Good afternoon, and thank you for attending today's Asana Fourth Quarter and Fiscal Year 2023 Earnings Call. My name is Danial, and I will be the moderator for today's call. [Operator Instructions] It is now my pleasure to pass the conference over to our host, Catherine Buan, Head of Investor Relations. Catherine, you may proceed.

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 2023. 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, our 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. Reconciliations 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 web page at investors.asana.com. And with that, I'd like to turn the call over to Dustin.

Thank you, Catherine, and thank you all for joining us on the call today. Despite a challenging year, we've in fiscal 2023 with strong growth, driven by our continued success serving enterprise customers and meaningful progress towards profitability. Q4 revenues grew 34% year-over-year and fiscal year revenue grew 45% year-over-year. This growth was fueled by some of the largest companies in the world who are Asana customers and represent industries such as media, automotive, professional services, manufacturing, health care, transportation, logistics, telecommunications, and financial services. During the fiscal year, we closed deals with 3 of the world's largest automotive manufacturers, 4 of the largest telecommunications and Internet service providers, several large professional services companies, 5 of the largest media conglomerates, a top 5 shipping and logistics company, and 6 financial services firms. Overall, 8 of the top 10 tech companies are Asana customers and 80% of the Fortune 100 use Asana. And in a moment, Anne will share more of our specific Q4 wins. When you segment our customer base by those with more than 2,000 employees, an even more precise look at our enterprise penetration, we have well over 1,500 enterprise customers. Our seat penetration in most of these accounts is significant but still in the single-digit percentages on average. So there's a large opportunity for future growth. Some of the most strategic companies in the world are partnering with Asana to define what work management at scale looks like. We have several Asana customers who have over 10,000 paying seats. We now have more than 139,000 paying customers as demand for our work management solution continues to increase. Customers with over $100,000 annualized spend grew 49% year-over-year. As these customers continue to grow with Asana, their dollar net retention rate continues at a very strong pace at over…

Thanks, Dustin. The macro headwinds continue to impact our expansions and created longer sales cycle in Q4, and will continue to impact us going into fiscal year 2024. Top of funnel demand remained stable in the fourth quarter. Our free-to-pay conversion rate was also stable and helped feed our total customer number. We added 4,000 customers in Q4, consistent with the previous quarter. The softness in Q4 was somewhat offset by overachievement in our enterprise and strategic accounts. Our largest customers really tell the story of the kind of value and ROI Asana delivers and how much potential opportunity there is in the market. We have invested heavily in our enterprise products over the years, and we will further build our organizational go-to-market muscle in fiscal year '24 for the growth opportunity ahead. We expect to see those investments fully materialize by the end of this year. Beyond the macro headwinds, I also believe that this is an important time for us to be building for longer-term success. There are areas where I know we can do even better. We've identified additional opportunities for execution improvement, especially ramping sales reps and increasing productivity across the field and sales operations. We also recently reorganized territories and teams and rolled out new messaging in order to better position us for the next few years. And there's still more work to be done to execute consistently and broadly in all regions around the world. When I look back, we had some significant highlights and momentum that will carry our business forward. Looking at our largest customers, they continue to grow with us for multiple years. There are a number of strategic use cases that drive these long-term investments. Digital transformation projects are our largest. One of the world's largest consumer and industrial electronics…

