Q3 2021 Asana Inc Earnings Call
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And I like and the conference over to your Speaker today Ms. Katz from one head of Investor Relations. Thank you. Please go ahead.
Good afternoon, and thank you for joining us on today's conference call to discuss the financial results for us on a third quarter fiscal year 2021 with.
With me on today's call are done and most of it it's on his co founder and CEO, Tim on the company's Chief Financial Officer.
And Chris are not see the company's chief operating officer and head of business.
Today's call will include forward looking statements pursuant to the Safe Harbor provisions on the private Securities Litigation Reform Act and 1995 and.
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 represent our management's beliefs and assumptions only as of the date made information on factors that could affect the Companys financial results is included and its filings with the FCC from time to time and cleaning the section titled risk factors and the prospectus filed by the company in connection with its direct listing.
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 Mt limitations of using non-GAAP measures versus our closest GAAP equivalents is available in our earnings release, which is posted on our Investor Relations Web page and investors on this on a dot com.
And with that I'd like to turn the call over to Dustin.
Thanks, Scott and welcome everybody and good afternoon.
We had an excellent first quarter as a publicly traded company and as you can see from the results for business is fundamentally strong.
And Q3, we added approximately 7000 net new customers and reported revenue.
$9 million.
Year over year.
In addition, the number of customer spending for $2000 for more on an annualized basis was up 58% year over year and revenue growth from those customers from truck.
Year over year.
Last quarter, we mentioned that we saw short term headwinds from coated and long term tailwinds now.
And with the short term headwinds have diminished for.
Churn rates for the burden to free cobot bubbles and markedly improved from their peak in April.
Bianco bid, we're seeing promising signs of continued durable growth and at least three trips.
On acceleration and new customer additions.
Two faster deployments and some of our existing customers.
And three some of our largest enterprise expansions.
Success with experience from Q3 marks moment in time, and it's grown from years of investment and our culture for product or strategy.
Where mission and platform and anymore for both teams to work together.
And a world, where there's a fire hose for information with regional cooperation tools and and increasingly distributed work environment. It's critical to have clarity about what's most important and what each team member should focus their attention.
The pandemic and work from home and accelerated this need and in fact, the cooperation market is expected to be a 32 billion dollar and market by 2023 <unk> <unk>.
We believe the world's 1.25 billion global information workers for benefit from from Microsoft and we penetrated Boston, 3% of the employees on our own customer base.
And this is a relatively new software category, let me explain how we view the landscape and worst on it.
You talked a few cooperation acquired the three seats on 10, which includes cloud storage and Paul sure.
Communication, which includes chat and video conferencing and coordination which works on it.
Interest invested heavily and technology for the first two but in most cases, they haven't invested and USANA layer and coordination there I thought 30.
Ordination, it's not really answering the question who is doing what I wear it.
Historically teach it had resorts and sticky notes email spreadsheets and balance means to coordinate work and what the sauna they have a better solution.
Companies work best when everyone on the organization has clarity on the company's mission its objectives for projects and workflows needed to achieve those objectives and he was responsible for each individual.
This enables every team member too cheap focus and flow and have clarity on how their work contributes the organization's mission.
When there's clarity you spend less time coordinate and work we're time actually doing work and quite simply are more productive.
So to solve the problem team coordination and gives team squared.
And he sort of work referenced the data model and makes the steam coordination possible.
And enables a complete for we connected accurate and up to the math work and your organization.
He is on work graph represents all and units work like cash ideas goals and items information about that work the growth.
Conversations.
That's information.
How it all fits together and importantly, who's responsible for each piece.
The living system of clarity for work that emerges and real time and expresses a teach and eight present status for future Brad.
This is one of our biggest competitive differentiators, so I'm going to spend a few minutes on this call and on the next couple of earnings calls talking about different aspects of your standard work growth and customer benefits for dinner.
They are moving on it which is a feature based on where crop and enables teams to manage capex work and simple and intuitive way.
Well for home and gives people the ability to host the channel past multiple projects and the same time.
This feature is unique to a sauna and it is what it allows honest and serve as a single source for true for customers working across projects prophecies functions.
For example, we use multi home to prepare for this earnings call.
Great and it's on a cash to finalize approvals for their earnings call scratch and that task on all the pertinent details for the call and surfaces are single source and true.
The task force simultaneously and several different projects, putting Investor Relations Communications legal review and then my personal my tasks.
This flexibility allows each of those constituents managed to work with and another contacts and workflows out maybe to make their own individual copy of the task.
And each time, a teen number multiples of cash cycle of chaos as a burden.
Without on by home and one of two things happens so either you Miss and unit of work and one of its role and contacts and we're calling for the products for.
For <unk> waste time, and email threats and meetings just to communicate status and reconcile changes.
Multi homing its customers competent and what they're seeing is the single source of truth across all teams.
And you might think this is too subtle and on track for customers to pick up on this it's probably got hormone and customers Raymond.
For example, Vox media says for for stuff it looked like the wild West and box media.
Information didn't flow smoothly between games, we keep detailed and deadline losses now and chat.
Now with its on US we cannot cash like a legal review for line campaign for multiple projects for just a quick.
This way and the legal team for example, it doesn't have to shift and all the other campaign work.
Yeah for the consolidate all of their review tasks and one place and.
When they complete the review Adas and medically saying for across all the projects.
Multifamily, so powerful and used for 97% of our customers and spend thousands of dollars for more on an annualized basis.
And the volume is remarkable.
