Q1 2026 Asana Inc Earnings Call

Participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone to remove yourself from the queue. You May Press Star one again I would now like to hand, the call over to Eva lung head of Investor Relations.

Speaker Change: Please go ahead.

Eva Lung: Good afternoon. Thank you for joining us on today's conference call to discuss the financial results for our final first quarter fiscal year 2026 with me on today's call Jessica Moskowitz Masonic co founder and CEO and Remondi, our Chief operating officer, and head of business and suddenly <unk>, our chief financial.

Officer.

Today's call will include forward looking statements, including statements regarding expected relief and benefits of our product offerings, including AI studio and our expectation for revenue to be generated by AI studio our retention expansion opportunities our expectation for our financial outlook include.

Move yourself from the queue you May press star, one what and again I would now like to hand, the call over to Eva lung head of Investor Relations. Please go ahead.

Eva Lung: Good afternoon, and thank you for joining us on today's conference call to discuss the financial results for <unk> first quarter fiscal year 2026 with me on today's call are Duskin, Moskovitz Hassan <unk> co founder and CEO and Remondi, our Chief operating officer, and head of business and suddenly correct, our chief financial.

Speaker Change: Our revised full year guidance strategic plans, and our market position and growth opportunities and our capital allocation strategy, including our stock repurchase programs.

Forward looking statements involve risks uncertainties and assumptions that may cause our actual results to be materially different from those expressed in 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.

Speaker Change: <unk> officer.

Today's call will include forward looking statements, including statements regarding expected relief and benefits of our product offerings, including AI studio and our expectation for revenue to be generated by AI studio, our retention expansion opportunities our expectation for all financial outlook, including.

Speaker Change: For additional information on risks uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements.

Speaker Change: <unk>, our revised full year guidance strategic plans, and our market position and growth opportunities and our capital allocation strategy, including our stock repurchase programs.

In addition, during today's call we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP.

Forward looking statements involve risks uncertainties and assumptions that may cause our actual results to be materially different from dose expressed in 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.

Speaker Change: Reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitation of using non-GAAP measures versus their closest GAAP equivalents are available in our earnings release, which is posted on our Investor Relations website at Investor thought assign on dot com and with that I'd like to turn the call over to <unk>.

For additional information on risks uncertainties and assumptions that may cause actual results to differ materially from dose thus forth in such statements.

Speaker Change: Duston.

Speaker Change: In addition, during today's call we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP.

Duston: Thank you all for joining us on the call today.

Speaker Change: Q1 was a milestone quarter for you.

Duston: Achieved non-GAAP profitability for the first time, an AI studio, which reached general availability in Q1 surpassed $1 million and they are demonstrating powerful early momentum.

Speaker Change: 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 website at Investor <unk> Dot com and with that I'd like to turn the call over to <unk>.

Duston: This progress fuels, our journey to sustained profitable growth and positions <unk> as the definitive platform for humans and AI coordination.

Speaker Change: In Q1 total revenues were up 9% year over year exceeding the top end of our guidance.

Speaker Change: non-GAAP operating margins improved more than 300 basis points year over year from an operating loss margin of 9% to an operating income margin of 4% that is the <unk>.

Justin.

Justin: Thank you all for joining us on the call today.

Speaker Change: Significant milestone for the company as we reached non-GAAP profitability for the first time.

Q1 was a milestone quarter, we achieved non-GAAP profitability for the first time, an AI studio, which reached general availability in Q1 surpassed $1 billion in IRR.

Speaker Change: Adjusted free cash flow margin also improved more than 700 basis points year over year with free cash flow margin at 5% for the quarter.

Justin: Creating powerful early momentum.

Speaker Change: Once again, our non tech verticals grew faster than the overall growth for the quarter and grew mid teens year over year.

Justin: This progress fuels, our journey to sustained profitable growth and positions <unk> as the definitive platform for human and AI and coordination.

Speaker Change: Some of our fastest growing verticals this quarter included manufacturing and energy media and entertainment and financial services.

Justin: In Q1 total revenues were up 9% year over year exceeding the top end of our guidance.

Speaker Change: We continue to make progress in our enterprise customer acquisition of $100000 and over customers grew 20% year over year consistent with last quarter.

Justin: non-GAAP operating margins improved more than 300 basis points year over year from an operating loss margin of 9% to an operating income margin of 4%.

Speaker Change: A landmark achievement last month was closing the largest deal in <unk> history with one of the largest employers in the world.

Justin: A significant milestone for the company as we reached non-GAAP profitability for the first time.

Justin: Adjusted free cash flow margin also improved more than 700 basis points year over year with free cash flow margin at 5% for the quarter.

Speaker Change: This three year 100 million dollar plus contract renewal is a testament to <unk> unique ability to power complex cross functional execution and an enterprise scale.

Justin: Once again, our non tech verticals grew faster than overall growth for the quarter and grew mid teens year over year.

Speaker Change: The growth within this customer showcases a powerful combination of organic adoption and intentional expansion driven by our close partnership with the enterprise engineering teams to demonstrate ongoing value.

Justin: Some of our fastest growing vertical this quarter included manufacturing and energy media and entertainment and financial services.

Speaker Change: After a rigorous evaluation Hassan was selected as it's company wide standard for project task work and Golar management, making a sona foundational to how they planned track and execute their most critical work.

Justin: We continue to make progress in our enterprise customer acquisition or $100 and over customers grew 20% year over year consistent with last quarter.

Justin: A landmark achievement last month was closing the largest deal in <unk> history with one of the largest employers in the world.

Speaker Change: Now, let's turn to AI studio.

Speaker Change: We've seen tremendous momentum since our Q4 update driven by customers recognizing the tangible value AI studio delivers in solving real business problems.

Justin: This three year 100 million dollar plus contract renewal is a testament to <unk> unique ability to power complex cross functional execution and an enterprise scale.

Speaker Change: We've already crossed $1 million in AI studio <unk> and are entering Q2 with robust and rapidly growing pipeline.

Justin: The growth within this customer showcases a powerful combination of organic adoption and intentional expansion driven by our close partnership with the enterprise engineering teams to demonstrate ongoing value.

Speaker Change: The interest is truly global with strong traction across all our major geographies, we're even seeing instances, where AI studio a R is exceeding seat based <unk>.

Justin: After a rigorous evaluation Hassan was selected as it's company wide standard for project task work and Golar management, making a sona foundational to holiday plan track and execute their most critical work.

Speaker Change: This highlights our few users leveraging AI studio can drive outsized value and it underscores our conviction that AI studio has the potential to not only eclipsed the revenue scale of seat based licenses over time, but also to reduce our overall reliance on proceed monetization.

Justin: Now, let's turn to AI studio, we've seen tremendous momentum since our Q4 update driven by customers recognizing the tangible value AI studio delivers in solving real business problems.

Speaker Change: The cross vertical interest is also exciting with notable customer wins across manufacturing retail technology financial services, and health care, demonstrating strong and widespread demand.

Justin: We've already crossed $1 million in AI studio <unk> and are entering Q2, with a robust and rapidly growing pipeline.

Speaker Change: What's most encouraging about AI studios momentum isn't the initial sales it's the everyday usage, we're saying because the product is embedded directly into workflows teams rely on automation happens where the work happens that makes the AI studio inherently sticky avoiding the shelf where fate of many hyped AI tools that we've been separate apps or chat bots and ended up underutilized.

Justin: The interest is truly global with strong traction across all our major geographies, we're even seeing instances where AI studio.

Justin: Is exceeding seat based <unk>.

Justin: This highlights our few users leveraging AI studio can drive outsized value and it underscores our conviction that AI studio has the potential to not only eclipsed the revenue scale based licenses overtime, but also to reduce our overall reliance on per seat monetization.

Speaker Change: Our customers choose AI studio for three key reasons.

Speaker Change: First it's built natively into a sauna, eliminating the need for behavior or workflow change.

Justin: The cross vertical interest is also exciting with notable customer wins across manufacturing retail technology financial services, and health care, demonstrating strong and widespread demand.

Speaker Change: Second it's human in the loop controls are built on familiar Sona features approvals work assignments comments and audit trails, keeping people firmly in charge of every AI step.

Justin: What's most encouraging about AI studios momentum isn't the initial sales it's the everyday usage, we're seeing because the product is embedded directly in the workflows teams rely on automation happens where the work happens that makes it AI studio inherently sticky avoiding the shelf where fate of many hyped AI tools that we've been separate apps or chat bots and end up underutilized.

Speaker Change: Third it runs on our work graph are continuously updating data store of every project task goal in conversation.

Speaker Change: That deep structured context, let's AI handle longer and more complex workflows and enables true human AI coordination something point solution agents simply can't match.

Justin: Our customers choose AI studio for three key reasons.

Speaker Change: This real world impact is evident with Woolworths, one of Australia's largest supermarket chain with over 1000 stores.

Justin: First it's built natively into astana, eliminating the need for behavior or workflow change.

Speaker Change: They've implemented AI studio to transform their safety in capital governance process for store changes.

Justin: Second it's human in the loop controls are built on familiar Sona features approvals work assignments comments and audit trails, keeping people firmly in charge of every AI step.

Speaker Change: Previously relying on inconsistent slide deck, some meetings with up to 60 attendees they've built a smart workflow with AI studio that analyzes submissions identifies required approvals and automatically routes request with all relevant context.

Justin: Third it runs on our work graph are continuously updating data store of every project task goal in conversation.

Justin: Deep structured context, let's AI handle longer more complex workflows and enables true human AI coordination.

Speaker Change: This acceleration in decision, making allows woolworths to implement strategic store improvements faster, while maintaining rigorous safety and compliance standards.

Justin: Something point solution agents simply can't match.

Speaker Change: This kind of targeted automation showcases how our AI capabilities drive both immediate ROI and deeper adoption within enterprise customers.

Justin: This real world impact is evident with Woolworths, one of Australia's largest supermarket chain with over 1000 stores.

Speaker Change: We've also secured our first AI studio deal in India for our popular bakery chain.

Justin: They've implemented AI studio to transform their safety in capital governance process for store changes.

Speaker Change: Working with a local partner we've developed an AI studio solution to prevent fuel theft across their fleet of dozens of vehicles, a common challenge in that market.

Justin: Previously relying on inconsistent slide decks and meetings with up to 60 attendees they've built a smart workflow with AI studio that analyzes submissions identifies required approvals and automatically routes request with all relevant context.

Speaker Change: Using a simple form to upload jewel receipts AI studio automatically extracts and long steel data, creating a complete audit trail, while eliminating manual entry.

Justin: This acceleration in decision, making allows woolworths to implement strategic store improvements faster, while maintaining rigorous safety and compliance standards.

Speaker Change: This is given managers real time visibility into fleet expenses and improved coordination between drivers and finance teams.

Justin: This kind of targeted automation showcases how our AI capabilities drive both immediate ROI and deeper adoption within enterprise customers.

Speaker Change: The solution is now fully embedded in their daily operations, delivering measurable efficiency gains within weeks of implementation.

Justin: We've also secured our first AI studio deal in India for our popular bakery chain.

Speaker Change: AI studios designed specifically for human AI coordination, enabling people to move work forward, when and where they are needed.

Justin: Working with a local partner we've developed an AI studio solution to prevent fuel theft across their fleet of dozens of vehicles, a common challenge in that market.

Speaker Change: Standalone agent models can only succeed when they are capable of automating entire workflows, ironically relegating them to narrow use cases.

Justin: Using a simple for them to upload jewel receipts AI studio automatically extracts and long steel data, creating a complete audit trail, while eliminating manual entry.

Speaker Change: Contrast, we focus on augmenting human capabilities at key points in the process.

Speaker Change: Triaging inbound requests drafting briefs extracting unstructured data running deep research, we're crunching complex analyses, while teams keep full visibility and control.

Justin: This is given managers real time visibility into fleet expenses and improved coordination between drivers and finance teams.

Justin: The solution is now fully embedded in their daily operations, delivering measurable efficiency gains within weeks of implementation.

Speaker Change: We don't replace human expertise, we amplify it in a predictable way freeing people to focus on higher impact work.

Justin: AI studio is designed specifically for human AI coordination, enabling people to move work forward, when and where they are needed.

Speaker Change: The result work moves faster customers are cutting response times from days to hours and eliminating slow meeting driven processes altogether delivering immediate measurable productivity gains that compound over time.

Justin: Standalone agent models can only succeed when they're capable of automating entire workflows, ironically, relegating them to narrow use cases and <unk>.

Speaker Change: We are just at the beginning of a long term opportunity with AI studio our initial offering in a broader AI strategy.

Justin: Contrast, we focus on augmenting human capability at key points in the process.

Speaker Change: With AI studio, our focus has been on empowering customers and want to build their own AI powered workflows automating steps in taking on repetitive work within clearly defined and control processes.

Justin: Triaging inbound requests drafting briefs extracting unstructured data running deep research, we're crunching complex analysis, while teams keep full visibility and control.

Justin: We don't replace human expertise, we amplify it in a predictable way freeing people to focus on higher impact work.

Speaker Change: Realizing the full transformative potential of AI studio and for it to truly become a major growth driver depends significantly on broader adoption across our customer base.

Justin: The result work moves faster customers are cutting response times from days to hours and eliminating slow meeting driven processes altogether delivering immediate measurable productivity gains that compound over time.

Speaker Change: To that end to accelerate the uptake of AI and AI studio for launching several key initiatives.

Speaker Change: Last month at our work innovation summit event in Sydney, We launched the smart workflow Gallery.

Justin: We are just at the beginning of a long term opportunity with AI studio our initial offering in a broader AI strategy.

Speaker Change: Feet of Prebuilt AI powered workflows designed to help organizations scale use of AI in everyday workflows.

Justin: With AI studio, our focus has been on empowering customers and want to build their own AI powered workflows automating steps in taking on repetitive work within clearly defined and control processes.

Speaker Change: Based on best practices from a wide range of global companies. These smart workflows provide a blueprint for effective human plus AI coordination across marketing and operations.

Justin: Realizing the full transformative potential of AI studio and for it to truly become a major growth driver depends significantly on broader adoption across our customer base.

Speaker Change: Customers can choose to build from scratch with AI studio or adopt one of these prebuilt workflows to get started immediately.

Speaker Change: For instance, our creative teams to deploy a gallery workflow in minutes to have AI review, new work request evaluate briefs gather information flagged walkers and prioritize tasks elevating humans out of tedious work, while maintaining oversight.

Justin: To that end to accelerate the uptake of AI and AI studio for launching several key initiatives.

Justin: Last month at our work innovation summit event in Sydney, We launched the smart workflow Gallery.

Justin: Feet of Prebuilt AI powered workflows designed to help organizations scale use of AI in everyday workflows.

Speaker Change: Our smart workflow galleries now live with several key workflow templates for ITE marketing and operations available today.

Justin: Based on best practices from a wide range of global companies. These smart workflows provide a blueprint for effective human plus AI coordination across marketing and operations.

Speaker Change: And we'll be rolling out many more over the coming months.

Speaker Change: We're also introducing AI studio plus a new mid tier package launching this month through sales and partner channels and later this summer for self serve customers.

Justin: Customers can choose to build from scratch with AI studio or adopt one of these prebuilt workflows to get started with AI immediately.

Speaker Change: This strategic addition creates a three tier structure.

Justin: For instance, accretive team to deploy a gallery workflow in minutes to have AI review, new work requests evaluate briefs gather information flak walkers and prioritize tasks elevating humans out of tedious work, while maintaining oversight.

Speaker Change: Sick plus and pro.

Speaker Change: Each tier offers distinct value.

Speaker Change: Basic which as of this month will be available as part of all of US on a paid tiers provides AI studio credits with monthly usage caps.

Speaker Change: Plus gives customers the flexibility to self serve and scale up their usage over time.

Justin: Our smart workflow Gallery is now live with several key workflow templates for marketing and operations available today.

Speaker Change: While pro delivers generous quarterly credit allowances and enterprise grade controls.

Justin: We will be rolling out many more over the coming months.

Speaker Change: This tiered approach ensures customers can select the right level with AI capabilities for their specific needs.

Justin: We're also introducing AI studio plus a new mid tier package launching this month through sales and partner channels and later this summer for self serve customers.

Speaker Change: Our strategy here extends beyond simply broadening access to AI studio.

Justin: This strategic addition creates a three tier structure.

Speaker Change: By complementing it with new offerings like foundational service plans and upcoming product add ons such as resource management in Q3, we are systematically enhancing how we deliver value.

Justin: <unk> plus and <unk>.

Justin: Each tier offers distinct value.

Justin: Basic which as of this month will be available as part of all of US on a paid tiers provides AI studio credits with monthly usage caps.

Speaker Change: This approach is designed to improve price value alignment for our customers, which we expect will in turn strengthened net dollar retention.

Justin: Plus gives customers the flexibility to self serve and scale up their usage over time.

Speaker Change: This is consistent with the value based pricing strategy, we've discussed and we see this combination is a powerful engine for significant long term expansion.

Justin: While pro delivers generous quarterly credit allowances and enterprise grade controls.

Speaker Change: Looking to <unk> will be introducing new goal oriented egencia collaborators AI teammates rounding out the full spectrum of AI capabilities inside of China.

Justin: This tiered approach ensures customers can select the right level of AI capabilities for their specific needs.

Justin: Our strategy here extends beyond simply broadening access to AI studio.

Speaker Change: At the foundation of AI studio is our AI powered workflow automation engine.

Justin: By complementing it with new offerings like foundational service plans and upcoming product add ons such as resource management in Q3, we are systematically enhancing how we deliver value.

Speaker Change: Bill to automate the repeatable workflows across your business.

Speaker Change: The smart workflow gallery packages. These best practice automation into prebuilt AI workflows any team can deploy in minutes.

Justin: This approach is designed to improve price value alignment for our customers, which we expect will in turn strengthened net dollar retention.