Thank you, Anne. Q4 revenues came in at $150.2 million, up 34% year-over-year. Revenue from the U.S. grew 40% year-over-year, accounting for 61% of our total revenue. International grew 26% year-over-year, accounting for 39% of our revenue. Currency impacted our international growth rate by roughly 300 basis points and the overall growth rate by about 100 basis points. International growth would have been 29% year-over-year and total revenue growth would have been 35% year-over-year without the impact of currency. Revenue from customers spending $5,000 or more on an annualized basis grew 42% year-over-year. This cohort represented 73% of our revenues in Q4, up from 69% in the year-ago quarter. We have 19,432 customers spending $5,000 or more on an annualized basis, up 26% year-over-year. Our largest customers remain our fastest-growing cohort. We have 506 customers spending $100,000 or more on an annualized basis, and the customer cohort is growing at 49% 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, but remained healthy across every cohort. Our dollar-based net retention rate was over 115%. Among customers spending $5,000 or more, our dollar-based net retention rate was over 120%, and among customers spending $100,000 or more, our dollar-based net retention rate was over 135%. As a reminder, our dollar-based net retention rate is a trailing four-quarter average calculation. We continue to see stable gross churn rates overall and across the cohorts and low churn in our large accounts, demonstrating the value we deliver for our enterprise customers. However, we expect our overall dollar-based net retention rates to trend lower as companies remain mindful of the near-term economic challenges. As I turn to expense items and profitability, I would like to point out that I will…

Thanks, Tim. One thing I want to add to my formal comments is that I'm planning to enter into a 10b5-1 trading plan on March 9, 2023, to purchase up to 30 million shares of our Class A common stock, subject to the required cooling-off period. I'm doing this because I personally believe Asana shares are undervalued, given the scale of the opportunity I see in front of us. The work management market is an enormous underpenetrated market that I believe we're well positioned to lead, especially in enterprise. Working alongside some of the most strategic leaders in the respective industries gives us unique insights into their complex enterprise needs and various business models. This helps inform our product strategy and positions us well to understand the future of work and help solve our customers' most critical challenges over the long term.

Thank you, Dustin. And before I open it up to Q&A, I want to note that Mr. Moskovitz's statements regarding his trading plan to purchase shares of our Class A common stock may be considered forward-looking statements that are subject to risks and uncertainties, including that his trading plan may be modified, suspended determinated by him at any time, and there can be no assurance that the price and volume parameters of this trading plan will result in purchases of shares of our Class A common stock in line with its expectations in such forward-looking statements. And with that, operator, we can open it up for Q&A.

[Operator Instructions] The first question comes from the line of Brent Thill of Jefferies.

This is [Anic Bamon] on for Brent Thrill. So Dustin the face of decelerating top line, which is undoubtedly macro led, what continues to give you faith that you will ultimately win the enterprise? And what is left to do to solidify that position?

Yes. Thanks for the question. There are a lot of things that I think are really positive signs for us. I think that the thing that I feel most excited about is just the strength of the really impressive customers that we have and how healthy those accounts are. So even though we've seen headwinds in the form of longer sales cycles that we talked about this quarter and last quarter, we know that there's still really high utilization even when the deals are stalled. We know those customers aren't going to competitors. And we have a lot of signs from them that they intend to expand with us over time. And so we feel really great about the places where we've landed already, especially in the Fortune 100 and other enterprises. And we think there's just a ton of room to expand there. And we know that when we do see consolidation conversations, and customers looking to really take the next step and commit to a partner. We're really well positioned. We often win those, thanks to the strength of the Work Graph and the way it facilitates cross-functional use cases. The fact that it's loved across many functions instead of specializing into one, and the credibility we have, not just from having the existing deployments, but also from the high ratings we get from analysts that are focused on the enterprise segment.

The next question comes from Jackson Ader of SVB.

Great. The first one, Anne, I think it was you that mentioned some opportunities on pricing and packaging, specifically in the enterprise. I'm sure these are still in the works, but any kind of specifics you can give us like ideas that are kind of bouncing around? And also why just focus on the enterprise?

Jackson, thanks so much for your question. Yes, the updates we're exploring are really focused on aligning value for our customers, and they're deeply informed by both existing enterprise customers as well as prospects we're speaking with and market analysis. Our priorities, as you might imagine, we are exploring a whole number of options. I think Dustin mentioned add-ons. But really, what we're thinking about there is making sure that our enterprise customer needs are met, and we're delivering for them, and they're realizing value as they scale and grow with us. And so that's why we're focusing on that particular segment. Our current pricing and packaging plans have evolved over the years, specifically for the existing base. And with the growth in enterprise, that's why we're laser focused on pricing and packaging for those customers.

