Q3 2023 Asana Inc Earnings Call
Speaker 1: So.
Good afternoon. Thank you for attending today's ASANA Q3 fiscal year 2023 earnings call. My name is Bethany. I will be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Catherine Wan. Please go ahead. Hi. Good afternoon and thank you for joining us on today's conference call to discuss the financial results of ASANA's third quarter fiscal 2023. With me on today's call are Dustin Moskovitz, ASANA's co-founder and CEO , Anne Raimondi, our chief operating officer and head of business, and Tim Wan, our chief financial officer.
Today's call will include forward-looking statements, including statements regarding our expectations regarding free cash flow, our financial outlook, strategic plans, our market position, and growth opportunities.
Forward-looking statements involve risks, uncertainties, and assumptions that may cause our actual results to be materially different from those expressed or implied by the forward-looking statements. Please refer to our filings with the SEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q for additional information on risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements. For more information, visit www.fema.gov
In addition, during today's call we will be discussing non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP.
Reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalents are available in our earnings release, which is posted on our Investor Relations webpage at investors doasana com. And with that I'd like to turn the call over to Dustin.
Thunder, a leading next generation hospitality company that operates in over 40 cities across 10 countries uses this on it to make decisions rapidly and adapt quickly to changing factors. They use us on across the entire company from property managers to maintenance teams to the strategic initiatives <unk> and upgraded our enterprise solution this quarter for the <unk>.
Enhanced security functionality.
Another innovative customer using assign it to help manage their supply chain is hello, fresh the worlds, leading meal kit provider headquartered in Germany, and serving 17 countries, Hello, fresh and strategic procurement and ingredient development teams use us on it and manage their ingredient sourcing and inventory workflows.
The old way of working wasn't efficient scalable now Hello, fresh is able to more quickly develop and launch new seasonal recipes that meet their customers' preferences across 30 different recipes offer in each week.
In Q3, we continued to see companies in media and.
And financial services expand with us.
These are just a few examples of leading companies who are choosing <unk> because the work graph is the most scalable platform connects schools to work across the organization and provides quick measurable business ROI. We are continuing to see broad cross industry adoption with significant traction in fortune 100 customers of which 80% use us on these.
<unk> are just the beginning and we have a lot of work ahead.
Key to success for us is to continually improve our ability to address our customers' needs and drive growth across our large customer base.
We're making strategic changes in our organization to better realign resources for long term high leverage granted are key areas of focus include taking our success with our largest customers and making it a replicable scalable process across our entire go to market motion.
Serving our smaller customers in a more scalable way by further leveraging our product capabilities.
Maximizing data from product led motion to better support the sales lead process and customer lifecycle.
And bringing in new leadership to elevate our enterprise success to the next level with that I'll hand, it over to Jim.
Thank you in Q3 revenues came in at $141 4 million up 41% year over year.
This puts us at an annualized quarterly revenue run rate of $566 million.
Revenue from the U S grew 47% year over year.
Accounting for 61% of our total revenue.
International grew 33% year over year accounting for 39% of our revenue.
Currency impacted our international growth rate by roughly 500 basis points and the overall revenue growth rate by about 200 basis points.
International growth would have been 38% year over year and total revenue growth would have been 43% year over year without the impact of currency.
Revenue from customer spending 5000 or more on an annualized basis grew 52% year over year.
This cohort represented 73% of our revenue in Q3 up from 68% in the year ago quarter.
We have 18700 customers spending 5000 or more on an annualized basis up 32% year over year.
Our largest customers remain our fastest growing cohort.
We have 493 customer spending 100000 or more on an annualized basis.
And the customer cohort has grown at 78% year over year.
We believe this metric is a good proxy for our enterprise business.
As a reminder, we define these customers cohort based on 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%.
One customer spending 5000 or more our dollar based net retention rate was over 128%.
And among customer spending 100000 or more our dollar based net retention rate was over 140%.
As a reminder, our dollar based net retention rate is a trailing four quarter average calculation.
We continue to see stable churn rates across the cohorts and low churn in our large accounts demonstrating.
Demonstrating the value we deliver for our enterprise customers How's.
However, as I mentioned, we did see customers pausing growth or hiring more slowly and.
And the expansion in our business slowed as a result.
We expect our overall dollar based net retention rates to trend lower during this economic cycle.
As I turn 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 89, 6% from 97% in the year ago quarter.
Research and development was $50 2 million or 36% of revenue, we continue investing to win and fuel innovation and our proprietary technology, which will help us deliver on our vision.
