Yahoo Finance Asana, Inc. (NYSE:ASAN) Q4 2024 Earnings Call Transcript
Asana, Inc. (NYSE:ASAN) Q4 2024 Earnings Call Transcript March 11, 2024
Asana, Inc. misses on earnings expectations. Reported EPS is $-0.27819 EPS, expectations were $-0.1. Asana, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by, and welcome to Asana's Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Catherine Buan, Head of Investor Relations. Please go ahead.
Catherine Buan: Good afternoon, and thank you for joining us on today's conference call to discuss the financial results for Asana's fourth quarter and fiscal year 2024. With me on today's call are Dustin Moskovitz, Asana's Co-Founder and CEO; Anne Raimondi, our Chief Operating Officer and Head of Business; and Tim Wan, our Chief Financial Officer. Today's call will include forward-looking statements, including statements regarding our expectations for free cash flow, our financial outlook, strategic plans, market position and growth opportunities. Forward-looking statements involve risks, uncertainties, and assumptions that may cause our actual results to be materially different from those expressed or implied by the forward-looking statements.
Please refer to our filings with the SEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, for additional information on risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today's call we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalents are available in our earnings release which is posted on our Investor Relations webpage at investors.asana.com.
And with that, I'd like to turn the call over to Dustin.
Dustin Moskovitz: Thank you Catherine, and thank you all for joining us on the call today. In Q4, we beat the top- and bottom-line guidance, as we continued on our path to move upmarket and win the largest enterprises. Today, I'll first go through the business highlights from the quarter and year. And then, I'll talk about our excitement and increased focus on our new AI offering, Asana Intelligence, the early traction we're seeing, and how the Work Graph plus AI is differentiated. And finally, I'll share what we're hearing from CIO's, IT leaders and how we're focusing on their pain points. In Q4, revenues grew 14% year-over-year and fiscal year revenue grew 19% year-over-year. Q4 non-GAAP operating loss margin came in at 9%, improving 16 percentage points versus Q4 last year.
And for the fiscal year 2024, our non-GAAP operating loss margin improved 29 percentage points versus the previous year. This is a huge achievement and credit goes to each and every person on the Asana team for their focus on expense management and effective investments. We will continue to be focused on growth and profitability. And on a free cash flow basis, we expect to achieve free cash flow positive by the end of this year. Tim will talk in more detail about this shortly. In the quarter, we continued to land and expand with some of the largest companies across major industries including manufacturing, healthcare and pharmaceuticals, transportation and logistics, and financial services among many others. And as you know, the fiscal year highlighted customer wins including three major automotive manufacturers, four of the largest telecommunications and internet service providers, five of the largest media conglomerates, and six major financial services firms.
And these are just some of our largest names from each of the last four quarters. Across our entire customer base, 73% of the Fortune 500 are Asana customers. We have also had great success in partnering with customers to grow at a massive scale. We have several Asana customers who have over 10,000 paying seats, with our largest deployment at over 200,000 seats. We have more than 150,000 paying customers as demand for our work management solution continues to increase. The number of customers with over $100,000 annualized spend grew 20% year-over-year. As these customers continue to grow with Asana, their dollar net retention rate continues at a strong pace, at 115%. Revenue from this cohort grew 29% for the fiscal year, faster than the overall growth, and represented 27% of our total revenue.
What makes me feel good about our success with enterprises is not only in the number of large customers and the growth, but also the health of these enterprise accounts. In most of our largest customers, Asana is highly utilized, the IT leads are helping us grow and expand, and the accounts have the ability to keep growing even more. This is true even in the organizations where heightened focus on budgets has temporarily slowed account expansion. I'm also excited about the progress we've made with AI, and the opportunity in front of us. Asana Intelligence strengthens our core value proposition. It helps our customers drive more clarity, accountability, and impact up, down and across their organizations. As you know, we run our business on Asana, and we're constantly testing our latest innovations.