Okay. Great. And then a quick follow-up -- so actually, just on those, like the multiyear deals that you sign with these Fortune 100 companies, do the contracts, do they have like minimum seat ramps that go up through the multi-years? Is it adoption based? Or are they buying like a big pool of seats that might create some shelf wear? I'm just curious how those multiyear deals are layered in.

Yes. Hey, Jackson. This is Tim. I would say when we -- kind of the common theme that we see across these multiyear consolidation plays, is, one, the fact that these customers want to consolidate on a scalable enterprise platform. So in many cases, we are being deployed and they're lowering their spend across some of the other work management players. So that's one. Two, to the degree that I think as just given the macro, most companies are being very mindful of how many seats they buy, so they are buying up to their usage. So these are all very healthy accounts. Now to the degree that companies are growing many times what we see is that they do ask for tranches on how they buy the next set of seats. So it does give them some flexibility to move up with some price certainty.

And the next question comes from the line of Alex Zukin of Wolfe Research.

So maybe just a few for me. One kind of generative AI question, which is par for the course right now for most investors, and then one financial one. Dustin, I guess, long term, when we've kind of talked about visions for Asana, I think one of the visions you've always had is that ultimately, Asana, based on the corpus of knowledge and interactions and cross-functional data that you have -- when an individual comes to work, they could kind of ask your platform, what's the next -- what should I do today, right? And it assigns -- it could assign theoretically those next actions. What's the right way to think about unlocking the value of generative AI in the Asana product platform vision? And how do you see this evolving -- how do you monetize this? Is it just table stakes that every work management vendor has? Would love to kind of get your thoughts on that, and then I'll ask a couple of math questions.

Yes. Great question. Obviously, it's a really exciting time in AI. We've been following really closely. I'd also like to point out, we're really close to the OpenAI team in particular. We share a Board member in Adam D'Angelo. And the CEO, Sam Altman, actually led our Series C a few years back. So we've been able to talk to them about the best ways to leverage GPT and Asana and how they think about the future. And to your question, about leveraging the unique value of the work craft, just to step back, there is a sort of larger arc story AI for us that involves multiple kinds of technology, not just the ChatGPT style language models. And we've been working with machine learning for a while now. We actually have some data-driven experiences in the product today, and we're continuing to build on that direction. We are also prototyping things internally with the language models and have a lot of exciting ideas there. In terms of the generative stuff, I think the exact use case you gave I think you might be able to use language models for that. I think the other machine learning approaches may be better suited, and we'll try both. But I do think that there's a lot of other possibilities with generative models like summarizing long threads for you, rating up status updates, trying to just aggregate all the information in a project, and pull out the highlights, summarizing meeting transcripts. We've already seen a lot of that from other SaaS products already. And we're students of the space, so we'll incorporate the best ideas. But I think whether or not for the use case you suggested of really understanding the corpus of data, the structure of data, what's important to that particular end user, I think whether you're using a language model or another AI approach, the structure inherent in the Work Graph and just the information that users are putting into our system, just give us a leg up. We have more data for those models to read and understand and create insights and help direct users to the most important work. So I think the Work Graph actually ends up being an advantage, but definitely expect to see AI used across a variety of products.

That's awesome. I'll put in the joke about no more TPS report...

Exactly. No more handwritten ones anyway.

The next question comes from Andrew DeGasperi of Berenberg.

Just maybe back to the sales reorganization or I guess the changes you're making in the sales motion, can you maybe let us know what led you to do this kind of drastic shift? Was this -- what did you learn, I guess, over the last year or two since you've kind of really ticked off on the enterprise side? And then generally, how is this reflected in the next few quarters in terms of the growth? I know you're baking in some conservatism in the guidance? I am just wondering how should we think about this proceeding as we move through the year?

