Asana Inc

NYSE:ASAN

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, thank you for standing by. And welcome to the Asana Fourth Quarter and Fiscal Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Catherine Buan, Head of Investor Relations. Thank you. Please go ahead.

[Catherine Buan, Head, Investor Relations]

Good afternoon. And thank you for joining us on today’s conference call to discuss the financial results of Asana’s fourth quarter and fiscal year 2021. With me on today’s call are Dustin Moskovitz, Asana’s Co-Founder and CEO; Tim Wan, the company’s Chief Financial Officer; and Chris Farinacci, the company’s Chief Operating Officer and Head of Business.

Today’s call will include forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements regarding our financial outlook, market position and growth opportunities.

Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

Forward-looking statements represents our management’s beliefs and assumptions only as of the date made. Information on factors that could affect the company’s financial results is included in its filings with the SEC from time-to-time, including the section titled Risk Factors in the quarterly report on Form 10-Q filed by the company for the quarter ended October 31, 2020.

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 measure the 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 equivalence is available in our earnings release, which is posted on our Investor Relations webpage at investors.asana.com.

And with that, I’d like to turn the call over to Dustin.

[Dustin Moskovitz, Co-Founder and CEO]

Thanks, Catherine. And thank you to everyone for joining us today for our Q4 and fiscal year 2021 earnings call. We are very excited about our results for the year. There were several highlights.

We closed out the fiscal year with the growth rate of 59% and our business is as strong as ever. Also, we now have over 93,000 paying customers and over 1.5 million paid users as of fiscal year end. And customer spending $50,000 or more grew 92% year-over-year.

We had strong momentum in large customers and had a record quarter for expansion within our very largest. In fact, revenue from our current top 10 customers more than tripled in Q4 versus the previous year. We completed our direct listing on September 30th and we are the first to accomplish this remotely.

We also held our vision for the Future of Asana event a few months ago showing the world would work will look like when we achieve the full potential of Asana and the Asana Work Graph data model and over 24,000 people have watched it. The successes from the year are thanks to the hard work and resiliency of our team and their commitment to our customers’ success.

These results reflect the increasing demand for work management and the global need for team clarity. Most of the world’s 1.25 billion knowledge workers struggle to coordinate work across their teams. They still rely on status meetings, spreadsheets and sticky notes to answer basic questions such as who’s doing what by when. The pandemic and chips of the distributed work further expose the pain of work coordination.

We recently published our annual Anatomy of Work Index, an independent study of 13,000 knowledge workers. The study quantified what many of us know intuitively. Teams are working hard on things that aren’t having impact.

The study revealed that 60% of time is spent on work about work, rather than the work itself. 26% of deadlines are missed and seven in 10 people experienced burnout in the last year. Teams that lack clarity experienced a cycle of chaos. Work fall through the cracks and teams scramble to figure out what to do. This results in wasted effort and missed opportunities.

Effective teams have the three C’s of collaboration, content, communications, and coordination. Most teams have invested in content and communication technologies such as file sharing, messaging, and video conferencing, but still rely on status meetings and spreadsheets for coordination.

Asana is the platform for team coordination, gives teams time back by bringing structure and clarity to their work. Team coordination is a universal need and Asana is well positioned to capitalize on the secular trend. With 1.5 million page users, Asana is a market leader and yet we are less than 3% penetrated in our existing customer base. Simply put our market opportunity is massive.

To provide the best platform for team coordination, we have built a proprietary data model, the Asana Work Graph. The Work Graph is a complete fully connected, accurate and up-to-date map of the work in an organization. It’s what sets us apart from other companies in the market and is what enables Asana to provide clarity at every level of an organization, regardless of the size, structure, and complexity.

Work Graph data model labels are three key differentiators. First, individuals cite Asana’s ease of use and how it maximizes personal productivity and focus. The consumer ratings show up on G2, an independent review site where Asana was named the most highly rated company in the recent project management grid.

Second, team site the ease of staying organized, while coordinating complex cross-team work. Thanks to things such as multi-homing, a feature uniquely enabled by the Work Graph and used by over 97% of our customers spending $5,000 or over.

And third, executives praise the real-time visibility that Asana provides into the status of their goals and strategic initiatives. This is possible because goals, portfolios, projects and tasks are all connected. Thanks to the Work Graph. And we are the only solution that can provide clarity to the individual, teams and executives based on a shared source of truth. Customers rave about this and the Work Graph is what makes it work.

Last quarter, I described task multi-homing as one of the most pervasively used features that illustrates one of the benefits of the Work Graph. Multi-homing gives people the ability to host a single task and multiple projects at the same time.

An individual task is often relevant in multiple projects or process workflows. With multi-homing, you can share a single source of truth for one task in all of those contacts even across multiple teams and departments. So the Work Graph mirrors the natural flow of work. As a reminder, the alternative to this is a container model, which forces you to keep information about one task siloed in a single context.

The next layer of the Asana Work Graph is portfolios. Portfolios are collections of projects giving you the ability to see all the work related to a strategic initiative along the snapshot view of their current status.

Multi-homing shows up again here because a single project can be included in many portfolios, so customers have flexibility to accurately map how work is happening and organized most helpful views for their workflows.

Portfolios build on all three of our key differentiators. First, they make Asana easier to adopt by providing new users to workspace as well as new employees to an organization, a guide to help them learn about and navigate each initiative.

