Three at Baird's Global Consumer Technology and Services Conference. I'm Rob Oliver. I follow the software sector, application software here at Baird. It's a pleasure to have management of Asana here with me today. Sonalee Parekh, CFO, and Aziz Megji, who's from FP&A. Great to have you guys. Thanks for joining.
Thank you. We're delighted to be here.
Great. Please do not hesitate to ask questions. Session three at rwbaird.com, and I'll try to get your questions in. First, let's start, Sonalee, with you. I think some SaaS investors are going to know you because you've been CFO of some other companies before, but joined Asana, I think, late last year, if I'm right, middle of last year.
I joined September.
Yeah.
Yeah. So it's 10 months. An investor told me that yesterday.
Got it.
Time flies.
Yeah. So maybe a little bit of your background for investors, and then why you joined Asana, and then we can kind of dig into maybe levels at the room of kind of Asana, kind of what you guys do.
Yeah, sure. So, why did I join Asana? I think, like, a couple of drivers there. One is our product leadership in the CWM category. And on the category itself, I felt like there was just a huge structural growth opportunity. It's greenfield in many respects, particularly among enterprise and corporates. I saw this huge runway for growth. I also saw this company where innovation was part of the DNA. You know, I met Dustin, and I'll never forget, like, the first meeting in his office. When he gets excited about something, he goes to a whiteboard, and, like, he couldn't stay in his seat because he was telling me about AI Studio. Of course, it hadn't launched yet. It's just gone GA in the last month and a half, and hopefully you'll ask me lots more about that.
I will.
But, you know, he was telling me about how we have this opportunity to be a true leader and just catapult ourselves as a category leader and that AI and AI Studio would really help to differentiate our lead amongst competitors. I love the idea of being in a category that's growing with all this structural growth, with somebody as visionary as Dustin Moskovitz at the helm, who's willing to invest and who's, you know, really sitting at the forefront and bleeding edge of AI. And then, of course, the team. The team was amazing. I brought a couple of people from my own team, and also, like, a world-class board and deeply and highly engaged board.
And, you know, what I would say is that, you know, since I've arrived, I've found lots of opportunity to create value in terms of, you, you talked about people knowing me. I think I, I'm known for being someone who drives efficient growth and productivity. But the thing that I love about Asana is that we can do both, improve efficiency, but also reinvest some of that, those efficiency savings in ensuring that we maintain and, you know, re-accelerate our growth. That really is the trajectory we're on.
Yeah. Exciting. Let's just, to level set for the room, talk briefly about the collaborative work management space, because, you know, it seems a few years ago as if there were 10, 15, 20 players going after this market. And it feels to me as if it's coalesced around a handful of players, with you guys being one of them. So maybe talk about what Asana's core offering is and how you guys compete in the market.
Yeah, sure. Thanks for bringing that up because I think I need to give us a little plug here because Forrester just came out with their Forrester Wave.
Saw that.
I think it was two days ago, and we were one of two leaders on that, on that wave. I think you're right. You know, it's a, it's a category that has, it's quite fragmented, but the leaders, particularly on the product side, like, are truly differentiated. It continues to be competitive. It is a competitive space. Where we really feel we are truly differentiated is by the Work Graph that really underpins everything we do. The wonderful thing about the Work Graph is we have AI Studio that sits right on top of it, and that makes our AI Studio product that much more powerful because it is so context aware. It has all of the data inputs. You know, the Work Graph is continuously updating and upgrading.
You know, all of your work and tasks and everything you do every day just sits on there. Then the AI and AI Studio can pull from that. I think that that's what makes our AI offering truly, truly differentiated. The other thing I would say is, you know, we've been investing in AI Studio for many, many years. Whilst, again, we're talking about, you know, growing this part of the business, and we'll talk more about, you know, how excited we are about the pipeline, you're not going to suddenly see our R&D expense, you know, blow up. In fact, we've been able to keep R&D very much in check.
Some of the savings that we generated over the last couple of quarters since I've arrived, we've been able to reinvest in areas that are helping to drive truly the areas that we think are going to provide outsized ROI.
Got it. Where's the land for you guys typically when you land within a larger company? Is there a particular department, particular area?