As part of this, we've been quickly adopting our latest AI features, and the insights are remarkable. The state of the art is advancing quickly, and we believe LLMs and AI generally will only get better from here. I'm excited for the future and we're seeing real value now. Like many of our customers, we've just wrapped up our objectives and key results process for the year, leveraging Asana Intelligence, our AI solution, to quickly report status across levels of the organization. These processes always feel like a heavy lift, and frankly a bit of a burden, even though they are important, as everyone is eager to move on to the new year's priorities. But using Smart Status cuts this process in half or more, with higher quality results. And it will only get better over time.
Similarly, we just went through our company-wide 360-degree performance reviews, another famously onerous process. I personally used our Smart Answers product within each of the one-on-one projects I maintain with our executives, summarizing in minutes all the important topics and accomplishments we'd discussed in the past year. At my direction, it even highlighted all the specific times I gave recognition or feedback, so I could easily include them in the reviews. That's not a special performance review feature we built, to be clear; I simply asked the product to help me use our general Smart Answers feature, suggesting specific categories and questions to consider. Even as an end user, I was empowered and had the flexibility to write a custom workflow in minutes that saved me hours of work across my whole team.
Executives and managers love the visibility into their team's work and the insights they can derive with AI. This has proven to be not only a significant productivity boost but is also yielding higher quality outcomes. This wouldn't be possible if we were running our business with email, chat, spreadsheets and slides. That's why Asana is different. The Work Graph plus AI are more than the sum of their parts. Since the Work Graph acts as a map of an organizations' plan of record and preferred processes, we have a unique opportunity to solve collaborative work problems because we have the most relevant context and data to create useful and accurate generative outputs. We believe we are the only work management platform that has this combination, AI powered by a clear, structured map of how work actually gets done across organizations.
This empowers our customers to ensure people and AI work together to accomplish objectives and achieve results. We're still early in our AI journey as a company but we're seeing some exciting trends beginning to play out since we first launched Asana Intelligence last fall. AI is coming up in virtually every conversation we're having with our enterprise customers, as they look to us for help implementing AI in their workflows. Customers are excited about AI now and are actively making purchase decisions based on our AI vision. Pressure is coming from the top down and leaders want to better understand how they can drive business value with AI at scale, and do so safely and securely. And we're even turning skeptics into believers as we're able to demo how AI is not just a chat tool, but how it can solve critical business problems when embedded directly in Asana workflows.
Just the other week, at our Work Innovation Center, we hosted an executive from one of our largest customers. She said she was hesitant to adopt AI. Our team positioned the value of AI to deliver faster and more effective project status updates, a key part of the job for many of our customers that typically takes considerable time and effort to do well. With Asana Intelligence, this status can be written generatively, deep-linking relevant work from Asana so they know where every fact came from, and highlighting progress made against company goals. The tone and style can even be personalized. We showed this in our customer meeting, and immediately turned this skeptic into a believer and they're now rolling out this functionality to their whole organization.
This is just one powerful early example of how differentiated our solution is. The time savings were amazing, but what really impressed the customer was the quality of the output and the fact that it is linked straight to the source references. This is the power of the Work Graph plus AI at work. Demand for our AI features is one of the leading drivers of growth in our new product tiers, especially in Advanced, Enterprise and Enterprise Plus. Although it is still early we've had over 20,000 customers adopt the new tiers with AI. What's next? We've started rolling out our next wave of innovation, starting with Smart Digests, which provides quick summaries of what happened since you last visited a project. It can catch you up if you were out on vacation, or simply focused elsewhere.
Next, is powering goals standardization, workflows, status updates and business insights at every level of the Work Graph with AI. I believe in the foreseeable future, Asana will give you real-time insights on qualitative information about the status of work across all levels of the Work Graph, in the same way that our dashboards do for numerical data, delivering a huge part of our original vision. On the partnership front, we have strategic partnerships with Anthropic, OpenAI, and AWS, which allow us to build world-class solutions with leading LLM providers. We're able to get early access to foundation models to help test and prototype against our enterprise AI solutions, as you just heard from Anthropic's announcement of Claude 3. And this benefit is a two-way street, as these LLM providers tune their models to our use cases over time.
