Q1 2022 Asana Inc Earnings Call
We also set a new record with our largest land deal in company history. This leading payment service company is a net new customer with 3000 enterprise seats and annual contract value or ACB of well over half a million dollars.
I also want to note an important milestone in Q1 for the first time, our IRR surpassed half a billion dollars.
We're seeing bigger and faster expansions in our largest customers comparing the total ore from our top 100 customers a year ago, the total error or from our current top 100 customers grew 75% year over year.
All of our top 100 customers have over 1000 seats or more on autonomy.
Geographically revenue in the U S grew faster than overall growth at 61% year over year, which we believe can be a leading indicator for demand worldwide.
Our revenue mix of the business and enterprise tiers continues to climb now representing over 64% of total revenue, while we acknowledged the overall macroeconomic environment today, and Tim will touch on our plans more in a moment.
These metrics and customer wins are strong proof points for durable upon a growth profile the near constant change over the last two years underscore the need for more clarity and alignment and apart from the keeps teams focused and connected with each other and their goals.
With <unk> unique product strategy as navigation system for cross team coordination and clarity is meeting this demand.
And as you can see from our Q1 results companies are continuing to recognize this honor as in a central platform and partner for these modern work challenges.
Further.
Constraining us honest value is the June 7th employee impacts suite product launch.
This launch addresses one of the most important concerns of leaders everywhere, how do I bring my teams together and keep them focused and productive.
Leaders across the enterprise loves these capabilities because they are distributed teams can connect to and focus on the most important work.
For example, with my goals managers are empowered to macro manage their teams by aligning them around key objectives and the work needed to achieve them in one interface no matter, where they are in the world.
And the new automatic progress Rollouts give executives and teams real time look into the status of that work they.
They can identify roadblocks and make decisions more quickly with no manual work about work needed from their teams one remarkable trend that continued this quarter as the success of our goals product on our goals continues to drive an increasing amount of wall to wall deals and medium sized enterprises.
Customers, such as <unk> and lucid are great examples.
Companies that care deeply about driving sustainable employee engagement, which translates to higher productivity have made us honor their work platform of choice.
The other thing to note is that a sign of partners is expanding our ecosystem in support of consolidated technology stack.
Just do less contact switching and have more time for the work that matters.
This expansion includes <unk>, Google drive integration, making Google docs sheets and slides tasks with final comment edification is directly in Astana minimizing tool switching.
A sign up for Google chat and spaces converts unstructured conversations or messages interest actionable sona tasks without leaving Google chat.
And a brand new Sigma integration powers creative work by converting stickies, and Susana tasks without leaving brainstorming sessions in Fig Jam boards.
This launch continues the momentum of our strong fiscal year 2023 product cycle.
<unk> launched in February democratizing power to build workflows.
Our flow builder is simple to use without requiring technical expertise yet powerful enough to support end to end cross team workflows for organizations of all sizes.
Our customer base continues to be fanatical about this launch in just 90 days 145000 rules have been created with particularly high adoption across our top 100 demands.
More than 40% of our $50000 customers tried workflow builder within two weeks of the launch, leaving a large runway for expanding across the base.
I also want to mention that another launch in Japan, We're looking forward to the first is on our ESG report later this month.
Our company was purpose built for sustainability from day, one and we're excited to share our metrics broadly and how ESG will be further integrated into our operations going forward looking.
Looking ahead digital transformation will continue to be a priority for organizations.
<unk> helps drive meaningful and vast productivity gains, which we know leaders are seeking intently.
High inflation and rising capital cost leaders say they have even more appreciation for the efficiency of sona achieves within their businesses.
So it is perfectly suited during times like these as we help customers better adapt and improve along the way.
We remain committed to building a comprehensive work management platform capable of serving organizations of all sizes around the world.
We believe in our long term strategy and are confident in the fundamentals of our business. Our investment is paying off with strong momentum in the enterprise.
And we will continue to invest strategically in this growth while balancing our commitment to making significant progress towards free cash flow in the coming year.
And now I'll turn it over to Anne.
Thanks, Justin.
Do you have congestion is a great first quarter our investment in the enterprise segment are paying off as they set new records with bigger land and after expansion. We now have 390 customers spending over $100000 and these larger deals represent our fastest growing customer cohort.
27%.
We're also consistently clothing strong lands in the mid market, where I would note in particular, we are seeing an uptick in wall to wall deals.
Across medium sized companies and divisions of enterprise organization, a differentiated product, which seamlessly ladders individual tax team projects and cross functional portfolios up to company called automated status Tri Pointe is helping us close more strategic opportunity.
Looking at our performance by geography revenue from the U S grew 61% year over year accounting for 59% of our total revenue.
Well international is 52% accounting for 41% of revenue.
