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

Welcome, everybody, to day 2 of the Citi TMT Conference. I'm Steve Enders part of the software research team here with us for the next session. We have the team from Asana, Dan Rogers, Aziz Megji. So I want to thank you both for joining us today.

Thanks for having us.

Thanks for having us.

Yes. Maybe just to start, Dan, I think it's been about a year since you took over would have been maybe the biggest changes that you made since you've come in? And Aziz maybe some other question to you since you took over as CFO earlier this year. What have you kind of evolved maybe in the strategy since then but Dan start with you.

Yes. So just winding back the clock, Asana was founded about 17 years ago, we were founded on the idea that as soon as you get more than 2 humans in a room, you have a collaboration challenge that you need to figure out who's doing what by when. And fast forward to today, we became one of the most ubiquitous collaborative work management companies, 85% in Fortune 500, about 300,000 companies around the world are using Asana, but the situation I arrived in is that the modern team is no longer just humans that need to collaborate with each other, but humans and agents that need to collaborate with each other. So First mission really was to reimagine Asana as the human agent operating system to account for the fact that the collaboration that needs to happen now is going to be between agents and humans and agents and agents and the agents, in turn, need that collaboration strata to figure out what's the agent doing next? In fact, does the agent understand the company's goals? And has the agents work now handed over to the right human afterwards and to the next agent to pick up. And so this kind of task centricity that we found with human collaboration is also the same thing, literally, it's the language of agents. They talk in the language of tasks. Certainly one that's used chart, you'll see the kind of task hierarchy as it goes through how it's processing or we literally run on the task hierarchy. The work graph that underpins Asana is really a relationship between tasks, projects, goals and humans and now agents. So reimagining a sane for the new era. And so that means 100% of our engineers are building against the human agent operating system. So instead of collaborative work management now, we call it Agentic work management, our core category, we're repioneering. And along with that, launching new products. And so actually, in the next couple of weeks, it's a big couple of weeks for us because a lot of the things we've been innovating on come to market. You'll see not just one product, our core product, but 5 new products. and that we'll have new products for each of our buying centers, whether that's IT, whether that's software development teams, whether that's professional services and client delivery teams, whether that's process architecture and process builders. We really have a solution and end market operations team, which is our home base. We leverage solution for every team. That's on the product side. And then of course, go to market. We've been upmozing as well. We brought in the new Chief Revenue Officer, and we've been very focused on sales base. Verition our pipeline discipline. You see it in our numbers, you see a nice uptick really every quarter since I've started actually both an uptick in our top line growth and opinion operating margin and an uptick in our NRR. So it's been pretty consistent now on the maybe it's 3, 4, 4 quarters. Every single one has followed that same trend line. And so obviously, if we continue on that thing will be a great story.

Yes, let's keep trend going, Aziz.

Yes. I mean when I started as CFO 6 months ago, it was correspond at the start of our fiscal year, and the world has kind of dramatically changed since then. And for me, it's really around how do we allocate our resources to the highest leverage areas to help drive this operating system that we're building and accelerate our growth. And we've made a tremendous amount of investments that maybe we didn't anticipate in the plan cycle months ago around how do we invest in our R&D capabilities to build these new products how do we bring on additional innovation. We acquired STACK AI and absorbed the dilution, and that's been a really exciting journey early days, but we're seeing great proof points how do we see our customers with our AI capabilities. We've seen really strong momentum with our AI products. Now we want to get them out to our full customer base. We're investing ahead of the benefits. So how do we absorb that. And so we've been able to have this rapid investment that will help drive future growth acceleration and also adhere to the financial commitments we made at the start of the year. And so that's been a real focus of mine is really around resource allocation, ensuring we're placing our bets in the highest leverage or a hearing or financial commitments while we do that.