Sales and marketing was $98 5 million or 70% of revenue.
And G&A was $30 6 million or 22% of revenue.
Operating loss was $52 6 million and operating loss margin was 37%.
The improvement in our operating margin demonstrates our ability to drive more efficient growth and manage our operating expenses with increased discipline.
Net loss was $52 4 million and our net loss per share was 26.
Last month, we reduced our global head count by approximately 9% as part of our restructuring designed to better manage the business with the balance towards growth and profitability.
This reduction will result in a nonrecurring restructuring charge of 9 million to $11 million, which will be excluded from our future non-GAAP results.
We expect the charges to be incurred primarily in the fourth quarter of fiscal 'twenty, three and our restructuring efforts to ultimately result in annualized savings of roughly $40 million for the company going forward.
Moving onto the balance sheet and cash flow cash and marketable securities at the end of Q3 were approximately $545 4 million.
Our remaining performance obligations or <unk> was $271 6 million up 43% from the year ago quarter.
86% of our appeal will be recognized over the next 12 months.
The current portion of <unk> grew 43% from the year ago quarter.
Total deferred revenue at the end of Q3 was $214 8 million up 39% year over year.
While we don't normally comment on calculated billings since currency fluctuations continue to have an impact this quarter.
I want to call out that currency impacted calculated billings growth by over 400 basis points.
31% when adjusted for the FX impact.
Our free cash flow is defined as net cash from operating activities less cash used in property and equipment and capitalized software costs, excluding nonrecurring items in Q3 free cash flow was negative $48 5 million or negative 34% on a margin basis.
Moving onto our outlook for Q4 fiscal 'twenty, three we expect revenues of $144 million to $146 million representing growth rates of 30% year over year at the midpoint.
We expect non-GAAP loss from operations of 60 million to $57 million.
And we expect net loss per share of 28 to 27, assuming basic and diluted weighted average shares outstanding of approximately $215 million.
For the full fiscal 'twenty three we expect revenues to be in the range of 541 million to $543 million.
Representing a growth rate of 43% year over year.
We expect FX to negatively impact our full year growth by approximately 200 basis points.
Excluding the currency impact our growth would've been 45% year over year.
We expect non-GAAP loss from operations of $230 million to $227 million.
And we expect net loss per share of $1 15 to $1 14, assuming basic and diluted weighted average shares outstanding of approximately $200 million.
We are being very measured with our guidance with several factors in mind, our outlook assumes that currency doesn't change macroeconomic factors will continue to drive a more tempered by an environment and increased scrutiny on purchase decisions.
And we assume this persist into the next fiscal year.
Despite the uncertainty with the macroeconomic environment, we still expect to be free cash flow positive before the end of calendar 2024, while balancing growth and profitability.
With that I'll hand, it back to Dusty for some final remarks.
Before we go to questions I wanted to summarize by noting like many of our peers. We are operating in a very challenging macroeconomic environment.
So we're actively managing to mitigate the impacts to the bottom line and taking the opportunity to elevate and further build our enterprise business. While we are derisking for those short term I continue to focus on the long term opportunity but.
When I meet with customers recognize that we have a unique perspective collaborating with some of the largest and most innovative companies in the world, including 80% of the Fortune 100.
Further reminded that work management is an enormous and underpenetrated market the underlying business trends remain intact and I am excited about <unk> position.
Thank you Dustin and with that I'll turn it back to the operator for the Q&A session.
Thank you.
We will now begin the question and answer 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 Tim again to ask a question. Please press star one please limit yourself to one question and one follow up we will pause here briefly ask questions are registered.
Our first question comes from the line of Andrew.
Biggest berry with Baird.
Please go ahead.
Yeah.
Thanks for taking my question I guess.
We're clearly seeing similar kind of weakness across most software categories. I was just wondering in a conversation we're having with investors is there anything that youre, telling you differently in terms of our work management and how they prioritize that relative to other software categories.
Hey, Andrew and thanks, so much for that question.
I'll tell you that what we're seeing is certainly more increased scrutiny on spending on technology overall.
Executives want higher and faster ROI from their investment.
What we're really seeing is more just a pause on the decision making versus the prioritization of the category.
And just as they evaluate you know where theyre going to make those investments. So the theme in these periods I think is.
We're excited about though and positive about his executives are looking to be able to set goals and increase accountability across their business as duston mentioned goals in particular is really resonating. So the fact that we've been increasing our investment there.
Has been helpful. In these conversations because they are looking to get faster decision, making rolled out three of the company as they're facing these changes, but overall I would say, mostly what we're seeing is more of a pause in decision making than anything.