If it wasn't for our exposure in Ukraine, and Russia, and foreign exchange impact the growth rate of our international business will be one to two percentage points higher.
We saw strength in our core markets and our channel strategy, which is still in its early stages. It is seeing some notable large brands as we build our presence in new countries.
Lastly, we have a healthy pipeline and strong engagement with our large customers.
As I look across our customer base I see three major trends, okay, great expansion, often driven by strategic cross functional use cases larger lands and broad cross industry adoption.
The first and most pronounced trend as our larger faster expansion within our largest customers a number of big global brands are seeing user adoption curve of up to 2% week over week growth in some cases.
As you know we have some of our largest deployments in the category and we are just getting started.
Our lightest deployment has gone again and is now over 100000 feet.
<unk> is heavily across several operational units, including managing their most strategic level accounts and designing and scaling some of their fast growing cloud business had.
Another example from Q1 is a company called Octopus energy, which is using transformative technology to make renewable energy, the norm and and global reliance on fossil fuels. They are wall to wall with us on that and use our platform to streamline all of their strategic workflows across teams.
Success across various impact organizations is very important to our mission.
Which brings me to yet another important organization called job to the future. They went wall to wall with us on a in a multiyear contract terms for the future helps to provide a stronger supply of qualified prospects to fill jobs and develop more equitable advancement for people. It is an important effort as employers across the nation shackled to find people with the right skills.
Donna will help them scale quickly and effectively.
Lastly, this quarter one of the world's largest telecommunications companies continue to expand rapidly and virally as demand across users surpassed their previous contract.
One of the major drivers of these expansions is another trend, we're seeing more and more customers have scaled complex strategic and cross functional workflow they need high impact and high return on investment that Amazon can help them with this as these organizations shift and accommodate the ever changing market environment, they need even more agility.
<unk>.
And after a great example of restaurant at the company approved platform to work management is how they work every day.
The corporate approved vendor Hassan is growing across their operations and business team and is the way most employees manage their most important work.
The second trend, we're seeing is larger net new land deals where the companies are realizing the strategic benefit of the capabilities enabled by the aircraft.
That's definitely mentioned a large high profile financial payments company represented the largest land and if honest company history Importantly, <unk> workflow builder was a key contributor clothing, the strategic net new deal the CEO of the firm cortisol exceptionally well implemented and broadly useful as always great to see customers give us a shout out and a public.
For them.
<unk> the global leader in critical event management and National Public safety software solutions was another exciting that new land deal.
They saw the value of the Sonic and initiated a multiyear contract to help them automate operational workflows and increase visibility into projects.
And the third trend, we're seeing is broad cross industry demand in the enterprise, we continue to see significant expansions across financial services telecommunications automotive manufacturing consumer retail technology and professional services amongst others.
On the topic of strategic partners, it's clear that our progress with HIPAA compliance program is exciting new opportunities I'm proud to announce our partnership with align technology, a global medical device company and distributor to tens of thousands of doctors' offices.
Real time patient information and high touch practice communication is an enormous opportunity for maximizing volume and revenue. This solution astonished miles Caroline marks an important development and upon his history as we'd like to bring a broader HIPAA compliant offering to other customers later this year.
Not only helps teams work together effortlessly. It also helps companies worked together with their partners and customers at their let's say.
It's still early to see how the current environment will ultimately impact our customers, but in the current dynamic leaders are reconsidering, how they're allocating resources.
And more than ever they need increased productivity across the organization no matter what people are working on.
These times Shine a brighter light on the value. That's gonna has always delivered and the pain points, we saw but wealth management platform that shows who is doing what by wind and visibility into how this work is connected to larger call.
Organizations will lean into our category because they need more clarity agility and efficiency, we are well positioned in a market like this as companies look to do more with less.
Looking ahead my top areas of focus include value based selling as the IDC study revealed that customers realized 225% return on investment in the first year, they use us on that through increased productivity and faster workflow.
Account based marketing repeating our successful playbook in North America and doing it at scale around the globe.
Our account based selling enablement is starting to pick up in our value based selling is getting stronger and raising industry awareness. We saw a tremendous pickup of our third and reminded me of work report we reached a global audience of over 1 billion people with stories and a major business in consumer media.
We believe we can win this category as the awareness grows and our unique capabilities to meet customer needs, providing time to value in weeks not years and high ongoing return on investment with that I'll hand, it over to Tim.
Thank you and Q1 revenue growth showed continued strength in the business revenues came in at $126 million up 57% year over year.
Puts us at an annualized quarterly revenue run rate of $483 million.
As Justin mentioned earlier, we reached a key milestone, surpassing 500 million with year to year growth rates similar to our GAAP revenue.
This is not a metric we regularly disclose but it's such an important milestone.