Speaker Change: AI teammates and on top is more flexible agents.

Speaker Change: They keep multi step work moving with minimal guidance leveraging prior context are warcraft and fine grained permissions.

Justin: This is consistent with the value based pricing strategy, we've discussed and we see this combination is a powerful engine for significant long term expansion.

Speaker Change: For instance, our product lead can assign an AI teammate to implement the feature.

Justin: Looking to <unk>, we will be introducing new goal oriented agentic collaborators.

Speaker Change: Code using the Quad code API.

Justin: Rounding out the full spectrum of AI capabilities inside of China.

Speaker Change: Initiate and participate in review and approval workflows generate and apply fixes in response to feedback merge the update and ask another dedicated AI teammate to get started on customer support material.

Justin: At the foundation of AI studio is our AI powered workflow automation engine.

Justin: To automate the repeatable workflows across your business.

Justin: The smart workflow gallery packages. These best practice automation into prebuilt AI workflows any team can deploy in minutes.

Speaker Change: All while posting lifestyle us updates and Hassan I'm showing its progress.

Speaker Change: By evolving these capabilities into a persistent co worker, we deepen human AI coordination and unlock usage based revenue streams beyond seat licenses further strengthening our leadership in AI powered work management.

Justin: AI teammates sit on top is more flexible agents.

Justin: They keep multi step work moving with minimal guidance leveraging prior context are warcraft and fine grained permissions.

Speaker Change: We're fundamentally repositioning us on them as the platform for human and AI coordination and marketing a powerful new chapter in our company narrative.

Justin: For instance, our product lead can assign a 19 eight to implement to feature it can.

Justin: Code using the cloud code API.

Speaker Change: AI becomes integral to how work gets done the need for a system that coordinates work between people and AI at scale is paramount.

Justin: Initiate and participate in review and approval workflows generate and apply fixes in response to feedback merge the update and ask another dedicated AI teammate to get started on customer support material.

Speaker Change: This is more than just a technological shift it's a redefinition of teamwork itself.

Justin: All while posting lifestyle us updates in Assam showing its progress.

Speaker Change: We believe <unk> is uniquely equipped to lead the charge.

Speaker Change: Aircraft out of model provides the central structured context, the map of an organization's work goals and processes that AI needs to be truly effective in a collaborative environment.

Justin: By evolving these capabilities into a persistent co worker, we deepen human AI coordination and unlock usage based revenue streams beyond seat licenses further strengthening our leadership in AI powered work management.

Speaker Change: This combined with our deep expertise in fostering human coordination allows us to build AI solutions that don't just automate tasks enhanced clarity alignment and accountability across entire organizations.

Justin: We're fundamentally repositioning us on them as the platform for human and AI coordination marketing a powerful new chapter in our company narrative.

Speaker Change: This is the generational opportunity we're seizing.

Justin: AI becomes integral to how work gets done the need for a system that coordinates work between people and AI at scale is paramount.

Speaker Change: Defining the future of how humans and AI achieve great things together.

Speaker Change: As we look to the future in regards to the CEO search we're seeing strong interest in considering candidates carefully.

Justin: This is more than just a technological shift it's a redefinition of teamwork itself.

Justin: We believe <unk> is uniquely equipped to lead the charge.

Speaker Change: We'll be patient to find the absolute right leader to guide us through this next phase of growth.

Justin: Aircraft out of model provides the central structured context, the map of an organization's work goals and processes that AI needs to be truly effective in a collaborative environment.

Speaker Change: I'm fully committed to driving our strategy as CEO until my successor is in place.

Speaker Change: And I'm incredibly excited to partner with our future CEO on our product and AI strategy as we work together to establish this honor as the leader in this generational opportunity.

Justin: This combined with our deep expertise in fostering human coordination allows us to build AI solutions that don't just automate tasks and enhanced clarity alignment and accountability across entire organizations.

Speaker Change: Our key priorities for fiscal year 'twenty six are centered on setting a sign up for long term profitable growth.

Justin: This is the generational opportunity we're seizing to.

Speaker Change: These include driving customer health accelerating customer acquisition, and delivering an increasingly customer value through product innovation, particularly with AI.

Justin: To define the future of how humans and AI achieve great things together.

Justin: As we look to the future in regards to the CEO search we're seeing strong interest in considering candidates carefully we will be patient to find the absolute right leader to guide us through this next phase of growth.

Speaker Change: With that context, let me turn it over to Ann to discuss our go to market momentum he initiatives and customer wins.

Ann: Thanks, Stephan the strategic investments, we've made along with the reallocation of resources towards higher leverage areas are driving incremental impact we continue to make progress in scaling our enterprise motion.

Justin: I'm fully committed to driving our strategy as CEO until my successor is in place.

Justin: And I'm incredibly excited to partner with our future CEO on our product and AI strategy as we work together to establish us as the leader in this generational opportunity.

Speaker Change: Number of customer net adds from the 100, K plus cohorts grew 20% year over year famous last quarter.

Justin: Our key priorities for fiscal year 'twenty six are centered on setting us up for long term profitable growth.

Speaker Change: Our strategic multi year renewal with one of the largest employers in the world is a testament to our differentiation in the enterprise as the collaborative work management platform best positioned to work at global Enterprise scale.

Justin: These include driving customer health accelerating customer acquisition, and delivering increasingly customer value through product innovation, particularly with AI.

Justin: With that context, let me turn it over to Ann to discuss our go to market momentum key initiatives and customer wins.

Speaker Change: With hundreds of thousands of active users teams are driving material impact across functions, which has translated into significant labor cost savings by eliminating manual work and.

Ann: Thanks, Dustin the strategic investments, we've made along with the reallocation of resources towards higher leverage areas are driving incremental impact we continue to make progress in scaling our enterprise motion.

Speaker Change: A meaningful improvement in employee productivity.

Speaker Change: Powered by aircraft <unk> workflows and data across silos, while our enterprise grade accelerates execution by automating processes and surfacing real time insights at scale.

Ann: Number of customer net adds from the 100, K plus cohorts grew 20% year over year famous last quarter.

Ann: Our strategic multi year renewal with one of the largest employers in the world is a testament to our differentiation in the enterprise as the collaborative work management platform best positioned to work at global Enterprise scale.

Speaker Change: International markets remain a key strength for our business driven by growing global demand for our platform, especially in EMEA and Japan as organizations worldwide recognized the value of a sona and improving coordination and driving productivity our international revenue grew 11% year over year.

Ann: With hundreds of thousands of active users teams are driving material impact across functions, which has translated into significant labor cost savings by eliminating manual work and.

Speaker Change: To date, we haven't seen a material change in the demand environment and any of our segments or regions as compared to the last several quarters.

Ann: And meaningful improvement in employee productivity.

Ann: Powered by aircraft Masonic Nx gold workflows and data across silos, while our enterprise grade accelerates execution by automating processes and surfacing real time insights at scale.

Speaker Change: However, we are beginning to see some increase to buyer scrutiny and elongation and decisions related to broader consolidation where software stack transformation efforts.

Ann: International markets remain a key strength for our business driven by growing global demand for our platform, especially in EMEA and Japan as organizations worldwide recognize the value of Osaka, and improving coordination and driving productivity our international revenue grew 11% year over year.

Speaker Change: That said the pipeline remains healthy we're seeing strong demand generated across our diverse pipeline generation channels, where initial investments, including our optimization of paid media are driving greater leverage.

Speaker Change: Let me discuss the progress on our three strategic growth priorities customer acquisition customer health and customer value.

Ann: To date, we haven't seen a material change in the demand environment and any of our segments or regions as compared to the last several quarters.

Speaker Change: First customer acquisition, new business remains strong and our investment in vertically focused go to market teams and driving adoption of vertical specific product use cases is a resulting in strong growth in our non tech verticals, which grew once again in the mid teens accounting for over 70% of our business.

Ann: However, we are beginning to see some increased buyer scrutiny and elongation and decisions related to broader consolidation where software stack transformation efforts.

Ann: That said the pipeline remains healthy we're seeing strong demand generated across our diverse pipeline generation channels, where initial investments, including our optimization of paid media are driving greater leverage.

Speaker Change: We're seeing particular strength in financial services manufacturing and media and entertainment are.

Speaker Change: A few customer examples in our strategic verticals I'm going to highlight our casino, which is a diversified real estate company specializing in multifamily residential communities across the United States.

Ann: Let me discuss the progress on our three strategic growth priorities customer acquisition customer health and customer value.

Ann: First customer acquisition, new business remains strong and our investment in vertically focused go to market teams and driving adoption of vertical specific product use cases, as a resulting in strong growth in our non tech verticals, which grew once again in the mid teens accounting for over 70% of our business.

Speaker Change: They expanded their use of us on it in a three year deal.

Speaker Change: As onno will enable their nationally dispersed workforce to more efficiently manage projects and streamline workflows for our property set up maximize throughput and reduce time to market.

Speaker Change: Additionally, they have invested in a studio to optimize brick and automate various menial tasks further enhancing operational efficiency.

Ann: We're seeing particular strength in financial services manufacturing and media and entertainment are.

Speaker Change: We had a great expansion deal in financial services, one of the largest credit unions in the world deepen their assign a partnership and a three year expansion deal.

Ann: A few customer examples in our strategic verticals I want to highlight our <unk>, which is a diversified real estate company specializing in multifamily residential communities across the United States.

Speaker Change: The organization is using us on it in their core workflows across the real estate lending and contact center operations.

Ann: They expanded their use of <unk> in a three year deal.

Ann: As onno will enable their nationally dispersed workforce to more efficiently manage projects and streamline workflows for property setup maximize throughput and reduce time to market addition.

Speaker Change: Most importantly, after careful evaluation the procurement team classified as essential software that provides unique value for it Scott.

Speaker Change: Our competitive analysis and ROI assessment showed that effectively addresses their specific needs that no. Other solution can match, making us worth maintaining and their software portfolio.

Ann: Additionally, they have invested in ask Judy to optimize and automate various menial tasks.

Ann: Enhancing operational efficiency.

Ann: We had a great expansion deal in financial services, one of the largest credit unions in the world deepened, Arizona partnership and a three year expansion deal.

Speaker Change: While tech continues to drag on our overall growth we saw another quarter of stabilization of <unk> in this vertical and strong demand for our studio from technology customers.

Ann: The organization is using us on it in their core workflows across the real estate lending and contact center operations.

Speaker Change: Expanding our presence with the channel is a key growth in NII expansion driver since the relaunch of our partner program in March we were making great progress with the channel deals with partners attached have exceeded our expectations and grew double digits year over year.

Ann: Most importantly, after careful evaluation the procurement team classified as essential software that provides unique value for its cost theyre competitive analysis and ROI assessment showed that Astana effectively addresses their specific needs that no. Other solution can match, making us worth maintaining in their software.

Speaker Change: Of our top five deals this quarter three were partner led.

Speaker Change: We saw especially good traction in APAC and EMEA, almost 40% of our APAC deals have partners attached and we're seeing great digital transformation deals brought forth by our partners.

Ann: Yeah.

Ann: While tech continues to drag on our overall growth we saw another quarter of stabilization of <unk> in this vertical and strong demand for <unk> from technology customers.

Speaker Change: Partners are critical to our growth and scaling of AI studio and they also see it as a meaningful growth opportunity.

Ann: Expanding our presence with the channel as a key growth in NII expansion driver.

Speaker Change: We already have certified partners selling and supporting our studio.

Ann: Since the relaunch of our partner program in March we're making great progress with the channel deals with partners attached have exceeded our expectations and grew double digits year over year.

Speaker Change: Moving to customer health, we've put renewed focus on addressing churn and downgrades, particularly with small monthly customers, which represent a disproportionate share of overall churn.

Ann: Our top five deals this quarter three were partner led.

Speaker Change: We have a new chief customer officer in place to lead our retention efforts across segments, bringing greater executive focus and accountability to customer retention.

Ann: We saw especially good traction in APAC and EMEA, almost 40% of our APAC deals have partners attached and we're seeing great digital transformation deals brought forth by our partners.

Speaker Change: We are enhancing early lifecycle engagement with targeted onboarding to accelerate early engagement and tailored interventions based on churn risks.

Ann: Partners are critical to our growth and scaling of AI studio and they also see it as a meaningful growth opportunity.

Speaker Change: In the Midmarket and enterprise, we're driving earlier detection through how scoring strengthening renewal planning and aligning teams more tightly around at risk accounts, while still early these initiatives are showing encouraging traction and are central to our strategy to improve gross retention and NR or in the long term.

Ann: We already have certified partners selling and supporting our studio.

Ann: Moving to customer health, we've put renewed focus on addressing churn and downgrades, particularly with small monthly customers, which represent a disproportionate share of overall churn we.

Speaker Change: In addition, we launched foundational service plans in early Q1, as a strategic initiative to boost customer health and retention, while unlocking an additional monetization opportunity.

Ann: We have a new chief customer officer in place to lead our retention efforts across segments, bringing greater executive focus and accountability to customer retention.

Ann: We are enhancing early lifecycle engagement with targeted onboarding to accelerate early engagement and tailored interventions based on churn risks.

Speaker Change: The initiative has already proven highly successful in its first quarter exceeding expectations with strong attachment rates, especially for new business and generating over seven figures and new business revenue.

Ann: In the Midmarket and enterprise, we're driving earlier detection through how scoring strengthening renewal planning and aligning teams more tightly around at risk accounts, while still early these initiatives are showing encouraging traction and are central to our strategy to improve gross retention and NRI in the long term.

Speaker Change: We remain focused on aligning price to customer value. This is a key focus of our add on strategy in AI studio.

Speaker Change: In Q1, we exceeded our internal plan with over a million in bookings with strong traction across EMEA, a P J and our first wins in Australia and India.

Ann: In addition, we launched foundational service plans in early Q1, as a strategic initiative to boost customer health and retention, while unlocking an additional monetization opportunity.

Speaker Change: The majority of ask Judy bookings came from existing customers. While the initial success has primarily centered on new business acquisition and expansion opportunities.

Ann: The initiative has already proven highly successful in its first quarter exceeding expectations with strong attachment rates, especially for new business and generating over seven figures and new business revenue.

Speaker Change: Australia is becoming an important lever to mitigate downgrades and renewal conversations a leading HR software companies CIO initially plan to reduce seats due to budget constraints.

Ann: We remain focused on aligning price to customer value. This is a key focus of our add on strategy in AI studio.

Speaker Change: After showing the CIO the value of a studio multiple teams, including creative ops HR N. P. M O decided to adopt AI studio the customer not only maintain their existing plan, but expanded with a studio turning potential churn integral.

Ann: In Q1, we exceeded our internal plan with over $1 million in bookings with strong traction across EMEA, a P J and our first wins in Australia and India.

Ann: The majority of ask Judy bookings came from existing customers. While the initial success is primarily centered on new business acquisition and expansion opportunities as Judy is becoming an important lever to mitigate downgrades in renewal conversations a leading HR software companies CIO initially planned to reduce seats due to budget constraints.

Speaker Change: As customers begin to pair a studio with our new smart workflow gallery, they're scaling these use cases faster and with less friction opening up the potential for adoption of ice studio across our base not just those who build automation and custom workflows.

Speaker Change: With broader availability of AST year coming into Q3 via our self surplus tier and on by default provisioning, we're positioned to scale as studio even faster in the second half of fiscal year 'twenty six to both new customers and our existing customer base.

Ann: Yeah.

Ann: After showing the CIO the value of a studio multiple teams, including creative ops HR N PMO decided to adopt AI studio the customer not only maintain their existing plan, but expanded with <unk> studio turning potential churn integral.

subtly: Our team is focused on our strategic priorities and growth initiatives that are centered around the customer and believe these priorities position us well for long term growth Reacceleration and now I'll turn it over to subtly.

Ann: As customers begin to pair a studio with our new smart workflow gallery, they're scaling these use cases faster and with less friction opening up the potential for adoption of AI studio across our base not just those who build automation and custom workflows.

subtly: Thanks, and let me highlight the financial results for the first quarter and then comment more on the outlook.

subtly: Q1 revenues came in at $187 3 million up 9% year over year, which exceeded the midpoint of our guidance by 1%.

Ann: With broader availability of AST year coming into Q3 via our self surplus tier and on by default provisioning, we're positioned to scale ask Judy even faster in the second half of fiscal year 'twenty six to both new customers and our existing customer base.

Speaker Change: We have 24297 core customers, our customer spending $5000 or more on an annualized basis.

Ann: Our team is focused on our strategic priorities and growth initiatives that are centered around the customer and believe these priorities position us well for long term growth Reacceleration and now I'll turn it over just on Italy.

Speaker Change: Revenues from core customers grew 10% year over year.

Speaker Change: This cohort represented 75% of our revenues in Q1.

Speaker Change: Thanks, and let me highlight the financial results for the first quarter and then comment more on the outlook.

Speaker Change: We have 728 customers spending $100000 or more on an annualized basis.

Speaker Change: Q1 revenues came in at $187 3 million up 9% year over year, which exceeded the midpoint of our guidance by 1%.

Speaker Change: This customer cohort grew at 20% year over year.

Speaker Change: As a reminder, we define these customer cohorts based on annualized GAAP revenues in a given quarter.

Speaker Change: We have 24297 core customers, our customer spending $5000 or more on an annualized basis.

Speaker Change: Our overall dollar based net retention rate was 95%.

Speaker Change: Core customer NR was 96%.

Speaker Change: Revenues from core customers grew 10% year over year.

Speaker Change: And among customers spending $100000 or more and our R was 95%.

Speaker Change: This cohort represented 75% of our revenues in Q1.

Speaker Change: As a reminder, our NR or is a trailing four quarter average and therefore, a lagging indicator of more recent trends.

Speaker Change: We have 728 customers spending $100000 or more on an annualized basis and this customer cohort grew at 20% year over year.