Hi, Andrew. It's Anne. Thanks so much for that question. So -- the way we're thinking about it is we're really focused on building and scaling our enterprise selling infrastructure. So we really -- we rapidly added to the sales team last fiscal year. And now we're frankly ensuring that all the operational systems and enablement support is scaling to meet that investment. And really, what I'm laser-focused on is to make sure our enterprise sales reps time is focused on landing and expanding with the right customers and delivering fast, measurable business value. So -- and that we're doing that much more consistently and repeatedly in every market. So that's the focus that you'll see that we are committed to and that's also the focus as we bring on great new sales leaders around the world. And then I think Tim will just share a little bit more about the second part of your question.

Hey, Andrew. Just adding on to Anne, I think Dustin mentioned this in the script. We do have 15,000 enterprise customers. And when we look at the data, customers that are spending more than $100,000 with us, their net expansion rate this last quarter was 135%. And when we like peel back the onion and look at the data, those expansions aren't through like just up-tiering. Many of those, the vast majority of that growth and expansion is through seats and getting more deployment in across the company. So that gives us a lot of confidence in terms of the strategy that we're moving forward with. So that's one. And then two, in terms of the guidance, I think -- I mentioned this on the call a little bit, but just I think we're still seeing kind of there's a lot of macro uncertainty. The Fed is still likely to raise rates. There's geopolitical issues kind of about. So I think we're trying to be really thoughtful in terms of kind of the first half being continuing to see challenges and that our customers, especially in the short term, we'll be very mindful of their spend. We've also baked in some time, so for our leadership changes to ramp up and for their strategies for the strategies to take hold. So to the degree that there will be outperformance, I think it will come from the enterprise that businesses start releasing their budget and being much more thoughtful about investments. So my approach, I think, if you ask me about guidance is, I don't think there's a lot of downside to the guidance, and I would just not model or just be cautious on not having a lot of upside in the model this early in the year.

That's helpful. And just on the math question that Alex didn't get to ask. I mean, just in terms of the OpEx rising low single digits in terms of -- what should we think about should it? Should it be R&D really kind of growing a little bit faster overall and you're just taking a cut to sales and marketing? How should we think about the moving parts on that?

Yes. I think R&D as a percent of revenue will be relatively flat. And I wouldn't say sales and marketing is a cut. I think the way to think about it is really a reallocation of where those resources were in prior years or even last year where we're still focused kind of on the SMB and where we direct in many of those resources towards moving upmarket. So I think you'll continue to see leverage like you saw this past this last quarter in sales and marketing, and you'll continue to see leverage in G&A. And then I would expect R&D to be relatively flat on a year-over-year basis.

The next question comes from Rob Oliver of Baird.

So a question, Dustin, for you or for Anne. It sounds as if the consolidation play is a nice change for you guys relative to last quarter. And I know that, Anne, you had mentioned last quarter that you guys were engaging more at the C level. So can you talk a little bit more about those vendor consolidation wins you guys have had? Are they seat expansion that's coming at the expense of other vendors as people kind of do the same thing that Tim mentioned he's doing, which is rationalizing vendors? And are these C-level decisions? Are they influenced by sort of the bottoms-up strength that you guys have with users? Talk a little bit more about those consolidation wins? And then I just had a quick follow-up.

Hi, Rob. Thanks so much for your question. So, yes, we're seeing consolidation wins for Asana, especially as CIOs are looking to drive consistency across our organizations and reduce the total number of applications that they're supporting. So a couple of factors in our favor, specifically are our proven ability to scale to over 150,000 seats and growing and then the power of our Work Graph architecture, which really allows these organizations to consolidate multiple divisions or functions. And to your point, it's really driven by the strong usage and the love for the product that exists in the organization. A few other things that we've been seeing our Goals product enables executives to connect the company's top priorities to all the work that's necessary to achieve those priorities. And so they can do that all in Asana. The majority of our $100,000 plus customers are using Goals and 90-plus percent of those are using Goals connected to the underlying work. So we're seeing that in this environment be especially valuable and impactful.