Okay.
That's helpful. And then maybe on the restructuring I was just wondering what does that translate in terms of the timeline to breakeven I guess from a profitability point of view from a cash point of view is there anything you can comment on that.
Yeah Andrew.
And just I kind of mentioned on the call.
No change in terms of timeline.
From a go forward basis, the savings from the restructuring was about $40 million on a go forward basis.
But we're holding and committed to delivering free cash flow before the end of calendar 2024.
Thank you.
Our next question comes from the line of.
<unk> Kidron with Oppenheimer. Please go ahead.
Thanks, Hey, guys.
I guess I want to go into the head count reduction.
Can you give me a little bit more color on.
This 9% spreads across the functions and I guess the associated question with this.
How do I think about how this cut catches up to you meaning.
Clearly, there's some sales functions that are part of this as well and how do I think about the capacity loss or the points of growth.
Quarter growth.
Eliminated through this as we think about fiscal 'twenty four.
Yeah.
Yes, I'll start off this is dustin.
So just thinking about where we reduce roles a lot of how we structured our hiring plan for fiscal 'twenty.
'twenty three we frontloaded quite a lot of hiring.
Especially in sales and marketing and especially in talent acquisition to help us do the front loaded hiring.
And so and then we had an ambitious plan for R&D as well, but we had it more pace throughout the year.
And we ended up really moderating and then pausing hiring fairly early in the year. So when we came to think about the risk we really looked at it primarily through the lens of sort of unwinding. The over investment we made in the first two categories.
And really right sizing it to the amount of demand we're seeing in the market.
And so I.
I feel comfortable with the staffing we have now and the people that we have in these roles are ramped and ready for fiscal year 'twenty four unable to serve our best customers and anything you announce that yeah on the sales side and in particular I'll just add that.
As we did the restructuring we were really focused on better aligning our teams with our where we see growth, which is an enterprise so with the softening in F&B due to the macro conditions. We made adjustments there to ensure we can increase efficiency and productivity and really make sure that the team. We have here can be set up to be successful.
So some other things in particular, we're doing are increasing our focus on delivering scaled and efficient program further for those smaller customers without sacrificing the quality of their experience, but a lot of the focus is ensuring we're well staffed for enterprise growth.
Okay, maybe as a follow up.
Duston.
What is it that you need to see for you too.
Feel comfortable re accelerating hiring again like what is the key kpis that you're watching for.
Because I'm pretty sure I mean, clearly you don't want to be behind right. So the tricky part is too.
Trying to put your finger on what would be the right thing to look for to get the Green light to go ahead, a little bit more aggressively.
Can you give us some insight as to what it is that you are looking forward to it to make that decision.
Yeah.
Yeah, that's a that's a great question.
And certainly one top of mind I think that a lot of what we're looking at is really macro signal and signals from customers in the conversation so and talked about.
Some of our best customers they haven't deep ties digital transformation, but they do have things a little bit on pause they themselves.
Or in many cases are doing reps are just reacting to changing macro landscape for themselves and trying to kind of reevaluate and get their footing again and decide.
Regain confidence to start increasing their deployments.
And so to some extent that will be seeing that happens they'll get them, having the customers get back into a place of wanting to expand their deployments more rapidly.
And I think in turn they will be looking to.
<unk> is in the market, obviously changes in interest rates.
And changes in their own customer demand now that said you know.
A lot of our customers are still growing we would've loved to have had even more growth this quarter, but it's still quite a lot of growth.
And so another thing that could happen is just that that growth continues and we grow into.
Our opex footprint.
And then that would be more of a sort of gradual turn back towards investing in hiring again.
On our side and so it might be.
Quite acute or it might be more gradual and I think in both cases well in the first case it'll depend on changes in the macro environment, which I do think could happen quickly, but they might not.
And then in the second case, just sort of.
<unk> of the customer relationships and category growth.
Thank you.
Next question comes from the line of Alex Zukin with Wolfe Research. Please go ahead.
Hey, there. This is Alan are costing you on for Alex and thanks for taking the question.
Really appreciate the color that you guys provided with respect to the impacts you're seeing from the macro can you dive into the trends you saw on a per month basis Theyre November around expansion trend free to paid conversion and.
Just general top of funnel activity I think that'd be really helpful.
Yeah.
Hey, This is Tim I would say like where are we kind of you know we have talked about in Q2 about the macro impact in Europe , and I would say.
Starting kind of in September maybe middle of September towards the end of September we started seeing some of those same trends and same conversations happening.