Yeah. I think traditionally and historically, we've often landed via the CMO. A lot of our, you know, you can use our product for many things, but I think campaign management, marketing management is something that is very, very typical. I would say the project management office or strategic change office is often a spot where we first go in. Of course, the idea is you go into one department and then you, you know, land and expand and then hopefully go wall to wall. You know, for example, the very large renewal that we talked about at our earnings, which was a $100 million TCV deal, the largest in our company's history, we are proliferated across that organization.
That is an extremely large, one of the largest employers in the world, one of the most sophisticated IT buyers in the world, if not the most sophisticated. You know, we are, just throughout the organization. That is the other thing that makes Asana really special. I think when you asked about the competitive landscape, a lot of our competitors, one, they cannot scale to the degree that we can, but two, they are quite siloed. If you deploy them in one organization or one function, that function cannot talk to the other function. HR cannot talk to marketing, cannot talk to finance, whereas we truly are a horizontal platform.
The beauty of Asana and the beauty of the Work Graph is if we're doing something in finance and then our product team is launching a new product, we are, we can see each other's work, obviously with permissions. You know, there's all of that incorporated into the product, but we can truly work cross-functionally. That's when the real power of Asana comes to life. I don't think any of the other competitors can do that, and certainly not at that scale. I can tell you, one of the things that I did when I first arrived, and I learned so much from this, is I read the win-loss reports. Often when I see the reasons that we win is this, like, ability to scale, ability to scale securely, and then the ability to work across functions. That is why we win.
I think, you know, again, going back to the category, I think the category is uniquely positioned to be able to use AI on top of, again, where everybody's work sits and lives, because that context awareness makes the AI so much more powerful and so much more accurate. Aziz may want to add to that because he spends a lot of time with our GM of AI Studio.
Please. Yeah. I was going to ask about AI.
I think you captured that really well. I mean, we've seen in studies where, you know, the AI living where work is actually done, embedded into that workflow, creates 40% more in terms of productivity gains versus when the AI is sitting in another application and not integrated in the workflow. We're seeing that right now with AI Studio. You know, part of the explosion and the demand is because of the productivity benefits and the efficiency benefits it's driving, which are enhanced with it sitting and embedded within the workflow where the work is done. As Sonalee said, in a context-aware manner.
This work graph, which is like a living repository of all the work in a company, being able to tap into that and come back with solutions and work that's boundaries, has governance, is secure, is really important, especially to enterprises.
Yeah. I think you guys have always been sort of uniquely positioned here on AI because of Dustin's many relationships and sort of the insight he has to a lot of things that are happening within the industry. So, you know, specifically on AI Studio, and I know it's still relatively early, early, so maybe we say your AI strategy generally, when you guys get into these enterprise negotiations, how important is that enterprise, is that AI roadmap to the discussion? Because I assume it's not necessarily being monetized today, but how important is that roadmap to the discussion?
Yeah, and it's really important. It's a really important differentiator. Actually, in the Forrester report, you know, our AI strategy and the way we've embedded AI is something that was specifically called out as a differentiator. You know, all companies are evaluating how and where they're going to use AI. It's a common question. One of the things with AI Studio, we've made it frictionless to adopt it. We've adopted a business model where we're selling AI Studio as a platform fee that comes with an abundance of credits. You're not worried about, well, if I use this and I derive a lot of value, how much is it going to cost? Am I surprised by a bill? You know, Dustin's connection and strong leadership in the ecosystem gives us unique insights into the LLMs and how to orchestrate the LLMs.
A key differentiator of AI Studio is also, you know, being able to match your workflow and the complexity of your workflow with the right LLM to drive the best cost-performance outcomes so that customers can get the most out of the credits they're getting with AI Studio and do more and proliferate it more broadly. That's been super powerful. We've heard really great feedback about how we're approaching it from a business model. People are like, well, I can do so much and the billing is so transparent. There are a few customers who are going above it, you know, and buying more credits, but they're like, I'm driving so much efficiency and productivity, I can justify that. This is great. The business model has really driven the demand and interest as well.