That's great. That's great to hear. I do want to dig in a little bit into the guidance, and then we'll have much deeper on the side. But -- maybe you could just talk to some of the moving parts here. I think pretty good beat for the quarter, decided not to flow through the entire beat. Can you maybe just walk through what went into the decision-making process for that? And maybe you think there are some of the moving pieces on the outlook.

Yes. I mean, as Dan kind of alluded, we had a strong quarter. We were 10% year-over-year or second straight quarter of growth acceleration -- all KPIs for the quarter were very strong, especially the NRR, every cohort improved. And so as we thought about the beat, we beat our midpoint of our guidance by $2.4 million. We flowed through the full year about $1.5 million. And we -- as we move to genetic Work Management or triggering unpack, there are some revenue recognition timing pushouts that are associated with that. So as part of our base becomes consumption part of that revenue gets pushed out into future quarters. And it's really only a Q3 phenomenon where we see that push out because in subsequent quarters, you have the pull-in from the previous quarter. So that was about a $1 million impact. If you think about that together, $2.4 million beat, $1.4 million kind of flow through of the beat, a $1.2 million impact. In the absence of that impact, we would have been rolling the full beat and then slightly raising from there. So that's how we think of the puts and takes. And then as we transition to more of a consumption-based model in both the core package with AWM and with teammates as companies expand with us, -- we're going to learn a lot about consumption. We're going to learn about how quickly customers get from adopting these paid consumption. We learn about consumption patterns and ramp right now with the data we have, we wanted to be a little bit more prudent in how we factor that into the guide. And so that was reflected in how we guided as well.

Okay. That makes sense. Last question for me on Guide and then we're going to get into AWN, but -- but just on the product road growth side of the business, I mean, that's been a, I think, a recurring kind of headwind to it or to the overall Asana growth. But how do you kind of think through the headwind of that moving forward? Kind of what are the things that you like, you can tweak and you can control at least to it agreed to try to mitigate that headwind? And then I guess, lastly, just on the guidance side of it, -- it does seem like the assumptions on that downtick, but you, again, flowed through the guide, which probably means that something to offset that. So help -- what was the positive that you kind of saw here too?

Well, I'll maybe hit the business piece and then you can do some of the financials around it. So from a business perspective, I'll say, again, one of the beautiful things about Asana is a lot of our customers want to interact with us fully digitally or partially digitally. So it is a real advantage to have a PLG motion. And so many of our existing large enterprises as an example, come in through the door of having a trial experience getting started digitally. So whilst we have that advantage, it is true that the top of the funnel is changing constantly. And most recently, we found that the top of the funnel has a lot of tire kickers who are not going to convert into paying customers, not going to defer richness of the product experience. And so the challenge really is how do we fill the funnel with more of ICP sometimes give us like some kind of intra effect where all systems tend to complexity. It's probably the same with all funnels. All funnels tend to get clogged up over time. And so you have to put a lot of concerted effort into getting back to the core verticals that we're focused on, the core ones that we're focused on. And so we made a pretty dramatic decision to change 100% of our marketing allocation to target verticals and target personas, instead of some of the generic programs that you might do on paid search, et cetera. So that's a big change. The top of the funnel mix should change quite dramatically. But then when they arrive, we've also done a lot on the product experience. So instead of arriving now to just collaborative work management, they'll arrive to agenetic work management, which includes teammates, and it will also arrive to Asana client management, which is for those teams that are looking to do client delivery, will now they'll find. And that's about almost 1/3 of our customers actually, they'll find that there's actually a dedicated product experience. So -- the surface area of, I'd say, getting to the right product to the right folks has just increased fairly significantly. So we hope that, that turn of the change that profile quite significantly.