The same conversations happening in the U S. I think what I'm really encouraged about is when when even when we go deep into the data like one of the things. That's really that continues to be Sean is kind of like if you look at our five K customer that revenue base continues to grow at a very healthy clip.
Look at our logo retention our logo retention is stable and we still continue to have high end or even for our customers that are above 50 care 100 K.
But I do think the conversations that we're seeing the types of engagement. We're having is while the pipeline isn't going away I think many of our customers suggest like taken a beat and saying hey, what's going on in the market, where everyone is trying to rightsize their own cost structure trying to understand their own.
Their own outlook based on the macro environment, but.
But we do expect many of these customers to reengage over over the next few months.
And create opportunity for us.
Okay got it and just as a follow up to that point like further disaggregate the expansion business and the net new business like from RC.
Expansion deals are a little easier to get over the line in this environment.
But that's kind of an inconsistent depending on.
Other SaaS providers in this space. So what are you hearing from your reps about these areas and how does that affect your strategy for next year.
Yeah.
Maybe I'll start and Mike jump in.
It's a little a little of both I think and it depends on the segment so probably in the smaller segments SMB and mid market, maybe a little more pressure against conversion and jumping into.
New in a new category that haven't been spending on before but.
But not not too dramatic and then expansion more at the enterprise customers.
It's not even necessarily that they arent expanding but maybe theyre just being a little more modest about it.
There are a couple of cases, where customers were doing reps and.
Some of the roles that were eliminated had licensed seats and they simply repurposed to actually expand usage in other parts of the company.
And so in some sense they were expanding it just wasn't necessarily translating into dollars for us.
Then similarly, all of the currency headwind really shows up.
And sort of.
It turned out to be negative renewals, even if the seats are still there and we're still and we're heavily driven.
Based on those trends and just on seat expansion.
So I don't think there's anything that stands out too much when I think of where our internal forecast were most off it was in those more modest expansion relative to what we were hoping for.
Thank you.
Our next I only add to that is.
Our champions are still quite engaged with us on those expansions and so a lot of the focus in the discussions really is where can we make the highest impact and deliver the highest ROI in the shortest amount of time. So some of it is just re evaluating together where we.
Expand the deployment and which cross functional use cases.
Thank you.
Next question is from the line of Steve <unk> with Citi. Please go ahead.
And the question here.
I guess I just want to ask on the.
Expansion within that largest customer notwithstanding.
Two I think it was 130000.
Just wondering as we think about that that accounts.
The incremental use cases or areas that you were beginning to see that expansion take place and I guess, how should we think about.
Kind of a further scalability that you could capture with them that that account there.
Yeah. Thanks, so much for that question I think what we're actually seeing that account is expansion across many different divisions and departments. It's at a large global organization.
Organization and so we are deployed in a cross.
Many functions many business units and really what we're seeing that drives that growth is that there. It's really how many of the organizations work and how they onboard new employees, how they train their employees, how they deploy even for their end customers.
So they're codifying essentially how they intend to collaboration to work within the organization and so it's not so much sort of one specific use case, but rather that we are now part of the stack of collaboration in that organization and so we're excited to see that because I think that really is.
Playbook that we feel we can replicate in a large a lot of our large enterprise customers that are starting to see that similar behavior, where ads across multiple departments, it's across multiple divisions and it's really facilitating.
Cross team initiatives that are so critical right now.
Just want to jump in to add to the question about <unk>.
<unk> future potential.
I think this is really sort of indicative of a few of our large customers where again there.
In this environment the company wants to have more control over the pace of deployment and how spend happens, but underneath that there's quite a lot of organic demand in this account and others and they're almost being held back from adoption. So that the company can pay us in an intention all controlled way.
And that's fine what will work, we'll work with them, but we're excited to embrace that that sort of latent demand.
And work with them when they are back into a place of spending more budget to embrace it and then license it.
Got it Okay. That's helpful and then.
A comment on their own.
Well, they're all kind of in the prepared remarks about kind of taking the lessons you're learning from the largest customers and trying to apply that to kind of the rest of the go to market strategy to drive enterprise adoption.
Adoption I guess, what are kind of the key things that.
You've learned so far and kind of what are the things that you can control.
Why is that.
Drive that expansion motion into other.
Large potential accounts here.
Yeah.
Right buttons, one sort of plays off of what I was just saying of these companies want to really control how a sona is deployed and be able to automatically manage thousands of accounts at a time and have that synced up with other things they're doing with the organization so integrated.
With there are other ways of managing people and licenses.