Customers have multi homed hundreds of millions and shot.
And this is just from one of the unique capabilities enabled by the assault work for us.
From an R&D perspective, we're investing aggressively in and start to work graphic and features and Naples.
This year, we released more than 130, new features including approvals status OLS dashboards platform integration zone, Jira slack, Microsoft teams and blow our <unk> and more.
We're also moving quickly towards our product vision and becoming the navigation system for organizations, which we described at our future for us on a bad last quarter.
Some of those product investment areas include these areas.
First piece on a work right Visualizations and reporting.
This will give teams real time data and insights across the organization.
Second the work flow store and builder.
This will democratize workbook creation and automation and enable best practice sharing across teams and organizations.
And next to goals for extending our goals product to our organizations to manage all their work team and individual goals for every employee and the company.
This enables customers to map their work crashed top to bottom wining work from the atomic level of detail tasks, all play and the highest level objectives of the organization.
In addition, two weeks ago, we previewed some of the themes around our enterprise.
We're building out even more enterprise part from capabilities and putting enhanced admin controls permission likes and things security integrations disturb the worlds largest companies.
Stay tuned for new product announcements and these areas and more over the next several quarters.
Now I'm going to turn it over to Chris to talk about Q3 from an operational perspective and share more details on how our customers are using us.
Thanks Dustin.
We're very excited about our performance and Q3 with top line revenue growth of 55% year over year led by revenue from customers with over $5000 and annual spend which was up 80% year over year.
In Q3, we again saw notable improvements across many of our key metrics, including record top of funnel traffic and sign up for accelerated incremental paying customers and expanding deal size and let me discuss each and a little more detail.
As you might remember from Q2 on top of funnel volume and sign ups was elevated due to work from home and it not only remain elevated but even expanded and Q3.
We also accelerated the number of new paying customers and the quarter, adding approximately 7000 to reach over 89000 total paying customers to date.
The increase and new paying customers and Q3 was almost as large as the volume in both Q1 and Q2 combined.
Third we saw and moved to bigger deals across the board and particularly we saw traction and large enterprises and our large deal trends reflected this we saw the number of customers expanding more than $50000 with us annually increased 104% year over year, but.
And the corresponding revenue contribution more than doubling.
And we saw very strong growth and very large enterprises and Q3.
We're continuing to invest and our enterprise offering last month, we unveiled new and expanded integrations with Microsoft teams slack Jira consume video reinforcing our unique role enabling enterprise work orchestration.
In Q3, we saw customer wins broadly across industry verticals, Let me talk about a few notable wins.
For sure in a leading provider of electronic device insurance with 300 million customers worldwide has been in this on a customer for over two years.
In Q3, sorry, and upgraded to our enterprise solution for our enterprise grade security and strong integration capabilities and expanded to more departments across the organization, including HR. The B to B revenue division retail and their IP architecture team.
V S P a leading provider of access to eye care and eyewear to their 94 million members around the world.
Joe this on as their enterprise solution and bringing together marketing teams from five lines of business into a single platform.
The sauna what used to be a manual process, combining email share point spreadsheets and jira well now be automated yes.
The U.S.P. chose us on and because they need and organizational wide solution that could replace email with an automated approval process be customized for the business workflows and provide strategic visibility across the organization for leadership.
Jim video, a leading provider of video for unified Communications and again using us on it and the mid 2000 nineteens to help manage their work.
In Q3 zoom expanded their use of its on its a more teams across the business.
Now they can see project progress and real time and ensure responsibilities are clear, which is critical when you're moving as fast as zoom is to serve their growing customer base.
Education everywhere has been hit hard by COVID-19, and the bigger the school the harder it can be to stay aligned and responsive to change.
At the University of California, Santa Cruz, dishonest, becoming the backbone for a number of administrative units supporting their teleworking experience and empowering employees to organize their work delegate responsibility and drive accountability for.
For example, the office of research is using us on a run some of its COVID-19 testing operations and the procurement department is actually inbound requests and approvals and it's on a to streamline the process with other departments.
I also want to highlight that for of our biggest customer expansions in the quarter for with Fortune 50 companies. This.
This including expanding one of our largest customers to tens of thousands of seats.
So as you can see while our enterprise motion is still in its early stages. We are clearly starting to see our strategy bear fruit.
We're helping some of the most visionary companies and both traditional as well as disruptive industries and expanding rapidly around the world.
Our gross leverage remain intact, and we are progressing successfully acquiring new customers customer expansion Trust company use cases and product innovation.
In September I shared with you some of the opportunities in front of us to drive future growth.
I'd like to revisit these growth drivers through the lens and what we saw on Q3.
I'll start with new customer acquisition.
We remain focused on acquiring new customers through.
On the word of mouth marketing and our self serve product. This is a fast growing emerging category with the vast majority of global information workers without work management tools and suffering from lack of clarity.
For new teams, it's on its fundamentally a broad horizontal products.
We see customer use cases within and across virtually all functions and departments and off and including collaboration externally with suppliers partners and customers as.
As you heard from dust and in Q3, we added approximately 7000 net new customers.
We continue to see a large expansion opportunity in our existing base of now over 89000 paying customers.
Our direct sales team and armed with Department specific solution for our customers and we continue to see strong traction in marketing and creative sales and account management and strategy and operations teams.
As well as and product and design and HR and IP teams.
We believe we have the right strategy the best solutions and now is the time to ramp up our sales capabilities and invest in marketing to take advantage of the 32 billion dollar market opportunity.