Great. That's helpful. I appreciate that. And then, Tim, just one for you. I really appreciate the color around your thoughts relative to the cadence of the guidance through the year with Q1 obviously being strong, but it sounds like you're giving yourself some room there on the ramp with some of the new managers. Is headcount -- how is headcount relative to where you think it needs to be on that guidance, both sales headcount and sort of general headcount within the firm?

Yes. I would say just from a headcount perspective, we're pretty comfortable with where we're at right now. To the degree that as we get through -- as we look throughout the year, we'll be looking for signs where we can invest. So to the degree that pipeline is stronger than our expectation, productivity is increasing, deal cycle time is decreasing. So all those things will kind of inform us on how fast we want to grow our heads. But at this point, I think we're fairly comfortable with what we have. We want to demonstrate leverage in the business. Even if you look at our guidance, our operating margins are going to improve by about 50% year-on-year. So I think it's -- those are all progress that we want to make sure that we're delivering and we'll be very mindful of kind of throughout the year.

The next question comes from Brent Bracelin of Piper Sandler.

I guess, love to see the focus on the enterprise and some of these multiyear deals. Maybe for Anne or Tim, on the NRR, even with some of the multiyear deals that NRR rate did downtick. It's a little bit lagging because it's trailing 12 months, but it did downtick. How much of that is -- and the slowdown there is tied to just the macro slowing the pace of expansions across the base of it? Sounds like 15,000 enterprises? Or are you also seeing a drag or seat contraction with some of the broader layoffs that we're seeing in the tech space? Just trying to parse out what those drags are you're seeing? I understand it's still very healthy, but in period certainly down-ticked and I'd love to have a better explanation on what's contributing to those -- that downtick in NRR.

Yes, sure. This is Tim, Brent. So I would say -- the color I would add to that is the NRR downtick is driven really by two things. It's really driven by expansions being lower than historic, primarily because companies aren't hiring us fast. And then the other piece is some downgrades within the -- some of our customers, particularly in tech, who many of you know, have had layoffs. But when I look at the logo churn, those remain healthy, especially around our $50,000 and $100,000 customers, there's virtually zero churn or logo churn within those customer base. So I think like in the short term, companies are kind of essentially kind of hunkering down a bit in terms of their spend, but they're still deploying more seats. And to the degree that some of the companies that may have overhired and have and have had layoffs. We do see downgrades with that customer cohort. But when we like look at the data, the logo churn is healthy. And for those companies that haven't had layoff some of these consolidation plays, those are all seat expansions.

Great. My last follow-up here is for Dustin. Now that ChatGPT has an API released, how quickly do you plan to test and trial and embrace some of these LOMs -- transformers out there?

Yes, this is Dustin. Definitely intend to test them right away. We've been prototyping things, but I don't have anything to announce in terms of when we'll have customer availability on any of that.

The next question is from Alex Zukin of Wolfe Research.

So on those math questions I promised, I guess, first, around the NRR, Tim, with the commentary about customers in tech verticals kind of downshifting or rightsizing, how long do you expect those trends to last? And I guess the key question being, given it's a trailing four-quarter metric, it's exiting the year clearly lower than 115 in aggregate. Where do you -- where kind of is the confidence interval around where it troughs? And when do you feel like you're going to be through the anniversarying of the primary cohorts that are down shifting? And then I've got a quick follow-up on just the revenue breakout for $5,000 up and $5,000 below.

Yes. Sure, Alex. I think like when I -- when you kind of look at the NRR, I would say we will see some continued compression because it is a four-quarter trailing number. But I would expect kind of Q3 and Q4 of this year to be -- to provide some better comps for us on that NRR because it's kind of -- Q3 and Q4 was when we started to see a lot more of the tech verticals start rightsizing and having more layoffs. So that's kind of the timing in terms of the NRR, Alex.

Got it. And then, I guess, to the comments that you've made around being a little bit more conservative in your assumptions and giving the new sales heads time to ramp looking for -- that all makes sense. If -- should we assume that for the year, revenue from the -- for customers that are spending over $5,000, does that go into the high 70s as a percentage of total? Because when you model it out, it still looks like even that cohort is going to dip to the low 20s percent growth. So just help us a little bit understand what's happening there. And again, when that also kind of could start to bottom?