To have a lot of great visibility into how people are using the product and what kind of value, they're getting and so we are translating that straight into.
The kinds of views, we give in our admin console, how we talk to the customer directly and what kind of data, we're able to sort of provide some ad.
AD hoc.
And then the second Big thing that we really piloted with this larger customer is more customized and product education.
So being able to really speak their language have the assets that teach them how to use us on a in that company culture really up already and that can really accelerate adoption not something that we're excited to bring to other large customers.
Thank you.
Our next question comes from the line of Brent Thill with Jefferies. Please go ahead.
Dustin investors want a faster path to profitability, but we know you have to balance the long term and the potential to take share to be greater.
In the downturn, so I'm just curious how you're thinking about weighing the short term versus long term and in and how you're thinking through that desire from investors to make make the quick turn here.
Well yeah.
Tim said, where we're still committed to the timeline that we provided last quarter. So I think that's really the overarching picture that that were just.
Need to balance it.
In the short run.
These have heartburn around the category changing and moving on without us, but I'm also just cognizant of the fact that if the customer demand isn't there then it's easy to spend money inefficiently.
And so that the sort of easiest place to sort of turn up and down the throttle there is with with programmatic marketing spend.
And just from a math basis, we know that the.
Paybacks getting longer and the gist.
The immediate ROI you get on that is changing and we should react to that.
So I think we're relatively well aligned when the market is ready to grow and our customers are ready to grow that is the right time for us to be spending more aggressively.
But there are also things that play out over a longer cycles like how like how our product road map works.
And so there it's more of a judgment call on what's the right pace, but you can see that we've been getting leverage throughout this year and R&D as a percent of revenue and I think that will continue.
And we'll just be looking at exactly what you know what is the shape of that trend line and when do we have a little more capacity to reinvest there and reinvest in head count and programmatic spend elsewhere in the company.
Quick follow up for Tim is there a way to split.
SMB versus enterprise as the mix just ballpark.
I think through that allocation of revenue to each of those buckets.
Our next question comes from the line of <unk>.
Josh Baer with Morgan Stanley . Please go ahead.
Yeah.
Hi, Thanks for taking my question. This is Sophie Li on for Josh Baer.
I guess my question is when you say you expect <unk> to.
To be continue to be pressure going forward.
What kind of churn and expansion dynamics are you kind of thinking about.
Those more related to I guess.
Seat expansions or are you.
And playing more.
I guess lower dollar expansion as customers downgrade to a cheaper plan just curious what youre thinking about there.
Yeah.
Let me try to.
So <unk> question first I think I was on mute and then I'll I'll jump back into the churn question Brent.
Brent what I was with.
With your question about how to think about the two segments of the business I would look at our business like the sub five K as one part of our business and the above five K as another part of our business and if you look at that.
Just kind of break that out or sub five K business.
Grew at about 18% year on year, and our five K cohort.
We grew north of 50% and that cohort also has much stronger than our than the sub five K and thats kind of been the way we've been running the business and like how do we move these five key customers up into 25, K 50, K 100, K and that's really been the motion that we that we're focused on and will continue to invest in.
Now back to the churn question or the net expansion rate question.
I would probably prioritize it as well.
One.
We're not seeing logo churn logo churn is actually quite stable. So customers are not churning off asada that's one.
Theres, probably some component of it but I think it's relatively small.
<unk> grades meaning customers may have some.
Some customers have pre bought into thinking that they would grow into a certain size and given the macro environment they've decided to downgrade during the renewal. So we see some of that.
I think the bigger impact primarily has been.
Kind of the expansion rates and the expansion rate is just a combination of customers like taking a pause right now just given the macro to try to understand.
How fast they want to grow their head count how much hiring they want to do over the next two.
One month to 24 months.
And just have a lot more certainty around their own business before making that investment so as I kind of mentioned earlier like the pipeline Hasnt changed the conversations are still happening, but I would say like we did see some noticeable pause in some deals where customers are trying to reflect on their own plans before moving forward.
Sounds good and a quick follow up.
What are kind of like the incentive for customers to sign on to a multiyear deal.
Despite a more challenging budgetary environment.
I would say more.
Are these the larger deals are on negotiated so there's some combination of pricing.
That gets discussed if customers are willing to move into a multiyear deal.
And then the other the other lever for our customers and especially in this environment I think customers are looking for this and it impacts billing is they're asking for a different payment terms.
Arent structure in terms of how the timing of which they'll pay us. So those are generally the two things that I would say that customers are kind of looking at.
And we did actually have them.