Third we see a large incremental opportunity to support company wide use cases.
Starting with our recent launch of integrated goals and Okay. Our management as we power. The USANA work graph for thing companies. It's on is uniquely suited to empower companywide clarity and engagement use cases.
Internationally, we are expanding both our footprint and our product reach and Q3, we opened an office and Singapore to expand our footprint and Asia and ultimately to be closer to our fast growing on the on customer base.
We will also be announcing support for more languages, and Localizations and the coming month and finally, we continue to innovate and expand our market leading offering to bring the assign a solution to more teams and increasingly larger enterprises and organizations our product and go to market strategies work hand in hand to meet the increasing customer demand for work management.
And and drive our long term growth.
Now I'll turn it over to Tim to go through our financial results.
Thanks, Chris and thank you to everyone for joining our call today.
I know that earnings season can be and endurance test and we appreciate your time and support.
It was a great quarter across the board.
Revenue in Q3 was 58.9 million up 55% year over year and up 13% quarter over quarter led by 80% year over year growth from our customers 5000 and over.
We added approximately 7000, net new paying customers and the quarter and now have over 89000 paying customers.
We now have 8938 customers spending 5000 or more with us on an annualized basis up 58% year over year.
And we saw even stronger growth and our larger customers. We now have 318 customers spending 50000 on more with us on an annualized basis up.
104% year over year.
Subscriptions of 5000 and over on an annualized basis represented 59% of our revenues and Q3.
Compared to 51% of our revenue in the year ago quarter.
Please note this represents all customers and 5000 and over including customers over 50000.
And Q3 are over all dollar based net retention rate was again over 115%.
Consistent with Q2.
As a reminder, a dollar based net retention rate is a trailing four quarter average calculation.
For customer spending 5000 or more with us on an annualized basis. The dollar based net retention rate was over 125% also.
Also consistent with Q2.
And for customer spending 50000 on more with us on an annualized basis. It was over 140% again consistent with Q2.
Before turning to expense items and profitability I would like to point out that I will just be discussing non-GAAP results and the balance of my remarks gross.
Gross margin came in at 88% up from 87% and Q2, and 86% and a year ago quarter.
We're proud of our best in class software gross margin is driven primarily by our leading architecture.
R&D was $28.2 million or 48% of revenue.
We have five broad areas of focus and we are investing heavily to continue innovating at a high velocity.
Sales and marketing was $45.6 million for 77% of revenue.
We have nearly doubled our sales team over the last year, because we are confident as demand for work management continues to move mainstream.
Ginny was 15.1 million or 26% of revenue, reflecting both increased public company costs as well as building out our infrastructure for scale as a result total non-GAAP operating loss was 37.3 million.
Operating loss margin came in at 63%.
Non-GAAP net loss was 38.3 million and non-GAAP loss per share was 34 cents.
Total cash and marketable securities balances at the end of Q3 were approximately 424 million.
Free cash flow is defined as net cash from operating activities less cash used for property and equipment and capitalized software costs.
Excluding nonrecurring items, such as the direct listing fees and expenses and the build out of our San Francisco office.
In Q3 free cash flow was negative 19.5 million.
Our total Q3 deferred revenue was $90.1 million up 56% year over year and up 20% sequentially.
As you will see on our balance sheet 88.9 million a deferred revenue was and current liabilities, while 1.3 million, which represents long term deferred was included in other liabilities.
The $15.1 million incremental deferred revenue that we added from Q2 to Q3.
It was driven by a variety of factors, including strong sales execution larger deals and net new customer adds.
In addition, and Q3 of last year, we had a price change and allow customers to lock in existing prices and renew earlier, which elevated renewals and deferred revenue in Q3.
So as you think about deferred revenue for its important to note that we expect the usual seasonal trends associated with the holidays and fewer working days.
Please note, we consider revenue growth to be the best leading indicator for the health of our business.
And while we do recognize that investors look at other metrics such as our PEO deferred revenue and calculated billings, we do not consider these metrics to be good leading indicators for our business trends.
And our bottoms up model, we engage new users with a low friction and three point package and a material portion of our revenue base is on monthly contracts.
Looking ahead to Q4, we are raising guidance for the next quarter and for the year.
For the fourth quarter fiscal year 2021, we expect the following.
Revenue of $62 million to $63 million, representing 43% to 45% year over year growth.
We expect non-GAAP loss from operations of 42.5 million to 39.5 million.
And non-GAAP net loss per share of 27 cents to 25 cents, assuming basic and diluted weighted average shares outstanding of approximately $158 million for the full fiscal year 2021, we now expect the following.
Revenue of 220.6 million to $221.6 million, representing 55% year over year growth.
We expect non-GAAP operating loss of 130.8 million and $227.8 million.
And non-GAAP net loss per share of $1.24 to $1.21, assuming basic and diluted weighted average shares outstanding of approximately 106 million.
Longer term, we believe that we can execute on our growth strategy and that our best in class gross margins will provide the leverage and flexibility to invest and to the large market opportunity we.
We believe this investment will provide durable and sustainable long term growth.
And now I would like to turn the call back over to the operator for today operator.
And operator, well, you're killing up for questions I just wanted to jump in and first of all thank everybody for joining us today I'm going to try to keep the Q and a and good taste. So if everybody on the polling system to try to keep their questions to well one question. If it's a couple of couple of questions layered and that's okay too but.
But just anything you can do to help us keep a good pace for the question answer session. Thanks.
And as a reminder to ask a question on lead to press Star one on your telephone and.