And they help maximize personal productivity, because anyone can create their own portfolio of projects to represent and personally manage the work they care about. For example, your personal portfolio might be called My Projects.

Second, my task multi-homing, project portfolio multi-homing helps facilitate cross-functional work. Projects can be included in multiple parent portfolios which allow different teams to organize and track projects using their own taxonomy.

For example, R&D teams might create portfolios. They represent the way work is grouped within program teams, whereas, product marketing might want to bundle projects into related releases. And perhaps they would additionally organize them according to customer value things.

There’s no need to choose. This flexibility is enabled by the Work Graph. In the container model for portfolio management, all the cross-functional teams are forced to compromise on a single way to organize the work.

Finally, as I mentioned above, there are key way that work at the task and project level connects to higher levels strategic initiatives. This gives leaders throughout the company, including executives, an easy real time way see how work it is progressing at a high level.

And now we have introduced nested portfolios, meaning a portfolio can be included inside another portfolio or multiple other portfolios. These layers of nesting are key to how we make Asana easy to adopt, while also being able to scale organically to support larger customers.

Asana lets you start small with a simple structure of single project. You can then progressively add powerful layers that bring structured organization and reporting over time. It’s a simple, elegant on ramp to as much sophistication that a customer might need to do their work.

In contrast, container models leave employees and larger organizations lost swimming in a sea of siloed projects. As an example, I know many of you also follow important companies like Twitter and are familiar with their strategic objectives. More and more of our customers are turning to our capabilities within portfolios to drive cross-functional alignment as they grow rapidly and scale.

Twitter chose Asana Enterprise in Q4 as their work management platform for their experienced team, which includes design, research, product, and engineering. They standardized on Asana to bring those cross-functional teams and leadership together in one place to manage product road-mapping, content creation and inbound requests. Another benefit they are excited about is being able to connect technical and nontechnical teams who previously struggled to collaborate using the Asana Jira integration.

Listening to our customers has been the cornerstone to our product strategy. We are constantly expanding and deepening the strength of our platform. We have been launching new features and capabilities for customers at a rapid pace.

Before I hand it off to Chris, I just want to make sure I highlight that this year, we were ranked the top best place to work by Inc., Glassdoor, Built in New York, and Fortune, including landing at number one best workplace in the Bay Area for the fourth consecutive year.

Our culture is integral to our business success and part of how we create a great culture is using Asana to ensure that everyone has real-time clarity about what’s expected of them and how their work fits into our higher level goals.

So, this year, as our revenue grew rapidly at 59%, we succeeded in scaling our culture as well and building an environment where our team can thrive as they create value for our customers.

With that, I will hand it off to Chris.

[Chris Farinacci, Chief Operating Officer and Head, Business]

Thanks, Dustin. We had a great fourth quarter. We finished the year really strong and even accelerated revenue to 57% growth in Q4 as we exited the fiscal year. Highlights from the quarter’s business performance include a few things, first, growth in new paying customers to over 93,000 and record level top-of-funnel buyers.

Second, strong expansion within our customer base. We now have more than 1.5 million paid users. Net retention rate for customers spending $5,000 or more with us annually was a 125% and for customer spending $50,000 or more with us was more than a 140%.

And third, some big wins and strong momentum in enterprise, the number of customers spending $50,000 or more with us annually grew 92% year-over-year and our largest customer deployment in terms of paid users grew 5 times the size of our largest customer at the end of the prior year. We saw a broad customer attraction in Q4 across industries and departments from high growth leaders to enterprise digital transformation and across global regions.

Here are just five of the many examples. Danone, the leading dairy and plant beverage in specialized nutrition company headquartered in Paris selected Asana’s enterprise solution in Q4 at their standard for project and work management.

With Asana teams Danone from supply chain to finance to quality and food safety now have the visibility they need to collaborate effectively, drive project ownership and further strengthen their commitment to bring help through food to as many people as possible.

Spotify, a leading provider of digital music and podcasts first began using Asana in 2015. Usage has steadily spread across the company over the years and in Q4 they significantly expanded their use of the Asana’s enterprise solution as teams look to improve how they collaborate, manage projects and run business processes. Now teams across the world are managing everything from the latest podcast ad campaign to engineering roadmaps to regional marketing sales activities in Japan in Osaka.

GoJak, a super app that provides millions of users across Southeast Asia with on-demand access to more than 20 services such as Rice [ph] upgraded to Asana’s enterprise solution for the entire company in Q4. They chose their enterprise offering to further enhance security and user management controls, while also providing GoJak’s executive team with the support and visibility needed to accomplish their key business objectives.

Hotmart a leading platform for digital producers and one of Brazil’s leading startups chose to go wall-to-wall with Asana’s business solution for thousand plus employees in Q4. Now teams across the company are managing their projects and work in one place from finance, to marketing, to business strategy and operations to talent acquisition.

HubSpot, a leading CRM platform that provides software and support for scaling companies has been using Asana across some of its marketing and sales operation teams for some time. In Q4, they upgraded to our enterprise solution and expanded their use to more teams within these functions, as well as to other teams like finance and HR.

I credit our exceptional business performance in Q4 and in our fiscal year 2021 to first and foremost the immense business value we provide to our customers, our differentiated product offering, our resilient hybrid business model and talent go to market team and the overall accelerating business imperative of the market.