We did actually saw a noticeable increase in our multiyear deals this quarter versus last quarter, which is really encouraging as well.
Thank you.
Our next question comes from the line of Brent <unk> with Piper Sandler. Please go ahead.
Good afternoon.
Maybe I'll start here with a question for Anna Chan here on.
The industry vertical breakout what you've seen several.
Software companies that have gained popularity with digital natives and tech and Internet names that.
Are really starting to see their growth being pressured and so from an industry vertical vertical perspective, what portion of the revenue today is high Tech Internet software.
And the pause that you are talking about here is it.
Donnelley, and just talk or you're seeing a pause in bulk.
Tech Internet space and other areas as well probably there would be helpful.
Yeah, Brett Thanks for that question.
We have been traditionally very strong intact, but it's the plurality not necessarily the majority globally.
So as we can and so certainly some of what we're seeing comes from with happening to our customers as they pause hiring or in some cases had layoffs, but as we continue to broaden across industries.
We're definitely seeing strong fit with media automotive financial services, along with professional services health care consumer goods and retail so consistent themes in those verticals or the desire for speed in their digital transformation initiative.
And being able to respond quickly in this macro so we really feel like we have like our value proposition well suited to these companies that are you know.
Looking at transformation.
To better compete and drive efficiency.
So, yes, we're seeing that but as we diversify across verticals.
Really seeing some of those other industries actually embrace transformation more quickly.
So it sounds like they are clearly positive but in these other areas you talked about there is.
Pause that you're flagging at this point.
I guess, it's really hard to answer that in a blanket way I think when we were talking about our Q2 results. We were talking about some similar dynamics in Europe are.
Which was a blend of industries and then.
At this time like Tech is a factor, but that is where a lot of these policies are but again in some cases those customers are deploying more aggressively and we're still signing new multiyear deals are going wall to wall.
And those customers and then some contact cases, theres, a pause and my mental model on the economy is is that.
Hitting the sectors in waves and so I'm, a little reluctant to say like the whole problem as tack and then next quarter, it's a different sector, that's kind of feeling the impact.
And so it's really a mix but.
That said I think in America, it's a larger plurality still not still not the majority and it's more represented in our very largest customers. So.
So in terms of the strategic accounts, expanding a little more modestly a I think it's fair to say that that trend is more concentrated in tech and it's not something I expect to be ongoing I think that they're most sort of reacting in an acute sort of shocked away to what happened in the market.
And really in this particular timeframe.
Thank you.
Our next question comes from the line of Jackson Ader with SBB Securities Moffett Nathanson. Please go ahead.
Great. Thanks for taking my questions guys.
First duston, maybe on the b over hiring of talent.
Acquisition and new sales that you were talking about.
Outside of the macro environment I'm just curious.
Do you feel like it was working.
And.
When things start to maybe turn more positive in the macro environment do you feel like you have a good playbook just to spin that motion back up or is it more like you have some learnings that say.
Yes.
I'm not really sure if that was the way to go anywhere.
Okay.
Okay.
The complex hypothetical question.
I think some things we're learning we're working some things we revisit revisit it as we always do when we're sort of.
Executing in the wild but.
But for the most part.
I think that the rising tide of the category.
<unk> was continuing and we were investing into that into that trend.
And so that just in terms of like the 20000 foot you Yeah I would expect it to continue I think it's still working.
We're succeeding in our move upmarket to enterprise.
And especially just seeing a lot of learnings there and exactly how to make customers successful very very quickly and again reintegrating that straight into the product experience. So all of that I think will be the strength that we built on <unk>.
Before we start hiring again there still.
Quite a lot masan us here quite a lot of customers growing in.
So.
It's a little hard for me to think about it because it almost sounds like I always thought the whole engine, but should it which isn't the case.
We're just we're just taking a beat ourselves before we step on the gas again in the future.
Okay, Alright got it and then.
As my follow up Tim.
Yes.
Why why Wouldnt $40 million in annual savings bring bring.
Bring the timing of the free cash flow breakeven.
Even if you don't want to like put up.
Date on it shouldnt $40 million of annual savings, bringing timeline a little bit.
Yeah, I mean, I think a lot of this is really about kind of trying to understand and assess what the macro is going to look like in the growth rate over the next two years.
To degree we grow faster.
Absolutely believe that we'll be able to pull it in but if the economy actually gets worse and you know sitting here today.
Just like no signals that things will be better yet so I'd, rather we be more cautious and conservative as we continue to provide.
Both guidance and outlook on kind of the financials.
Thank you.