And your first question comes from the line of Alex Luke and from RBC. Your line is open.
Hey, guys and thanks for taking my question first and also congratulations on a on a great report for support as public company, that's great thing to see.
And so the first on maybe just for for for you.
Yes, and if you think about the kinds of conversations that you're having with C level executives at the moment when the world is clearly thinking about restocking for more.
For a new normal workplace gives us the tenor of those conversations and as you think about it from the context, you mentioned, 3% penetration and your existing customer base on on a user basis, where does that go over the next couple of years and how what's the main way when you think about and locking that.
Kind of potential how do you think about it.
Yeah I'll start this off and then I think Chris can probably add some more color, but I'll just point out for our customers are and a number of different positions it depends a bit.
Which industry there and.
In terms of whether there.
The being aggressive about expansion and hiring or more conservative but.
But generally we're seeing.
The same sort of positive reaction weve seen two existing deployments and in prior years too.
You know a sauna was built to be a great customer experience and something where the initial teams could be.
Be successful and really enjoy using the product and then get the good word out and to their peers and other other teams and departments and so that that's still generally the sense and if we get when we talk to a C level executives is they're hearing from their teams are getting a lot of value and they'd like to.
On expand that value proposition to to other parts and the company.
And then in terms of the.
3% penetration and it's really just a reflection of the massive opportunity. That's that's left and a lot of our customers.
In terms of where it goes and long run we obviously, we hope to get wall to wall and all of our all for customers and we hope it goes for 100% I don't know what pace on will be again, it's it's different and different customers and depends on on the size so and some.
Smaller enterprises, we bought that figure on maybe a much higher ratio.
Of employees and may represent and tired departments your divisions.
And in very very large organizations like them for.
And five and maybe a smaller figuring it took us for years to guess organization and for.
And you like on Chris, Yes, shirts, and maybe maybe I can add divide your question just in terms of where we're seeing that that value and that traction and those conversations and generally on the conversations we're having.
Our consistent with conversations Weve had in the past in terms of the business imperative for basically real time clarity and alignment and accountability and companies and.
Thats, just sort of and amplified and thus more globally. This diverse world over the last couple of quarters, where we're seeing the traction the most its broad and horizontal on but we're seeing attraction. The most is in marketing and creative team sales and account management and strategy and operation teams, where we already have departmental solutions. We're also seeing.
Strong traction and other areas that are adjacent like product design HR and IP. So that's sort of a use case, where that where the traction is and then.
Maybe more broadly on and I mentioned this in my remarks, a little bit earlier, we're seeing that we're seeing the traction broadly across industry verticals, particularly in Q3. So I mentioned, some new examples of wins and expansions and Q3.
And sorry, and insurance company, VSP and healthcare assume intact and you see Santa Cruz and education, just to give you a feel for this sort of the diversity of demand.
That's that's perfect and then maybe just as a follow up Tim as I think about obviously, we're all going to want to talk about the enterprise numbers on the enterprise strength and where that you saw was quite.
Quite robust.
Walk us through the headwind or maybe the number of headwinds that the last like what you're seeing from the SMB customer base. The dollar based net expansion was pretty strong as weve gotten through maybe the height of the pandemic hopefully you.
Talk to us about retention and particularly as we come out of that next year hopefully how does how should we think about those comparables, particularly on the SMB side of the business.
Yeah, I think I think there's a couple of ways you can look at it.
Think dust and kind of alluded this and the prepared remarks, where we certainly are seeing a turn diminish versus their peak back and.
Kind of towards the tail end of Q1 and part of Q2.
You know I think were also being prudent in terms of Hey, we are living in a world where there is a second surge.
And we do think Seth and net expansion rate as a for quarter Rolling on average. So you can kind of expect some of the cohorts to work their way through over the next couple of quarters on.
But certainly the customers and stain and thriving and expanding with us even in the pandemic likely are going to only on continued to get stronger. So in some ways. We do think hey, we're going to come out of this with a much stronger customer base over time, but.
But there is probably still a couple of quarters to kind of work through the cohorts and I'll, let Chris and dust and kind of talk about some of the macro a secular.
Well wins that we're seeing in terms of the the customers. Yes, I can I can add some color I think you had asked specifically about SMB. So.
And just building on what Tim said, although we don't break out our business fast and beef, but I can tell you is that the revenue growth rate for customers spending less than $5000 with us on an annualized basis accelerated in Q3 versus the growth rate and Q2, but more broadly I'd emphasize what Tim said in terms of.
The I'd emphasize the strength in the quarter was primarily driven by secular trends and the growing business imperative for word management, that's that's been on going.
And that that's where we think that the primary focus and for for demand and what's driving the businesses and.
I think some of the recovery over time can can help sort of and with a little bit of and additive layer, but it's the secular trends that are really driving the business.
Great and next question operator.
Your next question comes from the line of branch Bracelin from Piper Sandler Your line is open.
Good afternoon, and thanks for the question here on one for dust and a follow up for Tim Duston.
To get your view on this whole sales force slack deal I appreciate that saunas agnostic to all the video messaging channels you love now several new integrations, but but that said what is your view on sales force slack and how may that are made that not impact your business going forward.
Yeah, great. Thanks for the question first of all I want to say congratulations on both those companies is a huge mom and for for Stewart and for Mark and and for their entire teams.
And just to reiterate a couple how we see the overall population landscape.
