Thank you for standing by, and welcome to Asana’s Second Quarter Fiscal Year 2024 Earnings 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.

Good afternoon, and thank you for joining us on today's conference call to discuss the financial results for Asana’s second quarter 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. 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.

Thank you Catherine, and thank you all for joining us on the call today. We reported Q2 results, beating the top and bottom line expectations. Q2 revenues grew 20% year-over-year, as we continue to close large deals in the enterprise segment. Non-GAAP operating margins improved 40 percentage points year-over-year, while we attained positive free cash flow in the quarter at $14.6 million. Our growth continues to be fueled by some of the largest and most strategic companies in the world choosing Asana. In Q2 we closed and expanded deals across industries such as manufacturing, professional services, healthcare, logistics, media, and financial services. Our most strategic customers are modernizing the way they work, and they are turning to Asana for work management at scale. And as we look toward the next generation of work management and implement AI even further, these relationships will be increasingly valuable. Even with continued macro headwinds and heightened budget scrutiny in the enterprise, sentiment seems to be stabilizing. Customers are looking for ways to consolidate their vendors, getting more ROI out of everything they’re doing, and they’re turning to Asana. Asana can help to achieve their goals and objectives more efficiently and faster than ever before. In fact, we have seen an increase in multi-year commitments both year over year and sequentially, in the quarter. In Q2, we made great progress on improving our non-GAAP operating margins. We expect significant improvement in non-GAAP operating margin year-over-year for the full-year, as we focus on operational efficiency and growth, which Tim will talk about more. In the first-half of the year, we have been working through the macro headwinds, and we continue to focus on our enterprise playbook, improving sales execution, and building substantial enterprise leadership, most recently announcing the arrival of our new Chief Revenue Officer, Ed…

Thanks, Dustin. The story in Q2 was really about continued enterprise growth and building our enterprise leadership bench. We’ve talked about our strategy for moving upmarket, and we are working and executing on this plan. That said, I know the macro situation is still top of mind, so let me address that upfront. Overall the sentiment in our customer base has remained the same versus last quarter. While it hasn’t yet improved, it also has not gotten worse. Budgets continue to be scrutinized, seats are being optimized, and decisions for expansion are being pushed out. But as customers continue to optimize budgets, we are also getting positive competitive signals, where customers are consolidating, removing incumbents, and choosing Asana. I also want to talk about net retention rate trends. As the de facto choice for some of the largest tech companies in the world, Asana has likely seen disproportionate exposure to any pullback in that vertical, which is about 30% of our business. Importantly, much of this has been less seat expansion as opposed to anything else and that remained a factor this quarter. For example, in some cases even when a customer was choosing to expand into new use cases and departments, this was often offset by removing seats that were downsized as a part of a budget pullback. Conversely, as we approach the anniversary of the beginning of this trend, we expect to benefit from any rebound in future quarters. Top of funnel demand was stable versus last quarter and our pipeline continues to build. The US grew 22% year-over-year, while international grew 18%. If I split off EMEA separately, EMEA had a particularly solid quarter, reporting the fastest growth across our major regions. Our new leadership and regional model in EMEA are in place, and we are getting…

Thank you Anne. While I’m pleased with our high level results, some of the underlying drivers were not as strong as we had hoped. We continue to see headwinds from a macro standpoint and in our technology segment, and you see that especially in our net dollar retention rate metrics. We also have more work to do as we develop our enterprise go-to-market muscle and continue transitioning upmarket. Meanwhile the performance at the low end of the market is dragging down overall growth. On the other hand, I am really proud of the efforts the team put in to manage costs and improve efficiency. We have made substantial progress on improving our operating margin and delivered our first positive free cash flow quarter since going public. On to our Q2 results. Q2 revenues came in at $162.5 million, up 20% year-over-year. Revenue from customers spending $5,000 or more on an annualized basis grew 24% year-over-year. This cohort represented 74% of our revenues in Q2, up from 72% in the year-ago quarter. We have 20,782 customers spending $5,000 or more on an annualized basis. We have 553 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, driven by lower expansion and downgrades. Our overall dollar-based net-retention rate was over 10%. Among customers spending $5,000 or more, our dollar-based net-retention rate was over 110%. And among customers spending $100,000 or more, our dollar-based net-retention rate was over 125%. 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…

Thank you. [Operator Instructions] Our first question comes from the line of Andrew DeGasperi of Berenberg.

Thanks for taking my question. Maybe first on the largest land deal that you've won this quarter. Can you maybe elaborate what went -- in terms of the discussions with that customer what kind of stood out in terms of Asana and what they found important? And just generally, do you think this can replicate itself out going forward?