Looking forward to our fiscal year 2022 and beyond there are three major areas where we are focused, acquiring new customers, customer expansion in our base and enterprise momentum. To give some color. First, I will start with new customer acquisition. This is a fast growing emerging category with the vast, vast majority of 1.25 billion global information workers without work management tools and suffering from lack of clarity.

For new teams Asana is fundamentally a broad horizontal product. We see customer used cases within and across virtually all functions and departments and often including collaboration externally with suppliers, partners and customers.

We remain focused on acquiring new customers building upon our record top of funnel demand from Q4 with a blended paid organic and product-led growth approach. Over the course of this year, we are executing one of the largest new market expansion initiatives to-date. We are planning to expand language availability for Asana from six to 13 languages over the course of the year to make Asana accessible to a significantly larger portion of the world’s teams.

Second, we are focused on customer expansion. We continue to see a large expansion opportunity in our existing base of now over 93,000 paying customers. This year, we are expanding our direct sales team in Asia, Europe and North America.

We are building on the strong departmental traction we see in marketing and creative, sales and strategy and operation teams, as well as other teams like product design, HR and IT teams. This year, we are particularly focused on providing best-in-class solutions for key cross team workflows. For example, global campaigns, product launches and creative development. These are workflows we uniquely address and which bring more teams into Asana.

Third, our last area of focus is enterprise, building on the tremendous enterprise adoption and momentum of last year. This year, we are investing significantly in our enterprise platform. Major investment areas include, Work Graph visualizations and reporting, advanced administrative controls and broader compliance support, building out our technology and services partner ecosystem, and integrated goals management and cross company use cases.

This year, we are also continuing to grow in scale or enterprise sales organization. We have now brought in general managers in each region with enterprise leadership backgrounds from companies such as Salesforce, Qualtrics, LinkedIn and NetSuite.

We are investing heavily in our enterprise capabilities and while we are still very much in the early days of this market, our enterprise motion and momentum is beginning to build. Asana is uniquely suited to scale as a trusted partner and provider of real-time clarity and alignment in and across large enterprises.

Now, I will turn it over to Tim to go through our financial results.

[Tim Wan, Chief Financial Officer]

Thank you, everyone, for joining us today. We are very excited to report another great quarter with strong results across the Board. Q4 revenue accelerated from last quarter to $68.4 million up 57% year-over-year, driven by continuing strength from our customers, spending $5,000 or more on an annualized basis.

I am also encouraged by the fact that we have maintained 55% plus revenue growth rate during each of the quarters throughout this difficult year, demonstrates the category tailwind and the resiliency of our business model.

We added over 4,000 net new customers and now have over 93,000 paying customers, representing a 24% year-over-year increase. We have 10,174 customers, spending 5,000 or more on an annualized basis, up 55% year-over-year.

Growth in larger customers is even stronger. We have 397 customers, spending $50,000 or more on an annualized basis up 92% year-over-year.

Revenue from customers 5,000 and more represented 62% of our revenues in Q4, compared to 54% in the year-ago quarter. This segment of our business grew 81%. This further demonstrates our success with our land and expand strategy.

Our overall dollar based net retention rate was over 115%. As a reminder, our dollar based net retention rate is a trailing four quarter average calculation. Among customer spending 5,000 or more, our dollar based net retention rate was 125%, and among customer, spending $50,000 or more are dollar-based net retention rate was again over 140%.

Before turning to expense items and profitability, I would like to point out that I will be discussing non-GAAP results in the balance of my remarks. Gross margins came in at 88%, up from 87% in the year ago quarter. R&D was $30.6 million or 45% of revenue. We continue to invest heavily to fuel innovation at a high velocity.

Sales and marketing was $49.2 million or 72% of revenue. We are continuing to invest in both our self-serve and direct sales motion. G&A was $15.4 million or 23% of revenue. Operating loss was $34.8 million and operating loss margin was 51%. Net loss was $35 million and our loss per share was $0.22.

Now onto our fiscal year highlights. Fiscal year revenue was $227 million, up 59% year-over-year. We added over 18,000 net new paying customers for the full year. We also added 3,600 customers spending $5,000 or more on an annualized basis. This is an increase of 55% year-over-year. And finally, we added 190 customer spending $50,000 or more on an annualized basis. This represents an increase of 92% year-over-year.

Moving onto the balance sheet and cash flow. Cash and marketable securities and long-term investments at the end of Q4 were approximately $405 million. Our free cash flow is defined as net cash from operating activities less cash used in property and equipment and capitalized software costs, excluding nonrecurring items such as direct listing fees and the build out of our San Francisco office. In Q4, free cash flow was negative $17.5 million. We also ended the fiscal year with 1,080 employees. We are very proud of the achievements and the business momentum during this unprecedented year.

Now moving on to fiscal year 2022. For Q1 fiscal year 2022, we expect revenues of $69.5 million to $70.5 million, representing growth rates of 46% to 48%. Non-GAAP loss from operations of $44 million to $42 million, loss per share of $0.27 to $0.26 assuming basic and diluted weighted average shares outstanding of approximately $161 million.

Now looking out to full fiscal year 2022, we expect revenue to be $309 million to $314 million, representing a growth rate of 36% to 38% year-over-year. Given the large market opportunity, we will continue to invest for growth to maintain our leadership position.