Revenue from customer spending 5000, or more annualized grew 73% year over year.
This cohort represented 70% of our revenues in Q1 up from 64% in the year ago quarter, We now have over 126000 tanks.
Paying customers at the end of Q1 up 7000 in the quarter.
This represents a 26% year over year increase.
We have 16689 customers spending 5000 or more on an annualized basis up 48% year over year.
And growth in the larger customers is even stronger we now have 979 customers spending 50000 or more on an annualized basis.
102% year over year.
And as Ed mentioned, we have 390 customer spending 100000 or more on an annualized basis growing at a 127% year over year.
Our largest customers are our fastest growing cohort.
As a reminder, we define these customer cohorts based on our annualized GAAP revenue in a given quarter.
Our dollar based net retention rates remained strong across every cohort.
Our overall dollar based net retention rate was over 120% among.
Among customer spending 5000 or more our dollar based net retention rate was over 130%.
And among customer spending 50000 or more our dollar based net retention rate with over 145%.
As a reminder, our dollar based net retention rate is a trailing four quarter average calculation.
Before turning to expense items and profitability I would like to point out that I'll be discussing non-GAAP results and the balance of my remarks.
Gross margins came in at 90% the same as a year ago quarter.
Research and development was $43 1 million or <unk>, 36% of revenue.
We continue to invest to fuel innovation on our proprietary technology and deliver on our vision.
Sales and marketing was $83 3 million or 69% of revenue, we're investing in our enterprise go to market motion as well as building our sales infrastructure.
We frontloaded in many of our customer facing roles. This year to build sales capacity for the second half and beyond.
The unit economics for those investments remain unchanged the payback period for the last 12 months is less than 15 months.
Consistent with last quarter, and slightly better than a year ago quarter.
G&A was $36 9 million or 31% of revenue.
G&A expense this quarter included a one time $3 6 million tax accrual.
Without the onetime expense G&A would be 28% of revenue consistent with last quarter.
We are actively working to find more leverage in our cost structure and expect to see improvement in our operating margins in the back half of this year and the coming year.
Operating loss was $54 7 million and operating loss margin was 45%.
Net loss was $57 4 million and our net loss per share was <unk> 30.
Moving onto the balance sheet and cash flow.
Cash and marketable securities, including long term investments at the end of Q1 were approximately $283 million.
Our remaining performance obligations for our Apio was $250 4 million up 72% from a year ago quarter.
87% of our appeal will be recognized over the next 12 months.
That current portion of our <unk> grew 68% from the year ago quarter.
Our free cash flow is defined as net cash used for operating activities less cash used in property and equipment and capitalized software costs.
Excluding nonrecurring items, such as the build out of our San Francisco Office.
In Q1 free cash flow was negative $42 2 million, reflecting our investments in growth and rapid onboarding of new head count during the quarter.
Looking forward, we are actively managing our cash burn and we're pacing our investments in a more measured way given the macro economic backdrop.
We are proud of the business momentum, especially our success with very large deployment at great iconic brands and the velocity of innovation. This year now moving to our fiscal 2023 outlook.
For Q2 fiscal 2023, we expect revenues of $127 million to $128 million.
Representing growth rates of 42% to 43% year over year.
We expect non-GAAP loss from operations of 74 million to $72 million.
We front loaded our hiring for the customer facing teams in the first half of this year.
We expect net loss per share of <unk> 39 to 38 cents, assuming basic and diluted weighted average shares outstanding of approximately $191 million.
For the full fiscal year 2023, we expect revenues to be 536 million to $540 million.
Presenting a growth rate of 42% to 43% for the full year.
In terms of the shape of the quarterly progression, we expect to see more traditional enterprise sales seasonality with our sales capacity ramping towards the second half of the year.
As our mix continues to evolve towards the sales of that motion.
We continue to expect our operating loss margin to be in the mid <unk> for the full fiscal year.
We also recognize that there are significant dynamics in the macroeconomic environment at.
At the same time, you see from our record setting results in the first quarter as strong growth in enterprise. We are very excited about our growth opportunities.
Our core strategy is unchanged and we have a plan in place to manage our investments and prioritize our highest ROI initiatives.
We are frontloading our investments in the first half of the year and you should expect our operating margins in the second half to improve versus the first half of this year.
And we expect improvement in free cash flow margin in the coming year, but any upside to our revenue growth will be upside to this plan and with that I'll turn it back to the operator for questions.
Thank you we will now begin the Q&A session. If you would like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you would like to remove that question. Please press star followed by two again to ask a question Thats Star one.
So please limit questions to no more than two.
And as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question. We will pause briefly ask questions are registered.
Our first question comes from.
Andrew Douglas Barry with.
Okay.
Friend back.
Andrew Your line is now open.
Yeah.