As one of their customers, they trust us to set the bar for what great looks like, referencing our work together to help conceptualize their models, and in return, this helps power our most ambitious and complete vision for collaborative work management. And as Asana customers, they each enjoy the fruits of our combined efforts to power their own work and dream even bigger. These partnerships form a virtuous cycle and we expect the benefits to compound over time. We are also partnering more and more with CIO's and IT leaders through our Work Innovation Lab, which is regularly featured in Forbes, the Wall Street Journal and Harvard Business Review, among others. CIOs are being asked by their CEOs and Boards to drive AI strategy and rollout, operationalize business objectives, and help accelerate go-to-market.
They feel the urgency to get value from AI now, but must do so in a safe and trusted way. CIOs are not just Chief Information Officers, they're also Chief Intelligence Officers. This is an important expansion in the operating role of a CIO and Asana is uniquely positioned to help. We're investing in making sure CIOs can connect all their work data to build the right foundation for AI. We'll soon be launching new innovations like a Workflow console, deeper integrations with Microsoft 365, and ways to intelligently draft and standardize goals across the entire organization. We're helping CIOs deploy trusted AI across every department with the right safeguards and transparent controls, with features like Sandboxes, Multi-Org deployments, and AI-powered custom onboarding, designed to support companies at scale.
And CIOs want to see wins with AI by delivering immediate impact and ROI now, and they can do this with the Asana platform. Features including: our new Executive Summaries capabilities; Smart Answers across all Work Graph objects, from tasks to projects to portfolios to goals; and Smart Status updates at the portfolio and goal level. They're providing real value, time savings, and better outcomes for CIOs and their stakeholders across the business. Again, I want to really emphasize that Asana's ability to connect work all the way up to higher-level objectives gives us the ability to provide unique and powerful real-time insights at every level. One way of looking at our roadmap this year is we're going to be investing in leveraging and amplifying that powerful source of differentiation.
The pace of change is only going to accelerate in this new AI age, and we believe we are extremely well positioned to capture this opportunity, thanks to our investment in the Work Graph data model and our incredibly scalable architecture that is proven to support 200,000-plus seat deployments within a single organization. It's because of this investment, our position today, and our product vision that Gartner recognized Asana as a Leader in the Gartner Magic Quadrant for Collaborative Work Management, and positioned us furthest in Completeness of Vision. You'll hear all about our latest AI innovations and all the investments we're making to help CIOs thrive coming out of our next stop on the Work Innovation Summit tour on March 19th in Sydney, Australia and then later in San Francisco in June.
Stay tuned for more announcements. Before closing I wanted to highlight the recognitions our team has been awarded during fiscal 2024. For another consecutive year, Asana was recognized by Fortune and Great Places to Work across several categories: Best Places to Work in the Technology Industry, Best Places to Work for Millennials, Best Places to Work in the Bay Area. Inc. Magazine also awarded Asana Best Workplaces for the sixth year in a row, and Fast Company awarded Asana Best Workplaces for Innovators in the Enterprise category. Finally, I'm very aware of the dynamic market conditions that continue to impact our near-term business. Our strategic initiatives are aligned with navigating these headwinds to ensure sustained growth and a path to profitability.
At the same time, I'm more excited than ever about the potential of Asana, our vision for collaborative work management, and the value we can provide for our customers in this new era of work. Everything we are focused on today is in service of driving enterprise growth and customer success: building pipeline, retention and C-level customer engagement. And now, I'll turn it over to Anne
Anne Raimondi: Thanks, Dustin. As Dustin mentioned, during the quarter, we continued to feel the impact of the macroeconomic headwinds, increased budget scrutiny and reductions in headcount among our customers, especially in the technology vertical which has been a drag to our growth. However, across the business there are some early signs that hint at modest stabilization. As you have seen in the news, headcount reductions have continued but they are smaller this year in aggregate versus last year and we should be lapping the bulk of those renewals in the first half of the year. As we move upmarket and further up the approval chain to senior level decision makers, the deal cycles continue to be elongated, but the conversations reflect that work management is increasingly more strategic, especially in the largest enterprises.