Speaker Change: Our in quarter and IRR was stable and we saw improvement in logo churn across all cohorts.

Speaker Change: As a reminder, we define these customer cohorts based on annualized GAAP revenues in a given quarter.

Speaker Change: However, while our in quarter NR was stable for the third consecutive quarter, we expect net retention in Q2 to be pressured.

Speaker Change: Our overall dollar based net retention rate was 95%.

Speaker Change: This is due to a combination of continued downgrade pressure, particularly in our enterprise and middle market segments and the technology vertical.

Speaker Change: Core customer NR was 96%.

Speaker Change: And among customers spending $100000 or more and RR was 95%.

Speaker Change: Well, our 100 million plus renewal, which we highlighted in our earnings today materially increases our remaining performance obligations, providing greater visibility into fiscal year 'twenty seven in fiscal year 'twenty eight.

Speaker Change: As a reminder, our NR is a trailing four quarter average and therefore, a lagging indicator of more recent trends.

Speaker Change: Our in quarter NRI was stable and we saw improvement in logo churn across all cohorts.

Speaker Change: It represents a modest a C V downgrade as compared to our prior contract.

Speaker Change: However, while our in quarter NR was stable for the third consecutive quarter.

Speaker Change: This will negatively weigh on our Q2 in Iraq.

Speaker Change: We expect net retention in Q2 to be pressured.

Speaker Change: Especially in our 100000 dollar cohort.

Speaker Change: As well as impacting the stability, we have experienced over the past couple of quarters and our tech vertical.

Speaker Change: This is due to a combination of continued downgrade pressure, particularly in our enterprise and middle market segments and the technology vertical.

Speaker Change: We are confident in long term and our improvement given the investments we've made in our customer success teams.

Speaker Change: While our 100 million plus renewal, which we highlighted in our earnings today materially increases our remaining performance obligations, providing greater visibility into fiscal year 'twenty seven in fiscal year 2008.

Speaker Change: Our studio and add on strategy or what.

Speaker Change: Work to better align price to value and focus on improving customer health.

Speaker Change: However, in the near term and our will remain a headwind, which resulted in strong new business momentum and scaling contribution from add ons and the channel be.

Speaker Change: It represents a modest ACB downgrade as compared to our prior contract.

Speaker Change: This will negatively weigh on our Q2 in our especially in our $100000 cohort.

Speaker Change: Less prominently reflected in our overall revenue growth.

Speaker Change: Now moving to profitability, where I will be discussing our non-GAAP results.

Speaker Change: As well as impacting the stability, we have experienced over the past couple of quarters and our tech vertical.

Speaker Change: We continue to be extremely focused on driving efficiency and productivity throughout our business maximizing the operating leverage we enjoy from our strong gross margin, which held steady at approximately 19%.

Speaker Change: We are confident in long term NR improvement given the investments we've made in our customer success teams AI studio in add on strategy.

Speaker Change: Our work to better align price to value and focus on improving customer health.

Speaker Change: We expect to maintain these levels of gross margin in fiscal year 'twenty six while expanding sequential operating margin as we continue to scale.

Speaker Change: However, in the near term and there are and will remain a headwind which results in strong new business momentum and scaling contribution from add ons and the channel.

Speaker Change: R&D expenses were $48 9 million or 26% of revenue down 11% year over year.

Speaker Change: Being less prominently reflected in our overall revenue growth.

Speaker Change: Now moving to profitability, where I will be discussing our non-GAAP results.

Speaker Change: Sales and marketing expenses were $83 7 million or 45% of revenue down five 5% year over year.

Speaker Change: We continue to be extremely focused on driving efficiency and productivity throughout our business maximizing the operating leverage we enjoy from our strong gross margin, which held steady at approximately 19%.

Speaker Change: G&A expenses were $27 7 million or 15% of revenue up two 2% year over year.

Speaker Change: As a result of driving productivity and efficiency gains we had a positive operating income quarter for the first time in our company's history, delivering a 4% margin or $8 1 million of operating income, which represents an operating margin of 300 basis points above the midpoint of our guide.

Speaker Change: We expect to maintain these levels of gross margin in fiscal year 2006, while expanding sequential operating margin as we continue to scale.

Speaker Change: R&D expenses were $48 9 million or 26% of revenue down 11% year over year.

Speaker Change: Sales and marketing expenses were $83 7 million or 45% of revenue down five 5% year over year.

Speaker Change: And a more than 1300 basis point improvement year over year.

Speaker Change: Net income was $12 million or five cents a share.

Speaker Change: G&A expenses were $27 7 million or 15% of revenue up two 2% year over year.

Speaker Change: Our profitability improvement was driven by rationalizing and reallocating program spend, particularly in marketing and lead generation to meet our ROI thresholds without sacrificing pipeline and pipeline coverage.

Speaker Change: As a result of driving productivity and efficiency gains we had a positive operating income quarter for the first time in our company's history, delivering a 4% margin or $8 1 million of operating income, which represents an operating margin of 300 basis points above the midpoint of our guide.

Speaker Change: Reallocating resources to more productive go to market motions.

Speaker Change: Driving down infrastructure costs by optimizing our cloud spend.

Speaker Change: Extra sizing discipline around all discretionary spend and shifting certain hiring and Doc failing to more cost effective regions like Warsaw in reykjavik to optimize our onshore offshore mix and to better align with industry benchmarks.

Speaker Change: And a more than 1300 basis point improvement year over year.

Speaker Change: Net income was $12 million or five cents a share.

Speaker Change: Our profitability improvement was driven by rationalizing and reallocating program spend, particularly in marketing and lead generation to meet our ROI thresholds without sacrificing pipeline and pipeline coverage.

Speaker Change: Our continued focus on efficiency and productivity lays a strong foundation for continued operating leverage and multi year margin expansion.

Speaker Change: Re allocating resources to more productive go to market motions.

Speaker Change: Moving onto the balance sheet and cash flow.

Speaker Change: Cash and cash equivalence and marketable securities at the end of Q1 were approximately $478 million.

Speaker Change: Driving down infrastructure costs by optimizing our cloud spend.

Speaker Change: Extra sizing discipline around all discretionary spend and shifting certain hiring and Doc failing to more cost effective regions like Warsaw, and reykjavik to optimize our onshore offshore mix and to better align with industry benchmarks.

Speaker Change: Our deferred revenue.

Speaker Change: <unk> performance obligations or our P O and current RVO or C. R. P. O were impacted by the timing of the 100 million plus renewal, which typically is billed in Q1, but was renewed and and will be billed in Q2 going forward.

Speaker Change: Our continued focus on efficiency and productivity lays a strong foundation for continued operating leverage and multi year margin expansion.

Speaker Change: Given that significant impact we will also be providing those measures as adjusted for the large renewal.

Speaker Change: Moving onto the balance sheet and cash flow.

Speaker Change: Our our Po was $427 million up 11% from the year ago quarter and adjusted for deal impact would have been approximately $521 million up 37% year over year.

Speaker Change: Cash and cash equivalence and marketable securities at the end of Q1 were approximately $478 million.

Speaker Change: Our deferred revenue.

Speaker Change: Gaining performance obligations or RP O and current RVO or C. R. P. O were impacted by the timing of the 100 million plus renewal, which typically is billed in Q1, but was renewed and and will be billed in Q2 going forward.

Speaker Change: C. R. P O will be recognized over the next 12 months and was 83% of RPM and grew 7% from the year ago quarter.

Speaker Change: <unk> adjusted for the deal timing would have been 73% of our P O up 17% year over year.

Speaker Change: Given that significant impact we will also be providing those measures as adjusted for the large renewal.

Speaker Change: Our total ending Q1 deferred revenue was $293 million down 2% year over year and adjusted for deal timing would have been approximately $323 7 million up 9% year over year.

Speaker Change: Our our Po was $427 million up 11% from the year ago quarter and adjusted for deal impact would have been approximately $521 million up 37% year over year.

Speaker Change: Building on our operating margin strength Q1, adjusted free cash flow was $9 9 million or 5% on a margin basis, an improvement of more than 700 basis points.

Speaker Change: C. R. P O will be recognized over the next 12 months and was 83% of RPM and grew 7% from the year ago quarter.

Speaker Change: <unk> adjusted for the deal timing would have been 73% of our P O up 17% year over year.

Speaker Change: We continue to take a disciplined approach to capital allocation.

Speaker Change: Given our strong balance sheet positive free cash flow and confidence in our long term strategy. We believe share repurchases are an effective way to return value to shareholders, while offsetting dilution.

Speaker Change: Our total ending Q1 deferred revenue was $293 million down 2% year over year and.

Speaker Change: And adjusted for deal timing would have been approximately $323 7 million up 9% year over year.

Speaker Change: This quarter, we bought back $15 $6 million of our class a common stock at an average price of $15.09 or 1 million shares.

Speaker Change: Building on our operating margin strength Q1, adjusted free cash flow was $9 9 million or 5% on a margin basis, an improvement of more than 700 basis points.

Speaker Change: In May our board increased our share repurchase authorization by $100 million and removed the program's previous exploration date.

Speaker Change: We continue to take a disciplined approach to capital allocation.

Speaker Change: As of April 30th we had $56 million remaining under the prior authorization.

Speaker Change: Given our strong balance sheet positive free cash flow and confidence in our long term strategy. We believe share repurchases are an effective way to return value to shareholders, while offsetting dilution.

Speaker Change: Representing a total of $156 million available to us for repurchases moving forward.

Speaker Change: This quarter, we bought back $15 $6 million of our class a common stock at an average price of $15.09 or 1 million shares.

Speaker Change: Now moving to guidance.

Speaker Change: For Q2 fiscal 'twenty 'twenty six we expect Rev.

Speaker Change: Revenues of $192 million to $194 million, representing 7% to 8% growth year over year.

Speaker Change: In May our board increased our share repurchase authorization by $100 million and removed the program's previous exploration date.

Speaker Change: We expect non-GAAP operating income of 8 million to $10 million, representing an operating margin of 4% to 5%.

Speaker Change: As of April 30th we had $56 million remaining under the prior authorization.

Speaker Change: And we expect non-GAAP net income per share of four to five.

Speaker Change: Representing a total of $156 million available to us for repurchases moving forward.

Speaker Change: Assuming a diluted weighted average shares outstanding of approximately $243 million.

Speaker Change: Now moving to guidance.

Speaker Change: For the full year, we are updating our revenue guidance to 775 million to $790 million, representing 7% to 9% year over year growth.

Speaker Change: For Q2 fiscal 'twenty 'twenty six we expect.

Speaker Change: Revenues of $192 million to $194 million, representing 72, 8% growth year over year.

Speaker Change: This range reflects two planning scenarios.

Speaker Change: We expect non-GAAP operating income of 8 million to $10 million, representing an operating margin of 4% to 5%.

Speaker Change: The upper House assumes continued execution within a stable macro consistent with our Q4 review.

Speaker Change: And we expect non-GAAP net income per share of four cents to five cents.

Speaker Change: The lower half anticipates elongated sales cycles increased budget scrutiny at a more cautious procurement environment, particularly with tech and enterprise customers.

Speaker Change: Assuming a diluted weighted average shares outstanding of approximately $243 million.

Speaker Change: For the full year, we are updating our revenue guidance to 775 million to $790 million, representing 7% to 9% year over year growth.

Speaker Change: We continue to monitor the impact of economic uncertainty on buying and renewal activity.

Speaker Change: As Ed highlighted while we have not seen material change in the demand environment. We are observing early signs of increased buyer scrutiny and downgrade activity, particularly in our enterprise and corporate customer basis.

Speaker Change: This range reflects two planning scenarios.

Speaker Change: The upper half assumes continued execution within a stable macro consistent with our Q4 review.

Speaker Change: While these early signs alone do not change our previous outlook. We do recognize that there is a growing and macroeconomic risk and thus are reflecting this risk by expanding our guidance range.

Speaker Change: The lower half anticipates elongated sales cycles increased budget scrutiny at a more cautious procurement environment, particularly with tech and enterprise customers.

Speaker Change: We are raising our full year non-GAAP operating margin guidance to at least five 5% for the full year up from our prior guidance of at least 5% and continue to expect sequential improvement throughout the year.

Speaker Change: We continue to monitor the impact of economic uncertainty on buying and renewal activity.

Speaker Change: And highlighted while we have not seen material change in the demand environment. We are observing early signs of increased buyer scrutiny and downgrade activity, particularly in our enterprise and corporate customer basis.

Speaker Change: In addition, we expect net income per share of 22 cents, assuming diluted weighted average shares outstanding of approximately $243 million.

Speaker Change: While these early signs alone do not change our previous outlook. We do recognize that there is a growing macroeconomic risk and thus are reflecting this risk by expanding our guidance range.

Speaker Change: I want to highlight that if the macro environment were to deteriorate. We have multiple levers we can pull which we believe would allow us to preserve profitability at the level of our guide without compromising the investments we have made and are making to drive revenue growth acceleration.

Speaker Change: We are raising our full year non-GAAP operating margin guidance to at least five 5% for the full year up from our prior guidance of at least 5% and continue to expect sequential improvement throughout the year.

Speaker Change: As we shared last quarter Duston, and I remain focused on executing a long term strategy to drive long term growth acceleration, while meaningfully expanding profitability.

Speaker Change: In addition, we expect net income per share of 22 cents, assuming diluted weighted average shares outstanding of approximately $243 million.

Speaker Change: We are defining how humans and AI coordinate work at scale and we see a massive greenfield opportunity ahead of us.

Speaker Change: I want to highlight that if the macro environment were to deteriorate. We have multiple levers we can pull which we believe would allow us to preserve profitability at the level of our guide without compromising the investments we have made and are making to drive revenue growth acceleration.

Speaker Change: We believe we have the right strategy in place to capitalize on this opportunity and with that operator, we're ready for questions.

Speaker Change: Thank you as a reminder to ask a question you will need to press star one one on your telephone to remove yourself from the queue. You May press star one again.

Speaker Change: As we shared last quarter Duston and I.

Speaker Change: <unk> focused on executing a long term strategy to drive long term growth acceleration, while meaningfully expanding profitability.

Speaker Change: You will be limited to one question and one follow up to allow everyone the opportunity to participate please.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: We're defining how humans and AI coordinate work at scale and we see a massive greenfield opportunity ahead of us.

Speaker Change: My first question.

Speaker Change: Comes from the line of Matt Block.

Speaker Change: We believe we have the right strategy in place to capitalize on this opportunity and with that operator, we're ready for questions.

Speaker Change: Bank of America. Please go ahead, Matt.

Matt: Great. Thanks for taking the question I wanted to start on AI studio, great to see crossed that $1 million or AOR threshold dust and maybe if you could just help us think about the breakdown of that $1 million in IRR.

Speaker Change: Yes.

Speaker Change: Thank you as a reminder to ask a question you will need to press star one one on your telephone to remove yourself from the queue. You May press star one again.

Matt: Does that consist of which types of customers and use cases are driving strong uptake and then maybe walk us through some of the potential upside scenarios for the back half of fiscal 'twenty six.

Speaker Change: You will be limited to one question and one follow up to allow everyone the opportunity to participate please.

Speaker Change: Please standby, while we compile the Q&A roster.

Matt: Yes.

Matt: Question. So the the 1 million are are really represents a great sort of diversity and distribution of customers. We have a good number of examples from every region and across different industries and across the different different segments as well so feel really good about that and this is entirely.

Speaker Change: My first question.

Speaker Change: Comes from the line of Matt Block.

Speaker Change: Bank of America. Please go ahead, Matt.

Matt Block: Great. Thanks for taking the question I wanted to start on AI studio, great to see crossed that $1 million or AOR threshold Dustin maybe if you could just help us think about the breakdown of that 1 million an IRR.

Matt: Comprise right now of the AI studio pro platform views, so part of the upside in the future will come from potentially getting into the incremental consumption and we are still seeing great patterns over time with customers continuing to use more and more credits month after month and gain confidence in the system.

Speaker Change: Does that consist of which types of customers and use cases are driving strong uptake and then maybe walk us through some of the potential upside scenarios for the back half of fiscal 'twenty six.

Speaker Change: Yeah. Thanks, that's a great question, so the the $1 million.

Matt: As well as seeing are the newer cohorts of customers a lot of the customers have joined in the past two months, they're starting out faster and consuming more credits off the gate part of the reason for that is the launch of the smart workflow galleries are just came out a few weeks ago, but it lets you deploy both AI studio and if you're not an AI studio you can have it without AI prevail.

Speaker Change: Our really represents a great sort of diversity and distribution of customers. We have a good number of examples from every region and across different industries and across the different different segments as well.

Speaker Change: So feel really good about that and this is entirely comprised right now of the AI studio pro platform views. So part of the upside in the future will come from potentially getting into the incremental consumption and we are still seeing great patterns over time with customers continuing to use more and more credits.

Matt: Templates, and we're seeing where you do have studio turned on that is working as intended we're seeing a lot of those get installed and drive credit usage as well and then two more catalysts that I think provide upside throughout the year, we're launching the the plus SKU, which is gonna be a lower priced more affordable SKU I think later this week actually for.

Speaker Change: After month and gain confidence in the system as well as seeing the newer cohorts of customers a lot of the customers have joined in the past two months, they're starting out faster and consuming more credits off the gate.

Matt: Sales to start selling and to become self serve later in the summer Dot will open us up more to the SMB market and.

Speaker Change: Part of the reason for that is the launch of the smart workflow Gallery.

Matt: And help customers get started when they need more than what's available in basic and in less than what's needed in pro and then also AI teammates, which is a little bit of a new part of the the AI roadmap for fiscal year 'twenty six but I think it's gonna be a big factor in an age two and will help a lot more in <unk>.