I mentioned in prepared remarks, you really think about three three big categories and choose to use. So the first is content includes cloud storage and Paul sharing second is communication includes chat and video conferencing and then the virtues coordination and stats worse on on his focus and coordination is all about cruelly answering the question on who's.
Two and walk by when.
And so from from our point of view and coordination, it's really important that we integrate well with the products in the other two categories.
Just lack of course is part of communications and it's no surprise, it's one of our best and most important integrations and package something I use every day myself.
And we just we have a great integration with Salesforce and CRM products.
And on top of that were mutual customers. So we use.
For CRM, because it's on a and same with slack.
And so we're really looking forward to just deepening our long existing relationship with the combined entity to go for future work and I think this is.
Just building and even stronger partner for us for the future.
Got it helpful color there and then Tim on on the follow up here I know you mentioned, we're not supposed to pay attention to calculated billings and other metrics, but it was very strong and up over 25% sequentially and.
Trying to understand if you think about the momentum there was there.
Couple outsize deals that drove billings up so much this quarter any any additional color you can provide on on why you saw such a sharp jump and billings this quarter. Thanks.
No great question.
I would say we would.
There is not any one thing I can point to that really drove that particular sequential jump I think we have a bottoms up business, but I did talk a little bit about and my prepared remarks about the seasonality in Q3 related to billings and deferred revenue.
And one of the things that we did last year was we did have a price change in.
In Q3 and allow for customers to lock in their prices and renewed early so there's kind of this natural elevated deferred revenue or renewal cycle and Q3. So the way to think about it as probably take a little bit more of a muted approach to queue for deferred.
But really it's really the secular tailwinds and the strength of the business that that really drove kind of the both the billings and deferred revenue growth.
Helpful color. Thank you.
Thank you.
And maybe or I'm.
All right. Our next question comes from the line of and take care drawn from Oppenheimer. Your line is open.
Thanks, and again guys. Congrats on the first public quarter on great results I have a couple of questions first Tom on.
On the customer additions clearly very strong numbers here, but can you tell us how much of this was potentially a.
On catch up from the previous two quarters I would assume that some customers have kind of delayed decisions given covert and perhaps as Mel felt a little bit more comfortable it's on track to kinda split up the true business activity for US is some catch up activity and there and then perhaps a question to Chris Chris Youve talked about bigger deals and.
The quarter and you've talked about some of the corporate functions and which you are seeing a lot of traction on on marketing and creative.
Help me understand how much of this a larger deal activity is really.
Reflects more than one corporate function constituency adopting you right off the bat versus a single ones that you are focused on but just making a bigger step on is the first step.
Sure let me try to take that first question anytime soon.
So what I would say in terms of our net customer and we definitely saw strength and on top of funnel and both Q2 and Q3 day during the whole co vicar, yet and I think what's really changed is kind of the diminishing churn.
Churn rates that we're seeing so many of the customers that were impacted by Cove. It.
Where we're either either churned or on pause their subscription at that period garnered so I think that was the main and packed in terms of our net adds on and then I'll turn the call back to Chris for the for the other question share. Thanks, Ittai. So that to try to answer your question I'll, just sort of remind everyone. Its.
Highest level, we have and intentionally hybrid self serve and direct sales business model and that maps today the way customers adopt our product overtime were direct sales is built on top of that sell for business and sell.
Sell through of of course maps to acquiring small free and paid teams and companies of all sizes and.
Net sales assistant motion corresponds to land and expand so land typically is about establishing a champion deploying a critical work flow and initial team or two and then expansion is typically about engaging with IP and decision makers to expand more broadly on so we don't we don't really break out the revenue versus land versus expand but what I can tell you is.
On expansion is almost always about more than one function to your question and cross functional and land typically.
A good portion of land typically gets into that and maybe a good proxy for cash.
Cross functional usage of this on a is that with dust and talked about earlier with.
Multi homing tasks, where we start to see work that is shared by really across teams. That's really what drives the usage of a sign up from one department to another so on certainly our sales assisted business corresponds to cross functional and multi department and not all of it but you know a.
A good chunk of it and mostly our expansion business is almost all focused on broader and broader broader usage across company.
Got it excellent good stuff. Good luck guys. Thanks. Thank you.
And your next question comes from a line of Brent Thill from Jefferies. Your line is open.
And no one is going to happen and turns problem on our side you put up 55% growth. So I guess just as it relates to the <unk>.
Digital component is it 60% of your revenue many or ask you given your and your such and digital mix.
Why that why the big need for these massive investments you're putting in and you can just put in context of how your your your your.
Building on the direct sales force out on the other components and how you anticipate bringing this back to more Vod and natural balance and good growth with caring about the bottom line and profitability. Thank you.
Yes sure on one why don't I start and then Chris if you want to add on and I'll talk a little bit about kind of how we think about leverage and how the how we think about the business growing the business long term.
The most important thing for us is acquiring customers line.
And with those customers, helping them be successful and having them expand over time. So we have 88% gross margin was provides a lot of flexibility for us to build a great business and what we've seen with customers that are spending over 5000 or 50000 with us that they naturally not only just expand with seats, but they also expand moving up the tiers from premium to busy.
And that business and the price. So theres also a lot of AC ACB growth down the road for US. In addition to just two seats. So we think building the business is really about landing with customers and the categories relatively new with 1.2 billion knowledge workers and would barely penetrated into into that opportunity so for us.
It's really about investing into the opportunity and driving growth, and then building and and and creating leverage over the longer term.