Thanks for taking my question I guess just on the on the guide I know you previously mentioned the.
That FX could have an impact.
And also.
The macro environment.
You previously saw during Covid.
It did interrupt some expansion deals I'm just wondering if you first of all is seeing anything.
From that perspective, and then maybe could you elaborate a little more on the on the impact from FX or if you're also baking in some conservatism.
Based on what's going on.
Yes, Andrew this is Tim maybe I'll talk about guidance for us and how we thought about FX and then have and.
Share with you a perspective on kind of the current demand environment from an FX perspective from the guidance perspective, we essentially assume that there is.
That FX doesn't change from this point forward obviously.
If FX continues to degrade theres going to be some more there.
Could be additional risk, but at this point, we're essentially looking at we built the guidance essentially kind of off the existing FX rate and kind of the.
The data that we have today.
Yeah, and I'll just follow up on that so in terms of demand. We see we continue to see healthy demand and in particular, we're seeing strong expansion as our customers are really focused on how they can do more with less increased productivity and engagement in this current environment and so our ability to deliver fast measurable value, especially.
For senior leaders, most strategic initiatives, whether that's digital transformation agile strategic planning operationalized Theyre complex repeated workflows that all continues to position us well as a priority investment and we definitely see that reflected in our customers 100000 over which grew at 127% year over year.
Thanks, and as a follow up in terms of the sales investments Youre, making you mentioned in the second half should show some better margin just curious to know if you changed your plans in terms of.
The hiring levels that you were planning at the beginning of the year maybe.
Maybe tied to the tighter labor markets or.
Is this essentially according to the plans you had set a few months ago.
Yes.
Hi.
This is dustin responding so Tim mentioned, we are being really thoughtful about how we make investments this year and we have moderated the pace of our hiring but that's coming off of a really fast hiring so far this year and so we had frontloaded quite a bit of a hiring especially for those customer facing roles.
With the plan that they would be ramping across the year and so that part of the plan is still pretty.
Pretty much the case.
There's even the case that we have.
Quite a few pending.
Pending starts from from people that we've already hired.
So thats part of why you don't necessarily see the improvement in free cash flow and operating margins in the next quarter, but were expecting it later in the year.
So we have moderated the hiring pace relative to the beginning of the year, but it still represents a really fast growth for head count overall.
Thank you.
Thank you Andrew.
Our next question comes from.
Rob Oliver with Baird.
Rob Your line is now open.
Great. Thank you operator, thank you guys for taking my question I. Appreciate it this is for Andrew Duston. The first question.
Late last year with the scale of that you guys laid out a bunch of the enterprise.
Focus initiatives. This goal does that you mentioned a few of them goals workflow builder and I know you mentioned that workflow builder I think was key towards.
Largest land with a payments company could you walk through the impact those have had on some of the enterprise. It certainly seems like you guys have tremendous momentum with large enterprises that wanted to talk about some of the early reads on adoption and what they mean in terms of expansion.
With those customers and then I just had a quick follow up as well thanks.
Sure. Thanks, Rob, Yes, so definitely that investment that we announced that scale and the continued investments in workflow builder are really impacting our ability to move up market and our conversations are repeatedly with CIO chief digital transformation officer, what we're hearing that they care a lot about.
<unk> are a number of thing continue to care about ease of use and strong adoption, which we've always been really focused on now there are also really focused on the ability to scale quickly to thousands of employees across different teams and complex cross functional use cases, and they see us standing out and on that front and then exact level of visibility.
And recording.
All of those investments now are making it possible for us to have that exact level engagement.
These parallel with where we're strong and continuing to invest on that on your point on workflow builder.
What we are seeing is that the conversion on that large land, but we're also seeing healthy expansion in the existing base because it worked out.
Hello builder and then also chair upgrades as a result so.
You said you had a follow up so when you hear that yes. That's super helpful. I. Appreciate the color and then the follow up is for you and you touched on the call you had mentioned doing more with less than in previous cycles, we've seen so far.
Rationalization.
That has certainly put some vendors, but tapered others.
We're still in an early stage of a high growth market, but just.
If investors are always concerned about competition, but at the same time that could certainly benefit those that are aggressive, but just wanted to get a sense for when you look at within your customer base, if youre seeing some of your competitors in there or was it some of the opportunities you're seeing for expansion are coming as folks start to consolidate around one vendor. Thank you guys very much.
Yeah, I would say overall, we still feel like it's early and work management, but some things that we're particularly excited about with our customers is that these early indicators that we are their platform of choice.
That's all that and Jim right there they're essentially.
Pockets of other technology in the organization that they are moving off of those and onto Athena and probably more importantly, they're choosing us honor for all of their employees and their most important cross functional use cases, so I think we overall feel that thats early but it's really positive signs for us that when those decisions are being made there moving onto us.