Speaker Change: Just came out a few weeks ago, but it lets you deploy both AI studio and if youre not an AI studio you can have it without AI pre built templates and we're seeing where you do have studio turned on that is working as intended we're seeing a lot of those get installed and drive credit usage as well and then two more catalysts that I think provide a.

Matt: <unk> get the benefits of AI because it doesn't require building workflows are being part you know getting into the automation builder at all it really is as easy to use is working with our with normal human teammates. So we don't know how well plus and teammates will do but you know seeing all the right things from what we have in market today and you don't have a lot a lot more that will launch.

Speaker Change: Upside throughout the year, we're launching the the plus SKU, which is gonna be a lower priced more affordable SKU.

Speaker Change: I think later this week actually for sales to start selling and to become self serve later in the summer Dot will open us up more to the SMB market and.

Speaker Change: And help customers get started when they need more than what's available in basic and in less than what's needed in pro.

Matt: Off the air.

Speaker Change: Super helpful. Thanks, and just a quick follow up just on Italy, if I could I wanted to ask about the 100 million contract renewal I believe you mentioned that was in the tech vertical but are there any other details you can share about that renewal process, maybe help us think about the change in quantifying the change in ACB there.

Speaker Change: And then also AI teammates, which is a little bit of a new part of the AI roadmap of fiscal year 'twenty six but I think it's gonna be a big factor in <unk> and will help a lot more end users get the benefits of AI because it doesn't require building workflows are being you know getting into the automation builder at all it.

Matt: Then is there anything you can share on how much AI studio is embedded in that renewal.

Speaker Change: It really is as easy to use is working with our with normal human teammates. So we don't know how well plus and teammates will do but you know seeing all the right things from what we have in market today and you don't.

Matt: Sure absolutely so you're you're right. It was in our tech vertical that renewal.

Matt: And I just want to highlight again it was the largest deal in <unk> history. So 100 million T. C V over three years, the renewal slipped out of Q1 and into early Q2, which is why I shared them pro forma balance sheet metrics around our P. O N C. R. P O.

Speaker Change: A lot a lot more that will launch throughout the year.

Speaker Change: Super helpful. Thanks, and just a quick follow up just on Italy, if I could I wanted to ask about the 100 million contract renewal I believe you mentioned that was in the tech vertical but are there any other details you can share about that renewal process, maybe help us think about the change in quantifying the change in ACB there and.

Matt: And whilst it was the significant expansion in T. C V versus the previous contract there was actually a modest downgrade on an ACB basis.

Speaker Change: Then is there anything you can share on how much AI studio is embedded in that renewal.

Matt: So that will actually impact and you heard me called this out in the prepared remarks that will impact our overall net retention and particularly from Q2 and as we look across the rest of the year and as you correctly assumed yes. It will weigh on the tech vertical which up to now and over the past couple of <unk>.

Speaker Change: Sure absolutely so you're you're right. It was in our tech vertical that renewal.

Speaker Change: I just want to highlight again it was the largest deal and Hassan is history. So 100 million T. C V over three years, the renewal slipped out of Q1 and into early Q2, which is why I shared pro forma balance sheet metrics around our P. O N E. R. P O.

Matt: Orders had been showing signs of stability.

Matt: So you know with this multiyear deal we feel like it was a trade off we were willing to make in terms of the slight ACB downgrade because we now have much greater visibility into fiscal year 'twenty seven and 28, given this significant increase in RP O that that actually drives.

Speaker Change: And whilst it was the significant expansion in T. C V versus the previous contract there was actually a modest downgrade on an H C V basis.

Speaker Change: So that will actually impact and you heard me called this out in the prepared remarks that will impact our overall net retention and particularly from Q2 and as we look across the rest of the year.

Matt: In terms of the contribution to AI studios, specifically from that renewal.

Matt: There's nothing factored in.

Matt: In the guide right now that is potential upside.

Speaker Change: And as you correctly assumed yes, it will weigh on the tech vertical which up to now and over the past couple of quarters had been showing signs of stability.

Matt: But I think it's worth me just handing over to and just to talk a little bit more about that renewal and and the landmark deal and why they chose to work with this honor.

Speaker Change: So you know with this multiyear deal we feel like it was a trade off we were willing to make in terms of the slight ACB downgrade because we now have much greater visibility into fiscal year 'twenty seven and 28, given the significant increase in RP O that that actually drives them in terms of the contribution to AI Studios specifically.

Matt: I think suddenly I'm now happy to add more there what we're really excited about is a long term commitment from this leading global enterprise customer it really allows us to deepen our strategic partnership with them and continuing to innovate with this very exceptional company and some things that I'm, particularly excited about.

Speaker Change: From that renewal.

Speaker Change: There's nothing factored in.

Matt: You know they ran a really rigorous process to choose us and have now a long term commitment I think the other thing that we're really excited about is they use cases across this organization can serve as inspiration for other enterprise customers. It also shows off or.

Speaker Change: In the guide right now that is a potential upside.

Speaker Change: But I think it's worth me just handing over to and just to talk a little bit more about that renewal and the landmark deal and why they chose to work with us on a yeah.

Speaker Change: I think suddenly I'm now happy to add more there what we're really excited about is the long term commitment from this leading global enterprise customer it really allows us to deepen our strategic partnership with them and continuing to innovate with this very exceptional company and some things that I'm, particularly excited.

Matt: Our.

Matt: Our strength and scalability security, our vision and compliance at the highest levels. Some of the really diverse business critical use cases across their business units and functions that we're very excited about and continue to expand so everything from the changed management and global logistics managing complex.

Speaker Change: You know they ran a really rigorous process to choose us and have now a long term commitment I think the other thing that we're really excited about is they use cases across the organization.

Matt: Brett flows for new product and new device launches.

Matt: Developing operational benchmarks for process improvement and managing client workflows for their large global accounts team and then altogether. They are also doing cross functional goal setting reporting project and portfolio status update management across several hundred thousand employees. So it's it's exciting to continue.

Speaker Change: Can serve as inspiration for other enterprise customers. It also shows off our.

Speaker Change: Our strength and scalability security, our vision and compliance at the highest level some of the really diverse business critical use cases across their business units and functions that we're very excited about it and continue to expand so everything from the change management and global logistics managing complex.

Matt: To build this relationship and now as Sallie said have visibility over the next three years on our ability to deliver value, but then also deliver upside.

Speaker Change: Brett flows for new product and new device launches to developing operational benchmarks for process improvement and managing client workflows for their large global accounts team and then altogether. They are also doing cross functional goal setting reporting project and portfolio status update management across.

Speaker Change: Thank you. Our next question comes from the line of Alan Borkowski of Scotiabank. Please go ahead Alan.

Alan Borkowski: Hey, thanks, so much for taking the question.

Alan Borkowski: I want to ask another question on AI studio, but more from an ROI perspective, industrial it's exciting that youre seeing instances of AI studio air are exceeding.

Speaker Change: Several hundred thousand employees. So it's it's exciting to continue to build this relationship and now suddenly said have visibility over the next three years on our ability to deliver value, but then also deliver upside.

Alan Borkowski: At the same time there are many.

Alan Borkowski: SaaS companies are selling which I would imagine it makes it a bit harder for customers to see the rois to justify why to pay more for a studio what are your top learnings.

Speaker Change: Thank you.

Alan Borkowski: Thus far in selling it and update us on your confidence to have a whales that you mentioned last quarter on AI studio that are spending six or seven figures on it by the end of the year.

Speaker Change: Question comes from the line of Alan Borkowski of Scotiabank. Please go ahead Alan.

Speaker Change: Hey, Thanks, so much for taking the question I want to ask another question on AI studio, but more from an ROI perspective, industrial that's exciting that youre seeing instances of AI studio air are exceeding.

Alan Borkowski: Yeah. So there's nothing I'll I'll try and unpack those questions I may need a little bit of clarification can you say more about the agents were competing with why why do you think they are paying more with this honor.

Speaker Change: At the same time there are many.

Alan Borkowski: Or maybe I'll, just I'll I'll get in for Jonathan.

Speaker Change: SaaS companies are selling which I would imagine it makes it a bit harder for customers to see the rois to justify why to pay more for a studio what are your top learnings.

Alan Borkowski: Sounds like a lot of software companies are trying to monetize AI agents, which I can imagine makes it a little harder for customers to see through that.

Speaker Change: Thus far in selling it.

Speaker Change: Update us on your confidence to have a whales that you mentioned last quarter on AI studio that are spending six or seven figures on it by the end of the year.

Alan Borkowski: To see through that yeah, I mean, I think that the the distinction with us on a is that they're more successful deploying. These so I'm you know I think what you get when you have standalone agents in another system is partially you need a lot of behavior change, but the bigger issue that I've seen in practice is that you need them.

Speaker Change: Yeah. So there's nothing I'll I'll try and unpack those questions I may need a little bit of clarification can you say more about the agents were competing with why why do you think they're paying more with Astana.

Alan Borkowski: To be able to take on a an entire workflow and we're kind of replace.

Speaker Change: Or maybe I'll, just I'll get in for Jonathan.

Matt: Kind of replace an entire person and because of that you're you're not as successful as often.

Speaker Change: Sounds like a lot of software companies are trying to monetize AI agents, which I can imagine makes it a little harder for customers to see through that.

Matt: And so customers are turning to us on out because they see that they can they can take on part of a workflow that can be done by AI and sort of hand back and forth with a human or multiple humans that are on the team and that lets them be successful in a lot more areas and as a consequence across more use cases, so a lot of the agents that that other vendors are putting out or more specialized especially.

Speaker Change: To see through that yeah, I mean, I think that the the distinction with Hassan.

Speaker Change: They're more successful deploying these so I'm you know I think what you get when you have standalone agents in another system is partially you need a lot of behavior change, but the bigger issue that I've seen in practice is that you need them to be able to take on.

Matt: To support and we can do versions of that but the types of examples that we're giving with with request and take and campaign management and developing our assets that diversity of use cases works much more on a on a platform like us on.

Speaker Change: An entire workflow and we're kind of replace.

Speaker Change: Kind of replace an entire person and because of that you're not as successful as often and so customers are turning to us on out because they see that they can they can take on part of a workflow that can be done by AI and sort of hand back and forth with a human or multiple humans that are on the team.

Matt: That can handle all of that in terms of customers that are paying more than their seat licenses right. Now all of the customers are paying about the same for these pro packages and so that is largely a function of the fact that they don't have many seats, but some of them are still getting enough value out of pro that they are buying this larger package and it's worse, what they're paying for the seats, where I love to see is for that to happen.

Speaker Change: Lets them be successful in a lot more areas and as a consequence across more use cases, so a lot of the agents that that other vendors are putting out or more specialized especially to support and we can do versions of that but the types of examples that we're giving with with request intake and campaign management and developing.

Matt: And even bigger accounts Ah so to have studio revenue eclipsing a six or seven figure you know our existing accounts I think that will take longer. It does take time for the usage to compound, but we are seeing it build and we're getting better at assisting customers customers are getting better at solving it themselves. We're building up this library of great templates with this.

Speaker Change: Assets that diversity of use cases works much more on a on a platform like <unk> that can handle all of that in terms of customers that are paying more than their seat licenses right. Now all of the customers are paying about the same for these pro packages and so that is largely a function of the fact that they don't have many seats, but some of them are still getting enough value out of pro that they.

Matt: <unk> worked with gallery all of that will just increase at <unk>.

Matt: Increase the the scale of what we can sell to an individual customer and Ah you know I still think it's like pretty likely that we'll have some at the end of the end of the year, but you know I don't have any particular, it's not like we have one in pipelines. So I can't I can't guarantee it but I'm seeing all the right things and you know see all these additional catalysts for how we can get a lot more usage.

Speaker Change: We're buying this larger package and it's worse, what they're paying for the seats, where I love to see is for that to happen and even bigger accounts. So to have studio revenue eclipsing a six or seven figure.

Speaker Change: Existing account I think that will take longer it does take time for the usage to compound, but we are seeing it build.

Matt: Including you know teammates could could really change the game, particularly for customers that are already adopted on studio by the time, we launch them. We'll have some that have been using it for two or three quarters and teammates will let them go much further very quickly and I think that'll be a big asset.

Speaker Change: We're getting better at assisting customers customers are getting better at solving it themselves. We're building up this library of great templates with the smart workflow Gallery, all of that will just increase at <unk>.

Matt: And then finally, one when I haven't even mentioned as we're seeing the emergence of more expensive models like opus three and as we introduced those in the system. It actually gives the customers the ability to spend more credits on the same workflows, if they just want higher quality.

Speaker Change: Increase the scale of what we can sell to an individual customer and Ah you know I still think it's like pretty likely that we'll have some at the end of the end of the year, but you know I don't have any particular, it's not like we have one in pipeline. So I can't I can't guarantee it but I'm, saying all the right things and you know.

Matt: Awesome, that's really helpful and then suddenly.

Speaker Change: Follow up for you can you share how you're thinking about revenue.

Speaker Change: So you're all these additional catalysts for how we can get a lot more usage, including you know teammates could could really change the game, particularly for customers that are already adopted on studio by the time, we launch them. We'll have some that have been using it for two or three quarters and teammates will let them go much further very quickly and I think that'll be a big asset.

Speaker Change: Revenue from top customers.

Matt: Part of the updated fiscal 'twenty six guidance and also what you're estimating in terms of impacts from FX versus before.

Speaker Change: Yeah sure. So just firstly on to clarify on Q1, the impact from FX was actually very minimal.

Speaker Change: And then finally, one when I haven't even mentioned as we're seeing the emergence of more expensive models like opus three and as we introduced those in the system. It actually gives the customers the ability to spend more credits on the same workflows, if they just want higher quality.

Speaker Change: It was a couple of hundred thousand dollars, we don't really tend to call that out, especially if it's not material, but I think a couple of other people had that question. So it was it was very de Minimis in terms of how we're thinking about the tech vertical obviously, we called out this large renewal.

Speaker Change: Awesome, that's really helpful and then suddenly.

Speaker Change: My follow up for you can you share how you're thinking about revenue.

Speaker Change: Revenue from top customers.

Speaker Change: Part of the updated fiscal 'twenty six guidance and also what you're estimating in terms of impacts from FX versus before.

Speaker Change: <unk> been in the tech vertical so it will continue to have an impact on what we had been seen in in our tech vertical in terms of recovery, but the actual year over year revenue growth in our tech vertical with fairly stable this quarter as it.

Speaker Change: Yeah sure. So just firstly on to clarify on Q1, the impact from FX was actually very minimal.

Speaker Change: It was a couple of hundred thousand dollars, we don't really tend to call that out, especially if it's not material, but I think a couple of other people had that question. So it was it was very de Minimis.

Speaker Change: Been in the last couple of quarters.

Speaker Change: And we don't tend to break out tech versus non tech on a forward basis in terms of how we're guiding but what I would say is that non tech is still growing.

Speaker Change: In terms of how we're thinking about the tech vertical.

Speaker Change: <unk>, which is close to its about between 25 and 30% of our business today. It is tech and non tech is the rest that's growing in the mid teens and still healthy growth growing in the middle mid teens. So I would say expect apart from that downgrades that we've called out specifically in the renewal the rest of the tech vertical.

Speaker Change: Obviously, we called out.

Speaker Change: A large renewal them being in the tech vertical so it will continue to have an impact on what we had been seen in in our tech vertical in terms of recovery, but the actual.

Speaker Change: Year over year revenue growth in our tech vertical with fairly stable this quarter as it had been in the last couple of quarters.

Speaker Change: We would expect to be fairly stable.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Steve Enders of Citi. Your question. Please Steve.

Speaker Change: And we don't tend to break out tech versus non tech on a forward basis in terms of how we're guiding but what I would say is that non tech is still growing which as you know close to its about between 25 and 30% of our business today. It is tech and non tech is the rest that's growing in the mid teens and still healthily.

Speaker Change: Okay, great. Thanks for taking the questions here I guess I just wanted to maybe follow up on.

Speaker Change: Some of the pressure you're seeing in the macro side of it.

Speaker Change: You called out no downgrades in the enterprise and mid market and I remember I had in the past it seemed like it was primarily centered on the tech side. So I guess I just wanted to stay on as it maybe new pressure that you're seeing in those segments being impacted across other verticals or can you just maybe clarify what exactly it is that you are seeing within the enterprise.

Speaker Change: Well, it's growing in the mid teens, so I would say expect apart from that downgrades that we've called out specifically in the renewal the rest of the tech vertical we would expect to be fairly stable.

Speaker Change: Thank you.

Speaker Change: Our next question.

Speaker Change: The market right now.

Speaker Change: Comes from the line of Steve Enders of Citi. Your question. Please Steve.

Speaker Change: Hi, David and I'm happy to take that and I think what we've just started to see early it was.

Steve Enders: Okay, great. Thanks for taking the questions here I guess I just wanted to maybe follow up on some of the pressure you're seeing in the macro side of it and I think you called out downgrades in the enterprise and Midmarket.

Speaker Change: Some customer budget pressures, there's still some ongoing work force reductions and then consolidation of tools under centralized I T management, where we saw this in particular was in enterprise in the Americas region, which for US It has a disproportionate share of Tac, but.

Steve Enders: Remember I had in the past it seems like that's primarily centered on the tech side. So I guess I just wanted to stay on as this maybe new pressures that youre seeing in those segments being impacted across other verticals or can you just maybe clarify what exactly it is that you are seeing within the enterprise and mid market front right now.

Speaker Change: We're actively working to mitigate a lot of that turning contraction through all our investments in additional customer success management coverage, you know identifying at risk customers earlier and introducing our new in a more flexible pricing and then in particular I think we're.

David: Hi, David and I'm happy to take that and I think while we just started to see early it was yeah.

David: Some customer budget pressures, there's still some ongoing workforce reductions and then consolidation of tools under a centralized management, where we saw this in particular was in enterprise in the Americas region, which for US It has a disproportionate share of Tac.