We expect full-year non-GAAP operating margins to be flat to slightly up from fiscal year ‘21. Longer term, we believe that we can execute on a growth strategy and that our best-in-class gross margins will provide the leverage and flexibility to invest into the enormous market opportunity. We believe this investment will provide durable and sustainable growth as we pursue this large market opportunity with the best-in-class product.

Operator, let’s open up the line for questions.

[Operator]

Thank you. [Operator Instructions] Your first question comes from line of Brent Thill from Jefferies. Your line is open.

[Brent Thill, Jefferies]

Thank you. Good afternoon. I am curious if you can just characterize the overall demand environment and how your customers are behaving as we go through the lifting of this pandemic and I think, Dustin, many are asking, how does this change the company’s approach as we return to the office? Does anything change or is this just too powerful of a tailwind that we are going to continue to see that type of momentum that you are putting up? Thank you.

[Dustin Moskovitz, Co-Founder and CEO]

Thanks for the question. I will start off by saying even before COVID started. I think that our growth was being driven by a long-term secular tailwind and momentum in the category. And we had -- clarity is really difficult for teams even when they are in a regular office environment and there’s just been a rising tide of the business imperative for clarity and alignments.

And I would also just point out even in the pre-COVID times, when you have large companies, they are typically working in distributed ways a lot of the times. They are working across offices that they might have all over the world. They might have people in the field that are checking in remotely. So you had some elements distributed there. But even when a team is working together literally face to face, Asana’s a very useful solution for achieving clarity.

So, post COVID, I think we are going to see some companies return to those dynamics and be mostly back in the office. We are clearly going to see a lot more companies choose to be fully remote or remote first and we will have everything in between. And I think in all of those -- all of those contexts, Asana is going to play an important role in driving clarity and alignment. And so we are really well-suited to the moment, but also the growth is really being driven by those longer-term trends.

[Brent Thill, Jefferies]

Great. Just a quick follow-up for Tim, 4,000 paying clients, I think you were running between 5,000 and 7,000 the last two quarters. Is there anything to read into that or are you just getting larger transaction, albeit smaller number, anything to read in on that number for the quarter.

[Dustin Moskovitz, Co-Founder and CEO]

Yeah. I don’t think there’s anything to read in onto that number, other than the fact that I think there are fluctuations quarter-over-quarter and Q4, we do have a hybrid model where there’s a very strong self-serve part of the business.

So when during the holidays, you may see a little bit softer in terms of new customer adds. But I think what we have talked about is, taking a look at the total customer base from a -- the growth from an overall basis and we grew our total customer about 24%, 25% year-on-year.

[Operator]

Your next question comes from the line of Ittai Kidron from Oppenheimer. Your line is open.

[Ittai Kidron, Oppenheimer]

Thanks, guys. Great numbers. Chris, I wanted to dig a little bit into your enterprise focus heading into next year. Can you talk about the quota salesperson’s motion? How much are you investing in it? How do we think about the expansion of that base next year and in what way -- can you remind us of the motion of how you move from self-serve into a little bit more of an involved sales process in order to drive deeper and broader adoption?

[Chris Farinacci, Chief Operating Officer and Head, Business]

Yeah, sure. Thanks for the question, Ittai. So, sort of enterprise last year into this year. Last year we built a really strong foundation investing in regional go-to-market leadership and enterprise infrastructure to support our success in the enterprise. And as we mentioned, we saw a really strong enterprise adoption momentum last year, particularly in the second half of the year.

We brought in those GMs in each of the regions, in each of the key regions that we focus in with enterprise leadership backgrounds from companies like Salesforce, and Qualtrics and LinkedIn and so forth. And this year, the plan is to continue to grow and scale our enterprise sales organization, as well as invest in the enterprise platform.

Just to give you a little bit more color on that, on the platform side we are making major investments in some product areas like Work Graph visualization reporting, advanced administrative controls and broader compliance, building out our sort of technology and services partner ecosystem and continuing to invest in integrated goals management and some of those cross-company use cases.

And then on the business side we are growing and scaling our direct and enterprise sales teams in Asia, Europe and North America. When we have got the GMs in place and we believe we are uniquely suited to scale as like a trusted partner and provider of clarity to whole organization so. Yeah, so we will continue to scale on the enterprise and we are really encouraged by the momentum coming out of this last year.

[Ittai Kidron, Oppenheimer]

That’s great. Maybe as a follow-up, you have also talked about expanding the number of languages, I think, it was from six to 13 if I got that right. Can you give us some perhaps some math on what is the population or what part of their global knowledge worker base you will be able to kind of peel off with this addition?

[Chris Farinacci, Chief Operating Officer and Head, Business]

Yeah. I can give you some of that and we could follow-up with some of the details. So we are expanding languages availability as you said from six to 13. So just to make a final accessible to a significantly larger portion of the world’s teams as you mentioned and expand our TAM. These languages are all focused in Europe and Asia and we will be doing it rolling over the course of the year.

And I don’t have the exact math on how much of the TAM it opens but it’s particularly focused on languages and countries and markets specifically in Europe and Asia that are sort of the next best beyond the languages and markets we focus on today.

[Operator]

Your next question comes from the line of Rob Oliver from Baird. Your line is open.

[Rob Oliver, Baird]

Great. Thank you guys very much for taking my questions. First of all, one for you, Chris. Just you mentioned in one of your references on the -- wait on the integration, which was a technical and nontechnical win with the new Jira integration? And I was wondering if you could provide some color on those integrations, which you guys had announced earlier in the quarter, and maybe some of the use cases you are seeing around there, particularly because some of them are viewed as your competitors. So I would be curious to hear a little bit more about how you are seeing those integrations play out?