Our next question comes from the line of Jason <unk> with Keybanc capital markets. Please go ahead.
Hey, Thanks, everyone for fitting me in I guess, just a couple Q4 guidance question.
And I totally understand the macro challenges and I think Tim in your prepared remarks, you said that youre assuming.
<unk> to kind of remain the same for Q4.
When I look at the.
The sequential growth.
It's much less than what we think Q3, so I guess, how conservative is this Q4 and are there any other factors that might not be thinking about.
I would say, we are being extremely thoughtful and conservative in terms of.
We provided the Q4 guidance.
Okay.
Okay.
I think yes.
Our capital Okay.
Okay. Thank you.
Thank you.
Our next question.
Comes from the line of Robert Simmons with D. A Davidson. Please go ahead.
Hey, Thanks for taking my question.
So one of the things you mentioned in the script was maximizing data from a product led motion and I'm wondering if you can give us some more details on what that means is that something on the lines of.
Okay, very well with Amazon.
To kind of get them up and running quickly and that sort of thing or is there more to it.
Yeah. Thanks, so much for that question and I think we are excited about that on a number of fronts both in larger accounts.
Are there is no team adoption across the board and how do we get that information more quickly to our sales team with the contacts dawn, which teams what's the usage.
How theyre already collaborating with other teams and departments that are fully deployed so certainly product data in existing accounts as well as <unk>.
Data in new accounts and new sign ups.
How we can do a faster more in times and job with the scoring of that product usage early in their journey and pass those more quickly to sales to have.
Relevant enbridge conversations early on a lot of time with what we see is if we can get customers set up early on and talk to them about the total potential of a sauna that growth is accelerated so we just want to do more of that leveraging the rich insights and data we have in our product platform.
Got it that makes sense and then on the.
HIPAA compliance can you talk to.
You mentioned that it could help to close some deals was that important for Norton.
Can you give any color on that would be helpful.
And we're excited about it because we're early in it right. We've only had it for a couple of months and it was important and Norton and a number of other deals.
We had at.
Nice expansion with a global health care.
Customer as a result, so theres been a number of them.
I'll call it smaller deployments within healthcare and healthcare technology organizations.
Who've been excited for us to become <unk> compliant to really unlock more opportunities. So I think we feel like we're early on that but it's been really helpful. Both including Norton as well as a number of other global health care customers.
Thank you.
Our next question comes from the line of Fred Lee with Credit Suisse. Please go ahead.
Okay.
Hi, This is Tim young for us on a per friendly to thank you for taking my question.
To what degree do you see achieving your calendar 2000 and for free cash flow target entirely within your control versus dependent on the macroeconomic environment or asked differently. How broad is the range of macroeconomic scenarios under which you will achieve target.
Hey, this is dustin.
Yeah.
Yeah.
No.
Think that we feel comfortable given the current macro context that we can achieve free cash flow in the timeline, we laid out.
And that we are fully funded to achieve it importantly.
But it's been a really volatile vital power year, and there've been a lot of surprises and there could be new things that happen in the future.
And so it's really hard to promise that we have complete control over things because there is a lot that we're at the effect of you know I've been saying that.
You know I'm I'm CEO of the company, but lately J, Paul has been CEO of the stock price and a lot of the sort of business in parts.
And but that doesn't mean, we can't react to things that change and so you know we're always behind the wheel and some sense of new surprises show up then we may have to make new decisions in reaction, but I think that we still feel pretty good about being able to achieve that timeline.
Thank you.
Thank you.
Our next question comes from the line of Patrick <unk> with JMP Securities. Please go ahead.
Oh, great. Thanks, so much.
Big picture, maybe for duston, but if anyone else wants to.
To chime in if you take our current stockholder today and.
And we look forward three years.
How do we win.
And what would make us lose.
So from a.
From a stock stockholder perspective, it's the business succeeding.
Obviously, achieving the free cash flow milestone, but also achieving a lot of topline growth.
And the way we win is by moving up market and being the category leader, especially in enterprises.
And again, you know we're talking a lot about the sort of blended overall growth rates for the business, but when you look underneath the hood there.
There are a lot of signs of strength in in larger categories or sorry, the larger segments. So we still have 140% net dollar retention across our very largest customers.
We have very large individual deployments, including a 150000 seats.
The we're in the the leader circle from Forrester.
What.
Oh, yes, $2 5 million seats. So we see that where we're deploying very quickly into these organizations into the greenfield opportunity that that is the work management category and so that continuing I think is the way to success. There is a lot of ways that competitors might monetize differently in the short run or specialized into different issues.