Hi, Andrew, it's Anne. Thanks so much for your question. Yes, happy to share a little bit more insight on that deal. Really, the customer was looking for an opportunity to grow with one partner over multiple years. They cared a lot about reducing tech sprawl, they wanted to replace at least seven existing applications that they had seen used across many of their departments. In particular, this company had acquired a lot of other companies. And so being able to consolidate all in one platform is really important. They're looking to increase collaboration and standardization and really ultimately deliver products faster. And so we're really excited to work with them in all the different departments that were part of the RFP process. ultimately, our view on where AI is going, how we can scale our security and the fact that we had already successfully deployed up to 200,000 employees in our largest account helped secure that. So we're looking forward to doing more of those, especially where CIOs are driving the decision-making process across the organization.

Thanks. And then maybe on EMEA. Can you maybe lay out a little bit what wasn't working there? At least what is working better right now? I mean what changes did you implement besides, obviously, the new leadership there? And could you replicate that change to other regions as well?

Yes. So we are really excited about the new leadership in EMEA. I think a few things. Certainly, with the leadership, there's also a focus on larger deals and really ensuring that we've got repeatability and discipline around the large deal pipeline and large deal close rates. And then we've aligned both our corporate and enterprise teams by region under the new leadership. So that was a change. That was made. We had previously sort of centralized leadership for our corporate segment, but now it's aligned by our largest markets. So we're excited to see that momentum. It certainly contributed to the two large lands that I mentioned before, one with a professional services organization with 12,000 employees and one with a health care manufacturing firm with 9,000 employees. So excited to see more of that. And we do believe that is something that is replicable. We're seeing some great signs in Japan, which is another strategic market where we've got a great new leader on board as well.

Thank you. Our next question comes from the line of Steve Enders of Citi.

Okay, great. Thanks for taking the questions here. I guess I do want to ask on the consolidation activity that you saw and the really good win there. I guess how much of an increase have you seen in those consolidation opportunities with maybe some of the choppy macro that you were -- that you can call out? And I guess as we think about further large deal activity, how should we think about what the pipeline looks like for those opportunities going into the second-half of the year.

Yes. Thank you so much, Steve. What we are seeing in this environment as there's more scrutiny both by CIOs and CFOs on budget spend that the interest in opportunities to consolidate is increasing, and we've seen that across the last several quarters. In particular, as they evaluate where they have different investments already and where they can improve them going forward. And in particular, for us, the ability to bring that all onto one platform and benefit from increased collaboration on the platform. That is what's driving the consolidation considerations. And then I do think the focus on security and scale is really important as CIOs in particular, are looking to consolidate. So we are also seeing that for some legacy applications that exist in customer accounts. There's active evaluation of how those might be replaced by Asana. So definitely, in our pipeline, we're seeing more opportunities that are focused specifically on consolidation.

Okay. That's helpful. And then maybe just on the outlook and I guess, what you are seeing in the macro I guess what part, I guess, changed versus maybe what you were seeing last quarter? Or was it just things got a little bit worse on the tech side than maybe originally expecting when you gave the guide 90 days ago? Or just how should we think about what's incrementally changed in the outlook here?

Yes. I would say a couple of things. I think we continue to see one, headwinds. And I think a lot of that headwinds does reside within our tech segment. And we have to work through -- as you know, many of these tech companies had layoffs, and we do need to work through their renewals over the next six to nine months. So I would say that's one. Two, we have -- we also have sales leadership changes right now, and I want to just provide ample time and some air cover for the team to make the necessary changes to reaccelerate and build their team out. So I would say it's really those two things.

And if I could just add on to that maybe. I think part of the way we think about it just in terms of how we were thinking 90-days ago, I think we knew there would be headwinds, particularly in the tech orgs, and it hasn't improved yet, but we don't -- I'm not saying it's gotten worse. We see the sort of continuation of that budget scrutiny.

Thank you. Our next question comes from the line of George Iwanyc of Oppenheimer.

Thank you for taking my question. Maybe, Dustin, you started off with AI and gave us some perspective on that. And maybe digging deeper into the AI topic, how do you feel Asana can best differentiate with AI? And then when you look at rolling out the products, how should we think about the ability to monetize it?