[Chris Farinacci, Chief Operating Officer and Head, Business]

Yeah. Sure. So the strategic integrations we announced in the sort of second half of last year were largely with players like Microsoft, Google, Slack, Zoom, Adobe, Jira from Atlassian and Salesforce. Most of those companies of which were pretty strong partners with.

In terms of some of the use cases, I will just maybe highlight a couple from some of the customers I mentioned earlier in the prepared remarks. So, and Dustin mentioned Twitter as an example where their experienced team, which is largely their R&D design product teams, are using Asana to manage things like product road mapping and content creation.

And there the integration in the -- the integration with Jira is pretty typical of what we see where we are connecting technical and nontechnical teams through that integration. So we will tend to see that in a lot of cases where the boundary between developers and broader teams, and the broader teams are wanting to manage cross-functional use cases with Asana, things like product road maps, product launches, sprint planning and they want to integrate with sort of core development on the Jira side to enable those cross-functional use cases.

And then there’s a number of other customers I mentioned. Maybe I will just mention one or one or two more in the prepared remarks and most of these involve various integrations that we talked about.

So, let’s see, HubSpot is a good example of a company that -- where we started in sales and marketing operations, I am sorry, marketing and sales operations and then expanded in Q4 to enterprise to include not just more sales and marketing teams but to include finance and HR teams as well. And across those customers you will find some level of at least one if not multiple of those integrations and all those customers.

[Rob Oliver, Baird]

That’s great. Thanks. And Dustin one follow up for you. I really appreciate the color, Chris. Just on you mentioned I think the use of by R&D teams and it does sound as if this opportunity is expanding nicely outside the marketing department for you guys. When you look at that those largest enterprise customers, which I think you guys said grew 3x in the quarter which is pretty astonishing. What are the patterns that you are discerning there as you know I imagine you sitting at the top of the Work Graph looking down into Asana. So what are the patterns you are seeing that that excite you about particular use cases? Thank you guys very much.

[Chris Farinacci, Chief Operating Officer and Head, Business]

Why don’t you -- do you want to start, Dustin. Yeah.

[Dustin Moskovitz, Co-Founder and CEO]

Yeah. I will just start off by saying I think a lot of the growth in those customers just is really characterized by just being strong organic viral and really being driven by internal champions starting to use Asana on a particular teams and spreading it to the teams adjacent them. And Chris is probably a better person to speak to exactly the departments and use cases we are seeing there.

[Chris Farinacci, Chief Operating Officer and Head, Business]

Yeah. So just maybe just to answer that exactly. And then I think you might know our direct sales team is really focused on those. It’s primarily segmented by departments where functions and departments where we are seeing the most traction.

And so building on that traction from last year in the second half of the year it’s largely in marketing and creative, sales and account management, strategy and operations teams, but we also see broader engagement in product design, HR and IT teams.

And then going into this year, we are particularly focused on providing best-in-class workflows and best-in-class solutions for particular cross team workflows that we see as we uniquely address and which bring more teams into Asana. So some examples and specifically our global campaign management, product launches and creative development processes, as an example.

[Operator]

Your next question comes from the line of Mark Murphy from JP Morgan. Your line is open.

[Matt Coss, JP Morgan]

Hi. Good afternoon. This is Matt Coss on behalf of Mark Murphy. Can you comment on any roll-up of competitors among your customers especially as you have seen success at the Enterprise recently?

[Chris Farinacci, Chief Operating Officer and Head, Business]

Yeah. So from a competitive landscape perspective and I will just remind everyone, there’s a huge greenfield opportunity. So most information workers, the vast, vast majority of the world’s information workers don’t have work management tools yet. So that’s why the business imperatives of this category is accelerating.

So with that, I think, you are asking about the competitive landscape and if it’s changed. Our primary competitor remains. It hasn’t changed much at all in Q4. Our primary competitor remains the status quo of spreadsheets e-mails, meetings and in most deals that too we are competing with. And then when we do compete, we don’t tend to see any particular competitor more than we have in the past.

[Matt Coss, JP Morgan]

Thanks. And then a quick one for Tim. Your gross margin is up nicely for fiscal ‘21, how should we think about that going forward?

[Tim Wan, Chief Financial Officer]

Yeah. I mean, I think you -- I mean we are pretty much, I would say, we are kind of best-in-class gross margins and I think you should expect the business to stay at this level.

[Operator]

Your next question comes from the line of Stan Zlotsky from Morgan Stanley. Your line is open.

[Stan Zlotsky, Morgan Stanley]

Perfect. Thank you so much, guys, and congratulations on a very strong quarter. A couple questions from my end. First one on international growth, obviously, as Ittai mentioned the expansion from six languages to 13 languages will be important. But how do you think about the support from a go-to-market perspective as far as really attacking the international opportunity in the coming year? And I have a quick follow-up.

[Chris Farinacci, Chief Operating Officer and Head, Business]

Sure. So this is Chris again. Let me give you a little color on that. So we are very -- from a direct sales perspective in these international markets, we are really focused on key markets to win. And so by outside of North America, in Europe for example, we have a hub based in Dublin and field offices in London, Munich, and Paris which are our largest markets. In Asia, we have hubs in Japan and Australia and our field office in Singapore.