Speaker Change: We feel like the mitigation is going to come on conjunction insurance is with AI studio and our foundational service plans those really do two things one with AI studio higher value business impacting workflows and adoption and then with the foundational service plans with it.

David: But we're actively working to mitigate a lot of that turning contraction through all our investments in additional customer success management coverage, you know identifying at risk customers earlier, and introducing our new more flexible pricing and then in particular.

Matt: Customers are really getting as you know ongoing onboarding support services and the ability to get value faster. So I think and you know additional products that they're buying for us so and while we're seeing some of the you know early signs I think we've got things in place to help mitigate it over the long term.

David: I think where we feel like the mitigation is going to come on contraction insurance is with AI studio and our foundational service plans those really do two things one with a studio higher value business impacting workflows and adoption and then with the foundational service plans.

Speaker Change: Okay, Great. That's helpful. And then I guess I just want to clarify on the revenue guide and.

Matt: I guess the lowered the lower end of it and I appreciate some of the commentary around kind of what's been a fan, but I did want to ask on I guess as we think about the lowered aspect of it specifically in that scenario just how scrubbed did you say that.

David: The customers are really getting as you know ongoing onboarding support services and the ability to get value faster. So I think and you know additional products that they're buying for us so and while we're seeing some of the you know early signs I think we've got things in place to help mitigate it over the long term.

Matt: That scenario is it or maybe kind of what yeah. I guess, so how much negativity has been assumed on a low end guide sure. So the low end of the guide is definitely taken.

Matt: Taking into account being much more prudent it reflects not just the trends that and called out just now.

Speaker Change: Okay, Great. That's helpful. And then I guess I just want to clarify on the revenue guide and I.

David: I guess the lowered the lower end of it and I appreciate some of the commentary around kind of what's been a fan, but I did want to ask on I guess as we think about the lowered aspect of it specifically in that scenario.

Matt: Round, what we're seeing but it actually reflects additional risk and additional macro pressure, which we have not seen yet, but we wanted to provide a guidance range that you know them at the high end is reflecting what we see today and then at the low end incorporates a where our potential.

David: How scrubbed did you say that that scenario or maybe kind of what I guess, how much negativity has been assumed on a low end guide.

Matt: Worsening given there's a there is a lot more uncertainty out there today than when I last guided which was in March.

Speaker Change: Sure. So the low end of the guide is definitely taken.

David: Taking into account being much more prudent it reflects not just the trends that and called out just now.

Matt: With our Q4 earnings so we're comfortable with the range, we provided and we feel like it's you know covers a wide range of outcomes, but certainly the low end factors in a more bearish view on net retention from where we are today and the macro worsening.

David: Round, what we're seeing but it actually reflects additional risk and additional macro pressure, which we have not seen yet, but we wanted to provide a guidance range that you know them at the high end is reflecting what we see today and then at the low end incorporates where a potential.

Matt: Hopefully that's clear.

Matt: Thank you.

Speaker Change: Next question comes from the line of Josh Baer from Morgan Stanley. Please go ahead Josh.

David: First name given there's a there is a lot more uncertainty out there today than when I last guided which was in March.

Speaker Change: Great. Thank you for the question if we do make the adjustment on the deferred and pull that into Q1 billings growth was around 5%, which was below the history here. So just wanted to see how Q1 bill.

David: With our Q4 earnings so we're comfortable with the range, we provided and we feel like it's you know covers a wide range of outcomes, but certainly the low end factors in a more bearish view on net retention from where we are today and the macro worsening.

Speaker Change: Billings really perform versus your internal plan.

Speaker Change: And then the follow up would be just anything to call out as we navigate billings for the rest of the year as far as seasonality or with regard to other renewals or dynamics over the next several quarters.

David: Hopefully that's clear.

David: Thank you.

Speaker Change: Our next question comes from the line of Josh Baer of Morgan Stanley.

Speaker Change: Yeah. So you get an a plus on your math pro forma that's exactly what it was so it was about 5% in Q1, and Q1 is seasonally lower for us than billings growth typically and you'll even see that in the trends last year and that's because of the timing of our multi year deal renewal.

Speaker Change: Go ahead Josh.

Josh Baer: Great. Thank you for the question if we do make the adjustment on the deferred and pull that into Q1 billings growth was around 5%, which was below the history here. So just wanted to see how Q1.

Speaker Change: Billings really perform versus your internal plan.

Speaker Change: <unk>.

Speaker Change: And they tend to accelerate into the second half of the year.

Speaker Change: And then the follow up would be just anything to call out as we navigate billings for the rest of the year as far as seasonality or with regard to other renewals or dynamics over the next several quarters.

Speaker Change: And given the downgrade pressure that we're seeing in that and called out an enterprise, which tend to be annual or multi year deals and upfront billing that ways our billings naturally.

David: Yeah. So you get an a plus on your math pro forma that's exactly what it was so it was about 5% in Q1, and Q1 is seasonally lower for us than billings growth typically and you'll even see that in the trends last year.

Speaker Change: But what I would say is on the other side on the flip side, we're continuing to see strength in our MSP business, which is offsetting some of that pressure.

Speaker Change:

Speaker Change: And if you think about full year billings it should be in line with our guided revenue growth range.

David: And that's because of the timing of our multi year deal renewals.

Speaker Change: Okay, Great that's helpful and I'm just wondering.

David: And they tend to accelerate into the second half of the year.

Speaker Change: You mentioned certainly you mentioned a trade off with regard to the large deal is that in thinking about volume discounting in return for the longer duration on that contract.

David: And given the downgrade pressure that we're seeing in that and called out an enterprise, which tend to be annual or multi year deals and upfront billing that ways, our billings naturally but.

Speaker Change: Yeah, So I talked about a modest a C V downgrade them so what we do.

David: But what I would say is on the other side on the flip side, we're continuing to see strength in our MSP business, which is offsetting some of that pressure.

Speaker Change: Yet from them annually, but we felt like that was definitely worth the trade off given and talked about the strategic importance of this deal and the other thing is we're in there now or in there for the next three years and there's you know someone earlier asked a really great question about is AI studio in in that deal no. It is not today are F. S piece of that deal are not today.

David:

David: And if you think about full year billings it should be in line with our guided revenue growth range.

Speaker Change: Okay, Great that's helpful and I'm just wondering.

Speaker Change: You mentioned certainly you mentioned a trade off with regard to the large deal is that in like thinking about volume discounting in return for the longer duration on that contract.

Speaker Change: These are all potential areas of upside and you know again, we we would we would do that kind of deal again. So yes. It was definitely worth the trade off and you know, it's a long term commitment and we love the visibility it provides for fiscal 'twenty, seven and 28, and we think its a real validation of our leadership position in this category.

David: Yeah, So I talked about a modest a C V downgrade them so what we.

David: Get from them annually, but we felt like that was definitely worth the trade off given and talked about the strategic importance of this deal and the other thing is we're in there now or in there for the next three years and there's you know someone earlier asked a really great question about is AI studio in in that deal no. It is not today, our FSP isn't that deal are not today.

Speaker Change: And our ability to scale you know they wanted to work with us.

Speaker Change: Yeah, I'll just add on since it sounds I said, the magic word where we're really excited to announce that today. We were named as one of the just two years in the Forrester Q1 collaborative work management with so I think that Ah that only reinforces that we have a special position in enterprise here.

David: So these are all potential areas of upside.

David: And you know again, we we would we would do that kind of deal again.

Speaker Change: Thank you. Our next question comes from the line of Taylor Mcginnis of UBS. Please go ahead Taylor.

David: So yes, it was definitely worth the trade off and a you know it's a long term commitment and we love the visibility it provides for fiscal 'twenty, seven and 28, and we think its a real validation of our leadership position in this category and our ability to scale you know they wanted to work with us.

Speaker Change: Yeah, Hi, thanks, so much for taking my question I just wanted to press on and there are so it sounds like in period and there are in <unk>.

Speaker Change: Yeah, I'll just add on since it sounds you said the magic word where we're really excited to announce that today. We were named as one of the just two years in the Forrester Q1 collaborative work management with so I think that that only reinforces that we have a special position in enterprise here.

Speaker Change: Got it to come down both from the 100 million renewal coming in on the E. C. V side, and then also an uptick in potential downgrade activity given some of what we're seeing in the macro so sounds like can you just unpack a unpack that a little bit more for us like when you think too when you think through those two potential impacts like any way to help us.

Speaker Change: Thank you. Our next question comes from the line of Taylor Mcginnis of UBS. Please go ahead Taylor.

Speaker Change: Quantify and think about what the trajectory of NR could look like from here.

Speaker Change: Yeah. So no problem Taylor so in quarter end or for this quarter was actually stable and the rolling four quarter, which as you know is an average of the trailing last four quarters that actually went down in this current quarter and that was really due to the composition of the cohorts. So Q1 of fiscal 'twenty.

Taylor McGinnis: Yeah, Hi, thanks, so much for taking my question I just wanted to press on and there are so it sounds like in period end or are in <unk>.

Speaker Change: Expect it to come down both from the 100 million renewal coming in on the E. T V side, and then also an uptick in potential downgrade activity given some of what we're seeing in the macro so sounded like can you just unpack a unpack that a little bit more for us like when you think too when you think through those two potential impacts like any way to help us.

Speaker Change: I've actually had a relatively higher MLR, so as that quarter dropped out of the calculation. The average decline, but as we look forward and I think that's what you're more interested in yes. This renewal with this large enterprise tech customer will factor into or will weigh down on our.

Speaker Change: Quantify and think about what the trajectory of NR could look like from here.

Speaker Change: Yeah. So no problem Taylor so in quarter end or for this quarter was actually stable and the rolling four quarter, which as you know is an average of the trailing last four quarters that actually went down in this current quarter and that was really due to the composition of the cohorts. So Q1 of fiscal 'twenty.

Speaker Change: Net retention from Q2 and for the rest of the year.

Speaker Change: And the only thing I would say there is that.

Speaker Change: If you look at our or in quarter $100000, plus cohort of customers that actually improved this quarter and in quarter, which is really encouraging and the other thing I would say is that.

Speaker Change: <unk> actually had a relatively higher and are are so as that quarter dropped out of the calculation and the average decline, but as we look forward and I think that's what you're more interested in yes. This renewal with this large enterprise tech customer will factor into or will weigh down on our.

Speaker Change: You know that what we're seeing from the logo side of things, we're actually seeing decreased logo churn. So customers are choosing to stay with us even if they downgrade seats and I think that you know what.

Speaker Change: But what makes us feel really good about that is that those are upsells in future quarters.

Speaker Change: Net retention from Q2 and for the rest of the year.

Speaker Change: So I think when we think about our NR or as we go forward Q2 to Q4 is likely to be pressured because of this deal that we've called out and also because of the enterprise trends that and called out but some of the things we're doing on AI studio, our multi product approach some of the <unk>.

Speaker Change: And the only thing I would say there is that.

Speaker Change: If you look at our or in quarter $100000, plus cohort of customers that actually improved this quarter and in the quarter, which is really encouraging and the other thing I would say is that.

Speaker Change: You know that what we're seeing from the logo side of things, we're actually seeing decreased logo churn. So customers are choosing to stay with us even if they downgrade seats and I think that you know what what makes us feel really good about that is that those are upsells in future quarters.

Speaker Change: Add ons that we have coming in the second half of the year will help to mitigate some of that pressure.

Speaker Change: Perfect. Thanks, and then my second question is just you talked about some of the levers that you have in the business potentially if we start to see a slowdown in growth from some of the uncertainty out. There you saw you know good upside to operating margins. This quarter. So can you just maybe comment on you know you have the risk last quarter.

Speaker Change: So I think when we think about our NR or as we go forward Q2 to Q4 is likely to be pressured because of this.

Speaker Change: Deal that we've called out and also because of the enterprise trends that and called out but some of the things we're doing on AI studio our multi product approach some of the add ons that we have coming in the second half of the year will help to mitigate some of that pressure.

Speaker Change: How much of the upside that we saw was savings from that versus maybe other sources of cost save me inefficiencies youre seeing in the business and if we do see that scenario of a slowdown maybe you could just talk through some of the potential sources of upside on the margin line.

Speaker Change: Perfect. Thanks, and then my second question is just you talked about some of the levers that you have in the business potentially if we start to see a slowdown in growth from some of the uncertainty out. There you saw you know good upside to operating margins. This quarter. So can you just maybe comment on you have the RIF last quarter.

Speaker Change: Sure. So thanks, we were really proud of what we've done on on both the operating margin and free cash flow margin side of the business.

Speaker Change: <unk> thousand 800 basis points year over year improvement and those cost actions that you referred to that we took at the end of last year. They were factored into the guidance and of course the ramp throughout the year. So they help to drive that quarter over quarter or sequential margin expansion story and that.

Speaker Change: How much of the upside that we saw was savings from that versus maybe other sources of cost savings and efficiencies you're seeing in the business and if we do see that scenario of a slowdown maybe you could just talk through some of the potential sources of upside on the margin line.

Speaker Change: That's from actions we've already taken so you get that that margin expansion without doing anything incremental and we've guided to at least 5% implying that there was upside at the time and now of course today, we raised that guy to at least five 5%.

Speaker Change: Sure. So thanks, we were really proud of what we've done on on both the operating margin and free cash flow margin side of the business.

Speaker Change: 1300 basis points year over year improvement and those cost actions that you referred to that we took at the end of last year. They were factored into the guidance and of course the ramp throughout the year. So they help to drive that quarter over quarter or sequential margin expansion story and not.

Speaker Change: And you know there will be a continued focus from Dustin and myself and the entire team around driving efficiency and looking for incremental savings opportunities. When you ask about specific areas. We think that there's more leverage we can drive from increased productivity around our go to market and marketing spend and then.

Speaker Change: That's from actions we've already taken so you get that that margin expansion without doing anything incremental and we've guided to at least 5% implying that there was upside at the time and now of course today, we raised that guy to at least five 5%.

Speaker Change: Additional work on vendor rationalization and you've heard us talk about the geographic mix of our work force and we do that actually via attrition for the most part and you know we feel that over time.

Speaker Change: We can get much closer to where industry benchmarks are for a company of our our size and scale and growth profile. So there's a lot more to go here, we're super happy with the progress we're making we've made and you should consider a margin expansion on a multi quarter and multiyear basis to continue.

Speaker Change: And you know there will be a continued focus from Dustin and myself and the entire team around driving efficiency and looking for incremental savings opportunities. When you ask about specific areas. We think that there's more leverage we can drive from increased productivity around our go to market and marketing spend and then.

Speaker Change: Additional work on vendor rationalization and you've heard us talk about the geographic mix of our work force and we do that actually via attrition for the most part.

Speaker Change: Thank you.

Speaker Change: Our next question.

Speaker Change: Come from the line of Lucky Schreiner of D. A Davidson. Please go ahead lucky.

Speaker Change: Great. Thanks for taking my question just one from me it was interesting to hear about the leading HR company.

Speaker Change: And you know we feel that over time.

Speaker Change: We can get much closer to where industry benchmarks are for a company of our size and scale and growth profile. So there's a lot more to go here, we're super happy with the progress we're making we've made and you should consider a margin expansion on a multi quarter and multiyear basis to continue.

Speaker Change: Initially planning to reduce seats, but after AI studio expanded their plan, maybe taking that a step further how do you view consolidation trending in the wealth management space you're in.

Speaker Change: Does AI studio act as a potential catalyst for larger customers to consolidate onto a sona. Thanks, Yeah Lucky. Thank you for that question I think what we're seeing is we certainly feel like there's a couple of opportunities for consolidation. One is even just point solutions. So.

Speaker Change: Thank you.

Speaker Change: Our next question.

Speaker Change: Come from the line of Lucky Schreiner of D. A Davidson. Please go ahead lucky.

Lucky Schreiner: Great. Thanks for taking my question just one from me it was interesting to hear about the leading HR company.

Speaker Change: Having workflows all on us on other things as straightforward as translation and localization workflows that might be being done by customers with point solutions right. Now that are very easy to move onto Sona and so those point solutions that might do you know basic intake flows or even ticketing.

Lucky Schreiner: Initially planning to reduce seats, but after ai's studio expanded their plan, maybe taking that a step further how do you view consolidation trending in the wealth management space you're in.

Speaker Change: Does AI studio act as a potential catalyst for larger customers to consolidate onto a sona. Thanks, Yeah Lucky. Thank you for that question I think what we're seeing is we certainly feel like there's a couple of opportunities for consolidation. One is even just point solutions. So.

Speaker Change: The benefit of consolidating onto Hassan it is one the reliability of the data that customers are working with the context on which team, which department, which task, which portfolios all of that is in a sauna plus all the benefits that have always been on the phone, which is cross team collaboration. So we're certainly seeing that.

Speaker Change: By having workflows all on us on other things as straightforward as translation and localization workflows that might be being done by customers with point solutions right. Now that are very easy to move onto Sona and so those point solutions that might do you know basic intake flows or even ticketing.

Speaker Change: And then I think your question around consolidation of work management again, I think the benefit of everybody working on the same platform as well as our ability to give customers. The choice on which models I think has been really powerful and differentiated and the transparency on how the Ai's Judy.

Speaker Change: The benefit of consolidating on to Sarnia is one the reliability of the data that customers are working with the context on which team, which department, which task, which portfolios all of that is in a sauna plus all the benefits that have always been on the phone, which is cross team collaboration. So we're certainly seeing that.

Speaker Change: Workflows are working behind the scenes. So we certainly look for more consolidation opportunities, but we're already starting to see those point solutions be replaced by workflows onto Sona.

Speaker Change: Makes sense. Thanks.

Speaker Change: And then I think your question around consolidation of work management again, I think the benefit of everybody working on the same platform as well as our ability to give customers. The choice on which models I think has been really powerful and differentiated and the transparency on how the AI.