And then how we've factored in the guidance. If you think about the quarter, there's a couple of things that are really working well. One is the strength in the enterprise to if you look at the metrics that kind of reflect our enterprise business. So our CRPO, which is correlated to the bookings that we see in enterprise. If you back out the large customer that we renewed about a year ago, -- that growth accelerated from 7% last quarter to 11%. If you look at our 100,000-plus customers on a customer count logo basis, those accelerated to 16% growth year-over-year from 12% last quarter. We now see 25% of our 100,000 customers adopting AI, which is our AI products, which has led to strong improvement in NRR in the 100k plus cohort that cohort improved their NRR from 96% to 98%. So enterprise is really strong. We're strong momentum in our AI products, 20%, 5% of our net new ARR was with our AI products this quarter. So that is what's driving kind of the flow-through of the beats and the revenue growth equation. Now on the flip side to your PLG question, we are seeing the impact that we called out at the start of the year that we were going to see 2 points of ARR headwind from the PLG business. That has increased in Q2. Now it's around 2.5% impact. And the flow-through of that AR impact, we're seeing more pronounced on a revenue basis in Q3 and Q4 -- so the impact to our revenue growth is about 1% in Q3 and [ about 5% ] in Q4. So if you take those 2 things together, 3 things together, strong enterprise strong AI product adoption, which is improving NRR in our larger cohorts and then this continued headwind on self-serve PLG, which you're seeing actually in the NRR or our overall PLG base, which is muting a bit the improvements in the -- in our larger customers. That's kind of the puts and takes. And as Dan walk through the initiatives -- it's a big focus of ours to get that business reaccelerated because as we do it's an accelerant to both our revenue growth and our NRR.

Okay. That's very clear there. All right. Shifting gears now to AWM. I think it really seems pretty interesting what you're doing here. Maybe we can dig a little bit into what is generally new in the product with AWM? How does it maybe evolve what you're doing before with CMA instead of it just being a repackaging or a renaming of the prior solution set?

Yes, great. Maybe I'll talk about what's happening in the real world. In the real world, does this AI productivity gap. Our productivity gap is People are experiencing a lot of personal productivity increase with working with the chat agents with the but companies in general, haven't really translated that into their workflows into their core productivity -- and so company footprint of AI tends to be fairly low or single-player mode of multiple people now producing their documents better or doing their coding better, that make us not a business process. So we said how do we more deeply ingrain agents into what we call the agentic enterprise? And the answer is through agenetic work management. So what is the agenetic work management? Well, the first idea is we prepacked up some agents that can work alongside humans. But unlike the single-play agents, let's make a multiplayer from the get-go. And let's make them instead of you're having to buy these things or find these things, let's make them raise their hands as you're doing your work. So 30 pre-bol teammates. So teammates across -- of course, we've had 17 years of history of what people are trying to do at work. So 30 teammates that actually cover the large part of what people are trying to do at work. And we've pre-skilled them, pretrained them, and pre contexted them on your work craft data. So what does that look like? Let's say, in marketing, where we have 5 of these prebuilt agents, we do have a campaign planner in marketing, that is pre-skilled and pretrained on what it takes to build a marketing campaign. It literally knows that every marketing campaign has these 16 steps, and you're probably going to need to have brand approvals, and you're probably going to need link into your core brand assets. And you're probably going to -- so what it will do is if you're in Asana and you wake up in just over a couple of weeks' time, it will open up Asana you might be working on a campaign, you might be running a task. This thing has got to volunteer itself. And so how, I'm your campaign manager agent. I got you. What the heck is this thing. Let me click on this thing. Yes, I know so much about what you're trying to do already because I've scanned the work graph and figured out who you work with, how you do this. And by the way, I've actually preordained from the people that have trained me what make us a great campaign. Here's what I think going need to do next? Are you game? Sure. So you'll start working with a campaign planner, and it will then in turn so -- and I noticed that these are the 16 people that you work with on campaigns. Do you want me to kind of tag them into? Okay. Great. And the next thing you know, we're all working with that agent. So this is like a completely different paradigm shift. We have millions of users and in a couple of weeks' time, millions of users are going to each have 2, 3, 4, 5, 6 agents that they're working alongside that have volunteered themselves to help. So literally, we are going to go across the calm in a massive leap to see agents in the modern enterprise, prepackaged, pre-skilled pretrained, operating just like humans. And because they're in the same context as the rest of the humans, you can fully govern them, you can fully audit them, and you can fully scope them to work just as the rest of the human teammates. So last thing one, and again, to your point, -- this is not a, oh, we've got some new AI feature. We've got some new virtual chat assistant. This is actually germane to how you work. It's deeply embedded in your workflow. So it is a category changing shift. The second thing is we have developed a chief of staff, we called DASH, and DASH will also be rather pleasing to any of our users because DASH will again be fully contacted in the work graph, before the context it in the teammates that can help. And just be able to pull not just on everything that's in the Asana but also everything that's in your e-mail and everything that's in your chat with Slack and everything that's new calendar and then actually infer or in everything that's in your meetings from Meeting transcripts and infer the tasks that need to happen next and what you do -- and actually, any of the tasks that you currently are working on, what new information that's in that peripheral system, you need to be aware of that can be enriched in that task. So again, is going to be a huge leap forward in what one can imagine a Chief of Staff should do. Again, like really point Aziz's point about would be busy from an R&D perspective, I really can't describe how the velocity of our engineering teams is probably 2.5x in the last 12 months. And so we are shipping stuff that's game changing. And I think the big reveal is just a couple of weeks away, and I think people are going to be very surprised about the new Asana what we've been up to. And then workflows in general, both through our acquisition of STACK and then also through this thing called AI Studio, the ability to visualize processes and actually have those processes connect not just to agents, but also to third-party systems, if this, then this -- so for example, Citi has built their own virtual assitant called Sky is amazing, got a preview of it last night. But -- in reality, where no customer has a discussion with Sky. It was probably going to end up talking in 1 of 5 paths that's going to need some other workflow that falls out of it or some other team that needs to get involved. And that's really where STACK comes in, visualizing workflow, connecting to other systems. So it will end up being the tapestry for the new enterprise is the idea.