Yeah, I don't have much to add I'll, just bring it back maybe to the to the business model and again, its and intentionally hybrid self serve direct sales business model and given the market opportunity and if and the rising business imperative. The reality is we're investing and growth for both and one feeds the other so.
And self serve acquiring new customers as Tim said on the market is wide open it's and land grab mode. Most of the world doesn't yet have solutions and so for future growth. We are very focused on landing new and free paid teams and companies of all sizes, and we're investing and marketing and top of funnel and our self serve business there and again on the sales to sit side, that's all day.
Not the large expansion opportunity and are paying base.
We shared some metrics on that and and for example, and customer spending more than $50000 with us annually, we more than doubled the revenue and the number of customers you know year on year and that segment.
Good metric there and we're investing again to sort of run roughly doubled the sales team to ensure global coverage for growth, particularly with quota carrying reps to take advantage of that opportunity.
Thanks.
Your next question comes from the line of Stan Zlotsky from Morgan Stanley. Your line is open.
Your next question comes from the line of Stan Zlotsky. Your line is open.
Sorry about that I was on mute on thank.
Thank you so much hi, and for taking my questions and congratulations on a very strong quarter.
Maybe on a high level question for me.
As you guys look at the World and as the World really starts to settle into this and this new normal in 2021.
How do you think I saw on a fits into the new patterns of collaboration on.
That emerge as a result, and then and then I have a quick follow up.
Yes so.
Yeah, I think you're partially referring to the trends towards towards more distributed work.
You know I think that the the thing I'd point out is just well before koby came onto the scene and I think there was a rapidly increasing business imperative for increased clarity and alignment clarity is really difficult for teams to achieve even when they're working and in an office environment, but it's particularly difficult.
With remote work, so I think going forward, we're going to see some companies continue.
Gross you got some companies preparing for the office, we're going to see some companies.
Side to continue with remote distributed work and we're going to see everything in between.
And across that entire spectrum I think a sauna has it really important role to play in terms of driving clarity for teams and so I think we're just really well suited to to all of those different environments and that we're we're happy to help customers.
Perfect and that makes a lot of sense dust and and maybe just a follow up for a for Tim.
When we when we look at new customer acquisition.
For you guys on the quarter, obviously very impressive numbers on.
And on a net basis and somebody doable.
I have a I'll try and asked a question, but as I think about it right. There essentially kind of three key levers to net new customer acquisition and your model you have on conversion of free usage to paid you actually have just brand new top of funnel on acquisition and then you have just your share improvement and gross churn.
And as you think about those kinda three vectors and maybe stack rank them from a for us to to help us understand what what were the drivers of system and and improvement and the quarter.
Yeah, I would say the improvement we definitely saw was on.
The logo trend basis, right, because primarily most of the churn that was related to co that for us and that impacted industry like hospitality or retail and small businesses, mostly happened in Q2. So we definitely saw improvement and logo trend and I would say like if I. If we go back and look at both our.
Free to paid to free ratio those have maintained relatively strong and has and hasn't changed dramatically.
And our acquisition channel continues to be really strong just a top of the funnel. So.
I would say the main difference change between this quarter and probably last quarter and even part of Q1 is just the logo trend has improved.
Perfect. Thank you so much.
Sure. Thank you.
Your next question comes from the line of Mark Murphy from JP Morgan Your line is open.
Thank you I'll add my congrats on a very solid start.
Tim can you help us to try to understand how much of the $15 million deferred revenue increase would you say was unusual or seasonal relating to that a price increase and the I understand you don't guide to it but but how does deferred revenue normally behavior to queue for because I don't think we have the.
And Historicals to go back too far and try to ascertain that.
Yes, I think if we look at deferred on prior to this Q3 deferred deferred has probably grown anywhere between five and 10 on a quarter over quarter basis, but I think and Q4, there's generally a little it's a little bit more muted primarily because we have the holidays Thanksgiving and December so.
You know I think if you can kind of take a more muted approach in terms of the growth rate from quarter to quarter sequentially and you should probably be fine.
I'm, sorry, you're referring to for a 5% to 10% sequential and then and then my didn't get more than dollars, yeah $5 million to $10 million so for $10 million.
Okay, Okay and then.
Just and I am a I'm curious.
Roughly what you saw in terms of paid user growth and a Q3 year for able to say and just in your mind. What do you think is the optimal balance of paid user growth versus ARPU expansion going forward. The next couple of years.
I don't think that we typically break those out from a from a net fixed number but I definitely think that the revenue growth was a combination of those.
And and.
Got in terms of the power and so I don't know how to answer that very precisely but were definitely a day.
Very interested both and driving seat expansion within our existing customers and capturing that.
The opportunity we mentioned so we're only 3% penetrated into the employees for existing customer base. So that's.
That's 97% or seat expansion opportunity.
And then we also think there theres still a lot of opportunity to drive ARPU as well. So I think that will that will be part of the future but cash.
Can't really give a prediction on the exact mix of them.
Thank you.
Hey, Mark Let me, let me just comment on that deferred revenue I know I know many of you are.
I really focused on our deferred revenue and calculated Bennett billings, but we still a material portion of our revenue is still on monthly contracts. So you won't see those in our differ but they do they certainly help and day. They helped drive the business helped drive a GAAP revenue. So just want to just make sure that you guys are aware of that as well.
Your next question comes from the line of Brad Zelnick from Credit Suisse. Your line is open.
Great. Thanks, so much and congrats on a great quarter.
You know test and it's it's good to see that.