And those are our key markets that we focus on coming out of the year and then these new languages will turn on new markets over time over the course of the year as well. They are primarily all languages focused in sort of the next sweet spots in Europe and Asia.

And then implied in that, I think is like a how’s international growth going and it’s pretty balanced. We are seeing pretty strong similar growth in both North America and our core international markets. I don’t know if you have anything to add, Tim.

[Tim Wan, Chief Financial Officer]

No.

[Chris Farinacci, Chief Operating Officer and Head, Business]

I think. Yeah.

[Tim Wan, Chief Financial Officer]

That’s exactly right.

[Stan Zlotsky, Morgan Stanley]

That’s very helpful. Thank you. And well, a follow-up question. So if we look at in terms of how much you are making per paying user, right? And, if we look at it at the end of this year versus at the end of ‘20, it looks like that went up by about 25%, 26% year-on-year, which is obviously very impressive. And when you combine it with just the overall growth of your customer base, that’s how you get to your overall growth at the company. But specifically on the per user -- per paying user increase, what’s driving that? Is it is more just customers moving up into the enterprise or anything else along those lines? Thank you.

[Dustin Moskovitz, Co-Founder and CEO]

Yeah. So I think there’s two things happening, one, both natural adoption kind of the bottoms up natural adoption of small teams getting more of their team members onto the platform, right? So that’s one way how we increase the ACV on a per customer basis.

And then the next leverage really around the functionality -- the features and functionalities of both business and enterprise. So when customers generally start in the premium SKU, they can move up the value chain into both business and enterprise where we have higher ASPs.

[Chris Farinacci, Chief Operating Officer and Head, Business]

Yeah. I might just add. This is Chris. I might just add one thing in sort of like where we are on that evolution of moving up here. In Q4 was the first quarter that over 50% of revenues came from a combination of the business enterprise SKUs and that’s up from 42% the prior year. So it gives you a little mathematical flavor to how that’s going.

[Operator]

Your next question comes from the line of Brent Bracelin from Piper Sandler. Your line is open.

[Brent Bracelin, Piper Sandler]

Thank you and good afternoon here. I guess a question here for Dustin. Perhaps, we will take a step back and get your view just on the broader opportunity. Asana exits the year with 1.5 million paid users, that compares to I think Microsoft Office 365 with commercial paid users over 250 million. My question here is as you think about the broader seat opportunity for this work coordination layer, is there’s something unique about coordination that would apply to just a smaller subset of these paid users that Microsoft had and the work happens beyond Microsoft and Salesforce to Workday and lots of different applications? But just trying to get a sense of given such the so much success that Microsoft has seen and kind of that productivity space, is there anything unique about these coordination apps that might be suited for a smaller subset of the market or would it address the full gamut of use cases that Microsoft’s production today with Office 365?

[Dustin Moskovitz, Co-Founder and CEO]

So when we think about the overall collaboration landscape, we tend to talk about it in terms of the three Cs, so content, communications and coordination. And we are really a coordination layer. So answering key question who’s doing what by when.

To the overall collaboration market, I think, Microsoft would agree with us that the addressable market in the long run is much larger even than their $250 million. So we think of it as $1.25 billion knowledge workers globally.

And content and communications, those categories have been around a lot longer and so they are further adopted. And really, I think about Office 365 as mostly in the content category and then teams is a little bit more in the communication.

So there’s still enormous greenfield opportunity to reach the rest of the TAM in all three categories. But coordination is the most nascent. There’s still just a very small percentage of teams using anything in the formal coordination category. But they are doing work management.

They are doing it with spreadsheets and with long e-mail threads and with in-person meetings. So it’s happening but they are not using purpose-built tools for it. And so I think there’s a big opportunity for all of those knowledge workers to really cut down on work about work and accelerate their productivity by adopting work management. So that’s really the long run opportunity is the big market.

[Brent Bracelin, Piper Sandler]

Got it. Helpful color there. And I guess a follow-up for Tim here on the Q1 outlook, guidance here is about 10 percentage points above what we thought it would be here and so you are looking at close to 47% kind of growth in Q1. What’s given confidence in the guide up here is the momentum that you saw exiting kind of the year spilling over into the New Year, just any additional color on what looks like a pretty meaningful guide up here for Q1 would be helpful? Thanks.

[Tim Wan, Chief Financial Officer]

Yeah. Sure. I think it’s really a combination of what Dustin and Chris kind of mentioned on the call in terms of the growth drivers for our fiscal year and the momentum that we saw out of Q4 just in terms of the new customer adds that we are seeing.

The expansion that we are seeing within the existing customer base, as well as the momentum we are seeing with some of our -- with our enterprise motion. So all those things would make us feel really good about kind of the both the guidance and the outlook for this year.

[Operator]

Your next question comes from the line of Yao Chew from Credit Suisse. Your line is open.

[Yao Chew, Credit Suisse]

Hi there. Congrats on a strong close at the end. Thank you for taking my question. I have one for Chris and Tim, and I wanted to dig a bit into the go-to-market. Specifically, how you are thinking about leading into advertising and the efficacy of installers. You all have a formula that obviously has been working well to some degree. The question is how that strategy may be impacted given ongoing privacy and platform changes from the larger tech type problems whether it would be IDFA changes or Google’s Cookie Deprecation. How do you think about reallocating those dollars if needed, is it more QCH, within the bucket, help us understand that decision process please?

