Asana, Inc. quarterly report, Q2 FY2022

Business context and reporting period

Asana, Inc. provides a cloud-based work management platform. This unaudited Form 10-Q covers the quarter and six months ended July 31, 2021 (fiscal 2022 Q2), compared with the corresponding 2020 periods. The company reported more than 107,000 paying customers at quarter-end.

Financial and operating performance

For the quarter, operating expenses were $139.7 million, up 78% year over year: research and development $48.5 million, sales and marketing $63.9 million, and general and administrative $27.3 million. Quarterly stock-based compensation was $20.4 million, compared with $5.4 million a year earlier. Management attributed revenue growth primarily to new customers, a shift toward larger contracts, and expansion among existing customers.

At July 31, 2021, cash and cash equivalents were $270.3 million and marketable securities, including noncurrent investments, were $112.0 million, totaling $382.3 million. The company had $39.3 million outstanding on its secured term loan. It reported an accumulated deficit of $670.5 million. Current assets were $435.2 million and current liabilities were $207.6 million.

Material changes versus the prior comparable period

• Revenue grew substantially, while operating expenses also rose sharply as Asana expanded hiring, product development, and sales and marketing.
• Gross margin improved to 89% from 87%; quarterly GAAP net loss increased to $68.4 million from $41.1 million. The six-month net loss increased to $129.0 million from $76.9 million.
• Operating cash use and company-defined free cash flow use improved year over year for the six-month period, aided in part by a $33.7 million increase in deferred revenue.
• On July 1, the company converted CEO-affiliated trust notes with $450.0 million aggregate principal into 17.0 million Class B shares. The related-party convertible notes were no longer outstanding at quarter-end; the conversion increased paid-in capital and eliminated a significant source of reported interest expense going forward.

Outlook, risks, contingencies, and unusual items

• No specific numerical revenue or earnings guidance is provided in the filing. Management expects continued investment in research and development and sales and marketing, and expects operating expenses to increase in dollar terms. It expects subscription gross margin to remain relatively consistent over the long term.
• Management stated that available cash, cash equivalents, marketable securities, and term-loan availability should be sufficient for working capital and capital expenditure needs for at least 12 months. The company nevertheless reported ongoing losses and negative operating cash flow.
• Remaining performance obligations were $171.1 million; approximately 86% was expected to be recognized as revenue over the next 12 months. Deferred revenue totaled $139.6 million at quarter-end.
• Significant commitments include a five-year AWS hosting contract requiring a minimum $103.5 million of spend, with $90.5 million remaining, and approximately $382.7 million of future minimum payments and capital commitments related to the San Francisco headquarters lease and build-out. The company also had $213.6 million of operating lease liabilities.
• COVID-19 effects remained uncertain. Management cited potential impacts on customer demand, sales cycles, collections, renewals, and customer retention. It reported that overall dollar-based net retention had declined early in the pandemic but increased in the quarter; the rate was over 118%, versus over 115% a year earlier. Retention for customers spending over $5,000 was over 125%; for those spending over $50,000, it was over 145%, versus over 140% a year earlier.
• Principal risks include sustained losses, execution of growth plans, competition, cybersecurity and service availability, dependence on AWS, privacy and regulatory compliance, international operations, and concentrated voting control. Class B shares carry 10 votes per share; the CEO-affiliated trust received the shares issued in the note conversion.
• The company said it was not party to material pending legal proceedings and believed current proceedings would not materially affect its financial position or results. Prior apparent export-control and sanctions violations were addressed through voluntary disclosures; BIS issued a warning letter and OFAC a cautionary letter, with neither pursuing a civil monetary penalty.
• Disclosure controls were deemed effective at a reasonable assurance level, and no material change in internal control over financial reporting was identified during the quarter.

Important facts for investors to verify

• Whether strong revenue growth and customer expansion persist, particularly the reported retention rates and growth in larger-spending customers.
• How operating expense growth, especially stock-based compensation, affects the path to profitability and shareholder dilution.
• Cash use and liquidity after headquarters-related capital spending, lease payments, and AWS commitments.
• The effects of the related-party note conversion on voting control, share count, and future interest expense.
• Whether COVID-19, competition, cybersecurity, privacy regulation, or reliance on AWS materially changes demand, retention, or operating costs.