Sequential growth in new business appears to be stabilizing, especially for industries outside of technology and our sales force productivity continues to improve. We still have to lap the original headwinds impacting larger existing customers in the first half, but I am energized and optimistic about the full year and beyond. Our new product plans are driving up-tiering and AI is a primary focus for the largest customers. It's still very early, but we can definitely see that AI demand was accretive to growth even in the first quarter that it was available in our new tiers. We are hiring new Quota carrying sales people rapidly in every region and will be increasing capacity throughout the year. And all of our revenue leadership roles are filled: a new General Manager of the Americas, a Global Head of Channel, and leaders across operations and field enablement.
We are starting the year in a better position than 12 months ago. In addition, we continue to drive thought leadership in the collaborative work management space. In our second annual State of The IT Leader report, the key proprietary research publication from our Work Innovation Lab, we surveyed more than 1,200 IT professionals from across the U.S. and UK to understand what's top of mind in their roles, especially as their organizations are adopting AI. This year, we saw three key trends in the data: first, a push to streamline and consolidate tech stacks; second, challenges and concerns related to data accuracy and robustness; and third, the role of the IT leader being called on to lead their company's AI strategy. The research finding echoes what we see within our own customer base.
Executives are planning long term and they're looking for strategic partners. We believe this is helping us win on vendor consolidation discussions and drive multi-year commitments for us. And I want to echo both what we're seeing in our research, and add to Dustin's earlier remarks about the excitement we're seeing around AI with our customers. I recently returned from a trip to Japan where I was visiting several Enterprise customers alongside our Chief Revenue Officer, Ed McDonnell. One of the customers we spent time with was Fujitsu, a global technology and business solutions leader. We learned that Fujitsu held an Asana AI Ideathon with their employees, as they seek innovative ways to use Asana Intelligence to transform the way they work.
Fujitsu has shared a recent idea that came from the ideathon to help them better manage their large global organization. Like all large multinationals, the company dedicates considerable time to resource planning for global projects. They manage this process in Asana today, but with our AI features, they've ideated new ways to optimize their global resource planning, to make it both more efficient and more effective. The team is foreseeing infinite possibilities to use Asana Intelligence, like the idea of helping identify the right teams and individuals for each specific assignment, assigning the work, and then handling language translation to assist both in the handoff, and to provide status updates on work progress. It's a powerful example of what Asana Intelligence can do, and just the beginning of what's possible as we continue to invest in helping companies work smarter with AI.
And examples like this, powered by AI, will help fuel our success with the largest organizations in the world. Enterprise customers representing organizations with over 2,000 employees, continue to be our fastest growing customer cohort. And we are seeing new business broadly across several diverse industries, including healthcare, financial services, transportation, and manufacturing, among others. Fujitsu, the global technology and business solutions leader I referenced earlier, significantly expanded their use of our enterprise solution this quarter as they continue their organization's digital transformation initiatives. Fujitsu has found that teams using Asana spend 30% less time on admin work, so they're deploying our platform to more business units and departments to drive employee productivity and impact.
Additionally, they will now be managing goals and KPIs for the organization in Asana. We continued to see growth within the healthcare sector this quarter for a range of use cases, from onboarding new physicians, to fundraising, to digitizing their business operations. Some notable wins include: the emergency services division of one of the largest single-payer healthcare systems in the world; a global healthcare company focused on pharmaceutical distribution, healthcare services, and medical supplies and equipment; and a significant humanitarian medical aid organization, that deploys thousands of doctors and has treated over 100 million patients around the world. In the fiscal year, we started to establish beachheads in the Financial Services sector with some of the largest global companies.