Okay. I mean it's it's really interesting and I think kind of how it's evolving and how you're thinking about what the future of Asana looks like. I guess I maybe want to ask about the diffusion of AI into the enterprise and how you see the spreading. How much are you thinking about this being something that just gets surfaced naturally within the product set. And that is what's going to drive the the end user to start using this versus this being kind of more of a sales-driven push and really trying to just get it in front of all the customers and needing to train the good market team on that.

Yes. I spend a lot of time with CIOs. And I kind of talked to series about this great AI productivity gap? And what's the reason behind it? Yes, there are security concerns and governance concerns. But actually, the biggest one is discoverability is that teams just don't know how to use various agents or retains they should be using. And there's a huge productivity -- initial productivity or cold start issue, which is don't have to get started with set agents. Don't have to find them, don't know how to get started with them. So that's a challenge we wanted to solve and very deliberately. We had 6 months where we had these simple AI teammates that we were selling as an add-on, so not discoverable and not germane to the core experience -- and that's fine, and we got as Aziz was saying, 25% attach rate of our AI products, but would 100% attach rate look like. And that's really where in product notification, in-product nudges really being very contexted as someone is trying to work and something that will literally help them and trying to do that in an unobtrusive way. I think we may have nailed it. And so I suspect that most people will want to try these things. We've also been very thoughtful about making sure that there's not a billing event when they try those things, right? So how much do we give to get them to a point where they're delighted has been almost like a scientific endeavor, and I think we found the right amount there, which is basically -- and the unit we're using is requests -- so we're going to see requests for every user so that really you should feel like, why not? Why wouldn't I give this agent to go? It's going to pass my company security requirements, it's going to pass my governance is they're waiting to do work at my bidding, and it seems to know a heck of a lot about what I'm trying to do. Let's give it a world. And because we've seeded 5 requests per user per month, we think that's enough for them to get to a point of joy and kind of saying, okay, this thing is we've got to get more of these teammates. I got to use this more as domain to work.