Anna.
I'll just add.
Like <unk> said, we don't see there's a whole lot, but the product strategy is designed to help us succeed when it does happen because we do think that.
Somewhere in the future and maybe it will be hastened by the economic conditions.
But the final was designed to be from the bottoms up to serve individuals teams and executives across the entire organization and especially to work well for cross functional workflows, so often when you're in the consolidation conversation.
They're evaluating tools that were more specialized for particular departments or particular use cases and workflows.
And so the team that are from that department might prefer that tool, but <unk> is the only one that can kind of be the crowd favorite across multiple teams and then, especially when they're working together. So if it's an operations team or our product organization or go to market organization and they are working.
Cross departments and kind of sounded really shine so we feel really good.
Really well set up for that future.
Okay that makes great sense. Thank you guys very much I appreciate it.
Thank you Rob.
Our next question comes from.
Alex Zukin with Wolfe research.
Alex Your line is now open.
Hey, guys. Thanks for your question.
Maybe first one just for you.
Tim or Dustin I mean, given the headlines maybe just remind us of your exposure.
Just software based industry.
Industries or tech given all the headlines with layoffs or hiring pauses like what's the right way to think about the growth headwind from.
From that on your business over the course of the year and then.
Look I appreciate the construct in the context of improving efficiency, but I think over the last two quarters the free cash flow burn.
It was pretty high at $40 million.
Do we think about I know youre not guiding to it but at least at a high level.
The right way to think about cash flow progression. This year, just given the construct of the balance sheet. You clearly have enough money to go for a long time, but it would appear if you were to operate at these levels you would have to accomplish.
The capital raise at some point in the future. So just level set that those two elements for us if you will.
Yeah. So I'll start with the question about software exposure and then Kevin can talk about cash flows.
So we do have a lot of great customers in the software industry, but we also have a really broad base customers, both regionally and across industries and.
I think.
As with these cases theres, maybe a plurality in software, but it doesn't represent an enormous part of the revenue pie and then when you look at whose accounts are individually.
They are among the.
Very strongest of the software company and so a lot of them what are we have billions on their cash balance sheets.
So they may like us decide to moderate their spend in various ways, but the expansion opportunity within those accounts is so enormous that it outweighs.
Anything that might happen in terms of swelling head count on the margin. So we just have so much room to grow within the existing employee bases that we still feel pretty good about it.
That doesn't apply to everybody. So as you get down into more of the SMB part of the market.
There may be a little more exposure there, but as we've been talking about the more and more of our business is coming from the larger accounts coming from the business and enterprise tiers over time.
That becomes less of a problem for us in terms of how it affects the overall accounting.
As we go further.
Yeah, and Alex just on the cash flow and operating margins.
I think what Youll see from US is that one we care deeply about profitability and we have a plan to manage both the burn and improve the operating margins and I would.
Kind of the comment earlier I made around looking at the business. That's first half and second half that the measures that were put in place the.
The efficiency metrics that we're going to be looking at that you should expect to see improvement in the second half of this year and then probably more measurable improvement next year.
I think we're trying to do everything we can we do have a strong balance sheet with over almost $300 million on the balance sheet, but we want to extend our runway and create as much optionality as possible.
Okay.
Thank you Alex.
Our next question comes from.
George <unk> with Oppenheimer.
George Your line is now open.
Alright, Thank you for taking my question.
That's been a following up on your software exposure answer can you give us a sense if theres been any change in churn rates with either SMB customers mid market or.
The larger customers.
Yes.
I don't think were seeing anything, particularly material just yet we are certainly cautious about the future given the macroeconomic situation, but just as a comparison in March 2020, I mean things drop off a cliff I think there was a few weeks where the revenue actually move backwards.
That was pretty bad but.
But I do want to call attention to it.
Again to the sort of currency headwinds.
And the war that does affect.
Retention revenue just from a mathematical way so even if the seats are there and the customers are there they're going to renew with fewer dollars just because of the currency exchange rates. So we do see a little bit of that and we've quantified it a little bit.
In the prepared remarks.
But so far haven't haven't really seen customers shutting down the apps.
Or just like choosing the type path by putting us on out of their software stack.
Don't don't really have the early indicators that would make us think that would happen, but again, where we're paying attention to the macro situation.
Thank you.
And following up on your comments about the value based selling and the success you are having in the market with large customers.
Can you give us a sense of the pricing leverage that you have right now and kind of weather.
There's a lot of discount discounting going on when Youre, having these larger deals and your ability to maybe get stronger pricing.
Yeah, I think what we've tended to do with mid market and larger accounts is definitely create structures where.
Stairs predictable billings.