These include: a major exchange in the UK; a global provider of financial data and news who you likely rely on every day at work And one of the world's premier investment banking firms; and we continue to land significant deals across logistics and transportation. For example, a multinational transportation & business services leader selected Asana to streamline and manage all of their work to enable the organization's sales team from training to content to help drive additional revenue for their business. And we also had an expansion with one of our large logistics customers. We also had a large land deal with DK, a British multinational publishing company and a division of Penguin Random House, who will be using Asana across their organization.
As a long-time customer of DK, I'm thrilled we have the opportunity to support their mission to inspire, educate and entertain readers of all ages. Despite the headwinds we see in the market, we continue to expand with some of the leaders in tech and are winning on consolidation decisions: Indeed, the number one job site in the world, expanded their use of our platform this quarter. They've been a customer of ours for a few years, and core business functions across their organization from project management, to customer-facing divisions to internal operations all use Asana. They love and rely on Asana to track progress on their goals, execute their initiatives faster, and pivot quickly when necessary. Thanks to the strong business value they've experienced with Asana, they will be transitioning employees within their IT, PMO, and operations teams from other tools to also manage their work in the Asana platform.
In summary, even with the current market conditions, we continue to see more multi-year deals, winning on vendor consolidation decisions, and are continuing to diversify our enterprise success across more industries. We have continued to win these strategic expansions, particularly at some of the most recognized companies in the world, and that is because the larger secular tailwinds around digitization continue. Looking to Q1 and the rest of the year, we continue to focus on executing on top down go-to-market strategies that help us win business from new and existing customers, with a focus on more and new enterprise sales plays. Enhanced account coverage across the entire customer journey, from strategic account management to professional services, plus AI for building workflows and strategy to scale customer success.
And International growth opportunities in our global regions where we are thrilled to now have new enterprise sales leaders. And of course, increasing sales capacity throughout the year. We are excited to bring the Work Innovation Summit to more parts of the world in the coming year. Combined with the launch of AI features across every tier, we are seeing continued growth in the pipeline and are excited to turn that into incremental revenue. And with that, I'll hand it over to Tim.
Tim Wan: Thank you Anne. While I'm pleased with our high-level results, some of the underlying drivers are still developing. As Anne mentioned, we continue to see headwinds from a macro standpoint, which continue to impact our dollar-based net retention rates. We also have more work to do as we develop our enterprise go-to-market muscle and continue transitioning upmarket. By the same token, I am proud of the efforts the team has put in to manage costs and improve efficiency. We made substantial progress on improving our operating margins and free cash flow in fiscal 2024. Now on to our Q4 results. Q4 revenues came in at $171.1 million, up 14% year-over-year. We have 21,646 core customers, or customers spending $5,000 or more on an annualized basis.
Revenue from core customers grew 16% year-over-year. This cohort represented 75% of our revenues in Q4, up from 73 % in the year-ago quarter. We have 607 customers spending $100,000 or more on an annualized basis and this customer cohort grew at 20 % year-over-year. As a reminder, we define these customer cohorts based on annualized GAAP revenues in a given quarter. Our dollar-based net retention rates were lower, mainly driven by seat adjustments. Our overall dollar-based net retention rate was over 100%. Our dollar-based net retention rate for our core customers was 105%. And among customers spending $100,000 or more, our dollar-based net retention rate was 115%. As a reminder, our dollar-based net retention rate is a trailing four quarter average calculation and thus a lagging indicator.
We continue to see stable logo churn rates overall and low churn in our largest accounts. If I look at our largest customers, those with $100,000 and above, the non-tech NRR appears to be stabilizing. However, companies continue to remain mindful of the near-term economic challenges. I'll speak specifically to our outlook regarding this in a moment. As I turn to expense items and profitability, I would like to point out that I will be discussing non-GAAP results in the balance of my remarks. Gross margins came in at 90.1%. Research and development was $54 million, or 32% of revenue. Sales and marketing was $88 million, or 51% of revenue, an improvement from 62% a year ago. G&A was $27.7 million, or 16% of revenue. Operating loss was $15.6 million, and our operating loss margin was 9%, representing a 16 percentage point improvement versus a year ago.