The business remains well diversified with strength across several industries and functionally in particular, the strength that you have and marketing departments and I don't know if if if this analogy resonates with you but is it fair to think that sonic could become sort of the of last season of marketing and that said along.
Those lines.
You know how do you think about the recent deal that a adobe made to acquire work fronts.
Sure. So you.
I think I would just start off by saying that I think we have a really broad base of customers both across industries and geographies, but also across departments and so marketing is often the place where we land and the customer so that's probably the.
It's where we most often land, but its the sort of plurality of landings not the majority.
And one of the reasons for that is actually that marketing tends to work so much cross functionally and.
So I mentioned in the prepared remarks that we have we see 97% of our customers over 5000.
And on 5000 or more on annualized basis are using multi homing and we've seen hundreds of millions of multi on task, we actually see that as a huge signal on the fact that our customers are using us on a cross functionally.
And so I think we can be really strong and marketing, but we are but I think part of the reason for that is that marketing will work with for the all the other departments and the company as well and so we're really.
Looking to be a horizontal solution for for our customers.
So now moving their press yeah and can you also asked about work on so I can match something on that but I'd also add is a former CMO for 10 years and exactly what to US and said about the cross functional nature of marketing and gets us into other gets us into other teams and also spread by early on but I'd also say that unlike some other functions marketing.
And do not have systems of record for these business proceeds right so for events and campaigns and product launches and those kinds of things until sort of you know what we're doing with work management. There were no standard tools for that so with just Super Greenfield and it is a super exciting category and it is our strongest even though we are very diverse it tends to be if you.
Specific a starting point, probably where we see the most traction upfront Atlanta and then I think yes question about the work for an acquisition by Adobe and yes, we see that as validation in two ways validation of the category that large cap tech companies are taking note of the business imperatives of the problem, we solve and hearing it from their their customers and validation of.
The marketing segment and what it.
We just talked about it but what a huge greenfield opportunity as it is and.
And that our partnership with Adobe and the integrations, we provide there is strong and driving a lot of traction with their customers right now.
Thank you so much for that maybe Chris just one quick follow up on or perhaps for your dust and.
You talked about a lot of the new features.
And I also take note of the press release us on a for the enterprise that you had out last month, but in particular, when I think about goals that you've launched and I think it's now been several months can you maybe just double click on that a little bit further.
In terms of some of the early customer reception to the feature and and how you view its potential to help drive greater seat expansion within an organization.
Do you want me to take that up and would you like to.
Yeah, and I'll just start off by saying So we you know we launched goals on earlier this year and the first version of the product and we've seen some some great response from the initial customers, but this is really a.
Multiyear product strategy for us so we're going to be investing quite a bit more on two goals.
This year, so I mentioned in the prepared remarks are going to be you know.
Allowing organizations to manage all of the order team and individual goals for every employee and the company.
And this is really about sort of manifesting the full vision for the us on a work crop and allowing customers to math or their work craft top to bottom line and work from the atomic level of detail tasks, all the way up for the highest level objectives for the organization.
And I think we've got a great sort of view on out there, but there is lot more and that we can do to fully manifest that vision and.
And make sure that is flexible enough to be adopted by the broad based customers.
Got to add on credit thank you.
I think I think you covered it well thanks.
Correct.
Your next question comes from the line of Pat Walravens from JMP Securities. Your line is open.
Oh, great. Thank you and.
Let me add my congratulations and also kudos to whomever coined the phrase and your script.
On multi homing when you said the cycle of chaos and burden.
[laughter] those six great works, okay, so dust and when when you think about the Tam I think one.
You know question investors have it seems like in this market and the coordination space you.
You often have competitors that coexist in the same customer and I mean, just think that funny example.
A question, but for me I think we mentioned Adobe.
And you know Adobe bought more cattle before Marketo was a reference customer for smart sheets now they bought work from so obviously the NAV to figure that out but my sense is this the sort of thing on.
Cruise a lot and so just I just love to hear your big picture.
Themes in terms of does that mean that the ham is actually maybe smaller and.
And that 3% is actually a bigger number and how does it play out.
Oh this is Chris when I take a stab at that investing at any thing you want so I understand you correctly. Your question is really about the Tam.
So it all starts with like the number of and the amount of information and workers information workers and the world that don't have a solution yet and again like the vast vast vast north of 90% you know.
Information workers and the World don't yet have solutions, they're doing this manually so the way they're trying to get clarity for their teams and align their teams as with spreadsheets meetings, you know and sticky notes and email threats and so that's I think why.
And it's imperative for the need for clarity and alignment real time of who's doing what when he is just growing at a time when no one's ever really had it before other than manually and so I think that overall, what's driving that the opportunity and what has and so excited and it's true.
At the individual level and company, it's true for kind of all business processes across companies and it's true where you know all that work execution connects to the strategies and issues and goals and the management layer and and ultimately that's a lot and that's a lot of white space and so on.
On the on the customer acquisition side.
It's just a huge opportunity for us and share their sisters certain segments, and NAV, where we see more traction than not but it's still so horizontal the demand and the interest and the and the and the.
Teams that were pointing to day and on the customer expansion side in our paid base, we are less than 3% penetrated so 97% of the addressable employees are still there and that's without really getting into this business you know wall to wall type thing, which is the third leg of our growth strategy and relatively new for us and we've begun to see.
Some brighter wall to wall deployments and small midsize companies, but it's early days examples.
For example, the names you might recognize for like core a mirror, which was recently acquired by little them on and Epitaph Records and EPS Flyer and so on.