And total cost of ownership and making sure that from that Jim mentioned earlier, our priority really is an expansion of paid steeped in these accounts.
We really see that the stronger the adoption and the more employers that are using us honor the faster that companies are realizing value. So we tend to it depending on if it's a multiyear deal was structured it primarily to make sure that customers have predictability in budget, but its really focused on adoption and expansion and growth.
Yeah.
Thank you.
Sure.
Thank you our next question comes.
From Penn gentlemen, Bora with J P. Morgan Penn gentlemen, your line is now open.
Hey, Thanks for taking my question.
One.
One question on.
Just kind of caught my attention on sure.
Comment about adoption curves.
Youre, saying its growing at about 2% week over week I wanted to ask you from a product standpoint would you say you have kind of reached an inflection point at this at this time in terms of satisfying kind of the major enterprise IP checklist around security governance and other requirements.
Allowing.
These customers to kind of expand with assigned.
Wall-to-wall up to 100000 seats at this point.
Yes, we're certainly seeing thanks for your question, we're certainly seeing that all the investments we've made over the last.
Youre going to have on <unk>.
Partnering with CIO and head on.
On what is required from a security and scalability standpoint is paying off.
And that is allowing for that faster expansion. We continue to work really closely with our customers to make sure. We're.
Meeting their needs and in particular analogies larger accounts, where we're partnering with customers on is actually.
Managing the complex workflows at scale being able to do things faster.
For provisioning and security continue to be there across these complex global companies, but I do think the investments from the last year and a half have unlocked opportunities to partner much more closely at the CIO level.
Understood one quick follow up seems like Youre seeing good good.
Good amount of demand, but if I have to play its Douglas.
Advocate I guess.
Given the macro drumbeat of potential slowdown.
Are you is it is it are you not seeing any strength in the sales cycles in terms of kind of deal push outs or increasing level of customer scrutiny.
And Thats helpful Shlomo.
Various theatres globally.
Currently we have not seen changes there.
And Tim both mentioned, we pay close attention to that I think the the.
Good news for US is in our existing customer base in the vast majority of our Midmarket and enterprise accounts. There continues to be a lot of room for growth and what we find is as adoption increases and customers are seeing value that that is not preventing them from growing with us.
Right.
<unk> seen that and help them with productivity and doing more with less in this environment. So I think that that's where we see a lot of potential and continued growth is also in our expansion opportunity.
And just to tie those questions together a little bit.
What Dan had said was that we see 2% week over week growth in some of our very best customers and that's effectively a situation where yes, we are satisfied.
<unk> of it if that customer not necessarily for all possible customers and they are sort of letting the organic growth of the product.
Ill go sort of unfettered. We're also of course, helping in helping them use workflows and adopt new use cases.
But when when employees are actually kind of provisioning.
Provisioning the product for themselves and finding use cases for it it's a pretty different thing for it to come in and sort of take that out of their hands.
And even even when there are sort of thinking about budgets I think it's a pretty strong signal to them that the employees are getting something very useful out of this.
Then we have our own research and the case studies from those organizations and others that can kind of prove it for them mathematically so in an environment like this.
We switched to a little more value selling of <unk> as a way to get more productivity get more engagement from your employees.
Able to leverage your capital to greater impact and so thats still a message that resonates with customers.
Understood. Thank you very much.
Yeah.
Thank you Benjamin.
Our next question comes from.
Pat Walraven with.
J M T group.
Your line is now open.
Oh, great. Thank you.
Tim I think this one's for you which is.
I remember right last quarter, you guided to fiscal 'twenty three operating margins in the mid Forty's.
Negative.
And then if you look at 'twenty for the consensus I think is.
Negative 32, so, let's just say the low thirties.
Is that still the right way for investors to think about the operating model and if not how would you like us to think about it.
Yes.
You should you should 100% expect us to improve our operating margin and free cash flow margin.
In fiscal year 'twenty four.
I think I think it will take some time for us as we measure the investments that we're making this year as the head count that we added in the first half of this year come online with added capacity towards the end of the year I think all of those things will come into play, but I think what youre seeing from US is we're putting a plan together.
Have a plan to manage our cash burn to patient investments really what I would say is we're really focused on those areas, where we've seen success in that we're confident about the ROI.
And pulling back or.
Pulling back on those areas, where we're less confident or it's been more speculative so.
I think that's a fine way to think about it but obviously, we want to be we want to be in a position, where we're beating consensus quite honestly and.
Hopefully, we will deliver the kind of results that's going to make everybody happy.
Great and then as a follow up.
Tightening.
Financing environment for private companies, helping you in any way I mean are you seeing more interesting private companies running low on cash and calling you to sell to you are you seeing less crazy behavior, maybe from from private competitors I'm. Just wondering if there's a positive side any of this.
This is dustin.