But the <unk> strategy is to be the leading work manage pure play work management platform for enterprises, and I think we're on a great path there and that's how we win.
Yeah, I'll leave it at that.
What do you think is the most likely way you end up.
Losing.
Well the comment advice is not to focus on the wall, which is talk there.
But the most common way to lose.
I am worried about other macro surprises I mean, we're definitely keeping an eye on the war on inflation on the situation in China has made the thing that's least absorbed into the global economy right now.
And those are those will affect everybody.
But I think if they are if.
If they slow us down and that can have an asymmetric impact on us versus versus the rest of the field and might mountain vantage certain players in certain ways. So we'll see what happens.
And I don't know that that's really the primary thing I think about we have a lot of opportunities to capitalize on in terms of.
Further widening our lead in terms of our product differentiation and making it clear to the market and I am not satisfied with how clear. It is right now I think it's very clear to our large customers because of their living it and getting the value proposition and experiencing an increasing returns to scale.
But we need to be able to replay that story for investors and for new customers and for analysts and I think we're getting better at it all the time, but theres a long way to go there.
And our competitors have a vested interest in trying to minimize those differences.
And so that's part of the game as well, but I feel confident in our ability to succeed in that way.
Thank you.
Our next question comes from the line of Rob Oliver with Baird. Please go ahead.
Great. Thanks, Good afternoon, guys. Thanks for squeezing me in here.
And my question is for you and a follow up for Tim you talked in your prepared remarks about the Ela.
Elevation of the buying decision to the CEO CIO level and.
Yeah.
I know Duston said Theres no change in the competitive landscape, but.
When you get up to that level here in the turf of some big incumbent.
You see companies that have solutions that are trying to compete with you guys very actively so.
How if at all does the strategy change I mean, clearly scalability is not an issue products on an issue you guys have the best but.
In an environment, where maybe we.
We get to an environment, where maybe the best doesn't win how does the strategy change when you're competing against some of those larger incumbents.
Yes, thanks, so much for that question Rob.
I think what we've been seeing is certainly in this environment CIO Cfos are part of their decision, making process for all sort of technology investment.
To your question on <unk>.
We think about it if there is incumbent technology I think our teams are still doing is really focusing deeply on understanding our customers' most pressing business problems.
And how Exxon I can different differentially solve those problems because in the end, that's where they want to make the investment there might be existing applications, but a lot of.
A lot of the exact also recognize that those are not being adopted even if they're available. So in the end the adoption of the technology and then the ROI on that is what they're focused on and Theres just in this environment, just greater scrutiny to double check that.
<unk> investment and tie it to our Kpis and so that's what a lot of our team is focused on is making sure we understand that upfront, making sure we align on the Kpis and then most importantly, delivering on those as we apply and move forward with them.
Yeah.
Okay great.
Yes, that's helpful.
You want to help.
CIO and CFO avoid the decision to buy shelf, where users don't want when they want you guys. Let me add a lot of sense.
Tim glad you're okay.
Follow up for you.
Dustin alluded to marketing budgets earlier, and clearly the marketing budgets a big line item for you guys.
As you guys push more into enterprise successfully, albeit with the pause that you guys have talked about here.
Does that gives you does that give you more leverage on that line item.
In terms of let's focus on that SMB customer where that freemium branding that maybe you had needed to do earlier on thank you.
I do think as we move up market will generally get more leverage in the business.
Perhaps even more on.
I don't agree on marketing, but also on R&D and really across all functions. So.
That's a big part of why we're doing it.
But.
Do you think marketing still has a really important role to play in.
In reaching enterprises, including in our existing deployments.
Mentioned that we have a lot of organic growth that sometimes the company has is holding back but some of the way that organic growth happens.
Supported by our marketing efforts as well so I think we are.
We get similar amounts of ROI.
And enterprise through through some of that spend.
And then I would also just point out that the world is a big place and we have different levels of category maturity and its on our presence in the market.
In different countries and so we'll need to apply marketing dollars in different ways to build that awareness in places where we're less deployed.
<unk> plus present.
Thank you.
That concludes the question and answer session I would like to pass the conference back to Kathryn one for any closing remarks.
Yes, just wanted to thank everyone for joining the call today I know, it's a busy week and really we really appreciate your time and your covering US honor as always please feel free to call me. If you have any follow up questions and we will be out at the various conferences. So we look forward to see you on the road thanks very much.
That concludes today's conference call I Hope you all enjoy the rest of your day you may now disconnect your lines.
Okay.