Got it. Got it. Yeah. That's really helpful. Thanks, Aziz. Sonalee, I wanted to ask about that large contract, which you referenced earlier. By the way, you guys just reported your earnings, so you just talked about that large contract and obviously signature win, signature customer for you guys through your contract, massive deal. And certainly displays the scalability. I mean, there was concern on the street about the contract value being a little bit lower than it had been initially. I know we're in sort of a tougher macro. Maybe I wanted to give you an opportunity to address that concern, and then also perhaps to talk broadly about the opportunity within the account beyond sort of the current footprint.
Yeah, thanks. That's a great question. Thanks for the opportunity. You're right. It was a $100 million TCV landmark deal. I would say, you know, a true reference customer for us. It's multiple hundred thousand seats.
Even though you can't name them.
Even though I can't name them, but they're, you know, and what I would say is, you know, it was a trade-off that it was a modest ACV downgrade. On an annual basis, it was a renewal. It was a customer that we had had and we had been renewing on an annual basis. As a management team, we actually really liked the idea of locking in that customer for the next couple of years, for three years. You know, it's very typical, particularly when you get to that size of deal and that volume of deal for there to be a degree of discounting. You know, within that actual deal, we still see upside from it because of course it covers up to a certain number of seats, but it certainly isn't covering the entire company.
This is a very, very large company that has many, many subsidiaries and that does M&A, et cetera, et cetera. We see over the next three years opportunity to upsell into that customer. This deal also did not cover AI Studio. AI Studio and all the other exciting things that are on our roadmap for the second half of this year, as you look over the next three years, those are all potential add-ons, upsells. On top of that, you have potential service plans, foundational service plans, because this deal, and typically a deal of this size, you would expect the customer to take services. The $100 million TCV does not include any services. There is upside from that as well. I hope as we speak, you know, our deal team is working on all of those.
We really viewed it as this opportunity to have a lot of visibility into the next three years, to take a small concession on pricing, but then to also have the incremental upside from, you know, the fact that we're a multi-product company today. When we were signing the annual ACV deals and renewals over the last couple of years, we weren't multi-product. The only way in the past for Asana to upsell with the customer was more seats or a higher SKU. Whereas now we have all these new offerings and, you know, Aziz touched on AI Studio, but then of course we also have AI Teammates, which Dustin talked about on our call. We have resource management coming in this summer. There's a lot of goodies coming that are potential upsell.
The other thing I would say is, you know, within that customer, they are consolidating on Asana. We are displacing other CWM players that are currently within their estate. I think, you know, when a customer is willing to do that, there's an incremental incentive for us to get in there. Lastly, we have become foundational within that customer. In other words, in order to buy or take on an incremental seat within Asana, it's at the corporate level. You do not have to apply by division. The budget is managed at the corporate level. We are one of just, you know, I do not know exactly how many companies they have, but it is a handful of companies that are foundational and we are one of them.
They truly are consolidating on Asana. I think that's, you know, it was a unique opportunity. You know, is it a sign of things to come? What I would say is that there is no other customer within our stable and, you know, within our pipeline that's of that scale. No, you shouldn't expect this to, you know, to have many fast followers. What I would say is that, you know, if there is another customer who wants to sign a $100 million TCV deal, you know, there are obviously, you know, puts and takes on the negotiation that we'd be willing to entertain. You know, would I do that deal again? Absolutely. I would, especially knowing all the great product add-ons that are coming in the pipeline, because again, this all represents, you know, potential upsell.
Yeah, that's very helpful. No, I appreciate that. It actually gives me an opportunity to ask about the go-to-market because, you know, historically Asana was a product-led growth motion and you guys have evolved into, well, clearly with a deal like that, having an enterprise capability. As somebody who came into the organization, you know, kind of late last year, can you just give us sort of a state of the landscape of where you guys are today with your enterprise go-to-market capability? You know, what, if anything, you feel needs to happen in order to sharpen that?
Yeah, of course. I think we firmly established ourselves in the enterprise. Today about 40% of our business is the SB or PLG and 60% of our business is corporate and enterprise. You know, in terms of like, where can we go from there? We're already actually very global. We're seeing a lot of strength actually in both our APJ and EMEA enterprise business. The deal, the landmark deal that I talked about was actually a US deal, but it's a very global company. In terms of where we could actually go, I think from my perspective, and I thought this from the moment I joined Asana, a very small proportion of our enterprise and actually, quite frankly, SB motion comes from the channel. That's atypical.