I think that stuff can happen.
Everything's happened so quickly in the market that I don't necessarily think you'd see those changes right away I did get an email. This morning about a company interested in being acquired.
I expect I expect to see more of that.
But I think it's still early days to see how the how the cycle really plays out but.
But I do think an environment like this.
It's good to have a lot of cash on the balance sheet, we talk a lot about our sort of public comps, but there is a long tail of other smaller private competitors.
And so yes, there may be a future where there are less competitive and that leads more of a market for the larger players.
Thank you.
Our next question comes from Josh Baer with Morgan Stanley .
Josh Your line is now open.
Great. Thanks for the question I just wanted to ask kind of gross investment macro question a different way I think previously some of the commentary around the investment philosophy was that it might take diminishing returns on investments to pull back and see more leverage. So my question is is the moderation in hiring.
Commentary on back half improvement in margins is that reflecting any diminishing returns on investments or is it just a prudent and maybe you're welcome reaction to the market's focus on path to profitability given the macro environment.
Yeah, Hey, Josh This is Tim I would say, it's certainly the uncertainty in the macroeconomic environment, that's causing us to pause and just kind of reassess the hurdle rates that we want to have around the kinds of investments that.
That's going to have a longer payback.
And we have such amazing runways across a lot of different opportunities and I think we just really want to be thoughtful around.
Sure that the payback the payback is there and the payback is there on a timely basis.
I just want to add I'll reiterate a lot of it is about the uncertainty. So I think there is just a wider range of possibilities for what kind of payback will get in the second half and we don't we don't know what will happen, but it's not definitely negative.
But also I'll just point again at the sort of the currency headwinds they don't create diminishing returns, but they create less returns in a sort of mathematical way.
And so that's just something we have to acknowledge even even if we're not on a different part of the curve.
So I'll have to think about LTV.
And paybacks and sort of make a new decision based on that and then you have the additional.
Heightened focus on cash flows and operating margins.
I'll sort of point in the same direction.
Thank you our next question comes from.
Rishi, Joe Hardy with RBC.
Your line is now open.
Okay wonderful. Thank you this is Richard Deloria.
Two questions I wanted to ask I think.
Both macro in nature.
But number one I just wanted to understand.
No you are not seeing any any real slowdown or changes in customer behavior, but I think uncertain environment.
Consensus at this point that we'll hit some sort of a recession in the near term just how do you think about maybe.
What will happen right.
Sales cycles and everything because this is a very low touch.
Our sales process easier to implement you saw a lot of those customers, let's put it on pause.
Early during Covid when there was a lot of uncertainty out there is there any reason to think in other words history won't repeat itself here in what we saw in the early stages of Covid won't happen. If there is an impact of slowdown and I've got a follow up.
Yes.
Well again, I think we do want to acknowledge that there is some uncertainty in general and so we don't really know what will happen.
I think there is a possible worlds where.
The uncertainty itself is sort of looming large at the beginning of the cycle, but.
Even if you even if things trend negatively if there is sort of definitiveness around it and people can sort of make their make models that they believe in then I still think that they can move forward with confidence on software purchases, especially again, if theyre going to help improve productivity and help improve efficiency, that's something they may even be more sedans.
Scott that was part of what happened with Covid is there was a sort of shock element in March April and then we saw very strong demand at the top of the funnel part of that was the move to distributed work as well, but I think part of it.
It was just the need to new digital transformation faster and.
And I think that were still part of that that long arc trend.
Yes, the other thing I would add is our investments over the last couple of years in moving up market.
Also helping tremendously because they.
The investment in our account teams customer success partnering with more senior level.
Within these customers ensures that we continue to be a priority so more and more in the conversation. It is driven by the top level strategic initiatives that C level execs have for their organization, which in this current environment really does focus on productivity and employee engagement.
And I just want to add one more thing.
Sure.
Lessons from from Covid again, the positive growth for US was still very strong, but we got hurt on retention because our customers were going out of business and so even though <unk> is very volatile right now I think that's more a reflection of the uncertainty.
Among investors, but in a recession I think I would still expect <unk> to be pretty strong in the real problem is how the recession impacts all of the other industries and so the thing that.
I think about more with macro is what happened.
Customers literally shut down across industries, if we have a recession or especially a length of the economic downturn.
And the demand part the positive growth is the part that I still feel pretty confident about.
Alright, great. Thank you.
Yeah.
Okay.
We may have lost you.
Our next question comes from.
Brent <unk> with Piper Sandler.
Your line is now open.
Thanks for taking the question here Dustin maybe I'll start with you.
Over the last couple of years have invested in us on bolt through a convertible note in and then acquiring shares on the open market I guess, what is your own appetite to invest in and Hassan and maybe long term near term I'd love to better understand your kind of views on.