Speaker Change: Thank you. Our next question comes from the line of Patrick Wall Ravens of citizens Bank. Please go ahead Patrick.

Speaker Change: Oh, great. Thank you.

Speaker Change: Hey, Justin I want to take the conversation up levels, it's all right with you.

Speaker Change: I would love to hear your thoughts on the future of work for young humans.

Speaker Change: Workflows are working behind the scenes. So we certainly look for more consolidation opportunities, but we're already starting to see those point solutions be replaced by workflows onto Sona.

Speaker Change: So.

Speaker Change: We all know the last week diode anthropic made the comment about up to 50% of entry level white collar jobs, maybe being eliminated.

Speaker Change: And unemployment spiking.

Speaker Change: Makes sense. Thanks.

Speaker Change: I know you give these matters a lot of thoughts I'd love to hear your perspective sort of at a high level you know for our society, and then maybe where sana might have a role to play.

Speaker Change: Thank you. Our next question comes from the line of Patrick Wall Ravens of citizens Bank. Please go ahead Patrick.

Speaker Change: Oh, great. Thank you.

Speaker Change: Yeah. Thanks.

Speaker Change: Hey, Justin I want to take the conversation up levels, it's all right with you.

Speaker Change: Great question, you know I think my perspective is mainly just that are you know AI is real and we're not really prepared for it and I think that that was mostly with daria was going for as he's trying to as I'm trying to solve the problem from from his seat as the CEO and one company, but trying to get the attention of society and get.

Speaker Change: Would love to hear your thoughts on the future of work for young humans.

Speaker Change: So.

Speaker Change: We all know the last week diode anthropic made the comment about up to 50% of entry level white collar jobs, maybe being eliminated.

Speaker Change: And unemployment spiking.

Speaker Change: The attention of government on it.

Speaker Change: And you know personally I think part of that equation will need to be some some redistribution of wealth, which is not very conducive to the current political environment, but I think that would be the ideal kind of solution because I think it will be very very tough to transition. The entire working population are into a new way of working and in a lot of cases.

Speaker Change: I know you give these matters a lot of thoughts I'd love to hear your perspective sort of at a high level you know for our society, and then maybe where sana might have a role to play.

Speaker Change: Yeah. Thanks.

Speaker Change: Great question.

Speaker Change: My perspective is mainly just that are you know AI is real and we're not really prepared for it and I think that that was mostly with daria was going for as he's trying to as I'm trying to solve the problem from from his seat as the CEO and one company, but trying to get the attention of society and get the attention of government on it.

Speaker Change: Is it it won't make the most economic sense. So I think the the real solution. We need there is higher level than what individuals' can do the best advice I have heard for individuals and for young people I. It was either on the Dorcas podcasts are on hard work, but I'm wondering one of the gas was saying you know think think think more.

Speaker Change: And you know personally I think part of that equation will need to be some some redistribution of wealth, which is not very conducive to the current political environment, but I I think that would be the ideal kind of solution because I think it will be very very tough to transition. The entire working population are into a new way of working and in a lot of cases.

Speaker Change: About what you would want to.

Speaker Change: Doing the world without paying as much attention to how hard it is to build because maybe that part will be easy later.

Speaker Change: And so more focus on the skills that are less around you know business management and building a company and more around you know whatever the specialty is that that you want to go into that that made some sense to me, but I don't pretend to have all the answers to my pocket on this one I think it's a really big issue I think change what happened faster than most people believe and and I agree with.

Speaker Change: Is it it won't make the most economic sense. So I think the the real solution. We need there is higher level than what individuals' can do the best advice I have heard for individuals and for young people.

Speaker Change: Daria that we shouldn't sugarcoat it I think it will be difficult and I hope that Astana has a role to play in making it as smooth as possible for organizations and for employees, making it easy to use these new tools and have them be a companion you know at least for the the time before you know there there's massive jobs.

Speaker Change: Either on the Dorcas podcasts are on hard work, but I'm wondering one of the gas was saying.

Speaker Change: You know think think think more about what you would want to.

Speaker Change: Doing the world without paying as much attention to how hard it is to build because maybe that part will be easy later.

Speaker Change: And so more focus on the skills that are less around you know business management and building a company and more round you know whatever the specialty is that that you want to go into that that made some sense to me, but I don't pretend to have all the answers. So my pocket on this one I think it's a really big issue I think change will happen faster than most people believe and and I agree with that.

Speaker Change: Displacement you know I think it will be an enhancement and will make people's lives easier and we'll just get people more leverage in the work and we can be part of that we can be part of making it safe we can be part of making it secure and we can help organizations get from here to radically different future.

Dustin: Thank you Dustin.

Speaker Change: Daria that we shouldn't sugarcoat it I think it will be difficult.

Speaker Change: And I hope that Osama has a role to play in making it as smooth as possible for organizations and for employees, making it easy to use these new tools and have them be a companion you know at least for the the time before you know there there's massive job displacement Ah I think it will be an enhancement and will make people.

Eva Lung: Thank you I would now like to turn the conference back to Eva lung for closing remarks Madam.

Speaker Change: Thank you for joining our call today, if you have any questions feel free to call or email me will be on the ROE at Bofa Conference Tomorrow, and Bear conference on Thursday, and D. A Davidson next week looking forward to see you there. Thank you.

Speaker Change: It's easier and we'll just get people more leverage in their work and we can be part of that we can be part of making it safe we can be part of making it secure and we can help organizations get from here to radically different future.

Eva Lung: This concludes today's conference call. Thank you for participating you may now disconnect.

Dustin: Thank you Dustin.

Speaker Change: Yes.

Speaker Change: Thank you I would now like to turn the conference back to Eva lung for closing remarks Madam.

Speaker Change: Thank you for joining our call today, if you have any questions feel free to call or email me will be on the ROE at Bofa Conference Tomorrow, and Bear conference on Thursday, and D. A Davidson next week looking forward to see you there. Thank you.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

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Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

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Speaker Change: Thank you for standing by and welcome to <unk> first first quarter and fiscal year 2026 earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star.

Speaker Change: One one on your telephone.

Speaker Change: Move yourself from the queue you May press star, one what and again I would now like to hand, the call over to Eva lung head of Investor Relations. Please go ahead.

Eva Lung: Good afternoon, and thank you for joining us on today's conference call to discuss the financial results for us on our first quarter fiscal year 2026 with me on today's call are Duffy Moskovitz, Osama cofounder and CEO and Remondi, our chief operating officer, and head of business and suddenly Prereq our chief.

Prereq: Financial Officer.

Eva Lung: Today's call will include forward looking statements, including statements regarding expected relief and benefits of our product offerings, including AI studio and our expectation for revenue to be generated by AI studio, our retention expansion opportunities our expectation for all financial outlook, including.

Eva Lung: Leading our revised full year guidance strategic plans, and our market position and growth opportunities and our capital allocation strategy, including our stock repurchase programs.

Eva Lung: Forward looking statements involve risks uncertainties and assumptions that may cause our actual results to be materially different from those expressed in 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.

Eva Lung: For additional information on risks uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements.

Eva Lung: In addition joined today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP.

Eva Lung: Reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitation of using non-GAAP measures versus their closest GAAP equivalents are available in our earnings release, which is posted on our Investor Relations website at Investor thought assign on dot com and with that I'd like to turn the call over to.

Eva Lung: Dustin.

Dustin: Thank you all for joining us on the call today.

Dustin: Q1 was a milestone quarter, we achieved non-GAAP profitability for the first time, an AI studio, which reached general availability in Q1 surpassed $1 million and they are demonstrating powerful early momentum.

Dustin: This progress fuels, our journey to sustained profitable growth and positions <unk> as the definitive platform for humans and AI and coordination.

Dustin: In Q1 total revenues were up 9% year over year exceeding the top end of our guidance.

Dustin: non-GAAP operating margins improved more than 300 basis points year over year from an operating loss margin of 9% to an operating income margin of 4%.

Dustin: A significant milestone for the company as we reached non-GAAP profitability for the first time.

Dustin: Adjusted free cash flow margin also improved more than 700 basis points year over year with free cash flow margin at 5% for the quarter.

Dustin: Once again, our non tech verticals grew faster than overall growth for the quarter and grew mid teens year over year.

Dustin: Some of our fastest growing verticals this quarter included manufacturing and energy media and entertainment and financial services.

Dustin: We continue to make progress in our enterprise customer acquisition.

Dustin: $1000 and over customers grew 20% year over year consistent with last quarter.

Dustin: A landmark achievement last month was closing the largest deal in <unk> history with one of the largest employers in the world.

Dustin: This three year 100 million dollar plus contract renewal is a testament to <unk> unique ability to power complex cross functional execution and an enterprise scale.

Dustin: The growth within this customer showcases a powerful combination of organic adoption and intentional expansion driven by our close partnership with the enterprise engineering teams to demonstrate ongoing value.

Dustin: After a rigorous evaluation autonomous selected as it's company wide standard for project task work and Golar management, making us on our foundational to how they pan track and execute their most critical work.

Dustin: Now, let's turn to AI studio.

Dustin: We've seen tremendous momentum since our Q4 update driven by customers recognizing the tangible value AI studio delivers in solving real business problems we have.

Dustin: Already crossed $1 million in AI studio <unk> and are entering Q2, with a robust and rapidly growing pipeline.

Dustin: The interest is truly global with strong traction across all our major geographies, we're even seeing instances where AI studio is.

Dustin: As exceeding seat based <unk>.

Dustin: This highlights our few users leveraging AI studio can drive outsized value and it underscores our conviction that AI studio has the potential to not only eclipsed the revenue scale based licenses overtime, but also to reduce our overall reliance on per seat monetization.

Dustin: The cross vertical interest is also exciting with notable customer wins across manufacturing retail technology financial services, and health care, demonstrating strong and widespread demand.

Dustin: What's most encouraging about AI studios momentum isn't the initial sales it's the everyday usage, we're seeing because the product is embedded directly into workflows teams rely on automation happens where the work happens that makes it AI studio inherently sticky avoiding the shelf where fate of many hyped AI tools that we've been separate apps or chat bots and ended up underutilized.

Dustin: Our customers choose AI studio for three key reasons.

Dustin: First it's built natively into a sauna, eliminating the need for behavior or workflow change.

Dustin: Second it's human in the loop controls are built on familiar Sona features approvals work assignments comments and audit trails, keeping people firmly in charge of every AI step.

Dustin: Third it runs on our work RAF are continuously updating data store of every project task goal in conversation.

Dustin: Deep structured context, let's AI handle longer more complex workflows and enables true human AI coordination.

Dustin: Something point solution agents simply can't match.

Dustin: This real world impact is evident with Woolworths, one of Australia's largest supermarket chain with over 1000 stores.

Dustin: They've implemented AI studio to transform their safety in capital governance process for store changes.

Dustin: Previously relying on inconsistent slide decks and meetings with up to 60 attendees.

Dustin: We've built a smart workflow with AI studio that analyzes submissions identifies required approvals and automatically routes request with all relevant context.

Dustin: This acceleration in decision, making allows woolworths to implement strategic store improvements faster, while maintaining rigorous safety and compliance standards.

Dustin: This kind of targeted automation showcases how our AI capabilities drive both immediate ROI and deeper adoption within enterprise customers.

Dustin: We've also secured our first AI studio deal in India for our popular bakery chain.

Dustin: Working with a local partner we've developed an AI studio solution to prevent fuel theft across their fleet of dozens of vehicles, a common challenge in that market.

Dustin: Using a simple form to upload youll receipts AI studio automatically extracts amongst fuel data, creating a complete audit trail, while eliminating manual entry.

Dustin: This is given managers real time visibility into fleet expenses and improved coordination between drivers and finance teams.

Dustin: The solution is now fully embedded in their daily operations, delivering measurable efficiency gains within weeks of implementation.

Dustin: AI studios designed specifically for human AI coordination, enabling people to move work forward, when and where they are needed.

Dustin: Standalone agent models can only succeed when they are capable of automating entire workflows, ironically relegating them to narrow use cases.

Dustin: In contrast, we focus on augmenting human capabilities at key points in the process.

Dustin: Housing inbound requests drafting briefs extracting unstructured data running deep research, we're crunching complex analyses, while teams keep full visibility and control.

Dustin: Don't replacing an expertise we amplify it in a predictable way freeing people to focus on higher impact work.

Dustin: The result work moves faster customers are cutting response times from days to hours and eliminating slow meeting driven processes altogether delivering immediate measurable productivity gains that compound over time.

Dustin: We are just at the beginning of a long term opportunity with AI studio our initial offering in a broader AI strategy with AI studio. Our focus has been on empowering customers and want to build their own AI powered workflows automating steps in taking on repetitive work within clearly defined and control processes.

Dustin: Realizing the full transformative potential of AI studio and Britt to truly become a major growth driver depends significantly on broader adoption across our customer base.

Dustin: That and to accelerate the uptake of AI and AI studio for launching several key initiatives.

Dustin: Last month at our work innovation summit event in Sydney, We launched the smart workflow Gallery, a suite of prebuilt AI powered workflows designed to help organizations scale the use of AI in everyday workflows.

Dustin: On best practices from a wide range of global companies. These smart workflows provide a blueprint for effective human plus AI coordination across marketing and operations.

Dustin: Customers can choose to build from scratch with AI studio or adopt one of these prebuilt workflows to get started immediately.

Dustin: For instance, accretive team could deploy a gallery workflow in minutes to have AI review, new work requests evaluate briefs gather information flagged walkers and prioritize tasks elevating humans out of tedious work, while maintaining oversight.

Dustin: Our smart workflow galleries now live with several key workflow templates for marketing and operations available today.

Dustin: It will be rolling out many more over the coming months.

Dustin: We're also introducing AI studio plus a new mid tier package launching this month through sales and partner channels and later this summer for self serve customers.

Dustin: This strategic addition creates a three tier structure.

Dustin: <unk> plus and <unk>.

Dustin: Each tier offers distinct value.

Dustin: Basic which as of this month will be available as part of all of US on a paid tiers provides AI studio credits with monthly usage caps.

Dustin: Plus gives customers the flexibility to self serve and scale up their usage over time.

Dustin: Pro delivers generous quarterly credit allowances and enterprise grade controls.

Dustin: This tiered approach ensures customers can select the right level of AI capabilities for their specific needs.

Dustin: Our strategy here extends beyond simply broadening access to AI studio.

Dustin: By complementing that with new offerings like foundational service plans and upcoming product add ons such as resource management in Q3, we are systematically enhancing how we deliver value.

Dustin: This approach is designed to improve price value alignment for our customers, which we expect will in turn strengthened net dollar retention.

Dustin: This is consistent with the value based pricing strategy, we've discussed and we see this combination is a powerful engine for significant long term expansion.

Dustin: Looking to <unk> will be introducing new goal oriented agenda collaborators.

Dustin: Rounding out the full spectrum of the AI capabilities inside of China.

Dustin: At the foundation of AI studio is our AI powered workflow automation engine built to automate the repeatable workflows across your business.

Dustin: Smart workflow gallery packages. These best practice automation into prebuilt AI workflows any team can deploy in minutes.

Dustin: AI teammates sit on top is more flexible agents.

Dustin: They keep multi step work moving with minimal guidance leveraging prior context are warcraft and fine grained permissions.

Speaker Change: For instance, our product lead can assign a 19 eight to implement to feature it.

Speaker Change: They can write code using the Quad code API.

Speaker Change: Initiate and participate in review and approval workflows generate and apply fixes in response to feedback merge the update and ask another dedicated AI teammate to get started on customer support material.

Speaker Change: All while posting lifestyle us updates and Hassan I'm showing its progress.

Dustin: By evolving these capabilities into persistent co worker, we deepened human AI coordination and unlock usage based revenue streams beyond seat licenses further strengthening our leadership in AI powered work management.

Dustin: We're fundamentally repositioning us on them as the platform for human and AI coordination, marking a powerful new chapter in our company narrative.

Dustin: AI becomes integral to how work gets done the need for a system that coordinates work between people and AI at scale is paramount.

Dustin: This is more than just a technological shift it's a redefinition of teamwork itself we.

Dustin: <unk> is uniquely equipped to lead this charge a warcraft adder model provides the central structured context, the map of an organization's work goals and processes that AI needs to be truly effective in a collaborative environment.

Dustin: This combined with our deep expertise in fostering human coordination allows us to build AI solutions that don't just automate tasks and enhanced clarity alignment and accountability across entire organizations.

Dustin: This is the generational opportunity we're seizing.

Dustin: To define the future of how humans and AI achieve great things together.

Dustin: As we look to the future in regards to the CEO search we're seeing strong interest in considering candidates carefully.

Dustin: We'll be patient to find the absolute right leader to guide us through this next phase of growth.

Dustin: I'm fully committed to driving our strategy as CEO until my successor is in place.

Dustin: And I'm incredibly excited to partner with our future CEO on our product and AI strategy as we work together to establish us as the leader in this generational opportunity.

Dustin: Our key priorities for fiscal year 'twenty six are centered on setting us up for long term profitable growth.

Dustin: These include driving customer health accelerating customer acquisition, and delivering increasingly customer value through product innovation, particularly with AI.

Dustin: And with that context, let me turn it over to Ann to discuss our go to market momentum key initiatives and customer wins.

Ann: Thanks, Dustin the strategic investments, we've made along with the reallocation of resources towards higher leverage areas are driving incremental impact we continue to make progress in scaling our enterprise motion.

Ann: <unk> customer net adds from the 100, K plus cohorts grew 20% year over year famous last quarter.

Ann: Our strategic multi year renewal with one of the largest employers in the world is a testament to our differentiation in the enterprise as the collaborative work management platform best positioned to work at global Enterprise scale.

Ann: With hundreds of thousands of active users teams are driving material impact across functions, which have translated into significant labor cost savings by eliminating manual work and.

Ann: And meaningful improvement in employee productivity.