The improvement in our operating margin demonstrates our ability to take a balanced approach to growth and profitability. Net loss was $10.1 million, and our net loss per share was $0.04. Looking at highlights from the full fiscal year. Fiscal year revenue grew 19% year-over-year to $652.5 million. We added over 2,200 core customers during the year. We also added over 100 customers spending $100,000 or more on an annualized basis during the year. Revenue from customers spending $100,000 or more on an annualized basis grew over 29% year-over-year. This cohort represented 27% of our revenues for the full year. Moving on to the balance sheet and cash flow. Cash and marketable securities at the end of Q4 were approximately $519.5 million. Our remaining performance obligations, or RPO, was $349 million, up 17% from the year-ago quarter.
We expect 84% of RPO will be recognized over the next 12 months. That current portion of RPO grew 17% from the year-ago quarter. Our total ending Q4 deferred revenue was $271.2 million, up 16% year-over-year. Q4 free cash flow was negative $17 million or negative 10% on a margin basis, an improvement from negative 18% from the year-ago quarter. Free cash flow for the full fiscal year was negative $30.4 million, almost $130 million improvement year-over-year. Moving to guidance. For Q1 fiscal 2025, we expect revenues of $168 million to $169 million, representing growth of 10% to 11% year-over-year; we expect non-GAAP loss from operations of $23 million to $21 million, representing an operating margin of negative 13% at the midpoint of guidance; and we expect net loss per share of $0.09 to $0.08 assuming basic and diluted weighted average shares outstanding of approximately 226 million.
For the full fiscal year 2025, we expect revenue to be in a range of $716 million to $722 million, representing a growth rate of 10% to 11% year-over-year. We expect non-GAAP loss from operations of $61 million to $55 million, representing an operating margin of negative 8% at the midpoint of guidance. We expect to be free cash flow positive by the end of this calendar year. And we expect net loss per share of $0.22 to $0.19 assuming basic and diluted weighted average shares outstanding of approximately 230 million. Our guidance assumes that there is no change in the current macroeconomic environment. We continue to believe dollar-based net retention rates should bottom around Q1 and hover at plus or minus 100% through Q2, when a number of large deals from the previous year renew.
In addition, we anticipate the recent leadership changes we have made in our sales organization will take time to fully manifest. We are committed to maintaining a disciplined and balanced approach to optimizing costs and improving efficiency and profitability. We will continue to invest in future growth opportunities, like AI, which we expect will drive long-term value. Our goal this year is to reaccelerate our revenue growth rate while remaining committed to delivering durable positive free cash flow by the end of calendar 2024. As we move towards positive free cash flow, we are encouraged by the progress we've made to date, and I am optimistic about our future and our position within the enterprise segment. Over the next 12 to 24 months, we anticipate incremental growth will be driven by expansion from our core customers, which will be a tailwind to our NRR; our focus on moving upmarket, so focusing on moving more of our customers to the $100,000 spend levels; and our new product tiers, powered by Asana Intelligence which will help with more lands, improve adoption and encourage new expansion.
And with that, I'll turn it back to Dustin for more closing remarks.
Dustin Moskovitz: I want to close by punctuating that in fiscal 2024, we made a commitment that we would become free cash flow positive by the end of the coming year and we focused the entire organization on improving our operating efficiency. In spite of challenges along the way, we made more progress in one year than we expected by a wide margin. This year, we intend to follow through on our commitment to become free cash flow positive by the end of the year, but we're going to do it while also achieving our other key goal this year: re-accelerating our revenue growth rate. We have achieved this twice before in our history as a company, and intend to do it once again. I'm incredibly energized by our roadmap and by the enormous opportunity that lies ahead.
Catherine Buan: And with that, operator, we'd love to start with the questions.
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