Yes, sure. Happy to talk about that. And of course, I also want to remind everyone about the event that we're hosting in October where we'll go pretty deep on both of those topics. So first of all, so how do we differentiate? So I think the thing that's really unique about Asana is our Work Graph data model. So we've always had an AI in mind as we architected that data model over the past decade. And we think it only becomes even more valuable in this AI-powered future. So the Work Graph is really ensuring that you have a single source of truth for work data, and it's structured in a way that's scalable, it maps to how work is actually organized inside our customers. And so with the Work Graph data connected across the entire enterprise, work, functions, teams and people without having to duplicate pieces of information and having that data connection is really powerful because it captures the sum and the parts. So AI can use the underlying pieces of the work to accurately draw conclusions at multiple levels of altitude. And so part of what that gives us is, I think we're best positioned in the work management category to solve this kind of black-box problem that you sometimes hear about with AI because we can really show the work and unpack the assumptions from facts and analysis of the work across teams at all levels of granularity. And we've seen that reflected with our customers, too, when we show them the AI features in the beta. They say, hey, this is really bringing the Work Graph to life for me and really helping make it clear why all these connections are valuable. So we think that will be a virtuous cycle there in…

All right. And maybe just, Tim, quickly following up on that. When you think about investing and hiring with the AI productization and ongoing enterprise investment, how should we think about the near-to-moderate term plans?

Yes. I mean I think, one, we've made really substantial progress on our operating margin, but we've taken a very balanced approach in terms of how we're investing and how we're trying to get to profitability. So I think at a macro level, we're going to continue to invest in AI. That's one. Two, and to the degree that we see improvement in productivity and efficiency across our sales and marketing organizations, we'll be able -- we'll feel more confident pouring more investment in that area.

Thank you. Our next question comes from the line of Jackson Ader of MoffettNathanson.

Great, thanks guys. Thanks for taking our questions. Dustin, you mentioned early or in the call, some of the other AI winners that are kind of your neighbors in the Bay area. And I think -- some of the early winners at least from an investor standpoint seem to be some of the largest technology and some of the largest software companies out there that are kind of publicly investable. And I'm curious how you see Asana fitting into the AI landscape among some of these tech giants, I guess, for lack of a better term.

So I think there's a couple of different ways to think about that. So earlier, I was really talking about the foundation model builders primarily, so OpenAI and Anthropic and our relationship to them is we're customers. So we're adding value on top of their underlying infrastructure. They're doing -- we're very grateful they've made a huge CapEx investments that weeks to leverage just in terms of marginal API fees. And so we're really building on their platform. And I guess I'm not totally sure who you mean by the other large public companies. I mean, certainly NVIDIA is a very different kind of company. And then it's very different. I think a lot of the public stocks that have taken off the cloud to compute providers. So again, we're kind of customers in their stack. But I think that Asana will be part of a sort of second generation value creation that's really figuring out how to integrate those services into existing workflows where I think they can be a lot more powerful. So what people are familiar with right now is basically these open-ended chat applications where you can kind of ask anything you want, and that's very powerful and very flexible, but most people in the world really want to be kind of shown what works best and particularly in something like work management, we're finding that the kinds of requests we're making to the API are highly structured, highly templatized. We're also educating the user about what kind of questions work best, often, they sort of start with very generic, what should I know about this project or something very open ended. It's much better to get specific. And so the more we're able to provide people with some templatized options and some multistep workflows that help lead them to the most powerful value, the more I think people actually be able to get value from those underlying platforms. So I think of us as a sort of value creation on top of those underlying foundations.

Okay. Okay. Great. That's helpful. And then the follow-up is it for, I guess, Tim or Anne Whoever wants to take it. But the low-end weakness, do you think it's -- maybe has more to do with the fact that since Asana is moving resources upmarket that kind of competition is filling the void left behind? Or is there something also happening in budgets or something on the macro sense in the low end that's not holding up as well as maybe some enterprise budgets? Thank you.

Great question. I think, one, I would say, I think the way you characterize that, we did redeploy a lot of our investments away from the lower end of the market and focused those investments towards the upper end is one of the reasons where kind of like our less than 5,000 customer -- revenue from that customer cohort is growing slower than customers with more than 500,000. So I would say that's one. Two, obviously, I think the collaborative work management category is still very much greenfield and there's just a lot of runway. So it's not necessarily winner take across all of these segments. So to the degree that we move up market and other players end up staying in the lower end of the market, I think that's a very likely outcome in the long-term.

Thank you. Our next question comes from the line of Alex Zukin of Wolfe Research.

Thank you, guys for taking the question. Maybe just the first one, Dustin, for you. I'll ask it. It's kind of a similar question on the AI front. But I guess if we step back for a second and we think about where and how you think people specifically customers are going to actually pay for the AI functionality that you're introducing for the way that you're positioned and how investors in Asana are going to benefit from the investments and the experience that you have. Is it more -- and also in the context of like availability of GPUs, when you're launching the product functionality, when do you expect folks to actually be able to see the ROI from it? Like just conceptually, what are people willing to pay for, not willing to pay for, at least in the [Indiscernible] conversations you're having? And when would you expect with your ability to actually deliver this product to market in a way that enables the ultimate monetization opportunity and also the impact on retention that's likely to have.