Ann: Powered by our <unk> aircraft Masonic Nx gold workflows and data across silos, while our enterprise grade accelerates execution by automating processes and surfacing real time insights at scale.

Ann: International markets remain a key strength for our business driven by growing global demand for our platform, especially in EMEA and Japan as organizations worldwide recognize the value of Astana in improving coordination and driving productivity.

Ann: National revenue grew 11% year over year.

Ann: To date, we haven't seen a material change in the demand environment and any of our segments or regions as compared to the last couple quarters.

Ann: However, we are beginning to see some increased buyer scrutiny and elongation and decisions related to broader consolidation where software stack transformation efforts.

Ann: That said the pipeline remains healthy we're seeing strong demand generated across our diverse pipeline generation channels, where initial investments, including our optimization of paid media are driving greater leverage.

Ann: Let me discuss the progress on our three strategic growth priorities customer acquisition customer health and customer value.

Ann: First customer acquisition, new business remains strong and our investment in vertically focused go to market team and driving adoption of vertical specific product use cases, as a resulting in strong growth in our non tech verticals, which grew once again in the mid teen accounting for over 70% of our business.

Ann: We're seeing particular strength in financial services manufacturing and media and entertainment.

Ann: Customer examples in our strategic verticals I want to highlight our <unk>, which is a diversified real estate company specializing in multifamily residential communities across the United States.

Ann: Expanded their use of <unk> in a three year deal.

Ann: Hassan I will enable their nationally dispersed workforce to more efficiently manage projects and streamline workflows for property setup maximize throughput and reduce time to market.

Ann: Additionally, they have invested in ask Judy to optimize and automate various menial tasks further enhancing operational efficiency.

Ann: We had a great expansion deal in financial services, one of the largest credit unions in the world deepened, Arizona partnership and a three year expansion deal.

Ann: The organization is using us on it in their core workflows across the real estate lending and contact center operations.

Ann: Most importantly, after careful evaluation the procurement team classified as essential software that provides unique value for its cost theyre competitive analysis and ROI assessment showed that Astana effectively addresses their specific needs that no. Other solution can match, making us worth maintaining in their software.

Ann: Yeah.

Ann: While tech continues to drag on our overall growth we saw another quarter of stabilization of <unk> in this vertical and strong demand for <unk> from technology customers.

Ann: Expanding our presence with the channel is a key growth in NII expansion driver.

Ann: Since the relaunch of our partner program in March we're making great progress with the channel deals with partners attached have exceeded our expectations and grew double digits year over year.

Ann: Our top five deals this quarter three were partner led.

Ann: We saw especially good traction in APAC and EMEA, almost 40% of our APAC deals have partners attached and we're seeing great digital transformation deals brought forth by our partners.

Ann: Partners are critical to our growth and scaling of AI studio and they also see it as a meaningful growth opportunity.

Ann: They have certified partners selling and supporting as studio.

Ann: Moving to customer health, we've put renewed focus on addressing churn and downgrades, particularly with small monthly customers, which represent a disproportionate share of overall churn.

Ann: We have a new chief customer officer in place to lead our retention efforts across segments, bringing greater executive focus and accountability to customer retention.

Hansen: Hansen early lifecycle engagement with targeted onboarding to accelerate early engagement and tailored interventions based on churn risks.

Ann: In the Midmarket and enterprise, we're driving earlier detection through how scoring strengthening renewal planning and aligning teams more tightly around at risk accounts, while still early these initiatives are showing encouraging traction and are central to our strategy to improve gross retention and NRI in the long term.

Ann: In addition, we launched foundational service plans in early Q1, as a strategic initiative to boost customer health and retention, while unlocking an additional monetization opportunity.

Ann: The initiative has already proven highly successful in its first quarter exceeding expectations with strong attachment rates, especially for new business and generating over seven figures and new business revenue.

Ann: We remain focused on aligning price to customer value. This is a key focus of our add on strategy in AI studio.

Ann: In Q1, we exceeded our internal plan with over $1 million in bookings with strong traction across EMEA AP, Jay and our first wins in Australia and India.

Ann: The majority of ask Judy bookings came from existing customers. While the initial success is primarily centered on new business acquisition and expansion opportunities ask Julia is becoming important lever to mitigate downgrades in renewal conversations a leading HR software companies CIO initially plan to reduce seats due to budget.

Ann: <unk>.

Ann: After showing the CIO the value of a studio multiple teams, including creative ops HR N PMO decided to adopt AI studio the customer not only maintain their existing plan, but expanded with <unk> studio turning potential churn integral.

Ann: As customers begin to pare AI studio with our new Smart workflow Gallery Theyre scaling these use cases faster and with less friction opening up the potential for adoption of <unk> across our base not just those who build automation and custom workflows.

Ann: With broader availability of <unk> coming in Q3 via our self surplus tier and on by default provisioning, we're positioned to scale as Julio even faster in the second half of fiscal year 'twenty six to both new customers and our existing customer base.

Ann: Our team is focused on our strategic priorities and growth initiatives that are centered around the customer and believe these priorities position us well for long term growth Reacceleration and now I'll turn it over to Donnelley.

Donnelley: Thanks, and let me highlight the financial results for the first quarter and then comment more on the outlook.

Donnelley: Q1 revenues came in at $187 3 million up 9% year over year, which exceeded the midpoint of our guidance by 1%.

Donnelley: We have 24297 core customers, our customer spending $5000 or more on an annualized basis.

Ann: Revenues from core customers grew 10% year over year.

Ann: This cohort represented 75% of our revenues in Q1.

Ann: We have 728 customers spending $100000 or more on an annualized basis and this customer cohort grew at 20% year over year.

Ann: As a reminder, we define these customer cohorts based on annualized GAAP revenues in a given quarter.

Ann: Our overall dollar based net retention rate was 95%.

Ann: Core customer NR was 96%.

Ann: And among customer spending $100000 or more.

Ann: <unk> was 95%.

Ann: As a reminder, our NR is a trailing four quarter average and therefore, a lagging indicator of more recent trends.

Ann: Our in quarter NR was stable and we saw improvement in logo churn across all cohorts.

Ann: However, while our in quarter NR was stable for the third consecutive quarter, we expect net retention in Q2 to be pressured.

Ann: This is due to a combination of continued downgrade pressure, particularly in our enterprise and middle market segments and the technology vertical.

Ann: While our $100 million plus renewal, which we highlighted in our earnings today materially increases our remaining performance obligations, providing greater visibility into fiscal year 2007 and fiscal year 2008.

Ann: It represents a modest ACB downgrade as compared to our prior contract.

Ann: This will negatively weigh on our Q2 and IRR.

Ann: Especially in our $100000 cohort.

Ann: As well as impacting the stability, we have experienced over the past couple of quarters and our tech vertical.

Ann: We are confident in long term NR improvement given the investments we've made in our customer success teams.

Ann: Our studio and add on strategy.

Ann: Work to better align price to value and focus on improving customer health.

Ann: However in the near term.

Ann: <unk> will remain a headwind which results in strong new business momentum and scaling contribution from add ons in the channel.

Ann: Less prominently reflected in our overall revenue growth.

Ann: Now moving to profitability, where I will be discussing our non-GAAP results.

Ann: We continue to be extremely focused on driving efficiency and productivity throughout our business maximizing the operating leverage we enjoy from our strong gross margin, which held steady at approximately 19%.

Ann: We expect to maintain these levels of gross margin in fiscal year 2006, while expanding sequential operating margin as we continue to scale.

Ann: R&D expenses were $48 9 million or 26% of revenue.

Ann: Down 11% year over year.

Ann: Sales and marketing expenses were $83 7 million or 45% of revenue down five 5% year over year.

Ann: G&A expenses were $27 7 million or 15% of revenue up two 2% year over year.

Ann: As a result of driving productivity and efficiency gains we had a positive operating income quarter for the first time in our company's history, delivering a 4% margin or $8 1 million of operating income, which represents an operating margin of 300 basis points above the midpoint of our guide.

Ann: And a more than 1300 basis point improvement year over year.

Ann: Net income was 12 million or five cents a share.

Ann: Our profitability improvement was driven by <unk>.

Ann: <unk> and reallocating program spend, particularly in marketing and lead generation to meet our ROI thresholds without sacrificing pipeline and pipeline coverage.

Ann: Reallocating resources to more productive go to market motions.

Ann: Driving down infrastructure costs by optimizing our cloud spend.

Ann: Exercising discipline around all discretionary spend and shifting certain hiring and Doc failing to more cost effective regions like Warsaw, and reykjavik to optimize our onshore offshore mix and to better align with industry benchmarks.

Ann: Our continued focus on efficiency and productivity lays a strong foundation for continued operating leverage and multi year margin expansion.

Ann: Moving onto the balance sheet and cash flow.

Ann: Cash and cash equivalents and marketable securities at the end of Q1 were approximately $478 million.

Ann: Our deferred revenue remaining performance obligations or RP O and current RVO or CRP Oh were impacted by the timing of the 100 million plus renewal, which typically is billed in Q1.

Ann: That was renewed in and will be billed in Q2 going forward.

Ann: Given that significant impact we will also be providing those measures as adjusted for the large renewal.

Ann: Our <unk> was $427 million up 11% from the year ago quarter and adjusted for deal impact would have been approximately $521 million up 37% year over year.

Ann: <unk> will be recognized over the next 12 months and was 83% of RPM.

Ann: And grew 7% from the year ago quarter.

Ann: <unk> adjusted for the deal timing would have been 73% of RPM up 17% year over year.

Ann: Our total ending Q1 deferred revenue was $293 million down 2% year over year and adjusted for deal timing would have been approximately $323 7 million up 9% year over year.

Ann: Building on our operating margin strength Q1, adjusted free cash flow was $9 9 million or 5% on a margin basis, an improvement of more than 700 basis points.

Ann: We continue to take a disciplined approach to capital allocation.

Ann: Given our strong balance sheet positive free cash flow and confidence in our long term strategy. We believe share repurchases are an effective way to return value to shareholders, while offsetting dilution.

Ann: This quarter, we bought back $15 $6 million of our class a common stock at an average price of $15 <unk> or.

Ann: Or 1 million shares.

Ann: In May our board increased our share repurchase authorization by $100 million and removed the program's previous exploration date.

Ann: As of April 30th we had $56 million remaining under the prior authorization.

Ann: Presenting a total of $156 million available to us for repurchases moving forward.

Ann: Now moving to guidance for.

Ann: For Q2 fiscal 2026, we expect.

Ann: Revenues of 192 to 194 million, representing 7% to 8% growth year over year.

Ann: We expect non-GAAP operating income of 8 million to $10 million, representing an operating margin of 4% to 5%.

Ann: And we expect non-GAAP net income per share of <unk> to <unk>.

Ann: Assuming a diluted weighted average shares outstanding of approximately $243 million.

Ann: For the full year, we are updating our revenue guidance to 775 million to $790 million, representing 7% to 9% year over year growth.

Ann: This range reflects two planning scenarios.

Ann: The upper half assumes continued execution within a stable macro consistent with our Q4 review.

Ann: The lower half anticipates elongated sales cycles increased budget scrutiny at a more cautious procurement environment, particularly with tech and enterprise customers.

Ann: We continue to monitor the impact of economic uncertainty on buying and renewal activity.

Ann: As Ed highlighted while we have not seen material change in the demand environment. We are observing early signs of increased buyer scrutiny and downgrade activity, particularly in our enterprise and corporate customer basis.

Ann: While these early signs alone do not change our previous outlook. We do recognize that there is a growing macroeconomic risk and thus are reflecting this risk by expanding our guidance range.

Ann: We are raising our full year non-GAAP operating margin guidance to at least five 5% for the full year up from our prior guidance of at least 5% and continue to expect sequential improvement throughout the year.

Ann: In addition, we expect net income per share of 22.

Ann: Assuming diluted weighted average shares outstanding of approximately $243 million.

Ann: I want to highlight that if the macro environment were to deteriorate. We have multiple levers we can pull which we believe would allow us to preserve profitability at the level of our guide without compromising the investments we have made and are making to drive revenue growth acceleration.

Ann: As we shared last quarter Duston, and I remain focused on executing a long term strategy to drive long term growth acceleration, while meaningfully expanding profitability.

Ann: Defining how humans and AI coordinate work at scale and we see a massive greenfield opportunity ahead of us.

Ann: We believe we have the right strategy in place to capitalize on this opportunity and with that operator, we're ready for questions.

Speaker Change: As a reminder to ask a question you will need to press star one one on your telephone to remove yourself from the queue. You May press Star one one again.

Speaker Change: You will be limited to one question and one follow up to allow everyone the opportunity to participate please.

Ann: Please standby, while we compile the Q&A roster.

Ann: Our first question.

Speaker Change: Comes from the line of Matt Block.

Speaker Change: Bank of America. Please go ahead, Matt.

Matt Block: Great. Thanks for taking the question I wanted to start on AI studio, great to see crossed that $1 million to our IRR threshold does Tim maybe if you could just help us think about the breakdown of that $1 million in IRR.

Matt Block: Does that consist of which types of customers and use cases are driving strong uptake and then maybe walk us through some of the potential upside scenarios for the back half of fiscal 'twenty six.

Speaker Change: Yes. Thanks, that's a great question, so the the $1 million.

Speaker Change: It really represents a great sort of diversity and distribution of customers. We have a good number of examples from every region and across different industries and across the different different segments as well.

Speaker Change: So feel really good about that and this is entirely comprised right now of the AI studio pro platform views.

Speaker Change: So part of the upside in the future will come from potentially getting into the incremental consumption and we are still seeing great patterns over time with customers continuing to use more and more credits month after month and gain confidence in the system as well as seeing the newer cohorts of customers a lot of the customers have joined in the past two months.

Speaker Change: They're starting out faster and consuming more credits off the gate.

Speaker Change: Part of the reason for that is the launch of the smart workflow Gallery.

Speaker Change: Just came out a few weeks ago, but it lets you deploy.

Speaker Change: Both AI studio and if youre not an AI studio you can have it without AI pre built templates and we're seeing where you do have studio turned on that is working as intended we're seeing a lot of those get installed and drive credit usage as well.

Speaker Change: And then two more catalysts that I think provide upside throughout the year, we're launching the the plus SKU, which is going to be a lower priced more affordable SKU.

Speaker Change: Later this week actually for sales to start selling and to become self serve later in the summer.

Speaker Change: That will open us up more to the SMB market and.

Speaker Change: And help customers get started when they need more than what's available in basic and less than what's needed in pro.

Speaker Change: And then also AI teammates, which is a little bit of a new part of the AI roadmap for fiscal year 'twenty six but I think it's going to be a big factor in <unk> and will help a lot more end users get the benefits of AI because it doesn't require building workflows are being getting into the automation builder at all it.

Speaker Change: It really is as easy to use is working with with normal human teammates.

Speaker Change: So we don't know, how well plus and teammates will do but seeing all the right things from what we have in market today and have.

Speaker Change: A lot a lot more that will launch throughout the year.

Speaker Change: Super helpful. Thanks, and just a quick follow up just finally, if I could I wanted to ask about the $100 million contract renewal I believe you mentioned that was the tech vertical but are there any other details you can share about that renewal process, maybe help us think about the change in quantifying the change in ACB there and.

Speaker Change: And then is there anything you can share on how much AI studio is embedded in that renewal.

Speaker Change: Sure absolutely so youre right.

Speaker Change: And our tech vertical that renewal.

Speaker Change: I just want to highlight again it was the largest deal in <unk> history to a $100 million TCE over three years, the renewal slipped out of Q1 and into early Q2, which is why I shared pro forma balance sheet metrics around <unk>.

Speaker Change: And whilst it was a significant expansion in PCB versus the previous contract there was actually a modest downgrade on an ACB basis.

Speaker Change: So that will actually impact.

Speaker Change: And you heard me called this out in the prepared remarks that will impact our overall net retention and particularly from Q2 and as we look across the rest of the year.

Speaker Change: And as you correctly assumed yes, it will weigh on the tech vertical which up to now and over the past couple of quarters had been showing signs of stability.

Speaker Change: So with this multi year deal we feel like it was a trade off we were willing to make in terms of the slight ACB downgrade because we now have much greater visibility into fiscal year 'twenty seven and 28, given the significant increase in RP O that that actually drives.

Speaker Change: In terms of the contribution to AI studio specifically from that renewal, there's nothing factored in.

Speaker Change: In the guide right now.

Speaker Change: That is potential upside.

Speaker Change: But I think it's worth me just handing over to and just to talk a little bit more about that renewal.

Speaker Change: And in the landmark deal and why they chose to work with this honor.

Speaker Change: Thanks, Sally I'm now happy to add more there what we're really excited about is a long term commitment from this leading global enterprise customer it really allows us to deepen our strategic partnership with them and continuing to innovate with this very exceptional company.

Speaker Change: Things that I'm, particularly excited about you know they ran a really rigorous process to choose us.

Speaker Change: And have now a long term commitment I think the other thing that we're really excited about is they use cases across the organization cancer.

Speaker Change: Can serve as inspiration for other enterprise customers. It also shows off our.

Speaker Change: Our strength and scalability security, our vision and compliance at the highest levels. Some of the really diverse business critical use cases across their business units and functions that we're very excited about and continue to expand so everything from the change management and global logistics managing complex.

Speaker Change: Brett flows for new product and new device launches.

Speaker Change: To developing operational benchmarks for process improvement and managing client workflows for their large global accounts team and then altogether. They are also doing cross functional goal setting reporting project and portfolio status update management across several hundred thousand employees. So it's exciting to continue.

Speaker Change: To build this relationship and now as Donnelly said have visibility over the next three years on our ability to deliver value, but then also deliver upside.

Speaker Change: Thank you. Our next question comes from the line of Alan Borkowski of Scotiabank. Please go ahead Alan.