[Dustin Moskovitz, Co-Founder and CEO]

Yeah. I mean I think that’s a good question. I think one of the things -- I mean I think some of that, it remains to be seen and we will obviously optimize based whatever regulatory environment we end up working at.

But I think it’s really important to note, one, that this is a greenfield opportunity, two, we have over 30 million registered users, so we have a very large installed base of free users that we can that’s already familiar with Asana and knows about us. And I think three kind of the tail wind both in terms of just the category and the need for teams to the category and the need for teams to find clear -- to have alignment and clarity around the work.

[Chris Farinacci, Chief Operating Officer and Head, Business]

I just to add one point which is our ad strategy is quite diversified. There are many different channels and many different regions for each of those channels. And so I think any given month one of the platform dynamics may change, but we still have all of those other channels we can easily reallocate dollars too if needed. But I -- yeah, I don’t think there’s any one thing that could totally disrupt that customer acquisition strategy.

[Tim Wan, Chief Financial Officer]

Yeah. And that’s -- I just had one more point on top of that, sorry, which is that, our top of funnel strategy is a blended paid organic and product led strategy and organic and word of mouth is the strongest driver of growth and that’s -- so that blended approach gives us some flexibility.

[Yao Chew, Credit Suisse]

Thank you so much for that Tim answer there. Just one quick follow up for Tim on net retention rate, how should that − how should we think about that trending throughout the year? I think we have started to see a little bit of stability and possibly inflection in small business that 115 number used to be 120, should we be hopeful that the return to stent level?

[Tim Wan, Chief Financial Officer]

Yeah. I think the way to think about it is obviously that − the number we report is a trailing four quarter average. So there’s probably still one or two more quarters of the cohort from prior year that we need to work through. So, I would say, probably in the back half of the year that we would expect that number to tick up.

[Operator]

Your next question comes from the line of Andrew DeGasperi from Berenberg. Your line is open.

[Andrew DeGasperi, Berenberg]

Thanks for taking my question. I just had a follow-up on the ACV per customer. I mean, it appears it grew quite significantly in Q4. I was just wondering in terms of the trajectory going forward should we expect that to continue to accelerate or could it plateau at these levels?

[Chris Farinacci, Chief Operating Officer and Head, Business]

I -- yeah. That’s a good question, Andrew. I think the way we kind of think about the business is that the business needs to grow in a balanced way. So that’s a combination of total customer growth. I mean, I think, customer growth has been anywhere from into the high-teens to kind of the low-20s, and that ACV, we would expect it to kind of grow in a similar range next year as well. So we don’t want to over-rotate on any one area where, if our customer base isn’t growing, we only grow through ACV, but we want to see a balance. We have pretty much a balanced approach to that.

[Andrew DeGasperi, Berenberg]

That’s helpful. And then just a follow-up on the potential enhancements coming in the next 12 months. I am just wondering is there anything that you would flag that you are kind of excited about for this year that we should be aware of coming in terms of timeline?

[Dustin Moskovitz, Co-Founder and CEO]

Sorry. Just to clarify, you mean calendar timeline, right, not our future timeline?

[Andrew DeGasperi, Berenberg]

Yes. Correct.

[Dustin Moskovitz, Co-Founder and CEO]

Okay. Sorry. Yeah. Yeah. There are a number of big areas of investment that really match to our differentiator. So the first differentiator is Asana is very easy to adopt, and it’s designed to maximize personal productivity through actually doing a few key things this year that will really focus on that individual flow experience. Additionally, Asana is the best platform for cross-teamwork.

And we talked about on the call last quarter a lot of our road map this year is focused on helping to visualize and report on the Asana Work Graph and then we are also going to be investing in building out a workflow store like we showed in the Future of Asana event and a way to build those workflows. So that’s going to be really exciting.

We are also investing further in the Goals functionality that we launched also at the Future of Asana event over the summer And as we can talk about that’s a part of what helps drive upgrades to our premium peers, as well as expansions from large organizations.

And then finally we are going to be investing a lot in the enterprise platform because Asana is uniquely capable of connecting work at the task and project level up to higher level of goals and initiatives and that really makes it really well suited for executives and for really supporting the needs of entire organization.

So that’s going to look like more of the integrations that Chris was talking about more in terms of workflow and automations as well as serving the needs of IT in the form of enhanced administrative controls and compliance and a slew of other features. So I think those are really the three key legs of our stool this year.

[Operator]

Your next question comes from the line of Patrick Walravens from JMP. Your line is open.

[Patrick Walravens, JMP]

Oh! Great. Let me add my congratulations. So Dustin, I think, my question is probably for you, which is what is your vision maybe a little longer term here. In terms of what you can do by applying AI and machine learning to this platform? And maybe in particular can you guys find a way to guide me in what I am supposed to be doing next in my day in terms of like what the highest value action is for my time at any given moment?

[Dustin Moskovitz, Co-Founder and CEO]

Yeah. I mean you basically nailed it. That’s kind of the pitch. We have talked a lot about Asana as the map for their work in your organization. So AI is really about being a navigation system for that map and so at the individual level, yeah, exactly it’s about helping prioritize your work understand where you may be blocking your teammates, understanding what the highest leveraged action is for you to take that.

So I’d sometimes described this as almost a Spotify playlist like Experience where you come in every day and this system just says here’s the most important thing for you to work on. Here’s what you should work on next and you don’t have to think it as much about all this sort of triage and organization.