What I've seen is about high single-digit percentage of our overall ARR that comes from the channel today. Customers that we adopt via the channel, customers that join us via the channel, tend to be stickier customers. You know, the NRR on those customers is significantly above our corporate NRR. You know, that's a business that I would like to see grow a lot more. When you think about kind of how the complexion of our current go-to-market is likely to change, I think as we become multi-product, we will become ever more attractive. I think it will make more sense for us to work with the channel, but that does require a degree of investment.
Yep.
You probably heard when I first joined on the first quarterly call, I talked about the efficiencies we were going to drive, but I also talked about the investments we're going to make. In order to work with partners efficiently, you need a really great partner portal. You need to invest in, you know, certain types of events. All of that is happening. We have a great head of channel and partnerships that Aziz and I spend a ton of time with. I think, you know, if you were to ask me a year from now, will your channel business still be high single-digit or mid-single-digit, mid-to-high single-digit? I would say no, it should become double-digit. If you look at our peer group, you know, there are many that are 30-50% of their businesses from the channel.
Yeah, I was going to say, like, this seems like an opportunity where, you know, others have taken a more channel-friendly approach and, in some cases, that has been a source of success.
It accelerates growth. It's a growth accelerant as well. You know, when I think about where we're going, and I love the way you asked the question because it's like, where are we going? Like, you know, you stabilize your NRR and that gives you a couple of points of growth.
Yep.
Channel goes from where it is today to double-digit. That gives you a couple of points of growth. AI Studio, you know, resource management, AI Studio self-serve, that gives you, like, you can really see this, you know, potential to re-accelerate. That is what gets me excited.
When you think about channel, just to clarify, are we thinking large GSIs or are we thinking more mid-sized partners that can really get in the weeds with Asana and, or both?
Yeah. I think it's because of AI Studio, I'm going to say both.
Yep.
Today it's more the mid-sized partners.
Got it.
Of our five largest deals this quarter, excluding the landmark deal, three out of five of those were partner-driven deals.
Got it.
You know, our partner deals are, they're growing, they're growing double-digit, so we're already on that path.
Got it. You called this out, but one of the things that, you know, investors who knew you were excited about upon your arrival was that greater operating efficiency. Maybe talk a little bit about, you know, your view or vision for Asana relative to these, clearly these growth initiatives that are important to you guys to re-accelerate revenue growth, but how you do that in the context of a framework which is margin efficient.
Yeah, exactly. Again, it's really important, like both matter a lot. It's not just about, I know I seem to have this reputation for caring so much about efficiency, which of course I do, but like, I love growth even more. I expect it to be balanced and we're super proud of the progress we've made on margins. We went from minus 9% to above 4% operating margin. We're now non-GAAP OP profitable. We did that. I've been here 10 months. I'm like super excited about that. There's so much more to go for there.
With our 90% gross margin, which by the way is another reason I joined Asana, 'cause when I looked at our financial profile, I saw these super juicy gross margins and the operating margin and I thought, wow, there's a ton to do there. I think, you know, with our 90% gross margin and our growth and, you know, I talked about some of the levers to hopefully re-accelerate growth, in the medium term, you get the operating leverage from that. That alone gives you a very healthy multi-quarter, multi-year margin expansion story. The things that I looked at when I first arrived were sales and marketing, and specifically around marketing. What we found was there was a lot of program spend, programmatic spend that wasn't giving us the ROI that we were looking for.
We pulled back quite considerably on that spend. You see it in our sales and marketing as a percentage of revenue. What we found was our pipeline barely moved. Actually, our pipeline is healthier today than it was. Actually, the quality, it's not just like the amount in your pipeline, but it's the quality of it, right? Particularly top of funnel that has actually improved. I think there's more we can do there. We looked at the productivity of our sellers and, you know, now that we're multi-product, it's great. They have more in their, you know, bag to sell onto customers. We're expecting our salespeople to become more productive. I think there's more we can drive there. Productivity with the channel. I think there's more we can drive there to bring down customer acquisition costs.
