of downgrading? We're starting to put action plans about a year in advance about what we're going to do to increase utilization, drive better adoption, introduce new workflows, how we can leverage our Teammates. So it gives us a lot more visibility into the health of the customer. And overall, we're seeing actually adoption and utilization increase year-over-year, which that's always been a leading indicator for NRR and for our GRR. So that also gives us comfort as well going into FY '27.

Maybe shifting over to margins. I'm wondering where the sources of leverage are from here. You -- in your opening remarks on the quarter, we've noted such a strong margin expansion recently. And maybe one way to ask the question is, I'm sure that Asana is a heavy user of Asana and all the AI technology and innovation coming out. And so do you have any examples of departments or categories of OpEx where Asana is really driving a lot of efficiency?

Yes, we're the #1 user of AI Studio and AI Teammates, and we use it across departmentally. I mean, Dan is like biggest push is AI internally. And our security department uses it extremely heavily to drive workflows there. We use it in finance, in R&D to manage the dev cycle and spread management. We're using it in our IT department with ticket deflection and kind of help desk like applications. So it's definitely driven a level of productivity in our workforce that has allowed us to move faster and drive greater innovation and do more with our current resources. So we have really more to do on the adoption side, but it's been a lever of us being more efficient and more productive for sure.

And to your question, we're just scratching the surface. So we definitely haven't reached the endpoint of that productivity gain. The more we adopt these tools more fully, the more we embed them not just as tools but into our processes more deeply, then yes, we will continue to have productivity internal gains that will translate into continued operating margin improvement.

Talked about sales-led growth performing well. Are there still areas that you're focusing on improving, investing in, specifically with regard to selling all these new AI tools?

Yes. I'll say, of course, it's early days but our innovation pipeline in terms of delivering and manifesting us as the foundational layer for the agentic enterprise is rich and ambitious and too early to really put into any kind of guidance. But in the second half of the year, you'll see even more manifestations of that. Yes, AI Teammates will be on a massive acceleration curve as that product matures, so will AI Studio. The next versions of those, you'll kind of see a lot of innovation and a bunch of new products that really we're very excited about in the second half that is too early to even flag what they are, what they're going to do but really about realizing our potential in the agentic Enterprise.

And should we expect to see headwinds to gross margins as some of these AI tools are ramping early on?

Not material. I mean if we start to see headwinds to gross margin, it means that gross profit dollars are growing in a way that is not factored in our guidance. And so we're willing to absorb that trade-off because if we're accelerating growth with Studio, Teammates, it means we're getting more deeply embedded in workflows. That's the greatest NRR driver we can have. So based on how we've illustrated in our guide and that target we put out of 15% of our net ARR coming from AI products, we don't expect any gross margin degradation based on that.

Maybe just to round out the conversation on capital allocation. Your free cash flow generation has come a long way that we can have this -- ask the question. And so what does it mean like your current cash profile and where it's going in the future? What does that mean for capital allocation, thinking about M&A and buybacks.

Yes. I mean our capital allocation strategy and framework is dynamic. We just announced increasing our buyback authorization by $160 million to about $200 million, where our shares are trading. And based on our view on positioning and growth in the agentic enterprise, we think that's an attractive form of deploying our capital, buying back our shares and not only neutralizing dilution, but if things hang out at this level, reducing share count and returning capital, we'll always be opportunistic about M&A, more probably on the tuck-in variety to complement and augment our technology and talent. And then obviously, investing in the business. We talked about on the call, allocating more of our capital or OpEx towards R&D to drive that innovation pipeline and fuel that Agentic enterprise strategy. And so that will continue to be part of the mix. But it will be dynamic and evolving. But yes, it's nice to have free cash flow and growing free cash flow at a really nice rate to allocate and drive even greater value for shareholders.

Excellent. Thank you for the conversation. Thanks, Dan. Thanks, Aziz.

Thank you.

Thank you. Appreciate it, Josh.