And then at the team level, we can similarly help optimize your workflows and help direct the work. So if we understand what your goals are, what the steps next steps are between now and accomplishing the next goal.

We can give you some guidance on perhaps who the work should be allocated to based on what we know about their skills and past experience as well as their workload and we can help unblock dependencies and figure out exactly what the fastest path is between your current state and reaching your goal.

[Patrick Walravens, JMP]

All right. That’s very good. If I can ask of sort of a follow up, what is your philosophy about Asana getting back to work in central locations, because on one hand it’s ranked as such a great place to work and you guys use your own tool and I am just wondering do you think it’s important for people to be around each other?

[Dustin Moskovitz, Co-Founder and CEO]

Well, I think, that there’s going to be a lot of experimentation in the post-COVID world. I think this has really spurred a lot of innovations. It’s going to create a lot of different environments for our customers. The path we have chosen for Asana in the near-term is to return most of our employees to the office.

Even before COVID though, we did have some employees in remote roles. And as I was mentioning before, we also have 11 offices all over the world. So even when our employees are working with their immediate team in an office they are often working -- they are often communicating in a distributed way with their partners across the entire globe. And so I think even though a lot of the time we will be in the office, we are also just we still have the elements of remote cultures and working in that distributed way.

[Operator]

Your next question comes from the line of Robert Simmons from RBC Capital Markets. Your line is open.

[Robert Simmons, RBC Capital Markets]

Hi. Thanks for taking my questions. First, I was wondering if you could give us some color on the industry frenzy you saw over the year, have you started to see the impacted industries start to come back?

[Dustin Moskovitz, Co-Founder and CEO]

Dustin, yeah. Why don’t I start and…

[Tim Wan, Chief Financial Officer]

Yeah.

[Dustin Moskovitz, Co-Founder and CEO]

…add some color. Yeah. So, I would like to say first, is our primary mechanism for go-to-market. I know some of your questions probably about COVID and the affected industries. But our primary mechanism for go-to-market is sort of functional and functional teams versus industry verticals.

And so we have always sort of been focused that way and so you can sort of see over the course of the year the traction we have had in those different functions and those kinds of things. Tim, I don’t know if you want to add.

[Tim Wan, Chief Financial Officer]

Yeah. I would say, I think -- certainly, I think, in combination of Q1 and Q2, those industries such as travel, hospitality we did see them either downgrade or churn primarily because of the pandemic. But I think, for us, I think, what we have seen is some of those -- we haven’t exactly seen any of those particularly like come back and expand yet.

But I think what we have seen is that there are other new companies or small companies that are coming in or other companies trying different tools related primarily because of the pandemic because they need to get clarity in alignment. So I think it’s probably more of a balanced view of both those that were impacted and the tailwind of kind of the remote work and what we saw kind of in the numbers.

[Robert Simmons, RBC Capital Markets]

Okay. All right. And then, I guess, can you talk about like how many are you seeing your customers adopt the full the pyramid of clarity? Are you seeing that vision resonate with your customers?

[Chris Farinacci, Chief Operating Officer and Head, Business]

Yeah. This is Chris. I can answer that. So, yeah, we are starting to see it more and more. I mean our business model, as I think you all know, is very bottoms up. So it starts with viral self-serve adoption team by team and then we land and expand usually in a department or two and then over time we expand wall-to-wall or seek consolidation.

And on that journey, those first two areas I described are going really strong. And in terms of getting to wall-to-wall, we are starting to see that. I mean, its early days but we are definitely starting to see that certainly in small and medium-sized companies. In fact, a number of the customers I talked about in the prepared remarks just re-mentioned them were actually wall-to-wall deployments.

So GoJak in Asia upgraded to Enterprise and it was -- some of it was for the IT security and user management controls. But a lot of it was to provide the executive team with the support visibility they needed to connect key business objectives to the underlying work of the teams.

One other example in there was Hotmart, which is a leading Brazilian startup and they went wall-to-wall with 30,000-plus employees to connect everybody from finance to marketing to strategy and ops and talent. So, yeah, that’s a trend that we are starting to see particularly -- we are starting to get to wall-to-wall particularly in small and medium-sized companies.

[Dustin Moskovitz, Co-Founder and CEO]

And…

[Operator]

There are no…

[Dustin Moskovitz, Co-Founder and CEO]

I would just add that -- if you don’t mind, just in terms of the top of the pyramid of clarity. One of the key features that we think of as really addressing that part of the clarity map is portfolios. That was part of why I did a sort of deep dive earlier in the call.

And so we are looking at usage of that and we saw that among eligible customers are the ones that are using the business or enterprise tiers. It’s almost ubiquitously used, so vast majority of our customers that are spending more than $5,000 on annual basis are using portfolios.

And in fact, one of the reasons we mentioned it is we just recently added this new feature of nested portfolios to being able to include one portfolio inside another. We launched that only six weeks ago and we are surprised to see that that more than half of the eligible customers are using that as well already, so really seeing strong adoption of those top of the pyramid of clarity features.

[Operator]

There are no further questions at this time. I turn the call back over to Catherine.

[Catherine Buan, Head, Investor Relations]

Okay. Well, thank you everybody for joining us. We really appreciate your time during a busy earnings season and we look forward to seeing you soon. Thanks.

[Operator]

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.