Yes. I think -- no, great question, Alex. I think you're referring to the number being in the low 20s, right? So the way to think about it is we're going to focus much more on the $50,000 and $100,000 cohort customers and pushing for much more moving upmarket than even just like slightly above $5,000 or the $5,000 to $10,000. So I do think like in aggregate, the $5,000 and above will continue to trend north as a percentage of our revenue, probably closer to like between 78% and 80% as a percent of our total revenue over time. But the focus is moving even kind of more upmarket towards $100,000 type of customers.

The next question comes from George Iwanyc of Oppenheimer.

And maybe following up on your comments on Goals. Can you give us a sense of what you're seeing from workflow builder and automation and how that's helping with the consolidation activity you're seeing?

Yes, George, thanks so much for that question. Maybe a good way to answer that is just an example with a customer that did consolidate. So a leading global vacation rental platform consolidated last quarter on Asana to really enable every employee to have a single, consistent place to collaborate and drive improved productivity and execution, and they've gone remote first. So the rules, the automation, the workflows are really helping to make sure that there's no more siloed work for them that there's improved accountability and it's also providing more time for their teams to focus on innovation and improving customer experience for their millions of global customers. And so in fact, they have a dedicated center of excellence and an internal team partnering with our account team to really make sure they're making the most of every aspect of Asana. So we see those features all coming together. And now since their entire organization is on Asana, the ability to then implement and connect all of their company goals down all the way through the organization to an individual level, so the employees can come in and know exactly what matters and how their work connects to their company goals. And that's especially important for this organization, again, because all employees are completely distributed around the world. And so they're all just collaborating through technology and through Asana with one another.

And following up on that, with all the sales changes you're making, can you give us some perspective on what you're doing with the channel and system integrators?

Yes, absolutely. So the way that we think about channel and then partners overall is because our focus is on growing with enterprise customers in our priority markets. We really want to ensure we're building those relationships in a really strategic way. So for enterprise customers, strong partnerships with SIs and service partners actually are important, as well as our deep partnerships with best-of-breed software companies. Those are really important for our enterprise customers. With our channel partners, we really see them as important to helping us extend our reach in markets where we're still early and don't have our sales teams on the ground. So that's the way that we're approaching not just our channel strategy, but our overall partner strategy.

The next question comes from Robert Simmons of D.A. Davidson.

First, I was wondering, could you give us a little bit of a preview on what collaborative intelligence is? Or is that too early for that?

Yes, absolutely. We're really excited about the event coming up. We've made a lot of progress over the years in getting our customers to put their projects and portfolios and workflows into Asana. And collaborative intelligence is really about aggregating the information that we see across those and giving leaders and executives, more of that tops-down view on how work is progressing. So it really enables them to identify collaboration hotspots and make better, faster, data-driven decisions. So really excited about that. And we've been talking about AI a lot today. like Asana Intelligence, a different version of AI, but it's also collaborative intelligence because really, everyone is in putting their own view of the work graph, but we're able to provide views and insights that really take all those bits of information and put them into more of a coherent story.

Got it. That makes sense. And then kind of read between the lines in some of your comments, would it be fair to characterize the quarter as maybe a bit weaker on the SMB side, but actually pretty solid for your larger accounts customers, relatively speaking?

Yes. Yes, Robert. I think that's a fair statement.

The next question comes from Steve Enders of Citi.

All right. Great. I guess I want to dig in a little bit about some of the comments in the -- on the go-to-market side, talking about trying to drive 20% better kind of rep productivity kind of through the year. So I guess, how are you kind of thinking about the biggest levers that you can you can pull to be able to achieve that and the changes being made on that front? And then, I guess, for Tim, how are you kind of contemplating the productivity changes in the guide and the outlook here?