On the business and relative to what you've done in the past couple of years. Thanks.
Yes. Thanks for the question, Brian So I'm not able to really say in advance whether I'll.
I will make more purchases on the open market, but I don't want to take the opportunity just to talk about the process that are used when that does happen.
So I always make purchases through <unk> one.
That would be put in place during an open trading window.
And then additionally go through a multi month cooling off period, you may have noticed not every public company CEO does that but generally we think it's good practice and something that I would consistently do to buy stock on the open market.
And so that mean.
That the the processes by nature.
Sort of a slower process more deliberative more deliberate.
And so I make those decisions more about what I want to do over the long term and what I want my ownership stake to be so whenever you see me.
Buy or not buy any up open market, there's sometimes some speculation that that's a reflection of maybe what I think about the business or the current stock price.
It's always a much slower slower decision than that and it's also frankly hard for me to anticipate the kind of volatility we've seen over the past two years.
And so just wanted to send the message that that's always really about me deciding to take a long term position in the future long term growth of the company rather than a reaction to what's happening in the market that debt.
Helpful Color and then maybe Tim just could.
Could you help me a little bit around the optics of of revenue because if I look at the <unk>.
The U S reported revenue.
Actually added more revenue sequentially in Q1 of last year than you did this year, which.
At first glance made me.
A little nervous that there might be some transactions from some softness in the U S. But then if I look at deferred revenue really strong in Q1 <unk> backlog built here.
Well above what we were looking for for you. So is there a disconnect between the time.
<unk> on the linearity in the quarter or where did you see some softness in the transactional side of the business in the U S. Just trying to understand the optics relative to U S reported revenue, which looked a little weak, but really strong deferred into <unk>.
Yes, I think the one thing.
<unk>.
I think you'll continue to kind of see from us as we continue to make progress and momentum on the enterprise side that youll see kind of the <unk>, you'll see a little bit of Lumpiness in the <unk> number we did close our largest transaction in the history of the company with this expansion to 100000 seats.
That was approximately $20 million on our deferred.
So that certainly helped with the total <unk> number.
But I think what it really points to is the progress that we're making with.
On the enterprise side and the movement that we're seeing with some of our larger customers and how they are expanding and continuing to do multi year deals with us, especially in the RVO numbers.
Okay.
Thank you. Our next question comes from Robert Simmons with D. A Davidson Robert Your line is now open.
Hey, Thanks for taking the question. So it looks like you had pretty good cost control in most areas, but looking at G&A nearly doubled year over year is over 30% of revenue other than the protection rule, what's what's driving that and then how long will take how will you drive leverage there in that line over time.
Yes, no great question, obviously I think.
Do you want to net out the tax accrual and I think if you net that out then it's it's about 28%.
Our revenue and I would say, we setup a G&A infrastructure to support a.
A very large business, we've been growing head count fairly aggressively over the last couple of years. So we have a pretty large team to support that and I think what youre seeing now is you should expect G&A to moderate.
We'll see a lot more leverage as we continue to grow the top line really focus our efforts around building sales capacity sales enablement customer facing teams and that the infrastructure we've put in place.
Now can support a very large business.
Yeah.
Got it and then.
Thank you guys really haven't will return much jeff's yet thats. What your customers are can you talk to your kind of what youre seeing there in terms of how that is helping or hurting.
Sure.
Your sales and your expansions and then also what your internal plans are for German office.
Yes. Thanks, So we're actually doing the call from the office right now.
Yes.
Any decent attendance right now we're sort of in a ramp up period as we return to a full return to office in September .
In the Americas.
And.
In terms of how that affects the business.
Yeah.
This has come up across a few quarters, but our view is really that Osama.
As an essential tool for any teams whether they are working together in an office or distributed or remote first.
And even when you have a company like <unk> that is planning to be office centric, we still work across.
More than a dozen offices all around the world, So even though sort of the <unk>.
<unk> teams can be in a room together inevitably they're working cross functionally in AR.
Promote first.
Way a lot of the time and so you're really everybody is kind of a little bit hybrid and theres really a spectrum there.
But again, it's on a.
<unk> was built for companies long before remote work became such a massive trend long before COVID-19 and we really think that it's in a central tool for teams working on all sorts of environments.
So we haven't really seen any change in demand based on that.
Thank you and that concludes today's question and answer session I will now hand, the conference back over to Catherine for any closing remarks.
Great. Thank you Andrew just wanted to say, thank you to everyone for joining us today and making the time for these on an earnings call. If you have any follow up questions as always please feel free to reach out and we look forward to seeing you on the road and at the conferences. Thanks a lot.
That concludes today's Astana first quarter and fiscal year 2022 earnings call. Thank you for your participation you may now disconnect your lines.
Okay.