Yes. Thanks for the question. I think it's a little difficult to answer because I don't really think of it is binary in that way. So it's not a feature we're launching and delivering, but a sort of unfolding of our road map. And in a lot of ways, it's already begun because we already have customers in the private beta, we'll be launching into a much more open beta alongside our events in October with some of the functionality. But we also have teams working on what's next and putting more customers into the beta features beyond that. And we're also talking about our road map with customers when we're briefing them, and it's part of the purchase decisions they're making when they think about what partner they're going to want for the long run. A lot of it has to do with who can differentiate on that AI vision. And I think it's helping us now, and it will continue to help us more. I think the October event is a particularly big moment for us to tell the story, especially in a visual way. It's hard to get across on these earnings calls. And so I think it will -- we'll just like continue to build again, just in terms of like a packaging moment, I think it will present itself most in terms of customers up-tiering to get the more advanced AI functionality. There may even be a benefit from free to premium. We've kind of debated that internally but haven't really modeled anything. And so it will happen in pieces and get better and better rather than being a single moment where there's an inflection in the revenue.

Sorry, are you asking about customer feedback as well. So I just wanted to add a couple of things in terms of what we're hearing from customers. In the conversations with CIOs at our largest customers, whether that's a global live events company or the leading vacation rental platform in the world, what they're telling us is, first and foremost, they're excited to have a strategic partner to help them build out their AI strategy because right now, it does feel overwhelming the number of choices out there. And so things that they care about are data specifically, where it comes from, how it's used. They care very much about security and they care a lot about transparency in how AI is deployed. And so for work management, in particular, it's very straightforward for them to see how AI will accelerate what they're already trying to do, whether that's in projects or portfolios or connecting that work to goals. And so more than anything, our conversations really are starting to be how we can help them really figure out their AI strategy and then be able to deploy it in Asana. So we're really excited about the early feedback and the desire for customers to help us shape the road map. And how engaged they are. So I just wanted to share a little bit more of that color.

That's super helpful. And then maybe, Tim, a similarly open-ended question for you on the numbers. Again, if we look at some of the commentary, it suggests that multiyear deals were strong, enterprise traction continues to be really positive. So I'm trying to square that with the forward-looking metrics. Like if we look at billings, it's kind of in the low-teens growth this quarter. The RPO bookings kind of similarly in that low teens kind of dimension. So is there anything that is kind of onetime in nature specifically that we should be paying attention to? Because your guidance for Q4 kind of implies you're exiting the year just over double-digit growth. The Street has you doing something a lot better than that for next year. So given the commentary you made around the six to nine months of kind of still having that renewal headwind within these large tech companies like when should we see kind of the turn happen? Is that a Q1 phenomenon? Q2? And how do we think about that?

Yes. I think -- no, it's a great question, Alex. I think one, just for clarity, I just want to say while we're encouraged by the multi -- the number of multiyear deals, they do -- they are still a minority, a small percentage of our total billings. So that's one. Two, I would say, certainly, I think we continue to see kind of the same environment that we're operating in, in the first half of the year and that the environment not getting materially better or worse right now. So to the degree that with our net expansion rate, I do think it's going to take another two to potentially three quarters for all the renewals to work themselves out so that we have an easier comp after that. And then I also -- obviously, we have new sales leadership coming on and we want to just make sure that there's adequate room for the leaders to kind of make the necessary changes as we go upmarket.

Thank you. Our next question comes from the line of Josh Baer of Morgan Stanley.

Great. Thank you for the question. I wanted to ask one on the net retention rates. Tim, just kind of thinking to some of your comments on some areas not as strong as they hoped and sort of taking another two to three quarters to get easier comps. Just wondering like what gives you confidence that retention rate can remain above 100%, just kind of looking at some of the trend lines and deceleration that we've been seeing.

Yes. So I would say, Josh, that the thing we looked at, obviously, is a combination of both the downgrades and the expansion. And that's where most of the compression has really come from in our net expansion rate. That companies aren't expanding as fast as they had during prior years. Companies that were planning to grow ultimately ended up doing layoffs and having to readjust their renewals with us. So I do think like those things need to work themselves out and that over time -- the one encouraging sign, I would say is that when we look at logo churn, especially in our large customers and across the base, essentially, those have remained unchanged. So the companies that are using us are staying with us, while they are downgraded or expanding less right now. I do expect them to, over time, as the economy gets better, to hire, deploy more seats. And as we add more functionality into our different packages, have them kind of move up into these kind of more advanced packages that we'll be offering later this year.