I appreciate you asking that and on productivity specifically. So -- there's a couple of factors contributing to sales productivity. The first is about 1/4 of our sales team is still ramping. And the second is that the reduction in force we implemented in November did impact productivity as managers and teams and have adjusted to those changes. So our focus now really is on investing in several areas, certainly, the infrastructure, the tools and training needed to deliver repeatable and predictable lands and expands especially in our larger accounts. So that's a lot about enablement. It's also about our partnership internally with our enterprise technology team, investments in DevOps. So it's all of that geared towards our enterprise selling motion. And we're excited about the early traction on that front, but know that we have a lot of work to do. So those are the areas that we are really focusing on.

Yes. In terms of the guide, I would say -- Anne's comments, I'm not sure if you all heard it, but we really talked about that 20% ramping at the end. So you can think of it as we're making progress throughout the year. But I would say, to the degree that the reps actually -- that our productivity and we hit that 20% early in the year, that would probably be upside to the model.

The next question comes from Fred Lee of Credit Suisse.

It's very encouraging to see the significant increase in incremental margins in the quarter and also implied in the guide. Tim, you talked about evaluating every investment to prioritize ROI -- high ROI investments with shorter payback periods. Can you tell us a little bit about some of those high priority investments that make the cut and some of the projects that take a back seat?

Yes. I mean I think at a very high level, it's really kind of looking at our customer base and where we have penetration and the size of their employee base and where we think we can really make progress with those accounts versus smaller accounts where you may be capped at in terms of the number of employees. So even when you break out the NRR, you can really see the difference between the downgrade and the churn in the smaller paying customers, the SMB and the VSB. And then the higher paying accounts, which are many times are kind of the enterprise customers, where you don't see logo churn and you really see more seat expansion -- so I would say that's an area where we've done a lot of focus and kind of shifted our -- both our marketing spend and our sales capacity and trying to move upmarket.

And now this is Dustin. I would just add, there's also a regional angle to this. So we have different sort of CAC payback and LTV by country, and we focused a little more on where we already have strength in the market and where the market is, just a stronger economy and more buying power. And so we've shifted some of our attention more into our Tier 1, Tier 2 markets and less in emerging markets.

The next question comes from Jason Celino of KeyBanc Capital Markets.

Just one question, and maybe I'll just ask it plainly. But it sounds like you've built in some conservatism on the revenue guidance. How should we think about the conservatism or the aggressiveness of the operating margin framework given the so much improvement you're expecting?

I would say we're committed to delivering free cash flow before the end of calendar '24. We've made vast improvements in terms of the operating margin guide. And hopefully, we'll continue to under-promise and over-deliver for you guys. That's kind of how I would characterize the guidance.

And our last question comes from the line of Shebly Seyrafi of FBN Securities.

So can you talk about the linearity during the quarter? I noticed that receivables grew by [39%] sequentially, much more than the 6% revenue growth. How it's like January versus December? And how is February -- which also passed, how was it versus January?

Yes. December is an odd one to compare to primarily because of the holidays. But we certainly had a very -- I would say, a solid finish to the fiscal year. And I think I would tell you we're encouraged by what we're seeing right now with the conversations we're having with customers in February.

Okay. And also, it's -- your seat growth was according to my model, like 33%. Am I in the right ballpark? That was much more than your customer growth? And importantly, in my model at least, your price per seat was flat year-to-year. And I'm wondering whether you're modeling flat, up or down in '24 for price per seat?

Yes. I would say your model is not too far off in terms of seat. I think we've talked on the call and even when we've done in personal meeting that the focus is seat deployment and getting as many seats as possible within these large enterprises and that over time, we view price as just another lever for growth and moving those up as we deliver more value. So you're not too far off in terms of how you're thinking about the business and how you should model it.

And with that, we will conclude our question-and-answer session of today's call. I would now like to hand the call back over to the management team for closing remarks.

Thanks so much. Just a final thank you to everybody joining the call today. I know it's a busy season. We look forward to seeing you out on the road this quarter, and thanks again.

And with that, we will conclude today's call. Thank you for participating, and you may now disconnect your lines.