Alan Borkowski: Hey, Thanks, so much for taking the question I want to ask another question on AI studio, but more from an ROI perspective, Dustin that's exciting that youre seeing instances of AI studio <unk> exceeding.

Speaker Change: At the same time, there are many agents that SaaS companies are selling which I would imagine it makes it a bit harder for customers to see the ROI to justify why to pay more for it.

Speaker Change: What are your top learnings, thus far in selling it and update us on your confidence to have a whales that you mentioned last quarter on AI studio that are spending six or seven figures on it by the end of the year.

Speaker Change: Yeah. So there's nothing I'll try and unpack those questions I may need a little bit of clarification.

Speaker Change: Can you say more about the agents were competing with why why do you think they are paying more with this honor.

Speaker Change: Or maybe I'll, just I'll I'll do that in for Jonathan.

Speaker Change: Just like a lot of software companies are trying to monetize AI agents, which I can imagine makes it a little harder for customers to see through that.

Speaker Change: To see through that yeah, I mean, I think that would be the distinction with <unk> is that they're more successful deploying these so I think what you get when you have standalone agents in another system.

Speaker Change: It's partially you need a lot of behavior change, but the bigger issue that I've seen in practice is that you need them to be able to take on and.

Speaker Change: An entire workflow and kind of replace.

Speaker Change: Kind of replace an entire person.

Speaker Change: And because of that you're not as successful as often.

Speaker Change: And so customers are turning to us on out because they see that they can they can take on part of a workflow that can be done by AI and sort of hand back and forth with a human or multiple humans that are on the team and that's what's going to be successful in a lot more areas and as a consequence across more use cases, so a lot of the agents that other vendors are putting out are more specialized especially.

Speaker Change: To support and we can do versions of that but the types of examples that we're giving with with request intake and campaign management and developing assets that diversity of use cases works much more on a on a platform like us.

Speaker Change: That can handle all of that in terms of customers that are paying more than their seat licenses right. Now all of the customers are paying about the same for these pro packages and so that is largely a function of the fact that they don't have many seats, but some of them are still getting enough value out of pro that they are buying this larger package and it's worse, what they're paying for the seats.

Speaker Change: Well I love to see is for that to happen and even bigger accounts.

Speaker Change: To have studio revenue eclipsing, a six or seven figure.

Speaker Change: Existing account I think that will take longer it does take time for the usage the compound, but we are seeing it build and we're getting better at assisting customers customers are getting better at developing it themselves. We're building up this library of great templates with the smart workflow gallery, all of that will just increase that.

Speaker Change: Increase the scale of what we can sell to an individual customer.

Speaker Change: And Oh I see.

Speaker Change: I think it's like pretty likely that we'll have some at the end of the end of the year, but you know I don't have any particular, it's not like we have one in pipeline. So I can't I can't guarantee it but I'm seeing all the right things and.

Speaker Change: So you're all these additional catalysts for how we can get a lot more usage.

Speaker Change: Including teammates could could really change the game, particularly for customers that are already adopted on studio by the time, we launch them. We'll have some that have been using it for two or three quarters and teammates will let them go much further very quickly and.

Speaker Change: I think that'll be a big asset.

Speaker Change: And then finally, one when I haven't even mentioned as we're seeing the emergence of more expensive models like <unk> three and <unk>.

Speaker Change: As we introduced those in the system. It actually gives the customers the ability to spend more credits on the same workflows, if they just want higher quality.

Speaker Change: Awesome, that's really helpful. And then suddenly just a quick follow up for you can you share how youre thinking about.

Speaker Change: Revenue from top customers as part of the updated fiscal 'twenty six guidance and also what you're estimating in terms of impacts from FX versus before.

Speaker Change: Yeah sure. So just firstly on to clarify on Q1 the.

Speaker Change: The impact from FX was actually very minimal.

Speaker Change: It was a couple of hundred thousand dollars, we don't really tend to.

Speaker Change: Call that out, especially if it's not material, but I think a couple of other people had that question. So it was it was very de Minimis.

Speaker Change: In terms of how we're thinking about the tech vertical.

Speaker Change: Obviously, we called out.

Speaker Change: A large renewal bean in the tech vertical so it will continue to have an impact on what we had been seen in in our tech vertical in terms of recovery, but the actual.

Speaker Change: Year over year revenue growth in our tech vertical with fairly stable this quarter as it had been in the last couple of quarters.

Speaker Change: And we don't tend to break out tech versus non tech on a forward basis in terms of how we're guiding but what I would say is that non tech is still growing.

Speaker Change: Which is close to its about between 25 and 30% of our business today is tech and non tech is the rest that's growing in the mid teens and still healthily growing growing in the middle mid teens. So I would say expect apart from that downgrades that we've called out specifically in the renewal the rest of the tech vertical.

Speaker Change: We would expect to be fairly stable.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Steve Enders of Citi. Your question. Please Steve.

Steve Enders: Okay, great. Thanks for taking the questions here I guess I just wanted to maybe follow up on some of the pressure you're seeing in the macro side of it I think you called out downgrades in the enterprise and mid market.

Steve Enders: Remember that in the past it seems like it's primarily centered on the tech side. So I guess I just wanted to stay on as it maybe new pressures that youre seeing in those segments being impacted across other vertical there.

Steve Enders: Maybe clarify what exactly it is that you are seeing within the enterprise and mid market fund right now.

Speaker Change: As David and I'm happy to take that and do.

Speaker Change: I think what we just started to see early it was.

Speaker Change: Some customer budget pressures, there's still some ongoing workforce reductions and then consolidation of tools under centralized <unk>.

Speaker Change: Management.

Speaker Change: Where we saw this in particular was in enterprise in the Americas region, which for US. It has a disproportionate share of Tac, but we're actively working to mitigate a lot of that.

Speaker Change: Turning contraction through all our investments in additional customer success management coverage identifying at risk customers earlier, and introducing our new more flexible pricing and then in particular, I think where we feel like the mitigation is going to come on contraction insurance.

Speaker Change: Is with AI studio and our foundational service plans those really do two things one with AI studio higher value business impacting workflows and adoption and then with the foundational service plan what the customers are really getting is.

Speaker Change: Ongoing onboarding support services and the ability to get value faster, so I think and additional products that they're buying for us. So while we're seeing some of the you know early signs I think we've got things in place to help mitigate it over the long term.

Speaker Change: Okay, Great. That's helpful. And then I guess I just want to clarify on the revenue guide and.

Speaker Change: I guess the lowered the lower end of it and I appreciate some of the commentary around kind of what's been a fan, but I did want to ask on I guess as we think about the lowered aspect of it specifically in that scenario.

Speaker Change: <unk> scrubbed would you say that.

Speaker Change: That scenario is it or maybe kind of what I guess, how much negativity has been assumed on a low end guide.

Speaker Change: So the low end of the guide is definitely.

Speaker Change: Taking into account being much more prudent it reflects not just the trends that and called out just now.

Speaker Change: Around what we're seeing but it actually reflects additional risk and additional macro pressure, which we have not seen yet, but we wanted to provide a guidance range that you know at the high end is reflecting what we see today and then at the low end incorporates where a potential.

Speaker Change: Worsening given there's a there is a lot more uncertainty out there today than when I last guided which was in March.

Speaker Change: With our Q4 earnings so we're comfortable with the range, we provided and we feel like it's you know covers a wide range of outcomes, but certainly the low end factors in a more bearish view on net retention from where we are today and the macro worsening.

Speaker Change: Hopefully that's clear.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Josh Baer from Morgan Stanley.

Speaker Change: Go ahead Josh.

Speaker Change: Great. Thank you for the question if we do make the adjustment on the deferred and pull that into Q1 billings growth was around 5%, which was below the history here. So just wanted to see how Q1.

Speaker Change: Billings really perform versus your internal plan.

Speaker Change: And then the follow up would be just anything to call out as we navigate billings for the rest of the year as far as seasonality or with regard to other renewals or dynamics over the next several quarters.

Speaker Change: Yes, so you'll get an a plus on your math pro forma that's exactly what it was.

Speaker Change: So it was about 5% in Q1, and Q1 is seasonally lower for us than billings growth typically and you'll even see that in the trends last year.

Speaker Change: And that's because of the timing of our multi year deal renewals.

Speaker Change: And they tend to accelerate into the second half of the year.

Speaker Change: And given the downward pressure that we're seeing in that and called out an enterprise, which tend to be annual or multi year deals and upfront billing that ways our billings naturally.

Speaker Change: But what I would say is on the other side on the flip side, we're continuing to see strength in our MSP business, which is offsetting some of that pressure.

Speaker Change:

Speaker Change: And if you think about full year billings it should be in line with our guided revenue growth range.

Speaker Change: Okay, Great that's helpful and I'm just wondering.

Speaker Change: You mentioned certainly you mentioned a trade off with regard to the large deal.

Speaker Change: I didn't like thinking about volume discounting in return for the longer duration on that contract.

Speaker Change: Yeah, So I talked about a modest HCV downgrade.

Speaker Change: So what we do.

Speaker Change: Get from them annually, but we felt like that was definitely worth the trade off given and talked about the strategic importance of this deal and the other thing is we're in there now or in there for the next three years and there's some.

Speaker Change: Earlier asked a really great question about is AI studio in that deal no. Its not today are fsp's in that deal are not today. So these are all potential areas of upside.

Speaker Change: And you know again, we we would we would do that kind of deal again.

Speaker Change: So yes, it was definitely worth the trade off and.

Speaker Change: It's a long term commitment and we love the visibility it provides for fiscal 'twenty, seven and 28, and we think its a real validation of our leadership position in this category and our ability to scale. They wanted to work with us.

Speaker Change: Yeah, I'll just add on since it sounds I said the magic word we're really excited to announce that today, we were named as one of the just two years in the Forrester Q1 collaborative work management with so I think that that only reinforces that we have a special position in enterprise here.

Speaker Change: Thank you. Our next question comes from the line of Taylor Mcginnis of UBS. Please go ahead Taylor.

Taylor McGinnis: Yeah, Hi, thanks, so much for taking my question I just wanted to press on and there are so it sounds like in period and there are in <unk>.

Speaker Change: In fact, it to come down both from the 100 million renewal coming in on the TV side, and then also an uptick in potential downgrade activity given some of what we're seeing in the macro so sounded like can you just unpack unpack that a little bit more for us like when you think too when you think through those two potential impacts like any way to help us.

Speaker Change: Quantify and think about what the trajectory of NR could look like from here.

Speaker Change: Yeah. So no problem Taylor so in quarter MLR for this quarter was actually stable and the rolling four quarter, which as you know is an average of the trailing last four quarters that actually went down in this current quarter and that was really due to the composition of the cohorts. So Q1 of fiscal 'twenty.

Speaker Change: <unk> actually had a relatively higher MLR, so as that quarter dropped out of the calculation. The average decline, but as we look forward and I think that's what you're more interested in yes.

Speaker Change: Yes. This renewal with this large enterprise tech customer will factor into.

Speaker Change: Or will weigh down on our net retention from Q2 and for the rest of the year.

Speaker Change: And the only thing I would say there is that.

Speaker Change: If you look at our or in quarter $100000, plus cohort of customers that actually improved this quarter and in the quarter, which is really encouraging and the other thing I would say is that you know.

Speaker Change: The what we're seeing from the logo side of things, we're actually seeing decreased logo churn. So customers are choosing to stay with us even if they downgrade seats and I think that you know.

Speaker Change: But what makes us feel really good about that is that those are upsells in future quarters.

Speaker Change: So I think when we think about our NR or as we go forward Q2 to Q4 is likely to be pressured because of this.

Speaker Change: Deal that we've called out and also because of the enterprise trends that and called out but some of the things we're doing on AI studio our multi product approach some of the add ons that we have coming in the second half of the year will help to mitigate some of that pressure.

Speaker Change: Perfect. Thanks, and then my second question is just you talked about some of the levers that you have in the business potentially if we start to see a slowdown in growth from some of the uncertainty out there you saw good upside to operating margins. This quarter. So can you just maybe comment on you have the RIF last quarter.

Speaker Change: <unk>, how much of the upside that we saw was.

Speaker Change: Savings from that versus maybe other sources of cost savings and efficiencies you're seeing in the business and if we do see that scenario of a slowdown maybe you could just talk through some of the potential sources of upside on the margin line.

Speaker Change: Sure. So thanks, we were really proud of what we've done on both the operating margin and free cash flow margin side of the business.

Speaker Change: <unk> hundred basis points year over year improvement.

Speaker Change: And those cost actions that you referred to that we took at the end of last year. They were factored into the guidance and of course the ramp throughout the year. So they help to drive that quarter over quarter or sequential margin expansion story and that's from actions. We've already taken so you get that that margin expansion.

Speaker Change: And without doing anything incremental and we've guided to at least 5%.

Speaker Change: [noise], implying that there was upside at the time and now of course today, we raised that guide to at least five 5% and you know there will be a continued focus from Dustin and myself and the entire team around driving efficiency and looking for incremental savings opportunities. When you ask about specific areas we think.

Speaker Change: There's more leverage we can drive from increased productivity around our go to market and marketing spend and then additional work on vendor rationalization.

Speaker Change: And you've heard us talk about the geographic mix of our work force and we do that actually via attrition for the most part.

Speaker Change: And we feel that over time.

Speaker Change: We can get much closer to where industry benchmarks are for a company of our size and scale and growth profile. So theres a lot more to go here.

Speaker Change: We're super happy with the progress, we're making we've made and you should consider a margin expansion on a multi quarter and multiyear basis to continue.

Speaker Change: Thank you.

Speaker Change: Our next question.

Speaker Change: Comes from the line of Lucky Schreiner of D. A Davidson. Please go ahead lucky.

Lucky Schreiner: Great. Thanks for taking my question just one from me it was interesting to hear about the leading HR company initially planning to reduce seats, but after ai's studio expanded their plan, maybe taking that a step further how do you view consolidation trending in the wealth management space here and.

Lucky Schreiner: Does the AI studio act as a potential catalyst for larger customers to consolidate onto us Donna. Thanks, Yeah Lucky. Thank you for that question I think what we're seeing is we certainly feel like there's a couple of opportunities for consolidation.

Speaker Change: One is even just point solutions, so by having workflows all on us on other things as straightforward as translation and localization workflows that might be being done by customers with point solutions right now that are very easy to move onto Sona and so those point solutions that might do.

Speaker Change: You know basic intake flows or even ticketing the benefit of consolidating on to Sarnia is one the reliability of the data that customers are working with the context on which team, which department, which task, which portfolios all of that is in a sauna plus all the benefits that have always been.

Speaker Change: On the photo which is cross team collaboration so we're certainly seeing that and then I think your question around consolidation of work management again, I think the benefit of everybody working on the same platform as well as our.

Speaker Change: Our ability to give customers the choice on which models I think has been really powerful and differentiated and the transparency on how the AI studio.

Speaker Change: And work flows are working behind the scenes. So we certainly look for more consolidation opportunities, but we're already starting to see those point solutions be replaced by workflows onto Sona.

Speaker Change: Makes sense. Thanks.

Speaker Change: Thank you. Our next question comes from the line of Patrick Wall Ravens of citizens Bank. Please go ahead Patrick.

Speaker Change: Oh, great. Thank you.

Speaker Change: Hey, Justin I want to take the conversation up levels, it's all right with you.

Speaker Change: I would love to hear your thoughts on.

Speaker Change: The future of work for young humans.

Speaker Change: No.

Speaker Change: We all know the last week diode anthropic made the comment about up to 50% of entry level white collar job as maybe being eliminated.

Speaker Change: And unemployment spiking.

Speaker Change: I know you give these matters a lot of thoughts I'd love to hear your perspective sort of high level, you know for our society, and then maybe where somebody have a role to play.

Speaker Change: Yeah. Thanks.

Speaker Change: Great question.

Speaker Change: My perspective is mainly just that.

Speaker Change: AI is real and we're not really prepared for it and I think that that was mostly with Oreo was going forward. As he is trying to is not trying to solve the problem from from his seat as the CEO and one company, but trying to get the attention of society and get the attention of government on it.

Speaker Change: And personally I think part of that equation will need to be some some redistribution of wealth, which is not very conducive to the current political environment, but I think that would be the ideal kind of solution because I think it will be very very tough to transition the entire working population.

Speaker Change: Into a new way of working and in a lot of cases, it won't make the most economic sense. So I think the the real solution. We need there is higher level than what individuals can do the.

Speaker Change: The best advice I have heard for individuals and for young people.

Speaker Change: They're on the darkish podcasts are on hard work, but I'm one of the gas was saying.

Speaker Change: You know think think think more about what you would want to.

Speaker Change: Doing the world without paying as much attention to how hard it is to build because maybe that part will be easy later.

Speaker Change: And so more focus on the skills that are less around you know business management and building a company and more around you know whatever the specialty is that that you want to go into.

Speaker Change: That that made some sense to me, but I don't pretend to have all the answers. So my pocket on this one I think it's a really big issue I think change will happen faster than most people believe.

Speaker Change: And I agree with our target that we shouldn't sugarcoat. It I think it will be difficult and I hope that <unk> has a role to play in making it as smooth as possible for organizations and for employees, making it easy to use these new tools and have them be a companion you know at least for the the time before.

Speaker Change: You know theres massive job displacement.

Speaker Change: It will be an enhancement and will make people's lives easier and we'll just get people more leverage in the work and we can be part of that we can be part of making it safe we can be part of making it secure and we can help organizations get from here to radically different future.

Dustin: Thank you Dustin.

Speaker Change: Thank you I would now like to turn the conference back to Eva lung for closing remarks battle.

Speaker Change: Thank you for joining our call today, if you have any questions feel free to call or email me will be on the ROE at Bofa Conference Tomorrow, and Bear conference on Thursday, and D. A Davidson next week looking forward to seeing you there.

Speaker Change: <unk>.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.