You know, there's the procurement and everything around programmatic spend across the company. There's more we can do there. Without doing anything incremental, you already would get a healthy margin expansion story. Again, multi-quarter consecutive, like sequential and multi-year. We think we can do even more on top of that. The last thing I will say is our headcount mix, you know, when I first arrived, it was sort of 85%-90% in high-cost GEOs. Just through backfilling and, you know, changing our new hiring in certain target areas to lower-cost GEOs, that moves the dial considerably. That's something that we're, you know, already doing. We've been hiring very successfully and at very, you know, a good velocity in Warsaw and Reykjavik. You know, Warsaw, we have great teams now, team leaders.
Once you get those team leaders in place, it's so much easier to then, you know, again, increase and improve that hiring velocity.
Got it. Great. Thanks. We only have a few minutes to go and there's a couple of questions I want to try to get to from the audience. One is, you know, you guys have referenced Dustin a lot here in the presentation fireside chat, but he actually just stepped away for an operational role. Can you talk about any impact that might have on the culture or operations of the company? And can you refresh us as to the timeline for a replacement on CEO?
Yeah, of course. You may think Dustin stepped away. How many times has he pinged you in the last 24 hours? Dustin has not stepped away yet. He is as engaged or more engaged than he's ever been. What I said in my last meeting was, I think he really feels this higher calling in terms of he does not want to be bogged down in the operational day-to-day stuff when there is so much to do on the AI vision and strategy. You said Dustin's in a really unique position, like in terms of how he fits into the ecosystem. He feels like we have a true lead here and he does not want to squander it.
It's really important for him to take that, you know, more strategic role, really focused on product and AI. In terms of the search, it's been, you know, really, really good in terms of the quality of the candidates we're seeing, their caliber, the pipeline of candidates, but the bar is high and we want to make sure we get the right person with the right experience, you know, someone who knows SaaS, someone who is operational, someone who has operated at our level of scale and beyond. Also really importantly, and this is very Asana, like someone who fits in with our culture and our values and our mission. Like we are very mission-driven.
I go back to that first conversation I had with Dustin, you know, it was about like, how do we make work, like how do we take the friction out of work for people? I think that mission is really important and AI Studio actually supercharges it.
Got it. So, a year from now and hopefully you guys are back in a year and we're talking, you know, without having, putting you in a position to have any forward projections on numbers, what are we going to talk about? I know you got excitement around the channel, the enterprise go-to-market, the opportunity to potentially re-accelerate revenue growth. Like, there's also a lot of disruption happening right now, a lot of with generative AI and the macro. Perhaps in a year, like what are some of the things you'd like to see?
Yeah. I'm going to start with AI. I'm going to say like, I want to come back in a year and tell you about this like incredible milestone we've hit in terms of AI Studio and the AI self-serve business. I think that's like, that would be my number one and that we have truly established ourselves. Like Forrester said, said it two days ago, but I want to like, you know, increase that lead even more and, you know, be the defining platform for human AI collaboration, like firmly entrench ourselves as the solution, the platform. Of course, I'm the CFO. I have to say this. I want to drive a financial profile that creates value for all of you guys. By the way, if it creates value for all of you guys, it creates value for me too.
I think that would be success for me. How about you?
Yeah, I agree. I think on, echo what you said about AI Studio, there's also other add-ons as well, resource management and many in the pipeline for next year that can continue to drive incrementality and give our sellers more to sell and drive more value, you know, for our customers. That, that's key as well. I think also in diversifying our go-to-market, building that channel, you know, the channel amplifies the productivity of our sellers. You know, allows them to sell more through the assistant and the reach of the channel. That's key in driving that velocity. On the retention side, I think coming back next year with a material improvement in retention, you know, there's so much initiative, so much focus on net retention at Asana, both on the enterprise side and on our monthly business.
You know, the monthly business contributes a disproportionate amount of churn. It's been an area we've been less focused, and we've really ramped that focus. Just a couple basis point change in the gross retention, that can really change the overall net retention and our revenue growth. We have a concerted focus. Those initiatives take some time to seed and translate into NRR and revenue, but by this time next year, we hope to be showing the progress of those and an upward trajectory, not just stabilization on NRR.
Great. Thank you. With that, I think we're out of time. Please join me in thanking Asana. Sonalee, Aziz, really appreciate it.
Thanks.
Thank you.