And so it is a huge opportunity and I think thats why the rise of the business imperative combined with this huge opportunity that largely on tap and never been solved right. Before is why I think you see so much interest and the category.
And one thing I'll just add so we've really emphasized that the work graph data model uniquely enables us on on to be very successful cross functionally and a corollary to that is customers actually get increasing returns to scale as they expand their sauna usage on throughout your organization and have a more complete berk.
Graph on US, we think that gives us a especially on an advantage as we expand within these customers.
Even after we may be running into some other alternatives and other genes.
Okay and that was that was that was the quarter there. Thank you.
Your next question comes from a line of Alex Kurtz from Keybanc. Your line is open.
Yeah. Thanks, Thanks for taking the question, yes, it does and I just want to go back to your philosophy, if you could remind us on and how you how the team thinks about price increases.
And to do it how to do it and.
And of the flow year to year around that and then Tim.
Tim you know back to earlier question about deferred revenue and kind of how.
Price increases drives behavior and the prior periods before that goes into effect.
Thats something we should be looking at more closely and our and our calculated billings growth projections.
Yes, I'll start off just on a philosophical basis, we think it makes sense to raise prices. When we've made a step wise change and the amount of value that we're providing to the customer experience.
So it typically comes after we've done quite a lot of investment into the product and reviews.
From new major features and whichever tier for increasing as well, it's just generally improved.
The customer experience across the board.
And so I think that just points to a relatively and frequently but you know it's.
Something that it is likely to occur again in the future, but we don't have and.
Any specific timing to speak to right now.
Yeah and in terms of the impact on deferred revenue kind of I think the seasonality did happen and Q3, and you should model and think about that and and.
As of Q3, just because we do have a cohort of customers where the renewals cash.
Got pulled into Q3, but we will definitely.
Prior to announcing any type of on price increase we generally give our customers on time to refer to adjusted and reflect on whether they want to maintain so you will have the same update when we when we notified for customers.
Got it thank you.
Your next question comes from the line of Gene Crane from Bernstein Research. Your line is open.
Hi, Thanks for fitting me and a really nice quarter I'm curious what portion of your bookings. This quarter came from direct sales force is self service and then how do you expect that to trend going forward and then secondly, the incremental revenue added and quarter. If I look at your gross and that metric it's been pretty volatile.
It was up double digits in Q1 del <unk> double digit Q2 up 38% really impressively this quarter and and your guidance implies it's down 25% roughly at the high end of your guidance for Q4, what's driving the volatility and that metric and how should we think about that going forward. Thank you.
Okay. So I think the the for.
First question.
Let me just let me just make sure I have it here.
Uh huh.
There was a self serve so I think we I would say it hasn't changed dramatically I think Chris and on has kinda on Investor day on as well as kind of on a Q2 earnings call talked a little bit about both the breakdown between ourselves and sales assisted business and those have generally been and the 60 40 range.
60% being self serve and 40 being a sales assisted and sales assisted nudging up and becoming a higher percentage over time.
That's exactly right.
Yes, and I I mean, you would probably have to walk me through your math in terms of how you're coming up with.
The implied or the implied growth rate because I I don't understand exactly the calculation, but we can take that offline. So a follow on you directly.
Okay sounds good if I could just one quick follow up on how should we think about the maturity and from your enterprise sales or and build out I know that's been a big priority for you guys and this must be yielding some results. So what inning are we and in terms of that enterprise sales or build out. Thanks, yes. So the enterprise business the think of it as moving into the large expansion business and eventually wall to wall business.
And early days.
And you know it and we're really encouraged by what we're seeing and early days and we shared a lot of that so I won't I won't revisit it too much maybe to just add a little bit to it.
We are building out the offer and we talked about that and generalize. The enterprise offering is focused on providing for security and administrative controls and support that Ikea needs and we talked about some of the expansions of integrations as well as on business rules and ATMI controls and this quarter in terms of deal large deals it's early innings.
Without a doubt, but we're starting to see it pay fruit.
Two thirds of the Fortune 500 are already free or paid customers.
Some of the world's most valuable customers are some of our largest customers and and Q3 four of our biggest customer expansions where in the for fortune 50.
But as we mentioned earlier.
You know, we're still only 3% penetrated the addressable and.
Employee base, so I would think of it like and those large accounts, we're seeing really strong traction, but it's very early innings still.
Got it sounds good thanks, gents and happy holiday.
And your final question comes from a line of Andrew and gas free from Berenberg. Your line is open.
Thanks for taking my question just one to close it off I guess would be the integrations you've made what the communication later like slack zoom and others. I was just curious I know that's still on the early stages, but can you maybe share with us for many users have started using us on on what those tools.
I don't think that we have a a match a metric that we're able to share off hand on that and maybe that's something we can try and set up for the next call.
Do you think you know like I said slack is our most used integration I know that for sure and the communications integrations as a category.
Our extremely popular so its very common to using.
Work management side side by side with those and again, it's something I use every day myself.
And.
But yeah on terms of.
Actual quantitative stats on have a lot to give you maybe something I could add its anecdotal, but it's helpful and flex the most popular and Google, Microsoft and zoom or the next most popular so I have all or integration. So I think that gives you a feel for how important that communication with that connection to that communication layer is.
Great. Thank you.
And there are no further questions at this time, Catherine bonds and turn the call back over to you for some closing remarks. Thank.
Thank you very much and thank you everyone for joining US again today as always please feel free to reach out if you have any follow up questions and we are looking for to talking to you again soon thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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