Okay. Got it. And then kind of related, since that's backwards looking. I was hoping you could give a little bit of color on the linearity through the quarter, but then also into August as well on what you're seeing as far as demand trends?

Yes. I mean I think in terms of just kind of like how the quarter shook out this last quarter. I would say no different than what we saw in Q1. And the Q4 of last year that generally the first couple of little bit slower and then kind of deals being somewhat in the -- most of the larger deals being somewhat in the last month of the quarter. And I think August traditionally for us, there's some seasonality, primarily because EMEA is a slower month. They're generally on vacation. But I think when we look at the pipeline and when we look at how we entered the quarter, I think we feel pretty good about how the quarter is shaping up right now.

Thank you. Our next question comes from the line of Robert Simmons of D.A. Davidson.

Hey, thanks for taking the question. I was wondering if you can give a little more color on the net retention number. First, was it closer to 105 or to 110? And then how did it trend over the quarter and so far in 3Q?

Yes. I think what we disclosed is that was over 105. So last quarter, I think I believe we said it was over 110. So you can imagine kind of the data point and the trend lines of that why we would drop the disclosure from 110 to 105.

Okay. And then I guess two things. I mean have you seen any change so far in 3Q? And also, could you give us some color on what you've seen on that number kind of inside and outside of tech?

I think it's certainly stronger outside of tech. And I would say, similar to the commentary that we made about the different segment, I would say the headwinds, particularly -- we've seen headwinds in obviously, tech and non-tech, but I would say it's more -- definitely more pronounced in the tech segment.

Thank you. Our next question comes from the line of Patrick Walravens of JMP Securities.

Great. Thank you. Dustin, I know it's kind of off message, but I was intrigued when you commented that the AI functionality might help with the free-to-premium conversion. So, you guys really haven’t talked about that for a while. Remind us how many free users are there? And what is the size of that opportunity?

I don't have the free user base number off hand, but I don’t want to [Multiple Speakers] here. I think the opportunity is small. I just think it's a bit of a wildcard of like maybe it will show up. We've paid attention to some other vendors that have more of like a prosumer market and seeing that some of their customers are empirically willing to upgrade even for sort of single player usage. So most of our per-user base is individuals, personal use cases, prosumer use cases. And so I think some of them might be more enticed by this than some of the other functionality that was more oriented around teams. I just think there's a little more of that is valuable to specific individual end users, even if they're not collaborating or if they're just collaborating a little bit. So that's the only reason I mentioned that, but I do think it's small, it could be nothing -- I don't want that to end up in analyst models, to be honest.

Yes. Okay. A lot of us pay for ChatGPT. So it is kind of interesting. And then one for you, Tim. Just how should we think about the shape of free cash flow margins in the second-half? I mean you said not to expect necessarily another $15 million. But how do we think about that?

Yes. I think you should expect our free cash flow to be negative in the -- for both Q3 and Q4. But we'll make improvements on a year-over-year basis and that the margin will improve from kind of Q1. I think Q2 was a quarter where we essentially had a large invoice in Q1 with one of our largest customers. We collected that cash in Q2 that certainly helped with our free cash flow. But we don't see that for another year. But it will improve on a year-over-year basis.

Thank you. Our next question comes from the line of -- our final question comes from the line of Brent Thill of Jefferies.

Dustin, impressive hire with Ed McDonnell coming in as CRO from Salesforce. Maybe if you could talk through your top aspirations out of the gate for him and if you could speak to also anytime we see new CROs come in, there tends to be a little wake turbulence that's felt. Do you -- how impactful do you think that wake turbulence will be in the changes that you would like him to make.

I'm Sorry, that word was weight turbulence?

Okay. Sorry, for getting the airplane chatter on you.

Yes. Well, Ed is a really seasoned executive, and he's built a number of teams over his career and has seen where we're going. So he's come in and really demonstrated the ability to make decisions quickly, inspire the team and just like get the lay of the land really quickly. I was actually really impressed even before he started. He went really deep on the company, did a ton of research and really got to know us. So he was able to sort of onboard and hit the ground running and has just been sprinting ever since he got here and has already made a lot of progress. So I feel really good about it right now. We're still only, I think, fifth week, 1 month in. And so they're still going to be a learning curve, but it's been really impressive so far. And so I'm optimistic about minimal wake turbulence.

Thank you. I would now like to turn the conference back to Catherine Braun for closing remarks. Madam?

Thank you again for joining us today and making the time to hear our earnings results. We look forward to seeing you in New York on October 3.

This concludes today's conference call. Thank you for participating. You may now disconnect.